Pharma-Bio Serv, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - Pharma-Bio Serv, Inc.	pbsv_ex321.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - Pharma-Bio Serv, Inc.	pbsv_ex312.htm
EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - Pharma-Bio Serv, Inc.	pbsv_ex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2018

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ______________

Commission File No. 000-50956

PHARMA-BIO SERV, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	20-0653570
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

Pharma-Bio Serv Building, # 6 Road 696 Dorado, Puerto Rico	00646
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code 787-278-2709

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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.

	Large accelerated filer ☐	Accelerated filer ☐
	Non-accelerated filer ☐	Smaller reporting company☒
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 June 9, 2018 was 23,062,531.

PHARMA-BIO SERV, INC.

FORM 10-Q

FOR THE QUARTER ENDED APRIL 30, 2018

TABLE OF CONTENTS

	Page
PART I FINANCIAL INFORMATION	3

Item 1 – Financial Statements	3

Condensed Consolidated Balance Sheets as of April 30, 2018 and October 31, 2017 (unaudited)	3

Condensed Consolidated Statements of Operations for the three-month and six-month periods ended April 30, 2018 and 2017 (unaudited)	4

Condensed Consolidated Statements of Comprehensive Loss for the three-month and six-month periods ended April 30, 2018 and 2017 (unaudited)	5

Condensed Consolidated Statements of Cash Flows for the three-month and six-month periods ended April 30, 2018 and 2017 (unaudited)	6

Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	15

Item 4 – Controls and Procedures	20

PART II OTHER INFORMATION

Item 1 – Legal Proceedings	21

Item 6 – Exhibits	21

SIGNATURES	22

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

PHARMA-BIO SERV, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

	April 30, 2018*	October 31, 2017**
ASSETS
Current assets:
Cash and cash equivalents	$12,986,820	$11,751,714
Marketable securities	36,219	26,600
Accounts receivable	6,567,453	7,208,054
Other	352,488	550,163
Total current assets	19,942.980	19,536,531

Property and equipment	2,145,703	2,390,545
Other assets	422,081	422,925
Total assets	$22,510,764	$22,350,001

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion-obligations under capital leases	$14,168	$13,949
Accounts payable and accrued expenses	1,719,378	1,526,904
Current portion of US Tax Reform Transition Tax and income taxes payable	217,712	2,067
Total current liabilities	1,951,258	1,542,920
US Tax Reform Transition Tax payable	2,485,000	-
Obligations under capital leases	52,963	59,795
Total liabilities	4,489,221	1,602,715

Stockholders' equity:
Preferred Stock, $0.0001 par value; authorized 10,000,000 shares; none outstanding	-	-
Common Stock, $0.0001 par value; authorized 50,000,000 shares; 23,333,083 and 23,333,083 shares issued, and 23,062,531 and 23,089,631 shares outstanding, at April 30, 2018 and October 31, 2017, respectively	2,333	2,333
Additional paid-in capital	1,330,414	1,295,314
Retained earnings	16,767,771	19,560,131
Accumulated other comprehensive loss	182,847	137,671
	18,283,365	20,995,449
Treasury stock, at cost; 270,552 and 243,452 common shares held at April 30, 2018 and October 31, 2017, respectively	(261,822)	(248,163)
Total stockholders' equity	18,021,543	20,747,286
Total liabilities and stockholders' equity	$22,510,764	$22,350,001

* Unaudited.

** Condensed from audited financial statements.

See notes to the condensed consolidated financial statements.

