UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
POST
EFFECTIVE
AMENDMENT
NO. 3
to
FORM
SB-2
on
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
PHARMA-BIO
SERV, INC.
(Name of
Small Business Issuer in Its Charter)
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Delaware
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8742
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20-0653570
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(State
or Other Jurisdiction of
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(Primary
Standard Industrial
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(IRS
Employer
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Incorporation
or Organization)
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Classification
Code Number)
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Identification
No.)
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Pharma-Bio
Serv Building, Industrial Zone Lot 14, Barrio Higuillar, Dorado, Puerto Rico
00646
(Address
and telephone number of Principal Executive Offices and principal place of
business)
Ms.
Elizabeth Plaza, Chief Executive Officer
Pharma-Bio
Serv, Inc.
373
Mendez Vigo, Suite 110, Dorado, Puerto Rico 00646
Telephone:
(787) 278-2709
Fax:
(787) 796-5168
(Name,
address and telephone number of agent for service)
Please
send a copy of all communications to:
Michael
Francis, Esq.
Akerman
Senterfitt
One
Southeast Third Ave., 25 th
Floor
Miami,
Florida 33131-1714
Telephone:
(305) 374-5600
Fax:
(305) 374-5095
Approximate
date of proposed sale to the public: As soon as practicable after this
Registration Statement becomes effective.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act:
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company x
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CALCULATION
OF REGISTRATION FEE
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Title of each class of
securities to be registered
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Amount to be
registered
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Proposed
maximum
offering price
per unit (1)
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Proposed
maximum
aggregate offering
price (1)
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Amount of
registration fee
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Common
Stock, par value $.0001 per share(2)
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12,973,050 |
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$ |
2.00 |
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$ |
25,946,100 |
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$ |
796.55 |
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Common
Stock, par value $.0001 per share(3)
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7,999,400 |
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$ |
2.00 |
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$ |
10,999,175 |
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337.67 |
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$ |
1,134.22 |
* |
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*
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Previously
paid.
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(1)
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Estimated
solely for the purpose of calculating the registration fee pursuant to
Rule 457(a) promulgated under the Securities Act of 1933, as amended,
based on the maximum proposed initial offering price of $2.00 for the
12,973,050 outstanding shares of common stock and the 7,999,400 shares of
common stock issuable upon exercise of common stock purchase
warrants.
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(2)
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Represents
12,973,050 outstanding shares of common stock.
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(3)
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Represents
3,999,700 shares of common stock issuable upon exercise of warrants at an
exercise price of $1.10 per share and 3,999,700 shares of common stock
issuable upon exercise of warrants at an exercise price of $1.65 per
share.
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The
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said section 8(a),
may determine.
EXPLANATORY
NOTE
THIS
FILING DOES NOT INVOLVE THE REGISTRATION OF ANY NEW SHARES OF COMMON STOCK.
RATHER, THIS FILING UPDATES THE REGISTRATION OF THE COMMON STOCK ORIGINALLY
REGISTERED ON FORM SB-2 (FILE NO. 333-132847), DECLARED EFFECTIVE ON NOVEMBER 8,
2006, AS AMENDED ON POST-EFFECTIVE AMENDMENT NO. 1 TO FORM SB-2, DECLARED
EFFECTIVE ON SEPTEMBER 12, 2007, AND POST EFFECTIVE AMENDMENT NO. 2 TO FORM
SB-2, DECLARED EFFECTIVE ON JULY 1, 2008.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY
PROSPECTUS SUBJECT TO COMPLETION DATED FEBRUARY 26, 2009
PROSPECTUS
20,972,450
Shares
PHARMA-BIO
SERV, INC.
Common
Stock
OTC
Bulletin Board Trading Symbol: PBSV
The
selling stockholders may offer and sell from time to time up to an aggregate of
20,972,450 shares of our common stock that they own or that they may acquire
from us upon exercise of warrants. For information concerning the selling
stockholders and the manner in which they may offer and sell shares of our
common stock, see “Selling Stockholders” and “Plan of Distribution” in this
prospectus.
We will
not receive any proceeds from the sale by the selling stockholders of their
shares of common stock other than the exercise price of the warrants if and when
the warrants are exercised.
On
February 13, 2009, the last reported sale price for our common stock on the OTC
Bulletin Board was $0.48 per share.
Investing
in shares of our common stock involves a high degree of risk. You should
purchase our common stock only if you can afford to lose your entire investment.
See “Risk Factors,” which begins on page 4.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
selling stockholders have not engaged any underwriter in connection with the
sale of their shares of common stock. The selling stockholders may sell their
shares of common stock in the public market based on the market price at the
time of sale or at negotiated prices. The selling stockholders may also sell
their shares in transactions that are not in the public market in the manner set
forth under “Plan of Distribution.”
You
should rely only on the information contained in this prospectus. We have not
authorized any dealer, salesperson or other person to provide you with
information concerning us, except for the information contained in this
prospectus. The information contained in this prospectus is complete and
accurate only as of the date on the front cover page of this prospectus,
regardless when the time of delivery of this prospectus or the sale of any
common stock. This prospectus is not an offer to sell these securities and we
are not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
The date
of this Prospectus is
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11
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25
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40
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F-1
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This
summary does not contain all of the information that is important to you. You
should read the entire prospectus, including the Risk Factors and our
consolidated financial statements and related notes appearing elsewhere in this
prospectus before making an investment decision.
Our
Business
GENERAL
Pharma-Bio
Serv, Inc. is a Delaware corporation, organized in 2004 under the name Lawrence
Consulting Group, Inc. In February 2006, our corporate name was changed to
Pharma-Bio Serv, Inc.
On
January 25, 2006, pursuant to an agreement and plan of merger among us, Plaza
Acquisition Corp., Pharma-Bio Serv PR, Inc. (then known as Plaza Consulting
Group, Inc. and referred to as “Pharma-PR”), and Elizabeth Plaza, the sole
stockholder of Pharma-PR, Plaza Acquisition Corp. was merged into Pharma-PR,
with the result that Pharma-PR became our wholly-owned subsidiary and our sole
business became the business of Pharma-PR. This transaction is referred to in
this prospectus as the reverse acquisition.
Pharma-PR
business was established by Elizabeth Plaza as a sole proprietorship in 1993 and
incorporated in 1997 to offer consulting services to the pharmaceutical
industry. We have successfully grown our business operation by providing
quality, value-added consulting services to the major pharmaceutical,
biotechnology, medical device and chemical manufacturing companies principally
in Puerto Rico and the United States.
Our
executive offices are located at Pharma-Bio Serv Building, Industrial Zone Lot
14, Barrio Higuillar, Dorado, Puerto Rico 00646. Our telephone number
is (787) 278-2709.
Our
website is www.pharmabioserv.com. Information on our website or any other
website is not part of this prospectus.
References
to “we,” “us,” “our” and similar words in this prospectus refer to Pharma-Bio
Serv, Inc. and its subsidiaries.
OVERVIEW
We are a
compliance services consulting firm with headquarters in Puerto Rico, servicing
the Puerto Rico, United States and Europe markets. We market our services to
pharmaceutical, chemical, biotechnology and medical devices, and allied products
companies. Among others, we provide compliance related consulting services in
areas relating to compliance with regulations of the Food and Drug
Administration (“FDA”) and matters relating to the introduction of new
pharmaceutical products, project management, technology transfers, validation,
other regulatory compliance, and training services. Our staff includes
experienced engineering and life science professionals, and includes former
quality assurance managers or directors, and experienced and trained
professionals with bachelors, masters and doctorate degrees in health sciences
and engineering.
Our
revenue is mostly derived from the consulting service fees referred above. The
principal components of our costs of services are resource compensation
(salaries and wages, independent contractors’ fees, taxes and benefits) and
expenses relating to the performance of the services.
In the last quarter of 2008, we
finished the development phase of our new microbiological testing laboratory
facility (“Lab”) located in Puerto Rico. The Lab incorporates the latest
technology and test methodologies meeting pharmacopeia industry standards and
regulations. We plan to offer microbiological testing and related services to
our core industries already serviced as well as the cosmetic and food
industries.
On
December 2008, we acquired through one of our subsidiaries the operations and
assets of Integratek Corp. (“Integratek”), an information technology services
and consulting firm based in Puerto Rico. With this acquisition we plan to
broaden the portfolio of services that we can provide to our customer base and
also target other potential customers in other industries.
Stock
Distribution
On
January 24, 2006, Pharma-Bio effected a share distribution with respect to
our common stock pursuant to which we issued one additional share of common
stock for each share of common stock outstanding on the record date, January 24,
2006. All share and per share information in this prospectus retroactively
reflects such stock distribution.
Sale
of Securities to the Selling Stockholders
On
January 25, 2006, contemporaneously with the consummation of the acquisition of
Pharma-PR, we sold, in a private placement, 47 units, each unit consisting of
25,000 shares of series A preferred stock, warrants to purchase 85,100 shares of
common stock at $1.10 per share and warrants to purchase 85,100 shares of common
stock at $1.65 per share. In the private placement, we issued an aggregate of
1,175,000 shares of series A preferred stock, warrants to purchase 3,999,700
shares of common stock at $1.10 per share, and warrants to purchase 3,999,700
shares of common stock at $1.65 per share, to 43 accredited investors. The
warrants issued to the investors in the private placement are sometimes referred
to as the “investor warrants”.
We paid
brokerage commissions of 10% of the gross purchase price and an aggregate
non-accountable expense allowance of 3% of the gross purchase price with respect
to the units sold. In certain cases, the broker waived the commission and
non-accountable expense allowance, and the investor paid the purchase price less
the commission and non-accountable expense allowance. The purchase price for the
47 units sold was $11,750,000. Broker-dealers waived commission and
non-accountable expense allowance with respect to $628,750, we paid commissions
and non-accountable expense allowances totaling $898,750, and we issued to the
brokers in the private placement warrants to purchase an aggregate of 1,439,892
shares of common stock. These warrants, which constitute compensation to the
brokers, have an exercise price of $.7344 per share, and an original term of
three years, which in January 2009 the Company’s Board of Directors extended for
an additional year.
The
certificate of designation setting forth the rights of the holders of the series
A preferred stock provides that at such time as our certificate of incorporation
is amended to increase the authorized capital stock to 10,000,000 shares of
preferred stock and 50,000,000 shares of common stock, the series A preferred
stock is automatically converted into common stock at the conversion ratio of
13.616 shares of common stock for each share of series A preferred stock. The
warrants provide that they become exercisable upon the filing of such an
amendment to our certificate of incorporation. On April 25, 2006, we amended and
restated our certificate of incorporation to increase our authorized capital
stock to 10,000,000 shares of preferred stock and 50,000,000 shares of common
stock, at which time all of the outstanding shares of series A preferred stock
were automatically converted into a total of 15,998,800 shares of common stock
and the warrants became exercisable. The subscription agreement pursuant to
which the series A preferred stock and warrants were issued required us to file
a registration statement within 60 days after the effective date of the merger
between Pharma-PR and Plaza Acquisition Corp., which was March 26, 2006. If
we failed to file the registration statement by that date, we were required to
issue 0.0003 shares of common stock for each share of common stock issued upon
conversion of the series A preferred stock for each day we are late. Since
we filed the registration statement three days late, we issued 14,401
shares of common stock to the former holders of the series A preferred
stock.
The
warrants issued in the private placement expire five years from the closing date
and are callable by us if the closing price of the common stock is at least
twice the exercise price of the warrants for twenty (20) consecutive trading
days.
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Common
Stock Offered:
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The
selling stockholders are offering a total of 20,972,450 shares of common
stock, of which 12,973,050 shares are outstanding and 7,999,400 shares are
issuable upon exercise of warrants
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Outstanding
Shares of Common Stock:
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20,751,215
shares1,2
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Common
Stock to be Outstanding
After
Exercise of Investor Warrants:
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28,750,615
shares1
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Use
of Proceeds:
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We
will receive no proceeds from the sale of any shares by the selling
stockholders. In the event that any selling stockholders exercise their
warrants, we would receive the exercise price. If all warrants are
exercised, we would receive approximately $11.0 million, all of which, if
and when received, would be used for working capital and other corporate
purposes.
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(1)
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As
of February 13, 2009. Does not include a total of 5,570,316 shares of
common stock, of which 2,500,000 shares are reserved for options, stock
grants or other equity-based incentives under our 2005 long-term incentive
plan, 3,053,816 shares are reserved for outstanding warrants other than
the warrants held by the selling stockholders, and 16,500 shares are
reserved for issuance as stock grants to employees.
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(2)
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As
of February 13, 2009. Does not include the 7,999,400 shares of common
stock issuable upon exercise of warrants held by the selling
stockholders.
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The
following information as of October 31, 2008 and 2007 and for the years
then ended, has been derived from our audited financial statements, which appear
elsewhere in this prospectus.
Statement
of Operations Information:
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Consolidated
(in thousands, except per share data)
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Year Ended October 31,
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2008
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2007
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Revenues
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$ |
15,196 |
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$ |
16,205 |
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Gross
profit
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5,790 |
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6,824 |
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Income
before income taxes
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2,509 |
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3,337 |
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Net
income
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1,488 |
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1,901 |
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Basic
earnings per common share
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0.07 |
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0.10 |
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Diluted
earnings per common share
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0.07 |
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0.09 |
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Consolidated
Balance Sheet Information (in thousands):
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October
31,
2008
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October 31,
2007
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Working
capital
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$ |
2,537 |
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$ |
3,863 |
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Total
assets
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8,112 |
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9,563 |
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Total
liabilities
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4,060 |
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7,396 |
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Retained
earnings
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3,534 |
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2,046 |
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Stockholders’
equity
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4,052 |
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2,167 |
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This
registration statement includes “forward-looking statements” within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, including, in
particular, certain statements about our plans, strategies and prospects.
Although we believe that our plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, we cannot assure
you that such plans, intentions or expectations will be achieved. Important
factors that could cause our actual results to differ materially from our
forward-looking statements include those set forth in this Risk Factors
section.
If any of
the following risks, or other risks not presently known to us or that we
currently believe to not be significant, develop into actual events, then our
business, financial condition, results of operations, cash flows or prospects
could be materially adversely affected.
An
investment in our securities involves a high degree of risk. In determining
whether to purchase our securities, you should carefully consider all of the
material risks described below, together with the other information contained in
this prospectus before making a decision to purchase our securities. You should
only purchase our securities if you can afford to suffer the loss of your entire
investment.
Risks That
Relate to our Business
Because
our business is concentrated in the pharmaceutical industry in Puerto Rico, any
changes in that industry could impair our ability to generate revenue and
realize a profit.
Since
most of our business is performed in Puerto Rico for pharmaceutical,
biotechnology, medical device and chemical manufacturing companies, our ability
to generate revenue and realize a profit could be impaired by factors impacting
Puerto Rico. For example, changes in tax laws or regulatory,
political or economic conditions, which discourage businesses from operating in
Puerto Rico and changes in U.S. law or government regulations, which affect the
need for services such as those provided by us could impair our ability to
generate revenue and realize a profit.
Because
our business is dependent upon a small number of clients, the loss of a major
client could impair our ability to operate profitably.
Our
business has been dependent upon a small number of clients. During the years
ended October 31, 2008 and 2007, a very small number of clients accounted for a
disproportionately large percentage of our revenue. In the years ended October
31, 2008 and 2007, three customers accounted for approximately 57% and 59% of
total revenue, respectively. The loss of or significant reduction in the scope
of work performed for any major customer could impair our ability to operate
profitably. We cannot assure you that we will not sustain significant decreases
in revenue from our major customers or that we will be able to replace any major
customers or the resulting decline in revenue.
Since
our business is dependent upon the development and enhancement of patented
pharmaceutical products or processes by our clients, the failure of our clients
to obtain and maintain patents could impair our ability to operate
profitably.
Companies
in the pharmaceutical industry are highly dependent on their ability to obtain
and maintain patents for their products or processes. We are aware of some
pharmaceutical companies with operations in Puerto Rico whose patent rights may
expire in the near future. The inability to obtain new patents and the
expiration of active patents may reduce the need for our services and thereby
impair our ability to operate profitably.
We
may be unable to pass on increased labor costs to our clients.
The
principal components of our cost of revenues are employee compensation
(salaries, wages, taxes and benefits) and expenses relating to the performance
of the services we provide. We face increasing labor costs which we seek to pass
on to our customers through increases in our rates. To remain competitive, we
may not be able to pass these increased costs on to our clients, and, to the
extent that we are not able to pass these increased costs on to our clients, our
gross margin will be reduced.
Our
cash requirements include payments due from our reverse merger
transaction.
Pursuant
to the merger agreement, we are required to make a final payment of $2.75
million. Of this amount, $2,250,000 was paid in January 2009. We
expect to pay the remaining balance during fiscal year 2009. This payment is not
contingent upon our earnings, earnings before interest, taxes, depreciation and
amortization or any other financial criteria. We may not have resources, other
than from our operations, from which to make the payment and, even if we do have
the available cash, our growth may be impaired if we use our cash for that
purpose.
Consolidation
in the pharmaceutical industry may have a harmful effect on our
business.
In recent
years, the pharmaceutical industry has undergone consolidation, and may in the
future undergo further substantial consolidation which may reduce the
number of our existing and potential customers. The consolidation in
the pharmaceutical industry may have a harmful effect on our business and or
ability to maintain and replace customers.
