UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, ~~2021~~2022

☐	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~~ (State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)

Pharma-Bio ~~Serv#~~Serv

# 6 Road 696

Dorado, Puerto Rico

00646

(Address of ~~Principal~~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 (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”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated ~~filer~~Filer	☒	Smaller reporting 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 Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock outstanding as of September ~~10, 2021~~9, 2022 was ~~23,029,215.~~22,944,286.

PHARMA-BIO SERV, INC.

FORM 10-Q

FOR THE QUARTER ENDED JULY 31, ~~2021~~2022

TABLE OF CONTENTS

		Page
PART I FINANCIAL INFORMATION

Item 1 – Financial Statements		1	3

Condensed Consolidated Balance Sheets as of July 31, ~~2021~~2022 and October 31, ~~2020~~2021 (unaudited)		1	3

Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended July 31, ~~2021~~2022 and ~~2020~~2021 (unaudited)		2	4

Condensed Consolidated Statements of Comprehensive Income for the three-month and nine-month periods ended July 31, ~~2021~~2022 and ~~2020~~2021 (unaudited)		3	5

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three-month and nine-month periods ended July 31, ~~2021~~2022 and ~~2020~~2021 (unaudited)		4	6

Condensed Consolidated Statements of Cash Flows for the three-month and nine-month periods ended July 31, ~~2021~~2022 and ~~2020~~2021 (unaudited)		6	8

Notes to Condensed Consolidated Financial Statements (unaudited)		7	9

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations		14	15

Item 4 – Controls and Procedures		18

PART II OTHER INFORMATION

Item 1 – Legal Proceedings		19

Item 1 A – Risk Factors		19

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	19

Item 6 – Exhibits		19

SIGNATURES		20

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

PHARMA-BIO SERV, INC.~~INC.~~

Condensed Consolidated Balance Sheets

(Unaudited)

	July 31, 2021*			October 31, 2020**
ASSETS							July 31, 2022*			October 31, 2021**
Current assets
Cash and cash equivalents	$	16,498,170		$	17,137,924		$	14,238,829		$	17,468,345
Accounts receivable		10,082,222			9,727,591			4,802,756			4,613,142
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			543,024			740,869
Total current assets		27,398,968			28,584,218			19,584,609			22,822,356

Property and equipment, net		120,693			217,572			74,347			105,522
Operating lease right-of-use		721,564			846,714			538,957			639,969
Other assets		353,407			270,242			130,932			353,354
Total assets	$	28,594,632		$	29,918,746		$	20,328,845		$	23,921,201

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		$	138,053		$	130,060
Accounts payable and accrued expenses		1,810,987			1,938,305			1,738,734			2,071,264
Current portion of US Tax Reform Transition Tax and income taxes payable		377,511			392,131			281,702			449,896
Total current liabilities		2,361,455			3,792,793			2,158,489			2,651,220

US Tax Reform Transition Tax payable		1,850,536			2,062,024			1,639,048			1,850,536
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			382,716			487,364
Other liabilities		17,950			17,950			-			17,950
Total liabilities		4,753,901			7,202,085			4,180,253			5,007,070
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
Common Stock, $0.0001 par value; authorized 50,000,000 shares; 23,457,515 and 23,433,341 shares issued, and 22,946,486 and 23,003,615 shares outstanding at July 31, 2022 and October 31, 2021, respectively								2,346			2,343
Additional paid-in capital		1,458,244			1,423,954			1,523,393			1,480,193
Retained earnings		22,580,045			21,523,990			15,094,091			17,707,384
Accumulated other comprehensive income		194,377			160,654			28,619			144,455
		24,235,009			23,110,939			16,648,449			19,334,375
Treasury stock, at cost; 404,126 common shares held at July 31, 2021 and October 31, 2020, respectively		(394,278	)		(394,278	)
Treasury stock, at cost; 511,029 and 429,726 common shares held at July 31, 2022 and October 31, 2021, respectively								(499,857	)		(420,244	)
Total stockholders' equity		23,840,731			22,716,661			16,148,592			18,914,131
Total liabilities and stockholders' equity	$	28,594,632		$	29,918,746		$	20,328,845		$	23,921,201

*	Unaudited.
**	Condensed from audited financial statements.

See notes to the condensed consolidated financial statements.

~~-1-~~3

Table of Contents

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three months ended July 31,					Nine months ended July 31,				Three months ended July 31,					Nine months ended July 31,
	2021		2020			2021		2020		2022			2021		2022			2021
REVENUES	$	4,987,909	$	6,278,370		$	14,517,884	$	16,539,304	$	4,774,103		$	4,987,909	$	14,760,525		$	14,517,884

COST OF SERVICES		3,732,847		4,424,151			10,656,840		11,230,293		3,461,789			3,732,847		10,987,722			10,656,840

GROSS PROFIT		1,255,062		1,854,219			3,861,044		5,309,011		1,312,314			1,255,062		3,772,803			3,861,044

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		894,572		1,037,529			2,916,654		3,235,178		942,809			894,572		2,766,820			2,916,654

INCOME FROM OPERATIONS		360,490		816,690			944,390		2,073,833		369,505			360,490		1,005,983			944,390

OTHER INCOME (EXPENSE), NET		1,952,898		(30,198	)		1,976,390		63,822		(53,683	)		1,952,898		(48,664	)		1,976,390

INCOME BEFORE INCOME TAX		2,313,388		786,492			2,920,780		2,137,655		315,822			2,313,388		957,319			2,920,780

INCOME TAX EXPENSE		38,270		94,378			137,359		231,080		27,788			38,270		124,014			137,359

NET INCOME	$	2,275,118	$	692,114		$	2,783,421	$	1,906,575	$	288,034		$	2,275,118	$	833,305		$	2,783,421

BASIC AND DILUTED EARNINGS PER COMMON SHARE	$	0.098	$	0.030		$	0.120	$	0.083	$	0.013		$	0.098	$	0.036		$	0.120

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC		23,029,215		23,001,627			23,022,950		23,003,125		22,952,009			23,029,215		22,996,584			23,022,950

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED		23,174,605		23,032,641			23,178,091		23,030,066		22,970,959			23,174,605		23,031,926			23,178,091

See notes to the condensed consolidated financial statements.