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three months ended April 30,		Six months ended April 30,
	2018	2017	2018	2017
REVENUES	$4,404,411	$3,921,167	$8,616,789	$7,967,458

COST OF SERVICES	3,397,197	2,879,977	6,526,430	5,893,923

GROSS PROFIT	1,007,214	1,041,190	2,090,359	2,073,535


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	1,156,364	1,365,758	2,220,347	2,782,100

LOSS FROM OPERATIONS	(149,150)	(324,568)	(129,988)	(708,565)

OTHER INCOME, NET	20,802	1,911	38,651	5,523

LOSS BEFORE INCOME TAX AND US TAX REFORM TRANSITION TAX EXPENSE	(128,348)	(322,657)	(91,337)	(703,042)

INCOME TAX AND US TAX REFORM TRANSITION TAX EXPENSE	-	106	2,701,023	1,856

NET LOSS	$(128,348)	$(322,763)	$(2,792,360)	$(704,898)


BASIC LOSSES PER COMMON SHARE	$(0.006)	$(0.014)	$(0.121)	$(0.031)

DILUTED LOSSES PER COMMON SHARE	$(0.006)	$(0.014)	$(0.121)	$(0.031)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC	23,062,531	23,110,541	23,076,594	23,078,658

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – DILUTED	23,062,531	23,110,541	23,078,143	23,084,634

See notes to the condensed consolidated financial statements.

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

	Three months ended April 30,		Six months ended April 30,
	2018	2017	2018	2017
NET LOSS	$(128,348)	$(322,763)	$(2,792,360)	$(704,898)

OTHER COMPREHENSIVE INCOME (LOSS), NET OF RECLASSIFICATION ADJUSTMENTS AND TAXES:

Foreign currency translation gain (loss)	(47,262)	656	35,557	4,357
Net unrealized gain (loss) on available-for-sale-securities	11,163	(1,663)	9,619	23

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)	(36,099)	(1,007)	45,176	4,380

COMPREHENSIVE LOSS	$(164,447)	$(323,770)	$(2,747,184)	$(700,518)

See notes to the condensed consolidated financial statements.

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three months ended April 30,		Six months ended April 30,
	2018	2017	2018	2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$(128,348)	$(322,763)	$(2,792,360)	$(704,898)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation	17,550	22,050	35,100	44,100
Depreciation and amortization	152,858	100,646	302,606	210,106
(Increase) decrease in accounts receivable	(536,500)	(588,464)	708,840	260,706
Decrease in other assets	85,216	65,295	206,295	243,673
Increase (decrease) in liabilities	257,941	(185,991)	2,870,084	(777,523)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	(151,283)	(909,227)	1,330,565	(723,836)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment	(6,649)	(43,370)	(57,764)	(324,092)
NET CASH USED IN INVESTING ACTIVITIES	(6,649)	(43,370)	(57,764)	(324,092)

CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock	-	(8,040)	(13,659)	(9,922)
Payments on obligations under capital lease	(3,327)	(3,995)	(6,613)	(9,913)
NET CASH USED IN FINANCING ACTIVITIES	(3,327)	(12,035)	(20,272)	(19,835)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(28,161)	(894)	(17,423)	(729)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(189,420)	(965,526)	1,235,106	(1,068,492)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	13,176,240	13,670,616	11,751,714	13,773,582

CASH AND CASH EQUIVALENTS – END OF PERIOD	$12,986,820	$12,705,090	$12,986,820	$12,705,090

SUPPLEMENTAL DISCLOURES OF CASH FLOWS INFORMATION
Cash paid during the period for:
Income taxes	$-	$25	$-	$65
Interest	$549	$2,559	$1,091	$3,194

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	$16,478	$6,371	$18,245	$20,601
Conversion of cashless exercise of options to shares of common stock and shares issued under restricted stock unit agreements	$-	$-	$-	$10
Disposed property and equipment with accumulated depreciation of $30,034 for the six months ended April 30, 2017	$-	$-	$-	$30,034

See notes to the condensed consolidated financial statements.

PHARMA-BIO SERV, INC.

Notes To Condensed Consolidated Financial Statements

April 30, 2018

(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, 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, and microbiological and chemical laboratory testing.

Scienza Labs is a wholly owned subsidiary, which was organized in Puerto Rico in April 2016. As of April 30, 2018, this subsidiary was in development stage and has not incurred significant revenues or expenses.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated balance sheet of the Company as of October 31, 2017 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 six months ended April 30, 2018 are not necessarily indicative of expected results for the full 2018 fiscal year.

