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 Reports on Form 10-Q for the quarters endedJanuary 31, 2022 andApril 30, 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 nine-month periods ended
Three months ended July 31, Nine months ended July 31,
Revenues by
Region: 2022 2021 2022 2021
Puerto Rico $ 2,983 62.5 % $ 3,749 75.2 % $ 9,421 63.8 % $ 10,861 74.8 %
United States 1,106 23.1 % 623 12.5 % 3,518 23.8 % 1,547 10.7 %
Europe 649 13.6 % 580 11.6 % 1,781 12.1 % 1,785 12.3 %
Other¹ 36 0.8 % 36 0.7 % 41 0.3 % 325 2.2 %
$ 4,774 100.0 % $ 4,988 100.0 % $ 14,761 100.0 % $ 14,518 100.0 %
_____________________________
¹ Other segment represents a Brazilian compliance
division which falls below the reportable threshold.
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For the nine-month period endedJuly 31, 2022 , the Company's total revenues were approximately$14.8 million , a net increase of approximately$0.2 million when compared to the same period last year. The US consulting market had a revenue increase in projects of approximately$1.9 million , which was partially offset by the decrease in project revenue in thePuerto Rico and Brazilian markets of approximately$1.4 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 1.0 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$2.8 million , a net decrease of approximately$0.1 million . The decline is mainly attributable to the decrease in consulting fees, non-recurring legal fees and other administrative and general expenses. Other income decreased by approximately$2.0 million , as compared to the same period last year, as the result of the forgiveness of principal and accrued interest of the SBA Loans during the nine-month period endedJuly 31, 2021 for approximately$2.0 million . For the nine-month period endedJuly 31, 2022 , these factors resulted in (i) income from operations of approximately$1.0 million , or an increase of$0.1 million when compared to the same period last year, and (ii) net income of approximately$0.8 million , or a decrease of approximately$2.0 million when compared to the same period last year.
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 depend 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 nine-month periods ended
Three months ended July 31 ,
Nine months ended
2022 2021 2022 2021
Revenues $ 4,774 100.0 % $ 4,988 100.0 % $ 14,761 100.0 % $ 14,518 100.0 %
Cost of
services 3,462 72.5 % 3,733 74.8 % 10,988 74.4 % 10,657 73.4 %
Gross profit 1,312 27.5 % 1,255 25.2 % 3,773 25.6 % 3,861 26.6 %
Selling,
general and
administrative
expenses 943 19.8 % 895 17.9 % 2,767 18.8 % 2,917 20.1 %
Other income
(expense), net (53 ) -1.1 % 1,953 39.1 % (49 ) -0.3 % 1,976 13.6 %
Income before 46..4
income taxes 316 6.6 % 2,313 % 957 6.5 % 2,920 20.1 %
Income tax
expense 28 0.6 % 38 0.8 % 124 0.8 % 137 0.9 %
Net income 288 6.0 % 2,275 45.6 % 833 5.6 % 2,783 19.2 %
Revenues. Revenues for the three and nine months ended
For the three months endedJuly 31, 2022 , this represents a net decrease of approximately$0.2 million when compared to the same period last year. The decrease is mainly attributable to decrease in projects in thePuerto Rico market for approximately$0.8 million , partially offset by the increase in project revenue in the US and European markets of approximately$0.5 and$0.1 million , respectively. The Brazilian market sustained no significant revenue change when compared to the same period last year. For the nine months endedJuly 31, 2022 , project revenue increased by$0.2 million when compared to the same period last year. The increase is mainly attributable tothe increase in US project revenue for approximately$1.9 million , partially offset by the decreases in consulting revenues in thePuerto Rico and Brazilian markets for approximately$1.4 and$0.3 million , respectively. The European market sustained no significant revenue change when compared to the same period last year. Cost of Services; Gross profit. Cost of services for the three months endedJuly 31, 2022 was$3.5 million , a decrease of$0.3 million when compared to same period last year. For the nine months endedJuly 31, 2022 cost of services was$11.0 million , an increase of$0.3 million when compared to the same period
last year. Gross profit for the three months endedJuly 31, 2022 increased by 2.3 percentage points, when compared to the same period last year. The increase is mostly attributable to higher margin projects in the European andPuerto Rico markets. For the nine months endedJuly 31, 2022 , gross profit reflects a net decrease of 1.0 percentage point. The net decrease in gross profit percentage points is mainly attributable to overall lower margin projects in thePuerto Rico and
US
markets.
