PHARMA-BIO SERV, INC. 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 endedOctober 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 endedOctober 31, 2021 , our Quarterly Report on Form 10-Q for the quarter endedJanuary 31, 2022 , and this Quarterly Report on Form 10-Q. Overview We are a compliance and technology transfer services consulting firm with headquarters inPuerto Rico , servicing thePuerto Rico ,United States ,Europe andBrazil 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 inPuerto Rico ,the United States ,Europe andBrazil . 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 inPuerto Rico ,the United States ,Europe andLatin America and pursue to further expand these markets by strengthening our business development infrastructure and by constantly realigning our business strategies as new opportunities and challenges arise. We market our services with an active presence in industry trade shows, professional conventions, industry publications and company provided seminars to the industry. Our senior management is also actively involved in the marketing process, especially in marketing to major accounts. Our senior management and staff also concentrate on developing new business opportunities and focus on the larger customer accounts (by number of consultants or dollar volume) and responding to prospective customers' requests for proposals.
We consider our core business to be
The Company holds a tax grant issued by thePuerto Rico Industrial Development Company ("PRIDCO"), which provides relief on variousPuerto Rico taxes, including income tax, with certain limitations, for most of the activities carried on withinPuerto Rico , including those that are for services to parties located outside ofPuerto Rico .
The following table sets forth information as to our revenue for the three-month
and six-month periods ended
Three months ended April 30, Six months ended April 30,
Revenues by
Region: 2022 2021 2022 2021
Puerto Rico $ 3,074 61.9 % $ 3,745 74.3 % $ 6,438 64.5 % $ 7,112 74.6 %
United States 1,226 24.7 % 477 9.4 % 2,412 24.2 % 924 9.7 %
Europe 667 13.4 % 675 13.4 % 1,132 11.3 % 1,205 12.7 %
Other1 - 0.0 % 145 2.9 % 4 0.0 % 289 3.0 %
$ 4,967 100.0 % $ 5,042 100.0 % $ 9,986 100.0 % $ 9,530 100.0 %
_____________________________
1 Other segment represents a Brazilian compliance division which falls below the
reportable threshold.
For the six-month period endedApril 30, 2022 , the Company's total revenues were approximately$10.0 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$1.5 million , which was partially offset by the decrease in project revenue in thePuerto Rico and Brazilian markets for approximately$0.7 and$0.3 million , respectively. The European market sustained no major revenue change when compared to the same period last year. When compared to the same period last year, gross profit decreased by 2.7 percentage points. The net decrease in gross profit percentage points is mainly attributable to overall lower margin projects in thePuerto Rico and US markets. Selling, general and administrative expenses were approximately$1.8 million , a decrease of approximately$0.2 million . The decline is mainly attributable to the decrease in consulting fees, non-recurring legal fees and other administrative and general expenses. For the six-month period endedApril 30, 2022 , these factors resulted in a net income of approximately$0.5 million , reflecting no significant change when compared to the same period last year. 15 Table of Contents
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 wars or economic sanctions between nations, price inflation, the COVID-19 pandemic, thePuerto Rico government financial constraints, the Tax Reform, and possible tax changes on jurisdictions where we do business, bio-pharmaceutical industry consolidations, trends on managing contract resources, 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 our ability to seek service opportunities and adapt to industry trends, which are affected by variables such as local and global economy, any impacts of regional or global conflicts, price inflation, any impacts of the coronavirus pandemic, changes in tax laws, worldwide life science manufacturing industry consolidations, operational constraints imposed by our customers due to the coronavirus pandemic and resource management trends. Results of Operations
The following table that sets forth our statements of operations for the
three-month and six-month periods ended
Three months ended April 30 ,
Six months ended
2022 2021 2022 2021
Revenues $ 4,967 100.0 % $ 5,042 100.0 % $ 9,986 100.0 % $ 9,530 100.0 %
Cost of
services 3,751 75.5 % 3,751 74.4 % 7,526 75.4 % 6,924 72.7 %
Gross profit 1,216 24.5 % 1,291 25.6 % 2,460 24.6 % 2,606 27.3 %
Selling, general
and
administrative
expenses 935 18.8 % 1,026 20.3 % 1,824 18.3 % 2,022 21.2 %
Other income,
net 4 0.0 % 21 0.4 % 5 0.1 % 23 0.2 %
Income before
income taxes 285 5.7 % 286 5.7 % 641 6.4 % 607 6.3 %
Income tax
expense 45 0.9 % 46 0.9 % 96 1.0 % 99 1.0 %
Net income 240 4.8 % 240 4.8 % 545 5.4 % 508 5.3 %
Revenues. Revenues for the three and six months ended
For the three months endedApril 30, 2022 , this represents a net decrease of approximately$0.1 million when compared to the same period last year. The decrease is mainly attributable to decrease in projects in thePuerto Rico and Brazilian markets for approximately$0.7 and$0.1 million , respectively, partially offset by the increase in project revenue in the US market of approximately$0.7 million . The European market sustained no major revenue change when compared to the same period last year.