Because
the pharmaceutical industry is subject to government regulations, changes in
government regulations relating to this industry may affect the need for our
services.
Because
government regulations affect all aspects of the pharmaceutical, biotechnology,
medical device and chemical manufacturing industries, including regulations
relating to the testing and manufacturing of pharmaceutical products and the
disposal of materials which are or may be considered toxic, any change in
government regulations could have a profound effect upon not only these
companies but companies, such as ours, that provide services to these
industries. If we are not able to adapt and provide necessary services to meet
the requirements of these companies in response to changes in government
regulations, our ability to generate business may be impaired.
Changes
in tax benefits may affect the willingness of companies to continue or expand
their operations in Puerto Rico.
Until
1996, the Internal Revenue Code provided certain tax benefits to pharmaceutical
companies operating in Puerto Rico by enabling their Puerto Rico operations to
operate free from federal income taxes. Partly as a result of the tax benefits,
numerous pharmaceutical companies established facilities in Puerto Rico. In
1996, this tax benefit was eliminated, although companies that had facilities in
Puerto Rico could continue to receive these benefits for ten years, at which
time the benefits were set to expire. In order to promote business activities in
Puerto Rico, in May 2008 the Puerto Rico government enacted a tax incentive law
(“Act 73”). Act 73 provides tax exemption from various taxes, including income
tax, and investment credits for activities similar to those of our customers and
our company. The change in the tax laws may affect favorably or unfavorably the
willingness of pharmaceutical companies to continue or to expand their Puerto
Rico operations. To the extent that pharmaceutical companies choose to
develop and manufacture products outside of Puerto Rico, our ability to generate
new business may be adversely impaired.
Puerto
Rico’s economy, including its governmental financial crisis, may affect the
willingness of businesses to commence or expand operations in Puerto
Rico.
As a
result of Puerto Rico’s governmental financial crisis, businesses may be
reluctant to establish or expand their operations in Puerto Rico. Further, since
Puerto Rico’s economy is petroleum-based, the fluctuating price of oil, combined
with Puerto Rico’s high level of debt, may make Puerto Rico a less attractive
place to expand existing operations or commence new business activities. To the
extent that companies in the pharmaceutical and related industries decide not to
commence new operations or not to expand their existing operations in Puerto
Rico, the market for our services may decline.
Other
factors, including economic factors, may affect the decision of businesses to
continue or expand their operations in Puerto Rico.
Companies
in the pharmaceutical and related industries for which we perform service are
subject to economic pressures, which affect their global operations and which
may influence the decision to reduce or increase the scope of their operations
in Puerto Rico. These companies consider a wide range of factors in making such
a decision, and may be influenced by a need to consolidate operations, to reduce
expenses, to increase their business in geographical regions where there are
large customer bases, tax, regulatory and political considerations and many
other factors. We can not assure you that our customers and potential customers
will not make extensive reductions or terminate their operations in Puerto Rico
entirely, which could significantly impair our ability to generate
revenue.
If
we are unable to protect our clients’ intellectual property, our ability to
generate business will be impaired.
Our
services either require us to develop intellectual property for clients or
provide our personnel with access to our clients’ intellectual property. Because
of the highly competitive nature of the pharmaceutical, biotechnology, medical
device and chemical manufacturing industries and the sensitivity of our clients’
intellectual property rights, our ability to generate business would be impaired
if we fail to protect those rights. Although all of our employees and
contractors are required to sign non-disclosure agreements, any disclosure of a
client’s intellectual property by an employee or contractor may subject us to
litigation and may impair our ability to generate business either from the
affected client or other potential clients. In addition, we are required to
enter into confidentiality agreements and our failure to protect the
confidential information of our clients may impair our business
relationship.
We
may be subject to liability if our services or solutions for our clients
infringe upon the intellectual property rights of others.
It is
possible that in performing services for our clients, we may inadvertently
infringe upon the intellectual property rights of others. In such event, the
owner of the intellectual property may commence litigation seeking damages and
an injunction against both us and our client, and the client may bring a claim
against us. Any infringement litigation would be costly, regardless of whether
we ultimately prevail. Even if we prevail, we will incur significant expenses
and our reputation would be hurt, which would affect our ability to generate
business and the terms on which we would be engaged, if at all.
We
may be held liable for the actions of our employees or contractors when on
assignment.
We may be
exposed to liability for actions taken by our employees or contractors while on
assignment, such as damages caused by their errors, misuse of client proprietary
information or theft of client property. Due to the nature of our assignments,
we cannot assure you that we will not be exposed to liability as a result of our
employees or contractors being on assignment.
To
the extent that we perform services pursuant to fixed-price or incentive-based
contracts, our cost of services may exceed our revenue on the
contract.
Some of
our revenue is derived from fixed-price contracts. Our costs of services may
exceed revenue of these contracts if we do not accurately estimate the time and
complexity of an engagement. Further, we are seeking contracts by which our
compensation is based on specified performance objectives, such as the
realization of cost savings, quality improvements or other performance
objectives. Our failure to achieve these objectives would reduce our revenue and
could impair our ability to operate profitably.
Our
profit margin is largely a function of the rates we are able to charge and
collect for our services and the utilization rate of our professionals.
Accordingly, if we are not able to maintain our pricing for our services or an
appropriate utilization rate for our professionals without corresponding cost
reductions, our profit margin and profitability will suffer. The rates we are
able to charge for our services are affected by a number of factors,
including:
|
·
|
Our
clients’ perception of our ability to add value through our
services;
|
|
·
|
Our
ability to complete projects on
time;
|
|
·
|
Pricing
policies of competitors;
|
|
·
|
Our
ability to accurately estimate, attain and sustain engagement revenues,
margins and cash flows over increasingly longer contract periods;
and
|
|
·
|
General
economic and political conditions.
|
Our
utilization rates are also affected by a number of factors,
including:
|
·
|
Our
ability to move employees and contractors from completed projects to new
engagements; and
|
|
·
|
Our
ability to manage attrition of our employees and
contractors.
|
Because
most of our contracts may be terminated on little or no advance notice, our
failure to generate new business could impair our ability to operate
profitably.
Most of
our contracts can be terminated by our clients with little or no advance notice.
Our clients typically retain us on a non-exclusive, engagement-by-engagement
basis, and the client may terminate, cancel or delay any engagement or the
project for which we are engaged, at any time and on no advance notice. As a
result, the termination, cancellation, expiration or delay of contracts could
have a significant impact on our ability to operate profitably.
Because
of the competitive nature of the pharmaceutical, biotechnology, medical device
and chemical manufacturing consulting market, we may not be able to compete
effectively if we cannot efficiently respond to changes in the structure of the
market and developments in technology.
Because
of recent consolidations in the pharmaceutical, biotechnology, medical device
and chemical manufacturing consulting business, we are faced with an increasing
number of larger companies that offer a wider range of services and have better
access to capital than we have. We believe that larger and better-capitalized
competitors have enhanced abilities to compete for both clients and skilled
professionals. In addition, one or more of our competitors may develop and
implement methodologies that result in superior productivity and price
reductions without adversely affecting their profit margins. We cannot assure
you that we will be able to compete effectively in an increasingly competitive
market.
Because
we are dependent upon our management, our ability to develop our business may be
impaired if we are not able to engage skilled personnel.
Our
success to date has depended in large part on the skills and efforts of
Elizabeth Plaza, our president, chief executive officer and founder. The loss of
the services of Ms. Plaza could have a material adverse effect on the
development and success of our business. We entered into a new employment
agreement with Ms. Plaza, to continue under her current position and
responsibilities through January 1, 2010, and as a consultant thereafter.
Although we have a contract with Ms. Plaza, this agreement does not guarantee
that she will continue to be employed by us. Our future success will depend in
part upon our ability to attract and retain additional qualified management and
technical personnel. Competition for such personnel is intense and we compete
for qualified personnel with numerous other employers, including consulting
firms, some of which have greater resources than we have, as well as
pharmaceutical companies, most of which have significantly greater financial and
other resources than we do. We may experience increased costs in order to retain
and attract skilled employees. Our failure to attract additional personnel or to
retain the services of key personnel and independent contractors could have a
material adverse effect on our ability to operate profitably.
We
may not be able to continue to grow unless we consummate acquisitions or enter
markets outside of Puerto Rico.
An
important part of our growth strategy is (i) to acquire other businesses which
can increase the range of services and products that we can offer and (ii) to
establish offices in places where we do not presently operate, either by
acquisition or by internal growth. If we fail to make any acquisitions or
otherwise expand our business, our future growth may be limited. We have
recently entered into the Irish market through a newly formed 80%-owned
subsidiary. The success of the operation is dependent on such factors as
regulatory, tax, political or economic conditions, our abilities to penetrate
the market, hire qualified personnel in a timely manner, obtain and maintain
reasonable labor costs, generate service revenue volume and profitable
margins.
If
we identify a proposed acquisition, we may require substantial cash to fund the
cost of the acquisition.
Any
acquisitions we make may be made with cash or our securities, or a combination
of cash and securities. To the extent that we require cash, we may have to
borrow the funds or sell equity securities. We have no commitments from any
financing source and we may not be able to raise any cash necessary to complete
an acquisition. If we seek to expand our business internally, we will incur
significant start-up expenses without any assurance of our ability to penetrate
the market.
If
we make any acquisitions, they may disrupt or have a negative impact on our
business.
If we
make acquisitions or establish operations in locales outside of Puerto Rico, we
could have difficulty integrating the acquired companies’ personnel and
operations with our own. In addition, the key personnel of the acquired business
may not be willing to work for us. We cannot predict the effect an expansion may
have on our core business. Regardless of whether we are successful in making an
acquisition, the negotiations could disrupt our ongoing business, distract our
management and employees and increase our expenses. In addition to the risks
described above, acquisitions are accompanied by a number of inherent risks,
including, without limitation, the following:
|
·
|
the
difficulty of integrating acquired products, services or
operations;
|
|
·
|
the
potential disruption of the ongoing businesses and distraction of our
management and the management of acquired
companies;
|
|
·
|
the
potential loss of contracts from clients of acquired
companies;
|
|
·
|
the
difficulty of maintaining profitability due to increased labor and
expenses from acquired company;
|
|
·
|
difficulties
in complying with regulations in other countries that relate to both the
pharmaceutical or other industries to which we provide services as well as
our own operations;
|
|
·
|
difficulties
in maintaining uniform standards, controls, procedures and
policies;
|
|
·
|
the
potential impairment of relationships with employees and customers as a
result of any integration of new management
personnel;
|
|
·
|
the
potential inability or failure to achieve additional sales and enhance our
customer base through cross-marketing of the products to new and existing
customers;
|
|
·
|
the
effect of any government regulations which relate to the business
acquired;
|
|
·
|
potential
unknown liabilities associated with acquired businesses or product lines,
or the need to spend significant amounts to retool, reposition or modify
the marketing and sales of acquired products or the defense of any
litigation, whether of not successful, resulting from actions of the
acquired company prior to our
acquisition;
|
|
·
|
difficulties
in disposing of the excess or idle facilities of an acquired company or
business and expenses in maintaining such facilities;
and
|
|
·
|
potential
expenses under the labor, environmental and other laws of other
countries.
|
Our
business could be severely impaired if and to the extent that we are unable to
succeed in addressing any of these risks or other problems encountered in
connection with an acquisition. Further, the commencement of business in locales
where we have no current operations may be subject to additional significant
risks.
Because
of our cash requirements, we may be unable to pay dividends.
Except
for payments to Elizabeth Plaza during the period when she was our sole
stockholder, including $8.0 million paid in the year ended October 31, 2005, we
have not paid any dividends on our common stock and do not anticipate paying
cash dividends in the foreseeable future. We intend to retain any
earnings to finance the growth of our business and we may never pay cash
dividends.
Risks
Concerning our Securities
Because
there is a limited market in our common stock, stockholders may have difficulty
in selling our common stock and our common stock may be subject to significant
price swings.
There is
a very limited market for our common stock. Since trading commenced in December
2006, there has been little activity in our common stock and on some days there
is no trading in our common stock. Because of the limited market for our common
stock, the purchase or sale of a relatively small number of shares may have an
exaggerated effect on the market price for our common stock. We cannot assure
stockholders that they will be able to sell common stock or, that if they are
able to sell their shares, that they will be able to sell the shares in any
significant quantity at the quoted price.
Our
quarterly revenues, operating results and profitability will vary from quarter
to quarter, which may result in increased volatility of our stock
price.
Our
quarterly revenues, operating results and profitability have varied in the past
and are likely to vary significantly from quarter to quarter, making them
difficult to predict. This may lead to volatility in our share price. The
factors that are likely to cause these variations are:
|
·
|
seasonality,
including number of workdays and holiday and summer
vacations;
|
|
·
|
the
business decisions of clients regarding the use of our
services;
|
|
·
|
periodic
differences between clients’ estimated and actual levels of business
activity associated with ongoing engagements, including the delay,
reduction in scope and cancellation of
projects;
|
|
·
|
the
stage of completion of existing projects and their
termination;
|
|
·
|
our
ability to move employees quickly from completed projects to new
engagements and our ability to replace completed contracts with new
contracts with the same clients or other
clients;
|
|
·
|
the
introduction of new services by us or our
competitors;
|
|
·
|
changes
in pricing policies by us or our
competitors;
|
|
·
|
our
ability to manage costs, including personnel compensation,
support-services and severance
costs;
|
|
·
|
acquisition
and integration costs related to possible acquisitions of other
businesses;
|
|
·
|
changes
in estimates, accruals and payments of variable compensation to our
employees or contractors; and
|
|
·
|
global
economic and political conditions and related risks, including acts of
terrorism.
|
The
issuance of securities, whether in connection with an acquisition or otherwise,
may result in significant dilution to our stockholders.
If we are
required to issue securities either as payment of all or a portion of the
purchase price of an acquisition or in order to obtain financing for the
acquisition or for other corporate purposes could result in dilution to our
stockholders. The amount of such dilution will be dependent upon the terms on
which we issue securities. The issuance of securities at a price which is less
than the exercise price of warrants or the conversion price of securities could
result in additional dilution if we are required to reduce the exercise price or
conversion price of the then outstanding options or warrants or other
convertible securities.
Our
business, financial condition, results of operations, cash flows and prospects,
and the prevailing market price and performance of our common stock, may be
adversely affected by a number of factors, including the matters discussed
below. Certain statements and information set forth in this registration
statement, 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 registration statement 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. 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, the
following:
|
·
|
Because
our business is concentrated in the pharmaceutical industry in Puerto
Rico, any changes in that industry could impair our ability to generate
revenue and realize a profit.
|
|
·
|
Because
our business is dependent upon a small number of clients, the loss of a
major client could impair our ability to operate
profitably.
|
|
·
|
Since
our business is dependent upon the development and enhancement of patented
pharmaceutical products or processes by our clients, the failure of our
clients to obtain and maintain patents could impair our ability to operate
profitably.
|
|
·
|
We
may be unable to pass on increased labor costs to our
clients.
|
|
·
|
Our
cash requirements include payments due from our reverse merger
transaction.
|
|
·
|
Consolidation
in the pharmaceutical industry may have a harmful effect on our
business.
|
|
·
|
Because
the pharmaceutical industry is subject to government regulations, changes
in government regulations relating to this industry may affect the need
for our services.
|
|
·
|
Changes
in tax benefits may affect the willingness of companies to continue or
expand their operations in Puerto
Rico.
|
|
·
|
Puerto
Rico’s economy, including its governmental financial crisis, may affect
the willingness of businesses to commence or expand operations in Puerto
Rico.
|
|
·
|
Other
factors, including economic factors, may affect the decision of businesses
to continue or expand their operations in Puerto
Rico.
|
|
·
|
If
we are unable to protect our clients’ intellectual property, our ability
to generate business will be
impaired.
|
|
·
|
We
may be subject to liability if our services or solutions for our clients
infringe upon the intellectual property rights of
others.
|
|
·
|
We
may be held liable for the actions of our employees or contractors when on
assignment.
|
|
·
|
To
the extent that we perform services pursuant to fixed-price or
incentive-based contracts, our cost of services may exceed our revenue on
the contract.
|
|
·
|
Because
most of our contracts may be terminated on little or no advance notice,
our failure to generate new business could impair our ability to operate
profitably.
|
|
·
|
Because
we are dependent upon our management, our ability to develop our business
may be impaired if we are not able to engage skilled
personnel.
|
|
·
|
We
may not be able to continue to grow unless we consummate acquisitions or
enter markets outside of Puerto
Rico.
|
|
·
|
If
we identify a proposed acquisition, we may require substantial cash to
fund the cost of the acquisition.
|
|
·
|
If
we make any acquisitions, they may disrupt or have a negative impact on
our business.
|
|
·
|
Because
of our cash requirements, we may be unable to pay
dividends.
|
|
·
|
Because
there is a limited market in our common stock, stockholders may have
difficulty in selling our common stock and our common stock may be subject
to significant price swings.
|
|
·
|
Our
quarterly revenues, operating results and profitability will vary from
quarter to quarter, which may result in increased volatility of our stock
price.
|
|
·
|
The
issuance of securities, whether in connection with an acquisition or
otherwise, may result in significant dilution to our
stockholders.
|
We will
not receive any proceeds from the sale by the selling stockholders of their
common stock. If the selling stockholders exercise any warrants, we will receive
the amount of the exercise price. The maximum total exercise price is
approximately $11 million, which we would receive only if all of the warrants
were exercised at their present exercise price. Any proceeds which we receive
from the exercise of the warrants will be used for working capital and general
corporate purposes.
