10-Q

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 July 31, 2023

or

☐ 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 # 6 Road 696 Dorado, Puerto Rico	00646
(Address of Principal Executive Offices)	(Zip Code)

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

N/A

  (Former name, former address and former fiscal year, if changed since last report)  

Securities registered pursuant to Section 12(b) of the Act:  None

Title of each class Trading Symbol(s) Name of each exchange on which registered

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 every Interactive Data File required to be submitted 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 such files). Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 Exchange Act). Yes ☐    No ☒

The number of shares of the registrant’s common stock outstanding as of September 8, 2023 was 22,963,451.

PHARMA-BIO SERV, INC.

FORM 10-Q

FOR THE QUARTER ENDED JULY 31, 2023

TABLE OF CONTENTS

		Page
PART I FINANCIAL INFORMATION
Item 1 –	Financial Statements		3
	Condensed Consolidated Balance Sheets as of July 31, 2023 and October 31, 2022 (unaudited)		3
	Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended July 31, 2023 and 2022 (unaudited)		4
	Condensed Consolidated Statements of Comprehensive Income for the three-month and nine-month periods ended July 31, 2023 and 2022 (unaudited)		5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three-month and nine-month periods ended July 31, 2023 and 2022 (unaudited)		6
	Condensed Consolidated Statements of Cash Flows for the three-month and nine-month periods ended July 31, 2023 and 2022 (unaudited)		8
	Notes to Condensed Consolidated Financial Statements (unaudited)		9
Item 2 -	Management's Discussion and Analysis of Financial Condition and Results of Operations		15
Item 4 –	Controls and Procedures		18
PART II OTHER INFORMATION
Item 1 –	Legal Proceedings		19
Item 1-A –	Risk Factors		19
Item 2 –	Unregistered Sales of Equity Securities and Use of Proceeds		19
Item 6 –	Exhibits		20
SIGNATURES			21

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PART I – FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

PHARMA-BIO SERV, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

ASSETS	July 31, 2023*			October 31, 2022**
Current assets
Cash and cash equivalents	$	2,869,584		$	14,462,729
Marketable securities		11,714,596			-
Accounts receivable		4,631,107			4,982,500
Prepaids and other assets		515,327			498,374
Total current assets		19,730,614			19,943,603
Property and equipment, net		41,821			73,684
Operating lease right-of-use		394,003			502,685
Other assets		130,161			130,874
Total assets	$	20,296,599		$	20,650,846
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current operating lease liabilities	$	149,441		$	140,855
Accounts payable and accrued expenses		1,679,846			1,629,600
Current portion of US Tax Reform Transition Tax and income taxes payable		620,995			337,264
Total current liabilities		2,450,282			2,107,719
US Tax Reform Transition Tax payable		1,427,560			1,639,048
Long-term operating lease liabilities		233,276			346,509
Total liabilities		4,111,118			4,093,276
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; 23,512,880 and 23,457,515 shares issued, and 22,964,251 and 22,943,486 shares outstanding at July 31, 2023 and October 31, 2022, respectively		2,351			2,346
Additional paid-in capital		1,596,238			1,551,838
Retained earnings		14,900,974			15,267,470
Accumulated other comprehensive income		221,706			238,152
		16,721,269			17,059,806
Treasury stock, at cost; 548,629 and 514,029 common shares held at July 31, 2023 and October 31, 2022, respectively		(535,788	)		(502,236	)
Total stockholders' equity		16,185,481			16,557,570
Total liabilities and stockholders' equity	$	20,296,599		$	20,650,846

*	Unaudited.
**	Condensed from audited financial statements.

See notes to the condensed consolidated financial statements.

-3-

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three months ended July 31,					Nine months ended July 31,
	2023		2022			2023		2022
REVENUES	$	4,577,167	$	4,774,103		$	13,378,665	$	14,760,525
COST OF SERVICES		3,027,160		3,461,789			9,242,059		10,987,722
GROSS PROFIT		1,550,007		1,312,314			4,136,606		3,772,803
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		1,089,541		942,809			2,967,430		2,766,820
INCOME FROM OPERATIONS		460,466		369,505			1,169,176		1,005,983
OTHER INCOME (EXPENSE), NET		126,985		(53,683	)		566,146		(48,664	)
INCOME BEFORE INCOME TAX		587,451		315,822			1,735,322		957,319
INCOME TAX EXPENSE		61,209		27,788			377,994		124,014
NET INCOME	$	526,242	$	288,034		$	1,357,328	$	833,305
BASIC AND DILUTED EARNINGS PER COMMON SHARE	$	0.023	$	0.013		$	0.059	$	0.036
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC		22,965,496		22,952,009			22,962,113		22,996,584
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED		22,984,558		22,970,959			22,991,372		23,031,926

See notes to the condensed consolidated financial statements.

-4-

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	Three months ended July 31,						Nine months ended July 31,
	2023			2022			2023			2022
NET INCOME	$	526,242		$	288,034		$	1,357,328		$	833,305
OTHER COMPREHENSIVE LOSS
Foreign currency translation:
Net unrealized gain (loss)		(42,466	)		(103,357	)		151,785			(179,989	)
Intercompany balances foreign exchange settlement, included in net income		17,857			64,153			(168,231	)		64,153
TOTAL OTHER COMPREHENSIVE LOSS		(24,609	)		(39,204	)		(16,446	)		(115,836	)
COMPREHENSIVE INCOME	$	501,633		$	248,830		$	1,340,882		$	717,469

See notes to the condensed consolidated financial statements.

-5-

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)

													Accumulated
									Additional				Other
FISCAL YEAR 2023	Common Stock				Preferred Stock				Paid-in		Retained		Comprehensive			Treasury
(THREE MONTHS ENDED JULY 31, 2023)	Shares		Amount		Shares		Amount		Capital		Earnings		Income (Loss)			Stock			Total
BALANCE APRIL 30, 2023		23,512,880	$	2,351		-	$	-	$	1,581,439	$	14,374,732	$	246,315		$	(530,705	)	$	15,674,132
STOCK-BASED COMPENSATION		-		-		-		-		14,799		-		-			-			14,799
PURCHASE OF TREASURY STOCK (5,100 SHARES)		-		-		-		-		-		-		-			(5,083	)		(5,083	)
NET INCOME		-		-		-		-		-		526,242		-			-			526,242
OTHER COMPREHENSIVE LOSS, NET OF TAX		-		-		-		-		-		-		(24,609	)		-			(24,609	)
BALANCE AT JULY 31, 2023		23,512,880	$	2,351		-	$	-	$	1,596,238	$	14,900,974	$	221,706		$	(535,788	)	$	16,185,481

														Accumulated
									Additional					Other
FISCAL YEAR 2023	Common Stock				Preferred Stock				Paid-in		Retained			Comprehensive			Treasury
(NINE MONTHS ENDED JULY 31, 2023)	Shares		Amount		Shares		Amount		Capital		Earnings			Income (Loss)			Stock			Total
BALANCE AT NOVEMBER 1, 2022		23,457,515	$	2,346		-	$	-	$	1,551,838	$	15,267,470		$	238,152		$	(502,236	)	$	16,557,570
STOCK-BASED COMPENSATION		-		-		-		-		44,400		-			-			-			44,400
ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS		55,365		5		-		-		-		(5	)		-			-			-
PURCHASE OF TREASURY STOCK (34,600 SHARES)		-		-		-		-		-		-			-			(33,552	)		(33,552	)
NET INCOME		-		-		-		-		-		1,357,328			-			-			1,357,328
OTHER COMPREHENSIVE INCOME, NET OF TAX		-		-		-		-		-		-			(16,446	)		-			(16,446	)
CASH DIVIDEND ($0.075 PER COMMON SHARE AT RECORD DATE)		-		-		-		-		-		(1,723,819	)		-			-			(1,723,819	)
BALANCE AT JULY 31, 2023		23,512,880	$	2,351		-	$	-	$	1,596,238	$	14,900,974		$	221,706		$	(535,788	)	$	16,185,481

See notes to condensed consolidated financial statements.

