PHARMA-BIO SERV, INC.
10-Ks and 10-Qs
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the
quarterly period ended January 31, 2020
or
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☐
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the transition
period from _____________ to ______________
Commission File No.
000-50956
PHARMA-BIO
SERV, INC.
(Exact Name of
Registrant as Specified in Its Charter)
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Delaware
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20-0653570
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(IRS Employer
Identification
No.)
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Pharma-Bio Serv Building,
# 6 Road 696
Dorado, Puerto Rico
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00646
(Zip
Code)
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(Address
of Principal Executive Offices)
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Registrant’s
Telephone Number, Including Area Code
787-278-2709
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N/A
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(Former
name, former address and former fiscal year, if changed since last
report)
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Securities registered pursuant to Section 12(b) of the Act:
None
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Title
of each class
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Trading
Symbol(s)
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Name of
each exchange on which registered
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Indicate
by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes
☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated
filer ☐
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Accelerated filer
☐
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Non-accelerated
filer ☒
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Smaller reporting
company ☒
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Emerging growth
company ☐
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Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes ☐ No ☒
The
number of shares of the registrant’s common stock outstanding
as of March 14, 2020 was 23,001,627.
PHARMA-BIO SERV, INC.
FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 2020
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
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Item 1.
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FINANCIAL STATEMENTS
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PHARMA-BIO SERV, INC.
Condensed Consolidated
B
alance
Sheets
(Unaudited)
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ASSETS
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January 31,
2020*
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October 31,
2019**
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Current
assets
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Cash and cash
equivalents
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$
15,254,752
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$
15,490,174
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Accounts
receivable
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7,716,573
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8,781,026
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Current
portion - promissory note receivable
due from sale of assets from discontinued
operations
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1,250,000
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1,250,000
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Prepaids
and other assets
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410,859
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453,780
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Total current
assets
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24,632,184
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25,974,980
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Property and
equipment
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251,865
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290,658
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Operating lease
right-of-use
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908,399
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-
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Other
assets
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367,797
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367,437
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Total
assets
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$
26,160,245
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$
26,633,075
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LIABILITIES
AND STOCKHOLDERS’
EQUITY
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Current
liabilities
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Current
portion-obligations under finance leases
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$
11,179
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$
11,030
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Current operating
lease liabilities
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153,763
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-
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Accounts payable
and accrued expenses
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1,384,932
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1,590,172
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Dividend payable to
stockholders
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-
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1,725,295
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Current
portion of US Tax Reform Transition Tax and income taxes
payable
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396,401
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344,043
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Total current
liabilities
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1,946,275
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3,670,540
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US Tax Reform
Transition Tax payable
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2,270,000
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2,270,000
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Obligations under
finance leases
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64,228
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67,079
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Long-term operating
lease liabilities
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729,389
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-
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Other
liabilities
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17,950
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17,950
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Total
liabilities
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5,027,842
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6,025,569
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Stockholders'
equity
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Preferred Stock,
$0.0001 par value; authorized 10,000,000 shares; none
outstanding
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-
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-
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Common Stock,
$0.0001 par value; authorized 50,000,000 shares; 23,405,753 and
23,397,707 shares issued, and 23,001,627 and 22,995,881 shares
outstanding at January 31, 2020 and October 31, 2019,
respectively
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2,341
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2,340
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Additional paid-in
capital
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1,392,506
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1,381,076
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Retained
earnings
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19,999,968
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19,473,069
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Accumulated other
comprehensive income
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131,866
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143,600
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21,526,681
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21,000,085
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Treasury stock, at
cost; 404,126 and 401,826 common shares held at January 31, 2020
and October 31, 2019, respectively
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(394,278
)
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(392,579
)
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Total stockholders'
equity
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21,132,403
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20,607,506
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Total liabilities
and stockholders' equity
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$
26,160,245
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$
26,633,075
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*
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Unaudited.
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**
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Condensed
from audited financial statements.
|
See
notes to the condensed consolidated financial
statements.
1
PHARMA-BIO SERV, INC.
Condensed Consolidated
S
tatements of
Operations
(Unaudited)
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Three months
ended January 31,
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2020
|
2019
|
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REVENUES
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$
4,613,167
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$
4,566,197
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COST OF
SERVICES
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3,027,275
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3,087,137
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GROSS
PROFIT
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1,585,892
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1,479,060
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SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES
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1,049,133
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1,046,559
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INCOME FROM
OPERATIONS
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536,759
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432,501
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OTHER INCOME,
NET
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45,436
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81,474
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INCOME BEFORE
INCOME TAX
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582,195
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513,975
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INCOME TAX
EXPENSE
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55,295
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42,955
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NET
INCOME
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$
526,900
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$
471,020
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BASIC
AND DILUTED EARNINGS PER COMMON SHARE
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$
0.023
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$
0.020
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WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING – BASIC
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23,002,191
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23,038,999
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WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING -
DILUTED
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23,018,537
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23,119,027
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See
notes to the condensed consolidated financial
statements.