~~-2-~~4

Table of Contents

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

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

Three months ended July 31,

Nine months ended July 31,

2022

2021

2022

2021

NET INCOME

$ 288,034

$ 2,275,118

$ 833,305

$ 2,783,421

OTHER COMPREHENSIVE INCOME (LOSS), NET OF RECLASSIFICATIONS ADJUSTMENTS AND TAX:

Foreign currency translation:

Net unrealized gain (loss)

(103,357 )

5,232

(179,989 )

33,723
Intercompany balances foreign exchange settlement, included in net income

64,153

-

64,153

-

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

(39,204 )

5,232

(115,836 )

33,723

COMPREHENSIVE INCOME, NET OF TAX

$ 248,830

$ 2,280,350

$ 717,469

$ 2,817,144

See notes to the condensed consolidated financial statements.

~~-3-~~5
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

Accumulated

Additional

Other

FISCAL YEAR 2022
(THREE MONTHS ENDED JULY 31, 2022)

Common Stock

Preferred Stock

Paid-in

Retained

Comprehensive

Treasury

Shares

Amount

Shares

Amount

Capital

Earnings

Income (Loss)

   Stock

Total

BALANCE AT APRIL 30, 2022

23,457,515

$ 2,346

-

$ -

$ 1,508,994

$ 14,806,057

$ 67,823

$ (490,530 )

$ 15,894,690

STOCK-BASED COMPENSATION

-

-

-

-

14,399

-

-

-

14,399

PURCHASE OF TREASURY STOCK (10,400 SHARES)

-

-

-

-

-

-

-

(9,327 )

(9,327 )

NET INCOME

-

-

-

-

-

288,034

-

-

288,034

OTHER COMPREHENSIVE LOSS, NET OF TAX

-

-

-

-

-

-

(39,204 )

-

(39,204 )

BALANCE AT JULY 31, 2022

23,457,515

$ 2,346

-

$ -

$ 1,523,393

$ 15,094,091

$ 28,619

$ (499,857 )

$ 16,148,592

Accumulated

Additional

Other

FISCAL YEAR 2022
(NINE MONTHS ENDED JULY 31, 2022)

Common Stock

Preferred Stock

Paid-in

Retained

Comprehensive

Treasury

Shares

Amount

Shares

Amount

Capital

Earnings

Income (Loss)

   Stock

Total

BALANCE AT NOVEMBER 1, 2021

23,433,341

$ 2,343

-

$ -

$ 1,480,193

$ 17,707,384

$ 144,455

$ (420,244 )

$ 18,914,131

STOCK-BASED COMPENSATION

-

-

-

-

43,200

-

-

-

43,200

ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS

24,174

3

-

-

-

(3 )

-

-

-

PURCHASE OF TREASURY STOCK (70,903 SHARES)

-

-

-

-

-

-

-

(79,613 )

(79,613 )

NET INCOME

-

-

-

-

-

833,305

-

-

833,305

OTHER COMPREHENSIVE LOSS, NET OF TAX

-

-

-

-

-

-

(115,836 )

-

(115,836 )

CASH DIVIDEND ($0.075 PER COMMON SHARE AT RECORD DATE)

-

-

-

-

-

(3,446,595 )

-

-

(3,446,595 )

BALANCE AT JULY 31, 2022

23,457,515

$ 2,346

-

$ -

$ 1,523,393

$ 15,094,091

$ 28,619

$ (499,857 )

$ 16,148,592

See notes to condensed consolidated financial statements.

~~-4-~~6
Table of Contents

PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity ~~(Continued)~~(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

Accumulated

Additional

Other

FISCAL YEAR 2021
(THREE MONTHS ENDED JULY 31, 2021)

Common Stock

Preferred Stock

Paid-in

Retained

Comprehensive

Treasury

Shares

Amount

Shares

Amount

Capital

Earnings

Income (Loss)

   Stock

Total

BALANCE AT APRIL 30, 2021

23,433,341

$ 2,343

-

$ -

$ 1,446,814

$ 20,304,927

$ 189,145

$ (394,278 )

$ 21,548,951

STOCK-BASED COMPENSATION

-

-

-

-

11,430

-

-

-

11,430

NET INCOME

-

-

-

-

-

2,275,118

-

-

2,275,118

OTHER COMPREHENSIVE INCOME, NET OF TAX

-

-

-

-

-

-

5,232

-

5,232

BALANCE AT JULY 31, 2021

23,433,341

$ 2,343

-

$ -

$ 1,458,244

$ 22,580,045

$ 194,377

$ (394,278 )

$ 23,840,731

Accumulated

Additional

Other

FISCAL YEAR 2021
(NINE MONTHS ENDED JULY 31, 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

-

-

-

-

34,290

-

-

-

34,290

ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS

27,588

2

-

-

-

(2 )

-

-

-

NET INCOME

-

-

-

-

-

2,783,421

-

-

2,783,421

OTHER COMPREHENSIVE INCOME, NET OF TAX

-

-

-

-

-

-

33,723

-

33,723

CASH DIVIDEND ($0.075 PER COMMON SHARE AT RECORD DATE)

-

-

-

-

-

(1,727,364 )

-

-

(1,727,364 )

BALANCE AT JULY 31, 2021

23,433,341

$ 2,343

-

$ -

$ 1,458,244

$ 22,580,045

$ 194,377

$ (394,278 )

$ 23,840,731

See notes to condensed consolidated financial ~~statements~~statements.