-6-

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Changes in Stockholders' Equity (continued)

(Unaudited)

													Accumulated
									Additional				Other
FISCAL YEAR 2022	Common Stock				Preferred Stock				Paid-in		Retained		Comprehensive			Treasury
(THREE MONTHS ENDED JULY 31, 2022)	Shares		Amount		Shares		Amount		Capital		Earnings		Income (Loss)			Stock			Total
BALANCE AT APRIL 30, 2022		23,457,515	$	2,346		-	$	-	$	1,508,994	$	14,806,057	$	67,823		$	(490,530	)	$	15,894,690
STOCK-BASED COMPENSATION		-		-		-		-		14,399		-		-			-			14,399
PURCHASE OF TREASURY STOCK (10,400 SHARES)		-		-		-		-		-		-		-			(9,327	)		(9,327	)
NET INCOME		-		-		-		-		-		288,034		-			-			288,034
OTHER COMPREHENSIVE LOSS, NET OF TAX		-		-		-		-		-		-		(39,204	)		-			(39,204	)
BALANCE AT JULY 31, 2022		23,457,515	$	2,346		-	$	-	$	1,523,393	$	15,094,091	$	28,619		$	(499,857	)	$	16,148,592

														Accumulated
									Additional					Other
FISCAL YEAR 2022	Common Stock				Preferred Stock				Paid-in		Retained			Comprehensive			Treasury
(NINE MONTHS ENDED JULY 31, 2022)	Shares		Amount		Shares		Amount		Capital		Earnings			Income (Loss)			Stock			Total
BALANCE AT NOVEMBER 1, 2021		23,433,341	$	2,343		-	$	-	$	1,480,193	$	17,707,384		$	144,455		$	(420,244	)	$	18,914,131
STOCK-BASED COMPENSATION		-		-		-		-		43,200		-			-			-			43,200
ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS		24,174		3		-		-		-		(3	)		-			-			-
PURCHASE OF TREASURY STOCK (70,903 SHARES)		-		-		-		-		-		-			-			(79,613	)		(79,613	)
NET INCOME		-		-		-		-		-		833,305			-			-			833,305
OTHER COMPREHENSIVE LOSS, NET OF TAX		-		-		-		-		-		-			(115,836	)		-			(115,836	)
CASH DIVIDENDS ($0.075 PER COMMON SHARE AT RECORD DATE)		-		-		-		-		-		(3,446,595	)		-			-			(3,446,595	)
BALANCE AT JULY 31, 2022		23,457,515	$	2,346		-	$	-	$	1,523,393	$	15,094,091		$	28,619		$	(499,857	)	$	16,148,592

See notes to condensed consolidated financial statements.

-7-

PHARMA-BIO SERV, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three months ended July 31,						Nine months ended July 31,
	2023			2022			2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	526,242		$	288,034		$	1,357,328		$	833,305
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Stock-based compensation		14,799			14,399			44,400			43,200
Depreciation and amortization		11,400			12,962			40,694			38,307
Reinvested interests		(34,734	)		-			(178,038	)		-
Decrease (increase) in accounts receivable		380,213			652,913			453,235			(257,384	)
Decrease (increase) in other assets		(112,009	)		220,778			(129,860	)		489,341
Increase (decrease) in liabilities		170,854			(83,233	)		(5,235	)		(814,403	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		956,765			1,105,853			1,582,524			332,366
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment		-			(2,087	)		(8,831	)		(7,132	)
Marketable securities investment, net		(6,176,052	)		-			(11,536,558	)		-
NET CASH PROVIDED BY INVESTING ACTIVITIES		(6,176,052	)		(2,087	)		(11,545,389	)		(7,132	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock		(5,083	)		(9,327	)		(33,552	)		(79,613	)
Cash dividends paid to shareholders		-			-			(1,723,819	)		(3,446,595	)
NET CASH USED IN FINANCING ACTIVITIES		(5,083	)		(9,327	)		(1,757,371	)		(3,526,208	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(2,500	)		(19,607	)		127,091			(28,542	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(5,226,870	)		1,074,832			(11,593,145	)		(3,229,516	)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		8,096,454			13,163,997			14,462,729			17,468,345
CASH AND CASH EQUIVALENTS – END OF PERIOD	$	2,869,584		$	14,238,829		$	2,869,584		$	14,238,829
SUPPLEMENTAL DISCLOURES OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Income taxes	$	-		$	-		$	312,155		$	211,813
Interest	$	-		$	-		$	-		$	-
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	$	-		$	623		$	15,309		$	22,161
Conversion of cashless exercise of options to shares of common stock and shares issued under restricted stock unit agreements	$	-		$	-		$	5		$	3

See notes to the condensed consolidated financial statements.

-8-

PHARMA-BIO SERV, INC.

Notes To Condensed Consolidated Financial Statements

July 31, 2023

(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. (currently inactive) (“Scienza Labs”), each a Puerto Rico corporation, Pharma-Bio Serv US, Inc. (“Pharma-US”), a Delaware corporation, Pharma-Bio Serv SL (“Pharma-Spain”), a Spanish limited liability company, and Pharma-Bio Serv Brasil Servicos de Consultoria Ltda. (currently insignificant) (“Pharma-Brazil”), a Brazilian limited liability company. Pharma-Bio, Pharma-PR, Pharma-Serv, Scienza Labs, Pharma-US, Pharma-Spain and Pharma-Brazil are collectively referred to as the “Company.” The Company operates in Puerto Rico, the United States, Europe and Brazil under the name of Pharma-Bio Serv and is engaged in providing technical compliance consulting service.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated balance sheet of the Company as of October 31, 2022 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 nine months ended July 31, 2023 are not necessarily indicative of expected results for the full 2023 fiscal year.

The accompanying financial data as of July 31, 2023, and for the three-month and nine-month periods ended July 31, 2023 and 2022 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, 2022.

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. 

Segments

The Company operates in three reportable business segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, and (iii) Europe technical compliance consulting. Accordingly, the accompanying condensed consolidated financial statements are presented to show these three reportable segments.

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.

-9-

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 consist of U.S. Treasury securities, which are categorized in Level 1 and have a short-term maturity.

The carrying value of the Company's financial instruments, 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.

Revenue Recognition

The Company records revenue under Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. We evaluate our revenue contracts with customers based on the five-step model under ASC 606: (i) Identify the contract with the customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to separate performance obligations; and (v) Recognize revenue when (or as) each performance obligation is satisfied.

Revenue is primarily derived from: (1) time and material contracts (representing approximately 99% of total revenues), and (2) short-term fixed-fee contracts or "not to exceed" contracts (representing approximately 1% of total revenues). Time and material contracts are typically based on the number of hours worked at contractually agreed upon rates. These service contracts relate to work which has no alternative use and for which the Company has an enforceable right to payment for the work completed to date. As a result, revenue is recognized over time when or as the Company transfers control of the promised products or services (known as performance obligations) to its customers. Revenue for short term fixed fee contracts or “not to exceed” contracts is recognized similarly, except that certain milestones also have to be reached before revenue is recognized. If the Company determines that a contract will result in a loss, the Company recognizes the estimated loss in the period in which such a 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, including US Treasury securities, with original maturities of three months or less.

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 time period. 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 accounted for using the direct write-off method whereby an expense is recognized only when a specific balance is determined to be uncollectible in full. The effect of using this method approximates that of the allowance method. However, in the event the Company determines that the collectability of any account receivable reaches a certain uncertainty threshold, the Company will provide an allowance for doubtful account to reduce said balance.

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.

-10-

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 July 31, 2023, the Company had no significant uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations.

Leases

The Company follows accounting standards issued by the FASB for the accounting and disclosure of leases. Under those standards, assets and liabilities that arise from leases are recognized on the balance sheet, and the leases are categorized at their inception as either operating or finance leases.

Operating lease right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments under the lease. Lease recognition occurs at the commencement date, and lease liability amounts are based on the present value of lease payments made during the lease term.

Property and Equipment

Owned property and equipment are stated at cost. Depreciation 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. Expenditures for repairs and maintenance are expensed when incurred. As of July 31, 2023 and October 31, 2022, the accumulated depreciation amounted to $630,185 and $587,089, respectively.

Impairment of Long-Lived Assets

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 long-lived assets was present as of July 31, 2023 and October 31, 2022.

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 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 the 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.

Earnings Per Share of Common Stock

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

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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 require disclosure or adjustment.

Reclassifications

Certain reclassifications have been made to the July 31, 2022 condensed consolidated financial statements to conform them to the July 31, 2023 condensed consolidated financial statements presentation. Such reclassifications do not affect net income as previously reported.

Recent Accounting Pronouncements

Recent accounting pronouncements pending adoption not discussed above or in the Annual Report on Form 10-K for the year ended October 31, 2022, are either not applicable or will not have or are not expected to have a material impact on us.

NOTE B – MARKETABLE SECURITIES

Marketable securities consist of short-term U.S. Treasury securities with maturities over three months, which are held until maturity and accordingly, are measured at cost plus accreted interest income.

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 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 was determined to be approximately $2.7 million. The Transition Tax liability must be paid over a period of eight years which started with the Company’s second quarter of fiscal year 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. However, foreign subsidiaries earnings are subject to U.S. tax at a reduced rate of 10.5%.

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 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 exempt from Puerto Rico earnings distribution tax. Under provisions of Puerto Rico Acts 60-2019 and 73-2008, the Company has requested PRIDCO the renegotiation of the Grant for an additional term of fifteen years.

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 37.5% as provided by the 1994 Puerto Rico Internal Revenue Code, as amended. The operations carried in the United States by the Company’s subsidiaries, is taxed in the United States at a maximum regular federal income tax rate of 21%.

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. Realization of future tax benefits related to a deferred tax asset is dependent on many factors. Accordingly, the income tax benefit will be recognized when realization is determined to be more probable than not.

The Company files income tax returns in the United States (federal and various states jurisdictions), Puerto Rico, Spain and Brazil. The 2018 (2017 for Puerto Rico) through 2022 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.

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NOTE D – EARNINGS PER SHARE

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

	Three months ended July 31,				Nine months ended July 31,
	2023		2022		2023		2022
Net income available to common equity holders - used to compute basic and diluted earnings per share	$	526,242	$	288,034	$	1,357,328	$	833,305
Weighted average number of common shares - used to compute basic earnings per share		22,965,496		22,952,009		22,962,113		22,996,584
Effect of options to purchase common stock		19,062		18,950		29,259		35,342
Weighted average number of shares - used to compute diluted earnings per share		22,984,558		22,970,959		22,991,372		23,031,926

For the three-month and nine-month periods ended July 31, 2023 options for the purchase of 223,350 shares of common stock were not considered in computing diluted earnings per share because their effect was antidilutive.  Options for the purchase of 400,000 and 300,000 shares of common stock for the three-month and nine-month periods ended July 31, 2022, respectively, were not included in computing diluted earnings per share because their effects were also antidilutive.

NOTE E – EQUITY 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 under the Company Stock Repurchase Program (the “Repurchase Program”). The timing, manner, price and amount of any repurchases under the Repurchase Program 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 Repurchase 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 under the Repurchase Program directly from directors or officers of the Company. As of July 31, 2023 and October 31, 2022, a total of 485,657 and 451,057 shares of the Company’s common stock were purchased under the Repurchase Program for an aggregate amount of $472,816 and $439,264, respectively.

On February 28, 2023, the Board of Directors of the Company declared a cash dividend of $0.075 per common share for shareholders of record as of the close of business on March 29, 2023. Accordingly, an aggregate dividend payment of $1,723,819 was paid on April 14, 2023.

NOTE F - SEGMENT DISCLOSURES

The Company’s segments are based on the organizational structure for which financial results are regularly evaluated by the Company’s chief operating decision maker 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 three reportable segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, and (iii) Europe technical compliance consulting. These reportable segments provide services primarily to the pharmaceutical, chemical, medical device and biotechnology industries in their respective markets.

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The following table presents information about the reported revenue from services and earnings from operations of the Company for the three-month and nine-month periods ended on July 31, 2023 and 2022. 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 July 31,						Nine months ended July 31,
	2023			2022			2023			2022
REVENUES:
Puerto Rico consulting	$	2,004,993		$	2,982,774		$	6,135,456		$	9,420,588
United States consulting		1,234,509			1,105,870			3,504,031			3,518,556
Europe consulting		1,337,665			648,916			3,732,944			1,780,723
Other segment		-			36,543			6,234			40,658
Total consolidated revenues	$	4,577,167		$	4,774,103		$	13,378,665		$	14,760,525
INCOME (LOSS) BEFORE TAXES:
Puerto Rico consulting	$	234,073		$	163,566		$	288,896		$	323,281
United States consulting		80,575			(30,843	)		241,728			170,307
Europe consulting		281,030			190,924			1,244,253			506,608
Other segment		(8,227	)		(7,825	)		(39,555	)		(42,877	)
Total consolidated income before taxes	$	587,451		$	315,822		$	1,735,322		$	957,319

Long lived assets (property and equipment) as of July 31, 2023 and October 31, 2022, and related depreciation and amortization expense for the three and nine months ended July 31, 2023 and 2022, were concentrated in the corporate headquarters in Puerto Rico. Accordingly, depreciation expense and acquisition of property and equipment, as presented in the statements of cash flows are related to the corporate headquarters.

NOTE G - CONCENTRATIONS OF RISK

Cash, Cash Equivalents and Marketable Securities

The Company’s domestic cash, cash equivalents and marketable securities 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 twelve months or less. In the foreign markets we serve, we also maintain cash deposits in foreign banks, which have no specific insurance. No losses have been experienced nor are expected on these accounts.

Accounts Receivable and Revenues

The Company has established a full allowance for doubtful accounts for those accounts receivable balances for which collectability have reached a certain uncertainty threshold. Management deems all other of the Company’s accounts receivable to be fully collectible, and, as such, does not maintain any additional allowance for uncollectible receivables.

The Company's revenues, and the related receivables, are concentrated in the pharmaceutical industry in Puerto Rico, the United States, Europe and Brazil. 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 five customers, which accounted for 10% or more of its revenues in either of the three-month and nine-month periods ended July 31, 2023 and 2022. During the three months ended July 31, 2023, revenues from these customers were 22.1%, 11.0%, 14.7%, 5.0% and 5.5%, or a total of 58.3%, as compared to the same period last year of 0.0%, 13.1%, 8.2%, 15.1% and 9.3%, or a total of 45.7%, respectively. During the nine months ended July 31, 2023, revenues from these customers were 14.9%, 11.5%, 11.1%, 6.6% and 7.5%, or a total of 51.6%, as compared to the same period last year of 0.0%, 13.2%, 7.7%, 16.9% and 10.1%, or a total of 47.9%, respectively. For the three months ended July 31, 2023 and 2022, these customers represented for the Puerto Rico, United States and Europe consulting reportable segments 21.5%, 0.0% and 36.8%, as compared to 37.5%, 0.0% and 8.2%, respectively. For the nine months ended July 31, 2023 and 2022, these customers represented for the Puerto Rico, United States and Europe consulting reportable segments 25.6%, 0.0% and 26.0%, as compared to 40.2%, 0.0% and 7.7%, respectively. On July 31, 2023, amounts due from these customers represented 42.4% of the Company’s total accounts receivable balance. This customer 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, six global groups of affiliated companies accounted for 10% or more of its revenues in either of the three-month and nine-month periods ended July 31, 2023 and 2022. During the three months ended July 31, 2023, aggregate revenues from these global groups of affiliated companies were 22.1%, 11.0%, 9.9%, 14.7%, 5.0% and 5.5%, or a total of 68.2%, as compared to the same period last year for 0.0%, 13.1%, 6.6%, 7.7%, 16.9% and 10.1%, or a total of 54.4%, respectively. During the nine months ended July 31, 2023, aggregate revenues from these global group of affiliated companies were 14.9%, 11.5%, 11.2%, 11.1%, 6.6% and 7.5%, or a total of 62.8%, as compared to the same period last year for 0.0%, 13.2%, 6.6%, 7.7%, 16.9% and 10.1%, or a total of 54.5%, respectively. For the three months ended July 31, 2023 and 2022, these customers represented for the Puerto Rico, United States and Europe consulting reportable segments 23.0%, 8.4% and 36.8%, as compared to 43.3%, 3.4% and 7.7%, respectively. For the nine months ended July 31, 2023 and 2022, these customers represented for the Puerto Rico, United States and Europe consulting reportable segments 27.7%, 9.1% and 26.0%, as compared to 43.4%, 3.4% and 7.7%, respectively. At July 31, 2023, amounts due from these global groups of affiliated companies represented 64.6% of total accounts receivable balance.

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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 of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended October 31, 2022. The following discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ from results discussed in the forward-looking statements, see “Forward Looking Statements” below and the “Risk Factors” section of our Annual Report on Form 10-K for the year ended October 31, 2022, our Quarterly Report on Form 10-Q for the quarters ended January 31, 2023 and April 30, 2023, and this Quarterly Report on Form 10-Q.

Overview

We are a compliance and technology transfer services consulting firm with headquarters in Puerto Rico, servicing the Puerto Rico, United States, Europe and Brazil markets. The compliance consulting service sector in those markets consists of local compliance and validation consulting firms, United States dedicated validation and compliance consulting firms and large publicly traded and private domestic and foreign engineering and consulting firms. We provide a broad range of compliance-related consulting services. We market our services to pharmaceutical, chemical, biotechnology, medical devices, cosmetics and food industries, and allied products companies in Puerto Rico, the United States, Europe and Brazil. Our consulting team includes experienced engineering and life science professionals, former quality assurance managers and directors, and professionals with bachelors, masters and doctorate degrees in health sciences and engineering.

We actively operate divisions in Puerto Rico, the United States, Europe (including some managed Asian projects) and to a lesser extent Latin America, and pursue to further expand these markets by strengthening our business development infrastructure and by constantly realigning our business strategies as new opportunities and challenges arise.

We market our services with an active presence in industry trade shows, professional conventions, industry publications and company provided seminars to the industry. Our senior management is also actively involved in the marketing process, especially in marketing to major accounts. Our senior management and staff also concentrate on developing new business opportunities and focus on the larger customer accounts (by number of consultants or dollar volume) and responding to prospective customers’ requests for proposals.

We consider our core business to be Food and Drug Administration (“FDA”) and international agencies regulatory compliance consulting related services.

The Company holds a tax grant issued by the Puerto Rico Industrial Development Company (“PRIDCO”), which provides relief on various Puerto Rico taxes, including income tax, with certain limitations, for most of the activities carried on within Puerto Rico, including those that are for services to parties located outside of Puerto Rico.

The following table sets forth information as to our revenue for the three-month and nine-month periods ended July 31, 2023 and 2022, by geographic regions (dollars in thousands).

