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 ~~April 30,~~July 31, 2021

☐	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~~ PHARMA-BIO SERV, INC.
~~(State~~ (Exact Name of Registrant as Specified in Its Charter)

Delaware

20-0653570

(State or Other Jurisdiction of

Incorporation or Organization)

~~(IRS~~

(IRS Employer

Identification No.)

Pharma-Bio ~~Serv~~

#Serv# 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~~

(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 (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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ~~June 11,~~September 10, 2021 was 23,029,215.

PHARMA-BIO SERV, INC.

FORM 10-Q

FOR THE QUARTER ENDED ~~APRIL 30,~~JULY 31, 2021

TABLE OF CONTENTS

	Page
PART I FINANCIAL INFORMATION

Item 1 – Financial Statements		1

Condensed Consolidated Balance Sheets as of ~~April 30,~~July 31, 2021 and October 31, 2020 (unaudited)		1

Condensed Consolidated Statements of Operations for the three-month and ~~six-month~~nine-month periods ended ~~April 30,~~July 31, 2021 and 2020 (unaudited)		2

Condensed Consolidated Statements of Comprehensive Income for the three-month and ~~six-month~~nine-month periods ended ~~April 30,~~July 31, 2021 and 2020 (unaudited)		3

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three-month and ~~six-month~~nine-month periods ended ~~April 30,~~July 31, 2021 and 2020 (unaudited)		4

Condensed Consolidated Statements of Cash Flows for the three-month and ~~six-month~~nine-month periods ended ~~April 30,~~July 31, 2021 and 2020 (unaudited)		6

Notes to Condensed Consolidated Financial Statements (unaudited)		7

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations		14

Item 4 – Controls and Procedures		18

PART II OTHER INFORMATION

Item 1 – Legal Proceedings		19

Item 1 A – Risk Factors		19

Item 6 – Exhibits		19

SIGNATURES		20


~~SIGNATURES~~	20

Table of Contents

P~~ART~~

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

PHARMA-BIO SERV, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

ASSETS

April 30,
2021*

October 31,
2020**

Current assets





Cash and cash equivalents
$16,066.487
$17,137,924
Accounts receivable
  10,364,675
  9,727,591
Current portion - promissory note receivable due from sale of assets from discontinued operations
  -
  1,250,000
Prepaids and other assets
  309,573
  468,703
Total current assets
  26,740,735
  28,584,218
Property and equipment, net
  131,766
  217,572
Operating lease right-of-use
  756,139
  846,714
Other assets
  270,303
  270,242
Total assets
$27,898,943
$29,918,746
LIABILITIES AND STOCKHOLDERS’ EQUITY


Current liabilities


Current portion-obligation under finance lease
$-
$11,640
Loans-short term portion
  1,287,800
  1,287,800
Current operating lease liabilities
  169,516
  162,917
Accounts payable and accrued expenses
  1,650,657
  1,938,305
Current portion of US Tax Reform Transition Tax and income taxes payable
  169,760
  392,131
Total current liabilities
  3,277,733
  3,792,793



US Tax Reform Transition Tax payable
  1,850,536
  2,062,024
Loans-long term portion
  643,900
  643,900
Long term portion - obligation under finance lease
  -
  55,439
Long-term operating lease liabilities
  559,873
  629,979
Other liabilities
  17,950
  17,950
Total liabilities
  6,349,992
  7,202,085

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; 23,433,341 and 23,405,753 shares issued, and 23,029,215 and 23,001,627 shares outstanding at April 30, 2021 and October 31, 2020, respectively
  2,343
  2,341
Additional paid-in capital
  1,446,814
  1,423,954
Retained earnings
  20,304,927
  21,523,990
Accumulated other comprehensive income
  189,145
  160,654

  21,943,229
  23,110,939
Treasury stock, at cost; 404,126 common shares held at April 30, 2021 and October 31, 2020, respectively
  (394,278)
  (394,278)
Total stockholders' equity
  21,548,951
  22,716,661
Total liabilities and stockholders' equity
$27,898,943
$29,918,746

	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-~~

-1-

Table of Contents

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of O~~perations~~

Operations

(Unaudited)

Three months ended April 30,

Six months ended April 30,

2021

2020

2021

2020

REVENUES
$5,041,666
$5,647,767
$9,529,975
$10,260,934





COST OF SERVICES
  3,750,794
  3,778,867
  6,923,993
  6,806,142





GROSS PROFIT
  1,290,872
  1,868,900
  2,605,982
  3,454,792





SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
  1,026,093
  1,148,516
  2,022,082
  2,197,649





INCOME FROM OPERATIONS
  264,779
  720,384
  583,900
  1,257,143





OTHER INCOME, NET
  21,090
  48,584
  23,492
  94,020





INCOME BEFORE INCOME TAX
  285,869
  768,968
  607,392
  1,351,163





INCOME TAX EXPENSE
  45,598
  81,407
  99,089
  136,702





NET INCOME
$240,271
$687,561
$508,303
$1,214,461










BASIC AND DILUTED EARNINGS PER COMMON SHARE
$0.010
$0.030
$0.022
$0.053





WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC
  23,029,215
  23,001,627
  23,019,765
  23,002,745





WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED
  23,209,118
  23,029,203
  23,181,347
  23,025,958

	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-~~

-2-

Table of Contents

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Comprehensive I~~ncome~~

Income

(Unaudited)

