x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
Delaware
|
20-0653570
|
(State
of Incorporation)
|
(I.R.S.
Employer
Identification
No.)
|
Page
|
||||
PART
I FINANCIAL INFORMATION
|
||||
|
||||
Item
1 - Financial Statements
|
||||
Consolidated
Balance Sheet as of April 30, 2007 (unaudited)
|
3
|
|||
|
||||
Consolidated
Statements of Income for the three-month periods and the six-month
periods
ended April 30, 2007 and 2006 (unaudited)
|
4
|
|||
|
||||
Consolidated
Statements of Cash Flows for the three-month periods and the
six-months
periods ended April 30, 2007 and 2006 (unaudited)
|
5
|
|||
Consolidated
Statement of Changes in Stockholders’ Equity for the six-month period
ended April 30, 2007 (unaudited)
|
6
|
|||
Notes
to Consolidated Financial Statements (unaudited)
|
7
|
|||
|
||||
Item
2 - Management's Discussion and Analysis of Financial Condition
and
Results
|
||||
of
Operations
|
20
|
|||
|
||||
Item
3 - Controls and Procedures
|
27
|
|||
|
||||
PART
II OTHER INFORMATION
|
||||
|
||||
Item
6 - Exhibits
|
28
|
Assets:
|
||||
Current
assets
|
||||
Cash
and cash equivalents
|
$
|
3,309,531
|
||
Accounts
receivable
|
3,971,261
|
|||
Other
|
216,563
|
|||
Total
current assets
|
7,497,355
|
|||
Property
and equipment
|
314,484
|
|||
Other
assets, mainly intangible assets
|
168,391
|
|||
Total
Assets
|
$
|
7,980,230
|
||
Liabilities
and Stockholders' Equity:
|
||||
Current
liabilities
|
||||
Current
portion-obligations under capital leases
|
$
|
40,430
|
||
Accounts
payable and accrued expenses
|
1,330,779
|
|||
Due
to affiliate - current
|
2,613,225
|
|||
Income
taxes
|
364,128
|
|||
Total
current liabilities
|
4,348,562
|
|||
Long-term
liabilities
|
||||
Due
to affiliate
|
2,450,465
|
|||
Other
long-term liabilities
|
121,043
|
|||
Total
long-term liabilities
|
2,571,508
|
|||
Total
Liabilities
|
6,920,070
|
|||
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;
|
||||
issued
and outstanding 19,615,539 shares
|
1,961
|
|||
Additional
paid-in capital
|
65,374
|
|||
Retained
earnings
|
992,825
|
|||
Total
Stockholders' Equity
|
1,060,160
|
|||
Total
Liabilities and Stockholders' Equity
|
$
|
7,980,230
|
Three
months ended April 30,
|
|
Six
months ended April 30,
|
|
||||||||||
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|||||
REVENUES
|
$
|
4,180,562
|
$
|
3,804,703
|
$
|
7,798,892
|
$
|
7,208,885
|
|||||
|
|||||||||||||
COST
OF SERVICES
|
2,362,277
|
2,233,166
|
4,529,405
|
4,266,505
|
|||||||||
GROSS
PROFIT
|
1,818,285
|
1,571,537
|
3,269,487
|
2,942,380
|
|||||||||
SELLING,
GENERAL AND
|
|||||||||||||
ADMINISTRATIVE
EXPENSES
|
829,672
|
567,243
|
1,566,257
|
1,019,229
|
|||||||||
INTEREST
EXPENSE
|
84,556
|
130,734
|
213,802
|
134,146
|
|||||||||
INCOME
BEFORE INCOME TAX
|
904,057
|
873,560
|
1,489,428
|
1,789,005
|
|||||||||
INCOME
TAX
|
385,745
|
398,305
|
641,700
|
420,178
|
|||||||||
NET
INCOME
|
$
|
518,312
|
$
|
475,255
|
$
|
847,728
|
$
|
1,368,827
|
|||||
BASIC
EARNINGS PER COMMON SHARE
|
$
|
0.03
|
$
|