2
PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of
C
omprehensive Income
(Unaudited)
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Three months
ended January 31,
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2020
|
2019
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NET
INCOME
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$
526,900
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$
471,020
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OTHER COMPREHENSIVE
INCOME (LOSS), NET OF
RECLASSIFICATION
ADJUSTMENTS AND TAXES:
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Foreign currency
translation gain (loss)
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(11,734
)
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12,317
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Available-for-sale
securities other-than-temporary impairment included in net
income
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-
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(4,475
)
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TOTAL OTHER
COMPREHENSIVE INCOME (LOSS)
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(11,734
)
|
7,842
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COMPREHENSIVE
INCOME
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$
515,166
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$
478,862
|
See
notes to the condensed consolidated financial
statements.
3
PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of
C
hanges in Stockholders' Equity
(Unaudited)
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Accumulated
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||
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Additional
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Other
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FISCAL YEAR
2019
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Common
Stock
|
Preferred Stock
|
Paid-in
|
Retained
|
Comprehensive
|
Treasury
|
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||
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Shares
|
Amount
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Shares
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Amount
|
Capital
|
Earnings
|
Income
(Loss)
|
Stock
|
Total
|
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BALANCE AT NOVEMBER 1,
2018
|
23,373,817
|
$
2,337
|
-
|
$
-
|
$
1,346,956
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$
19,111,111
|
$
107,947
|
$
(304,688
)
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$
20,263,663
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STOCK-BASED
COMPENSATION
|
-
|
-
|
-
|
-
|
9,000
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-
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-
|
-
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9,000
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ISSUANCE OF COMMON STOCK PURSUANT
TO THE CASHLESS EXERCISE OF STOCK OPTIONS
|
3,442
|
1
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-
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-
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-
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-
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-
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-
|
1
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PURCHASE OF TREASURY STOCK (65,772
SHARES)
|
-
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-
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-
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-
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-
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-
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-
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(65,755
)
|
(65,755
)
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NET INCOME
|
-
|
-
|
-
|
-
|
-
|
471,020
|
-
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-
|
471,020
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OTHER COMPREHENSIVE INCOME, NET OF
TAX
|
-
|
-
|
-
|
-
|
-
|
-
|
7,842
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-
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7,842
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BALANCE AT JANUARY 31, 2019
|
23,377,259
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$
2,338
|
-
|
$
-
|
$
1,355,956
|
$
19,582,131
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$
$115,789
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$
(370,443
)
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$
20,685,771
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Accumulated
|
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Additional
|
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Other
|
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FISCAL YEAR
2020
|
Common
Stock
|
Preferred Stock
|
Paid-in
|
Retained
|
Comprehensive
|
Treasury
|
|
||
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Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Earnings
|
Income
(Loss)
|
Stock
|
Total
|
|
BALANCE AT NOVEMBER 1,
2019
|
23,397,707
|
$
2,340
|
-
|
$
-
|
$
1,381,076
|
$
19,473,069
|
$
143,600
|
$
(392,579
)
|
$
20,607,506
|
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STOCK-BASED
COMPENSATION
|
-
|
-
|
-
|
-
|
11,430
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-
|
-
|
-
|
11,430
|
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ISSUANCE OF COMMON STOCK PURSUANT
TO THE CASHLESS EXERCISE OF STOCK OPTIONS
|
8,046
|
1
|
-
|
-
|
-
|
(1
)
|
-
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-