Three months ended April 30,

Six months ended April 30,

2021

2020

2021
2020
NET INCOME
$240,271
$687,561
$508,303
$1,214,461





OTHER COMPREHENSIVE INCOME (LOSS), NET OF
RECLASSIFICATION ADJUSTMENTS AND TAXES:









Foreign currency translation gain (loss), net of tax
  4,739
  (29,733)
  28,491
  (41,467)





TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
  4,739
  (29,733)
  28,491
  (41,467)





COMPREHENSIVE INCOME
$245,010
$657,828
$536,794
$1,172,994

	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-~~

-3-

Table of Contents

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Changes in Stockholders' E~~quity~~

Equity

(Unaudited)

Accumulated









Additional

Other





FISCAL YEAR 2020

Common Stock

Preferred Stock

Paid-in

Retained

Comprehensive

  Treasury





Shares

Amount

Shares

Amount

Capital

Earnings

Income (Loss)

   Stock

Total

BALANCE AT
NOVEMBER 1, 2019
  23,397,707
$2,340
  -
$-
$1,381,076
$19,473,069
$143,600
$(392,579)
$20,607,506










STOCK-BASED
COMPENSATION
  -
  -
  -
  -
  11,430
  -
  -
  -
  11,430










ISSUANCE OF
COMMON STOCK
PURSUANT TO THE
CASHLESS EXERCISE
OF STOCK OPTIONS
  8,046
  1
  -
  -
  -
  (1)
  -
  -
  -










PURCHASE OF
TREASURY STOCK
(2,300 SHARES)
  -
  -
  -
  -
  -
  -
  -
  (1,699)
  (1,699)










NET INCOME
  -
  -
  -
  -
  -
  526,900
  -
  -
  526,900










OTHER
COMPREHENSIVE LOSS,
NET OF TAX
  -
  -
  -
  -
  -
  -
  (11,734)
  -
  (11,734)










BALANCE AT
JANUARY 31, 2020
  23,405,753
  2,341
  -
  -
  1,392,506
  19,999,968
  131,866
  (394,278)
  21,132,403










STOCK-BASED
COMPENSATION
  -
  -
  -
  -
  11,430
  -
  -
  -
  11,430










NET INCOME
  -
  -
  -
  -
  -
  687,561
  -
  -
  687,561










OTHER
COMPREHENSIVE LOSS,
NET OF TAX
  -
  -
  -
  -
  -
  -
  (29,733)
  -
  (29,733)










BALANCE AT
APRIL 30, 2020
  23,405,753
$2,341
  -
$-
$1,403,936
$20,687,529
$102,133
$(394,278)
$21,801,661

~~-4-~~

														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)~~

(Continued)

(Unaudited)

Accumulated







Additional

Other



FISCAL YEAR 2021

Common Stock

Preferred Stock

Paid-in

Retained

Comprehensive

  Treasury



Shares

Amount

Shares

Amount

Capital

Earnings

Income (Loss)

   Stock

Total

BALANCE AT
NOVEMBER 1, 2020
  23,405,753
$2,341
  -
$-
$1,423,954
$21,523,990
$160,654
$(394,278)
$22,716,661










STOCK-BASED
COMPENSATION
  -
  -
  -
  -
  11,430
  -
  -
  -
  11,430










ISSUANCE OF
COMMON STOCK
PURSUANT TO THE
CASHLESS EXERCISE
OF STOCK OPTIONS
  27,588
  2
  -
  -
  -
  (2)
  -
  -
  -










NET INCOME
  -
  -
  -
  -
  -
  268,032
  -
  -
  268,032










OTHER
COMPREHENSIVE
INCOME, NET OF TAX
  -
  -
  -
  -
  -
  -
  23,752
  -
  23,752










CASH DIVIDEND
($0.075 PER COMMONSHARE AT
RECORD DATE)
  -
  -
  -
  -
  -
  (1,727,364)
  -
  -
  (1,727,364)










BALANCE AT
JANUARY 31, 2021
  23,433,341
  2,343
  -
  -
  1,435,384
  20,064,656
  184,406
  (394,278)
  21,292,511










STOCK-BASED
COMPENSATION
  -
  -
  -
  -
  11,430
  -
  -
  -
  11,430










NET INCOME
  -
  -
  -
  -
  -
  240,271
  -
  -
  240,271










OTHER
COMPREHENSIVE
INCOME, NET OF TAX
  -
  -
  -
  -
  -
  -
  4,739
  -
  4,739










BALANCE AT
APRIL 30, 2021
  23,433,341
$2,343
  -
$-
$1,446,814
$20,304,927
$189,145
$(394,278)
$21,548,951

														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-~~

statements

-5-

Table of Contents

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Cash F~~lows~~

Flows

(Unaudited)

Three months ended April 30,

Six months ended April 30,

2021

2020

2021

2020

CASH FLOWS FROM OPERATING ACTIVITIES:







Net income
$240,271
$687,561
$508,303
$1,214,461
Adjustments to reconcile net income to net cash used in operating activities:




Gain on disposition of property and equipment
  (7,404)
  (4,918)
  (7,404)
  (4,918)
Stock-based compensation
  11,430
  11,430
  22,860
  22,860
Depreciation and amortization
  18,831
  21,579
  40,255
  42,611
Increase in accounts receivable
  (797,930)
  (2,262,929)
  (621,066)
  (1,200,788)
Decrease (increase) in other assets
  113,385
  111,919
  249,851
  (725,524)
Increase (decrease) in liabilities
  (764,001)
  (121,349)
  (790,031)
  609,610
NET CASH USED IN OPERATING ACTIVITIES
  (1,185,418)
  (1,556,707)
  (597,232)
  (41,688)