Except
indicated, the following table sets forth the names of the selling stockholders,
the number of shares of common stock owned beneficially by the selling
stockholders as of February 13, 2009, the number of shares of our common stock
that may be offered by the selling stockholders pursuant to this prospectus, and
the number of shares owned by the selling stockholders after completion of the
offering. Except for San Juan Holdings, Inc. and LDP Family Partnership, no
selling stockholder will own more than 1% of our outstanding common stock after
the sale of shares owned by such selling stockholder. After completion of the
sale of the shares owned by San Juan Holdings and offered by this prospectus,
San Juan Holdings would beneficially own 3,686,324 shares of common stock,
representing 17.76% of our outstanding common stock, assuming no warrants are
exercised by the selling stockholders, and 12.82% of the common stock, assuming
all of the warrants held by the selling stockholders are exercised. After
completion of the sale of shares owned by LDP Family Partnership and offered by
this prospectus, LDP Family Partnership will beneficially own 1,164,554 shares,
representing 5.61% of our outstanding common stock, assuming no warrants are
exercised by the selling stockholders and 4.05% of our common stock, assuming
all of the warrants held by the selling stockholders are exercised. The table
and the other information contained under the captions “Selling Stockholders”
and “Plan of Distribution” has been prepared based upon information furnished to
us by or on behalf of the selling stockholders. The number of shares included in
this “Selling Stockholders” table
does not
match the number of shares registered in this Post-Effective Amendment because
as of the date of this Prospectus we have not received confirmation of
beneficial ownership from each of the selling stockholders.
|
Name
|
|
Shares
Beneficially
Owned
|
|
Shares
Being
Sold
|
|
Shares owned
after offering
|
|
|
Venturetek
LP (1)
|
|
|
4,697,990
|
|
|
4,697,990
|
|
|
—
|
|
|
Barron
Partners LP(2)
|
|
|
3,899,174
|
|
|
3,899,174
|
|
|
—
|
|
|
Fame
Associates(3)
|
|
|
1,532,719
|
|
|
1,532,719
|
|
|
—
|
|
|
Pentland
U.S.A. Inc.(4)
|
|
|
1,532,619
|
|
|
1,532,619
|
|
|
—
|
|
|
San
Juan Holdings, Inc.(5)
|
|
|
4,686,443
|
|
|
1,000,119
|
|
|
3,686,324
|
|
|
LDP
Family Partnership LP (6)
|
|
|
2,323,393
|
|
|
1,158,839
|
|
|
1,164,554
|
|
|
Ruki
Renov (7)
|
|
|
587,425
|
|
|
583,425
|
|
|
4,000
|
|
|
Lakeside
Partners LLC (8)
|
|
|
368,616
|
|
|
368,616
|
|
|
—
|
|
|
Esther
Stahler (9)
|
|
|
381,175
|
|
|
375,175
|
|
|
6,000
|
|
|
Academia
Nuestra Senora de la Providencia (10)
|
|
|
510,906
|
|
|
510,906
|
|
|
—
|
|
|
Fernando
Lopez
|
|
|
510,906
|
|
|
510,906
|
|
|
—
|
|
|
Harry
Edelson
|
|
|
510,906
|
|
|
510,906
|
|
|
—
|
|
|
Juan
H. Vidal
|
|
|
340,706
|
|
|
340,706
|
|
|
—
|
|
|
KEMA
Advisors, Inc. (11)
|
|
|
510,906
|
|
|
340,706
|
|
|
170,200
|
|
|
Manuel
Matienzo
|
|
|
510,906
|
|
|
510,906
|
|
|
—
|
|
|
Melvyn
I. Weiss*
|
|
|
510,906
|
|
|
510,906
|
|
|
—
|
|
|
SDS
Capital Group SPC, Ltd.*
|
|
|
428,606
|
|
|
428,606
|
|
|
—
|
|
|
Wilfredo
Ortiz
|
|
|
510,906
|
|
|
510,906
|
|
|
—
|
|
|
Brinkley
Capital Limited (12)*
|
|
|
357,634
|
|
|
357,634
|
|
|
—
|
|
|
Albert
Milstein*
|
|
|
255,453
|
|
|
255,453
|
|
|
—
|
|
|
David
Jordon*
|
|
|
229,908
|
|
|
229,908
|
|
|
—
|
|
|
Heller
Capital Investments, LLC (13)*
|
|
|
68,080
|
|
|
68,080
|
|
|
—
|
|
|
Jay
Fialkoff
|
|
|
188,080
|
|
|
187,880
|
|
|
200
|
|
|
Stephen
Wien*
|
|
|
189,363
|
|
|
189,363
|
|
|
—
|
|
|
Arthur
Falcone
|
|
|
153,272
|
|
|
153,272
|
|
|
—
|
|
|
Edward
Falcone
|
|
|
153,272
|
|
|
153,272
|
|
|
—
|
|
|
Silverman
& Roberts 44 Pipe LLC (14)
|
|
|
153,272
|
|
|
153,272
|
|
|
—
|
|
|
Nahum
Gabriel Shar
|
|
|
127,727
|
|
|
127,727
|
|
|
—
|
|
|
Richard
Molinsky*
|
|
|
102,181
|
|
|
102,181
|
|
|
—
|
|
|
Alan
and Hanna Bresler, JT TEN WROS*
|
|
|
47,591
|
|
|
47,591
|
|
|
—
|
|
|
Ben
Greszes*
|
|
|
51,091
|
|
|
51,091
|
|
|
—
|
|
|
Hendeles
Grandchildren Trust #2 dated 12/23/93 (15)
|
|
|
34,091
|
|
|
34,091
|
|
|
—
|
|
|
Hendeles
Grandchildren Trust dated 1/1/89 (15)
|
|
|
34,091
|
|
|
34,091
|
|
|
—
|
|
|
Hendeles
Living Trust(15)
|
|
|
34,091
|
|
|
34,091
|
|
|
—
|
|
|
Herschel
Kulefsky*
|
|
|
51,091
|
|
|
51,091
|
|
|
—
|
|
|
Jay
J. Kestenbaum*
|
|
|
36,091
|
|
|
36,091
|
|
|
—
|
|
|
Nathan
Eisen*
|
|
|
41,091
|
|
|
41,091
|
|
|
—
|
|
|
Ari
Renov
|
|
|
30,894
|
|
|
28,894
|
|
|
2,000
|
|
|
Eli
Renov
|
|
|
30,894
|
|
|
28,894
|
|
|
2,000
|
|
|
Jill
Renov
|
|
|
30,894
|
|
|
29,894
|
|
|
1,000
|
|
|
Kenneth
Renov
|
|
|
30,894
|
|
|
28,894
|
|
|
2,000
|
|
|
Tani
Renov (16)
|
|
|
30,894
|
|
|
26,894
|
|
|
4,000
|
|
|
Tova
Katz (17)
|
|
|
30,894
|
|
|
23,894
|
|
|
7,000
|
|
|
*
Information is as of July 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mr.
David Selengut, the manager of TaurusMax LLC, which is the general partner
of Venturetek, LP. has sole voting and dispositive power over the shares
beneficially owned by Venturetek. The shares beneficially owned by
Venturetek do not include 200 shares of common stock held by Mr. Selengut
and 200 shares held by Mr. Selengut’s wife. Mr. Selengut disclaims
beneficial ownership of the shares held by his
wife.
|
|
(2)
|
Mr.
Andrew B. Worden, president of the general partner of Barron Partners, has
sole voting and dispositive power over the shares beneficially owned by
Barron Partners.
|
|
(3)
|
Abraham
H. Fruchthandler and FBE Limited, are the sole general partners of Fame
Associates, and Mr. Fruchthandler is the sole general partner of FBE
Limited. Accordingly, Mr. Fruchthandler has voting and dispositive power
over the shares beneficially owned by Fame
Associates.
|
|
(4)
|
Pentland
U.S.A., Inc. is owned by Pentland Brands, which is controlled by Stephen
Rubin, who has voting and dispositive power over the shares beneficially
owned by Pentland U.S.A.
|
|
(5)
|
Messrs.
Ramon Dominguez and Addison M. Levi III have voting and dispositive power
over the shares beneficially owned by San Juan Holdings,
Inc.
|
|
(6)
|
Laya
Perlysky, as general partner, has voting and dispositive power over the
shares beneficially owned by LDP Family Partnership LP. The number of
shares beneficially owned by LDP Family Partnership (a) includes
1,164,554 shares owned by Krovim LLC, of which Dov Perlysky, the husband
of Laya Perlysky, is the managing member of the manager. Ms. Perlysky and
LDP Family Partnership disclaim beneficial ownership of the shares and
warrants held by Krovim LLC.
|
|
(7)
|
Includes
a total of 2,000 shares held by Ms. Renov as custodian for her two minor
children. Ms. Renov disclaims beneficial ownership of these
shares.
|
|
(8)
|
Jamie
Stahler, as the managing member, has the voting and dispositive power of
over shares beneficially owned by of Lakeside Partners, LLC. The shares
beneficially owned by Lakeside Partners do not include 2,000 shares held
by Mr. Stahler.
|
|
(9)
|
Includes
a total of 4,000 shares held by Ms. Stahler as custodian for her four
minor children. Ms. Stahler disclaims beneficial ownership of these
shares.
|
|
(10)
|
Baudilio
Merino, as president, has the voting and dispositive power over the shares
beneficially owned by Academia Nuestra Senora de la
Providencia.
|
|
(11)
|
Kirk
Michel, as managing director, has voting and dispositive power over the
shares beneficially owned by KEMA Advisors,
Inc.
|
|
(12)
|
Comercio
e Industria Multiformas Ltda., whose majority shareholder is Emanuel
Wolff, has the voting and dispositive power over the shares beneficially
owned by Brinkley Capital Limited.
|
|
(13)
|
Ron
Heller, as the controlling partner, has voting and dispositive power over
the shares beneficially owned by Heller Capital Investments,
LLC.
|
|
(14)
|
Marc
Roberts, as the controlling party, has voting and dispositive power over
the shares beneficially owned by Silverman & Roberts 44 Pipe
LLC.
|
|
(15)
|
Moise
Hendeles, as trustee, has voting and dispositive power over the shares
beneficially owned by Hendeles Grandchildren Trust #2 dated 12/23/93,
Hendeles Grandchildren Trust dated 1/1/89 and Hendeles Living
Trust.
|
|
(16)
|
Includes
2,000 shares held by Mr. Renov’s wife. Mr. Renov disclaims beneficial
ownership of these shares.
|
|
(17)
|
Includes
a total of 3,000 shares held by Ms. Katz as custodian for her three minor
children and 2,000 shares held by her husband. Ms. Katz disclaims
beneficial ownership of these
shares.
|
None of
the selling stockholders has, or within the past three years has had, any
position, office or material relationship with us or any of our predecessors or
affiliates except as follows:
In
consideration for investment banking services rendered by San Juan Holdings, as
advisor to Pharma-PR and Elizabeth Plaza, we issued to San Juan Holdings 600,000
shares of common stock and warrants to purchase 2,500,000 shares of common stock
at an exercise price of $0.06 per share. The services rendered by San Juan
Holdings included advice to Pharma-PR and to Ms. Plaza, and negotiation
with us on behalf of Pharma-PR and Ms. Plaza, as to the structure of the
transaction and the consideration payable to Ms. Plaza for her stock in
Pharma-PR, including the amount paid at closing, the equity to be issued to Ms.
Plaza and the amount, timing and conditions of the deferred payment. In
connection with the January 2006 private placement in which we issued the shares
of series A preferred stock to the selling stockholders, we paid RD Capital
Group, an affiliate of San Juan Holdings, $195,000 for commissions and
non-accountable expense allowance and we issued to RD Capital Group warrants to
purchase 275,724 shares of common stock (which RD Capital subsequently
transferred to San Juan Holdings). RD Capital Group waived its commission and
non-accountable expense allowance on the securities purchased by San Juan
Holdings, and, as a result, the purchase price of the securities purchased by
San Juan Holdings was $652,500 rather than $750,000. The warrants have an
exercise price of $0.7344 per share and a term of three years, and the holders
of the warrants have piggyback registration rights commencing six months after
the effective date of the registration statement of which this prospectus is a
part.
As
described in our Current Report on Form 8-K filed with the SEC on July 11, 2008,
pursuant to a Securities Purchase Agreement dated as of December 12, 2007,
Elizabeth Plaza purchased from San Juan Holdings 125,000 warrants at a purchase
price of $0.77 per warrant for an aggregate purchase price of
$96,250. Simultaneously with the closing of the Securities Purchase
Agreement, Ms. Plaza exercised the 125,000 warrants purchased from San Juan
Holdings. In addition, San Juan Holdings exercised 669,009 warrants to purchase
common stock at $0.06 per share.
Dov
Perlysky is a director and, prior to the acquisition of Pharma-PR, Mr. Perlysky
was the sole director and our sole executive officer.
Kirk
Michel is a director. Mr. Michel was elected as a director at the time of the
closing of the acquisition of Pharma-PR.
The
selling stockholders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions or by gift. These sales may be made
at fixed or negotiated prices. The selling stockholders may sell their shares of
common stock in the public market based on the market price at the time of sale
or at negotiated prices. Subject to the foregoing, the selling stockholders may
use any one or more of the following methods when selling or otherwise
transferring shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which a broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
sales
to a broker-dealer as principal and the resale by the broker-dealer of the
shares for its account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions, including
gifts;
|
|
·
|
covering
short sales made after the date of this
prospectus;
|
|
·
|
pursuant
to an arrangement or agreement with a broker-dealer to sell a specified
number of such shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of sale;
and
|
|
·
|
any
other method of sale permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares pursuant to Rule 144 or Rule 144A
under the Securities Act, if available, rather than pursuant to this
prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
A selling
stockholder may from time to time pledge or grant a security interest in some or
all of the shares or common stock or warrant owned by them and, if the selling
stockholder defaults in the performance of the secured obligations, the pledgees
or secured parties may offer and sell the shares of common stock from time to
time under this prospectus, or under an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this
prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions which may in turn engage in short sales of our common
stock in the course of hedging the positions they assume. The selling
stockholders may, after the date of this prospectus, also sell shares of our
common stock short and deliver these securities to close out their short
positions, or loan or pledge their common stock to broker-dealers that in turn
may sell these securities. The selling stockholders may also enter into option
or other transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this
prospectus.
In the
event of a transfer by a selling stockholder of the warrants or the common stock
other than a transfer pursuant to this prospectus or Rule 144 of the SEC, we may
be required to amend or supplement this prospectus in order to name the
transferee as a selling stockholder.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may
be deemed to be underwriting commissions or discounts under the Securities Act.
The selling stockholders have informed us that they do not have any agreement or
understanding, directly or indirectly, with any person to distribute the common
stock.
Because
the selling stockholders may be deemed to be “underwriters” within the meaning
of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act. Federal securities laws, including
Regulation M, may restrict the timing of purchases and sales of our common stock
by the selling stockholders and any other persons who are involved in the
distribution of the shares of common stock pursuant to this prospectus. To our
knowledge, none of the selling stockholders have an agreement or understanding
with any broker-dealer with respect to the sale of their shares except as set
forth below.
One of
the selling stockholders, San Juan Holdings, is an affiliate of RD Capital
Group, a broker-dealer, and may sell shares through RD Capital Group. Two other
stockholders are employees, but not affiliates of broker-dealers. David Jordan
is an employee of Axiom Capital, and Wilfredo Ortiz is an employee of RD Capital
Group. Although they do not have a ownership or control relationship with, and
are not officers, directors or partners of, the broker-dealers, they may,
nonetheless, be deemed affiliates of the broker-dealers. Selling stockholders
who are broker-dealers or affiliates of broker-dealers will be deemed
underwriters in connection with their sales. The selling stockholders who are
affiliates and employees of broker-dealers purchased their shares in the
ordinary course and, at the time of purchasing the securities they had no
agreements or understandings, directly or indirectly, with any person to
distribute the securities.
We are
required to pay all fees and expenses incident to the registration of the
shares. We have agreed to indemnify the selling stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
Our
common stock has been quoted on the Over the Counter Bulletin Board under the
trading symbol PBSV since December 4, 2006. The table below presents the closing
high and low bid prices for our common stock for each quarter from December 2006
through October 31, 2008. These prices reflect inter-dealer prices, without
retail markup, markdown, or commission, and may not represent actual
transactions.
|
Quarter
Ending
|
|
High
Bid
|
|
|
Low
Bid
|
|
|
January
31, 2007 (commencing December 4, 2006)
|
|
$ |
1.68 |
|
|
$ |
0.49 |
|
|
April
30, 2007
|
|
|
1.05 |
|
|
|
0.52 |
|
|
July
31, 2007
|
|
|
0.67 |
|
|
|
0.43 |
|
|
October
31, 2007
|
|
|
1.15 |
|
|
|
0.56 |
|
|
January
31, 2008
|
|
|
0.99 |
|
|
|
0.51 |
|
|
April
30, 2008
|
|
|
0.72 |
|
|
|
0.42 |
|
|
July
31, 2008
|
|
|
0.64 |
|
|
|
0.45 |
|
|
October
31, 2008
|
|
|
0.60 |
|
|
|
0.27 |
|
On
February 13, 2009, the closing price of our common stock on the Over the Counter
Bulletin Board was $0.48 per share and there were approximately 84 holders of
record of our common stock.