The accompanying financial data as of April 30, 2018, and for the three-month and six-month periods ended April 30, 2018 and 2017 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, 2017.

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.

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.

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).

Marketable securities available-for-sale consist of U.S. Treasury securities and an obligation from the Puerto Rico Government Development Bank valued using quoted market prices in active markets. Accordingly, these securities are categorized in Level 1.

The carrying value of the Company's financial instruments (excluding marketable securities and 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

Revenue is primarily derived from: (1) time and materials contracts (representing approximately 87% of total revenues), which is recognized by applying the proportional performance model, whereby revenue is recognized as performance occurs, (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, and (3) laboratory testing revenue (representing approximately 12% of total revenues) is mainly recognized as the testing is completed and certified (normally within days of sample receipt from customer). 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.

Marketable Securities

We consider our marketable security investment portfolio and marketable equity investments as available-for-sale and, accordingly, these investments are recorded at fair value with unrealized gains and losses generally recorded in other comprehensive income; whereas realized gains and losses are included in earnings and determined based on the specific identification method.

We review our available-for-sale securities for other-than-temporary declines in fair value below their cost basis on a quarterly basis and whenever events or changes in circumstances indicate that the cost basis of an asset may not be materially recoverable. This evaluation is based on several factors including, the length of time and extent to which the fair value has been less than our cost basis and adverse conditions specifically related to the security including any changes to the rating of the security by a rating agency.

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 payment term. 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.

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 April 30, 2018, 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, and leasehold improvements are stated at cost. Vehicles under capital 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 and amortization 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 capital leases and leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the lease term, including renewals that have been determined to be reasonable assured. Major renewals and betterments that extend the life of the assets are capitalized, while expenditures for repairs and maintenance are expensed when incurred. As of April 30, 2018 and October 31, 2017, the accumulated depreciation and amortization amounted to $2,595,935 and $2,293,329, respectively.

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 operating properties was present.

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.

Loss Per Share of Common Stock

Basic loss per share of common stock is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted loss 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.

Reclassifications

Certain reclassifications have been made to the April 30, 2017 condensed consolidated financial statements to conform them to the April 30, 2018 condensed consolidated financial statements presentation. Such reclassifications do not affect net loss as previously reported.

Recent accounting pronouncements

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 has subsequently issued additional, clarifying standards to address issues arising from implementation of the new revenue standard. The new standards are required to be adopted using either a full retrospective or a modified retrospective approach. We expect to adopt this standard using the modified retrospective approach beginning with our fiscal year 2019. Based on our preliminary assessment, we currently do not anticipate a material impact to our total revenues. We continue to review the impact that this new standard will have on our consolidated financial statements.

In February 2016, the FASB issued a new accounting standard that amends the guidance for the accounting and disclosure of leases. This new standard requires that lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about their leasing arrangements. The new standard is effective for interim and annual periods beginning on January 1, 2019 and may be adopted earlier. We continue to evaluate the impact that this new standard will have on our consolidated financial statements. We do not expect that this standard will have a material impact to our Consolidated Statements of Operations but expect that this standard will have a material impact on the assets and liabilities on our Consolidated Balance Sheets upon adoption.

Other recently issued FASB guidance and SEC Staff Accounting Bulletins have either been implemented, are not applicable to the Company, or will have limited effects upon the Company’s implementation.

NOTE B – MARKETABLE SECURITIES AVAILABLE FOR SALE

The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of available-for-sale securities by type of security were as follows as of April 30, 2018 and October 31, 2017:

Type of security as of April 30, 2018	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
U.S. Treasury securities	$4,567,000	$-	$-	$4,567,000
Other government-related debt securities:
Puerto Rico Commonwealth Government Development Bond	40,000	-	(3,781)	36,219
Total interest-bearing and available-for-sale securities	$4,607,000	$-	$(3,781)	$4,603,219

Type of security as of October 31, 2017	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
U.S. Treasury securities	$4,500,000	$-	$-	$4,500,000
Other government-related debt securities:
Puerto Rico Commonwealth Government Development Bond	40,000	-	(13,400)	26,600
Total interest-bearing and available-for-sale securities	$4,540,000	$-	$(13,400)	$4,526,600

At April 30, 2018 and October 31, 2017, the above marketable securities included a 5.4% Puerto Rico Commonwealth Government Development Bank Bond maturing in August 2019, purchased at par for $95,000 and amortized by $55,000.