	Three months ended July 31,								Nine months ended July 31,
Revenues by Region:	2023				2022				2023				2022
Puerto Rico	$	2,005	43.8	%	$	2,983	62.5	%	$	6,135	45.9	%	$	9,421	63.8	%
United States		1,234	27.0	%		1,106	23.1	%		3,504	26.2	%		3,518	23.8	%
Europe		1,338	29.2	%		649	13.6	%		3,733	27.9	%		1,781	12.1	%
Other		-	0.0	%		36	0.8	%		6	0.0	%		41	0.3	%
Total revenue	$	4,577	100.0	%	$	4,774	100.0	%	$	13,378	100.0	%	$	14,761	100.0	%

For the nine-month period ended July 31, 2023, the Company’s total revenues were approximately $13.4 million, a net decrease of approximately $1.4 million when compared to the same period last year. The decrease is mainly attributable to the decrease in Puerto Rico project revenue for approximately $3.3 million, partially offset by the increase in consulting revenue in the European market for approximately $1.9 million. As described below, when compared to the same period last year, gross profit increased by 5.3 percentage points. This increase was mainly attributable to projects yielding higher margins in the European market for the nine-month period ended July 31, 2023.

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Regional or global conflicts, including war or economic sanctions between nations, price inflation, the coronavirus pandemic, the Tax Reform, possible tax changes on jurisdictions where we do business, bio-pharmaceutical industry consolidations and the trends on managing contract resources, all pose current and future challenges which may adversely affect our future performance. We believe that our future profitability and liquidity will be dependent on the effect the local and global economy, including any impacts of regional or global conflicts, price inflation, the coronavirus pandemic, changes in tax laws, worldwide life science manufacturing industry consolidations, operational constraints imposed by our customers due to the coronavirus pandemic and resources management trends will have on our operations, and our ability to seek service opportunities and adapt to industry trends.

Results of Operations

The following table sets forth our statements of operations for the three-month and nine-month periods ended July 31, 2023 and 2022 (dollars in thousands, and as a percentage of revenues):

	Three months ended July 31,									Nine months ended July 31,
	2023				2022					2023				2022
Revenues	$	4,577	100.0	%	$	4,774		100.0	%	$	13,378	100.0	%	$	14,761		100.0	%
Cost of services		3,027	66.1	%		3,462		72.5	%		9,242	69.1	%		10,988		74.4	%
Gross profit		1,550	33.9	%		1,312		27.5	%		4,136	30.9	%		3,773		25.6	%
Selling, general and administrative expenses		1,090	23.8	%		943		19.8	%		2,967	22.2	%		2,767		18.8	%
Other income (expense), net		127	2.7	%		(53	)	-1.1	%		566	4.2	%		(49	)	-0.3	%
Income before income tax		587	12.8	%		316		6.6	%		1,735	12.9	%		957		6.5	%
Income tax expense		61	1.3	%		28		0.6	%		378	2.8	%		124		0.8	%
Net income		526	11.5	%		288		6.0	%		1,357	10.1	%		833		5.6	%

Revenues. Revenues for the three and nine months ended July 31, 2023 were $4.6 and $13.4 million, respectively.

For the three months ended July 31, 2023, this represents a net decrease of approximately $0.2 million when compared to the same period last year. The decrease is mainly attributable to a decrease in projects in the Puerto Rico market of approximately $1.0 million, partially offset by the increase in project revenue in the European and United States markets of approximately $0.7 and $0.1 million, respectively. The Brazilian market sustained no major revenue change when compared to the same period last year.

For the nine months ended July 31, 2023, project revenue decreased by $1.4 million when compared to the same period last year. The decrease is mainly attributable to the decrease in Puerto Rico project revenue of approximately $3.3 million, partially offset by the increase in consulting revenue in the European market for approximately $1.9 million. The United States and Brazilian markets sustained no major revenue change when compared to the same period last year.

Cost of Services; Gross Profit. Cost of services for the three and nine months ended July 31, 2023 were $3.0 and $9.2 million, respectively, a decrease of $0.4 and $1.7 million, when compared to the same periods last year, respectively. Gross profit for the three and nine months ended July 31, 2023 increased by 6.4 and 5.3 percentage points, respectively, when compared to the same periods last year. The net improvement in gross profit percentage points is mainly attributable to projects yielding higher margins in the European market for the three-month and nine-month periods ended July 31, 2023.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three and nine months ended July 31, 2023 were approximately $1.1 and $3.0 million, respectively, an increase of $0.1 and $0.2 million when compared to the same periods last year, respectively. The increase is mostly attributable to investments on industry and employee activities aimed to solidify our business and human capital position, plus the overall increase in expenses which support our operations.

Other Income (Expense), Net. Other income, net for the three and nine months ended July 31, 2023 were approximately $0.1 and $0.6 million, respectively. The balances are mostly attributable to $0.1 and $0.4 million of interest income for the three and nine months ended July 31, 2023, respectively, and $0.2 million from the settlement of foreign exchange rates on intercompany balances for the nine-month period ended July 31, 2023.

Net Income. Net income for the three and nine months ended July 31, 2023 were approximately $0.5 and $1.4 million, respectively, an increase of approximately $0.2 and $0.5 million when compared to the same periods last year, respectively.

For the three and nine months ended July 31, 2023, net income per common share for both basic and diluted were $0.023 and $0.059, respectively, an increase of $0.010 and $0.023 when compared to the same periods last year, respectively.

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Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including planned capital expenditures. As of July 31, 2023, the Company had approximately $17.3 million in working capital.

On June 13, 2014, the Board of Directors of the Company authorized the Company to repurchase up to two million shares of its common stock (the “Repurchase Program”). The Repurchase Program does not have an expiration date. During the nine-month period ended July 31, 2023, the Company repurchased 34,600 shares of its common stock. As of July 31, 2023, the Company has 1,514,343 shares of common stock available for future repurchases under the Repurchase Program.

Our primary cash needs consist of the payment of compensation to our consulting team, overhead expenses, and statutory taxes. Additionally, we may use cash for the repurchase of our common stock under the Repurchase Program, capital expenditures and business development expenses. Management believes that based on the current level of working capital, operations and cash flows from operations, and the collectability of high-quality customer receivables are sufficient to fund anticipated expenses and satisfy other possible long-term contractual commitments.

To the extent that we pursue possible opportunities to expand our operations, either by acquisition or by the establishment of operations in a new market, we will incur additional overhead, and there may be a delay between the period we commence operations and our generation of net cash flow from operations.

While uncertainties relating to the current local and global economic condition, competition, the industries and geographical regions served by us and other regulatory matters exist within the consulting services industry, as described above, management is not aware of any other trends or events likely to have a material adverse effect on liquidity or its financial statements.

Off-Balance Sheet Arrangements

We were not involved in any significant off-balance sheet arrangement during the nine months ended July 31, 2023.

Critical Accounting Policies and Estimates

There were no material changes during the nine months ended July 31, 2023 to the critical accounting policies reported in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.

New Accounting Pronouncements

There were no new accounting standards issued since our filing of the Annual Report on Form 10-K for the fiscal year ended October 31, 2022, which could have a significant effect on our condensed consolidated financial statements.

Forward-Looking Statements

Our business, financial condition, results of operations, cash flows and prospects, and the prevailing market price and performance of our common stock, may be adversely affected by a number of factors, including but not limited to, the factors set forth in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended October 31, 2022, our Quarterly Reports on Form 10-Q for the quarters ended January 31, 2023 and April 30, 2023, and this Quarterly Report on Form 10-Q. Certain statements and information set forth in this Quarterly Report on Form 10-Q, as well as other written or oral statements made from time to time by us or by our authorized executive officers on our behalf, constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These statements include all statements other than those made solely with respect to historical fact and identified by words such as “believes”, “anticipates”, “expects”, “intends” and similar expressions, but such words are not the exclusive means of identifying such statements. We intend for our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we set forth this statement and these risk factors in order to comply with such safe harbor provisions. You should note that our forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q or when made and we undertake no duty or obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Although we believe that the expectations, plans, intentions and projections reflected in our forward-looking statements are reasonable, such statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks, uncertainties and other factors that our stockholders and prospective investors should consider include, but are not limited to, those set forth in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended October 31, 2022, our Quarterly Reports on Form 10-Q for the quarter ended January 31, 2023 and April 30, 2023, and this Quarterly Report on Form 10-Q .

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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.

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PART II– OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

From time to time, we may be a party to legal proceedings incidental to our business. Currently, there are no 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.

On March 15, 2023, the Company’s subsidiaries Pharma-Bio Serv PR, Inc., Pharma Serv, Inc. and Scienza Labs, Inc., filed a complaint against Romark Global Pharma, LLC, Romark Properties, LLC, Romark Biosciences, LLC and Romark Holdings, LLC (collectively, “Romark”) with the Commonwealth of Puerto Rico Court of First Instance San Juan Superior Section.  The complaint sets forth a breach of contract by Romark for lack of payment of $5,246,782 for services rendered by the Company’s subsidiaries, plus interest pursuant to the specific terms of the agreements signed between the parties. On April 26, 2023, the Company’s subsidiaries requested from the Court an entry of default against Romark for the full amount owed to the Company’s subsidiaries. On April 27, 2023, the Court granted such request and made the entry of default against Romark, which default was granted following Romark’s failure to timely answer the complaint. We are currently pursuing collection from Romark. However, we cannot guarantee a successful outcome in collecting any of the funds owed to the Company's subsidiaries.

ITEM 1A.  RISK FACTORS.

There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the year ended October 31, 2022.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(c) The following table provides information about purchases by the Company of its shares of common stock during the three-month period ended July 31, 2023:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
May 1, 2023 through May 31, 2023		3,300	$	1.03		3,300		1,516,143
June 1, 2023 through June 30, 2023		1,400	$	0.93		1,400		1,514,743
July 1, 2023 through July 31, 2023		400	$	0.98		400		1,514,343
Total		5,100	$	1.00		5,100

(1) On June 16, 2014, the Company announced that the Board of Directors of the Company approved the Repurchase Program authorizing the Company to repurchase up to two million shares of its outstanding common stock. The timing, manner, price and amount of any repurchases under the Repurchase Program 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 Repurchase 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. The Repurchase Program has no expiration date. No shares will be repurchased under the Repurchase Program directly from directors or officers of the Company.

-19-

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
104	Cover page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

_______________

* Furnished herewith.

-20-

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, Vice President Finance and Administration, and Secretary
	(Principal Financial Officer and Principal Accounting Officer)
Dated: September 14, 2023

-21-

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Victor Sanchez, certify that:

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.

 

Date:  September 14, 2023

/s/ Victor Sanchez

Victor Sanchez  

Chief Executive Officer

(principal executive officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Pedro J. Lasanta, certify that:

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.

 

Date: September 14, 2023

/s/ Pedro J. Lasanta

Pedro J. Lasanta  

Chief Financial Officer

(principal financial and accounting officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Pharma-Bio Serv, Inc. (the "Company") on Form 10-Q for the period ending July 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Victor Sanchez, Chief Executive Officer of the Company, and Pedro J. Lasanta, Chief Financial Officer  of the Company, each certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1.	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

Dated: September 14, 2023

/s/ Victor Sanchez	/s/ Pedro J. Lasanta
Victor Sanchez	Pedro J. Lasanta
Chief Executive Officer (principal executive officer)	Chief Financial Officer (principal financial and accounting officer)

XML

Cover - shares	9 Months Ended
	Jul. 31, 2023	Sep. 08, 2023
Cover [Abstract]
Entity Registrant Name	PHARMA-BIO SERV, INC.
Entity Central Index Key	0001304161
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--10-31
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Jul. 31, 2023
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2023
Entity Common Stock Shares Outstanding		22,963,451
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	000-50956
Entity Incorporation State Country Code	DE
Entity Tax Identification Number	20-0653570
Entity Address Address Line 1	Pharma-Bio Serv
Entity Address Address Line 2	# 6 Road 696
Entity Address City Or Town	Dorado
Entity Address Country	PR
Entity Address Postal Zip Code	00646
City Area Code	787
Local Phone Number	278-2709
Entity Interactive Data Current	Yes

XML

Condensed Consolidated Balance Sheets - USD ($)	Jul. 31, 2023	Oct. 31, 2022
Current assets
Cash and cash equivalents	$ 2,869,584	$ 14,462,729
Marketable securities	11,714,596	0
Accounts receivable	4,631,107	4,982,500
Prepaids and other assets	515,327	498,374
Total current assets	19,730,614	19,943,603
Property and equipment, net	41,821	73,684
Operating lease right-of-use	394,003	502,685
Other assets	130,161	130,874
Total assets	20,296,599	20,650,846
Current liabilities
Current operating lease liabilities	149,441	140,855
Accounts payable and accrued expenses	1,679,846	1,629,600
Current portion of US Tax Reform Transition Tax and income taxes payable	620,995	337,264
Total current liabilities	2,450,282	2,107,719
US Tax Reform Transition Tax payable	1,427,560	1,639,048
Long-term operating lease liabilities	233,276	346,509
Total liabilities	4,111,118	4,093,276
Stockholders' equity
Preferred Stock, $0.0001 par value; authorized 10,000,000 shares; none outstanding	0	0
Common Stock, $0.0001 par value; authorized 50,000,000 shares; 23,512,880 and 23,457,515 shares issued, and 22,964,251 and 22,943,486 shares outstanding at July 31, 2023 and October 31, 2022, respectively	2,351	2,346
Additional paid-in capital	1,596,238	1,551,838
Retained earnings	14,900,974	15,267,470
Accumulated other comprehensive income	221,706	238,152
Stockholders equity before treasury stock	16,721,269	17,059,806
Treasury stock, at cost; 548,629 and 514,029 common shares held at July 31, 2023 and October 31, 2022, respectively	(535,788)	(502,236)
Total stockholders' equity	16,185,481	16,557,570
Total liabilities and stockholders' equity	$ 20,296,599	$ 20,650,846

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jul. 31, 2023	Oct. 31, 2022
Condensed Consolidated Balance Sheets
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, authorized	10,000,000	10,000,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, authorized	50,000,000	50,000,000
Common stock, issued	23,512,880	23,457,515
Common stock, outstanding	22,964,251	22,943,486
Treasury stock, shares	548,629	514,029

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Jul. 31, 2023	Jul. 31, 2022	Jul. 31, 2023	Jul. 31, 2022
Condensed Consolidated Statements of Operations (Unaudited)
REVENUES	$ 4,577,167	$ 4,774,103	$ 13,378,665	$ 14,760,525
COST OF SERVICES	3,027,160	3,461,789	9,242,059	10,987,722
GROSS PROFIT	1,550,007	1,312,314	4,136,606	3,772,803
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	1,089,541	942,809	2,967,430	2,766,820
INCOME FROM OPERATIONS	460,466	369,505	1,169,176	1,005,983
OTHER INCOME (EXPENSE), NET	126,985	(53,683)	566,146	(48,664)
INCOME BEFORE INCOME TAX	587,451	315,822	1,735,322	957,319
INCOME TAX EXPENSE	61,209	27,788	377,994	124,014
NET INCOME	$ 526,242	$ 288,034	$ 1,357,328	$ 833,305
BASIC AND DILUTED EARNINGS PER COMMON SHARE	$ 0.023	$ 0.013	$ 0.059	$ 0.036
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC	22,965,496	22,952,009	22,962,113	22,996,584
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED	22,984,558	22,970,959	22,991,372	23,031,926

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Jul. 31, 2023	Jul. 31, 2022	Jul. 31, 2023	Jul. 31, 2022
Consolidated Statements of Comprehensive Income (Unaudited)
NET INCOME	$ 526,242	$ 288,034	$ 1,357,328	$ 833,305
Foreign currency translation:
Net unrealized gain (loss)	(42,466)	(103,357)	151,785	(179,989)
Intercompany balances foreign exchange settlement, included in net income	17,857	64,153	(168,231)	64,153
TOTAL OTHER COMPREHENSIVE LOSS	(24,609)	(39,204)	(16,446)	(115,836)
COMPREHENSIVE INCOME	$ 501,633	$ 248,830	$ 1,340,882	$ 717,469