~~-5-~~7
Table of Contents

PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Three months ended July 31,

Nine months ended July 31,

Three months ended July 31,

Nine months ended July 31,

2021

2020

2021

2020

2022

2021

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$ 2,275,118

$ 692,114

$ 2,783,421

$ 1,906,575

$ 288,034

$ 2,275,118

$ 833,305

$ 2,783,421

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 )

-

-

-

(7,404 )
Stock-based compensation

11,430

11,430

34,290

34,290

14,399

11,430

43,200

34,290

Depreciation and amortization

18,183

23,203

58,438

65,814

12,962

18,183

38,307

58,438

Loans forgiveness

(1,956,291 )

0

(1,956,291 )

0

-

(1,956,291 )

-

(1,956,291 )
Decrease (increase) in accounts receivable

284,599

(50,706 )

(336,467 )

(1,251,494 )

652,913

284,599

(257,384 )

(336,467 )
Decrease (increase) in other assets

(552,175 )

(126,072 )

(302,324 )

(851,596 )

220,778

(552,175 )

489,341

(302,324 )
Increase (decrease) in liabilities

360,860

678,175

(429,171 )

1,287,785

(83,233 )

360,860

(814,403 )

(429,171 )
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

441,724

1,219,735

(155,508 )

1,178,047

1,105,853

441,724

332,366

(155,508 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of property and equipment

(7,110 )

(10,462 )

(11,726 )

(49,336 )

(2,087 )

(7,110 )

(7,132 )

(11,726 )
Proceeds from sale of property and equipment

0

14,700

57,571

26,700

-

-

-

57,571

Collection from promissory note receivable

0

0

1,250,000

0

-

-

-

1,250,000

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

(7,110 )

4,238

1,295,845

(22,636 )

(2,087 )

(7,110 )

(7,132 )

1,295,845

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from loans

0

0

0

1,931,700

Repurchase of common stock

0

0

0

(1,699 )

(9,327 )

-

(79,613 )

-

Payments on obligations under finance lease

0

(2,776 )

(67,079 )

(8,217 )

-

-

-

(67,079 )
Cash dividends paid to shareholders

0

0

(1,727,364 )

(1,725,295 )

-

-

(3,446,595 )

(1,727,364 )
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

0

(2,776 )

(1,794,443 )

196,489

NET CASH USED IN FINANCING ACTIVITIES

(9,327 )

-

(3,526,208 )

(1,794,443 )

EFFECT OF EXCHANGE RATE CHANGES ON CASH

(2,931 )

10,847

14,352

(28,033 )

(19,607 )

(2,931 )

(28,542 )

14,352

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

431,683

1,232,044

(639,754 )

1,323,867

1,074,832

431,683

(3,229,516 )

(639,754 )
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD

16,066,487

15,581,997

17,137,924

15,490,174

13,163,997

16,066,487

17,468,345

17,137,924

CASH AND CASH EQUIVALENTS – END OF PERIOD

$ 16,498,170

$ 16,814,041

$ 16,498,170

$ 16,814,041

$ 14,238,829

$ 16,498,170

$ 14,238,829

$ 16,498,170

SUPPLEMENTAL DISCLOURES OF CASH FLOWS INFORMATION:

Cash paid during the period for:

Income taxes

$ 67,550

$ 700

$ 574,757

$ 212,463

$ -

$ 67,550

$ 211,813

$ 574,757

Interest

$ 0

$ 951

$ 1,404

$ 2,955

$ -

$ -

$ -

$ 1,404

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

$ 623

$ -

$ 22,161

$ 4,046

Conversion of cashless exercise of options to shares of common stock
and shares issued under restricted stock unit agreements

$ 0

$ 0

$ 2

$ 1

$ -

$ -

$ 3

$ 2

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

Disposed property and equipment with accumulated depreciation of $35,833 for the three and nine months ended July 31, 2021

$ -

$ -

$ -

$ 86,000

See notes to the condensed consolidated financial statements.

~~-6-~~8
Table of Contents

PHARMA-BIO SERV, INC.
Notes To Condensed Consolidated Financial Statements
July 31, ~~2021~~2022
(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~~2021 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 nine months ended July 31, ~~2021~~2022 are not necessarily indicative of expected results for the full ~~2021~~2022 fiscal year.

The accompanying financial data as of July 31, ~~2021,~~2022, and for the three-month and nine-month periods ended July 31, ~~2021~~2022 and ~~2020~~2021 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.~~2021.

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-~~
~~Table of Contents~~

Fair Value of Financial Instruments

The carrying value of the ~~Company's~~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.~~
9
Table of Contents

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~~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 balance is determined to be 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. As of October 31, 2021 the Company provided an allowance of approximately $5.2 million, to cover the full balance of a customer account receivable. Nevertheless, the Company continues to monitor this account and actively seek full payment from this customer.