For the six months ended
Cost of Services; gross profit. Cost of services for the three and six months endedApril 30, 2022 were$3.8 and$7.5 million , respectively, no significant variance and an increase of$0.6 million when compared to the same periods last year, respectively. Gross profit for the three and six months endedApril 30, 2022 decreased by 1.1 and 2.7 percentage points, respectively, when compared to the same periods last year. The net decrease in gross profit percentage points is mainly attributable to overall lower margin projects in thePuerto Rico and US markets for the three-month and six-month periods endedApril 30, 2022 when compared to the same periods last year. Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three and six months endedApril 30, 2022 were approximately$0.9 and$1.8 million , respectively, a decrease of approximately$0.1 and$0.2 million when compared to the same periods last year, respectively. The decline is mainly attributable to the decrease in consulting fees, non-recurring legal fees and other administrative and general expenses. Net Income. Net income for the three and six months endedApril 30, 2022 was approximately$0.2 and$0.5 million , respectively, reflecting no significant change when compared to the same periods last year. For the three and six months endedApril 30, 2022 , net income per common share for both basic and diluted were$0.010 and$0.024 . This represents no change for the three months endedApril 30, 2022 and a per share increase of$0.002 for the six months endedApril 30, 2022 when compared to the same periods last year, respectively. 16 Table of Contents
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements,
including planned capital expenditures. As of
OnJune 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 six-month period endedApril 30, 2022 , the Company repurchased 70,903 shares of its common stock. As ofApril 30, 2022 , the Company has 1,562,343 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 Repurchase Program, capital expenditures and business development expenses. Management believes that based on the current level of working capital, operations and cash flows from operations, and the collectability of high-quality customer receivables are sufficient to fund anticipated expenses and satisfy other possible long-term contractual commitments. To the extent that we pursue possible opportunities to expand our operations, either by acquisition or by the establishment of operations in a new market, we will incur additional overhead, and there may be a delay between the period we commence operations and our generation of net cash flow from operations. While uncertainties relating to the current local and global economic condition, competition, the industries and geographical regions served by us and other regulatory matters exist within the consulting services industry, as described above, management is not aware of any other trends or events likely to have a material adverse effect on liquidity or its financial statements.
Off-Balance Sheet Arrangements
We were not involved in any significant off-balance sheet arrangement during the
six months ended
Critical Accounting Policies and Estimates
There were no material changes during the six months endedApril 30, 2022 to the critical accounting policies reported in our Annual Report on Form 10-K for the fiscal year endedOctober 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 endedOctober 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 endedOctober 31, 2021 , our Quarterly Report on Form 10-Q for the quarter endedJanuary 31, 2022 , and this Quarterly Report on Form 10-Q. Certain statements and information set forth in this Quarterly Report on Form 10-Q, as well as other written or oral statements made from time to time by us or by our authorized executive officers on our behalf, constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These statements include all statements other than those made solely with respect to historical fact and identified by words such as "believes", "anticipates", "expects", "intends" and similar expressions, but such words are not the exclusive means of identifying such statements. We intend for our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we set forth this statement and these risk factors in order to comply with such safe harbor provisions. You should note that our forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q or when made and we undertake no duty or obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Although we believe that the expectations, plans, intentions and projections reflected in our forward-looking statements are reasonable, such statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks, uncertainties and other factors that our stockholders and prospective investors should consider include, but are not limited to, those set forth in the "Risk Factors" section of our Annual Report on Form 10-K for the year endedOctober 31, 2021 , our Quarterly Report on Form 10-Q for the quarter endedJanuary 31, 2022 , and this Quarterly Report on Form 10-Q . 17 Table of Contents
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