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, 2021.
The following discussion includes forward-looking statements. For a discussion
of important factors that could cause actual results to differ from results
discussed in the forward-looking statements, see "Forward Looking Statements"
below and the "Risk Factors" section of our Annual Report on Form 10-K for the
year ended October 31, 2021 and this Quarterly Report on Form 10-Q.
Overview
We are a compliance and technology transfer services consulting firm with
headquarters in Puerto Rico, servicing the Puerto Rico, United States, Europe
and Brazil markets. The compliance consulting service sector in those markets
consists of local compliance and validation consulting firms, United States
dedicated validation and compliance consulting firms and large publicly traded
and private domestic and foreign engineering and consulting firms. We provide a
broad range of compliance related consulting services. We market our services to
pharmaceutical, chemical, biotechnology, medical devices, cosmetics and food
industries, and allied products companies in Puerto Rico, the United States,
Europe and Brazil. Our consulting team includes experienced engineering and life
science professionals, former quality assurance managers and directors, and
professionals with bachelors, masters and doctorate degrees in health sciences
and engineering.
We actively operate in Puerto Rico, the United States, Europe and Brazil and
pursue to further expand these markets by strengthening our business development
infrastructure and by constantly realigning our business strategies as new
opportunities and challenges arise.
We market our services with an active presence in industry trade shows,
professional conventions, industry publications and company provided seminars to
the industry. Our senior management is also actively involved in the marketing
process, especially in marketing to major accounts. Our senior management and
staff also concentrate on developing new business opportunities and focus on the
larger customer accounts (by number of consultants or dollar volume) and
responding to prospective customers' requests for proposals.
We consider our core business to be Food and Drug Administration ("FDA") and
international agencies regulatory compliance consulting related services.
The Company holds a tax grant issued by the Puerto Rico Industrial Development
Company ("PRIDCO"), which provides relief on various Puerto Rico taxes,
including income tax, with certain limitations, for most of the activities
carried on within Puerto Rico, including those that are for services to parties
located outside of Puerto Rico.
The following table sets forth information as to our revenue for the three-month
periods ended January 31, 2022 and 2021, by geographic regions (dollars in
thousands).
Three months ended January 31,
Revenues by Region: 2022 2021
Puerto Rico $ 3,364 67.0 % $ 3,367 75.0 %
United States 1,187 23.6 % 447 10.0 %
Europe 465 9.3 % 531 11.8 %
Other 3 0.1 % 143 3.2 %
$ 5,019 100.0 % $ 4,488 100.0 %
For the three-month period ended January 31, 2022, the Company's total revenues
were approximately $5.0 million, a net increase of approximately $0.5 million
when compared to the same period last year. The US consulting market had a
revenue increase in project of approximately $0.7 million, which was partially
offset by a combined net decrease in project revenue in Europe, Brazil and
Puerto Rico markets of approximately $0.2 million. When compared to the same
period last year, gross profit decreased by 4.5 percentage points. The net
decrease in gross profit percentage points is mainly attributable to overall
lower margin projects in the Puerto Rico and the US markets for the three-month
period ended January 31, 2022. Selling, general and administrative expenses were
approximately $0.9 million, a decrease of approximately $0.1 million. The
decrease is mainly attributable to a decrease in consulting fees, and other
administrative and general expenses. These factors resulted in a net income of
approximately $0.3 million for the three-month period ended January 31, 2022,
reflecting no significant change when compared to the same period last year.
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While we have not identified any material adverse effect resulting from the
coronavirus (COVID-19) pandemic, we continue to actively monitor the pandemic
and any potential future impact it may have on our business and results of
operations. The extent to which our operations will be impacted by the pandemic
will depend largely on unknown developments, which are highly uncertain and
cannot be accurately predicted, including new information which may emerge
concerning our customers, the severity of the pandemic and actions by government
authorities to contain the outbreak or treat its impact, among other things.
Regional or global conflicts, including was or economic sanctions between
nations, price inflation, the COVID-19 pandemic, the Puerto Rico government
financial crisis, the Tax Reform, other tax reforms on the markets where we do
business, bio-pharmaceutical industry consolidations, trends on managing
contract resources, and the Puerto Rico Act 154-2010, all pose current and
future challenges which may adversely affect our future performance. We believe
that our future profitability and liquidity will be dependent on the effect the
local and global economy, including any impacts of regional or global
conflicts, price inflation, the COVID-19 pandemic, changes in tax laws,
worldwide life science manufacturing industry consolidations, operational
constraints imposed by our customers due to the coronavirus pandemic and
resources management trends will have on our operations, and our ability to seek
service opportunities and adapt to industry trends.