XML

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)	Total	Preferred Stock	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Treasury Stock
Balance, shares at Oct. 31, 2021			23,433,341
Balance, amount at Oct. 31, 2021	$ 18,914,131	$ 0	$ 2,343	$ 1,480,193	$ 17,707,384	$ 144,455	$ (420,244)
STOCK-BASED COMPENSATION	43,200	0	$ 0	43,200	0	0	0
ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS, shares			24,174
ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS, amount	0	0	$ 3	0	(3)	0	0
PURCHASE OF TREASURY STOCK (70,903 SHARES)	(79,613)	0	0	0	0	0	(79,613)
NET INCOME	833,305	0	0	0	833,305	0	0
OTHER COMPREHENSIVE LOSS, NET OF TAX	(115,836)	0	0	0	0	(115,836)	0
CASH DIVIDENDS ($0.075 PER COMMON SHARE AT RECORD DATE)	(3,446,595)	0	$ 0	0	(3,446,595)	0	0
Balance, shares at Jul. 31, 2022			23,457,515
Balance, amount at Jul. 31, 2022	16,148,592	0	$ 2,346	1,523,393	15,094,091	28,619	(499,857)
Balance, shares at Apr. 30, 2022			23,457,515
Balance, amount at Apr. 30, 2022	15,894,690	0	$ 2,346	1,508,994	14,806,057	67,823	(490,530)
STOCK-BASED COMPENSATION	14,399	0	0	14,399	0	0	0
PURCHASE OF TREASURY STOCK (70,903 SHARES)	(9,327)	0	0	0	0	0	(9,327)
NET INCOME	288,034	0	0	0	288,034	0	0
OTHER COMPREHENSIVE LOSS, NET OF TAX	(39,204)	0	$ 0	0	0	(39,204)	0
Balance, shares at Jul. 31, 2022			23,457,515
Balance, amount at Jul. 31, 2022	16,148,592	0	$ 2,346	1,523,393	15,094,091	28,619	(499,857)
Balance, shares at Oct. 31, 2022			23,457,515
Balance, amount at Oct. 31, 2022	16,557,570	0	$ 2,346	1,551,838	15,267,470	238,152	(502,236)
STOCK-BASED COMPENSATION	44,400	0	$ 0	44,400	0	0	0
ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS, shares			55,365
ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS, amount	0	0	$ 5	0	(5)	0	0
PURCHASE OF TREASURY STOCK (70,903 SHARES)	(33,552)	0	0	0	0	0	(33,552)
NET INCOME	1,357,328	0	0	0	1,357,328	0	0
OTHER COMPREHENSIVE LOSS, NET OF TAX	(16,446)	0	0	0	0	(16,446)	0
CASH DIVIDENDS ($0.075 PER COMMON SHARE AT RECORD DATE)	(1,723,819)	0	$ 0	0	(1,723,819)	0	0
Balance, shares at Jul. 31, 2023			23,512,880
Balance, amount at Jul. 31, 2023	16,185,481	0	$ 2,351	1,596,238	14,900,974	221,706	(535,788)
Balance, shares at Apr. 30, 2023			23,512,880
Balance, amount at Apr. 30, 2023	15,674,132	0	$ 2,351	1,581,439	14,374,732	246,315	(530,705)
STOCK-BASED COMPENSATION	14,799	0	0	14,799	0	0	0
PURCHASE OF TREASURY STOCK (70,903 SHARES)	(5,083)	0	0	0	0	0	(5,083)
NET INCOME	526,242	0	0	0	526,242	0	0
OTHER COMPREHENSIVE LOSS, NET OF TAX	(24,609)	0	$ 0	0	0	(24,609)	0
Balance, shares at Jul. 31, 2023			23,512,880
Balance, amount at Jul. 31, 2023	$ 16,185,481	$ 0	$ 2,351	$ 1,596,238	$ 14,900,974	$ 221,706	$ (535,788)

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Jul. 31, 2023	Jul. 31, 2022	Jul. 31, 2023	Jul. 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME	$ 526,242	$ 288,034	$ 1,357,328	$ 833,305
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Stock-based compensation	14,799	14,399	44,400	43,200
Depreciation and amortization	11,400	12,962	40,694	38,307
Reinvested interests	(34,734)	0	(178,038)	0
Decrease (increase) in accounts receivable	380,213	652,913	453,235	(257,384)
Decrease (increase) in other assets	(112,009)	220,778	(129,860)	489,341
Increase (decrease) in liabilities	170,854	(83,233)	(5,235)	(814,403)
NET CASH PROVIDED BY OPERATING ACTIVITIES	956,765	1,105,853	1,582,524	332,366
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	0	(2,087)	(8,831)	(7,132)
Marketable securities investment, net	(6,176,052)	0	(11,536,558)	0
NET CASH PROVIDED BY INVESTING ACTIVITIES	(6,176,052)	(2,087)	(11,545,389)	(7,132)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock	(5,083)	(9,327)	(33,552)	(79,613)
Cash dividends paid to shareholders	0	0	(1,723,819)	(3,446,595)
NET CASH USED IN FINANCING ACTIVITIES	(5,083)	(9,327)	(1,757,371)	(3,526,208)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(2,500)	(19,607)	127,091	(28,542)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(5,226,870)	1,074,832	(11,593,145)	(3,229,516)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	8,096,454	13,163,997	14,462,729	17,468,345
CASH AND CASH EQUIVALENTS - END OF PERIOD	2,869,584	14,238,829	2,869,584	14,238,829
Cash paid during the period for:
Income taxes	0	0	312,155	211,813
Interest	0	0	0	0
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	0	623	15,309	22,161
Conversion of cashless exercise of options to shares of common stock and shares issued under restricted stock unit agreements	$ 0	$ 0	$ 5	$ 3

XML

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Jul. 31, 2023

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. (currently inactive) (“Scienza Labs”), each a Puerto Rico corporation, Pharma-Bio Serv US, Inc. (“Pharma-US”), a Delaware corporation, Pharma-Bio Serv SL (“Pharma-Spain”), a Spanish limited liability company, and Pharma-Bio Serv Brasil Servicos de Consultoria Ltda. (currently insignificant) (“Pharma-Brazil”), a Brazilian limited liability company. Pharma-Bio, Pharma-PR, Pharma-Serv, Scienza Labs, Pharma-US, Pharma-Spain and Pharma-Brazil are collectively referred to as the “Company.” The Company operates in Puerto Rico, the United States, Europe and Brazil under the name of Pharma-Bio Serv and is engaged in providing technical compliance consulting service.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated balance sheet of the Company as of October 31, 2022 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 nine months ended July 31, 2023 are not necessarily indicative of expected results for the full 2023 fiscal year.

The accompanying financial data as of July 31, 2023, and for the three-month and nine-month periods ended July 31, 2023 and 2022 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, 2022.

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. 

Segments

The Company operates in three reportable business segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, and (iii) Europe technical compliance consulting. Accordingly, the accompanying condensed consolidated financial statements are presented to show these three reportable segments.

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 consist of U.S. Treasury securities, which are categorized in Level 1 and have a short-term maturity.

The carrying value of the Company's financial instruments, 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.

Revenue Recognition

The Company records revenue under Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. We evaluate our revenue contracts with customers based on the five-step model under ASC 606: (i) Identify the contract with the customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to separate performance obligations; and (v) Recognize revenue when (or as) each performance obligation is satisfied.

Revenue is primarily derived from: (1) time and material contracts (representing approximately 99% of total revenues), and (2) short-term fixed-fee contracts or "not to exceed" contracts (representing approximately 1% of total revenues). Time and material contracts are typically based on the number of hours worked at contractually agreed upon rates. These service contracts relate to work which has no alternative use and for which the Company has an enforceable right to payment for the work completed to date. As a result, revenue is recognized over time when or as the Company transfers control of the promised products or services (known as performance obligations) to its customers. Revenue for short term fixed fee contracts or “not to exceed” contracts is recognized similarly, except that certain milestones also have to be reached before revenue is recognized. If the Company determines that a contract will result in a loss, the Company recognizes the estimated loss in the period in which such a 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, including US Treasury securities, with original maturities of three months or less.

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 time period. 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 accounted for using the direct write-off method whereby an expense is recognized only when a specific balance is determined to be uncollectible in full. The effect of using this method approximates that of the allowance method. However, in the event the Company determines that the collectability of any account receivable reaches a certain uncertainty threshold, the Company will provide an allowance for doubtful account to reduce said balance.

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 July 31, 2023, the Company had no significant uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations.

Leases

The Company follows accounting standards issued by the FASB for the accounting and disclosure of leases. Under those standards, assets and liabilities that arise from leases are recognized on the balance sheet, and the leases are categorized at their inception as either operating or finance leases.

Operating lease right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments under the lease. Lease recognition occurs at the commencement date, and lease liability amounts are based on the present value of lease payments made during the lease term.

Property and Equipment

Owned property and equipment are stated at cost. Depreciation 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. Expenditures for repairs and maintenance are expensed when incurred. As of July 31, 2023 and October 31, 2022, the accumulated depreciation amounted to $630,185 and $587,089, respectively.

Impairment of Long-Lived Assets

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 long-lived assets was present as of July 31, 2023 and October 31, 2022.

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 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 the 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.

Earnings Per Share of Common Stock

Basic earnings per share of common stock is calculated by dividing net earnings by the weighted average number of shares of common stock outstanding. Diluted earnings 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 require disclosure or adjustment.

Reclassifications

Certain reclassifications have been made to the July 31, 2022 condensed consolidated financial statements to conform them to the July 31, 2023 condensed consolidated financial statements presentation. Such reclassifications do not affect net income as previously reported.

Recent Accounting Pronouncements

Recent accounting pronouncements pending adoption not discussed above or in the Annual Report on Form 10-K for the year ended October 31, 2022, are either not applicable or will not have or are not expected to have a material impact on us.

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MARKETABLE SECURITIES

9 Months Ended

Jul. 31, 2023

MARKETABLE SECURITIES

MARKETABLE SECURITIES

NOTE B – MARKETABLE SECURITIES

Marketable securities consist of short-term U.S. Treasury securities with maturities over three months, which are held until maturity and accordingly, are measured at cost plus accreted interest income.

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INCOME TAXES

9 Months Ended

Jul. 31, 2023

INCOME TAXES

INCOME TAXES

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 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 was determined to be approximately $2.7 million. The Transition Tax liability must be paid over a period of eight years which started with the Company’s second quarter of fiscal year 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. However, foreign subsidiaries earnings are subject to U.S. tax at a reduced rate of 10.5%.