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 July 31, ~~2021,~~2022, 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-~~
Leases
~~Table of Contents~~

The Company follows accounting standards issued by the FASB for the accounting and disclosure of leases. Under those standards, assets and liabilities that arise from leases are recognized on the balance sheet, and the leases are categorized at their inception as either operating or finance leases.
Operating lease right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments under the lease. Lease recognition occurs at the commencement date, and lease liability amounts are based on the present value of lease payments made during the lease term.
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.

10
Table of Contents
Depreciation of owned assets ~~are~~is 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 July 31, ~~2021~~2022 and October 31, ~~2020,~~2021, the accumulated depreciation amounted to ~~$524,094~~$576,691 and ~~$501,489,~~$538,384, 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 long-lived assets was present as of July 31, ~~2021~~2022 and October 31, ~~2020.~~2021.

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.

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 July 31, ~~2020~~2021 condensed consolidated financial statements to conform them to the July 31, ~~2021~~2022 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~~2021 are either not applicable or will not have or are not expected to have a material impact on us.

11
~~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.
Table of Contents

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 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 for the quarter ended July 31, 2021.
~~NOTE D~~B - 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’~~&Ps were not repatriated since such E~~&Ps’~~&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.

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~~Pharma-PR, Pharma-Serv and Scienza Labs have established an allowance against a customer account receivable which ~~result in~~represents a potential deferred tax ~~asset. However, an~~asset for those subsidiaries. An allowance has been provided covering the total amount of ~~such balance~~these potential deferred tax assets, including a deferred tax asset resulting from Pharma-Spain carryforward losses, since it is uncertain whether ~~the net operating losses~~they can be used ~~to offset future taxable income before their expiration dates.~~in the future. 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.~~factors. 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, Spain and Brazil. The ~~2016 (2015~~2017 (2016 for Puerto Rico) through ~~2019~~2020 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 EC – EARNINGS PER SHARE

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


Three months ended July 31,

Nine months ended July 31,

Three months ended July 31,

Nine months ended July 31,

2021

2020

2021

2020

2022

2021

2022

2021

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

$ 288,034

$ 2,275,118

$ 833,305

$ 2,783,421

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

22,952,009

23,029,215

22,996,584

23,022,950

Effect of options to purchase common stock

145,390

31,014

155,141

26,941

18,950

145,390

35,342

155,141

Weighted average number of shares - used to compute diluted earnings per share

23,174,605

23,032,641

23,178,091

23,030,066

22,970,959

23,174,605

23,031,926

23,178,091

For the three-month and nine-month periods ended July 31, ~~2021 and July 31 2020,~~2022, options for the purchase of shares of ~~80,000~~400,000 and ~~340,000~~300,000 common stock, respectively, were not considered in computing diluted earnings per share because ~~their~~the effect was antidilutive. Options for the purchase of 80,000 shares of common stock for the three-month and nine-month periods ended July 31, 2021 were not included in computing diluted earnings per share because their effects were also antidilutive.
12
Table of Contents

NOTE FD – 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~~under the Company’s Stock Repurchase Program (“Repurchase Program”). The timing, manner, price and amount of any repurchases under the Repurchase Program ~~will be~~is 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~~To conserve cash due to the economic uncertainty caused by the coronavirus pandemic, from April 2020 to September 2021, the Company suspended purchases under the Repurchase Program. As of July 31, 2022 and October 31, 2021, a total of ~~341,154~~448,057 and 366,754 shares of the Company’s common stock were purchased under the Repurchase Program for an aggregate amount of ~~$331,306.~~$436,885 and $357,272, respectively.

On ~~January 5,~~November 15, 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,~~December 15, 2021. Accordingly, an aggregate dividend payment of ~~$1,727,364~~$1,722,391 was paid on January 3, 2022. Additionally, the Board of Directors of the Company declared, on February ~~5, 2021.~~7, 2022, a cash dividend of $0.075 per common share. This dividend, for an aggregate amount of $1,724,204, was paid on March 15, 2022 to shareholders of record as of the close of business on February 25, 2022.

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 estimates that the collectability of its accounts receivable is reasonably assured, and, as such, does not maintain any 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 five customers, which accounted for 10% or more of its revenues in either of the three-month and nine-month periods ended July 31, 2021 and 2020. During the three months ended July 31, 2021, revenues from these customers were 19.6%, 14.2%, 6.8%, 9.9% and 0.0%, or a total of 50.5%, as compared to the same period last year of 13.3%, 9.9%, 10.3%, 4.4% and 15.7%, or a total of 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 July 31, 2021, amounts due from these customers represented 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, five global groups of affiliated companies accounted for 10% or more of its revenues in either of the three-month and nine-month periods ended July 31, 2021 and 2020. During the three months ended July 31, 2021, aggregate revenues from these global groups of affiliated companies were 19.6%, 14.2%, 7.5%,9.9% and 0.0%, or a total of 51.2%, as compared to the same period last year for 13.3%, 9.9%, 12.2%, 4.4% and 15.7%, or a total of 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 July 31, 2021, amounts due from these global groups of affiliated companies represented 24.2% of total accounts receivable balance.
As of July 31, 2021, one of the Company’s customers (representing 4.5% of revenues during the nine months ended July 31, 2021) owes the Company approximately $5.2 million, which represents approximately 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 is reasonably assured, accordingly, no provision for losses has been recorded in the financial statements as of July 31, 2021.
~~NOTE H~~E - 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 nine-month periods ended inon July 31, ~~2021~~2022 and ~~2020.~~2021. 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.