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-
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PURCHASE OF TREASURY STOCK (2,300
SHARES)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,699
)
|
(1,699
)
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NET INCOME
|
-
|
-
|
-
|
-
|
-
|
526,900
|
-
|
-
|
526,900
|
|
|
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|
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OTHER COMPREHENSIVE LOSS, NET OF
TAX
|
-
|
-
|
-
|
-
|
-
|
-
|
(11,734
)
|
-
|
(11,734
)
|
|
|
|
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BALANCE AT JANUARY 31, 2020
|
23,405,753
|
$
2,341
|
-
|
$
-
|
$
1,392,506
|
$
19,999,968
|
$
131,866
|
$
(394,278
)
|
$
21,132,403
|
See
notes to condensed consolidated financial statements
4
PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of
C
ash Flows
(Unaudited)
|
|
Three months
ended January 31,
|
|
|
|
2020
|
2019
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
Net
income
|
$
526,900
|
$
471,020
|
|
Adjustments to
reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
Stock-based
compensation
|
11,430
|
9,000
|
|
Depreciation and
amortization
|
21,032
|
26,838
|
|
Decrease (increase)
in accounts receivable
|
1,062,141
|
(261,287
)
|
|
Decrease (increase)
in other assets
|
(837,443
)
|
52,261
|
|
Increase (decrease)
in liabilities
|
730,959
|
(515,544
)
|
|
NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES
|
1,515,019
|
(217,712
)
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING:
|
|
|
|
Disposal of
marketable securities
|
-
|
44,475
|
|
Acquisition of
property and equipment
|
(11,326
)
|
(3,083
)
|
|
NET CASH PROVIDED
BY (USED IN) INVESTING ACTIVITIES
|
(11,326
)
|
41,392
|
|
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CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
Repurchase of
common stock
|
(1,699
)
|
(65,755
)
|
|
Payments on
obligations under finance lease
|
(2,702
)
|
(3,397
)
|
|
Cash dividends paid to shareholders
|
(1,725,295
)
|
-
|
|
NET CASH USED IN
FINANCING ACTIVITIES
|
(1,729,696
)
|
(69,152
)
|
|
|
|
|
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EFFECT OF EXCHANGE
RATE CHANGES ON CASH
|
(9,419
)
|
14,078
|
|
NET DECREASE IN
CASH AND CASH EQUIVALENTS
|
(235,422
)
|
(231,394
)
|
|
CASH AND CASH
EQUIVALENTS - BEGINNING OF PERIOD
|
15,490,174
|
16,029,920
|
|
CASH AND CASH
EQUIVALENTS - END OF PERIOD
|
$
15,254,752
|
$
15,798,526
|
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SUPPLEMENTAL
DISCLOURES OF
CASH FLOWS
INFORMATION:
|
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Cash paid during
the period for:
|
|
|
|
Income
taxes
|
$
-
|
$
-
|
|
Interest
|
$
1,016
|
$
479
|
|
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
|
$
3,649
|
$
6,589
|
|
Conversion of
cashless exercise of options to common stock
|
$
1
|
$
1
|
See
notes to the condensed consolidated financial
statements.
5
PHARMA-BIO SERV, INC.
N
otes To Condensed Consolidated
Financial Statements
January 31, 2020
(Unaudited)
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION
Pharma-Bio Serv, Inc. (“Pharma-Bio”) is a Delaware
corporation organized on January 14, 2004. Pharma-Bio is the parent
company of Pharma-Bio Serv PR, Inc. (“Pharma-PR”),
Pharma Serv, Inc. (“Pharma-Serv”), and Scienza Labs,
Inc. (“Scienza Labs”), each a Puerto Rico
corporation, Pharma-Bio Serv US, Inc. (“Pharma-US”), a
Delaware corporation, Pharma-Bio Serv Validation & Compliance
Limited (“Pharma-IR”), an Irish corporation currently
inactive, Pharma-Bio Serv SL (“Pharma-Spain”), a
Spanish limited liability company, and Pharma-Bio Serv Brasil
Servicos de Consultoria Ltda. (“Pharma-Brazil”), a
Brazilian limited liability company. Pharma-Bio, Pharma-PR,
Pharma-Serv, Scienza Labs, Pharma-US, Pharma-IR, Pharma-Spain and
Pharma-Brazil are collectively referred to as the
“Company.” The Company operates in Puerto Rico, the
United States, Ireland, Spain and Brazil under the name of
Pharma-Bio Serv and is engaged in providing technical compliance
consulting service.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
condensed consolidated balance sheet of the Company as of October
31, 2019 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, 2020
are not necessarily indicative of expected results for the full
2020 fiscal year.
The
accompanying financial data as of January 31, 2020, and for the
three-month period ended January 31, 2020 and 2019 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,
2019.
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.
6
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.
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.
7
The
Company follows guidance from the Financial Accounting Standards
Board (“FASB”) related to
Accounting for Uncertainty in Income
Taxes,
which includes a two-step approach to recognizing,
de-recognizing and measuring uncertain tax positions. As of January
31, 2020, the Company had no significant uncertain tax positions
that would be reduced as a result of a lapse of the applicable
statute of limitations.
Property and Equipment
Owned
property and equipment are stated at cost. Vehicles under finance
leases are stated at the lower of fair market value or net present
value of the minimum lease payments at the inception of the
leases.
Depreciation
of owned assets are provided for, when placed in service, in
amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives, using straight-line
basis. Assets under finance leases are amortized over the lease
term. While expenditures for repairs and maintenance are expensed
when incurred. As of January 31, 2020 and October 31, 2019, the
accumulated depreciation amounted to $477,659 and $509,275,
respectively.