Prior to
the acquisition of Pharma-PR, Pharma-PR was taxed as an N Corporation under the
Puerto Rico Internal Revenue Code, which is similar to that of an S Corporation
under the Internal Revenue Code. As a result, all of the income from Pharma-PR
was taxed to our then sole stockholder. Other than the distributions to our then
sole stockholder which were made during the period that we were an N
Corporation, we did not pay dividends on our common stock. We plan to retain
future earnings, if any, for use in our business. We do not anticipate paying
dividends on our common stock in the foreseeable future.
Equity
Compensation Plan Information
The
following table summarizes the equity compensation plans under which our
securities may be issued as of October 31, 2008.
|
Plan Category
|
|
Number of securities
to be issued upon
exercise of
outstanding options
and warrants
|
|
Weighted-average exercise
price of
outstanding options and
warrants
|
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in the 1st column)
|
|
|
Equity
compensation plans approved by security holders
|
|
|
1,356,772
|
|
|
$
0.7213
|
|
|
1,143,228
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
2,804,216
|
|
|
$
0.2941
|
|
|
16,500
|
|
|
Total:
|
|
|
4,160,988
|
|
|
|
|
|
1,159,728
|
|
The
securities issuable pursuant to the equity plan that was approved by
stockholders is the 2005 long-term incentive plan, which was approved by
stockholders in April 2006, and amended by stockholder approval in April
2007.
The
equity compensation plans not approved by security holders are (i) warrants to
purchase 973,225 shares of common stock which were issued to brokers in
connection with the January 2006 private placement, (ii) warrants to purchase
1,830,991 shares of common stock issued to San Juan Holdings for services
relating to the acquisition of Pharma-PR, and (iii) approximately 16,500 shares
of common stock issuable to employees.
AND
RESULTS OF OPERATIONS
The
following discussion of our results of operations and financial condition should
be read in conjunction with Part I, including matters set forth in the “Risk
Factors” section of this registration statement, and our Consolidated Financial
Statements and notes thereto included elsewhere in this registration
statement.
Overview
We are a
compliance services consulting firm with headquarters in Puerto Rico, servicing
the Puerto Rico, United States and Europe markets. The compliance consulting
service sector in those markets consists of local validation and compliance
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 and
medical devices, and allied products companies in Puerto Rico, the United States
and Europe. Our staff includes more than 125 experienced engineering and life
science professionals, and includes former quality assurance managers or
directors, and experienced and trained professionals with bachelors, masters and
doctorate degrees in health sciences and engineering.
We
expanded the markets we serve from Puerto Rico to the United States and Ireland.
We have grown our United States acquired validation compliance service business
from $0.8 million in revenues in fiscal year 2006 to $4.2 million in fiscal year
2008, a $3.4 million increase. In fiscal year 2008, our recently entered Ireland
market produced modest revenues of approximately $234,000. The Ireland
operation, with an Ireland based management team reporting to our headquarters,
has established a network of potential key customers and contacts that serve as
the base for our sales target and opportunities for growth.
We have
plans to further expand our services to other emerging markets and further
penetrate the markets we currently serve. We will be marketing 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 professionals or dollar
volume) and responding to prospective customers’ requests for
proposals.
While our
core business is FDA regulatory compliance related services we feel that our
clients are in need of other services that we can provide and allow us to
present the company as a global solution provider with a portfolio of integrated
services that will bring value added solutions to our
customers. Accordingly, in fiscal year 2009 we have expanded our
portfolio of services to include a microbiological testing laboratory, an
information technology consulting practice and an organically developed training
center that will provide seminars/trainings to the industry.
Our new
microbiological testing laboratory (“Lab”) located in Puerto Rico, with an
investment of $1.3 million, incorporates the latest technology and test
methodologies meeting pharmacopoeia industry standards and regulations. The Lab
will offer microbiological testing and related services to our core industries
already serviced as well as the cosmetic and food industries. In the last
quarter of 2008, the Lab as part of its development was subject to audits by the
FDA and potential customers. These audits are part of the industry certification
process standards for quality related services, which allow the Lab to offer
services to the industry.
In
December 2008, we acquired the operations and assets of Integratek Corp.
(“Integratek”), an information technology services and consulting firm based in
Puerto Rico. Integratek provides a variety of information technology services
such as web pages and portals development, digital art design, intranets,
extranets, software development including database integration, windows and web
applications development, software technical training and learning management
systems, technology project management, and compliance consulting services,
among others. Integratek is a Microsoft Certified Partner and a
reseller for technology products from leading vendors in the market. Although
this acquired operation is currently small, we expect to broaden the portfolio
of services that we can provide to our customer base and also target other
potential customers in other industries.
During
2008, we identified the industry need, and the opportunity to provide, technical
seminars/trainings that will incorporate the latest regulatory trends and
standards as well as other related areas. A network of leading industry
professional experts in their field, which includes resources of our own, were
identified and teamed to provide these seminars/trainings to the industry. Our
goal is to provide these services and market our company in the markets we
currently serve as well as others.
In line
with the strategy to penetrate the United States market, we applied and on July
1, 2008 received certification as a "minority-controlled company" as defined by
the National Minority Supplier Development Council and Growth Initiative
("NMSDC"). The certification will allow us to participate in corporate diversity
programs available from various potential customers in the United States and
Puerto Rico. The certification is subject to renewal on July 1,
2009.
On July
2008, Pharma-Bio and Pharma-PR obtained a Grant of Industrial Tax Exemption
(“the Grant”) from the Puerto Rico Industrial Development Company pursuant to
the terms and conditions set forth in Act No. 135 of December 2, 1997, as
amended. The Grant provides relief on various Puerto Rico taxes, including
income tax, mostly for the our new microbiological testing facility and service
activities outside of Puerto Rico. The Grant is effective as of September 1,
2007 and covers a ten year period. Activities covered by the Grant are subject
to a reduced income tax rate of 7%.
Although
we believe we have instituted the right strategies to seek growth, we cannot
control the fact that the industry and the local and global economy are
undergoing a recession and that has affected our operation and business
growth.
During
fiscal year 2008, some of our clients, mostly triggered by worldwide operations
consolidation, have reduced or discontinued some or all of their Puerto Rico
operations, thus affecting our Puerto Rico revenues. Although our strategy to
penetrate the United States market has been successful in gaining new customers
and revenues, we have decreased our total net revenues by approximately $1
million or 6.2%, when compared to last year. In
order to maintain volume in the Puerto Rico market and ensure we are price
competitive, we have adjusted our pricing and gross margin structure
accordingly. In addition, we implemented cost containment measures and refocused
our Puerto Rico operations strategy to reduce its overhead costs. These factors
have lead our net income for the year ended October 31, 2008 to be approximately
$1.4 million, a decline of $413,000 or 21.7% when compared to last
year.
The
following table sets forth information as to our revenue for the years ended
October 31, 2008 and 2007, by geographic regions (dollars in
thousands).
|
|
|
Year
ended October 31,
|
|
|
Revenues by Region
|
|
2008
|
|
2007
|
|
|
Puerto
Rico
|
|
$
|
10,902
|
|
|
71.7
|
%
|
$
|
13,883
|
|
|
85.7
|
%
|
|
United
States
|
|
|
4,060
|
|
|
26.7
|
%
|
|
2,322
|
|
|
14.3
|
%
|
|
Ireland
|
|
|
234
|
|
|
1.6
|
%
|
|
—
|
|
|
—
|
|
|
|
|
$
|
15,196
|
|
|
100.0
|
%
|
$
|
16,205
|
|
|
100.0
|
%
|
We
believe fiscal year 2009 is going to be a year of challenges and opportunities
to the industry as a whole and our future performance could be highly dependent
on the industry and the global economic trends.
Results
of Operations
The
following table sets forth our statements of operations for the years ended
October 31, 2008 and 2007, (dollars in thousands) and as a percentage of
revenue:
|
|
|
|
|
Year ended October 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,196
|
|
|
100.0
|
%
|
$
|
16,205
|
|
|
100.0
|
%
|
|
Cost
of services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,406
|
|
|
61.9
|
%
|
|
9,381
|
|
|
57.9
|
%
|
|
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,790
|
|
|
38.1
|
%
|
|
6,824
|
|
|
42.1
|
%
|
|
Selling,
general and administrative
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,136
|
|
|
20.6
|
%
|
|
3,176
|
|
|
19.6
|
%
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227
|
|
|
1.5
|
%
|
|
392
|
|
|
2.4
|
%
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
-0.5
|
%
|
|
107
|
|
|
-0.7
|
%
|
|
Loss
on disposition of property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
0.0
|
%
|
|
26
|
|
|
0.2
|
%
|
|
Income
before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,509
|
|
|
16.5
|
%
|
|
3,337
|
|
|
20.6
|
%
|
|
Income
tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,021
|
|
|
6.5
|
%
|
|
1,436
|
|
|
8.9
|
%
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,488
|
|
|
9.8
|
%
|
|
1,901
|
|
|
11.7
|
%
|
Revenues. Revenues
for the year ended October 31, 2008 were $15.2 million, a decrease of
approximately $1 million or 6.2%, when compared to last year. The reduction is
mainly attributable to the decrease of approximately $2.9 million in the Puerto
Rico market service revenue, partially offset by gains in the United States
market of approximately $1.7 million and $0.2 million generated by the Ireland
operation.
Service
revenue gains in the United States market are attributable to the company’s
strategy to enter new markets. This strategy has partially offset the service
revenue loss sustained in the Puerto Rico market. Decreases in the Puerto Rico
market service revenue are mostly due to the closing of, or decrease in,
operations of some pharmaceutical plants located in Puerto Rico, triggered by
operations consolidation.
Cost of Services; gross
margin. For the year ended October 31, 2008, our gross margin decreased
by 4.0 percentage points when compared to last year. The net gross margin
reduction is mainly attributable to our strategy to maintain volume in the
Puerto Rico market by keeping its pricing competitiveness.
Selling, General and
Administrative Expenses. Selling, general and administrative expenses
were approximately $3,136,000, an impairment of $40,000 as compared to last
year. The net decrease in expenses is mainly attributable to the expense
containment measures implemented during the current fiscal year, geared to
offset the Puerto Rico market revenue decline, offset by the new Ireland
operation expenses of approximately $297,000 incurred during the year ended
October 31, 2008.
Interest Expense. We
have been recognizing imputed interest expense incurred in connection with the
long-term obligations originated pursuant to a plan and agreement of merger
dated January 25, 2006 for the acquisition of Pharma-PR. This expense decreases
as annual payments are made through fiscal year 2009.
Income Taxes Expense.
For the current fiscal year we are no longer subject to a 2.5% additional
special tax imposed by the Puerto Rico Act No. 41 of August 1, 2005. Therefore,
for fiscal year 2008 our statutory tax rate in Puerto Rico has decreased to 39%
from 41.5% last year. In addition, with the recently granted tax exemption we
benefited by approximately $29,000 in income tax savings. The decrease on income
taxes expense is attributable to this factor and the decrease of income before
income tax.
Net Income. Our net
income for the year ended October 31, 2008 was approximately $1,488,000, a
decline of $413,000 or 21.7% when compared to last year. For the year ended in
October 31, 2008, earnings per common share basic and diluted were $0.07, they
declined by $0.03 and $0.2, respectively, when compared to last
year.
Our net
income was affected by the decrease in gross margin, expenses related to our new
Ireland operation, partially offset by cost containment measures in selling,
general and administrative expenses, favorable variances in interest expense,
and reduction of the statutory tax rate.
Liquidity
and Capital Resources
Liquidity
is a measure of our ability to meet potential cash requirements, including
planned capital expenditures. For the year ended October 31, 2008, we have
generated cash flow from operations of approximately $1.6 million and working
capital of approximately $2.5 million, notwithstanding within the year we
invested in a laboratory facility approximately $1 million, and have made a
payment of $2.75 million pursuant the 2006 Pharma-PR acquisition agreement.
Under the acquisition agreement, we are required to make a final payment of
$2.75 million. Of this amount, $2,250,000 was paid in January 2009. We expect to
pay the remaining balance during fiscal year 2009 from working
capital.
We are
pursuing possible opportunities of expanding our operations beyond Puerto Rico,
and in furtherance of this plan, we have set up facilities in Ireland to offer
our services to companies in the pharmaceutical and related industries in
Ireland. To the extent that we are able to expand our operations, either by
acquisition or by the establishment of operations in a new locale, we will incur
additional overhead, and there may be a delay between the period we commence
operations and our generation of net cash flow from operations.
Our
primary cash needs consist of the payment of compensation to our professional
staff, overhead expenses, statutory taxes, and payments pursuant to the
agreement terms for the acquisition of Pharma-PR.
Management
believes that based on current levels of operations and cash flows from
operations, the collectability of high quality customer receivables will be
sufficient to fund anticipated expenses and satisfy other possible long-term
contractual commitments, including our obligations to pay the final installment
due in connection with the acquisition of Pharma-PR and our obligations to pay
the installment payments due in connection with the acquisition of Integratek,
for the next twelve months.
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, management
is not aware of any 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 arrangements during the fiscal
year ended October 31, 2008.
Critical
Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles (“GAAP”) in the United
States. We believe the following are the critical accounting policies that
impact the consolidated financial statements, some of which are based on
management’s best estimates available at the time of preparation. Actual
experience may differ from these estimates.
Consolidation - The accompanying
consolidated financial statements include the accounts of all of our wholly
owned and majority-owned subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.
Use of
Estimates - The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States 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 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 - The carrying value of our
financial instruments (excluding obligations under capital leases and amounts
due to affiliate): cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities, are considered reasonable estimates of fair
value due to their short-term nature. Management believes, based on current
rates, that the fair value of its obligations under capital leases and amounts
due to affiliate approximates the carrying amount.
Revenue
Recognition -
Revenue is primarily derived from: (1) time and materials contracts
(representing approximately 90% of total revenues), which is recognized by
applying the proportional performance model, whereby revenue is recognized as
performance occurs, and (2) short-term fixed-fee contracts or "not to exceed"
contracts (representing approximately 10% of total revenues), which revenue is
recognized similarly, except that certain milestones also have to be reached
before revenue is recognized. If we determine that a fixed-fee or “not to
exceed” contract will result in a loss, we will recognize the estimated loss in
the period in which such determination is made.
Cash
Equivalents - For purposes of the consolidated statements of cash flows,
cash equivalents include investments in a money market obligations trust that is
registered under the U.S. Investment Company Act of 1940 and liquid investments
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. Our 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 our customers, bad debts are
accounted for using the direct write-off method whereby an expense is recognized
only when a specific account is determined to be uncollectible. The effect of
using this method approximates that of the allowance method.
Income
Taxes - We follow the provisions of Statement of Financial Accounting
Standards Board No. 109, "Accounting for Income Taxes," which requires 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.
Property
and equipment - Owned property and equipment, and leasehold improvements
are stated at cost. Equipment and vehicles under capital leases are stated at
the lower of fair market value or net present value of the minimum lease
payments at the inception of the leases.
Depreciation
and amortization of owned assets are provided for, when placed in service, in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives, using straight-line basis. Assets under capital
leases and leasehold improvements are amortized, over the shorter of the
estimated useful lives of the assets or lease term. Major renewals and
betterments that extend the life of the assets are capitalized, while
expenditures for repairs and maintenance are expensed when
incurred.
We
evaluate for impairment our long-lived assets to be held and used, and
long-lived assets to be disposed of, whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Based on
management estimates, no impairment of the operating properties was
present.
Intangible
assets -
Definite-lived intangible assets, such as customer lists and covenants
not to compete, are amortized on a straight-line basis over their estimated
useful lives. We continually evaluate the reasonableness of the useful lives of
these assets.
Stock-based
Compensation - Effective November 1, 2006, we adopted the provisions of
SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), and Staff Accounting
Bulletin No. 107 (“SAB 107”) using the modified prospective method, which
results in the provisions of SFAS 123R being applied to the consolidated
financial statements on a prospective basis. Under the modified prospective
recognition method, restatement of consolidated income from prior periods is not
required, and accordingly, we have not provided such restatements. Under the
modified prospective provisions of SFAS 123R, compensation expense is recorded
for the unvested portion of previously granted awards that were outstanding on
November 1, 2006 and all subsequent awards. SFAS 123R requires that all
stock-based compensation expense be recognized in the consolidated financial
statements based on the fair value of the awards. Stock-based compensation cost
is measured at the grant date based on the fair value of the award and is
recognized as expense over the requisite service period, which generally
represents the vesting period, and includes an estimate of awards that will be
forfeited. We calculate the fair value of stock options using the Black-Scholes
option-pricing model at grant date. SFAS 123R also amends SFAS No. 95,
“Statement of Cash Flows”, to require that excess tax benefits related to
stock-based compensation be reflected as cash flows from financing activities
rather than cash flows from operating activities. We do not recognize such cash
flow from financing activities since there has been no tax benefit related to
the stock-based compensation.