0.14
|
$
|
0.04
|
$
|
0.53
|
|||||
DILUTED
EARNINGS PER COMMON SHARE
|
$
|
0.02
|
$
|
0.02
|
$
|
0.04
|
$
|
0.10
|
|||||
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|||||||||||||
SHARES
OUTSTANDING - BASIC
|
19,615,539
|
3,381,342
|
19,162,866
|
2,573,492
|
|||||||||
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|||||||||||||
SHARES
OUTSTANDING - DILUTED
|
22,120,730
|
22,066,604
|
21,897,862
|
13,610,896
|
Three
months ended April 30,
|
Six
months ended April 30,
|
||||||||||||
2007
|
|
2006
|
|
2007
|
|
2006
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||||||||
Net
income for the period
|
$
|
518,312
|
$
|
475,255
|
$
|
847,728
|
$
|
1,368,827
|
|||||
Loss
on disposition of property and equipment
|
5,798
|
-
|
25,661
|
3,664
|
|||||||||
Stock-based
compensation
|
26,352
|
-
|
65,374
|
-
|
|||||||||
Depreciation
and amortization
|
53,160
|
58,796
|
107,657
|
88,940
|
|||||||||
Imputed
interest expense
|
82,118
|
127,216
|
208,729
|
127,216
|
|||||||||
Decrease
(increase) in accounts receivable
|
23,370
|
(1,493,829
|
)
|
1,784,616
|
(12,037
|
)
|
|||||||
Decrease
(increase) in other assets
|
200,876
|
(135,728
|
)
|
249,536
|
(286,033
|
)
|
|||||||
Increase
(decrease) in liabilities
|
243,834
|
146,218
|
532,323
|
(3,704
|
)
|
||||||||
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
1,153,820
|
(822,072
|
)
|
3,821,624
|
1,286,873
|
||||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||||||||
Purchase
of property and equipment
|
(7,859
|
)
|
(3,656
|
)
|
(18,080
|
)
|
(90,684
|
)
|
|||||
Cash
acquired as part of the acquisition of Plaza
|
-
|
-
|
-
|
28,943
|
|||||||||
NET
CASH USED IN INVESTING ACTIVITIES
|
(7,859
|
)
|
(3,656
|
)
|
(18,080
|
)
|
(61,741
|
)
|
|||||
CASH
FLOW FROM FINANCING ACTIVITIES:
|
|||||||||||||
Net
proceeds from the sale of preferred stock
|
-
|
-
|
-
|
10,000,000
|
|||||||||
Payment
for purchase of stock in Plaza
|
-
|
-
|
-
|
(9,900,000
|
)
|
||||||||
Payment
for non-compete covenant
|
-
|
-
|
-
|
(100,000
|
)
|
||||||||
Payments
on capital lease obligations
|
(9,622
|
)
|
(8,542
|
)
|
(19,048
|
)
|
(17,191
|
)
|
|||||
Payments
to affiliate
|
(250,000
|
)
|
-
|
(2,750,000
|
)
|
-
|
|||||||
Distributions
|
-
|
-
|
-
|
(749,554
|
)
|
||||||||
NET
CASH USED IN FINANCING ACTIVITIES
|
(259,622
|
)
|
(8,542
|
)
|
(2,769,048
|
)
|
(766,745
|
)
|
|||||
NET
INCREASE (DECREASE) IN CASH
|
886,339
|
(834,270
|
)
|
1,034,496
|
458,387
|
||||||||
CASH
- BEGINNING OF PERIOD
|
2,423,192
|
3,084,214
|
2,275,035
|
1,791,557
|
|||||||||
CASH
- END OF PERIOD
|
$
|
3,309,531
|
$
|
2,249,944
|
$
|
3,309,531
|
$
|
2,249,944
|
|||||
PAYMENTS
OF:
|
|||||||||||||
Income
tax
|
$
|
150,000
|
$
|
364,063
|
$
|
150,000
|
$
|
364,063
|
|||||
Interest
|
$
|
5,073
|
$
|
3,518
|
$
|
508,781
|
$
|
6,930
|
|||||
NONCASH
INVESTING AND FINANCING ACTIVITIES:
|
|||||||||||||
Conversion
of preferred stock to common stock
|
$
|
-
|
$
|
1,483
|
$
|
-
|
$
|
1,483
|
|||||
Conversion
of cashless exercise warrants to shares of