The fair values of available-for-sale securities by classification in the Consolidated Balance Sheets were as follows as of April 30, 2018 and October 31, 2017:

Classification in the Consolidated Balance Sheets	April 30, 2018	October 31, 2017
Cash and cash equivalents	$4,567,000	$4,500,000
Marketable securities	36,219	26,600
Total available-for-sale securities	$4,603,219	$4,526,600

Cash and cash equivalents in the table above exclude cash in banks of approximately $8.4 million and $7.2 million as of April 30, 2018 and October 31, 2017, respectively.

The primary objectives of the Company’s investment portfolio are liquidity and safety of principal. Investments are made with the objective of achieving the highest rate of return consistent with these two objectives. Our investment policy limits investments to certain types of debt and money market instruments issued by institutions primarily with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer.

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 is applicable to our company commencing with our fiscal year 2018, including the Transition Tax provisions which establishes measurement dates for various computations, November 2, 2017, December 31, 2017 and October 31, 2018. 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 is estimated to be approximately $2.7 million. However, the final Transition Tax due must be assessed with our October 31, 2018 closing figures. The Transition Tax liability may be paid over a period of eight years starting on February 28, 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.

The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Reform. SAB 118 provides a measurement period that should not extend beyond one year from the date of the Tax Reform enactment for companies to complete the accounting under Accounting Standards Codification 740—Income Taxes. In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of the Tax Reform is incomplete, but the company is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. As mentioned in the preceding paragraph, the Company’s accounting for certain elements of the Tax Reform is incomplete. However, the Company was able to make a reasonable estimate of the Transition Tax and recorded a provisional tax obligation of approximately $2.7 million, as reflected in the condensed consolidated financial statements. The Company is continuing to gather additional information to more precisely compute the amount of Transition Tax, and determine whether it will be paid over an eight-year period.

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.

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 39% as provided by the 1994 Puerto Rico Internal Revenue Code, as amended. The business activity carried out in the United States by the Company’s subsidiary was taxed in the United States at a maximum regular federal income tax rate of 35%. Among the Tax Reform provisions, effective with the Company’s fiscal year ending on October 31, 2018, is a provision whereby the regular federal income tax rate is reduced to 23.5% blended rate and 21% thereafter.

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, Pharma-Bio/Pharma-US, Pharma-PR and Pharma-Serv 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 2032 for Pharma-Spain; indefinitely for Pharma-IR; until 2037 for Pharma-Bio/Pharma-US; and until 2027 for Pharma-PR and Pharma-Serv.

The statutory income tax rate differs from the effective rate, mainly due to the effect of the non-recurring Transition Tax imposed by the Tax Reform over the Company’s E&Ps.

The Company files income tax returns in the United States (federal and various states jurisdictions), Puerto Rico, Ireland, Spain and Brazil. The 2013 (2012 for Puerto Rico) through 2016 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. Pursuant to the agreement terms, the Company issued warrants for the purchase of 1,000,000 common shares at an exercise price of $1.80 per share. The underlying common shares of the warrants are fully vested and expire on December 1, 2019.

NOTE E – CAPITAL 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 timing, manner, price and amount of any repurchases 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 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 directly from directors or officers of the Company. As of April 30, 2018 and October 31, 2017, pursuant to the program, a total of 270,552 and 243,452 shares of the Company’s common stock were purchased for an aggregate amount of $261,822 and $248,163, respectively.