Impairment of Long-Lived Assets
The
Company evaluates for impairment its long-lived assets to be held
and used, and long-lived assets to be disposed of, whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
Based on management estimates, no
impairment of the long-lived assets was present as of January 31,
2020 and October 31, 2019.
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.
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.
8
Reclassifications
Certain
reclassifications have been made to the January 31, 2019 condensed
consolidated financial statements to conform them to the January
31, 2020 condensed consolidated financial statements presentation.
Such reclassifications do not affect net income as previously
reported.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842)
(“ASU 2016-02”). ASU 2016-02 is intended to increase
transparency and comparability of accounting for lease
transactions. For all leases with terms greater than twelve months,
the new guidance will require lessees to recognize right-of-use
assets and corresponding lease liabilities on the balance sheet and
to disclose qualitative and quantitative information about lease
transactions. The new standard maintains a distinction between
finance leases and operating leases. As a result, the effect of
leases in the statement of operations and statement of cash flows
is largely unchanged. In July 2018, the FASB issued ASU 2018-11,
Leases - Targeted Improvements, to allow a company to elect an
optional modified retrospective transition method that applies the
new lease requirements through a cumulative-effect adjustment in
the period of adoption.
Effective November 1, 2019, the Company adopted the new lease
accounting standard using the modified retrospective transition
option of applying the new standard at the adoption date. We
categorize leases at their inception as either operating or finance
leases. The Company leases include an operational lease for office
space and a finance lease agreement for a vehicle. The adoption of
the new standard resulted in the operating lease being included in
operating lease right-of-use assets, current operating lease
liabilities, and long-term operating lease liabilities in our
condensed consolidated balance sheets, but did not have an impact
on the Company’s beginning balance of retained earnings,
consolidated statement of operations or statement of cash flows.
Finance leases are included in net property and equipment, current
installments of long-term debt, and long-term debt in our condensed
consolidated balance sheets. The most significant impact was the
recognition of right-of-use assets and lease liabilities on account
of the Company’s operating leases. The Company recognized
$941,009 of right-of-use assets and $911,922 in operating lease
liabilities at November 1, 2019. As of January 31, 2020, the total
right-of-use assets related to the Company’s operating leases
was $908,399 and operating lease liabilities current and
non-current were approximately $153,763 and $729,389,
respectively.
Recent Accounting Pronouncements
Recent accounting pronouncements pending adoption not discussed
above or in the 2019 Form 10-K are either not applicable or will
not have or are not expected to have a material impact on
us.
NOTE B – PROMISSORY NOTE RECEIVABLE
On September 17, 2018 (the “Sales Closing Date”), 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
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. As of January 31, 2020, pursuant to the terms of the
Promissory Note, the Company has collected $1,750,000. The
Promissory Note final installment of $1,250,000 from Tranche A is
due September 17, 2020.
NOTE C - INCOME TAXES
On December 22, 2017, Public Law 115-97, commonly known as the Tax
Cuts and Jobs Act of 2017 (the “Tax Reform”), was
enacted. The Tax Reform 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 has to be paid over a
period of eight years which started with the Company’s second
quarter of fiscal year 2019. In the past, most of these
E&Ps’ were not repatriated since such E&Ps’
were considered to be reinvested indefinitely in the foreign
location, therefore no US tax liability was incurred unless the
E&Ps were repatriated as a dividend. After December 31, 2017,
the Tax Reform has established a 100% tax exemption on the
foreign-source portion of dividends received attributable to
E&Ps, with certain limitations.
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.
9
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.
Pharma-Spain, Pharma-IR and Pharma-Bio/Pharma-US
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
2034 for Pharma-Spain; indefinitely for Pharma-IR;
until 2039 for Pharma-Bio/Pharma-US.
The
Company files income tax returns in the United States (federal and
various states jurisdictions), Puerto Rico, Ireland, Spain and
Brazil. The 2015 (2014 for Puerto Rico) through 2018 tax years are
open and may be subject to potential examination in one or more
jurisdictions. Currently, the Company has no federal, state, Puerto
Rico or foreign income tax examination.
NOTE D – WARRANTS
On
December 2014, the Company entered into an agreement with a firm
for providing (i) business development and (ii) mergers and
acquisition services to the Company. The Company warrants for the
purchase of 1,000,000 common shares issued to this firm for its
services expired on December 1, 2019.
