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 July 31, 2007 (unaudited)
|
3
|
|
|
Consolidated
Statements of Income for the three-month periods and
the nine-month
periods ended July 31, 2007 and 2006 (unaudited)
|
4
|
|
|
Consolidated
Statements of Cash Flows for the three-month periods
and the nine-month
periods ended July 31, 2007 and 2006 (unaudited)
|
5
|
Consolidated
Statement of Changes in Stockholders’ Equity for the nine-month period
ended July 31, 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
|
$
|
3,289,081
|
||
Accounts
receivable
|
4,532,609
|
|||
Other
|
281,484
|
|||
Total
current assets
|
8,103,174
|
|||
Property
and equipment
|
302,161
|
|||
Other
assets, mainly intangible assets
|
152,708
|
|||
Total
Assets
|
$
|
8,558,043
|
||
Liabilities
and Stockholders' Equity:
|
||||
Current
liabilities
|
||||
Current
portion-obligations under capital leases
|
$
|
41,208
|
||
Accounts
payable and accrued expenses
|
1,196,629
|
|||
Due
to affiliate - current
|
2,659,830
|
|||
Income
taxes
|
278,539
|
|||
Total
current liabilities
|
4,176,206
|
|||
Long-term
liabilities
|
||||
Due
to affiliate
|
2,490,162
|
|||
Obligations
under capital leases, net of current portion
|
110,450
|
|||
Total
long-term liabilities
|
2,600,612
|
|||
Total
Liabilities
|
6,776,818
|
|||
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
|
91,911
|
|||
Retained
earnings
|
1,687,353
|
|||
Total
Stockholders' Equity
|
1,781,225
|
|||
Total
Liabilities and Stockholders' Equity
|
$
|
8,558,043
|
Three
months ended July 31,
|
Nine
months ended July 31,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
REVENUES
|
$
|
4,564,820
|
$
|
3,216,933
|
$
|
12,363,712
|
$
|
10,425,818
|
|||||
COST
OF SERVICES
|
2,498,940
|
1,833,170
|
7,028,345
|
6,099,675
|
|||||||||
GROSS
PROFIT
|
2,065,880
|
1,383,763
|
5,335,367
|
4,326,143
|
|||||||||
SELLING,
GENERAL AND
|
|||||||||||||
ADMINISTRATIVE
EXPENSES
|
775,066
|
621,571
|
2,341,323
|
1,640,800
|
|||||||||
INTEREST
EXPENSE
|
88,546
|
128,327
|
302,348
|
262,473
|
|||||||||
INCOME
BEFORE INCOME TAX
|
1,202,268
|
633,865
|
2,691,696
|
2,422,870
|
|||||||||
INCOME
TAX
|
507,740
|
281,013
|
1,149,440
|
701,191
|
|||||||||
NET
INCOME
|
$
|
694,528
|
$
|
352,852
|
$
|
1,542,256
|
$
|
1,721,679
|
|||||
BASIC
EARNINGS PER COMMON SHARE
|
$
|
0.04
|
$
|
0.02
|
$
|
0.08
|
$
|
0.22
|
|||||
DILUTED
EARNINGS PER COMMON SHARE
|
$
|
0.03
|
$
|
0.02
|
$
|
0.07
|
$
|
0.10
|
|||||
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|||||||||||||
SHARES
OUTSTANDING - BASIC
|
19,615,539
|
18,315,001
|
19,315,415
|
7,878,323
|
|||||||||
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|||||||||||||
SHARES
OUTSTANDING - DILUTED
|
22,067,885
|
22,080,034
|
22,092,848
|
16,464,964
|
Three