|
|||||||||||||
common
stock
|
$
|
-
|
$
|
-
|
$
|
130
|
$
|
-
|
|||||
Income
tax withheld by clients but used as a credit in the
|
|||||||||||||
income
tax return of a stockholder (noncash distribution)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
84,561
|
|||||
Income
tax withheld by clients to be used as a credit in
|
|||||||||||||
the
Company's income tax return
|
$
|
45,212
|
$
|
-
|
$
|
53,573
|
$
|
-
|
|||||
Debt
incurred in the acquisition of certain assets from a
|
|||||||||||||
validation
company
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
200,000
|
|||||
Debt
payable to officer originated in the acquisition of
|
|||||||||||||
Plaza
Plaza, net of $1,025,000 imputed interest
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
7,225,000
|
Additional
|
||||||||||||||||||||||
Common
Stock
|
|
Preferred
Stock
|
|
Paid-in
|
|
Retained
|
|
|
|
|||||||||||||
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Total
|
||||||||
BALANCE
AT OCTOBER 31, 2006
|
18,315,001
|
$
|
1,831
|
-
|
$
|
-
|
$
|
-
|
$
|
145,227
|
$
|
147,058
|
||||||||||
CASHLESS
CONVERSION OF WARRANTS
|
||||||||||||||||||||||
TO
SHARES OF COMMON STOCK
|
1,300,538
|
130
|
-
|
-
|
-
|
(130
|
)
|
-
|
||||||||||||||
STOCK-BASED
COMPENSATION
|
65,374
|
65,374
|
||||||||||||||||||||
NET
INCOME
|
-
|
-
|
-
|
-
|
-
|
847,728
|
847,728
|
|||||||||||||||
BALANCE
AT APRIL 30, 2007
|
19,615,539
|
$
|
1,961
|
-
|
$
|
-
|
$
|
65,374
|
$
|
992,825
|
$
|
1,060,160
|
|
Useful
life
(years)
|
Amount
|
|||||
Vehicles
|
5
|
$
|
221,434
|
||||
Computers
|
3
|
180,758
|
|||||
Equipment
|
3
|
120,505
|
|||||
Furniture
and fixtures
|
10
|
68,509
|
|||||
Total
|
591,206
|
||||||
Less:
Accumulated depreciation and amortization
|
(276,722
|
)
|
|||||
Property
and equipment, net
|
$
|
314,484
|
Intangible
assets:
|
||||
Covenant
not to compete
|
$
|
71,667
|
||
Customer-related
intangibles
|
83,333
|
|||
Other
assets
|
13,391
|
|||
|
$
|
168,391
|
|
Three
months
ended
April 30,
|
Six
months
ended
April 30,
|
|||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
Theoretical
income tax expense by application of statutory rates to the book
pre-tax
|
$
|
375,184
|
$
|
362,527
|
$
|
618,113
|
$
|
742,437
|
|||||
|
|||||||||||||
Permanent
differences:
|
|||||||||||||
Effect
of income subject to taxation under Subchapter N (taxable income
taxed to
stockholders)
|
-
|
-
|
-
|
(358,037
|
)
|
||||||||
|
|||||||||||||
Other
permanent differences
|
10,561
|
35,778
|
23,587
|
35,778
|
|||||||||
Income
tax expense
|
$
|
385,745
|
$
|
398,305
|
$
|
641,700
|
$
|
420,178
|
Twelve
months ending April 30,
|
Amount
|
|||
2008
|
$
|
2,750,000
|
||
2009
|
2,750,000
|
|||
Total
payments
|
5,500,000
|
|||
Less:
imputed interest
|
(436,310
|
)
|
||
Present
value of total payments
|
5,063,690
|
|||
Less:
current portion
|
(2,613,225
|
)
|
||
Long-term
portion
|
$
|
2,450,465
|
Twelve
months ending April 30,
|
Amount
|
|||
2008
|
$
|
48,240
|
||
2009
|
48,240
|
|||
2010
|
69,974
|
|||
2011