NOTE 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, 2020 and October 31,
2019, a total of 341,154 and 338,854 shares of the Company’s
common stock were purchased under the Repurchase Program for an
aggregate amount of $331,306 and $329,607, respectively. Also,
o
n November 26, 2018, the Company
repurchased 62,972 shares of common stock, outside of the
Repurchase Program, from the Company’s Chief Executive
Officer at $1.00 per share. These shares were repurchased at a
discount to market to provide for an orderly disposition of the
shares.
NOTE F – EARNINGS PER SHARE
The
following data shows the amounts used in the calculations of basic
and diluted earnings per share.
|
|
Three
months
ended January
31,
|
|
|
|
2020
|
2019
|
|
Net income available to common equity holders -
used to compute
basic and diluted earnings per
share
|
$
526,900
|
$
471,020
|
|
|
|
|
|
Weighted average
number of common shares - used to compute basic earnings per
share
|
23,002,191
|
23,038,999
|
|
Effect of warrants
to purchase common stock
|
-
|
-
|
|
Effect of options
to purchase common stock
|
16,346
|
80,028
|
|
Weighted average
number of shares - used to compute diluted earnings per
share
|
23,018,537
|
23,119,027
|
10
Warrants
for the purchase of 1,000,000 shares of common stock for the
three-month periods ended in January 31, 2019 were not included in
computing diluted earnings per share because their effects were
antidilutive. In addition, options for the purchase of 340,000 and
80,000 shares of common stock for the three-month periods ended in
January 31, 2020 and 2019, respectively, were not included in
computing diluted earnings per share because their effects were
also antidilutive.
NOTE G - 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 periods ended in January 31, 2020 and 2019. 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,
|
|
|
|
2020
|
2019
|
|
REVENUES:
|
|
|
|
Puerto Rico
consulting
|
$
4,180,910
|
$
3,888,554
|
|
United States
consulting
|
389,361
|
526,645
|
|
Europe
consulting
|
22,189
|
91,730
|
|
Other
segments¹
|
20,707
|
59,268
|
|
Total consolidated
revenues
|
$
4,613,167
|
$
4,566,197
|
|
|
|
|
|
INCOME (LOSS)
BEFORE TAXES:
|
|
|
|
Puerto Rico
consulting
|
$
517,139
|
$
375,270
|
|
United States
consulting
|
(20,043
)
|
(11,910
)
|
|
Europe
consulting
|
(69,173
)
|
(49,911
)
|
|
Other
segments¹
|
154,272
|
200,526
|
|
Total consolidated
income before taxes
|
$
582,195
|
$
513,975
|
|
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, 2020 and
October 31, 2019, and related depreciation and amortization expense
for the three months ended January 31, 2020 and 2019,
were concentrated in the corporate headquarters in
Puerto Rico. Accordingly, depreciation expense and acquisition of
property and equipment, as presented in the statements of cash
flows are mainly related to the corporate
headquarters.
NOTE H - 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.
11
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 six
customers, which accounted for 10% or more of its revenues in
either of the three-month periods ended January 31, 2020 and 2019.
During the three months ended January 31, 2020, revenues from these
customers were 16.8%, 13.4%, 15.1%, 14.0%, 9.0%, and 2.4%, or a
total of 70.7%, as compared to the percentages for the same period
last year of 0.0%, 3.1%, 18.0%, 11.1%, 11.0% and 14.2%, or a total
of 57.4%, respectively. At January 31, 2020, amounts due from these
customers represented 86.7% of the Company’s total accounts
receivable balance.
The information related to major customers in the above paragraph
is based on revenues earned from said customers at the segment
level because in management’s opinion contracts by segments
are totally independent of each other, and therefore such
information is more meaningful to the reader. However, at the
global level six customers accounted for 10% or more of the
Company’s revenues in either of the three-month periods ended
January 31, 2020 and 2019. During the three months ended January
31, 2020, aggregate revenues from these global groups of affiliated
companies were 16.8%, 16.4%, 15.1%, 14.0%, 9.0% and 2.4%, or a
total of 73.7%, as compared to the same period last year for 0.0%,
6.7%, 18.0%, 11.1%, 11.0% and 14.2%, or a total of 61.0%,
respectively. At January 31, 2020 amounts due from these global
groups of affiliated companies represented 87.5% of total accounts
receivable balance.
As of January 31, 2020, one of the Company’s customers
(representing 15.1% of revenues during the three months ended
January 31, 2020) owes the Company approximately $4.9 million
(including $1.25 million from a Promissory Note due September
2020). This outstanding obligation represents approximately 21.4%
of the Company’s total working capital. The Company is
providing multiple services to this customer related to their
construction of a manufacturing facility in Puerto Rico. From this
facility the customer will provide for the manufacturing and
distribution of an existing product and an investigational new drug
to be marketed to worldwide markets, once approved by regulators. A
significant portion of the customer’s funding comes from
different financing sourcing. Management estimates that
collectability of the account is reasonably assured, accordingly,
no provision for losses, if any, have been recorded in the
financial statements.