NOTE F – LOSSES PER SHARE

The following data shows the amounts used in the calculations of basic and diluted losses per share.

	Three months ended April 30,		Six months ended April 30,
	2018	2017	2018	2017
Net loss available to common equity holders - used to compute basic and diluted earnings per share	$(128,348)	$(322,763)	$(2,792,360)	$(704,898)
Weighted average number of common shares - used to compute basic losses per share	23,062,531	23,110,541	23,076,594	23,078,658
Effect of warrants to purchase common stock	-	-	-	-
Effect of restricted stock units to issue common stock	-	-	-	5,705
Effect of options to purchase common stock	-	-	1,549	271
Weighted average number of common shares - used to compute diluted losses per share	23,062,531	23,110,541	23,078,143	23,084,634

For the three-month and six-month periods ended April 30, 2018 and 2017, warrants for the purchase of shares of 1,000,000 common stock were not considered in computing diluted earnings per share because the effect was antidilutive. In addition, options for the purchase of 700,000 and 620,000 shares of common stock for the three-month and six-month periods ended April 30, 2018, and 610,000 shares of common stock for the three-month and six-month periods ended in April 30, 2017, respectively, were not included in computing diluted earnings per share because their effects were also antidilutive.

NOTE G - 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 not to be significant and have no specific insurance. No losses have been experienced or are expected on these accounts.

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 of America, Ireland and Spain. 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 two customers, which accounted for 10% or more of its revenues in either of the three-month and six-month periods ended April 30, 2018 and 2017. During the three months ended April 30, 2018, revenues from these customers were 18.4% and 11.2%, or a total of 29.6%, as compared to the same period last year of 16.3% and 0.0%, or a total of 16.3%, respectively. During the six months ended April 30, 2018, revenues from these customers were 16.9% and 6.0%, or a total of 22.9%, as compared to the same period last year of 12.7% and 0.0%, or a total of 12.7%, respectively. At April 30, 2018, amounts due from these customers represented 24.1% of the Company’s total accounts receivable balance. This major customers information 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.

At the global level, three global groups of affiliated companies accounted for 10% or more of its revenues in either of the three-month and six-month periods ended April 30, 2018 and 2017. During the three months ended April 30, 2018, aggregate revenues from these global groups of affiliated companies were 18.4%, 11.2% and 10.8%, or a total of 40.4%, as compared to the same period last year for 16.3%, 0.0%, and 11.5%, or a total of 27.8%, respectively. During the six months ended April 30, 2018, aggregate revenues from these global group of affiliated companies were 16.9%, 8.7% and 6.8%, or a total of 32.4%, as compared to the same period last year for 12.7%, 0.0% and 11.1%, or a total of 23.8%, respectively. At April 30, 2018, amounts due from these global groups of affiliated companies represented 29.1% of total accounts receivable balance.

As of April 30, 2018, one of the Company’s customers owes the Company approximately $1.7 million, which represents approximately 9.7% of the Company’s total working capital. We are providing multiple services to this customer related to their construction of a manufacturing facility in Puerto Rico. From this facility the customer will do 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.

NOTE H - SEGMENT DISCLOSURES

The Company’s segments are based on the organizational structure for which financial results are regularly evaluated by the Company’s senior executive management 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 four reportable segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, (iii) Europe technical compliance consulting, and (iv) a Puerto Rico microbiological and chemical laboratory testing division (“Lab”). 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 revenues from services and earnings from operations of the Company for the three-month and six-month periods ended in April 30, 2018 and 2017. 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 April 30,		Six months ended April 30,
	2018	2017	2018	2017
REVENUES:
Puerto Rico consulting	$3,214,365	$2,760,271	$5,912,730	$5,550,290
United States consulting	341,196	301,622	627,831	648,822
Europe consulting	209,798	178,847	930,930	361,271
Lab (microbiological and chemical testing)	583,652	560,293	1,062,574	1,202,186
Other segments¹	55,400	120,134	82,724	204,889
Total consolidated revenues	$4,404,411	$3,921,167	$8,616,789	$7,967,458