months ended July 31,
|
Nine
months ended July 31,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||||||||
Net
income for the period
|
$
|
694,528
|
$
|
352,852
|
$
|
1,542,256
|
$
|
1,721,679
|
|||||
Loss
on disposition of property and equipment
|
-
|
-
|
25,661
|
3,664
|
|||||||||
Stock-based
compensation
|
26,537
|
-
|
91,911
|
-
|
|||||||||
Depreciation
and amortization
|
51,913
|
52,363
|
159,570
|
141,303
|
|||||||||
Imputed
interest expense
|
86,302
|
125,304
|
295,031
|
252,520
|
|||||||||
Decrease
(increase) in accounts receivable
|
(561,348
|
)
|
(588,699
|
)
|
1,223,268
|
(600,736
|
)
|
||||||
Decrease
(increase) in other assets
|
(66,738
|
)
|
(222,685
|
)
|
182,798
|
(508,718
|
)
|
||||||
Increase
(decrease) in liabilities
|
(219,739
|
)
|
(345,727
|
)
|
312,584
|
(349,431
|
)
|
||||||
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
11,455
|
(626,592
|
)
|
3,833,079
|
660,281
|
||||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||||||||
Purchase
of property and equipment
|
(22,090
|
)
|
(6,514
|
)
|
(40,170
|
)
|
(97,198
|
)
|
|||||
Cash
acquired as part of the acquisition of Plaza
|
-
|
-
|
-
|
28,943
|
|||||||||
NET
CASH USED IN INVESTING ACTIVITIES
|
(22,090
|
)
|
(6,514
|
)
|
(40,170
|
)
|
(68,255
|
)
|
|||||
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
|
(9,815
|
)
|
(9,037
|
)
|
(28,863
|
)
|
(26,228
|
)
|
|||||
Payments
to affiliate
|
-
|
(213,388
|
)
|
(2,750,000
|
)
|
(213,388
|
)
|
||||||
Distributions
|
-
|
-
|
-
|
(749,554
|
)
|
||||||||
NET
CASH USED IN FINANCING ACTIVITIES
|
(9,815
|
)
|
(222,425
|
)
|
(2,778,863
|
)
|
(989,170
|
)
|
|||||
NET
INCREASE (DECREASE) IN CASH AND CASH
|
|||||||||||||
EQUIVALENTS
|
(20,450
|
)
|
(855,531
|
)
|
1,014,046
|
(397,144
|
)
|
||||||
CASH
AND CASH EQUIVALENTS - BEGINNING OF PERIOD
|
3,309,531
|
2,249,944
|
2,275,035
|
1,791,557
|
|||||||||
CASH
AND CASH EQUIVALENTS - END OF PERIOD
|
$
|
3,289,081
|
$
|
1,394,413
|
$
|
3,289,081
|
$
|
1,394,413
|
|||||
PAYMENTS
OF:
|
|||||||||||||
Income
tax
|
$
|
593,329
|
$
|
364,063
|
$
|
743,329
|
$
|
728,126
|
|||||
Interest
|
$
|
2,245
|
$
|
3,023
|
$
|
511,026
|
$
|
9,953
|
|||||
NONCASH
INVESTING AND FINANCING ACTIVITIES:
|
|||||||||||||
Conversion
of preferred stock to common stock
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
1,483
|
|||||
Conversion
of cashless exercise warrants to shares of
|
|||||||||||||
common
stock
|
$
|
-
|
$
|
-
|
$
|
130
|
$
|
-
|
|||||
Application
of down payment to acquisition price of
|
|||||||||||||
property
and equipment
|
$
|
-
|
$
|
37,655
|
$
|
-
|
$
|
37,655
|
|||||
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
|
$
|
-
|
$
|
-
|
$
|
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,
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