12
|
ITEM 2.
|
M
ANAGEMENT’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, 2019. The following discussion includes forward-looking
statements. For a discussion of important factors that could cause
actual results to differ from results discussed in the
forward-looking statements, see “Forward Looking
Statements” below and the “Risk Factors” section
in our Annual Report on Form 10-K for the year ended October 31,
2019.
Overview
We
are a compliance and technology transfer services consulting firm
with headquarters in Puerto Rico, servicing the Puerto Rico, United
States, Europe and Brazil markets. The compliance consulting
service sector in those markets consists of local compliance and
validation consulting firms, United States dedicated validation and
compliance consulting firms and large publicly traded and private
domestic and foreign engineering and consulting firms. We provide a
broad range of compliance related consulting services. We market
our services to pharmaceutical, chemical, biotechnology, medical
devices, cosmetics and food industries, and allied products
companies in Puerto Rico, the United States, Europe and Brazil. Our
consulting team includes experienced engineering and life science
professionals, former quality assurance managers and directors, and
professionals with bachelors, masters and doctorate degrees in
health sciences and engineering.
We
actively operate in Puerto Rico, the United States, Europe and
Brazil and pursue to further expand these markets by strengthening
our business development infrastructure and by constantly
realigning our business strategies as new opportunities and
challenges arise.
We
market our services with an active presence in industry trade
shows, professional conventions, industry publications and company
provided seminars to the industry. Our senior management is also
actively involved in the marketing process, especially in marketing
to major accounts. Our senior management and staff also concentrate
on developing new business opportunities and focus on the larger
customer accounts (by number of consultants or dollar volume)
and responding to prospective customers’ requests for
proposals.
We
consider our core business to be Food and Drug Administration
(“FDA”) and international agencies regulatory
compliance consulting related services.
In
line with the strategy to further penetrate the United States and
Puerto Rico markets, we submit annually for renewal the
certification as a "minority-controlled company" as defined by the
National Minority Supplier Development Council and Growth
Initiative ("NMSDC"). This certification, which has been held by us
since July 2008, allows us to participate in corporate diversity
programs available from various potential customers in the United
States and Puerto Rico.
The
Company holds a tax grant issued by the Puerto Rico Industrial
Development Company (“PRIDCO”), which provides relief
on various Puerto Rico taxes, including income tax, with certain
limitations, for most of the activities carried on within Puerto
Rico, including those that are for services to parties located
outside of Puerto Rico.
The
following table sets forth information as to our revenue for the
three-month periods ended January 31, 2020 and 2019, by geographic
regions (dollars in thousands).
|
|
Three months ended
January 31,
|
|||
|
Revenues
by Region:
|
2020
|
2019
|
||
|
Puerto
Rico
|
$
4,181
|
90.6
%
|
$
3,888
|
85.2
%
|
|
United
States
|
389
|
8.4
%
|
527
|
11.5
%
|
|
Europe
|
22
|
0.5
%
|
92
|
2.0
%
|
|
Other
|
21
|
0.5
%
|
59
|
1.3
%
|
|
|
$
4,613
|
100.0
%
|
$
4,566
|
100.0
%
|
13
For
the three-month period ended January 31, 2020, the Company’s
total revenues were $4,613,000, a net increase of approximately
$47,000 when compared to the same period last year. The Puerto Rico
consulting market had a revenue increase in projects for
approximately $292,000, while the US, Europe and Brazil markets had
an aggregate decrease in revenue for approximately $245,000. When
compared to the same period last year, gross margin increased 2
percentage points. The net increase in gross margin is mainly
attributable to favorable consulting projects in the Puerto Rico
consulting market. Selling, general and administrative expenses
were approximately $1,049,000, reflecting no significant change
when compared to the same period last year. These factors resulted
in a net income of approximately $527,000 for the three-month
period ended January 31, 2020.