~~-12-~~
~~Table of Contents~~

Three months ended July 31,

Nine months ended July 31,

2022

2021

2022
2021
REVENUES:

Puerto Rico consulting

$
2,982,774

$
3,749,071

$
9,420,588

$
10,861,147
United States consulting

1,105,870

622,669

3,518,556

1,546,889
Europe consulting

648,916

579,793

1,780,723

1,785,115
Other segment

36,543

36,376

40,658

324,733
Total consolidated revenues

$
4,774,103

$
4,987,909

$
14,760,525

$
14,517,884

INCOME (LOSS) BEFORE TAXES:

Puerto Rico consulting

$
163,566

$
2,011,030

$
323,281

$
2,159,988
United States consulting

(30,843
)

149,837

170,307

135,952
Europe consulting

190,924

154,937

506,608

534,981
Other segment

(7,825
)

(2,416
)

(42,877
)

89,859
Total consolidated income before taxes

$
315,822

$
2,313,388

$
957,319

$
2,920,780

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

~~_____________________~~For the three and nine months ended July 31, 2021, consolidated income before taxes include the forgiveness of principal and accrued interest of SBA Loans for the Puerto Rico and United States markets of approximately $1.9 and $0.1 million, respectively.
¹
~~Other segment represents a Brazilian compliance~~
~~division which falls below the reportable threshold.~~

Long lived assets (property and equipment) as of July 31, ~~2021~~2022 and October 31, ~~2020,~~2021, and related depreciation and amortization expense for the three and nine months ended July 31, ~~2021~~2022 and ~~2020,~~2021, 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.


~~-13-~~13
Table of Contents

NOTE F - 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.
Accounts receivable and revenues
Except for a specific customer account receivable disclosed in Note A, management deems all other of the Company’s accounts receivable to be fully collectible, and, as such, does not maintain any other allowances 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 five customers, which accounted for 10% or more of its revenues in either of the three-month and nine-month periods ended July 31, 2022 and 2021. During the three months ended July 31, 2022, revenues from these customers were 15.1%, 13.1%, 9.3%, 8.2% and 3.6%, or a total of 49.3%, as compared to the same period last year of 19.7%, 14.2%, 10.1%, 9.9%, and 6.8%, or a total of 60.7%, respectively. During the nine months ended July 31, 2022, revenues from these customers were 16.9%, 13.2%, 10.1%, 7.7% and 3.2%, or a total of 51.1%, as compared to the same period last year of 20.8%, 12.7%, 7.8%, 10.0% and 10.4%, or a total of 61.7%, respectively. On July 31, 2022, amounts due from these customers represented 37.4% 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, five global groups of affiliated companies accounted for 10% or more of its revenues in either of the three-month and nine-month periods ended July 31, 2022 and 2021. During the three months ended July 31, 2022, aggregate revenues from these global groups of affiliated companies were 15.1%, 13.1%, 9.3%, 8.2%, and 7.3%, or a total of 53.0%, as compared to the same period last year for 19.7%, 14.2%, 10.1%, 9.9%, and 7.4%, or a total of 61.3%, respectively. During the nine months ended July 31, 2022, aggregate revenues from these global group of affiliated companies were 16.9%, 13.2%, 10.1%, 7.7% and 6.7%, or a total of 54.6%, as compared to the same period last year for 20.8%, 12.7%, 7.8%, 10.0% and 12.1%, or a total of 63.4%, respectively. On July 31, 2022, amounts due from these global groups of affiliated companies represented 41.5% of total accounts receivable balance.
14
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.~~2021. 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 inof our Annual Report on Form 10-K for the year ended October 31, ~~2020.~~2021, our Quarterly Reports on Form 10-Q for the quarters ended January 31, 2022 and April 30, 2022, and this Quarterly Report on Form 10-Q.

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~~Latin America 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 nine-month periods ended July 31, ~~2021~~2022 and ~~2020,~~2021, by geographic regions (dollars in thousands).

Three months ended July 31,

Nine months ended July 31,

Three months ended July 31,

Nine months ended July 31,

Revenues by Region:

2021

2020

2021

2020

2022

2021

2022

2021

Puerto Rico

$ 3,749

75.2 %

$ 4,990

79.4 %

$ 10,861

74.8 %

$ 14,287

86.4 %

$ 2,983

62.5 %

$ 3,749

75.2 %

$ 9,421

63.8 %

$ 10,861

74.8 %
United States

623

12.5 %

939

15.0 %

1,547

10.7 %

1,724

10.4 %

1,106

23.1 %

623

12.5 %

3,518

23.8 %

1,547

10.7 %
Europe

580

11.6 %

311

5.0 %

1,785

12.3 %

467

2.8 %

649

13.6 %

580

11.6 %

1,781

12.1 %

1,785

12.3 %
Brazil

36

0.7 %

38

0.6 %

325

2.2 %

61

0.4 %
Other¹

36

0.8 %

36

0.7 %

41

0.3 %

325

2.2 %

$ 4,988

100.0 %

$ 6,278

100.0 %

$ 14,518

100.0 %

$ 16,539

100.0 %

$ 4,774

100.0 %

$ 4,988

100.0 %

$ 14,761

100.0 %

$ 14,518

100.0 %
_____________________________
¹
Other segment represents a Brazilian compliance
division which falls below the reportable threshold.

