Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Jan. 31, 2019 | Mar. 14, 2019 | |
Document And Entity Information | ||
Entity Registrant Name | Pharma-Bio Serv, Inc. | |
Entity Central Index Key | 0001304161 | |
Document Type | 10-Q | |
Document Period End Date | Jan. 31, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --10-31 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding | 23,003,281 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2019 |
Consolidated Balance Sheets (Un
Consolidated Balance Sheets (Unaudited) - USD ($) | Jan. 31, 2019 | Oct. 31, 2018 |
ASSETS: | ||
Cash and cash equivalents | $ 15,798,526 | $ 16,029,920 |
Accounts receivable | 5,456,283 | 5,193,385 |
Current portion - promissory note receivable due from sale of assets from discontinued operations | 1,750,000 | 1,750,000 |
Prepaids and other assets | 335,982 | 438,492 |
Total current assets | 23,340,791 | 23,411,797 |
Promissory note receivable due from sale of assets from discontinued operations | 1,250,000 | 1,250,000 |
Property and equipment | 274,265 | 298,020 |
Other assets | 417,762 | 418,495 |
Total assets | 25,282,818 | 25,378,312 |
LIABILITIES AND STOCKHOLDERS' EQUITY: | ||
Current portion-obligations under capital leases | 13,880 | 13,768 |
Accounts payable and accrued expenses | 1,583,784 | 2,140,001 |
Current portion of US Tax Reform Transition Tax and income taxes payable | 453,915 | 411,903 |
Total current liabilities | 2,051,579 | 2,565,672 |
US Tax Reform Transition Tax payable | 2,485,000 | 2,485,000 |
Obligations under capital lease | 42,518 | 46,027 |
Other liabilities | 17,950 | 17,950 |
Total liabilities | 4,597,047 | 5,114,649 |
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; 23,377,259 and 23,373,817 shares issued, and 22,996,083 and 23,058,413 shares outstanding at January 31, 2019 and October 31, 2018, respectively | 2,338 | 2,337 |
Additional paid-in capital | 1,355,956 | 1,346,956 |
Retained earnings | 19,582,131 | 19,111,111 |
Accumulated other comprehensive loss | 115,789 | 107,947 |
Stockholders' equity before treasury stock | 21,056,214 | 20,568,351 |
Treasury stock, at cost; 381,176 and 315,404 common shares held at January 31, 2019 and October 31, 2018, respectively | (370,443) | (304,688) |
Total stockholders' equity | 20,685,771 | 20,263,663 |
Total liabilities and stockholders' equity | $ 25,282,818 | $ 25,378,312 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Jan. 31, 2019 | Oct. 31, 2018 |
Stockholders' equity: | ||
Preferred stock, par value | $ .0001 | $ 0.0001 |
Preferred stock, Authorized | 10,000,000 | 10,000,000 |
Preferred stock, outstanding | 0 | 0 |
Common stock, par value | $ .0001 | $ 0.0001 |
Common stock, Authorized | 50,000,000 | 50,000,000 |
Common stock, Issued | 23,377,259 | 23,373,817 |
Common stock, outstanding | 22,996,083 | 23,058,413 |
Treasury stock, shares | 381,176 | 315,404 |
Consolidated Statements of Inco
Consolidated Statements of Income (Loss) (Unaudited) - USD ($) | 3 Months Ended | |
Jan. 31, 2019 | Jan. 31, 2018 | |
Income Statement [Abstract] | ||
REVENUES | $ 4,566,197 | $ 3,726,596 |
COST OF SERVICES | 3,087,137 | 2,545,070 |
GROSS PROFIT | 1,479,060 | 1,181,526 |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 1,046,559 | 970,588 |
INCOME (LOSS) FROM CONTINUING OPERATIONS | 432,501 | 210,938 |
OTHER INCOME, NET | 81,474 | 17,771 |
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX AND US TAX REFORM TRANSITION TAX EXPENSE | 513,975 | 228,709 |
INCOME TAX AND US TAX REFORM TRANSITION TAX EXPENSE | 42,955 | 2,701,023 |
NET INCOME (LOSS) FROM CONTINUING OPERATIONS | 471,020 | (2,472,314) |
DISCONTINUED OPERATIONS NET LOSS FROM OPERATIONS, NET OF TAX | 0 | (191,698) |
NET INCOME (LOSS) | $ 471,020 | $ (2,664,012) |
BASIC AND DILUTED EARNINGS PER COMMON SHARE (Continuing operations) | $ 0.020 | $ (0.107) |
BASIC AND DILIUTED EARNINGS (LOSSES) PER COMMON SHARE (Discontinued operations) | $ 0 | $ (0.008) |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC | 23,038,999 | 23,063,997 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED | 23,119,027 | 23,065,290 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) | 3 Months Ended | |
Jan. 31, 2019 | Jan. 31, 2018 | |
Consolidated Statements Of Comprehensive Income Loss | ||
NET INCOME (LOSS) | $ 471,020 | $ (2,664,012) |
OTHER COMPREHENSIVE INCOME, NET OF RECLASSIFICATION ADJUSTMENTS AND TAXES: | ||
Foreign currency translation gain | 12,317 | 82,819 |
Net unrealized gain on available-for-sale-securities | 0 | (1,544) |
Other-than-temporary impairment included in net income | (4,475) | 0 |
TOTAL OTHER COMPREHENSIVE INCOME | 7,842 | 81,275 |
COMPREHENSIVE INCOME (LOSS) | $ 478,862 | $ (2,582,737) |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Jan. 31, 2019 | Jan. 31, 2018 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income (loss) | $ 471,020 | $ (2,664,012) |
Add: net (income) loss from discontinued operations | 0 | 191,698 |
Net loss from continuing operations | 471,020 | (2,472,314) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Stock-based compensation | 9,000 | 17,550 |
Depreciation and amortization | 26,838 | 23,043 |
Other-than-temporary impairment on available-for-sale securities | (4,475) | 0 |
Decrease in accounts receivable | (261,287) | 1,150,563 |