The
Puerto Rico government financial crisis, the Tax Reform, other tax
reforms on the markets where we do business, and Puerto Rico Act
154-2010, all pose current and future challenges which may
adversely affect our future performance. We believe that our future
profitability and liquidity will be highly dependent on the effect
the local and global economy, changes in tax laws and healthcare
reform, and worldwide life science manufacturing industry
consolidations 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 periods ended January 31, 2020 and 2019 (dollars in
thousands, and as a percentage of revenues):
|
|
Three months
ended
January 31,
|
|||
|
|
2020
|
2019
|
||
|
Revenues
|
$
4,613
|
100.0
%
|
$
4,566
|
100.0
%
|
|
Cost of
services
|
3,027
|
65.6
%
|
3,087
|
67.6
%
|
|
Gross
profit
|
1,586
|
34.4
%
|
1,479
|
32.4
%
|
|
Selling, general
and administrative expenses
|
1,049
|
22.7
%
|
1,046
|
22.9
%
|
|
Other income,
net
|
45
|
0.9
%
|
81
|
1.8
%
|
|
Income before
income taxes
|
582
|
12.6
%
|
514
|
11.3
%
|
|
Income tax
expense
|
55
|
1.2
%
|
43
|
0.9
%
|
|
Net
income
|
527
|
11.4
%
|
471
|
10.3
%
|
Revenues
.
For the three-month
period ended January 31, 2020, the Company’s total revenues
were $4,613,000, a net increase of approximately $47,000 when
compared to the same period last year. The Puerto Rico consulting
market had a revenue increase in projects for approximately
$292,000, while the US, Europe and Brazil markets had an aggregate
decrease in projects revenue for approximately
$245,000.
Cost of Services; gross margin
. Gross margin for the three
months ended January 31, 2020 increased 2 percentage points when
compared to the same period last year.
The net increase in gross margin is mainly
attributable to favorable consulting projects in the Puerto Rico
consulting market.
Selling, General and Administrative Expenses
.
Selling, general and administrative expenses were
approximately $1,049,000 for the three-month period ended January
31, 2020, reflecting no significant change when compared to the
same period last year.
Net Income
.
Net income for the three months ended
January 31, 2020 was approximately $527,000, reflecting no
significant change when compared to the same period last
year.
For the three-month period ended January 31, 2020, net income per
common share for both basic and diluted was $0.023, an improvement
of $0.003 per share when compared to the same period last
year.
14
Liquidity and Capital Resources
Liquidity is a
measure of our ability to meet potential cash requirements,
including planned capital expenditures. As of January 31, 2020, the
Company had approximately $22.7 million in working
capital.
On June
13, 2014, the Board of Directors of the Company authorized the
Company to repurchase up to two million shares of its common stock
(the "Repurchase Program"). During the three-month period ended
January 31, 2020, the Company repurchased an aggregate of 2,300
shares of its common stock within 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 three months ended January 31, 2020.
Critical Accounting Policies and Estimates
There
were no material changes during the three months ended January 31,
2020 to the critical accounting policies reported in our Annual
Report on Form 10-K for the fiscal year ended October 31,
2019.
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,
2019, which could have a significant effect on our condensed
consolidated financial statements.
Forward-Looking Statements
Our
business, financial condition, results of operations, cash flows
and prospects, and the prevailing market price and performance of
our common stock, may be adversely affected by a number of factors,
including the matters discussed below. Certain statements and
information set forth in this Quarterly Report on Form 10-Q, as
well as other written or oral statements made from time to time by
us or by our authorized executive officers on our behalf,
constitute “forward-looking statements” within the
meaning of the Federal Private Securities Litigation Reform Act of
1995. These statements include all statements other than those made
solely with respect to historical fact and identified by words such
as “believes”, “anticipates”,
“expects”, “intends” and similar
expressions, but such words are not the exclusive means of
identifying such statements. We intend for our forward-looking
statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and we set forth this statement and
these risk factors in order to comply with such safe harbor
provisions. You should note that our forward-looking statements
speak only as of the date of this Quarterly Report on Form 10-Q or
when made and we undertake no duty or obligation to update or
revise our forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law.
Although we believe that the expectations, plans, intentions and
projections reflected in our forward-looking statements are
reasonable, such statements are subject to known and unknown risks,
uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by
the forward-looking statements. The risks, uncertainties and other
factors that our stockholders and prospective investors should
consider include the following:
15
●
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 Irma and Maria, or any other natural disaster,
including the 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.
●
Puerto Rico
government enacted ACT 154-2010 may adversely affect the
willingness of our customers to do business in Puerto Rico and
consequently adversely affect our business.
●
US Federal Tax
Reform may affect the willingness of companies to continue or
expand their operations in Puerto Rico.
●
Further changes in
tax laws in Puerto Rico or in other jurisdictions may adversely
impact the willingness of our customers to continue or expand their
Puerto Rico operations.
●
Our business and
operating results may be adversely impacted if we are unable to
maintain our certification as a minority-controlled
company.
●
Because our
business is dependent upon a small number of clients, the loss of a
major client could impair our ability to operate
profitably.
●
Customer
procurement and sourcing practices intended to reduce costs could
have an adverse effect on our margins and
profitability.
●
We may be unable to
pass on increased labor costs to our clients.