|
91,911
|
91,911
|
||||||||||||||||||||
NET
INCOME
|
-
|
-
|
-
|
-
|
-
|
1,542,256
|
1,542,256
|
|||||||||||||||
BALANCE
AT JULY 31, 2007
|
19,615,539
|
$
|
1,961
|
-
|
$
|
-
|
$
|
91,911
|
$
|
1,687,353
|
$
|
1,781,225
|
|
Useful
life
(years)
|
Amount
|
|||||
Vehicles
|
5
|
$
|
221,434
|
||||
Leasehold
improvements
|
5
|
15,835
|
|||||
Computers
|
3
|
163,721
|
|||||
Equipment
|
3
|
119,672
|
|||||
Furniture
and fixtures
|
10
|
68,509
|
|||||
Project
in progress
|
--
|
4,768
|
|||||
Total
|
593,939
|
||||||
Less:
Accumulated depreciation and amortization
|
(291,778
|
)
|
|||||
Property
and equipment, net
|
$
|
302,161
|
Intangible
assets:
|
|
|||
Covenant
not to compete
|
$
|
68,333
|
||
Customer-related
intangibles
|
70,833
|
|||
Other
assets
|
13,542
|
|||
|
$
|
152,708
|
|
Three
months
ended
July 31,
|
Nine
months
ended
July 31,
|
|||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
Theoretical
income tax expense by application of statutory rates to the book
pre-tax
|
$
|
498,941
|
$
|
263,054
|
$
|
1,117,054
|
$
|
1,005,491
|
|||||
|
|||||||||||||
Permanent
differences:
|
|||||||||||||
Effect
of income subject to taxation under Subchapter N (taxable income
taxed to
stockholders)
|
-
|
-
|
-
|
(358,037
|
)
|
||||||||
|
|||||||||||||
Other
permanent differences
|
8,799
|
17,959
|
32,386
|
53,737
|
|||||||||
Income
tax expense
|
$
|
507,740
|
$
|
281,013
|
$
|
1,149,440
|
$
|
701,191
|
Twelve
months ending July 31,
|
Amount
|
|||
2008
|
$
|
2,750,000
|
||
2009
|
2,750,000
|
|||
Total
payments
|
5,500,000
|
|||
Less:
imputed interest
|
(350,008
|
)
|
||
Present
value of total payments
|
5,149,992
|
|||
Less:
current portion
|
(2,659,830
|
)
|
||
Long-term
portion
|
$
|
2,490,162
|
Twelve
months ending July 31,
|
Amount
|
|||
2008
|
$
|
48,240
|
||
2009
|
48,240
|
|||
2010
|
64,121
|
|||
2011
|
3,178
|
|||
Total
minimum lease payments
|
163,779
|
|||
Less:
Amount of imputed interest
|
(12,121
|
)
|
||
Present
value of minimum lease payments
|
151,658
|
|||
Current
portion of obligation under capital leases
|
(41,208
|
)
|
||
Long-term
portion
|
$
|
110,450
|
Description
|
|
Monthly
Rent
|
|
Commitment
Term
|
|||
Headquarter
offices and laboratory testing facilities
|
|
$
|
18,750
|
|
Ending
in January 2012, with one five year renewal option
|
||
Limerick
office space
|
|
$
|
1,050
|
|
Ending
in July 2010
|
|
Three
months ended
|
Nine
months ended
|
|||||
|
July
31, 2007
|
July
31, 2007
|
|||||
Stock-based
compensation expense:
|
|
|
|||||
Cost
of services
|
$
|
9,824
|
$
|
51,914
|
|||
Selling,
general and administrative
|
16,713
|
39,997
|
|||||
|
|||||||
Stock-based
compensation before tax
|
26,537
|
91,911
|
|||||
Income
tax benefit
|
--
|
--
|
|||||
|
|||||||
Net
stock-based compensation expense
|
$
|