Results of Operations
The following table that sets forth our statements of operations for the
three-month periods ended January 31, 2022 and 2021 (dollars in thousands, and
as a percentage of revenues):
Three months ended January 31,
2022 2021
Revenues $ 5,019 100.0 % $ 4,488 100.0 %
Cost of services 3,775 75.2 % 3,173 70.7 %
Gross profit 1,244 24.8 % 1,315 29.3 %
Selling, general and administrative expenses 889 17.7 % 996 22.2 %
Other income, net 1 0.0 % 2 0.1 %
Income before income taxes 356 7.1 % 321 7.2 %
Income tax expense 51 1.0 % 53 1.2 %
Net income 305 6.1 % 268 6.0 %
Revenues. For the three-month period ended January 31, 2022, the Company's total
revenues were approximately $5.0 million, a net increase of approximately $0.5
million when compared to the same period last year. The US consulting market had
a revenue increase in projects of approximately $0.7 million, which was
partially offset by a combined net decrease in projects revenue in Europe,
Brazil and Puerto Rico markets of approximately $0.2 million.
Cost of Services; gross profit. For the three-month period ended January 31,
2022, cost of services were approximately $3.8 million, an increase of $0.6
million, when compared to the same period last year. When compared to the same
period last year, gross profit decreased by 4.5 percentage points. The net
decrease in gross profit percentage points is mainly attributable to overall
lower margin projects in the Puerto Rico and US markets for the three-month
period ended January 31, 2022.
Selling, General and Administrative Expenses. For the three-month period ended
January 31, 2022, selling, general and administrative expenses were
approximately $0.9 million, a decrease of approximately $0.1 million, when
compared to the same period last year. The decrease is mainly attributable to a
decrease in consulting fees, and other administrative and general expenses.
Net Income. Net income for the three months ended January 31, 2022 was
approximately $0.3 million, reflecting no significant change when compared to
the same period last year.
For the three-month period ended January 31, 2022, net income per common share
for both basic and diluted was $0.013, an increase of $0.001 per share when
compared to the same period last year.
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Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements,
including planned capital expenditures. As of January 31, 2022, the Company had
approximately $18.7 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"). The Repurchase Program does not have an expiration date. During the
three-month period ended January 31, 2022, the Company repurchased 54,603 shares
of its common stock. As of January 31, 2022, the Company has 1,578,643 shares of
common stock available for future repurchases under the Repurchase Program.
Our primary cash needs consist of the payment of compensation to our consulting
team, overhead expenses, and statutory taxes. Additionally, we may use cash for
the repurchase of our common stock under the Company Stock Repurchase Program,
capital expenditures and business development expenses. Management believes that
based on the current level of working capital, operations and cash flows from
operations, and the collectability of high-quality customer receivables are
sufficient to fund anticipated expenses and satisfy other possible long-term
contractual commitments.
To the extent that we pursue possible opportunities to expand our operations,
either by acquisition or by the establishment of operations in a new market, we
will incur additional overhead, and there may be a delay between the period we
commence operations and our generation of net cash flow from operations.
While uncertainties relating to the current local and global economic condition,
competition, the industries and geographical regions served by us and other
regulatory matters exist within the consulting services industry, as described
above, management is not aware of any other trends or events likely to have a
material adverse effect on liquidity or its financial statements.
Off-Balance Sheet Arrangements
We were not involved in any significant off-balance sheet arrangement during the
three months ended January 31, 2022.
Critical Accounting Policies and Estimates
There were no material changes during the three months ended January 31, 2022 to
the critical accounting policies reported in our Annual Report on Form 10-K for
the fiscal year ended October 31, 2021.
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, 2021, 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 but not limited to,
the factors set forth in the "Risk Factors" section of our Annual Report on Form
10-K for the year ended October 31, 2021 and this Quarterly Report on Form 10-Q.
Certain statements and information set forth in this Quarterly Report on Form
10-Q, as well as other written or oral statements made from time to time by us
or by our authorized executive officers on our behalf, constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. These statements include all
statements other than those made solely with respect to historical fact and
identified by words such as "believes", "anticipates", "expects", "intends" and
similar expressions, but such words are not the exclusive means of identifying
such statements. We intend for our forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and we set forth this
statement and these risk factors in order to comply with such safe harbor
provisions. You should note that our forward-looking statements speak only as of
the date of this Quarterly Report on Form 10-Q or when made and we undertake no
duty or obligation to update or revise our forward-looking statements, whether
as a result of new information, future events or otherwise, except as required
by law. Although we believe that the expectations, plans, intentions and
projections reflected in our forward-looking statements are reasonable, such
statements are subject to known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. The risks, uncertainties
and other factors that our stockholders and prospective investors should
consider include, but are not limited to, those include the following: set forth
in the "Risk Factors" section of our Annual Report on Form 10-K for the year
ended October 31, 2021 and this Quarterly Report on Form 10-Q .
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