CASH FLOWS FROM INVESTING ACTIVITIES:




Acquisition of property and equipment
  (2,048)
  (27,548)
  (4,616)
  (38,874)
Proceeds from sale of property and equipment
  57,571
  12,000
  57,571
  12,000
Collection from promissory note receivable
  -
  -
  1,250,000
  -
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
  55,523
  (15,548)
  1,302,955
  (26,874)
CASH FLOWS FROM FINANCING ACTIVITIES:




Proceeds from loans
  -
  1,931,700
  -
  1,931,700
Repurchase of common stock
  -
  -
  -
  (1,699)
Payments on obligations under finance lease
  (64,228)
  (2,739)
  (67,079)
  (5,441)
Cash dividends paid to shareholders
  (1,727,364)
  -
  (1,727,364)
  (1,725,295)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
  (1,791,592)
  1,928,961
  (1,794,443)
  199,265
EFFECT OF EXCHANGE RATE CHANGES ON CASH
  (365)
  (29,461)
  17,283
  (38,880)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
  (2,921,852)
  327,245
  (1,071,437)
  91,823
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
  18,988,339
  15,254,752
  17,137,924
  15,490,174
CASH AND CASH EQUIVALENTS – END OF PERIOD
$16,066,487
$15,581,997
$16,066,487
$15,581,997

SUPPLEMENTAL DISCLOURES OF CASH FLOWS INFORMATION:

Cash paid during the period for:

Income taxes
$507,207
$211,763
$507,207
$211,763
Interest
$552
$988
$1.404
$2,004





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
$433
$-
$4,046
$3,649
Conversion of cashless exercise of options to shares of common stock and shares issued under restricted stock unit agreements
$-
$-
$2
$1
Disposed property and equipment with accumulated depreciation of $35,833 for the three and six months ended April 30, 2021 and $17,913 for the three and six months ended April 30, 2020
$86,000
$24,995
$86,000
$24,995

	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-~~

-6-

Table of Contents

PHARMA-BIO SERV, INC.

Notes To Condensed Consolidated F~~inancial~~Financial Statements

~~April 30,~~

July 31, 2021

(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 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-Spain and Pharma-Brazil are collectively referred to as the “Company.” The Company operates in Puerto Rico, the United States, Europe and Brazil under the name of Pharma-Bio Serv and is engaged in providing technical compliance consulting service.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated balance sheet of the Company as of October 31, 2020 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 ~~six~~nine months ended ~~April 30,~~July 31, 2021 are not necessarily indicative of expected results for the full 2021 fiscal year.

The accompanying financial data as of ~~April 30,~~July 31, 2021, and for the three-month and ~~six-month~~nine-month periods ended ~~April 30,~~July 31, 2021 and 2020 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, 2020.

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.

~~-7-~~

-7-

Table of Contents

Fair Value of Financial Instruments

The carrying value of the Company's financial instruments (excluding obligations under finance 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 finance 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 material contracts (representing approximately 99% of total revenues), 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. 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 ~~account~~balance is determined to be ~~uncollectible.~~uncollectible in full. The effect of using this method approximates that of the allowance method.

However, in the event the Company determines that the collectability of any account receivable reaches a certain uncertainty threshold, the Company will provide an allowance for doubtful account to reduce said balance.

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.

~~-8-~~

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 ~~April 30,~~July 31, 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.

-8-

Table of Contents

Property and Equipment

Owned property and equipment are stated at cost. Vehicles under finance 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 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 finance leases are amortized over the lease term. While expenditures for repairs and maintenance are expensed when incurred. As of ~~April 30,~~July 31, 2021 and October 31, 2020, the accumulated depreciation amounted to ~~$508,836~~$524,094 and $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 onin April 2021. ~~The adoption of the standard resulted in~~Under the operating lease, ~~being included in operating lease~~as of July 31, 2021 and October 31, 2020, the total right-of-use assets ~~current~~were $721,564 and $846,714, respectively. As of July 31, 2021 operating lease liabilities current and ~~long-term~~non-current were approximately $172,957 and $523,960, respectively, while as of October 31, 2020 operating lease liabilities in our condensed consolidated balance sheets. However, the adoption of the standard did not have an impact on the Company’s beginning balance of retained earnings, consolidated statement of operations or statement of cash flows. Finance leases arecurrent 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. As of April 30, 2021 and October 31, 2020, the total right-of-use assets related to the Company’s operating leases were $756,139 and $846,714, respectively, As of April 30, 2021 operating lease liabilities current and non-current were approximately $169,516 and $559,873, respectively, while as of October 31, 2020 operating lease liabilities current and non-current were approximately $162,917 and $629,979, respectively.

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 long-lived assets was present as of ~~April 30,~~July 31, 2021 and October 31, 2020.

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 earnings per share of common stock is calculated by dividing net earnings by the weighted average number of shares of common stock outstanding. Diluted earnings 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.

~~-9-~~

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.

-9-

Table of Contents

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 ~~April 30,~~July 31, 2020 condensed consolidated financial statements to conform them to the ~~April 30,~~July 31, 2021 condensed consolidated financial statements presentation. Such reclassifications do not affect net income as previously reported.