●
Consolidation in
the pharmaceutical industry may have a harmful effect on our
business.
●
Because the
pharmaceutical industry is subject to government regulations,
changes in government regulations relating to this industry may
affect the need for our services.
●
Since our business
is dependent upon the development and enhancement of patented
pharmaceutical products or processes by our clients, the failure of
our clients to obtain and maintain patents could impair our ability
to operate profitably.
●
If we are unable to
protect our clients’ intellectual property, our ability to
generate business will be impaired.
●
We may be subject
to liability if our services or solutions for our clients infringe
upon the intellectual property rights of others.
●
We may be held
liable for the actions of our employees or contractors when on
assignment.
●
To the extent that
we perform services pursuant to fixed-price or incentive-based
contracts, our cost of services may exceed our revenue on the
contract.
●
Because most of our
contracts may be terminated on little or no advance notice, our
failure to generate new business could impair our ability to
operate profitably.
●
Because we are
dependent upon our management and technical personnel, our ability
to develop our business may be impaired if we are not able to
engage skilled personnel.
●
Our cash could be
adversely affected if the financial institutions in which we hold
our cash fail.
●
We may be harmed if we do not penetrate markets and grow our
current business operations.
●
Because there is a
limited market in our common stock, stockholders may have
difficulty in selling our common stock and our common stock may be
subject to significant price swings.
●
Our revenues,
operating results and profitability will vary from quarter to
quarter, which may result in increased volatility of our stock
price.
●
The Company Stock
Repurchase Program could affect the market price of our common
stock and increase its volatility.
●
The issuance of
securities, whether in connection with an acquisition or otherwise,
may result in significant dilution to our
stockholders.
16
ITEM 4.
C
ONTROLS 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.
17
PART II– OTHER INFORMATION
ITEM 1.
L
EGAL
PROCEEDINGS.
From
time to time, we may be a party to legal proceedings incidental to
our business. We do not believe that there are any proceedings
threatened or pending against us, which, if determined adversely to
us, would have a material effect on our financial position or
results of operations and cash flows.
ITEM 1A.
R
ISK
FACTORS.
Except as set forth below, there have been no material changes to
the risk factors included in our Form 10-K for the year ended
October 31, 2019.
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.
In December 2019, a novel strain of coronavirus was first
identified in Wuhan, Hubei Province, China, and has since spread to
a number of other countries, including the United States. Any
outbreak of contagious diseases, or other adverse public health
developments, could have a material and adverse effect on
businesses, including ours. For example,
the coronavirus may impact the global economy or
negatively affect various aspects of our business, including our
workforce and demand for our services. An impact to our
workforce could impact our ability to deliver our services to our
customers and make it more difficult to meet our expectations and
obligations. The extent to which
the coronavirus may impact our business will depend on
future developments, which are highly uncertain and cannot be
predicted, including new information which may emerge concerning
the severity of the coronavirus. A health epidemic or
other outbreak could materially and adversely affect the global
economy, and consequently our business, financial condition and
results of operations.
ITEM 2.
U
NREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS.
(c) The
following table provides information about purchases by the Company
of its shares of common stock during the three-month period ended
January 31, 2020:
|
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)
|
|
November 1, 2019
through November 30, 2019
|
1,900
|
$
0.74
|
1,900
|
1,659,246
|
|
December 1, 2019
through December 31, 2019
|
400
|
0.72
|
400
|
1,658,846
|
|
January 1, 2020
through January 31, 2020
|
-
|
-
|
-
|
1,658,846
|
|
Total
|
2,300
|
$
0.74
|
2,300
|
|
|
(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.
|
18
ITEM 6.
E
XHIBITS
(a)
Exhibits:
|
|
Consulting
Agreement Amendment, dated December 27, 2019, by and among
Pharma-Bio Serv, Inc., Strategic Consultants International, LLC and
Elizabeth Plaza, effective January 1, 2020 (filed as Exhibit 10.1
to the Company's Current Report on Form 8-K filed on December 27,
2019 and incorporated herein by reference).+
|
|
|
|
Certification
of chief executive officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
of chief financial officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
32.1
*
|
|
Certification
of the chief executive officer and chief financial officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL
Instance Document
|
|
|
|
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema
|
|
|
|
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
|
|
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase
|
|
|
|
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase
|
|
|
|
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase
|
———————
|
+
|
Management
contracts or compensatory plans, contracts or
arrangements.
|
|
*
|
Furnished
herewith.
|
19
S
IGNATURES
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, Vice President Finance and Administration, and
Secretary
|
|
|
(Principal
Financial Officer and Principal Accounting
Officer)
|
|
|
|
|
Dated:
March 16, 2020
|
|
20
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits