þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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20-0653570
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(State or Other Jurisdiction of
Incorporation or Organization)
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(IRS Employer
Identification No.)
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Pharma-Bio Serv Building,
# 6 Road 696
Dorado, Puerto Rico
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00646
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(Address of Principal Executive Offices)
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(Zip Code) |
Large accelerated filer |
¨
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Accelerated filer
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o |
Non-accelerated filer |
¨
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Smaller reporting company
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þ |
Page
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PART I FINANCIAL INFORMATION | ||||
Item 1 –
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Financial Statements
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3 | ||
Condensed Consolidated Balance Sheets as of July 31, 2012 and October 31, 2011 (unaudited)
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3
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|||
Condensed Consolidated Statements of Income for the three-month and nine month periods ended July 31, 2012 and 2011 (unaudited)
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4
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|||
Condensed Consolidated Statements of Cash Flows for the three-month and nine month periods ended July 31, 2012 and 2011 (unaudited)
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5
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|||
Notes to Condensed Consolidated Financial Statements (unaudited)
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6
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Item 2 –
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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14
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Item 4 –
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Controls and Procedures
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20
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PART II OTHER INFORMATION | ||||
Item 1 –
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Legal Proceedings
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21
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Item 1A –
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Risk Factors
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21
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Item 6 –
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Exhibits
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22
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SIGNATURES |
23
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July 31,
2012*
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October 31,
2011**
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|||||||
ASSETS:
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||||||||
Current assets
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||||||||
Cash and cash equivalents
|
$ | 5,027,185 | $ | 4,316,725 | ||||
Marketable securities
|
95,000 | 95,000 | ||||||
Accounts receivable
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7,185,615 | 4,864,616 | ||||||
Other
|
445,679 | 331,441 | ||||||
Total current assets
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12,753,479 | 9,607,782 | ||||||
Property and equipment
|
1,137,874 | 1,216,111 | ||||||
Other assets
|
28,374 | 28,306 | ||||||
Total assets
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$ | 13,919,727 | $ | 10,852,199 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY:
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||||||||
Current liabilities
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||||||||
Current portion-obligations under capital leases
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$ | 33,160 | $ | 31,142 | ||||
Accounts payable and accrued expenses
|
1,814,172 | 1,941,658 | ||||||
Income taxes payable
|
250,180 | 550,837 | ||||||
Total current liabilities
|
2,097,512 | 2,523,637 | ||||||
Obligations under capital leases
|
67,112 | 92,237 | ||||||
Total liabilities
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2,164,624 | 2,615,874 | ||||||
Stockholders' equity:
|
||||||||
Preferred Stock, $0.0001 par value; authorized 10,000,000 shares;
none outstanding
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- | - | ||||||
Common Stock, $0.0001 par value; authorized 50,000,000 shares;
issued and outstanding 20,758,695
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2,076 | 2,076 | ||||||
Additional paid-in capital
|
676,048 | 654,550 | ||||||
Retained earnings
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11,210,150 | 7,599,708 | ||||||
Accumulated other comprehensive loss
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(133,171 | ) | (20,009 | ) | ||||
Total stockholders' equity
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11,755,103 | 8,236,325 | ||||||
Total liabilities and stockholders' equity
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$ | 13,919,727 | $ | 10,852,199 |
*
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Unaudited.
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**
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Condensed from audited financial statements.