Recent Accounting Pronouncements

Recent accounting pronouncements pending adoption not discussed above or in the Form 10-K for the year ended October 31, 2020 are either not applicable or will not have or are not expected to have a material impact on us.

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~~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 receive 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 ~~follow~~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 ~~may seek~~applied for and obtained the full forgiveness of the SBA ~~Loans.~~

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 for the quarter ended July 31, 2021.

NOTE D - 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 imposed a mandatory one-time transition tax (the “Transition Tax”) over foreign subsidiaries undistributed earnings and profits (“E&Ps”) earned prior to a date set by the statute. Based on the Company’s E&Ps, the Transition Tax was determined to be approximately $2.7 million. The Transition Tax liability must be paid over a period of eight years 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. However, foreign subsidiaries earnings are subject to U.S. tax at a reduced rate of 10.5%.

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-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 exempt from Puerto Rico earnings distribution tax.

~~-10-~~

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 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 subsidiaries, is taxed in the United States at a maximum regular federal income tax rate of 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.

-10-

Table of Contents

Pharma-Spain has 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. Pharma-Spain net operating loss is available to offset future taxable income through 2035.

The Company files income tax returns in the United States (federal and various states jurisdictions), Puerto Rico, ~~Ireland,~~ Spain and Brazil. The 2016 (2015 for Puerto Rico) through 2019 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 E – EARNINGS PER SHARE

The following data shows the amounts used in the calculations of basic and diluted earnings per share.

Three months ended April 30,

Six months ended April 30,

2021

2020

2021

2020

Net income available to common equity holders - used to compute basic and diluted earnings per share
$240,271
$687,561
$508.303
$1,214,461





Weighted average number of common shares - used to compute basic earnings per share
  23,029,215
  23,001,627
  23,019,765
  23,002,745
Effect of options to purchase common stock
  179,903
  27,576
  161,582
  23,213
Weighted average number of shares - used to compute diluted earnings per share
  23,209,118
  23,029,203
  23,181,347
  23,025,958

	Three months ended July 31,				Nine months ended July 31,
	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

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 ~~six-month~~nine-month periods ended ~~April 30,~~July 31, 2021 and ~~April 30,~~July 31 2020, options for the purchase of shares of 80,000 and 340,000 common stock, respectively, were not considered in computing diluted earnings per share because ~~the~~their effect was antidilutive.

NOTE F – EQUITY 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 (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 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. Since April 2020, the Company suspended purchases under the Repurchase Program. As of ~~April 30,~~July 31, 2021, a total of 341,154 shares of the Company’s common stock were purchased under the Repurchase Program for an aggregate amount of $331,306.

On January 5, 2021 the Board of Directors of the Company declared a cash dividend of $0.075 per common share for shareholders of record as of the close of business on January 25, 2021. Accordingly, an aggregate dividend payment of $1,727,364 was paid on February 5, 2021.

~~-11-~~

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 have no specific insurance. No losses have been experienced or are expected on these accounts.

-11-

Table of Contents

Accounts receivable and revenues

Management ~~deems all~~estimates that the collectability of its accounts receivable ~~to be fully collectible,~~is reasonably assured, and, as such, does not maintain any ~~allowances~~allowance for uncollectible receivables.

The Company's revenues, and the related receivables, are concentrated in the pharmaceutical industry in Puerto Rico, the United States, 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 ~~six~~five customers, which accounted for 10% or more of its revenues in either of the three-month and ~~six-month~~nine-month periods ended ~~April 30,~~July 31, 2021 and 2020. During the three months ended ~~April 30,~~July 31, 2021, revenues from these customers were ~~22.9%~~19.6%, ~~13.5%~~14.2%, ~~11.9%~~6.8%, ~~9.2%, 4.4%~~9.9% and 0.0%, or a total of ~~61.9%~~50.5%, as compared to the same period last year of ~~15.3%~~13.3%, ~~12.3%~~9.9%, ~~0.0%~~10.3%, ~~11.0%, 8.0%,~~4.4% and ~~25.8%~~15.7%, or a total of ~~72.4%~~53.6%, respectively. During the ~~six~~nine months ended ~~April 30,~~July 31, 2021, revenues from these customers were ~~21.4%~~20.7%, ~~11.9%~~12.8%, ~~10.1%~~10.4%, ~~12.4%, 5.5%~~10.0% and ~~0.1%~~0.0%, or a total of ~~61.4%~~53.9%, as compared to the same period last year of ~~14.9%, 10.8%, 0.1%, 12.3%~~14.2%, 10.4%, 11.5%, 1.9% and ~~21.7%~~19.2%, or a total of ~~70.2%~~57.2%, respectively. At ~~April 30,~~July 31, 2021, amounts due from these customers represented ~~85.9%~~22.3% of the Company’s total accounts receivable balance. This customer information 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.