INCOME (LOSS) BEFORE TAXES:
Puerto Rico consulting	$114,111	$24,591	$112,096	$(126,249)
United States consulting	(88,536)	(136,569)	(175,701)	(375,212)
Europe consulting	(94,578)	(65,218)	127,024	(91,968)
Lab (microbiological and chemical testing)	(112,954)	(132,983)	(219,497)	(220,600)
Other segments¹	53,609	(12,478)	64,741	110,987
Total consolidated income before taxes	$(128,348)	$(322,657)	$(91,337)	$(703,042)

Other segments represent activities that fall below the reportable threshold and are carried out in Puerto Rico, United States and Brazil. These activities include a Brazilian compliance consulting division, technical seminars/training division, a calibrations division and corporate headquarters, as applicable.

Long lived assets (property and equipment and intangible assets) as of April 30, 2018 and October 31, 2017, and related depreciation and amortization expense for the three and six months ended April 30, 2018 and 2017, were concentrated in the Lab in Puerto Rico. Accordingly, depreciation expense and acquisition of property and equipment, as presented in the statement of cash flows are mainly related to the Lab.

ITEM 2. MANAGEMENT’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, 2017. 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, 2017.

Overview

We are a compliance and technology transfer services consulting firm with a laboratory testing facility 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 also provide microbiological testing services and chemical testing services through our laboratory testing facility (“Lab”) in Puerto Rico. We also provide technical training/seminars, which services are not currently significant to our operating results. 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, Ireland, Spain 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.

While our core business is FDA and international agencies regulatory compliance related services, we feel that our clients are in need of other services that we can provide and allow us to present the company as a global solution provider with a portfolio of integrated services that will bring value added solutions to our customers. Accordingly, our portfolio of services includes a laboratory testing facility and a training center that provides seminars/training to the industry.

The Lab incorporates the latest technology and test methodologies meeting pharmacopoeia industry standards and regulations. It currently offers services to our core industries already serviced as well as the cosmetic and food industries.

We also provide technical seminars/training that incorporate the latest regulatory trends and standards as well as other related areas. A network of leading industry professional experts in their field, which include resources of our own, provide these seminars/training to the industry through our “Pharma Serv Academy” division. These services are provided in the markets we currently serve, as well as others, and position our Company as a key leader in the industry.

During the year ended October 31, 2015, the Company started the development of a new Puerto Rico based Calibrations Services Division that provides lab and field calibration, verification and qualification of equipment and installations, readiness audits, heating/ventilation and air conditioning ("HVAC") and clean room qualification and related services. The Company signed a three-year strategic collaboration agreement with a Spain-based company specializing in calibrations, validation, HVAC and clean room qualification services to assist the Company in the development process. The collaboration agreement terminates October 2018. The Calibrations Division development was substantially completed during the year ended October 31, 2017.

In April 2015, we registered in Brazil our wholly owned subsidiary, Pharma-Brazil, which started providing consulting services to this market since last year.

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.

In December 2016, the Company obtained a license from the United States Department of Treasury Office of Foreign Assets Control (“OFAC”) which authorizes the Company to perform certain services and transactions with a Cuban state-run organization. The license is not transferable and expires on January 31, 2019.

As more fully disclosed in our Annual Report on Form 10-K for the year ended October 31, 2017, during September 2017, our Puerto Rico operations were affected by hurricanes which severely impacted Puerto Rico (“Hurricanes”). Within a few days of the last hurricane affecting Puerto Rico in September 2017, the Company resumed operations using a diesel power generator at its Puerto Rico facilities. The Company’s electrical power and other basic utilities were restored on November 22, 2017. As of the date of this report, clients’ businesses in Puerto Rico have been restored. The Company’s insurance provider is currently assessing the extent of the damages to our facilities, as well as the business interruption losses and additional expenses incurred by the Company until electrical power and other basic utilities were restored. Based on current accounting guidance, the insurance proceeds will be recognized upon collection, as a gain contingency.