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 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 exempt from Puerto Rico earnings distribution tax. Under provisions of Puerto Rico Acts 60-2019 and 73-2008, the Company has requested PRIDCO the renegotiation of the Grant for an additional term of fifteen years.

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 37.5% as provided by the 1994 Puerto Rico Internal Revenue Code, as amended. The operations carried in the United States by the Company’s subsidiaries, is taxed in the United States at a maximum regular federal income tax rate of 21%.

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. Realization of future tax benefits related to a deferred tax asset is dependent on many factors. Accordingly, the income tax benefit will be recognized when realization is determined to be more probable than not.

The Company files income tax returns in the United States (federal and various states jurisdictions), Puerto Rico, Spain and Brazil. The 2018 (2017 for Puerto Rico) through 2022 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.

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EARNINGS PER SHARE

9 Months Ended

Jul. 31, 2023

EARNINGS PER SHARE

EARNINGS PER SHARE

NOTE D – EARNINGS PER SHARE

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

	Three months ended July 31,				Nine months ended July 31,
	2023		2022		2023		2022
Net income available to common equity holders - used to compute basic and diluted earnings per share	$	526,242	$	288,034	$	1,357,328	$	833,305
Weighted average number of common shares - used to compute basic earnings per share		22,965,496		22,952,009		22,962,113		22,996,584
Effect of options to purchase common stock		19,062		18,950		29,259		35,342
Weighted average number of shares - used to compute diluted earnings per share		22,984,558		22,970,959		22,991,372		23,031,926

For the three-month and nine-month periods ended July 31, 2023 options for the purchase of 223,350 shares of common stock were not considered in computing diluted earnings per share because their effect was antidilutive.  Options for the purchase of 400,000 and 300,000 shares of common stock for the three-month and nine-month periods ended July 31, 2022, respectively, were not included in computing diluted earnings per share because their effects were also antidilutive.

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EQUITY TRANSACTIONS

9 Months Ended

Jul. 31, 2023

EQUITY TRANSACTIONS

EQUITY TRANSACTIONS

NOTE E – EQUITY 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 under the Company Stock Repurchase Program (the “Repurchase Program”). The timing, manner, price and amount of any repurchases under the Repurchase Program 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 Repurchase 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 under the Repurchase Program directly from directors or officers of the Company. As of July 31, 2023 and October 31, 2022, a total of 485,657 and 451,057 shares of the Company’s common stock were purchased under the Repurchase Program for an aggregate amount of $472,816 and $439,264, respectively.

On February 28, 2023, the Board of Directors of the Company declared a cash dividend of $0.075 per common share for shareholders of record as of the close of business on March 29, 2023. Accordingly, an aggregate dividend payment of $1,723,819 was paid on April 14, 2023.

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SEGMENT DISCLOSURES

9 Months Ended

Jul. 31, 2023

SEGMENT DISCLOSURES

SEGMENT DISCLOSURES

NOTE F - SEGMENT DISCLOSURES

The Company’s segments are based on the organizational structure for which financial results are regularly evaluated by the Company’s chief operating decision maker 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 three reportable segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, and (iii) Europe technical compliance consulting. 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 revenue from services and earnings from operations of the Company for the three-month and nine-month periods ended on July 31, 2023 and 2022. 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 July 31,						Nine months ended July 31,
	2023			2022			2023			2022
REVENUES:
Puerto Rico consulting	$	2,004,993		$	2,982,774		$	6,135,456		$	9,420,588
United States consulting		1,234,509			1,105,870			3,504,031			3,518,556
Europe consulting		1,337,665			648,916			3,732,944			1,780,723
Other segment		-			36,543			6,234			40,658
Total consolidated revenues	$	4,577,167		$	4,774,103		$	13,378,665		$	14,760,525
INCOME (LOSS) BEFORE TAXES:
Puerto Rico consulting	$	234,073		$	163,566		$	288,896		$	323,281
United States consulting		80,575			(30,843	)		241,728			170,307
Europe consulting		281,030			190,924			1,244,253			506,608
Other segment		(8,227	)		(7,825	)		(39,555	)		(42,877	)
Total consolidated income before taxes	$	587,451		$	315,822		$	1,735,322		$	957,319

Long lived assets (property and equipment) as of July 31, 2023 and October 31, 2022, and related depreciation and amortization expense for the three and nine months ended July 31, 2023 and 2022, were concentrated in the corporate headquarters in Puerto Rico. Accordingly, depreciation expense and acquisition of property and equipment, as presented in the statements of cash flows are related to the corporate headquarters.

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CONCENTRATIONS OF RISK

9 Months Ended

Jul. 31, 2023

CONCENTRATIONS OF RISK

CONCENTRATIONS OF RISK

NOTE G - CONCENTRATIONS OF RISK

Cash, Cash Equivalents and Marketable Securities

The Company’s domestic cash, cash equivalents and marketable securities 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 twelve months or less. In the foreign markets we serve, we also maintain cash deposits in foreign banks, which have no specific insurance. No losses have been experienced nor are expected on these accounts.

Accounts Receivable and Revenues

The Company has established a full allowance for doubtful accounts for those accounts receivable balances for which collectability have reached a certain uncertainty threshold. Management deems all other of the Company’s accounts receivable to be fully collectible, and, as such, does not maintain any additional allowance for uncollectible receivables.

The Company's revenues, and the related receivables, are concentrated in the pharmaceutical industry in Puerto Rico, the United States, Europe and Brazil. 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 five customers, which accounted for 10% or more of its revenues in either of the three-month and nine-month periods ended July 31, 2023 and 2022. During the three months ended July 31, 2023, revenues from these customers were 22.1%, 11.0%, 14.7%, 5.0% and 5.5%, or a total of 58.3%, as compared to the same period last year of 0.0%, 13.1%, 8.2%, 15.1% and 9.3%, or a total of 45.7%, respectively. During the nine months ended July 31, 2023, revenues from these customers were 14.9%, 11.5%, 11.1%, 6.6% and 7.5%, or a total of 51.6%, as compared to the same period last year of 0.0%, 13.2%, 7.7%, 16.9% and 10.1%, or a total of 47.9%, respectively. For the three months ended July 31, 2023 and 2022, these customers represented for the Puerto Rico, United States and Europe consulting reportable segments 21.5%, 0.0% and 36.8%, as compared to 37.5%, 0.0% and 8.2%, respectively. For the nine months ended July 31, 2023 and 2022, these customers represented for the Puerto Rico, United States and Europe consulting reportable segments 25.6%, 0.0% and 26.0%, as compared to 40.2%, 0.0% and 7.7%, respectively. On July 31, 2023, amounts due from these customers represented 42.4% of the Company’s total accounts receivable balance. This customer 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, six global groups of affiliated companies accounted for 10% or more of its revenues in either of the three-month and nine-month periods ended July 31, 2023 and 2022. During the three months ended July 31, 2023, aggregate revenues from these global groups of affiliated companies were 22.1%, 11.0%, 9.9%, 14.7%, 5.0% and 5.5%, or a total of 68.2%, as compared to the same period last year for 0.0%, 13.1%, 6.6%, 7.7%, 16.9% and 10.1%, or a total of 54.4%, respectively. During the nine months ended July 31, 2023, aggregate revenues from these global group of affiliated companies were 14.9%, 11.5%, 11.2%, 11.1%, 6.6% and 7.5%, or a total of 62.8%, as compared to the same period last year for 0.0%, 13.2%, 6.6%, 7.7%, 16.9% and 10.1%, or a total of 54.5%, respectively. For the three months ended July 31, 2023 and 2022, these customers represented for the Puerto Rico, United States and Europe consulting reportable segments 23.0%, 8.4% and 36.8%, as compared to 43.3%, 3.4% and 7.7%, respectively. For the nine months ended July 31, 2023 and 2022, these customers represented for the Puerto Rico, United States and Europe consulting reportable segments 27.7%, 9.1% and 26.0%, as compared to 43.4%, 3.4% and 7.7%, respectively. At July 31, 2023, amounts due from these global groups of affiliated companies represented 64.6% of total accounts receivable balance.

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Jul. 31, 2023

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. 

Segments

The Company operates in three reportable business segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, and (iii) Europe technical compliance consulting. Accordingly, the accompanying condensed consolidated financial statements are presented to show these three reportable segments.

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 consist of U.S. Treasury securities, which are categorized in Level 1 and have a short-term maturity.

The carrying value of the Company's financial instruments, 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.

Revenue Recognition

The Company records revenue under Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. We evaluate our revenue contracts with customers based on the five-step model under ASC 606: (i) Identify the contract with the customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to separate performance obligations; and (v) Recognize revenue when (or as) each performance obligation is satisfied.

Revenue is primarily derived from: (1) time and material contracts (representing approximately 99% of total revenues), and (2) short-term fixed-fee contracts or "not to exceed" contracts (representing approximately 1% of total revenues). Time and material contracts are typically based on the number of hours worked at contractually agreed upon rates. These service contracts relate to work which has no alternative use and for which the Company has an enforceable right to payment for the work completed to date. As a result, revenue is recognized over time when or as the Company transfers control of the promised products or services (known as performance obligations) to its customers. Revenue for short term fixed fee contracts or “not to exceed” contracts is recognized similarly, except that certain milestones also have to be reached before revenue is recognized. If the Company determines that a contract will result in a loss, the Company recognizes the estimated loss in the period in which such a 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, including US Treasury securities, with original maturities of three months or less.