Decrease (increase) in other assets | 56,736 | 106,154 |
Increase (decrease) in liabilities | (515,544) | 2,591,934 |
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES OF CONTINUING OPERATIONS | (217,712) | 1,416,930 |
CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS: | ||
Disposal of marketable securities | 44,475 | 0 |
Acquisition of property and equipment | (3,083) | (51,115) |
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF CONTINUING OPERATIONS | 41,392 | (51,115) |
CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS: | ||
Repurchase of common stock | (65,755) | (13,659) |
Payments on obligations under capital leases | (3,397) | (3,286) |
NET CASH USED IN FINANCING ACTIVITIES OF CONTINUING OPERATIONS | (69,152) | (16,945) |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 14,078 | 10,738 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (231,394) | 1,359,608 |
DISCONTINUED OPERATIONS: | ||
Net cash provided by operating activities | 0 | 122,343 |
Net cash provided by (used in) investing activities | 0 | 0 |
Net cash provided by (used in) financing activities | 0 | 0 |
CASH PROVIDED BY DISCONTINUED OPERATIONS | 0 | 122,343 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (231,394) | 1,481,951 |
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 16,029,920 | 11,591,548 |
CASH AND CASH EQUIVALENTS - END OF PERIOD | 15,798,526 | 13,073,499 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: | ||
Cash paid during the period for: income taxes | 0 | 0 |
Cash paid during the period for: interest | 479 | 542 |
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 | 6,589 | 1,767 |
Conversion of cashless exercise of options to common stock | $ 1 | $ 0 |
A. ORGANIZATION AND SUMMARY OF
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Jan. 31, 2019 | |
Accounting Policies [Abstract] | |
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ORGANIZATION Pharma-Bio Serv, Inc. (“Pharma-Bio”) is a Delaware corporation organized on January 14, 2004. Pharma-Bio is the parent company of Pharma-Bio Serv PR, Inc. (“Pharma-PR”), Pharma Serv, Inc. (“Pharma-Serv”), and Scienza Labs, Inc. (“Scienza Labs”), each a Puerto Rico corporation, Pharma-Bio Serv US, Inc. (“Pharma-US”), a Delaware corporation, Pharma-Bio Serv Validation & Compliance Limited (“Pharma-IR”), an Irish corporation currently inactive, Pharma-Bio Serv SL (“Pharma-Spain”), a Spanish limited liability company, and Pharma-Bio Serv Brasil Servicos de Consultoria Ltda. (“Pharma-Brazil”), a Brazilian limited liability company. Pharma-Bio, Pharma-PR, Pharma-Serv, Scienza Labs, Pharma-US, Pharma-IR, Pharma-Spain and Pharma-Brazil are collectively referred to as the “Company.” The Company operates in Puerto Rico, the United States, Ireland, Spain and Brazil under the name of Pharma-Bio Serv and is engaged in providing technical compliance consulting service, and until September 17, 2018 microbiological and chemical laboratory testing (the “Lab”). On September 17, 2018 (the “Sales Closing Date”), the Company sold substantially all of its Lab business assets (the “Laboratory Assets”). SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The condensed consolidated balance sheet of the Company as of October 31, 2018 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 three months ended January 31, 2019 are not necessarily indicative of expected results for the full 2019 fiscal year. The accompanying financial data as of January 31, 2019, and for the three-month period ended January 31, 2019 and 2018 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, 2018. Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Segments On the Sales Closing Date, the Company sold substantially all of its Laboratory Assets. As a result of the sale, the Company currently operates in three reportable business segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, and (iii) Europe technical compliance consulting. Accordingly, the accompanying consolidated financial statements are presented to show these three reportable segments as continuing operations, while the Lab is presented as a discontinued operation. Use of Estimates The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from these estimates. Fair Value of Financial Instruments Accounting standards have established a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting standards have established three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets and liabilities. Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). The carrying value of the Company's financial instruments (excluding obligations under capital leases), cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, are considered reasonable estimates of fair value due to their liquidity or short-term nature. Management believes, based on current rates, that the fair value of its obligations under capital leases approximates the carrying amount. Revenue Recognition In May 2014, the Financial Accounting Standards Board (FASB) issued a new accounting standard that amends the guidance for the recognition of revenue from contracts with customers to transfer goods and services. The FASB subsequently issued additional, clarifying standards to address issues arising from implementation of the new revenue recognition standard. The new revenue recognition standard and clarifying standards require an entity to recognize revenue when control of promised goods or services is transferred to the customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted this new standard as of November 1, 2018, by applying the modified-retrospective method to those contracts that were not completed as of that date. The results for reporting periods beginning after November 1, 2018, are presented in accordance with the new standard, although comparative information has not been restated and continues to be reported under the accounting standards and policies in effect for those periods. The adoption of this new standard had an immaterial impact on our reported total revenues and operating income as compared to what reported amounts would have been under the prior standard, and we expect the impact of adoption in future periods to also be immaterial. Revenue is primarily derived from: (1) time and materials contracts (representing approximately 99% of total revenues), which is recognized by applying the proportional performance model, whereby revenue is recognized as performance occurs, and (2) short-term fixed-fee contracts or "not to exceed" contracts (representing approximately 1% of total revenues), which revenue is recognized similarly, except that certain milestones also have to be reached before revenue is recognized. If the Company determines that a contract will result in a loss, the Company recognizes the estimated loss in the period in which such determination is made. Cash Equivalents For purposes of the consolidated statements of cash flows, cash equivalents include investments in a money market obligations trust that is registered under the U.S. Investment Company Act of 1940, as amended, and liquid investments with original maturities of three months or less. Accounts Receivable Accounts receivable are recorded at their estimated realizable value. Accounts are deemed past due when payment has not been received within the stated time period. The Company's policy is to review individual past due amounts periodically and write off amounts for which all collection efforts are deemed to have been exhausted. Due to the nature of the Company’s customers, bad debts are mainly accounted for using the direct write-off method whereby an expense is recognized only when a specific account is determined to be uncollectible. The effect of using this method approximates that of the allowance method. Income Taxes The Company follows an asset and liability approach method of accounting for income taxes. This method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. The Company follows guidance from the Financial Accounting Standards Board (“FASB”) related to Accounting for Uncertainty in Income Taxes, Property and Equipment Owned property and equipment, and leasehold improvements are stated at cost. Vehicles under capital leases are stated at the lower of fair market value or net present value of the minimum lease payments at the inception of the leases. Depreciation and amortization of owned assets are provided for, when placed in service, in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, using straight-line basis. Assets under capital leases and leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the lease term, including renewals that have been determined to be reasonable assured. Major renewals and betterments that extend the life of the assets are capitalized, while expenditures for repairs and maintenance are expensed when incurred. As of January 31, 2019 and October 31, 2018, the accumulated depreciation and amortization amounted to $523,791 and $496,953, respectively. The Company evaluates for impairment its long-lived assets to be held and used, and long-lived assets to be disposed of, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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 (Loss) Per Share of Common Stock Basic earnings (loss) per share of common stock is calculated by dividing net earnings (loss) by the weighted average number of shares of common stock outstanding. Diluted loss per share includes the dilution of common stock equivalents, which include principally shares that may be issued upon the exercise of warrants, stock option and restricted stock unit awards. The diluted weighted average shares of common stock outstanding were calculated using the treasury stock method for the respective periods. Foreign Operations The functional currency of the Company’s foreign subsidiaries is its local currency. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period. The cumulative translation effect for subsidiaries using a functional currency other than the U.S. dollar is included as a cumulative translation adjustment in stockholders’ equity and as a component of comprehensive income. The Company’s intercompany accounts are typically denominated in the functional currency of the foreign subsidiary. Gains and losses resulting from the remeasurement of intercompany receivables that the Company considers to be of a long-term investment nature are recorded as a cumulative translation adjustment in stockholders’ equity and as a component of comprehensive income, while gains and losses resulting from the remeasurement of intercompany receivables from those international subsidiaries for which the Company anticipates settlement in the foreseeable future are recorded in the consolidated statements of operations. Subsequent Events The Company has evaluated subsequent events through the filing date of this report. The Company has determined that there are no events occurring in this period that required disclosure or adjustment. Reclassifications Certain reclassifications have been made to the January 31, 2018 condensed consolidated financial statements to conform them to the January 31, 2019 condensed consolidated financial statements presentation. Such reclassifications do not affect net loss as previously reported. Recent accounting pronouncements not implemented In February 2016, the FASB issued a new accounting standard that amends the guidance for the accounting and disclosure of leases. This new standard requires that lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about their leasing arrangements. The new standard is effective for interim and annual periods beginning on January 1, 2019 and may be adopted earlier. The Company continues to evaluate the impact that this new standard will have on its consolidated financial statements. The Company does not expect that this standard will have a material impact to its Consolidated Statements of Operations but expects that this standard will have a material impact on the assets and liabilities on its Consolidated Balance Sheets upon adoption. |
B. PROMISSORY NOTES
B. PROMISSORY NOTES | 3 Months Ended |
Jan. 31, 2019 | |
Marketable Securities [Abstract] | |
B. PROMISSORY NOTE | On September 17, 2018, the Company completed the sale of its Laboratory Assets for $5 million and received, as partial payment, a $3 million Promissory Note from the purchaser. The Promissory Note is composed of two tranches; (i) Tranche A for $2 million and secured with lab equipment and (ii) Tranche B for $1 million which is unsecured. The interest rate accrual is 3% for Tranche A and 5% for Tranche B. Interest is due semi-annually in arrears commencing on the six-month after the Sales Closing Date. Tranche A is due in two installments of $750,000 and $1,250,000, on September 17, 2019 and 2020, respectively. Tranche B is due in two equal installments of $500,000 each, on March 17, 2019 and September 17, 2019. |
C. INCOME TAXES
C. INCOME TAXES | 3 Months Ended |
Jan. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
C. INCOME TAXES | On December 22, 2017, Public Law 115-97, commonly known as the Tax Cuts and Jobs Act of 2017 (the “Tax Reform”), was enacted. The Tax Reform is applicable to the Company commencing with its fiscal year 2018. 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 is estimated to be approximately $2.7 million. The Transition Tax liability may be paid over a period of eight years starting with the Company’s fiscal year 2019. In the past, most of these E&Ps’ were not repatriated since such E&Ps’ were considered to be reinvested indefinitely in the foreign location, therefore no US tax liability was incurred unless the E&Ps were repatriated as a dividend. After December 31, 2017, the Tax Reform has established a 100% tax exemption on the foreign-source portion of dividends received attributable to E&Ps, with certain limitations. 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 totally exempt from Puerto Rico earnings distribution tax. Puerto Rico operations not covered in the exempt activities of the Grant are subject to Puerto Rico income tax at a maximum tax rate of 39% as provided by the 1994 Puerto Rico Internal Revenue Code, as amended. The operations carried out in the United States by the Company’s subsidiary was taxed in the United States at a maximum regular federal income tax rate of 35%. Among the Tax Reform provisions, effective with the Company’s fiscal year ending on October 31, 2018, is a provision whereby the regular federal income tax rate is reduced to a 23.5% blended rate and 21% thereafter. Deferred income tax assets and liabilities are computed for differences between the consolidated financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Pharma-Spain, Pharma-IR, Pharma-Bio/Pharma-US, Pharma-PR and Pharma-Serv have unused operating losses which result in a potential deferred tax asset. However, an allowance has been provided covering the total amount of such balance since it is uncertain whether the net operating losses can be used to offset future taxable income before their expiration dates. Realization of future tax benefits related to a deferred tax asset is dependent on many factors, including the company’s ability to generate taxable income. Accordingly, the income tax benefit will be recognized when realization is determined to be more probable than not. These net operating losses are available to offset future taxable income through 2033 for Pharma-Spain; indefinitely for Pharma-IR; until 2038 for Pharma-Bio/Pharma-US; until 2027 for Pharma-PR and Pharma-Serv. The Company files income tax returns in the United States (federal and various states jurisdictions), Puerto Rico, Ireland, Spain and Brazil. The 2014 (2013 for Puerto Rico) through 2017 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. |