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Three months ended July 31,
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Nine months ended July 31,
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|||||||||||||||
2012
|
2011
|
2012
|
2011
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|||||||||||||
REVENUES
|
$ | 7,655,044 | $ | 5,517,832 | $ | 21,056,366 | $ | 13,697,307 | ||||||||
COST OF SERVICES
|
5,056,218 | 3,518,328 | 13,814,752 | 8,976,795 | ||||||||||||
GROSS PROFIT
|
2,598,826 | 1,999,504 | 7,241,614 | 4,720,512 | ||||||||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
|
1,026,160 | 831,925 | 2,881,190 | 2,298,651 | ||||||||||||
INCOME FROM OPERATIONS
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1,572,666 | 1,167,579 | 4,360,424 | 2,421,861 | ||||||||||||
OTHER INCOME (EXPENSE):
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||||||||||||||||
Interest expense
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(1,915 | ) | (2,575 | ) | (6,243 | ) | (5,916 | ) | ||||||||
Interest income
|
2,320 | 5,330 | 8,301 | 14,449 | ||||||||||||
Gain on disposition of property and equipment
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- | - | 190 | - | ||||||||||||
405 | 2,755 | 2,248 | 8,533 | |||||||||||||
INCOME BEFORE TAX
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1,573,071 | 1,170,334 | 4,362,672 | 2,430,394 | ||||||||||||
INCOME TAX EXPENSE (BENEFIT), NET OF PUERTO RICO TAX GRANT
NON-RECURRING ADJUSTMENTS FOR PERIODS ENDED JULY 31, 2011 |
297,173 | (328,268 | ) | 752,231 | 95,840 | |||||||||||
NET INCOME
|
$ | 1,275,898 | $ | 1,498,602 | $ | 3,610,441 | $ | 2,334,554 | ||||||||
BASIC EARNINGS PER COMMON SHARE
|
$ | 0.061 | $ | 0.072 | $ | 0.174 | $ | 0.112 | ||||||||
DILUTED EARNINGS PER COMMON SHARE
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$ | 0.056 | $ | 0.067 | $ | 0.158 | $ | 0.104 | ||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING – BASIC |
20,758,695 | 20,754,954 | 20,758,695 | 20,752,475 | ||||||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING – DILUTED |
22,980,475 | 22,515,391 | 22,877,147 | 22,500,875 |
Three months ended July 31,
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Nine months ended July 31, | |||||||||||||||
2012
|
2011
|
2012
|
2011
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|||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
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||||||||||||||||
Net income
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$ | 1,275,898 | $ | 1,498,602 | $ | 3,610,441 | $ | 2,334,554 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities:
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||||||||||||||||
Gain on disposition of property and equipment
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- | - | (190 | ) | - | |||||||||||
Stock-based compensation
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2,166 | 2,166 | 21,498 | 6,498 | ||||||||||||
Depreciation and amortization
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80,268 | 77,895 | 231,969 | 226,736 | ||||||||||||
Increase in accounts receivable
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(292,059 | ) | (145,283 | ) | (2,414,997 | ) | (1,566,249 | ) | ||||||||
Increase in other assets
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(138,018 | ) | (198,165 | ) | (116,685 | ) | (131,547 | ) | ||||||||
Increase (decrease) in liabilities
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214,805 | (180,935 | ) | (394,728 | ) | 477,433 | ||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES
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1,143,060 | 1,054,280 | 937,308 | 1,347,425 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
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||||||||||||||||
Acquisition of property and equipment
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(59,983 | ) | (2,549 | ) | (155,822 | ) | (68,764 | ) | ||||||||
Proceeds from disposition of property and equipment
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- | - | 681 | - | ||||||||||||
NET CASH USED IN INVESTING ACTIVITIES
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(59,983 | ) | (2,549 | ) | (155,141 | ) | (68,764 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
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||||||||||||||||
Payments on obligations under capital lease
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(7,869 | ) | (7.976 | ) | (23,107 | ) | (17,791 | ) | ||||||||
NET CASH USED IN FINANCING ACTIVITIES
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(7,869 | ) | (7,976 | ) | (23,107 | ) | (17,791 | ) | ||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH
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(23,545 | ) | (8,695 | ) | (48,600 | ) | 10,011 | |||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS
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1,051,663 | 1,035,060 | 710,460 | 1,270,881 | ||||||||||||
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
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3,975,522 | 2,552,989 | 4,316,725 | 2,317,168 | ||||||||||||
CASH AND CASH EQUIVALENTS – END OF PERIOD
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$ | 5,027,185 | $ | 3,588,049 | $ | 5,027,185 | $ | 3,588,049 | ||||||||
SUPPLEMENTAL DISCLOURES OF CASH FLOWS INFORMATION:
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||||||||||||||||
Cash paid during the period for:
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||||||||||||||||
Income taxes
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$ | 163,527 | $ | - | $ | 1,148,309 | $ | 6,025 | ||||||||
Interest
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$ | 1,915 | $ | 2,575 | $ | 6,243 | $ | 5,628 | ||||||||
SUPPLEMENTARY SCHEDULES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
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||||||||||||||||
Income tax withheld by clients to be used as a credit in the
Company’s income tax return |
$ | 27,428 | $ | 49,128 | $ | 39,120 | $ | 73,799 | ||||||||
Property and equipment with accumulated depreciation of $982
disposed during the nine months ended July 31, 2012 |
$ | - | $ | - | $ | 1,473 | $ | - | ||||||||
Obligations under capital lease incurred for the acquisition of a vehicle
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$ | - | $ | - | $ | - | $ | 76,475 |
Level 1:
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Quoted prices in active markets for identical assets and liabilities.
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Level 2:
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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.
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Level 3:
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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).
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Exercise
Price |
Expiration
Date |
Outstanding Warrants
|
|||||||
Original Warrants A
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$ | 0.0600 |
January 16, 2014
|
240,800 | |||||
Broker Warrants B
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$ | 0.0600 |
January 24, 2014
|
1,830,991 | |||||
Warrants Total | 2,071,791 |
Three months
ended July 31,
|
Nine months
ended July 31,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Net income available to common equity holders - used to compute
basic and diluted earnings per share |
$ | 1,275,898 | $ | 1,498,602 | $ | 3,610,441 | $ | 2,334,554 | ||||||||
Weighted average number of common shares - used to compute
basic earnings per share |
20,758,695 | 20,754,954 | 20,758,695 | 20,752,475 | ||||||||||||
Effect of warrants to purchase common stock
|
1,923,648 | 1,743,768 | 1,913,879 | 1,733,679 | ||||||||||||
Effect of options to purchase common stock
|
298,132 | 16,669 | 204,573 | 14,721 | ||||||||||||
Weighted average number of shares - used to compute diluted
earnings per share |
22,980,475 | 22,515,391 | 22,877,147 | 22,500,875 |
Three months ended July 31,
|
Nine months ended July 31, | |||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
REVENUES:
|
||||||||||||||||
Puerto Rico consulting
|
$ | 4,014,807 | $ | 2,456,890 | $ | 11,364,021 | $ | 5,933,507 | ||||||||
United States consulting
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2,446,263 | 1,594,307 | 6,023,782 | 4,219,187 | ||||||||||||
Ireland consulting
|
780,044 | 859,601 | 2,381,693 | 2,305,136 | ||||||||||||
Lab (microbiological and chemical testing)
|
222,268 | 312,598 | 613,135 | 543,789 | ||||||||||||
Other segments¹
|
191,662 | 294,436 | 673,735 | 695,688 | ||||||||||||
Total consolidated revenues
|
$ | 7,655,044 | $ | 5,517,832 | $ | 21,056,366 | $ | 13,697,307 | ||||||||
INCOME (LOSS) BEFORE TAXES:
|
||||||||||||||||
Puerto Rico consulting
|
$ | 1,037,934 | $ | 1,016,390 | $ | 2,941,390 | $ | 1,743,505 | ||||||||
United States consulting
|
678,071 | 155,126 | 1,636,945 | 750,952 | ||||||||||||
Ireland consulting
|
(84,695 | ) | (10,565 | ) | (258,193 | ) | 24,801 | |||||||||
Lab (microbiological and chemical testing)
|
(124,399 | ) | (12,164 | ) | (241,756 | ) | (229,267 | ) | ||||||||
Other segments¹
|
66,160 | 21,547 | 284,286 | 140,403 | ||||||||||||
Total consolidated income before taxes
|
$ | 1,573,071 | $ | 1,170,334 | $ | 4,362,672 | $ | 2,430,394 |
¹
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Other segments represent activities that fall below the reportable threshold and are carried out in Puerto Rico and the United States. These activities include a technical seminars/training division, an information technology services and consulting division, and corporate headquarters, as applicable.
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Three months ended July 31,
|
Nine months ended July 31,
|
|||||||||||||||||||||||||||||||
Revenues by Region:
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2012
|
2011
|
2012
|
2011
|
||||||||||||||||||||||||||||
Puerto Rico
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$ | 4,429 | 57.9 | % | $ | 3,064 | 55.5 | % | $ | 12,651 | 60.1 | % | $ | 7,173 | 52.4 | % | ||||||||||||||||
United States
|
2,446 | 31.9 | % | 1,594 | 28.9 | % | 6,024 | 28.6 | % | 4,219 | 30.8 | % | ||||||||||||||||||||
Ireland
|
780 | 10.2 | % | 860 | 15.6 | % | 2,381 | 11.3 | % | 2,305 | 16.8 | % | ||||||||||||||||||||
$ | 7,655 | $ | 5,518 | $ | 21,056 | $ | 13,697 |
Three months ended July 31,
|
Nine months ended July 31,
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|||||||||||||||||||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||||||||||||||||||
Revenues
|
$ | 7,655 | 100.0 | % | $ | 5,518 | 100.0 | % | $ | 21,056 | 100.0 | % | $ | 13,697 | 100.0 | % | ||||||||||||||||
Cost of services
|
5,056 | 66.0 | % | 3,518 | 63.7 | % | 13,814 | 65.6 | % | 8,977 | 65.5 | % | ||||||||||||||||||||
Gross profit
|
2,599 | 34.0 | % | 2,000 | 36.3 | % | 7,242 | 34.4 | % | 4,720 | 34.5 | % | ||||||||||||||||||||
Selling, general and
administrative costs
|
1,026 | 13.4 | % | 832 | 15.1 | % | 2,882 | 13.7 | % | 2,298 | 16.8 | % | ||||||||||||||||||||
Other income, net
|
- | 0.0 | % | 2 | 0.0 | % | 2 | 0.0 | % | 8 | 0.0 | % | ||||||||||||||||||||
Income before income taxes
|
1,573 | 20.6 | % | 1,170 | 21.2 | % | 4,362 | 20.7 | % | 2,430 | 17.7 | % | ||||||||||||||||||||
Income tax expense (benefit), net of tax grant benefit adjustment in fiscal year 2011
|
297 | 3.9 | % | (328 | ) | -5.9 | % | 752 | 3.6 | % | 96 | 0.7 | % | |||||||||||||||||||
Net income
|
1,276 | 16.7 | % | 1,498 | 27.1 | % | 3,610 | 17.1 | % | 2,334 | 17.0 | % |
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●
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Because our business is concentrated in the pharmaceutical industry any changes in that industry or in the markets we serve could impair our ability to generate revenue and realize a profit.