|
9,385
|
|||
Total
minimum lease payments
|
175,839
|
|||
Less:
Amount of imputed interest
|
(14,366
|
)
|
||
Present
value of minimum lease payments
|
161,473
|
|||
Current
portion of obligation under capital leases
|
(40,430
|
)
|
||
Long-term
portion
|
$
|
121,043
|
Description
|
|
Monthly
Rent
|
|
Commitment
Term
|
|
||
Headquarter
offices and laboratory testing facilities
|
|
$
|
18,750
|
|
|
Ending
in January 2012, with one five year renewal option
|
|
Housing
for employees
|
|
$
|
1,850
|
|
|
On
a month to month basis
|
|
Limerick
office space
|
|
$
|
1,000
|
|
|
Ending
in July 2007
|
|
Three
months ended
April
30, 2007
|
|
Six
months ended April
30, 2007 |
|||||
Stock-based
compensation expense:
|
|
||||||
Cost
of services
|
$
|
10,184
|
$
|
42,090
|
|||
Selling,
general and administrative
|
16,168
|
23,284
|
|||||
|
|||||||
Stock-based
compensation before tax
|
26,352
|
65,374
|
|||||
Income
tax benefit
|
—
|
—
|
|||||
|
|||||||
Net
stock-based compensation expense
|
$
|
26,352
|
$
|
65,374
|
|||
|
|||||||
|
|||||||
Effect
on earnings per share:
|
|||||||
Basic
earnings per share
|
$
|
(0.001
|
)
|
$
|
(0.003
|
)
|
|
Diluted
earnings per share
|
$
|
(0.001
|
)
|
$
|
(0.003
|
)
|
Expected
dividend yield
|
0.0
|
%
|
||
Expected
stock price volatility
|
10
|
%
|
||
Risk
free interest rate
|
4.7
|
%
|
||
Expected
life of options
|
2.65
years
|
|||
|
||||
Weighted
average fair value per share of options granted during the six-month
period ended April 30, 2007
|
$
|
0.1506
|
Three
months ended April 30,
|
Six
months ended April 30,
|
||||||||||||
Customer
|
2007
|
2006
|
2007
|
2006
|
|||||||||
GlaxoSmithKline
|
$
|
1,102
|
(26.4%)
|
$
|
1,166
|
(30.6%)
|
$
|
2,363
|
(30.3%)
|
$
|
1,796
|
(24.9%)
|
|
Schering-Plough
|
236
|
(5.6%)
|
789
|
(20.7%)
|
460
|
(5.9%)
|
2,097
|
(29.1%)
|
|||||
Johnson
& Johnson
|
977
|
(23.4%)
|
321
|
(8.4%)
|
1,723
|
(22.1%)
|
589
|
(8.2%)
|
|||||
Lilly
del Caribe
|
206
|
(4.9%)
|
399
|
(10.5%)
|
508
|
(6.5%)
|
783
|
(10.9%)
|
|||||
Total
|
$
|
2,521
|
(60.3%)
|
$
|
2,675
|
(70.3%)
|
$
|
5,054
|
(64.8%)
|
$
|
5,265
|
(73.1%)
|
Six
Month Periods Ended April 30,
|
Revenues
|
|||
2007
|
$
|
38,739
|
||
2006
|
$
|
1,462,923
|
Three
months ended April 30,
|
Six
months ended April 30,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
Operating
facility
|
$
|
235,475
|
$
|
236,692
|
$
|
421,298
|
$
|
634,221
|
|||||
Closed
facility
|
-
|
551,832
|
38,739
|
1,462,923
|
|||||||||
Total
|
$
|
235,475
|
$
|
788,524
|
$
|
460,037
|
$
|
2,097,144
|
Period
|
Amount
|
|||
Three
months ended April 30, 2007
|
$
|
342,507
|
||
Three
months ended April 30, 2006
|
264,216
|
|||
Six
months ended April 30, 2007
|
533,221
|
|||
Six
months ended April 30, 2006
|
356,837
|
Three
months ended April 30,
|
Six
months ended April 30,
|
||||||||||||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||||||||||
Revenue
|
$
|
4,181
|
100.0
|
%
|
$
|
3,805
|
100.0
|
%
|
$
|
7,799
|
100.0
|
%
|
$
|
7,209
|
100.0
|
%
|
|||||||||
Cost