D. WARRANTS
D. WARRANTS | 3 Months Ended |
Jan. 31, 2019 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
D. WARRANTS | On December 2014, the Company entered into an agreement with a firm for providing (i) business development and (ii) mergers and acquisition services to the Company. Pursuant to the agreement terms, the Company issued warrants for the purchase of 1,000,000 common shares at an exercise price of $1.80 per share. The underlying common shares of the warrants are fully vested and expire on December 1, 2019. |
E. EQUITY TRANSACTIONS
E. EQUITY TRANSACTIONS | 3 Months Ended |
Jan. 31, 2019 | |
Stockholders' equity: | |
E. EQUITY TRANSACTIONS | On June 13, 2014, the Board of Directors of the Company authorized the Company to repurchase up to two million shares of its outstanding common stock (the “Repurchase Program”). The timing, manner, price and amount of any repurchases under the Repurchase Program will be at the discretion of the Company, subject to the requirements of the Securities Exchange Act of 1934, as amended, and related rules. The Repurchase Program does not oblige the Company to repurchase any shares and it may be modified, suspended or terminated at any time and for any reason. No shares will be repurchased under the Repurchase Program directly from directors or officers of the Company. As of January 31, 2019 and October 31, 2018, a total of 318,204 and 315,404 shares of the Company’s common stock were purchased under the Repurchase Program for an aggregate amount of $307,471 and $304,688, respectively. Also, on November 26, 2018, the Company repurchased 62,972 shares of common stock, outside of the Repurchase Program, from the Company’s Chief Executive Officer at $1.00 per share. These shares were repurchased at a discount to market to provide for an orderly disposition of the shares. |
F. EARNINGS (LOSSES) PER SHARE
F. EARNINGS (LOSSES) PER SHARE | 3 Months Ended |
Jan. 31, 2019 | |
Earnings Per Share [Abstract] | |
F. EARNINGS (LOSSES) PER SHARE | The following data shows the amounts used in the calculations of basic and diluted earnings (losses) per share. Three months ended January 31, 2019 2018 Net income (loss) available to common equity holders - used to compute basic and diluted earnings (losses) per share (continuing operations) $ 471,020 $ (2,472,314 ) Net income (loss) available to common equity holders - used to compute basic and diluted earnings (losses) per share (discontinued operations) $ - $ (191,698 ) Weighted average number of common shares - used to compute basic earnings (losses) per share 23,038,999 23,063,997 Effect of warrants to purchase common stock - - Effect of restricted stock units to common stock - - Effect of options to purchase common stock 80,028 1,293 Weighted average number of shares - used to compute diluted earnings (losses) per share 23,119,027 23,065,290 Warrants for the purchase of 1,000,000 shares of common stock for the three-month periods ended in January 31, 2019 and 2018 were not included in computing diluted earnings per share because their effects were antidilutive. In addition, options for the purchase of 80,000 and 620,000 shares of common stock for the three-month periods ended in January 31, 2019 and 2018, respectively, were not included in computing diluted earnings per share because their effects were also antidilutive. |
G. CONCENTRATIONS OF RISK
G. CONCENTRATIONS OF RISK | 3 Months Ended |
Jan. 31, 2019 | |
Risks and Uncertainties [Abstract] | |
G. CONCENTRATIONS OF RISK | Cash and cash equivalents The Company’s domestic cash and cash equivalents consist of cash deposits in FDIC insured banks (substantially covered by FDIC insurance by the spread of deposits in multiple FDIC insured banks), a money market obligations trust registered under the US Investment Company Act of 1940, as amended, and U.S. Treasury securities with maturities of three months or less. In the foreign markets we serve, we also maintain cash deposits in foreign banks, which tend to be not significant and have no specific insurance. No losses have been experienced or are expected on these accounts. Accounts receivable and revenues Management deems all of its accounts receivable to be fully collectible, and, as such, does not maintain any allowances for uncollectible receivables. The Company's revenues, and the related receivables, are concentrated in the pharmaceutical industry in Puerto Rico, the United States, Ireland, Spain and Brazil. Although a few customers represent a significant source of revenue, the Company’s functions are not a continuous process, accordingly, the client base for which the services are typically rendered, on a project-by-project basis, changes regularly. The Company provided a substantial portion of its services to five customers, which accounted for 10% or more of its revenues in either of the three-month periods ended January 31, 2019 and 2018. During the three months ended January 31, 2019, revenues from these customers were 18.0%, 14.2%, 11.1%, 11.0%, and 0.0%, or a total of 54.3%, as compared to the percentages for the same period last year of 3.1%, 3.6%, 9.0%, 16.1% and 11.3%, or a total of 43.1%, respectively. At January 31, 2019, amounts due from these customers represented 57.9% of the Company’s total accounts receivable balance. |