26,537
|
$
|
91,911
|
|||
|
|||||||
Effect
on earnings per share:
|
|||||||
Basic
earnings per share
|
$
|
(0.001
|
)
|
$
|
(0.005
|
)
|
|
Diluted
earnings per share
|
$
|
(0.001
|
)
|
$
|
(0.004
|
)
|
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 nine-month
period ended July 31, 2007
|
$
|
0.1506
|
Three
months ended July 31,
|
Nine
months ended July 31,
|
||||||||||||
Customer
|
2007
|
2006
|
2007
|
2006
|
|||||||||
GlaxoSmithKline
|
$
|
1,011
(22.1
|
%)
|
$
|
1,330
(41.3
|
%)
|
$
|
3,373
(27.3
|
%)
|
$
|
3,126
(30.0
|
%)
|
|
Schering-Plough
|
246
( 5.4
|
%)
|
523
(16.3
|
%)
|
706
( 5.7
|
%)
|
2,620
(25.1
|
%)
|
|||||
Johnson
& Johnson
|
1,121
(24.6
|
%)
|
506
(15.7
|
%)
|
2,844
(23.0
|
%)
|
1,094
(10.5
|
%)
|
|||||
Lilly
del Caribe
|
131
( 2.9
|
%)
|
334
(10.4
|
%)
|
640
( 5.2
|
%)
|
1,118
(10.7
|
%)
|
|||||
McNeil-PPC
|
680
(14.9
|
%)
|
--
|
909
( 7.4
|
%)
|
--
|
|||||||
Total
|
$
|
3,189
(69.9
|
%)
|
$
|
2,693
(83.7
|
%)
|
$
|
8,472
(68.6
|
%)
|
$
|
7,958
(76.3
|
%)
|
Nine
Month Periods Ended July 31,
|
Revenues
|
|||
2007
|
$
|
38,739
|
||
2006
|
$
|
1,785,804
|
Three
months ended July 31,
|
Nine
months ended July 31,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
Operating
facility
|
$
|
245,993
|
$
|
200,360
|
$
|
667,291
|
$
|
834,582
|
|||||
Closed
facility
|
-
|
322,881
|
38,739
|
1,785,804
|
|||||||||
Total
|
$
|
245,993
|
$
|
523,241
|
$
|
706,030
|
$
|
2,620,386
|
Period
|
Amount
|
|||
Three
months ended July 31, 2007
|
$
|
830,167
|
||
Three
months ended July 31, 2006
|
179,816
|
|||
Nine
months ended July 31, 2007
|
1,363,389
|
|||
Nine
months ended July 31, 2006
|
536,653
|
Three
months ended July 31,
|
Nine
months ended July 31,
|
|||||||||||||||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
||||||||||||||||||||||||
Revenue
|
$
|
4,565
|
100.0
|
%
|
$
|
3,217
|
100.0
|
%
|
$
|
12,364
|
100.0
|
%
|
$
|
10,426
|
100.0
|
%
|
||||||||||||
Cost
of services
|
2,499
|
54.7
|
%
|
1,833
|
57.0
|
%
|
7,028
|
56.8
|
%
|
6,100
|
58.5
|
%
|
||||||||||||||||
Gross
profit
|
2,066
|
45.3
|
%
|
1,384
|
43.0
|
%
|
5,336
|
43.2
|
%
|
4,326
|
41.5
|
%
|
||||||||||||||||
Selling,
general and administrative costs
|
775
|
17.0
|
%
|
622
|
19.3
|
%
|
2,341
|
18.9
|
%
|
1,641
|
15.8
|
%
|
||||||||||||||||
Interest
expense
|
89
|
2.0
|
%
|
128
|
4.0
|
%
|
303
|
2.5
|
%
|
262
|
2.5
|
%
|
||||||||||||||||
Income
before income taxes
|
1,202
|
26.3
|
%
|
634
|
19.7
|
%
|
2,692
|
21.8
|
%
|
2,423
|
23.2
|
%
|
||||||||||||||||
Income
tax expense1
|
507
|
11.1
|
%
|
281
|
8.7
|
%
|
1,150
|
9.3
|
%
|
701
|
6.7
|
|||||||||||||||||
Net
income1
|
$
|
695
|
15.2
|
%
|
$
|
353
|
11.0
|
%
|
$
|
1,542
|
12.5
|
%
|
$
|
1,722
|
16.5
|
%
|
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:
September 13, 2007
|
|