~~-14-~~15
Table of Contents

For the nine-month period ended July 31, ~~2021,~~2022, the Company’s total revenues were approximately ~~$14,518,000,~~$14.8 million, a net ~~decrease~~increase of approximately ~~$2,021,000~~$0.2 million when compared to the same period last year. The ~~Puerto Rico and~~ US consulting ~~markets~~market had a revenue ~~decrease~~increase in projects of approximately ~~$3,426,000 and $177,000, respectively,~~$1.9 million, which ~~were~~was partially offset by the ~~increase~~decrease in ~~projects~~project revenue in ~~Europe~~the Puerto Rico and ~~Brazil~~Brazilian markets of approximately ~~$1,318,000~~$1.4 and ~~$264,000,~~$0.3 million, respectively. The European market sustained no major revenue change when compared to the same period last year. When compared to the same period last year, gross profit decreased by ~~5.5~~1.0 percentage points. The net decrease in gross ~~margin~~profit percentage points is mainly attributable to ~~some~~overall lower margin projects in the Puerto Rico ~~market for the nine-month period ended July 31, 2020, for which the gross margin was higher than usual.~~and US markets. Selling, general and administrative expenses were approximately ~~$2,917,000,~~$2.8 million, a net decrease of approximately ~~$318,000.~~$0.1 million. The ~~net decrease~~decline is mainly attributable to the decrease ofin consulting fees, non-recurring legal 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.~~general expenses. Other income ~~increased~~decreased by approximately ~~$1,912,000, mainly~~$2.0 million, as compared to the same period last year, 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 forduring the nine-month period ended July 31, 2021 for approximately $2.0 million. For the nine-month period ended July 31, 2022, these factors resulted in (i) income from operations of approximately $1.0 million, or an increase of $0.1 million when compared to the same period last year, and (ii) net income of approximately $0.8 million, or a ~~increase~~decrease of approximately ~~$876,000~~$2.0 million when compared to the same period last year.

~~While we have not identified any material adverse effect resulting from~~Regional or global conflicts, including wars or economic sanctions between nations, price inflation, 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~~COVID-19 pandemic, the Puerto Rico government financial ~~crisis,~~constraints, the Tax Reform, ~~other~~and possible tax ~~reforms~~changes on ~~the markets~~jurisdictions 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~~depend on ~~the effect the~~our ability to seek service opportunities and adapt to industry trends, which are affected by variables such as local and global economy, ~~including~~any impacts of regional or global conflicts, price inflation, 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~~resource 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 nine-month periods ended July 31, ~~2021~~2022 and ~~2020~~2021 (dollars in thousands, and as a percentage of revenues):


Three months ended July 31,

Nine months ended July 31,

Three months ended July 31,

Nine months ended July 31,

2021

2020

2021

2020

2022

2021

2022

2021

Revenues

$ 4,988

100.0 %

$ 6,278

100.0 %

$ 14,518

100.0 %

$ 16,539

100.0 %

$ 4,774

100.0 %

$ 4,988

100.0 %

$ 14,761

100.0 %

$ 14,518

100.0 %
Cost of services

3,733

74.8 %

4,424

70.5 %

10,657

73.4 %

11,230

67.9 %

3,462

72.5 %

3,733

74.8 %

10,988

74.4 %

10,657

73.4 %
Gross profit

1,255

25.2 %

1,854

29.5 %

3,861

26.6 %

5,309

32.1 %

1,312

27.5 %

1,255

25.2 %

3,773

25.6 %

3,861

26.6 %
Selling, general and administrative expenses

895

17.9 %

1,038

16.5 %

2,917

20.1 %

3,235

19.6 %

943

19.8 %

895

17.9 %

2,767

18.8 %

2,917

20.1 %
Other income (expense), net

1,953

39.1 %

(30 )

(0.5 )%

1,976

13.6 %

64

0.4 %

(53 )

-1.1 %

1,953

39.1 %

(49 )

-0.3 %

1,976

13.6 %
Income before income taxes

2,313

46.4 %

786

12.5 %

2,920

20.1 %

2,138

12.9 %

316

6.6 %

2,313

46..4
%

957

6.5 %

2,920

20.1 %
Income tax expense

38

0.8 %

94

1.5 %

137

0.9 %

231

1.4 %

28

0.6 %

38

0.8 %

124

0.8 %

137

0.9 %
Net income

2,275

45.6 %

692

11.0 %

2,783

19.2 %

1,907

11.5 %

288

6.0 %

2,275

45.6 %

833

5.6 %

2,783

19.2 %

Revenues. Revenues for the three and nine months ended July 31, ~~2021~~2022 were ~~$4,988,000~~$4.8 and ~~$14,518,000, respectively, a decrease of approximately $1,290,000 and $2,021,000, or 20.5% and 12.2%, respectively, when compared to the same periods last year.~~$14.8 million, respectively.

~~The decrease for~~For the three months ended July 31, ~~2021,~~2022, this represents a net decrease of approximately $0.2 million when compared to the same period last ~~year,~~year. The decrease is mainly attributable to ~~the~~ decrease in projects in the Puerto Rico ~~US and Brazil markets of~~market for approximately ~~$1,241,000, 316,000 and $2,000, respectively,~~$0.8 million, partially offset by the increase in project revenue in the ~~Europe market~~US and European markets of approximately ~~$269,000.~~
$0.5 and $0.1 million, respectively. The ~~decrease for the nine months ended in July 31, 2021,~~Brazilian market sustained no significant revenue change when compared to the same period last ~~year,~~year.
For the nine months ended July 31, 2022, project revenue increased by $0.2 million when compared to the same period last year. The increase is mainly attributable ~~to a decrease~~tothe increase in ~~projects~~US project revenue for approximately $1.9 million, partially offset by the decreases in consulting revenues in the Puerto Rico and USBrazilian markets offor approximately ~~$3,426,000~~$1.4 and ~~$177,000, respectively, partially offset by increases in project~~$0.3 million, respectively. The European market sustained no significant revenue ~~in Europe and Brazil of approximately $1,318,000, and $264,000, respectively.~~change when compared to the same period last year.