At the global level, ~~six~~five global groups of affiliated companies accounted for 10% or more of its revenues in either of the three-month and ~~six-month~~nine-month periods ended ~~April 30,~~July 31, 2021 and 2020. During the three months ended ~~April 30,~~July 31, 2021, aggregate revenues from these global groups of affiliated companies were ~~22.9%~~19.6%, ~~13.5%~~14.2%, ~~11.9%, 11.8%, 4.4%~~7.5%,9.9% and 0.0%, or a total of ~~64.5%~~51.2%, as compared to the same period last year for ~~15.3%~~13.3%, ~~12.3%~~9.9%, ~~0.0%~~12.2%, ~~13.7%, 8.0%~~4.4% and ~~25.8%~~15.7%, or a total of ~~75.1%~~55.5%, respectively. During the ~~six~~nine months ended ~~April 30,~~July 31, 2021, aggregate revenues from these global group of affiliated companies were ~~21.4%~~20.7%, ~~11.9%~~12.8%, ~~10.1%~~12.1%, ~~14.8%, 5.5%~~10.0% and ~~0.1%~~0.0%, or a total of ~~63.8%~~55.6%, as compared to the same period last year for ~~14.9%, 10.8%, 0.1%, 15.2%~~14.2%, 10.4%, 14.0%, 1.9% and ~~21.7%~~19.2%, or a total of ~~73.1%~~59.7%, respectively. At ~~April 30,~~July 31, 2021, amounts due from these global groups of affiliated companies represented ~~87.3%~~24.2% of total accounts receivable balance.

As of ~~April 30,~~July 31, 2021, one of the Company’s customers (representing ~~5.5%~~4.5% of revenues during the ~~six~~nine months ended ~~April 30,~~July 31, 2021) owes the Company approximately $5.2 million, which represents approximately ~~22.2%~~20.7% of the Company’s total working capital. 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 has been recorded in the financial ~~statements.~~

~~-12-~~

statements as of July 31, 2021.

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 chief 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 three reportable segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, and (iii) Europe technical compliance 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 ~~six-month~~nine-month periods ended in ~~April 30,~~July 31, 2021 and 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 April 30,

Six months ended April 30,

2021

2020

2021

2020

REVENUES:





Puerto Rico consulting
$3,744,725
$5,116,682
$7,112,076
$9,297,592
United States consulting
  476,809
  394,991
  924,220
  784,353
Europe consulting
  674,826
  133,762
  1,205,322
  155,950
Other segment1
  145,306
  2,332
  288,357
  23,039
Total consolidated revenues
$5,041,666
$5,647,767
$9,529,975
$10,260,934





INCOME (LOSS) BEFORE TAXES:




Puerto Rico consulting
$44,546
$819,750
$148,958
$1,493,421
United States consulting
  (23,268)
  (37,498)
  (13,885)
  (52,139)
Europe consulting
  222,541
  7,490
  380,044
  (61,684)
Other segment1
  42,050
  (20,774)
  92,275
  (28,435)
Total consolidated income before taxes
$285,869
$768,968
$607,392
$1,351,163

~~______________________________~~

-12-

Table of Contents

	Three months ended July 31,					Nine months ended July 31,
	2021			2020		2021		2020
REVENUES:
Puerto Rico consulting	$	3,749,071		$	4,989,964	$	10,861,147	$	14,287,556
United States consulting		622,669			939,421		1,546,889		1,723,774
Europe consulting		579,793			310,974		1,785,115		466,924
Other segment¹		36,376			38,011		324,733		61,050
Total consolidated revenues	$	4,987,909		$	6,278,370	$	14,517,884	$	16,539,304

INCOME (LOSS) BEFORE TAXES:
Puerto Rico consulting	$	2,011,030		$	692,906	$	2,159,988	$	2,186,327
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		89,859		(22,011	)
Total consolidated income before taxes	$	2,313,388		$	786,492	$	2,920,780	$	2,137,655

_____________________

Other segment represents a Brazilian compliance ~~consulting~~

division which falls below the reportable ~~thershold.~~

threshold.

Long lived assets (property and equipment) as of ~~April 30,~~July 31, 2021 and October 31, 2020, and related depreciation and amortization expense for the three and ~~six~~nine months ended ~~April 30,~~July 31, 2021 and 2020, were concentrated in the corporate headquarters in Puerto Rico. Accordingly, depreciation expense and acquisition of property and equipment, as presented in the statements of cash flows are mainly related to the corporate headquarters.

~~NOTE I – LEGAL PROCEEDINGS~~

On February 9, 2021, Elizabeth Plaza, a former director of the Company, and Strategic Consultants International, LLC (“SCI”), an entity wholly-owned by Mrs. Plaza, filed a legal action against the Company, directors and executive officers of the Company, and Pharma-PR, in the Court of First Instance of the Commonwealth of Puerto Rico. On February 19, 2021, the case was removed to the U.S. Federal District Court for Puerto Rico, pending review by such court.~~On April 14, 2021,the directors and executive officers were removed as defendants.~~ On April 30, 2021, the U.S. District Court for the District of Puerto Rico entered judgment dismissing with prejudice all claims brought against the Company and Pharma PR. In connection with the dismissal, plaintiff agreed not to file separate claims against the officers or directors of the Company or Pharma PR.

~~-13-~~

I~~TEM~~

-13-

Table of Contents

ITEM 2.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, 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, 2020.

Overview

We are a compliance and technology transfer services consulting firm 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 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, Europe 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 to be Food and Drug Administration (“FDA”) and international agencies regulatory compliance consulting related services.

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 ~~six-month~~nine-month periods ended ~~April 30,~~July 31, 2021 and 2020, by geographic regions (dollars in thousands).