Income
Per Share of Common Stock - Basic income per share of common stock is
calculated dividing net income by the weighted average number of shares of
common stock outstanding. Diluted income per share includes the dilution of
common stock equivalents. 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 our foreign subsidiary is its local currency. The assets
and liabilities of our foreign subsidiary 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.
Our
intercompany accounts are typically denominated in the functional currency of
the foreign subsidiary. Gains and losses resulting from the remeasurement of
intercompany receivables that we consider 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 we anticipate settlement in the foreseeable future are
recorded in the consolidated statements of operations. The net gains and losses
recorded in the condensed consolidated statements of income were not significant
for the periods presented.
New
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141R, Business
Combinations (“SFAS 141R”). SFAS 141R requires: the assets acquired and
liabilities assumed to be measured at fair value as of the acquisition date;
liabilities related to contingent consideration to be remeasured at fair value
at each subsequent reporting period; and acquisition-related costs to be
expensed as these are incurred. SFAS 141R also requires additional disclosures
of information surrounding a business combination. The provisions of SFAS 141R
are effective for fiscal years beginning on or after December 15, 2008 and
apply to business combinations that are completed on or after the date of
adoption. We have not yet adopted this pronouncement, but expects that the
nature and magnitude of the specific effects will depend upon the nature, terms
and size of the acquisitions we complete after the effective date, if
any.
In
December 2007, the FASB issued Statement No. 160 “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51”. This Statement
applies to all entities that prepare consolidated financial statements, but will
affect only those entities that have an outstanding noncontrolling interest in
one or more subsidiaries or that deconsolidate a subsidiary. This statement is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is prohibited.
Management does not expect that the application of this standard will have any
significant effect on our consolidated financial statements.
In
February 2007, the FASB issued Statement No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115”. This Statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This Statement is expected to expand the use of fair value
measurement, which is consistent with the FASB’s long-term measurement
objectives for accounting for financial instruments. This Statement is effective
as of the beginning of an entity’s first fiscal year that begins after November
15, 2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of FASB Statement No. 157, “Fair Value Measurements”. Management
does not expect that the application of this standard will have any significant
effect on our consolidated financial statements.
In
September 2006, the FASB issued Statement No. 157 “Fair Value Measurement”. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practice. The changes to current practice
resulting from the application of this Statement relate to the definition of
fair value, the methods used to measure fair value, and the expanded disclosures
about fair value measurements. This Statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Earlier application is encouraged,
provided that the reporting entity has not yet issued financial statements for
that fiscal year, including financial statements for an interim period within
that fiscal year. The provisions of this Statement should be applied
prospectively as of the beginning of the fiscal year in which this Statement is
initially applied, except for certain exceptions stated in the Statement.
Management does not expect that the application of this standard will have any
significant effect on the Company's consolidated financial
statements.
In June
2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. This Interpretation also provides guidance on derecognizing,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. This Interpretation is effective for fiscal years
beginning after December 15, 2006. The application of this standard had no
significant effect on our results of operations or its financial
condition.
Other
recently issued FASB Statements or Interpretations, SEC Staff Accounting
Bulletins, and AICPA Emerging Issue Task Force Consensuses have either been
implemented or are not applicable to us.
GENERAL
Pharma-Bio
Serv, Inc. is a Delaware corporation, organized in 2004 under the name Lawrence
Consulting Group, Inc. In February 2006, our corporate name was changed to
Pharma-Bio Serv, Inc.
On
January 25, 2006, pursuant to an agreement and plan of merger among us, Plaza
Acquisition Corp., Pharma-Bio Serv PR, Inc. (then known as Plaza Consulting
Group, Inc. and referred to as “Pharma-PR”), and Elizabeth Plaza, the sole
stockholder of Pharma-PR, Plaza Acquisition Corp. was merged into Pharma-PR,
with the result that Pharma-PR became our wholly-owned subsidiary and our sole
business became the business of Pharma-PR.
Pharma-PR
business was established by Elizabeth Plaza as a sole proprietorship in 1993 and
incorporated in 1997 to offer consulting services to the pharmaceutical
industry. We have successfully grown our business operation by providing
quality, value-added consulting services to the major pharmaceutical,
biotechnology, medical device and chemical manufacturing companies principally
in Puerto Rico and the United States.
Our
executive offices are located at Pharma-Bio Serv Building, Industrial Zone Lot
14, Barrio Higuillar, Dorado, Puerto Rico 00646. Our telephone number
is (787) 278-2709.
Our
website is www.pharmabioserv.com. Information on our website or any other
website is not part of this registration statement.
References
to “we,” “us,” “our” and similar words in this registration statement refer to
Pharma-Bio Serv, Inc. and its subsidiaries.
OVERVIEW
We are a
compliance services consulting firm with headquarters in Puerto Rico, servicing
the Puerto Rico, United States and Europe markets. The compliance consulting
service sector in those markets consists of local validation and compliance
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 and
medical devices, and allied products companies in Puerto Rico, the United States
and Europe. Our staff includes more than 125 experienced engineering and life
science professionals, and includes former quality assurance managers or
directors, and experienced and trained professionals with bachelors, masters and
doctorate degrees in health sciences and engineering.
We have a
well-established and consistent relationship with the major pharmaceutical,
biotechnology, medical device and chemical manufacturing companies in Puerto
Rico and the United States, which provides us access to affiliated companies in
other markets. We seek opportunities in markets that could yield profitable
margins using our professional consulting force and also provide new services
such as those performed by our new microbiological testing laboratory facility
and our recently acquired information technology service firm.
We
believe the most significant factors to achieving future business growth are our
ability to (i) continue to provide quality value-added compliance services to
our clients; (ii) recruit and retain highly educated and experienced
professionals; (iii) further expand our products and services to address the
expanding compliance needs of our clients; and (iv) expand our market presence
into the United States, Europe and possibly other emerging pharmaceutical
markets in order to respond to the international compliance needs of our
clients. Since our business is conducted mainly in Puerto Rico, our
business may be affected to the extent that Puerto Rico’s current economic
downturn affect the decision of our clients and potential clients to establish
operations in Puerto Rico or to continue or expand their existing
operations.
Our
revenue is derived from time and materials contracts (representing approximately
90% of total revenues), where the clients are charged for the time, materials
and expenses incurred on a particular project, and to a lesser extent
(approximately 10% of total revenues) from fixed-fee contracts or from “not to
exceed” contracts, which are generally short-term contracts, in which the value
of the contract cannot exceed a stated amount. For time and materials contracts,
our revenue is principally a function of the number of resources and the number
of hours billed per professional. To the extent that our revenue is based on
fixed-fee or “not to exceed” contracts, our ability to operate profitably is
dependent upon our ability to estimate accurately the costs that we will incur
on a project and to manage and monitor the project. If we underestimate our
costs on any contract, we could sustain a loss on the contract or its
profitability might be reduced.
The
principal components of our costs of services are resource compensation
(salaries and wages, independent contractors’ fees, taxes and benefits) and
expenses relating to the performance of the services. In order to ensure that
our pricing is competitive yet minimize the impact in our margins, we deal with
increasing labor costs by (i) selecting resources according to our cost for
specific projects, (ii) negotiating, where applicable, rates with the resource,
(iii) subcontracting labor and (iv) negotiating and passing rate increases to
our customers, as applicable. Although this strategy has been successful in the
past, we cannot give any assurance that such strategy will continue to be
successful.
We have
established quality systems for our employees which include:
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Training
Programs - including a Current Good Manufacturing Practices exam prior to
recruitment and periodic
refreshers;
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Recruitment
Full Training Program - including employee manual, dress code, time sheets
and good project management and control procedures, job descriptions, and
firm operating and administration
procedures;
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Safety
Program - including OSHA, Environmental Health and Safety;
and
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Code
of Ethics - a code of ethics and business conduct is used and enforced as
one of the most significant company controls on personal
behavior.
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In
addition, we have implemented procedures to respond to client complaints and
customer satisfaction survey procedures. As part of our employee performance
appraisal annual process, our clients receive an evaluation form for employee
project performance feedback, including compliance with our code of
ethics.
BUSINESS
STRATEGY AND OBJECTIVES
We are
actively pursuing new markets as part of our growth strategy. We have a
well-established and consistent relationship with the major pharmaceutical,
biotechnology, medical device and chemical manufacturing companies in Puerto
Rico and the United States which provides us access to affiliated companies in
other markets. We seek opportunities in markets that could yield profitable
margins using our professional consulting force and also provide new services
such as those performed by our new microbiological testing laboratory facility
and our recently acquired information technology service firm.
As part
of our growth strategy and our plans to globalize and enter into new markets, we
have invested in our infrastructure to support our expansion plans. We invested
approximately $1.3 million in equipment and improvements for our new
microbiological testing lab. In addition, in fiscal years 2008 and 2007, we
strengthened our executive staff to support our new laboratory facility, our
market expansions in the United States, and most recently, Europe. In February
2007, we moved our headquarters to new facilities that house our microbiological
testing laboratory, our new customer-specialized training facilities, and our
operational and administrative offices.
Our
business strategy is based on a commitment to provide premium quality and
professional consulting services and reliable customer service to our customer
base. Our business strategy and objectives are as follow:
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Continue
growth in consulting services in each technical service, quality
assurance, regulatory compliance, technology transfer, validation,
engineering, laboratory testing and manufacturing departments by achieving
greater market penetration from our marketing and sales
efforts;
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Continue
to enhance our technical consulting services through an increase in
professional staff through internal growth and acquisitions that provides
the best solutions to our customers’
needs;
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Motivate
our professionals and support staff by implementing a compensation program
which includes both individual performance and overall company performance
as elements of compensation;
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Create
a pleasant corporate culture and emphasize operational quality safety and
timely service;
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Continue
to maintain our reputation as a trustworthy and highly ethical partner;
and
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Efficiently
manage our operating and financial costs and
expenses.
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2006
U.S. Validation Compliance Service Business Acquisition
In January 2006, we acquired a
validation compliance service business which served mainly the United States
East Coast market. We are
currently hosting our U.S. market expansion plans from this
organization.
2007
Entrance to Ireland Market
In
September 2007, we entered into the Ireland market through the formation of
an 80%-owned subsidiary. We seek to provide the Ireland market the same services
we are currently providing in the Puerto Rico and United States
markets.
2008
Minority Controlled Company Certification
On July
1, 2008, we received certification as a "minority-controlled company" as defined
by the National Minority Supplier Development Council and Growth Initiative
("NMSDC"). In line with the strategy to penetrate the United States market, the
certification will allow us to participate in corporate diversity programs
available from various potential customers in the United States and Puerto Rico.
The certification is subject to renewal on July 1, 2009.
2008
Completion of Microbiology Testing Laboratory Facility
In the last quarter of 2008, our new
microbiological laboratory (“Lab”) located in Puerto Rico was subject to audits
by the FDA and potential customers as part of its development. These audits are
part of the industry certification process standards for quality related
services, which allows the Lab to offer services to the industry. The
Lab, with an investment of
$1.3 million, incorporates the latest technology and test methodologies meeting
pharmacopoeia industry standards and regulations. We plan to offer
microbiological testing and related services to our core industries already
serviced as well as the cosmetic and food industries.
2008
Integratek Acquisition
On
December 2008, we acquired through one of our subsidiaries the operations and
assets of Integratek Corp. (“Integratek”), an information technology services
and consulting firm based in Puerto Rico. With this acquisition we plan to
broaden the portfolio of services that we can provide to our customer base and
also target other potential customers in other industries.
TECHNICAL
CONSULTING SERVICES
We have
established a reputation as a premier technical consulting services firm to the
pharmaceutical, biotechnology, medical device and chemical manufacturing
industries in Puerto Rico. These services include regulatory compliance,
validation, technology transfer, engineering, safety and environmental,
training, project management and process support. We have approximately 25
clients that are among the largest pharmaceutical, chemical manufacturing,
medical device and biotechnology companies in Puerto Rico. We are actively
participating in exhibitions, conferences, conventions and seminars as
either exhibitors, sponsors or conference speakers.
MARKETING
We
conduct our marketing activities primarily in Puerto Rico as well as the United
States and other marketplaces. We actively utilize our project managers and
leaders who are currently managing consulting service contracts at various
client locations to also market consulting services to their existing and past
client relationships. 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 professionals or dollar
volume) and responding to prospective customers’ requests for
proposals.
PRINCIPAL
CUSTOMERS
We
provide a substantial portion of our services to three customers, who accounted
for 10% or more of our revenues in the years ended October 31, 2008 and 2007.
During the years ended October 31, 2008 and 2007, these customers accounted for
approximately 57% and 59% of total revenue, respectively. In spite of the fact
that just a few customers represent a significant source of revenue, our
functions are not a continuous process, accordingly, the client base for which
our services are typically rendered, on a project-by-project basis, changes
regularly. Therefore, in any given year a small number of customers could
represent a significant source of our revenue for that year. The loss of or
significant reduction in the scope of work performed for any major customer or
our inability to replace customers upon completion of contracts could adversely
affect our revenue and impair our ability to operate profitably.
COMPETITION
We are
engaged in a highly competitive and fragmented industry. Some of our competitors
are, on an overall basis, larger than us or are subsidiaries of larger
companies, and therefore may possess greater resources than us. Furthermore,
because the technical professional aspects of our business do not usually
require large amounts of capital, there is relative ease of market entry for a
new entrant possessing acceptable professional qualifications. Accordingly, we
compete with regional, national, and international firms. Within the Puerto
Rico, United States and Ireland markets, certain competitors, including local
competitors, may possess greater resources than we do as well as better access
to clients and potential clients.
Our
competitors for compliance services consulting consist of large public and
private companies, as well as smaller validation companies located in Puerto
Rico, mainland United States and Ireland. Although we are the largest validation
consulting firm in Puerto Rico, as measured by the number of professionals
dedicated to providing validation and compliance consulting services in Puerto
Rico, these companies, which offer consulting services similar to those we
offer, have significantly more resources than we have and may have relationships
with pharmaceutical, biotechnology and chemical manufacturing companies in the
United States or in other parts of the world.
Competition
for validation and consulting services used to be primarily based on reputation,
track record, experience, and quality of service. However, given the economic
recession and our clients' strategies to reduce costs, price of service has
become a major factor in sourcing our services. We believe that we enjoy
significant competitive advantages over other consulting service firms because
of our historical market share within Puerto Rico (15 years), brand name,
reputation and track record with many of the major pharmaceutical,
biotechnology, medical device and chemical manufacturing companies which have
presence in the markets we are pursuing.
The
market of qualified and experienced professionals that are capable of providing
technical consulting services is very competitive and consists primarily of our
competitors as well as companies in the pharmaceutical, chemical, biotechnology
and medical device industries who are our clients and potential clients. In
seeking qualified personnel we market our name recognition in the Puerto Rico
market, our reputation with our client, salary and benefit package, company
stock options and a low turnover of qualified employees.
RAW
MATERIALS
We
require the use of various raw materials, including culture media, DNA reagents,
LAL reagents and biological indicators, in our microbiological testing
laboratory facility. We purchase these raw materials from various
suppliers. At times, we concentrate orders among a few suppliers in order to
strengthen our supplier relationships and receive quantity discounts. Raw
materials are generally available from multiple suppliers at competitive
prices.
ENVIRONMENTAL
REGULATIONS
Activities
in our microbiological testing laboratory facility are regulated under Puerto
Rico and U.S. federal laws designed to protect workers and the environment. Some
of these laws include the Occupational Safety and Health Act and the Resource
Conservation and Recovery Act. These laws apply to the use, handling and
disposal of various biological and chemical substances used in our processes. We
believe we are in material compliance with these laws and that continued
compliance will not have a materially adverse effect on our business. No
specific accounting for environmental compliance has been maintained or
projected by us at this time.
INTELLECTUAL
PROPERTY RIGHTS
We have
no proprietary software or products. We rely on non-disclosure agreements with
our employees to protect the proprietary software and other proprietary
information of our clients. Any unauthorized use or disclosure of this
information could harm our business.
EMPLOYEES
We
currently employ 90 regular full time employees. None of our
employees are represented by a labor union, and we consider our employee
relations to be good. Our subsidiary, Pharma-PR, was recognized and awarded by
Hewitt Associates as one of the “Puerto Rico 20 best employers” in
2006.
PROPERTIES
In
February 2007, we entered into an agreement for our new main resource facilities
with Plaza Professional Center, Inc., a company controlled by Elizabeth
Plaza. These facilities accommodate our microbiological testing
laboratory, our new customer-specialized training facilities and, our
operational and administrative offices. The agreement is for a five year term.
The new agreement also requires the payment of utilities, property taxes,
insurance and a portion of expenses incurred by the affiliate in connection with
the maintenance of common areas. The agreement provides a five year renewal
option.
We also
lease office space in Limerick, Pennsylvania. The lease was renewed on July 31,
2007 for a term of three years.
Our
Ireland start-up office facilities are located in Cork, Ireland. Currently, the
facilities are under a month-to-month lease.
We
believe that our present facilities are adequate to meet our needs and that, if
we require additional space, it will be available on commercially reasonable
terms.
LEGAL
PROCEEDINGS
From time
to time, we may be a party to legal proceedings incidental to our
business. We do not believe that there are any proceedings threatened
or pending against us, which, if determined adversely to us, would have a
material effect on our financial position or results of operations and cash
flows.