of revenue
|
2,362
|
56.5
|
%
|
2,233
|
58.7
|
%
|
4,530
|
58.1
|
%
|
4,266
|
59.2
|
%
|
|||||||||||||
Gross
profit
|
1,819
|
43.5
|
%
|
1,572
|
41.3
|
%
|
3,269
|
41.9
|
%
|
2,943
|
40.8
|
%
|
|||||||||||||
Selling,
general and administrative costs
|
830
|
19.9
|
%
|
567
|
14.9
|
%
|
1,566
|
20.1
|
%
|
1,020
|
14.1
|
%
|
|||||||||||||
Interest
expense
|
85
|
2.0
|
%
|
131
|
3.4
|
%
|
214
|
2.7
|
%
|
134
|
1.9
|
%
|
|||||||||||||
Income
before income taxes
|
904
|
21.6
|
%
|
874
|
23.0
|
%
|
1,489
|
19.1
|
%
|
1,789
|
24.8
|
%
|
|||||||||||||
Income
tax expense1
|
386
|
9.2
|
%
|
399
|
10.5
|
%
|
642
|
8.2
|
%
|
420
|
5.8
|
||||||||||||||
Net
income1
|
$
|
518
|
12.4
|
%
|
$
|
475
|
12.5
|
%
|
$
|
847
|
10.9
|
%
|
$
|
1,369
|
19.0
|
%
|
(1) |
Plaza
was treated as an N Corporation under the Puerto Rico Internal Revenue
Code, which is similar to an S Corporation under the United States
Internal Revenue Code, prior to the reverse acquisition. As a result,
Plaza did not pay any income tax through January 25, 2006. Since
January
25, 2006, the Company has been subject to income tax in Puerto Rico.
If
Plaza had not been treated as an N Corporation during the six-month
period
ended April 30, 2006, the Company income before income taxes would
have
been taxed at a 41.5% rate, the income tax expense and the net income
would have amounted to approximately $1,011,000 (14.0%).
|
· |
net
income for the April 2007 quarter increased to approximately $518,000,
or
$0.03 per share (basic) and $0.02 (diluted), an increase of approximately
$43,000, or 9%, from net income of $475,000, or $0.14 per share (basic)
and $0.02 per share (diluted), for the April 2006
quarter.
|
· |
net
income for the April 2007 period decreased to approximately $848,000,
or
$0.04 per share (basic and diluted), a decline of approximately $522,000,
or 38.1%, from net income of $1,369,000, or $0.53 per share (basic)
and
$0.10 per share (diluted), for the April 2006 period. The basic and
diluted income per share amounts were also affected by the securities
issued in connection with the private placement that was completed
contemporaneously with the reverse acquisition. At that time, the
Company
issued shares of series A preferred stock which were convertible
into
15,998,800 shares of common stock. The series A preferred stock was
automatically converted into the 15,998,800 shares on April 25, 2006,
when
the Company increased its authorized capital stock. As a result,
the
shares of common stock that were issued upon conversion of the series
A
preferred stock are included in determining diluted earnings per
share
from January 25, 2006 until April 24, 2006 and in determining basic
earnings per share thereafter.
|
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
|
|
|
|
|
|
PHARMA-BIO
SERV, INC.
|
|
|
|
/s/
Elizabeth Plaza
|
||
|
Elizabeth
Plaza
Chief
Executive Officer
|
|
|
|
|
|
||
|
/s/
Manuel O. Morera
|
|
|
Manuel
O. Morera
Chief
Financial Officer
|
|
|
|
|
Dated:
June 14, 2007
|
|