H. SEGMENT DISCLOSURES
H. SEGMENT DISCLOSURES | 3 Months Ended |
Jan. 31, 2019 | |
Segment Reporting [Abstract] | |
H. SEGMENT DISCLOSURES | The Company’s segments are based on the organizational structure for which financial results are regularly evaluated by the Company’s chief operating decision maker to determine resource allocation and assess performance. Each reportable segment is managed by its own management team and reports to executive management. The Company has three reportable segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, and (iii) Europe technical compliance consulting. These reportable segments provide services primarily to the pharmaceutical, chemical, medical device and biotechnology industries in their respective markets. The following table presents information about the reported revenue from services and earnings from continuing operations of the Company for the three-month periods ended in January 31, 2019 and 2018. There is no intersegment revenue for the mentioned periods. Corporate expenses that support the operating units have been allocated to the segments. Asset information by reportable segment is not presented, since the Company does not produce such information internally, nor does it use such data to manage its business. Three months ended January 31, 2019 2018 REVENUES: Puerto Rico consulting $ 3,888,554 $ 2,698,365 United States consulting 526,645 286,635 Europe consulting 91,730 721,132 Other segments¹ 59,268 20,464 Total consolidated revenues $ 4,566,197 $ 3,726,596 INCOME (LOSS) BEFORE TAXES: Puerto Rico consulting $ 375,270 $ (2,015 ) United States consulting (11,910 ) (87,165 ) Europe consulting (49,911 ) 221,602 Other segments¹ 200,526 96,287 Total consolidated income before taxes $ 513,975 $ 228,709 ¹ Other segments represent activities that fall below the reportable threshold and are carried out in Puerto Rico and Brazil. These activities include a Brazilian compliance consulting division and corporate headquarters, as applicable. Long lived assets (property and equipment) as of January 31, 2019 and October 31, 2018, and related depreciation and amortization expense for the three months ended January 31, 2019 and 2018, 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. |
A. ORGANIZATION AND SUMMARY O_2
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Jan. 31, 2019 | |
Accounting Policies [Abstract] | |
Consolidation | The accompanying condensed consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. |
Segments | On the Sales Closing Date, the Company sold substantially all of its Laboratory Assets. As a result of the sale, the Company currently operates in three reportable business segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, and (iii) Europe technical compliance consulting. Accordingly, the accompanying consolidated financial statements are presented to show these three reportable segments as continuing operations, while the Lab is presented as a discontinued operation. |
Use of Estimates | The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from these estimates. |
Fair Value of Financial Instruments | Accounting standards have established a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting standards have established three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets and liabilities. Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). The carrying value of the Company's financial instruments (excluding obligations under capital leases), cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, are considered reasonable estimates of fair value due to their liquidity or short-term nature. Management believes, based on current rates, that the fair value of its obligations under capital leases approximates the carrying amount. |
Revenue Recognition | In May 2014, the Financial Accounting Standards Board (FASB) issued a new accounting standard that amends the guidance for the recognition of revenue from contracts with customers to transfer goods and services. The FASB subsequently issued additional, clarifying standards to address issues arising from implementation of the new revenue recognition standard. The new revenue recognition standard and clarifying standards require an entity to recognize revenue when control of promised goods or services is transferred to the customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted this new standard as of November 1, 2018, by applying the modified-retrospective method to those contracts that were not completed as of that date. The results for reporting periods beginning after November 1, 2018, are presented in accordance with the new standard, although comparative information has not been restated and continues to be reported under the accounting standards and policies in effect for those periods. The adoption of this new standard had an immaterial impact on our reported total revenues and operating income as compared to what reported amounts would have been under the prior standard, and we expect the impact of adoption in future periods to also be immaterial. Revenue is primarily derived from: (1) time and materials contracts (representing approximately 99% of total revenues), which is recognized by applying the proportional performance model, whereby revenue is recognized as performance occurs, and (2) short-term fixed-fee contracts or "not to exceed" contracts (representing approximately 1% of total revenues), which revenue is recognized similarly, except that certain milestones also have to be reached before revenue is recognized. If the Company determines that a contract will result in a loss, the Company recognizes the estimated loss in the period in which such determination is made. |