Directors
and Executive Officers
The
following table sets forth certain information with respect to our directors and
executive officers.
|
Name
|
|
Age
|
|
Position
|
|
Elizabeth
Plaza
|
|
45
|
|
President,
Chairman of the Board and Director
|
|
Nélida Plaza
|
|
41
|
|
Vice
President and Secretary
|
|
Pedro
J. Lasanta
|
|
49
|
|
Chief
Financial Officer and Vice President - Finance and
Administration
|
|
Dov
Perlysky (2)
|
|
46
|
|
Director
|
|
Kirk
Michel (1)
(2)
|
|
54
|
|
Director
|
|
Howard
Spindel (1)
|
|
64
|
|
Director
|
|
Irving
Wiesen (1)
(2)
|
|
53
|
|
Director
|
| |
|
|
|
|
|
1
|
Member
of the audit and compensation committees.
|
|
2
|
Member
of the mergers and acquisition
committee.
|
Elizabeth Plaza has been the
president and sole director of Pharma-PR since 1997, when the Company was
incorporated after operating as a sole proprietorship since 1993, and she has
been our president, chief executive officer and a director since January 25,
2006. Ms. Plaza holds a B.S. in Pharmaceutical Sciences, magna cum laude, from
the School of Pharmacy of the University of Puerto Rico. She was a 40 under 40
Caribbean Business Award recipient in 2002, the 2003 recipient of Ernst &
Young’s Entrepreneur of the Year Award in Health Science, one of the 2003
recipients of the Puerto Rico Powerful Business Women Award, elected as Puerto
Rico Manufacturers Association 2004 (Metropolitan-West Region) Executive of the
Year, and Puerto Rico 2008 Executive of the Year.
Nélida Plaza has been the vice
president of operations of Pharma-PR since January 2004 and has been our vice
president and secretary since January 25, 2006. In July 2000, Ms. Plaza joined
Pharma-PR as a project management consultant. In the past, Ms. Plaza was a unit
operations leader and safety manager at E.I. DuPont De Nemours where she was
involved with the development, support and audit of environmental, safety and
occupational health programs. Ms. Plaza holds a M.S. in Environmental Management
from the University of Houston in Clear Lake and a B.S. in Chemical Engineering
from the University of Puerto Rico. Nélida Plaza was recognized by Casiano
Communications as one of the 40 under 40 distinguished executives in Puerto
Rico.
Pedro J. Lasanta has been our
chief financial officer and vice president - finance and administration since
November 2007. From 2006 until October 2007, Mr. Lasanta was in private practice
as an accountant, tax and business counselor. From 1999 until 2006, Mr. Lasanta
was the Chief Financial Officer for Pearle Vision Center PR, Inc. In the past,
Mr. Lasanta was also an audit manager for Ernst & Young, formerly Arthur
Young & Company. He is a cum laude graduate in business administration
(accounting) from the University of Puerto Rico. Mr. Lasanta is a
certified public accountant.
Dov Perlysky had been our
president, has been a director since 2004 and has been the managing member of
Nesher, LLC a private investment firm since 2000. On January 25, 2006, in
connection with the reverse acquisition, Mr. Perlysky resigned as president and
became a consultant to us. From 1998 until 2002, Mr. Perlysky was a vice
president in the private client group of Laidlaw Global Securities, a registered
broker-dealer. He received his B.S. in Mathematics and Computer Science from the
University of Illinois in 1985 and a Masters in Management from the JL Kellogg
Graduate School of Northwestern University in 1991. Mr. Perlysky is a director
of Engex, Inc., a closed-end mutual fund and he is also a director for Highlands
State Bank.
Kirk Michel, a director since
January 25, 2006, has been a managing director of KEMA Advisors, Inc., a
boutique financial advisory firm located in Hillsborough, North Carolina since
2002. KEMA Advisors provides financial advisory services to middle market
companies and governmental agencies. From 1995 to 2002, Mr. Michel was the
co-founder and a managing director of Bahia Group Holdings, LLC which provided
corporate finance, public finance and merger and acquisition services to middle
market companies and governmental agencies. Mr. Michel holds a M.B.A. degree
from the Columbia University Graduate School of Business and a B.A. in Economics
from Northwestern University.
Howard Spindel, a director
since January 25, 2006, has been a consultant with Integrated Management
Solutions, a securities industry consulting and recruitment firm which he
founded, since 1985. In this capacity, he has also acted as a financial and
operations principal, general securities principal, registered representative
and options principal for several broker-dealers during this period. He is also
a director of Engex, Inc., a closed-end mutual fund. Mr. Spindel received a B.S.
in accounting from Hunter College.
Irving Wiesen, a director
since January 25, 2006, has practiced as an attorney specializing in food and
drug law and regulation in the pharmaceutical and medical device industries for
more than twenty-five years. For more than the past five years he has been of
counsel to the New York law firms, Ullman, Shapiro and Ullman, LLP and Cohen,
Tauber, Spievack & Wagner. Prior to that, Mr. Wiesen was a partner in the
New York food and drug law firm, Bass & Ullman, and also served as division
counsel of Boehringer Ingelheim Pharmaceuticals, Inc. Mr. Wiesen represents
pharmaceutical, medical device and biotechnology companies in all aspects of FDA
regulation, corporate practice and compliance, litigation and allied commercial
transactions. Mr. Wiesen received his J.D. degree from the New York University
School of Law and holds an M.A. in English Literature from Columbia University
and a B.A., cum laude, from Yeshiva University.
Elizabeth
Plaza and Nélida Plaza are sisters. There is no other family relationship among
our officers and directors.
Board
Committees
The board
of directors has three committees, the audit committee, the compensation
committee and the mergers and acquisition committee. Kirk Michel, Howard Spindel
and Irving Wiesen, each of whom is an independent director, are the members of
the audit and compensation committees. Mr. Spindel is the audit committee
financial expert. Dov Perlysky, Kirk Michel and Irving Wiesen are the members of
the mergers and acquisition committee. The mergers and acquisition committee was
formed to assist us with our business strategy and objectives as they relate to
acquisitions discussed above.
Board
Independence
The board
of directors has determined that the following directors are independent
pursuant to Nasdaq Rule 4200 (“Nasdaq Rules”) (even though the Company’s
securities are not traded on the Nasdaq market) and the Exchange Act: Kirk
Michel, Howard Spindel and Irving Wiesen.
Code
of Ethics
We have
adopted a Code of Ethics that applies to all our senior management and
directors.
Summary
Compensation Table
Set forth
below is information for our Chief Executive Officer and the other officers
whose total compensation exceeded $100,000 for the fiscal year ended October 31,
2008.
|
Name and Principal Position
|
|
Fiscal Year
|
|
Salary
|
|
Bonus
|
|
Option
Awards ($)(1)
|
|
Other
Compensation
|
|
Total
|
|
|
Elizabeth
Plaza, President and
Chief
Executive Officer
|
|
|
2008
2007
|
|
$
|
250,000
250,000
|
|
$
|
—
—
|
|
$
|
12,972
—
|
|
$
|
24,828
24,828
|
|
$
|
287,800
274,828
|
|
|
Nélida
Plaza, Vice President
|
|
|
2008
2007
|
|
$
|
150,000
150,000
|
|
$
|
—
—
|
|
$
|
11,595
6,481
|
|
$
|
11,592
11,592
|
|
$
|
173,187
168,073
|
|
|
Pedro
Lasanta, Chief Financial Officer
|
|
|
2008
|
|
$
|
100,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
6,000
|
|
$
|
106,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amount
shown do not reflect compensation received by the officers. Instead, the
amounts shown are the compensation costs recognized by us for option
grants as determined by the provisions of FAS
123R.
|
Other
compensation for Elizabeth Plaza and Nelida Plaza correspond to company lease
payments for vehicles under their use, while for Pedro Lasanta represents a car
allowance.
Outstanding
Equity Awards at Fiscal Year-End Table
The
following Outstanding Equity Awards at fiscal year end table summarizes the
holdings held by our Named Executive Officers as of October 31,
2008.
|
Name
|
|
Number
of Securities
Underlying
Unexercised
Options
Exercisable
|
|
|
Number
of Securities Underlying Unexercised Options Unexercisable
|
|
|
Option
Exercise
Price
|
|
|
Option
Expiration
Date
|
|
|
Elizabeth
Plaza (1)
|
|
|
— |
|
|
|
125,000 |
|
|
$ |
0.6500 |
|
|
Dec
20, 2012
|
|
|
Nelida
Plaza (2)(3)
|
|
|
31,361
—
—
|
|
|
|
62,722
37,372
75,000
|
|
|
$
$
$
|
0.7344
0.7344
0.6500
|
|
|
Jan.
27, 2011
Jan.
27, 2011
Dec.
20, 2012
|
|
|
Pedro
Lasanta
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Options
to purchase 125,000 shares of common stock were granted on December 20, 2007 and
vest in three equal annual installments beginning on December 20,
2008.
(2) Prior
to the reverse acquisition, Pharma-PR, which was then wholly owned by Elizabeth
Plaza, had granted Nélida Plaza an option to purchase 500 shares of its common
stock at an exercise price of $138.19 per share. At the consummation of the
reverse merger in January 2006, we granted Ms. Nélida Plaza options to purchase
131,455 shares of common stock at an exercise price of $0.7344 per share, the
fair market value on the date of grant, of which an option to purchase 94,083
shares of our common stock was issued to replace options granted prior to the
reverse acquisition.
(3)
Options to purchase 94,083 share of common stock were granted on January 27,
2006 and vest in three equal annual installments beginning on January 27,
2008. Options to purchase 37,372 shares of common stock were granted
on January 27, 2006 and vest in three equal installments thirty-six, forty-eight
and fifty-four months from January 27, 2006. Options to purchase
75,000 shares of common stock were granted on December 20, 2007 and vest in
three equal annual installments beginning on December 20, 2008.
Employment
Agreements
On
January 25, 2006, we entered into employment agreements with Elizabeth Plaza and
Nélida Plaza. Our agreement with Elizabeth Plaza, recently extended
to January 1, 2010, provides that Ms. Plaza will serve as our president and
chief executive officer for which she will receive a salary at the annual rate
of $250,000. The Company will also provide Ms. Plaza with an automobile
allowance at the annual rate of $24,828, discretionary bonuses and stock options
or other equity-based incentives as shall be determined by our compensation
committee, except that her bonus shall not be less than 4% or more than 50% of
her salary. If we terminate Ms. Plaza’s employment other than for cause or as a
result of her death or disability, we are required to pay Ms. Plaza the balance
of her compensation for her employment terms and her consulting term and other
benefits, including a pro rata portion of the bonus that would have been paid to
her, and her obligations under her non-competition provision terminate. Since
the bonus is discretionary, with a minimum bonus of 4% of Ms. Plaza’s salary,
unless the compensation committee shall have provided for a greater bonus prior
to the termination of Ms. Plaza’s employment without cause, Ms. Plaza would not
be entitled to a bonus greater than $10,000, which is 4% of $250,000, the amount
of the bonus to be based on the remaining employment term. Upon termination of
the agreement Ms. Plaza will serve as a consultant under terms to be
negotiated.
Our
agreement with Nélida Plaza provides that Ms. Plaza will serve as vice president
for a term of three years for which she will receive annual compensation at the
annual rate of $150,000. She is also entitled to bonus compensation as is
determined by the compensation committee, not to exceed 50% of her salary. We
also agreed to make the lease payments on the automobile she currently leases.
Such payments are at the annual rate of approximately $11,592. If we terminate
Ms. Plaza’s employment other than for cause or as a result of her death or
disability, we are required to pay Ms. Plaza her compensation for the balance of
the term and other benefits, including a pro rata portion of the bonus that
would have been paid to her, and her obligations under her non-competition
provision terminate. Since Ms. Plaza’s employment contract provides for a
discretionary bonus, unless the compensation committee shall have provided for a
bonus to Ms. Plaza prior to the termination of her employment without cause, Ms.
Plaza would not be entitled to any bonus payment.
The
employment agreements with both Elizabeth Plaza and Nélida Plaza provide that
during the term of the agreement and for two years thereafter, the executive
will not, directly or indirectly engage in a competing business or solicit any
customer or seek to persuade any customer to reduce the amount of business it
does with us or seek to persuade any employee to leave our employ.
On
November 5, 2007, we entered into an employment agreement with Pedro Lasanta,
our chief financial officer, pursuant to which we pay Mr. Lasanta an annual
salary of $100,000 plus a monthly car allowance of $500. The agreement had a
one-year term, which we could extend subject to the approval of the president
and chief executive officer and the audit committee. Mr. Lasanta’s employment
agreement has a non-competition provision pursuant to which he agrees that
during the term of the agreement and for one year thereafter, Mr. Lasanta will
not, directly or indirectly, engage in a competing business or solicit any
customer or seek to persuade any customer to reduce the amount of business it
does with us or seek to persuade any employee to leave our employ.
On
December 17, 2008, we entered into an amendment to the employment agreement with
Pedro Lasanta pursuant to which the term of the contract was extended
indefinitely. The amended employment agreement provides that we will
pay Mr. Lasanta an annual salary of $110,000 and an annual bonus in cash or
Company stock options to be granted based on performance metrics to be
established. Pursuant to the amended employment agreement, we will
grant Mr. Lasanta options to purchase 30,000 shares of Company stock having an
exercise price equal to fair market value on the date of grant and vesting in
three equal annual installments beginning one year from November 1,
2008. In addition, upon termination of Mr. Lasanta’s employment for
reasons other than those set forth in his amended employment agreement, Mr.
Lasanta will receive a lump-sum severance payment in an amount equivalent to six
months of his salary at the time of the termination, less legal withholdings, or
the severance established by PR labor law No. 80 of May 30, 1976 known as the
“Wrongful Discharge Act” (“Ley de Despido Injustificado”), whichever amount is
higher. All other terms and conditions of Mr. Lasanta’s employment
agreement remain the same.
2005
Long-Term Incentive Plan
In
October 2005, our board of directors adopted, and in April 2006, our
stockholders approved, the 2005 Long-Term Incentive Plan, covering 2,500,000
shares of common stock. The 2005 plan provides for the grant of incentive and
non-qualified options, stock grants, stock appreciation rights and other
equity-based incentives to employees, including officers, and consultants. The
2005 Plan is to be administered by a committee of independent directors. In the
absence of a committee, the plan is administered by the board of directors.
Independent directors are not eligible for discretionary options. However, each
newly elected independent director receives at the time of his or her election,
a five-year option to purchase 25,000 shares of common stock at the market price
on the date of his or her election. In addition, the plan provided for the
annual grant of an option to purchase 5,000 shares of common stock on the first
trading day of January of each year, commencing January 2007; however, on April
19, 2007, the stockholders amended the plan to increase the number of options
granted to its independent directors annually from 5,000 to 10,000 shares of
common stock. On April 19, 2007, the stockholders also amended the plan to
provide for a grant to purchase 5,000 shares of common stock at the market price
to each advisory board member on the date of his or her election and a grant of
5,000 options to each of them annually. The options to directors have a term of
five years and become exercisable cumulatively as to 50% of the shares subject
to the option six months from the date of grant and, as to the remaining 50%, 18
months from the date of grant. Pursuant to this provision, on January 25, 2006,
options to purchase 25,000 shares at $0.7344 per share, being the fair market
value on the date of grant, were automatically granted to our independent
directors Messrs. Kirk Michel, Howard Spindel and Irving Wiesen. As
authorized under the 2005 Plan as amended, in addition to the options granted at
the date of the independent directors election, we made options grants on
January 3, 2007, April 19, 2007,January 2, 2008 and January 2, 2009 in the
amount of 5,000, 5,000, 10,000 and 10,000 options to each independent director,
respectively. The exercise price of the options granted on January 3, 2007,
April 17,2007, January 2, 2008 and January 2, 2009 was $0.75, $0.65, $0.74 and
$0.50 per share, respectively. On January 10, 2008 the board of directors
granted a discretionary 10,000 stock options award with an exercise price of
$0.698 per share to Dov Perlysky, a non independent board of directors’ member
Except for the exercise price, these option grants have the same terms as the
options granted to our independent directors on January 26, 2006.
Options
intended to be incentive stock options must be granted at an exercise price per
share which is not less than the fair market value of the common stock on the
date of grant and may have a term which is not longer than ten years. If the
option holder holds 10% of our common stock, the exercise price must be at least
110% of the fair market value on the date of grant and the term of the option
cannot exceed five years. As of February 13, 2009, there were outstanding
options to purchase 1,4666,772 shares of common stock at a weighted-average
exercise price of approximately $0.7047 per share.
Option
holders do not recognize taxable income upon the grant of either incentive or
non-qualified stock options under the Internal Revenue Code of 1986. When
employees exercise incentive stock options, they will not recognize taxable
income upon exercise of the option, although the difference between the exercise
price and the fair market value of the common stock on the date of exercise is
included in income for purposes of computing their alternative minimum tax
liability, if any. If certain holding period requirements are met, their gain or
loss on a subsequent sale of the stock will be taxed at capital gain rates.
Generally, long-term capital gains rates will apply to their full gain at the
time of the sale of the stock, provided that they do not dispose of the stock
made within two years from the date of grant of the option or within one year
after your acquisition of such stock, and the option is exercised while they are
employed by us or within three months of the termination of their employment or
one year in the event of death or disability, as defined in the Internal Revenue
Code. Employees who are residents of Puerto Rico are subject to the Puerto Rico
Code, which may be different from tax treatment under the Internal Revenue
Code.