As more fully disclosed in Note C of the Company’s condensed consolidated financial statements included herewith, the Company is subject to the recent Tax Reform provisions, including an estimated one-time non-recurring Transition Tax of $2.7 million, payable within eight years starting on February 2019. The payment will be funded from our working capital.

The following table sets forth information as to our revenue for the three-month and six-month periods ended April 30, 2018 and 2017, by geographic regions (dollars in thousands).

	Three months ended April 30,				Six months ended April 30,
Revenues by Region:	2018		2017		2018		2017
Puerto Rico	$3,853	87.5%	$3,440	87.7%	$7,038	81.7%	$6,955	87.3%
United States	341	7.7%	302	7.7%	628	7.3%	649	8.2%
Europe	210	4.8%	179	4.6%	931	10.8%	361	4.5%
Other	-	-%	-	-%	20	0.2%	2	-%
	$4,404	100.0%	$3,921	100.0%	$8,617	100.0%	$7,967	100.0%

For the six-month period ended April 30, 2018, revenues for the Company were $8.6 million, an increase of $0.7 million when compared to the same period last year. The revenue increase is mainly attributable to projects in the Puerto Rico and European consulting markets for $0.3 and $0.5 million, respectively, partially offset by a decline in the Puerto Rico Lab operation of $0.1 million. Other Company divisions sustained minor revenue gains/losses or remained constant. When compared to the same period last year, gross margin decreased 1.7 percentage points. The net decrease in gross margin is mainly attributable to Puerto Rico less favorable consulting project margins. Selling, general and administrative expenses were approximately $2.2 million, a net decrease of $562,000 when compared to the same period last year. The decrease is mainly attributable to cost reduction measures geared to align our operational support expenses to the market conditions. These reductions include, among others, the closing of operational satellite offices and the net reduction of business development and global support personnel. These factors contributed to our net loss before income tax and Transition Tax of approximately $91,000, an earnings improvement of approximately $612,000, when compared to the same period last year. (See “Results of Operations” below.)

The long-term impacts of the Hurricanes, 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 economy and global economy, changes in tax laws and healthcare reform, and worldwide lifescience 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 sets forth our statements of operations for the three-month and six-month periods ended April 30, 2018 and 2017, (dollars in thousands) and as a percentage of revenue:

	Three months ended April 30,				Six months ended April 30,
	2018		2017		2018		2017
Revenues	$4,404	100.0%	$3,921	100.0%	$8,617	100.0%	$7,967	100.0%
Cost of services	3,397	77.1%	2,880	73.5%	6,527	75.7%	5,894	74.0%
Gross profit	1,007	22.9%	1,041	26.5%	2,090	24.3%	2,073	26.0%
Selling, general and administrative costs	1,156	26.3%	1,366	34.8%	2,220	25.8%	2,782	34.9%
Other income (expense), net	21	0.5%	2	0.1%	39	0.4%	6	0.1%
Loss before income tax and US Tax Reform Transition Tax	(128)	-2.9%	(323)	-8.2%	(91)	-1.1%	(703)	-8.8%
Income tax and US Tax Reform Transition Tax expense	-	-%	-	-%	2,701	31.3%	2	-%
Net loss	(128)	-2.9%	(323)	-8.2%	(2,792)	-32.4%	(705)	-8.8%

Revenues. Revenues for the three and six months ended April 30, 2018 were $4.4 and $8.6 million, respectively, an increase of approximately $0.5 and $0.7 million, or 12.3% and 8.2%, respectively, when compared to the same periods last year.

The increase for the three months ended April 30, 2018, when compared to the same period last year, is mainly attributable to increases in projects in the Puerto Rico consulting market of approximately $0.5 million. Other Company divisions sustained minor revenue gains/losses or remained constant, when compared to the same period last year.