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●
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Puerto Rico government enacted ACT 74 of October 22, 2010 may affect the willingness of our customers to do business in Puerto Rico and consequently affect our business.
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●
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Changes in tax benefits may affect the willingness of companies to continue or expand their operations in Puerto Rico.
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●
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Puerto Rico’s economy, including its governmental financial crisis, may affect the willingness of businesses to commence or expand operations in Puerto Rico.
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●
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Other factors, including economic factors, may affect the decision of businesses to continue or expand their operations in the markets we serve.
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●
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Because our business is dependent upon a small number of clients, the loss of a major client could impair our ability to operate profitably.
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●
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Customer procurement and sourcing practices intended to reduce costs could have an adverse affect on our margins and profitability.
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●
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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.
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●
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We may be unable to pass on increased labor costs to our clients.
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●
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Consolidation in the pharmaceutical industry may have a harmful effect on our business.
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●
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Because the pharmaceutical industry is subject to government regulations, changes in government regulations relating to this industry may affect the need for our services.
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●
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If we are unable to protect our clients’ intellectual property, our ability to generate business will be impaired.
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●
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We may be subject to liability if our services or solutions for our clients infringe upon the intellectual property rights of others.
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●
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We may be held liable for the actions of our employees or contractors when on assignment.
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●
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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.
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●
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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.
|
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●
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Because we are dependent upon our management, our ability to develop our business may be impaired if we are not able to engage skilled personnel.
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●
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We may not be able to continue to grow unless we consummate acquisitions or enter markets outside of Puerto Rico, the United States and Ireland.
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●
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If we identify a proposed acquisition, we may require substantial cash to fund the cost of the acquisition.
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●
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If we make any acquisitions, they may disrupt or have a negative impact on our business.
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●
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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.
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●
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Our revenues, operating results and profitability will vary from quarter to quarter, which may result in increased volatility of our stock price.
|
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●
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The issuance of securities, whether in connection with an acquisition or otherwise, may result in significant dilution to our stockholders.
|
(a)
|
Exhibits:
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31.1
|
Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
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31.2
|
Certification of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
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32.1
|
Certification of the chief executive officer and chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS*
|
XBRL Instance Document
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101.SCH*
|
XBRL Taxonomy Extension Schema
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|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase
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|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase
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101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase
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*
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
|
PHARMA-BIO SERV, INC.