In
general, upon the exercise a non-qualified option, the option holder will
recognize ordinary income in an amount equal to the difference between the
exercise price of the option and the fair market value of the shares on the date
he or she exercises the option. Subject to certain limitations, we may deduct
that amount as an expense for federal income tax purposes. In general, when the
holders of shares issued on exercise of a nonqualified stock option sell their
shares, any profit or loss is short-term or long-term capital gain or loss,
depending upon the holding period for the shares and their basis in the shares
will be the fair market value on the date of exercise.
Director
Compensation
Effective
as of May 6, 2008, we approved a plan to nominally compensate our directors for
their attendance at various meetings. Non-employee directors will receive (1)
$1,000 for attendance at each meeting of the Board of Directors and (ii) $500
for attendance at each Committee meeting. Pursuant to our 2005 Long Term
Incentive Plan, as amended (“Plan”), each independent director receives an
option to purchase 25,000 shares of the Company’s common stock on the date of
his or her election, and, on the first trading day of January in each year
thereafter, the independent director receives an option to purchase 10,000
shares of the Company’s common stock. Prior to April 2007, the automatic option
grant to each independent director had been 5,000 options per year. As described
above, Mr. Michel, Spindel and Wiesen are considered “independent
directors.”
The
following table sets forth information concerning the compensation of directors
for the year ended October 31, 2008.
|
Name
|
|
Fiscal
Year
|
|
Fees Earned
or Paid
in Cash
|
|
|
Option
Awards (1)
(2)
|
|
|
Total
|
|
|
Kirk
Michel
|
|
2008
|
|
$ |
5,500 |
|
|
$ |
2,517 |
|
|
$ |
8,017 |
|
|
Howard
Spindel
|
|
2008
|
|
$ |
5,500 |
|
|
$ |
2,517 |
|
|
$ |
8,017 |
|
|
Irving
Wiesen
|
|
2008
|
|
$ |
5,500 |
|
|
$ |
2,517 |
|
|
$ |
8,017 |
|
|
Dov
Perlysky
|
|
2008
|
|
$ |
5,000 |
|
|
$ |
1,938 |
|
|
$ |
6,938 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Amounts shown do not reflect compensation actually received by the directors.
Instead, the amounts shown are the compensation costs recognized by us in fiscal
year 2008 for option grants that were made to directors as determined pursuant
to FAS 123R. The assumptions used to calculate the value of option awards are
set forth under Note I of the Notes to Consolidated Financial Statements
included in this Prospectus.
(2) As of
October 31, 2008, each of our non-employee directors held the following number
of options: Kirk Michel 45,000; Howard Spindel 45,000; Irving Wiesen 45,000; and
Dov Perlysky 10,000.
The
following table provides information as to shares of common stock beneficially
owned as of February 13, 2009 by:
|
|
·
|
each
director;
|
|
|
|
|
|
|
·
|
each
officer named in the summary compensation table (“Named Executive
Officers”);
|
|
|
|
|
|
|
·
|
each
person owning of record or known by us, based on information provided to
us by the persons named below, to own beneficially at least 5% of our
common stock; and
|
|
|
|
|
|
|
·
|
all
directors and Named Executive Officers as a
group.
|
As used
herein, the term beneficial ownership with respect to a security is defined by
Rule 13d-3 under the Securities Exchange Act of 1934 as consisting of sole or
shared voting power (including the power to vote or direct the vote) and/or sole
or shared investment power (including the power to dispose or direct the
disposition of) with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, including a right to acquire such
power(s) during the next 60 days. Unless otherwise noted, beneficial ownership
consists of sole ownership, voting and investment rights and the address for
each person is c/o Pharma-Bio Serv, Inc., Industrial Zone, Lot 14, Barrio
Higuillar, Dorado, Puerto Rico 00646. A person is deemed to beneficially own the
total number of shares of common stock which he or she owns plus the number of
shares of common stock which are issuable upon
exercise of currently exercisable securities. The percentage ownership of each
person is the percentage that the number of shares beneficially owned by that
person bears to the sum of (a) the outstanding common stock plus (b) the shares
of common stock issuable upon exercise or conversion of those currently
convertible securities that are owned by that stockholder.
|
Name
|
|
Shares
of
Common
Stock Beneficially
Owned
at
February
13, 2009
|
|
|
Percentage
|
|
|
Directors and
Named Executive Officers
|
|
|
|
|
|
|
|
Elizabeth
Plaza(1)
|
|
|
6,728,781 |
|
|
|
32.36
|
% |
|
Dov
Perlysky(2)
|
|
|
2,328,393 |
|
|
|
11.01
|
% |
|
Kirk
Michel(3)
|
|
|
550,906 |
|
|
|
2.63
|
% |
|
Howard
Spindel(4)
|
|
|
40,000 |
|
|
|
* |
|
|
Irving
Wiesen(4)
|
|
|
40,000 |
|
|
|
* |
|
|
Nelida
Plaza(4)
|
|
|
100,179 |
|
|
|
* |
|
|
All
Directors and Named Executive Officers as a group
(six persons)
(5)
|
|
|
9,788,259 |
|
|
|
45.37
|
% |
|
5%
or Greater Shareholders
Venturetek,
L.P.(6)
|
|
|
4,697,990 |
|
|
|
21.05
|
% |
|
San
Juan Holdings, Inc.(7)
|
|
|
4,686,443 |
|
|
|
20.23
|
% |
|
Barron
Partners LP(8)
|
|
|
3,899,174 |
|
|
|
17.63
|
% |
|
Pentland
USA, Inc.(9)
|
|
|
1,532,719 |
|
|
|
7.21
|
% |
|
Fame
Associates(10)
|
|
|
1,532,719 |
|
|
|
7.21
|
% |
| |
|
|
|
|
|
|
|
|
|
(1)
|
Includes
41,666 shares of common stock issuable upon exercise of options, which are
vested as of February 13, 2009, 1,616,667 shares owned by Ms. Plaza
directly and 5,070,448 shares subject to a voting proxy in favor of Ms.
Plaza. In conjunction with certification as a minority controlled
business, Ms. Plaza received irrevocable proxies (“Voting Proxies”) to
vote an aggregate of 5,070,448 shares of the Company’s common stock from
Venturetek LP, Krovim, LLC and LDP Family Partnership. These Voting
Proxies are effective until July 1, 2009, unless the business
certification expires sooner.
|
|
(2)
|
The
shares of common stock beneficially owned by Mr. Perlysky include (i)
1,164,554 shares of common stock owned by Krovim, LLC, (ii) 772,791 shares
owned by LDP Family Partnership and 386,048 shares issuable upon exercise
of warrants held by the LDP Family Partnership (iii) options issued to Mr.
Perlysky to purchase 5,000 shares of common stock, which are vested as of
February 13, 2009. Elizabeth Plaza exercises voting power over the shares
owned by Krovim pursuant to a Voting Proxy and Mr. Perlysky as the manager
of Nesher, LLC, which is the manager of Krovim, may be deemed to exercise
dispositive power over these shares. Mr. Perlysky disclaims beneficial
interest in the shares owned by Krovim. Elizabeth Plaza exercises voting
power over the shares owned by the LDP Family Partnership pursuant to a
Voting Proxy and Mr. Perlysky’s wife, the general partner of LDP Family
Partnership, is deemed to exercise dispositive power over these shares.
Mr. Perlysky disclaims beneficial ownership in the securities owned by his
wife.
|
|
(3)
|
The
shares of common stock beneficially owned by Mr. Michel consist of 40,000
shares of common stock issuable upon exercise of options, which are vested
as of February 13, 2009, 340,706 shares of common stock owned by KEMA
Advisors, of which Mr. Michel is managing director, and 170,200 shares
issuable upon exercise of warrants held by KEMA
Advisors.
|
|
(4)
|
The
shares of common stock owned by each of Ms. Nelida Plaza, Mr. Spindel and
Mr. Wiesen represent shares issuable upon exercise of options, which are
vested as of February 13, 2009.
|
|
(5)
|
Includes
266,845 shares issuable upon the exercise of options, which are vested as
of February 13, 2009 and 170,200 shares issuable upon exercise of
warrants.
|
|
(6)
|
This
information was obtained from a Schedule 13D filed by Venturetek, L.P.
(“Venturetek”) on July 10, 2008. Includes 1,565,058 shares issuable upon
currently exercisable warrants. Mr. David Selengut, the manager of
TaurusMax LLC, which is the general partner of Venturetek has sole
dispositive power and Elizabeth Plaza has sole voting power over these
shares pursuant to a Voting Proxy. The shares beneficially owned by
Venturetek do not include 200 shares of common stock held by Mr. Selengut
and 200 shares held by Mr. Selengut’s wife. Mr. Selengut disclaims
beneficial ownership of the shares held by his wife. The mailing address
for Venturetek, L.P. is 370 Lexington Avenue, New York, NY
10017.
|
|
(7)
|
This
information was obtained from a Schedule 13D filed by San Juan Holdings,
Inc. on July 11, 2008. Includes 2,417,315 shares of common stock issuable
upon exercise of warrants. Messrs. Ramon Dominguez and Addison M. Levi III
have voting and dispositive power over these shares. The mailing address
for San Juan Holdings, Inc. is 255 Ponce de Leon Ave., Hato Rey, PR
00917.
|
|
(8)
|
This
information was obtained from a Form 4 filed by Baron Partners on March
27, 2007. Includes 1,361,600 shares issuable upon exercise of currently
exercisable warrants. Mr. Andrew B. Worden, president of the general
partner of Barron Partners, has sole voting and dispositive power over
these shares. The mailing address for Barron Partners LP is 730 Fifth
Avenue, New York, NY 10019.
|
|
(9)
|
This
information was obtained from a Schedule 13D filed by Pentland USA, Inc.
on May 15, 2006. Includes 510,600 shares issuable upon exercise of
currently exercisable warrants.
|
|
(10)
|
This
information was obtained from a Schedule 13D filed by Fame Associates on
May 17, 2006. Includes 510,600 shares issuable upon exercise of currently
exercisable warrants.
|
On
January 25, 2006, we acquired Pharma-PR from Elizabeth Plaza, as the sole
stockholder of Pharma-PR. At the closing, we paid Ms. Plaza $10,000,000 and
issued to Ms. Plaza 1,150,000 shares of common stock. In addition, pursuant to
agreement Ms. Plaza was entitled to three payments, each in the amount of
$2,750,000, on January 25, 2007, 2008 and 2009. As of February 13, 2009, we have
made two full payments and a partial payment to Ms. Plaza. During fiscal year
2009, we expect to pay from working capital the remaining balance owed of
$500,000 to Ms. Plaza.
San Juan
Holdings represented Pharma-PR and Elizabeth Plaza in connection with the
reverse acquisition. For such services, we issued 600,000 shares of common stock
and warrants to purchase 2,500,000 shares of common stock, with an exercise
price of $0.06 per share, to San Juan Holdings. In our private placement of
series A preferred stock and warrants, San Juan Holdings purchased three units.
The purchase price for the three units was $750,000. The broker, which is an
affiliate of San Juan Holdings, waived the commission and the non-accountable
expense allowance with respect to such sales, and as a result, San Juan Holdings
purchased the three units for a net payment of $652,500. The three units were
comprised of 75,000 shares of series A preferred stock and warrants to purchase
510,600 shares of common stock. The shares of series A preferred stock became
converted into 1,021,200 shares of common stock. We also issued 919 shares of
common stock to San Juan Holdings as a result of our failure to file the
registration statement of which this prospectus is a part in a timely manner. We
also paid an affiliate of San Juan Holdings a broker’s commission and
non-accountable expense allowance of $195,000 for sales made to other purchasers
in the private placement, and we issued to the affiliate three-year warrants to
purchase an aggregate of 275,724 shares of common stock at an exercise price of
$0.7344 per share. On July 2008, San Juan Holdings exercised 669,009 of the
warrants exercisable at $0.06.
KEMA
Advisors, Inc., of which Kirk Michel, a director, is managing director,
purchased one unit, consisting of 25,000 shares of series A preferred stock and
warrants to purchase an aggregate of 170,200 shares of common stock for
$250,000. The shares of series A preferred stock became converted into 340,400
shares of common stock. We also issued 306 shares of common stock to KEMA
Advisors for our failure to file the registration statement in a timely
manner.
On July
1, 2008, the Company received certification as a “minority-controlled company”
as defined by the National Minority Supplier Development Council and Growth
Initiative (“NMSDC”). As part of the certification process, Ms. Plaza agreed to
purchase an aggregate of 466,667 warrants from six warrant holders, one of which
was San Juan Holdings, at a purchase price of $0.77 per warrant pursuant to a
Securities Purchase Agreement dated December 12, 2007, as amended, and to
immediately exercise the warrants at an exercise price of $.7344 per share, with
proceeds to the Company of $342,720.24 per share. Ms. Plaza purchased the
warrants from the six warrant holders and exercised the warrants effective as of
July 9, 2008. The effective price per share to Ms. Plaza was $1.5044 per share
in this transaction.
Our
authorized capitalization consists of 10,000,000 shares of preferred stock, par
value $.0001 per share, and 50,000,000 shares of common stock, par value $.0001
per share.
Common
Stock
Holders
of common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of stockholders and are entitled to share in such
dividends as the board of directors, in its discretion, may declare from funds
legally available. In the event of liquidation, each outstanding share entitles
its holder to participate ratably in the assets remaining after payment of
liabilities.
Our
directors are elected by a plurality vote. Because holders of common stock do
not have cumulative voting rights, holders or a single holder of more than 50%
of the outstanding shares of common stock present and voting at an annual
stockholders meeting at which a quorum is present can elect all of our
directors. Our stockholders have no preemptive or other rights to subscribe for
or purchase additional shares of any class of stock or of any other
securities.
The
transfer agent for our common stock is American Stock Transfer & Trust
Company.
Preferred
Stock
The board
of directors is authorized to issue up to 10,000,000 shares of preferred stock,
which may be issued in series from time to time with such designations, rights,
preferences and limitations as the board of directors may declare by resolution.
The rights, preferences and limitations of separate series of preferred stock
may differ with respect to such matters as may be determined by the board of
directors, including, without limitation, the rate of dividends, method and
nature of payment of dividends, terms of redemption, amounts payable on
liquidation, sinking fund provisions (if any), conversion rights (if any) and
voting rights. The potential exists, therefore, that additional shares of
preferred stock might be issued which would grant dividend preferences and
liquidation preferences to preferred stockholders over common stockholders.
Unless the nature of a particular transaction and applicable statute require
such approval, the board of directors has the authority to issue shares of
preferred stock without stockholder approval. The issuance of preferred stock
may have the effect of delaying or preventing a change in control without any
further action by stockholders.
Investor
Warrants
In
connection with our January 2006 private placement, we issued warrants to
purchase 3,999,700 shares of common stock at an exercise price of $1.10 per
share and warrants to purchase an additional 3,999,700 shares of common stock at
an exercise price of $1.65 per shares. These warrants have a term which expires
five years from the closing date and are callable by us if the closing price of
our common stock is at least twice the exercise price of the
warrants for 20 consecutive trading days. The warrants became exercisable when
we filed our restated certificate of incorporation with the Secretary of State
of the State of Delaware.
Other
Warrants
As
of February 13, 2009, warrants to purchase 249,600 shares of common stock
at an exercise price of $0.06 per share were outstanding. These warrants are
exercisable until January 16, 2014, and the holders have cashless exercise
rights. The holders of these warrants have the same registration rights as are
granted to Elizabeth Plaza with respect to the 1,150,000 shares of common stock
issued to her pursuant to the merger agreement.
At the
closing of the acquisition of Plaza we issued to San Juan Holdings warrants to
purchase 2,500,000 shares of common stock at an exercise price of $.06 per
shares of which 669,009 were exercised on July 2008. The warrants are
exercisable until January 24, 2014. San Juan Holding has the same registration
rights as are granted to Elizabeth Plaza with respect to the 1,150,000 shares of
common stock issued to her pursuant to the merger agreement.
Broker-Dealer
Warrants
At the
closing of the reverse acquisition we issued to broker-dealers who assisted us
in our January 2006 private placement, three-year warrants to purchase an
aggregate of 1,439,892 shares of common stock at an exercise price of $.7344 per
shares. On January 23, 2009, the Board of Directors of the Company authorized a
one year extension on the expiration date of these outstanding warrants. The
holders of the warrants have piggyback registration rights for the common stock
issuable upon exercise of the warrants, which will include a standard
underwriters’ right to exclude shares, commencing six months after the effective
date of the registration statement of which this prospectus is a
part.
Delaware
Law Provisions
We are
subject to the provisions of Section 203 of the Delaware General Corporation Law
statute. Section 203 prohibits a publicly-held Delaware corporation from
engaging in a “business combination” with an “interested stockholder” for a
period of three years after the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A “business
combination” includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an “interested stockholder” is a person who, together with affiliates and
associates, owns, or within the prior three years did own, 15% or more of the
corporation’s voting stock.
Our
certificate of incorporation contains certain provisions permitted under
Delaware General Corporation Law relating to the liability of directors. The
provisions eliminate a director’s liability for monetary damages for a breach of
fiduciary duty, except in certain circumstances where such liability may not be
eliminated under applicable law. Further, our certificate of incorporation
contains provisions to indemnify our directors and officers to the fullest
extent permitted by Delaware General Corporation Law.
