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, 2022.
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, 2022 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 Latin 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 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, 2023 and 2022, by geographic regions (dollars in
thousands).
Three months ended January 31,
Revenues by Region: 2023 2022
Puerto Rico $ 2,174 51.3 % $ 3,364 67.0 %
United States 1,094 25.8 % 1,187 23.6 %
Europe 970 22.9 % 465 9.3 %
Other - 0.0 % 3 0.1 %
$ 4,238 100.0 % $ 5,019 100.0 %
For the three-month period ended January 31, 2023, the Company's total revenues
were approximately $4.2 million, a net decrease of approximately $0.8 million
when compared to the same period last year. The Puerto Rico and US consulting
markets had a revenue decline in projects of approximately $1.2 and $0.1
million, respectively, which was partially offset by an increase in project
revenue in Europe of approximately $0.5 million. As depicted below, when
compared to the same period last year, gross profit increased by 4.5 percentage
points. The net improvement in gross profit percentage points is mainly
attributable to overall better margin projects in the US and the Europe markets
for the three-month period ended January 31, 2023.
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Regional or global conflicts, including war or economic sanctions between
nations, price inflation, the coronavirus pandemic, the Tax Reform, possible tax
changes on jurisdictions where we do business, bio-pharmaceutical industry
consolidations and the 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 the
effect the local and global economy, including any impacts of regional or global
conflicts, price inflation, 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
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, 2023 and 2022 (dollars in thousands, and
as a percentage of revenues):
Three months ended January 31,
2023 2022
Revenues $ 4,238 100.0 % $ 5,019 100.0 %
Cost of services 2,998 70.7 % 3,775 75.2 %
Gross profit 1,240 29.3 % 1,244 24.8 %
Selling, general and administrative expenses 911 21.5 % 889 17.7 %
Other income, net 246 5.8 % 1 0.0 %
Income before income taxes 575 13.6 % 356 7.1 %
Income tax expense 149 3.5 % 51 1.0 %
Net income 426 10.1 % 305 6.1 %
Revenues. For the three-month period ended January 31, 2023, the Company's total
revenues were approximately $4.2 million, a net decrease of approximately $0.8
million when compared to the same period last year. The Puerto Rico and US
consulting markets had a revenue decline in projects of approximately $1.2 and
$0.1 million, respectively, which was partially offset by an increase in project
revenue in Europe of approximately $0.5 million.
Cost of Services; Gross Profit. For the three-month period ended January 31,
2023, cost of services were approximately $3.0 million, a decrease of $0.8
million, when compared to the same period last year. Furthermore, gross profit
increased by 4.5 percentage points during the period. The net improvement in
gross profit percentage points is mainly attributable to overall better margin
projects in the US and the Europe markets for the three-month period ended
January 31, 2023.
Selling, General and Administrative Expenses. For the three-month period ended
January 31, 2023, selling, general and administrative expenses were
approximately $0.9 million, no significant change when compared to the same
period last year.
Other Income, Net. Other income, net for the three months ended January 31, 2023
was approximately $0.2 million, and mostly attributable to $0.1 million of
interest income and $0.1 million from the settlement of foreign exchange rates
on intercompany balances,
Net Income. Net income for the three months ended January 31, 2023 was
approximately $0.4 million, an increase of approximately $0.1 million when
compared to the same period last year.
For the three-month period ended January 31, 2023, net income per common share
for both basic and diluted was $0.019, an increase of $0.006 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, 2023, the Company had
approximately $18.3 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, 2023, the Company made no purchases under
the Repurchase Program. As of January 31, 2023, the Company has 1,548,943 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
three months ended January 31, 2023.
Critical Accounting Policies and Estimates
There were no material changes during the three months ended January 31, 2023 to
the critical accounting policies reported in our Annual Report on Form 10-K for
the fiscal year ended October 31, 2022.
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, 2022, 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 factors set
forth in the "Risk Factors" section of our Annual Report on Form 10-K for the
year ended October 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
include the following: set forth in the "Risk Factors" section of our Annual
Report on Form 10-K for the year ended October 31, 2022 and this Quarterly
Report on Form 10-Q .
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