Cash Equivalents | For purposes of the consolidated statements of cash flows, cash equivalents include investments in a money market obligations trust that is registered under the U.S. Investment Company Act of 1940, as amended, and liquid investments with original maturities of three months or less. |
Accounts Receivable | Accounts receivable are recorded at their estimated realizable value. Accounts are deemed past due when payment has not been received within the stated time period. The Company's policy is to review individual past due amounts periodically and write off amounts for which all collection efforts are deemed to have been exhausted. Due to the nature of the Company’s customers, bad debts are mainly accounted for using the direct write-off method whereby an expense is recognized only when a specific account is determined to be uncollectible. The effect of using this method approximates that of the allowance method. |
Income Taxes | The Company follows an asset and liability approach method of accounting for income taxes. This method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. The Company follows guidance from the Financial Accounting Standards Board (“FASB”) related to Accounting for Uncertainty in Income Taxes, |
Property and Equipment | Owned property and equipment, and leasehold improvements are stated at cost. Vehicles under capital leases are stated at the lower of fair market value or net present value of the minimum lease payments at the inception of the leases. Depreciation and amortization of owned assets are provided for, when placed in service, in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, using straight-line basis. Assets under capital leases and leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the lease term, including renewals that have been determined to be reasonable assured. Major renewals and betterments that extend the life of the assets are capitalized, while expenditures for repairs and maintenance are expensed when incurred. As of January 31, 2019 and October 31, 2018, the accumulated depreciation and amortization amounted to $523,791 and $496,953, respectively. The Company evaluates for impairment its long-lived assets to be held and used, and long-lived assets to be disposed of, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. |
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 (Loss) Per Share of Common Stock | Basic earnings (loss) per share of common stock is calculated by dividing net earnings (loss) by the weighted average number of shares of common stock outstanding. Diluted loss per share includes the dilution of common stock equivalents, which include principally shares that may be issued upon the exercise of warrants, stock option and restricted stock unit awards. The diluted weighted average shares of common stock outstanding were calculated using the treasury stock method for the respective periods. |
Foreign Operations | The functional currency of the Company’s foreign subsidiaries is its local currency. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period. The cumulative translation effect for subsidiaries using a functional currency other than the U.S. dollar is included as a cumulative translation adjustment in stockholders’ equity and as a component of comprehensive income. The Company’s intercompany accounts are typically denominated in the functional currency of the foreign subsidiary. Gains and losses resulting from the remeasurement of intercompany receivables that the Company considers to be of a long-term investment nature are recorded as a cumulative translation adjustment in stockholders’ equity and as a component of comprehensive income, while gains and losses resulting from the remeasurement of intercompany receivables from those international subsidiaries for which the Company anticipates settlement in the foreseeable future are recorded in the consolidated statements of operations. |
Subsequent Events | The Company has evaluated subsequent events through the filing date of this report. The Company has determined that there are no events occurring in this period that required disclosure or adjustment. |
Reclassifications | Certain reclassifications have been made to the January 31, 2018 condensed consolidated financial statements to conform them to the January 31, 2019 condensed consolidated financial statements presentation. Such reclassifications do not affect net loss as previously reported. |