|
||
/s/ Elizabeth Plaza
|
||
Elizabeth Plaza
|
||
Chief Executive Officer
|
||
(Principal Executive Officer)
|
||
/s/ Pedro J. Lasanta
|
||
Pedro J. Lasanta
|
||
Chief Financial Officer
|
||
(Principal Financial Officer and Principal Accounting Officer)
|
||
Dated: September 14, 2012
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Pharma-Bio Serv Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Elizabeth Plaza
|
||
Elizabeth Plaza
|
||
President and Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Pharma-Bio Serv Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Pedro J. Lasanta
|
||
Pedro J. Lasanta
|
||
Chief Financial Officer
|
/s/ Elizabeth Plaza
|
/s/ Pedro J. Lasanta
|
||
Elizabeth Plaza
|
Pedro J. Lasanta
|
||
Chief Executive Officer
|
Chief Financial Officer
|
G. SCHEDULE OF SEGMENT REPORTING Details) (USD $)
|
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jul. 31, 2012
|
Jul. 31, 2011
|
Jul. 31, 2012
|
Jul. 31, 2011
|
|
Revenues | $ 7,655,044 | $ 5,517,832 | $ 21,056,366 | $ 13,697,307 |
Income before taxes | 1,573,071 | 1,170,334 | 4,362,672 | 2,430,394 |
Puerto Rico consulting
|
||||
Revenues | 4,014,807 | 2,456,890 | 11,364,021 | 5,933,507 |
Income before taxes | 1,037,934 | 1,016,390 | 2,941,390 | 1,743,505 |
United States consulting
|
||||
Revenues | 2,446,263 | 1,594,307 | 6,023,782 | 4,219,187 |
Income before taxes | 678,071 | 155,126 | 1,636,945 | 750,952 |
Ireland consulting
|
||||
Revenues | 780,044 | 859,601 | 2,381,693 | 2,305,136 |
Income before taxes | (84,695) | (10,565) | (258,193) | 24,801 |
Lab (microbiological and chemical testing)
|
||||
Revenues | 222,268 | 312,598 | 613,135 | 543,789 |
Income before taxes | (124,399) | (12,164) | (241,756) | (229,267) |
Other segments
|
||||
Revenues | 191,662 | 294,436 | 673,735 | 695,688 |
Income before taxes | $ 66,160 | $ 21,547 | $ 284,286 | $ 140,403 |
C. INCOME TAX
|
9 Months Ended |
---|---|
Jul. 31, 2012
|
|
Income Tax Disclosure [Abstract] | |
C. INCOME TAX |
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 is 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. The Grant establishes a threshold (Baseline) on the Industrial Development Income (IDI) subject to the favorable income tax rates. The Baselines will be gradually reduced to zero within a four year term. Certain activities covered under the Grant are not subject to a Baseline and are allowed a four year gradual phase-in from the maximum income tax rate of 30%, as provided by the 2011 Puerto Rico Internal Revenue Code, to the favorable fixed Act 73 income tax rate of 4%. In addition, IDI earnings distributions accumulated since November 1, 2009 are exempt from Puerto Rico earnings distribution tax.
The Company began recognizing in its financial statements the Grant tax effect when it was obtained in June 2011. The adoption of the Grant and its retroactive application to November 1, 2009 triggered favorable non-recurring adjustments, which were booked in the Companys condensed financial statements for the three-month and nine-month periods ended in July 31, 2011. These non-recurring adjustments reflected a reduction on income taxes and increase in net earnings of approximately $513,000 and $204,000, for the three and nine months ended in July 31, 2011, respectively.
Effective with our fiscal year beginning in November 1, 2011, 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 30%. Previously, the maximum income tax rate under the Puerto Rico Internal Revenue Code was 39%. The operations carried out in the United States by the Companys subsidiary are taxed in the United States at a maximum regular federal income tax rate of 35%.
Distribution of earnings by the Puerto Rican subsidiaries to its parent are taxed at the federal level; however, the parent is able to receive a credit for the taxes paid by the subsidiary on its operations in Puerto Rico, to the extent of the federal taxes that result from those earnings. As a result, the income tax expense of the Company, under its present corporate structure, would normally be the Puerto Rico taxes on operations in Puerto Rico, federal and state taxes on operations in the United States, plus the earnings distribution tax in Puerto Rico from dividends paid to the Puerto Rican subsidiaries parent, and the parents federal income tax, if any, incurred upon the subsidiarys earnings distribution.
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.
The Company has not recognized deferred income taxes on undistributed earnings of its Puerto Rican subsidiaries, since such earnings are considered to be reinvested indefinitely. If the earnings were distributed in the form of dividends, the Company would be subject to Puerto Rico earnings distribution tax and United States federal income tax, as applicable.
Pharma-IR has 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 companys 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 indefinitely.
The statutory income tax rate differs from the effective rate, mainly due to the effect of the Puerto Rico Act 73 Tax Grant over income tax expense in fiscal year 2012, and income tax permanent differences between financial and tax books income.
The Company files income tax returns in the United States (federal and various states jurisdictions), Puerto Rico and Ireland. The 2006 through 2011 tax years are open and may be subject to potential examination in one or more jurisdictions. In the current fiscal year 2012, Pharma-Bio's fiscal year 2008 federal income tax return was examined by the United States Internal Revenue Service, no deficiencies were assessed. Currently, the Company has no federal, state, Puerto Rico or foreign income tax examination. |
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