Three months ended April 30,

Six months ended April 30,

Revenues by Region:

2021

2020

2021

2020

Puerto Rico
$3,745
  74.3%
$5,117
  90.6%
$7,112
  74.6%
$9,298
  90.6%
United States
  477
  9.4%
  395
  7.0%
  924
  9.7%
  784
  7.7%
Europe
  675
  13.4%
  134
  2.4%
  1,205
  12.7%
  156
  1.5%
Brazil
  145
  2.9%
  2
  0.0%
  289
  3.0%
  23
  0.2%

$5,042
  100.0%
$5,648
  100.0%
$9,530
  100.0%
$10,261
  100.0%

	Three months ended July 31,								Nine months ended July 31,
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	%

-14-

Table of Contents

For the ~~six-month~~nine-month period ended ~~April 30,~~July 31, 2021, the Company’s total revenues were approximately ~~$9,530,000,~~$14,518,000, a net decrease of approximately ~~$731,000~~$2,021,000 when compared to the same period last year. The Puerto Rico and US consulting ~~market~~markets had a revenue decrease in projects of approximately ~~$2,186,000,~~$3,426,000 and $177,000, respectively, which ~~was~~were partially offset by the increase in projects revenue in Europe ~~Brazil~~ and ~~the US~~Brazil markets of approximately ~~$1,049,000, $266,000~~$1,318,000 and ~~$140,000,~~$264,000, respectively. When compared to the same period last year, gross ~~margin~~profit decreased by ~~6.4~~5.5 percentage points. The net decrease in gross margin percentage points is mainly attributable to some projects in the Puerto Rico market for the ~~six-month~~nine-month period ended ~~April 30,~~July 31, 2020, for which the gross margin was higher than usual. Selling, general and administrative expenses were approximately ~~$2,022,000,~~$2,917,000, a decrease of approximately ~~$176,000.~~$318,000. The net decrease is mainly attributable to the decrease of consulting fees and other administrative expenses ~~for~~of approximately ~~$195,000~~$326,000 and ~~$78,000,~~$100,000, respectively, partially offset by an increase in non-recurring legal fees ~~for~~of approximately ~~$97,000.~~$108,000. Other income ~~declined~~increased by approximately ~~$71,000,~~$1,912,000, mainly ~~due to~~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 ~~$508,000~~$2,783,000 for the ~~six-month~~nine-month period ended ~~April 30,~~July 31, 2021, or a ~~decrease~~increase of approximately ~~$706,000~~$876,000 when compared to the same period last year.

~~-14-~~

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 extent to which our operations will be impacted by the pandemic 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 severity of the pandemic and actions by government authorities to contain the outbreak or treat its impact, among other things.

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 dependent on the effect the local and global economy, including any impacts of the coronavirus pandemic, changes in tax laws, worldwide life 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 industry trends.

Results of Operations

The following table that sets forth our statements of operations for the three-month and ~~six-month~~nine-month periods ended ~~April 30,~~July 31, 2021 and 2020 (dollars in thousands, and as a percentage of revenues):

Three months ended April 30,

Six months ended April 30,

2021

2020

2021

2020

Revenues
$5,042
  100.0%
$5,648
  100.0%
$9,530
  100.0%
$10,261
  100.0%
Cost of services
  3,751
  74.4%
  3,779
  66.9%
  6,924
  72.7%
  6,806
  66.3%
Gross profit
  1,291
  25.6%
  1,869
  33.1%
  2,606
  27.3%
  3,455
  33.7%
Selling, general and administrative expenses
  1,026
  20.3%
  1,149
  20.3%
  2,022
  21.2%
  2,198
  21.4%
Other income, net
  21
  0.4%
  49
  0.8%
  23
  0.2%
  94
  0.9%
Income before income taxes
  286
  5.7%
  769
  13.6%
  607
  6.3%
  1,351
  13.2%
Income tax expense
  46
  0.9%
  81
  1.4%
  99
  1.0%
  137
  1.4%
Net income
  240
  4.8%
  688
  12.2%
  508
  5.3%
  1,214
  11.8%

	Three months ended July 31,									Nine months ended July 31,
	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. Revenues for the three and ~~six~~nine months ended ~~April 30,~~July 31, 2021 were ~~$5,042,000~~$4,988,000 and ~~$9,530,000,~~$14,518,000, respectively, a decrease of approximately ~~$606,000~~$1,290,000 and ~~$731,000,~~$2,021,000, or ~~10.7%~~20.5% and ~~7.1%~~12.2%, respectively, when compared to the same periods last year.

The decrease for the three months ended ~~April 30,~~July 31, 2021, when compared to the same period last year, is mainly attributable to the decrease in projects in the Puerto Rico, ~~market~~US and Brazil markets of approximately ~~$1,372,000,~~$1,241,000, 316,000 and $2,000, respectively, partially offset by ~~increases~~the increase in project revenue in the Europe ~~Brazil and US~~market of approximately ~~$541,000, $143,000 and $82,000, respectively.~~

$269,000.

The decrease for the ~~six~~nine months ended in ~~April 30,~~July 31, 2021, when compared to the same period last year, is mainly attributable to a decrease in projects in the Puerto Rico ~~market~~and US markets of approximately ~~$2,186,000,~~$3,426,000 and $177,000, respectively, partially offset by increases in project revenue in Europe ~~Brazil~~ and USBrazil of approximately ~~$1,049,000, $266,000~~$1,318,000, and ~~$140,000,~~$264,000, respectively.

Cost of Services; gross profit. Cost of services for the three and ~~six~~nine months ended ~~April 30,~~July 31, 2021 were approximately ~~$3,751,000~~$3,733,000 and ~~$6.924,000,~~$10,657,000, respectively, a decrease of ~~$28,000~~$691,000 and ~~an increase of $118,000,~~$573,000, respectively, when compared to the same periods last year. Gross profit for the three and ~~six~~nine months ended ~~April 30,~~July 31, 2021 decreased by ~~7.5~~4.3 and ~~6.4~~5.5 percentage points, respectively, when compared to the same periods last year. The net decrease in gross profit percentage points is mainly attributable to some projects in the Puerto Rico market for the three-month and ~~six-month~~nine-month periods ended ~~April 30,~~July 31, 2020, which the gross profit ~~was~~were higher than usual.

-15-

Table of Contents

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three and ~~six~~nine months ended ~~April 30,~~July 31, 2021 were approximately ~~$1,026,000~~$895,000 and ~~$2,022,000,~~$2,917,000, respectively, a decrease of approximately ~~$123,000~~$143,000 and ~~$176,000~~$318,000 when compared to the same periods last year, respectively.

The decrease for the three months ended ~~April 30,~~July 31, 2021, when compared to the same period last year, is mainly attributable to the decrease of consulting fees and other administrative expenses ~~for~~of approximately $131,000 and ~~$60,000,~~$23,000, respectively, partially offset by an increase in non-recurring legal fees for approximately ~~$68,000.~~

$11,000.

The decrease for the ~~six~~nine months ended ~~April 30,~~July 31, 2021, when compared to the same period last year, is mainly attributable to the decrease of consulting fees and other administrative expenses ~~for~~of approximately ~~$195,000~~$326,000 and ~~$78,000,~~$100,000, respectively, partially offset by an increase in non-recurring legal fees for approximately ~~$97,000.~~

$108,000.

Other Income, net. For the three-month and ~~six-month~~nine-month periods ended on ~~April 30,~~July 31, 2021, other income, net was approximately ~~$21,000~~$1,953,000 and ~~$23,000,~~$1,976,000, a net ~~decrease~~increase of approximately ~~$28,000~~$1,983,000 and ~~$71,000~~$1,912,000 when compared to the same periods last year. The ~~decrease~~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.

~~-15-~~

Net ~~Income~~.Income.Net income for the three and ~~six~~nine months ended ~~April 30,~~July 31, 2021 was approximately ~~$240,000~~$2,275,000 and ~~$508,000, a decrease~~$2,783,000, an increase of approximately ~~$448,000~~$1,583,000 and ~~$706,000~~$876,000 when compared to the same periods last year, respectively. The ~~decline~~increase in net income is mostly attributable to the (i) decrease in revenue and related gross profit, (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 interest income because of lower interest rates, when compared to the same periods last year.

For the three and ~~six~~nine months ended ~~April 30,~~July 31, 2021, net income per common share for both basic and diluted were ~~$0.010~~$0.098 and ~~$0.022, a decline~~$0.120, an increase of ~~$0.020~~$0.068 and ~~$0.031~~$0.037 per share, when compared to the same periods last year, respectively.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including planned capital expenditures. As of ~~April 30,~~July 31, 2021, the Company had approximately ~~$23.4~~$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 "Repurchase Program"). During April 2020, the Company suspended 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 ~~April 30,~~July 31, 2021, the Company has 1,658,846 shares of common stock available for future repurchases under the Repurchase Program.

Our primary cash needs consist of the payment of compensation to our consulting team, overhead expenses, and statutory 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. Management believes that based on the current level of working capital, operations and cash flows from operations, and the collectability of high-quality customer receivables are sufficient to fund anticipated expenses and satisfy other possible long-term contractual commitments.

To the extent that we pursue possible opportunities to expand our operations, either by acquisition or by the establishment of operations in a new 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 ~~six~~nine months ended ~~April 30,~~July 31, 2021.

Critical Accounting Policies and Estimates

There were no material changes during the ~~six~~nine months ended ~~April 30,~~July 31, 2021 to the critical accounting policies reported in our Annual Report on Form 10-K for the fiscal year ended October 31, 2020.

-16-

Table of Contents

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, 2020, which could have a significant effect on our condensed consolidated financial statements.

~~-16-~~

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.

●

~~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.~~

~~-17-~~

I~~TEM~~

	·	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.

-17-

Table of Contents

	·	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.

~~-18-~~

P~~ART~~

-18-

Table of Contents

PART II– OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

~~Information regarding~~

From time to time, we may be a party to legal proceedings ~~is included in Note I - Legal Proceedings~~incidental to our ~~condensed consolidated~~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 ~~statements, included in Part I - Item 1 Financial Statements~~position or results of ~~this report,~~operations and ~~incorporated herein by reference.~~

cash flows.

ITEM 1A. RISK FACTORS.

There have been no material changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended October 31, 2020.

ITEM 6. EXHIBITS.

(a)Exhibits:

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~~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
~~101.INS~~		XBRL Instance Document
101.SCH
~~101.SCH~~		XBRL Taxonomy Extension Schema
101.CAL
~~101.CAL~~		XBRL Taxonomy Extension Calculation Linkbase
101.DEF
~~101.DEF~~		XBRL Taxonomy Extension Definition Linkbase
101.LAB
~~101.LAB~~		XBRL Taxonomy Extension Label Linkbase
101.PRE
~~101.PRE~~		XBRL Taxonomy Extension Presentation Linkbase

_________________

*	Furnished herewith.