Recent accounting pronouncements | In February 2016, the FASB issued a new accounting standard that amends the guidance for the accounting and disclosure of leases. This new standard requires that lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about their leasing arrangements. The new standard is effective for interim and annual periods beginning on January 1, 2019 and may be adopted earlier. The Company continues to evaluate the impact that this new standard will have on its consolidated financial statements. The Company does not expect that this standard will have a material impact to its Consolidated Statements of Operations but expects that this standard will have a material impact on the assets and liabilities on its Consolidated Balance Sheets upon adoption. |
F. EARNINGS (LOSSES) PER SHARE
F. EARNINGS (LOSSES) PER SHARE (Tables) | 3 Months Ended |
Jan. 31, 2019 | |
Earnings Per Share [Abstract] | |
Schedule of calculations of basic and diluted earnings (losses) per share | Three months ended January 31, 2019 2018 Net income (loss) available to common equity holders - used to compute basic and diluted earnings (losses) per share (continuing operations) $ 471,020 $ (2,472,314 ) Net income (loss) available to common equity holders - used to compute basic and diluted earnings (losses) per share (discontinued operations) $ - $ (191,698 ) Weighted average number of common shares - used to compute basic earnings (losses) per share 23,038,999 23,063,997 Effect of warrants to purchase common stock - - Effect of restricted stock units to common stock - - Effect of options to purchase common stock 80,028 1,293 Weighted average number of shares - used to compute diluted earnings (losses) per share 23,119,027 23,065,290 |
H. SEGMENT DISCLOSURES (Tables)
H. SEGMENT DISCLOSURES (Tables) | 3 Months Ended |
Jan. 31, 2019 | |
Segment Reporting [Abstract] | |
Schedule of segment reporting information | Three months ended January 31, 2019 2018 REVENUES: Puerto Rico consulting $ 3,888,554 $ 2,698,365 United States consulting 526,645 286,635 Europe consulting 91,730 721,132 Other segments¹ 59,268 20,464 Total consolidated revenues $ 4,566,197 $ 3,726,596 INCOME (LOSS) BEFORE TAXES: Puerto Rico consulting $ 375,270 $ (2,015 ) United States consulting (11,910 ) (87,165 ) Europe consulting (49,911 ) 221,602 Other segments¹ 200,526 96,287 Total consolidated income before taxes $ 513,975 $ 228,709 |
A. ORGANIZATION AND SUMMARY O_3
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | Jan. 31, 2019 | Oct. 31, 2018 |
Accounting Policies [Abstract] | ||
Accumulated depreciation and amortization | $ 523,791 | $ 496,953 |
E. EQUITY TRANSACTIONS (Details
E. EQUITY TRANSACTIONS (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended |
Jan. 31, 2019 | Oct. 31, 2018 | |
Stockholders' equity: | ||
Shares purchased under Repurchase Program | 318,204 | 315,404 |
Shares purchased under Repurchase Program, amount | $ 307,471 | $ 304,688 |
F. EARNINGS (LOSSES) PER SHAR_2
F. EARNINGS (LOSSES) PER SHARE (Details) - USD ($) | 3 Months Ended | |
Jan. 31, 2019 | Jan. 31, 2018 | |
Earnings Per Share [Abstract] | ||
Net income (loss) available to common equity holders - used to compute basic and diluted earnings (losses) per share (continuing operations) | $ 471,020 | $ (2,472,314) |
Net income (loss) available to common equity holders - used to compute basic and diluted earnings (losses) per share (discontinued operations) | $ 0 | $ (191,698) |
Weighted average number of common shares - used to compute basic earnings (losses) per share | 23,038,999 | 23,063,997 |
Effect of warrants to purchase common stock | 0 | 0 |
Effect of restricted stock units to issue common stock | 0 | 0 |
Effect of options to purchase common stock | 80,028 | 1,293 |
Weighted average number of shares - used to compute diluted earnings (losses) per share | 23,119,027 | 23,065,290 |
F. EARNINGS (LOSSES) PER SHAR_3
F. EARNINGS (LOSSES) PER SHARE (Details Narrative) - shares | 3 Months Ended | |
Jan. 31, 2019 | Jan. 31, 2018 | |
Earnings Per Share [Abstract] | ||
Antidilutive warrants excluded from computation of earnings (losses) per share | 1,000,000 | 1,000,000 |
Antidilutive options excluded from computation of earnings (losses) per share | 80,000 | 620,000 |
G. CONCENTRATION OF RISKS (Deta
G. CONCENTRATION OF RISKS (Details Narrative) | 3 Months Ended | |
Jan. 31, 2019 | Jan. 31, 2018 | |
Major Customer A | ||
Revenue from major customers | 18.00% | 3.10% |
Major Customer B | ||
Revenue from major customers | 14.20% | 3.60% |
Major Customer C | ||
Revenue from major customers | 11.10% | 9.00% |
Major Customer D | ||
Revenue from major customers | 11.00% | 16.10% |
Major Customer E | ||
Revenue from major customers | 0.00% | 11.30% |
Major Customer Total | ||
Revenue from major customers | 54.30% | 43.10% |
Amount due from major customers as percentage of accounts receivable | 57.90% |
H. SEGMENT DISCLOSURES (Details
H. SEGMENT DISCLOSURES (Details) - USD ($) | 3 Months Ended | |
Jan. 31, 2019 | Jan. 31, 2018 | |
Revenues | $ 4,566,197 | $ 3,726,596 |
Income (loss) before taxes | 513,975 | 228,709 |
Puerto Rico consulting | ||
Revenues | 3,888,554 | 2,698,365 |
Income (loss) before taxes | 375,270 | (2,015) |
United States consulting | ||
Revenues | 526,645 | 286,635 |
Income (loss) before taxes | (11,910) | (87,165) |
Europe consulting | ||
Revenues | 91,730 | 721,132 |
Income (loss) before taxes | (49,911) | 221,602 |
Other segments | ||
Revenues | 59,268 | 20,464 |
Income (loss) before taxes | $ 200,526 | $ 96,287 |