Cost of Services; ~~gross~~Gross profit. Cost of services for the three ~~and~~months ended July 31, 2022 was $3.5 million, a decrease of $0.3 million when compared to same period last year. For the nine months ended July 31, ~~2021 were approximately $3,733,000 and $10,657,000, respectively, a decrease~~2022 cost of ~~$691,000 and $573,000, respectively,~~services was $11.0 million, an increase of $0.3 million when compared to the same ~~periods~~period last year.
Gross profit for the three months ended July 31, 2022 increased by 2.3 percentage points, when compared to the same period last year. The increase is mostly attributable to higher margin projects in the European and Puerto Rico markets.
For the nine months ended July 31, ~~2021 decreased by 4.3 and 5.5~~2022, gross profit reflects a net decrease of 1.0 percentage ~~points, respectively, when compared to the same periods last year.~~point. The net decrease in gross profit percentage points is mainly attributable to ~~some~~overall lower margin projects in the Puerto Rico ~~market for the three-month~~ and ~~nine-month periods ended July 31, 2020, which the gross profit were higher than usual.~~US markets.

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Table of Contents

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three and nine months ended July 31, ~~2021~~2022 were ~~approximately $895,000~~$0.9 and ~~$2,917,000, respectively,~~$2.8 million, respectively. When compared to the same periods last year, there was no significant change for the three-month period ended July 31, 2022, while the nine-month period ended July 31, 2022 had a decrease of $0.1 million. This net decline is mainly attributable to the decrease in consulting fees, non-recurring legal fees and other administrative and general expenses.
Other Income (Expense), net. Other income (expense) for the three and nine months ended July 31, 2022 resulted in a net expense of approximately ~~$143,000~~$54,000 and ~~$318,000~~$49,000, respectively, when compared to the same periods last year, ~~respectively.~~
~~The decrease for the three months ended July 31, 2021, when compared to the same period last year, is mainly attributable to the~~this represents a decrease of ~~consulting fees and other administrative expenses of~~ approximately ~~$131,000 and $23,000, respectively, partially offset by an increase in non-recurring legal fees~~$2.0 million for ~~approximately $11,000.~~
The decrease for the nine months ended July 31, 2021, when compared to the same period last year, 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 for approximately $108,000.
~~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 net increase of approximately $1,983,000 and $1,912,000 when compared to the same periods last year.both periods. The net ~~increase~~decrease is mainly attributable to the forgiveness of principal and accrued interest of the SBA Loans induring the ~~aggregate amount~~three-month and nine-month periods ended July 31, 2021 of approximately ~~$1,956,000, partially offset by the decline in interest income because of lower interest rates.~~$2.0 million.

Net Income. Net income for the ~~three~~three-months and ~~nine months~~nine-months periods ended July 31, ~~2021~~2022 was approximately ~~$2,275,000~~$0.3 and ~~$2,783,000, an increase~~$0.8 million, respectively, or a decrease for both periods of ~~approximately $1,583,000 and $876,000~~$2.0 million when compared to the same periods last ~~year, respectively.~~year. The ~~increase in net income~~decrease is ~~mostly attributable~~due 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~~during the ~~decline in interest income because~~three-month and nine-month periods ended July 31, 2021 of ~~lower interest rates, when compared to the same periods last year.~~approximately $2.0 million.

For the three and nine months ended July 31, ~~2021,~~2022, net income per common share for both basic and diluted were ~~$0.098~~$0.013 and ~~$0.120, an increase~~$0.036, respectively, or a per share decrease of ~~$0.068~~$0.085 and ~~$0.037 per share,~~$0.084 when compared to the same periods last year, respectively. The decrease is mainly the result of the forgiveness of principal and accrued interest of the SBA Loans during the three-month and nine-month periods ended July 31, 2021 of approximately $2.0 million.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including planned capital expenditures. As of July 31, ~~2021,~~2022, the Company had approximately ~~$25.0~~$17.4 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"~~“Repurchase Program”). The Repurchase Program does not have an expiration date. During ~~April 2020,~~the nine-month period ended July 31, 2022, 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.repurchased 81,303 shares of its common stock. As of July 31, ~~2021,~~2022, the Company has ~~1,658,846~~1,551,943 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 nine months ended July 31, ~~2021.~~2022.

Critical Accounting Policies and Estimates

There were no material changes during the nine months ended July 31, ~~2021~~2022 to the critical accounting policies reported in our Annual Report on Form 10-K for the fiscal year ended October 31, ~~2020.~~2021.
~~-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,~~2021, which could have a significant effect on our condensed consolidated financial statements.
17
Table of Contents

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 but not limited to, the ~~matters discussed below.~~factors set forth in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended October 31, 2021, our Quarterly Reports on Form 10-Q for the quarters ended January 31, 2022 and April 30, 2022, and this Quarterly Report on Form 10-Q. 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, but are not limited to, those set forth in the ~~following:~~“Risk Factors” section of our Annual Report on Form 10-K for the year ended October 31, 2021, our Quarterly Reports on Form 10-Q for the quarters ended January 31, 2022 and April 30, 2022, and this Quarterly Report on Form 10-Q.
·
~~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-~~18
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~~Currently, there are ~~any~~no 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 1A. RISK FACTORS.