-19-

Table of Contents

~~———————~~

* Furnished herewith.

~~-19-~~

S~~IGNATURES~~

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


~~Dated: June 14, 2021~~-20-

~~-20-~~

ASSETS	April 30, 2021*	October 31, 2020**
Current assets
Cash and cash equivalents	$16,066.487	$17,137,924
Accounts receivable	10,364,675	9,727,591
Current portion - promissory note receivable due from sale of assets from discontinued operations	-	1,250,000
Prepaids and other assets	309,573	468,703
Total current assets	26,740,735	28,584,218
Property and equipment, net	131,766	217,572
Operating lease right-of-use	756,139	846,714
Other assets	270,303	270,242
Total assets	$27,898,943	$29,918,746
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion-obligation under finance lease	$-	$11,640
Loans-short term portion	1,287,800	1,287,800
Current operating lease liabilities	169,516	162,917
Accounts payable and accrued expenses	1,650,657	1,938,305
Current portion of US Tax Reform Transition Tax and income taxes payable	169,760	392,131
Total current liabilities	3,277,733	3,792,793

US Tax Reform Transition Tax payable	1,850,536	2,062,024
Loans-long term portion	643,900	643,900
Long term portion - obligation under finance lease	-	55,439
Long-term operating lease liabilities	559,873	629,979
Other liabilities	17,950	17,950
Total liabilities	6,349,992	7,202,085
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; 23,433,341 and 23,405,753 shares issued, and 23,029,215 and 23,001,627 shares outstanding at April 30, 2021 and October 31, 2020, respectively	2,343	2,341
Additional paid-in capital	1,446,814	1,423,954
Retained earnings	20,304,927	21,523,990
Accumulated other comprehensive income	189,145	160,654
	21,943,229	23,110,939
Treasury stock, at cost; 404,126 common shares held at April 30, 2021 and October 31, 2020, respectively	(394,278)	(394,278)
Total stockholders' equity	21,548,951	22,716,661
Total liabilities and stockholders' equity	$27,898,943	$29,918,746

	Three months ended April 30,		Six months ended April 30,
	2021	2020	2021	2020
REVENUES	$5,041,666	$5,647,767	$9,529,975	$10,260,934

COST OF SERVICES	3,750,794	3,778,867	6,923,993	6,806,142

GROSS PROFIT	1,290,872	1,868,900	2,605,982	3,454,792

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	1,026,093	1,148,516	2,022,082	2,197,649

INCOME FROM OPERATIONS	264,779	720,384	583,900	1,257,143

OTHER INCOME, NET	21,090	48,584	23,492	94,020

INCOME BEFORE INCOME TAX	285,869	768,968	607,392	1,351,163

INCOME TAX EXPENSE	45,598	81,407	99,089	136,702

NET INCOME	$240,271	$687,561	$508,303	$1,214,461


BASIC AND DILUTED EARNINGS PER COMMON SHARE	$0.010	$0.030	$0.022	$0.053

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC	23,029,215	23,001,627	23,019,765	23,002,745

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED	23,209,118	23,029,203	23,181,347	23,025,958

							Accumulated
					Additional		Other
FISCAL YEAR 2020	Common Stock		Preferred Stock		Paid-in	Retained	Comprehensive	Treasury
	Shares	Amount	Shares	Amount	Capital	Earnings	Income (Loss)	Stock	Total
BALANCE AT NOVEMBER 1, 2019	23,397,707	$2,340	-	$-	$1,381,076	$19,473,069	$143,600	$(392,579)	$20,607,506

STOCK-BASED COMPENSATION	-	-	-	-	11,430	-	-	-	11,430

ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS	8,046	1	-	-	-	(1)	-	-	-

PURCHASE OF TREASURY STOCK (2,300 SHARES)	-	-	-	-	-	-	-	(1,699)	(1,699)

NET INCOME	-	-	-	-	-	526,900	-	-	526,900

OTHER COMPREHENSIVE LOSS, NET OF TAX	-	-	-	-	-	-	(11,734)	-	(11,734)

BALANCE AT JANUARY 31, 2020	23,405,753	2,341	-	-	1,392,506	19,999,968	131,866	(394,278)	21,132,403

STOCK-BASED COMPENSATION	-	-	-	-	11,430	-	-	-	11,430

NET INCOME	-	-	-	-	-	687,561	-	-	687,561

OTHER COMPREHENSIVE LOSS, NET OF TAX	-	-	-	-	-	-	(29,733)	-	(29,733)

BALANCE AT APRIL 30, 2020	23,405,753	$2,341	-	$-	$1,403,936	$20,687,529	$102,133	$(394,278)	$21,801,661

	Three months ended April 30,				Six months ended April 30,
Revenues by Region:	2021		2020		2021		2020
Puerto Rico	$3,745	74.3%	$5,117	90.6%	$7,112	74.6%	$9,298	90.6%
United States	477	9.4%	395	7.0%	924	9.7%	784	7.7%
Europe	675	13.4%	134	2.4%	1,205	12.7%	156	1.5%
Brazil	145	2.9%	2	0.0%	289	3.0%	23	0.2%
	$5,042	100.0%	$5,648	100.0%	$9,530	100.0%	$10,261	100.0%