The increase for the six months ended in April 30, 2018, when compared to the same period last year, is mainly attributable to increases in projects in the Puerto Rico and European consulting markets of $0.3 and $0.5 million, respectively, partially offset by a decline in the Puerto Rico Lab operation of $0.1 million. Other Company divisions sustained minor revenue gains/losses or remained constant.

Cost of Services; gross margin. The decrease of 3.6 and 1.7 percentage points in gross margin for the three months and six months ended April 30, 2018, respectively, is mainly attributable to the less favorable Puerto Rico consulting project margins when compared to the same period last year.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three and six months ended April 30, 2018 were approximately $1.2 and $2.2 million, a decrease of approximately $0.2 million and $0.6 million when compared to the same periods last year, respectively. The decrease is mainly attributable to cost reduction measures geared to align our operational support expenses to the market conditions. These reductions include, among others, the closing of operational satellite offices and the net reduction of business development and global support personnel.

Income Tax and US Tax Reform Transition Tax Expense. The income tax expense is mainly attributable to the effect of the $2.7 million non-recurring Transition Tax imposed by the Tax Reform over the Company’s E&Ps. For additional information on the Transition Tax, see Note C of the Company’s condensed consolidated financial statements included herewith.

Net Loss. For the three and six months ended April 30, 2018, our loss before income tax and US Tax Reform Transition Tax was approximately $128,000 and $91,000, respectively, an improvement of $195,000 and $612,000 when compared to the same periods last year, respectively. The variance is mainly attributable to a slight improvement in revenue, plus savings in operational support expenses.

After considering the Tax Reform $2.7 million Transition Tax adjustment recorded on our first quarter of the current fiscal year, for the three and six months periods ended April 30, 2018 the Company sustained a net loss of approximately $0.1 and $2.8 million, respectively. This represents an improvement in net earnings of $195,000 for the three months ended April 30, 2018 and a decrease in earnings of $2.1 million for the six months ended April 30, 2018, when compared to the same periods last year.

For the three and six months ended April 30, 2018, loss before income tax and Transition Tax per common share for both basic and diluted was $0.006 and $0.004, respectively, an improvement of $0.008 and $0.026 per share, when compared to the same periods last year, respectively.

After considering income tax and the US Tax Reform Transition Tax adjustment recorded in the first quarter of the current fiscal year, loss per common share for both basic and diluted for the three and six months ended April 30, 2018 was $0.006 and $0.121, respectively, an improvement of $0.008 per share and a decline of $0.090 per share when compared to the same periods last year, respectively.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including planned capital expenditures. As of April 30, 2018, the Company had approximately $18 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 "Company Stock Repurchase Program"). During the six-month period ended April 30, 2018, the Company repurchased 27,100 shares of its common stock.

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 (as described above on “Results of Operations”). 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 will be sufficient to fund anticipated expenses and satisfy other possible long-term contractual commitments for the next twelve months.

To the extent that we pursue possible opportunities to expand our operations, either by acquisition or by the establishment of operations in a new locale, 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 matters likely to have a material adverse effect on the Company's 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 April 30, 2018.

Critical Accounting Policies and Estimates

There were no material changes during the six months ended April 30, 2018 to the critical accounting policies reported in our Annual Report on Form 10-K for the fiscal year ended October 31, 2017.

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, 2017, 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:

●

Because our business is concentrated in the lifescience 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 the Hurricanes, 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.

●

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.

●

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.

●

Changes in public policy impacting the industries we serve could adversely affect 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.

●

Our reputation and divisions may be impacted by regulatory standards applicable to our customer products.

●

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.

●

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.

ITEM 4. CONTROLS 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.

PART II– OTHER INFORMATION

ITEM 1. LEGAL 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 6. EXHIBITS.

(a)

Exhibits:

31.1		Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		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

* Furnished herewith

SIGNATURES

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 and Vice President Finance and Administration
	(Principal Financial Officer and Principal Accounting Officer)

Dated: June 14, 2018

Pharma-Bio Serv, Inc. - FORM 10-Q - June 14, 2018

Attached files

Pharma-Bio Serv, Inc. Reports