There have been no material changes to the ~~Risk Factors previously disclosed~~risk factors included in our ~~Annual Report on~~ Form 10-K for the year ended October 31, ~~2020.~~2021, except as set forth in our Quarterly Report on Form 10-Q for the quarter ended January 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(c) The following table provides information about purchases by the Company of its shares of common stock during the three-month period ended July 31, 2022:
Period

Total Number
of Shares
Purchased

Average
Price Paid per Share

Total
Number of Shares
Purchased as
Part of Publicly
Announced Plans or Programs (1)

Maximum
Number of Shares
that May Yet Be
Purchased Under the Plans or
Programs (1)

May 1, 2022 through May 31, 2022

400

$ 0.95

400

1,561,943

June 1, 2022 through June 30, 2022

8,200

0.91

8,200

1,553,743

July 1, 2022 through July 31, 2022

1,800

0.84

1,800

1,551,943

Total

10,400

$ 0.90

10,400

(1)
On June 16, 2014, the Company announced that the Board of Directors of the Company approved the Repurchase Program authorizing the Company to repurchase up to two million shares of its outstanding common stock. 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. The Repurchase Program has no expiration date. No shares will be repurchased under the Repurchase Program directly from directors or officers of the Company.

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*
Certification of the chief executive officer and chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
104
Cover page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
~~_________________~~———————
*
Furnished herewith.

~~-19-~~19
Table of Contents

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, and Secretary

(Principal Financial Officer and Principal Accounting
Officer)

Dated: September 14, ~~2021~~2022

~~-20-~~20

														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

													Accumulated
									Additional				Other
FISCAL YEAR 2022 (THREE MONTHS ENDED JULY 31, 2022)	Common Stock				Preferred Stock				Paid-in		Retained		Comprehensive			Treasury
FISCAL YEAR 2022 (THREE MONTHS ENDED JULY 31, 2022)	Shares		Amount		Shares		Amount		Capital		Earnings		Income (Loss)			Stock			Total
BALANCE AT APRIL 30, 2022		23,457,515	$	2,346		-	$	-	$	1,508,994	$	14,806,057	$	67,823		$	(490,530	)	$	15,894,690

STOCK-BASED COMPENSATION		-		-		-		-		14,399		-		-			-			14,399

PURCHASE OF TREASURY STOCK (10,400 SHARES)		-		-		-		-		-		-		-			(9,327	)		(9,327	)

NET INCOME		-		-		-		-		-		288,034		-			-			288,034

OTHER COMPREHENSIVE LOSS, NET OF TAX		-		-		-		-		-		-		(39,204	)		-			(39,204	)

BALANCE AT JULY 31, 2022		23,457,515	$	2,346		-	$	-	$	1,523,393	$	15,094,091	$	28,619		$	(499,857	)	$	16,148,592

														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

	Three months ended July 31,				Nine months ended July 31,				Three months ended July 31,				Nine months ended July 31,
	2021		2020		2021		2020		2022		2021		2022		2021
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	$	288,034	$	2,275,118	$	833,305	$	2,783,421

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		22,952,009		23,029,215		22,996,584		23,022,950
Effect of options to purchase common stock		145,390		31,014		155,141		26,941		18,950		145,390		35,342		155,141
Weighted average number of shares - used to compute diluted earnings per share		23,174,605		23,032,641		23,178,091		23,030,066		22,970,959		23,174,605		23,031,926		23,178,091

	Three months ended July 31,								Nine months ended July 31,								Three months ended July 31,								Nine months ended July 31,
Revenues by Region:	2021				2020				2021				2020				2022				2021				2022				2021
Puerto Rico	$	3,749	75.2	%	$	4,990	79.4	%	$	10,861	74.8	%	$	14,287	86.4	%	$	2,983	62.5	%	$	3,749	75.2	%	$	9,421	63.8	%	$	10,861	74.8	%
United States		623	12.5	%		939	15.0	%		1,547	10.7	%		1,724	10.4	%		1,106	23.1	%		623	12.5	%		3,518	23.8	%		1,547	10.7	%
Europe		580	11.6	%		311	5.0	%		1,785	12.3	%		467	2.8	%		649	13.6	%		580	11.6	%		1,781	12.1	%		1,785	12.3	%
Brazil		36	0.7	%		38	0.6	%		325	2.2	%		61	0.4	%
Other¹																		36	0.8	%		36	0.7	%		41	0.3	%		325	2.2	%
	$	4,988	100.0	%	$	6,278	100.0	%	$	14,518	100.0	%	$	16,539	100.0	%	$	4,774	100.0	%	$	4,988	100.0	%	$	14,761	100.0	%	$	14,518	100.0	%

	·	~~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.~~

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
May 1, 2022 through May 31, 2022		400	$	0.95		400		1,561,943
June 1, 2022 through June 30, 2022		8,200		0.91		8,200		1,553,743
July 1, 2022 through July 31, 2022		1,800		0.84		1,800		1,551,943
Total		10,400	$	0.90		10,400

31.1		Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of the chief executive officer and chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase
104		Cover page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

	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, and Secretary
	(Principal Financial Officer and Principal Accounting Officer)

Dated: September 14, ~~2021~~2022