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 time period. 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 accounted for using the direct write-off method whereby an expense is recognized only when a specific balance is determined to be uncollectible in full. The effect of using this method approximates that of the allowance method. However, in the event the Company determines that the collectability of any account receivable reaches a certain uncertainty threshold, the Company will provide an allowance for doubtful account to reduce said balance.

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 July 31, 2023, the Company had no significant uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations.

Leases

The Company follows accounting standards issued by the FASB for the accounting and disclosure of leases. Under those standards, assets and liabilities that arise from leases are recognized on the balance sheet, and the leases are categorized at their inception as either operating or finance leases.

Operating lease right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments under the lease. Lease recognition occurs at the commencement date, and lease liability amounts are based on the present value of lease payments made during the lease term.

Property and Equipment

Owned property and equipment are stated at cost. Depreciation 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. Expenditures for repairs and maintenance are expensed when incurred. As of July 31, 2023 and October 31, 2022, the accumulated depreciation amounted to $630,185 and $587,089, respectively.

Impairment of Long-Lived Assets

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 long-lived assets was present as of July 31, 2023 and October 31, 2022.

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 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 the 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.

Earnings Per Share of Common Stock

Basic earnings per share of common stock is calculated by dividing net earnings by the weighted average number of shares of common stock outstanding. Diluted earnings 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 require disclosure or adjustment.

Reclassifications

Certain reclassifications have been made to the July 31, 2022 condensed consolidated financial statements to conform them to the July 31, 2023 condensed consolidated financial statements presentation. Such reclassifications do not affect net income as previously reported.

Recent Accounting Pronouncements

Recent accounting pronouncements pending adoption not discussed above or in the Annual Report on Form 10-K for the year ended October 31, 2022, are either not applicable or will not have or are not expected to have a material impact on us.

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EARNINGS PER SHARE (Tables)

9 Months Ended

Jul. 31, 2023

EARNINGS PER SHARE

Schedule of shares used in calculations of basic and diluted earnings per share

	Three months ended July 31,				Nine months ended July 31,
	2023		2022		2023		2022
Net income available to common equity holders - used to compute basic and diluted earnings per share	$	526,242	$	288,034	$	1,357,328	$	833,305
Weighted average number of common shares - used to compute basic earnings per share		22,965,496		22,952,009		22,962,113		22,996,584
Effect of options to purchase common stock		19,062		18,950		29,259		35,342
Weighted average number of shares - used to compute diluted earnings per share		22,984,558		22,970,959		22,991,372		23,031,926

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SEGMENT DISCLOSURES (Tables)

9 Months Ended

Jul. 31, 2023

SEGMENT DISCLOSURES

Schedule of segment reporting information

	Three months ended July 31,						Nine months ended July 31,
	2023			2022			2023			2022
REVENUES:
Puerto Rico consulting	$	2,004,993		$	2,982,774		$	6,135,456		$	9,420,588
United States consulting		1,234,509			1,105,870			3,504,031			3,518,556
Europe consulting		1,337,665			648,916			3,732,944			1,780,723
Other segment		-			36,543			6,234			40,658
Total consolidated revenues	$	4,577,167		$	4,774,103		$	13,378,665		$	14,760,525
INCOME (LOSS) BEFORE TAXES:
Puerto Rico consulting	$	234,073		$	163,566		$	288,896		$	323,281
United States consulting		80,575			(30,843	)		241,728			170,307
Europe consulting		281,030			190,924			1,244,253			506,608
Other segment		(8,227	)		(7,825	)		(39,555	)		(42,877	)
Total consolidated income before taxes	$	587,451		$	315,822		$	1,735,322		$	957,319

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	Jul. 31, 2023	Oct. 31, 2022
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accumulated depreciation	$ 630,185	$ 587,089

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INCOME TAXES (Details Narrative) - USD ($) $ in Millions	9 Months Ended
	Jul. 31, 2023	Dec. 22, 2017
U.S. tax reduced rate	10.50%
Transition tax		$ 2.7
Established tax reform	100.00%
Income Tax Rates [Member]
Puerto Rico tax holiday derived from PRIDCO Grant tax rate	37.50%
United States federal income tax rate	21.00%
Fixed income tax rate	4.00%

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EARNINGS PER SHARE (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jul. 31, 2023	Jul. 31, 2022	Jul. 31, 2023	Jul. 31, 2022
EARNINGS PER SHARE
Net income available to common equity holders - used to compute basic and diluted earnings per share	$ 526,242	$ 288,034	$ 1,357,328	$ 833,305
Weighted average number of common shares - used to compute basic earnings per share	22,965,496	22,952,009	22,962,113	22,996,584
Effect of options to purchase common stock	19,062	18,950	29,259	35,342
Weighted average number of shares - used to compute diluted earnings per share	22,984,558	22,970,959	22,991,372	23,031,926

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EARNINGS PER SHARE (Details Narrative) - shares	3 Months Ended		9 Months Ended
	Jul. 31, 2023	Jul. 31, 2022	Jul. 31, 2023	Jul. 31, 2022
Employee Stock Option [Member]
Antidilutive securities excluded from computation of earnings per share	223,350	400,000	223,350	300,000

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EQUITY TRANSACTIONS (Details Narrative) - USD ($)	Jul. 31, 2023	Apr. 14, 2023	Feb. 28, 2023	Oct. 31, 2022
EQUITY TRANSACTIONS
Shares purchased under Repurchase Program	485,657			451,057
Shares purchased under Repurchase Program, amount	$ 472,816			$ 439,264
Dividend declared per common share			$ 0.075
Dividend paid		$ 1,723,819

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SEGMENT DISCLOSURES (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jul. 31, 2023	Jul. 31, 2022	Jul. 31, 2023	Jul. 31, 2022
Total consolidated revenues	$ 4,577,167	$ 4,774,103	$ 13,378,665	$ 14,760,525
Total consolidated income before taxes	587,451	315,822	1,735,322	957,319
Other Segment
Total consolidated revenues	0	36,543	6,234	40,658
Total consolidated income before taxes	(8,227)	(7,825)	(39,555)	(42,877)
Europe
Total consolidated revenues	1,337,665	648,916	3,732,944	1,780,723
Total consolidated income before taxes	281,030	190,924	1,244,253	506,608
Puerto Rico
Total consolidated revenues	2,004,993	2,982,774	6,135,456	9,420,588
Total consolidated income before taxes	234,073	163,566	288,896	323,281
United States
Total consolidated revenues	1,234,509	1,105,870	3,504,031	3,518,556
Total consolidated income before taxes	$ 80,575	$ (30,843)	$ 241,728	$ 170,307

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CONCENTRATION OF RISKS (Details Narrative)	3 Months Ended		9 Months Ended
	Jul. 31, 2023	Jul. 31, 2022	Jul. 31, 2023	Jul. 31, 2022
Europe
Revenue from major customers	36.80%	8.20%	26.00%	7.70%
Amount due from major customers as percentage of accounts receivable	36.80%	7.70%	26.00%	7.70%
Puerto Rico
Revenue from major customers	21.50%	37.50%	25.60%	40.20%
Amount due from major customers as percentage of accounts receivable	23.00%	43.30%	27.70%	43.40%
United States
Revenue from major customers	0.00%	0.00%	0.00%	0.00%
Amount due from major customers as percentage of accounts receivable	8.40%	3.40%	9.10%	3.40%
Major Customer A
Revenue from major customers	22.10%	0.00%	14.90%	0.00%
Major Customer B
Revenue from major customers	11.00%	13.10%	11.50%	13.20%
Major Customer C
Revenue from major customers	14.70%	8.20%	11.10%	7.70%
Major Customer D
Revenue from major customers	5.00%	15.10%	6.60%	16.90%
Major Customer Total
Revenue from major customers	58.30%	45.70%	51.60%	47.90%
Amount due from major customers as percentage of accounts receivable			42.40%
Global Customer A
Revenue from major customers	22.10%	0.00%	14.90%	0.00%
Global Customer B
Revenue from major customers	11.00%	13.10%	11.50%	13.20%
Global Customer C
Revenue from major customers	9.90%	6.60%	11.20%	6.60%
Global Customer D
Revenue from major customers	14.70%	7.70%	11.10%	7.70%
Global Customer Total
Revenue from major customers	68.20%	54.40%	62.80%	54.50%
Amount due from major customers as percentage of accounts receivable			64.60%
Global Customer E
Revenue from major customers	5.00%	16.90%	6.60%	16.90%
Major Customer E
Revenue from major customers	5.50%	9.30%	7.50%	10.10%
Global Customer F
Revenue from major customers	5.50%	10.10%	7.50%	10.10%