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three and nine months ended July 31, 2022 were
$0.9 and $2.8 million , respectively. When compared to the same periods last
year, there was no significant change for the three-month period ended July 31,
2022 , while the nine-month period ended July 31, 2022 had a decrease of $0.1
million . This net decline is mainly attributable to the decrease in consulting
fees, non-recurring legal fees and other administrative and general expenses.
Other Income (Expense), net. Other income (expense) for the three and nine
months ended July 31, 2022 resulted in a net expense of approximately $54,000
and $49,000 , respectively, when compared to the same periods last year, this
represents a decrease of approximately $2.0 million for both periods. The net
decrease is mainly attributable to the forgiveness of principal and accrued
interest of the SBA Loans during the three-month and nine-month periods ended
July 31, 2021 of approximately $2.0 million .
Net Income. Net income for the three-months and nine-months periods ended July
31, 2022 was approximately $0.3 and $0.8 million , respectively, or a decrease
for both periods of $2.0 million when compared to the same periods last year.
The decrease is due to the forgiveness of principal and accrued interest of the
SBA Loans during the three-month and nine-month periods ended July 31, 2021 of approximately$2.0 million . For the three and nine months endedJuly 31, 2022 , net income per common share for both basic and diluted were$0.013 and$0.036 , respectively, or a per share decrease of$0.085 and$0.084 when compared to the same periods last year, respectively. The decrease is mainly the result of the forgiveness of principal and accrued interest of the SBA Loans during the three-month and nine-month periods endedJuly 31, 2021 of approximately$2.0 million .
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements,
including planned capital expenditures. As of
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 nine-month period endedJuly 31, 2022 , the Company repurchased 81,303 shares of its common stock. As ofJuly 31, 2022 , the Company has 1,551,943 shares of common stock available for future repurchases under the Repurchase Program. Our primary cash needs consist of the payment of compensation to our consulting team, overhead expenses, and statutory taxes. Additionally, we may use cash for the repurchase of our common stock under the Repurchase Program, capital expenditures and business development expenses. Management believes that based on the current level of working capital, operations and cash flows from operations, and the collectability of high-quality customer receivables are sufficient to fund anticipated expenses and satisfy other possible long-term contractual commitments. To the extent that we pursue possible opportunities to expand our operations, either by acquisition or by the establishment of operations in a new market, we will incur additional overhead, and there may be a delay between the period we commence operations and our generation of net cash flow from operations. While uncertainties relating to the current local and global economic condition, competition, the industries and geographical regions served by us and other regulatory matters exist within the consulting services industry, as described above, management is not aware of any other trends or events likely to have a material adverse effect on liquidity or its financial statements.
Off-Balance Sheet Arrangements
We were not involved in any significant off-balance sheet arrangement during the
nine months ended
Critical Accounting Policies and Estimates
There were no material changes during the nine months endedJuly 31, 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. 17 Table of Contents Forward-Looking Statements Our business, financial condition, results of operations, cash flows and prospects, and the prevailing market price and performance of our common stock, may be adversely affected by a number of factors, including but not limited to, the factors set forth in the "Risk Factors" section of our Annual Report on Form 10-K for the year endedOctober 31, 2021 , our Quarterly Reports on Form 10-Q for the quarters endedJanuary 31, 2022 andApril 30, 2022 , and this Quarterly Report on Form 10-Q. Certain statements and information set forth in this Quarterly Report on Form 10-Q, as well as other written or oral statements made from time to time by us or by our authorized executive officers on our behalf, constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These statements include all statements other than those made solely with respect to historical fact and identified by words such as "believes", "anticipates", "expects", "intends" and similar expressions, but such words are not the exclusive means of identifying such statements. We intend for our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we set forth this statement and these risk factors in order to comply with such safe harbor provisions. You should note that our forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q or when made and we undertake no duty or obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Although we believe that the expectations, plans, intentions and projections reflected in our forward-looking statements are reasonable, such statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks, uncertainties and other factors that our stockholders and prospective investors should consider include, but are not limited to, those set forth in the "Risk Factors" section of our Annual Report on Form 10-K for the year endedOctober 31, 2021 , our Quarterly Reports on Form 10-Q for the quarters endedJanuary 31, 2022 andApril 30, 2022 , and this Quarterly Report on Form 10-Q.
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