The
financial statements for the years ended October 31, 2008 and 2007, included in
this prospectus to the extent and for the periods indicated in their reports,
have been audited by Horwath Vélez & Co. PSC, independent registered public
accountants, and are included herein in reliance upon the authority of such
firms as experts in accounting and auditing in giving such reports.
The
validity of the shares of common stock offered through this prospectus will be
passed on by Akerman Senterfitt.
We file
annual, quarter and periodic reports, proxy statements and other information
with the Securities and Exchange Commission using the Commission’s EDGAR system.
You may inspect these documents and copy information from them at the
Commission’s public reference room at 100 F Street, NE, Washington, D.C. 20549.
You may obtain information on the operation of the public reference room by
calling the SEC at 1-800-SEC-0330. The Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is http//www.sec.gov.
We have
filed a registration statement with the Commission relating to the offering of
the shares. The registration statement contains information which is not
included in this prospectus. You may inspect or copy the registration statement
at the Commission’s public reference facilities or its website.
You
should rely only on the information contained in this prospectus. We have not
authorized any person to provide you with any information that is
different.
PHARMA-BIO
SERV, INC.
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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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To the
Board of Directors and Stockholders of
Pharma-Bio Serv,
Inc.
Dorado,
Puerto Rico
We have
audited the accompanying consolidated balance sheets of Pharma-Bio Serv, Inc. as of
October 31, 2008 and 2007, and the related consolidated statements of income,
changes in stockholders’ equity, and cash flows for the years then
ended. Pharma-Bio
Serv, Inc.’s management is responsible for these financial statements.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pharma-Bio Serv, Inc as of
October 31, 2008 and 2007, and the consolidated results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
As
described in Note B to the consolidated financial statements, effective November
1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB No. 109.”
S/HORWATH
VÉLEZ & CO, PSC
San Juan,
Puerto Rico
January
29, 2009
Puerto
Rico Society of Certified Public Accountants
Stamp
number 2382491 was
Affixed
to the original of this report
PHARMA-BIO
SERV, INC.
October
31, 2008 and 2007
| |
|
|
October
31,
|
|
| ASSETS: |
|
|
2008
|
|
|
|
2007
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
3,087,990
|
|
|
$
|
4,792,366
|
|
|
Accounts
receivable
|
|
|
3,245,153
|
|
|
|
3,559,279
|
|
|
Other
|
|
|
194,108
|
|
|
|
276,506
|
|
|
Total
current assets
|
|
|
6,527,251
|
|
|
|
8,628,151
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
1,521,575
|
|
|
|
799,851
|
|
|
Other
assets, mainly intangible assets
|
|
|
63,127
|
|
|
|
134,686
|
|
|
Total
assets
|
|
$
|
8,111,953
|
|
|
$
|
9,562,688
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Current
portion-obligations under capital leases
|
|
$
|
45,318
|
|
|
$
|
41,987
|
|
|
Accounts
payable and accrued expenses
|
|
|
1,189,705
|
|
|
|
1,592,389
|
|
|
Due
to affiliate
|
|
|
2,706,892
|
|
|
|
2,706,892
|
|
|
Income
taxes payable
|
|
|
48,324
|
|
|
|
423,703
|
|
|
Total
current liabilities
|
|
|
3,990,239
|
|
|
|
4,764,971
|
|
|
Due
to affiliate
|
|
|
—
|
|
|
|
2,530,873
|
|
|
Other
long-term liabilities
|
|
|
69,934
|
|
|
|
99,661
|
|
|
Total
liabilities
|
|
|
4,060,173
|
|
|
|
7,395,505
|
|
| |
|
|
|
|
|
|
|
|
|
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 20,751,215 and 19,615,539
shares
in 2008 and 2007, respectively
|
|
|
2,075
|
|
|
|
1,961
|
|
|
Additional
paid-in capital
|
|
|
540,337
|
|
|
|
115,404
|
|
|
Retained
earnings
|
|
|
3,534,060
|
|
|
|
2,046,264
|
|
|
Accumulated
other comprehensive (loss) income
|
|
|
(24,692
|
)
|
|
|
3,554
|
|
|
Total
stockholders' equity
|
|
|
4,051,780
|
|
|
|
2,167,183
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
8,111,953
|
|
|
$
|
9,562,688
|
|
See notes
to consolidated financial statements.
PHARMA-BIO
SERV, INC.
For
the Years Ended October 31, 2008 and 2007
| |
|
|
Years
ended October 31,
|
|
| |
|
|
2008
|
|
|
|
2007
|
|
|
REVENUES
|
|
$ |
15,196,393 |
|
|
$ |
16,204,851 |
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SERVICES
|
|
|
9,406,600 |
|
|
|
9,380,916 |
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
5,789,793 |
|
|
|
6,823,935 |
|
|
|
|
|
|
|
|
|
|
|
|
SELLING,
GENERAL AND
|
|
|
|
|
|
|
|
|
|
ADMINISTRATIVE
EXPENSES
|
|
|
3,135,968 |
|
|
|
3,176,140 |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
FROM OPERATIONS
|
|
|
2,653,825 |
|
|
|
3,647,795 |
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(227,449
|
) |
|
|
(392,171
|
) |
|
Interest
income
|
|
|
82,707 |
|
|
|
107,505 |
|
|
Loss
on disposition of property and equipment
|
|
|
— |
|
|
|
(25,660
|
) |
|
|
|
|
(144,742
|
) |
|
|
(310,326
|
) |
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
2,509,083 |
|
|
|
3,337,469 |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
1,021,287 |
|
|
|
1,436,302 |
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$ |
1,487,796 |
|
|
$ |
1,901,167 |
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
EARNINGS PER COMMON SHARE
|
|
$ |
0.07 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
EARNINGS PER COMMON SHARE
|
|
$ |
0.07 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING – BASIC
|
|
|
19,970,549 |
|
|
|
19,391,063 |
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING – DILUTED
|
|
|
22,259,016 |
|
|
|
22,166,182 |
|
See notes
to consolidated financial statements.
PHARMA-BIO
SERV, INC.
For
the Years Ended October 31, 2008 and 2007
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
| |
|
|
Common
Stock
|
|
|
Preferred Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
| |
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
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
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
115,404
|
|
|
—
|
|
|
—
|
|
|
115,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,901,167
|
|
|
—
|
|
|
1,901,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN
CURRENCY TRANSLATION ADJUSTMENT
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,554
|
|
|
3,554
|
|
|
|
OTHER
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,554
|
|
|
|
COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,904,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT OCTOBER 31, 2007
|
|
|
19,615,539
|
|
|
1,961
|
|
|
—
|
|
|
—
|
|
|
115,404
|
|
|
2,046,264
|
|
|
3,554
|
|
|
2,167,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONVERSION
OF WARRANTS TO SHARES
OF COMMON STOCK
|
|
|
1,135,676
|
|
|
114
|
|
|
—
|
|
|
—
|
|
|
382,747
|
|
|
—
|
|
|
—
|
|
|
382,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCK-BASED
COMPENSATION
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,186
|
|
|
—
|
|
|
—
|
|
|
42,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,487,796
|
|
|
—
|
|
|
1,487,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE LOSS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN
CURRENCY TRANSLATION ADJUSTMENT
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(28,246
|
)
|
|
(28,246
|
)
|
|
|
OTHER
COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,246
|
)
|
|
|
COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,459,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT OCTOBER 31, 2008
|
|
|
20,751,215
|
|
$
|
2,075
|
|
|
—
|
|
$
|
—
|
|
$
|
540,337
|
|
$
|
3,534,060
|
|
$
|
(24,692
|
)
|
$
|
4,051,780
|
|
|
See notes
to consolidated financial statements.
PHARMA-BIO
SERV, INC.
For
the Years Ended October 31, 2008 and 2007
|
|
|
Years
ended October 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
1,487,796 |
|
|
$ |
1,901,167 |
|
|
Adjustments
to reconcile net income to net cash
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
Loss
on disposition of property and equipment
|
|
|
— |
|
|
|
25,660 |
|
|
Stock-based
compensation
|
|
|
42,186 |
|
|
|
115,404 |
|
|
Depreciation
and amortization
|
|
|
227,152 |
|
|
|
208,225 |
|
|
Imputed
interest expense
|
|
|
219,127 |
|
|
|
382,804 |
|
|
Decrease
in accounts receivable
|
|
|
320,252 |
|
|
|
2,245,364 |
|
|
Decrease
in other assets
|
|
|
73,620 |
|
|
|
188,298 |
|
|
(Decrease)
increase in liabilities
|
|
|
(790,027
|
) |
|
|
561,794 |
|
|
NET
CASH PROVIDED BY OPERATING
ACTIVITIES
|
|
|
1,580,106 |
|
|
|
5,628,716 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Acquisition of
property and equipment
|
|
|
(845,814
|
) |
|
|
(322,512
|
) |
|
|
|
|
|
|
|
|
|
|
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(845,814
|
) |
|
|
(322,512
|
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
382,861 |
|
|
|
— |
|
|
Payments
on obligations under capital lease
|
|
|
(60,091
|
) |
|
|
(38,873
|
) |
|
Payments
to affiliate
|
|
|
(2,750,000
|
) |
|
|
(2,750,000
|
) |
|
NET
CASH USED IN FINANCING
ACTIVITIES
|
|
|
(2,427,230
|
) |
|
|
(2,788,873
|
) |
|
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
|
|
(11,438
|
) |
|
|
— |
|
|
NET
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
|
|
|
(1,704,376
|
) |
|
|
2,517,331 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - BEGINNING OF
YEAR
|
|
|
4,792,366 |
|
|
|
2,275,035 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS – END OF YEAR
|
|
$ |
3,087,990 |
|
|
$ |
4,792,366 |
|
| |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF
|
|
|
|
|
|
|
|
|
|
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$ |
1,344,334 |
|
|
$ |
1,134,301 |
|
|
Interest
|
|
$ |
353,455 |
|
|
$ |
513,076 |
|
| |
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY
SCHEDULES OF NON-CASH
INVESTING AND
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Accounts
payable incurred in projects in process
|
|
$ |
— |
|
|
$ |
246,502 |
|
|
Income
tax withheld by clients to be used as a credit in
the
Company’s income tax return
|
|
$ |
23,621 |
|
|
$ |
53,573 |
|
|
Obligations
under capital lease incurred for the
acquisition of
a vehicle
|
|
$ |
33,695 |
|
|
$ |
— |
|
|
Conversion
of cashless exercises warrants to shares
of
common stock
|
|
$ |
— |
|
|
$ |
130 |
|
See notes
to consolidated financial statements.
PHARMA-BIO
SERV, INC.
For
the Years Ended October 31, 2008 and 2007
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”), a Puerto Rico corporation, Pharma-Bio Serv US, Inc.
(“Pharma-US”), a Delaware corporation, and Pharma-Bio Serv Validation &
Compliance Limited (“Pharma-IR”), a majority owned Irish corporation.
Pharma-Bio, Pharma-PR, Pharma-US and Pharma-IR are collectively referred to as
the “Company.” The Company operates in Puerto Rico, the United States and in
Ireland under the name of Pharma-Bio Serv and is engaged in providing technical
compliance consulting services primarily to the pharmaceutical, chemical,
medical device and biotechnology industries.
Pharma-US
is a wholly owned subsidiary, which was organized in Delaware in July 2008. As
of October 31, 2008, this subsidiary was in development stage and has not
incurred significant revenues or expenses.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and all of its wholly owned and majority-owned subsidiaries. All
intercompany transactions and balances have been eliminated in
consolidation.
Use
of Estimates
The
preparation of 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 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
The
carrying value of the Company's financial instruments (excluding obligations
under capital leases and amounts due to affiliate): cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, are considered
reasonable estimates of fair value due to their liquidity or short-term nature.
Management believes, based on current rates, that the fair value of its
obligations under capital leases and amounts due to affiliate approximates the
carrying amount.
Revenue
Recognition
Revenue
is primarily derived from: (1) time and materials contracts (representing
approximately 90% of total revenues), which is recognized by applying the
proportional performance model, whereby revenue is recognized as performance
occurs, and (2) short-term fixed-fee contracts or "not to exceed" contracts
(representing approximately 10% of total revenues), which revenue is recognized
similarly, except that certain milestones also have to be reached before revenue
is recognized. If the Company determines that a fixed-fee or “not to exceed”
contract will result in a loss, the Company recognizes the estimated loss in the
period in which such determination is made.
Cash
Equivalents
For
purposes of the consolidated statements of cash flows, cash equivalents include
investments in a money market obligations trust that is registered under the
U.S. Investment Company Act of 1940 and liquid investments 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 account is determined to be uncollectible. The effect of using this
method approximates that of the allowance method.
Income
Taxes
The
Company follows the provisions of Statement of Financial Accounting Standards
Board No. 109, "Accounting for Income Taxes," which requires 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.
Property
and Equipment
Owned
property and equipment, and leasehold improvements are stated at cost. Equipment
and vehicles under capital leases are stated at the lower of fair market value
or net present value of the minimum lease payments at the inception of the
leases.
Depreciation
and amortization of owned assets are provided for, when placed in service, in
amount sufficient to relate the cost of depreciable assets to operations over
their estimated service lives, using straight-line basis. Assets under capital
leases and leasehold improvements are amortized, over the shorter of the
estimated useful lives of the assets or initial lease term. Major renewals and
betterments that extend the life of the assets are capitalized, while
expenditures for repairs and maintenance are expensed when
incurred.
The
Company evaluates for impairment its long-lived assets to be held and used, and
long-lived assets to be disposed of, whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Based on
management estimates, no impairment of the operating properties was
present.
Intangible
Assets
Definite-lived
intangible assets, such as customer lists and covenants not to compete, are
amortized on a straight-line basis over their estimated useful lives. The
Company continually evaluates the reasonableness of the useful lives of these
assets.
Stock-based
Compensation
Effective
November 1, 2006, the Company adopted the provisions of SFAS No. 123R,
“Share-Based Payment” (“SFAS 123R”), and Staff Accounting Bulletin No. 107 (“SAB
107”) using the modified prospective method, which results in the provisions of
SFAS 123R being applied to the consolidated financial statements on a
prospective basis. Under the modified prospective recognition method,
restatement of consolidated income from prior periods is not required, and
accordingly, the Company has not provided such restatements. Under the modified
prospective provisions of SFAS 123R, compensation expense is recorded for the
unvested portion of previously granted awards that were outstanding on
November 1, 2006 and all subsequent awards. SFAS 123R requires that all
stock-based compensation expense be recognized in the consolidated financial
statements based on the fair value of the awards. Stock-based compensation cost
is measured at the grant date based on the fair value of the award and is
recognized as expense over the requisite service period, which generally
represents the vesting period, and includes an estimate of awards that will be
forfeited. The Company calculates the fair value of stock options using the
Black-Scholes option-pricing model at grant date. SFAS 123R also amends SFAS
No. 95, “Statement of Cash Flows”, to require that excess tax benefits
related to stock-based compensation be reflected as cash flows from financing
activities rather than cash flows from operating activities. The Company does
not recognize such cash flow from financing activities since there has been no
tax benefit related to the stock-based compensation.
Income
Per Share of Common Stock
Basic
income per share of common stock is calculated dividing net income by the
weighted average number of shares of common stock outstanding. Diluted income
per share includes the dilution of common stock equivalents.
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 subsidiary is its local currency.
The assets and liabilities of the Company’s foreign subsidiary 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. The net gains and losses recorded in the condensed consolidated
statements of income were not significant for the periods
presented.
Reclassifications
Certain
reclassifications have been made to the October 31, 2007 consolidated financial
statements to conform them to the October 31, 2008 consolidated financial
statements presentation. Such reclassifications do not have effect on net income
as previously reported.
NOTE
B - RECENT ACCOUNTING PRONOUNCEMENTS
1. In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141R, Business
Combinations (“SFAS 141R”). SFAS 141R requires: the assets acquired and
liabilities assumed to be measured at fair value as of the acquisition date;
liabilities related to contingent consideration to be remeasured at fair value
at each subsequent reporting period; and acquisition-related costs to be
expensed as these are incurred. SFAS 141R also requires additional disclosures
of information surrounding a business combination. The provisions of SFAS 141R
are effective for fiscal years beginning on or after December 15, 2008 and
apply to business combinations that are completed on or after the date of
adoption. The Company has not yet adopted this pronouncement, but expects that
the nature and magnitude of the specific effects will depend upon the nature,
terms and size of the acquisitions the Company completes after the effective
date, if any.
2. In
December 2007, the FASB issued Statement No. 160 “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51”. This Statement
applies to all entities that prepare consolidated financial statements, but will
affect only those entities that have an outstanding noncontrolling interest in
one or more subsidiaries or that deconsolidate a subsidiary. This statement is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is
prohibited.
Management
does not expect that the application of this standard will have any significant
effect on the Company's consolidated financial statements.
3. In
February 2007, the FASB issued Statement No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115”. This Statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This Statement is expected to expand the use of fair value
measurement, which is consistent with the FASB’s long-term measurement
objectives for accounting for financial instruments. This Statement is effective
as of the beginning of an entity’s first fiscal year that begins after November
15, 2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of FASB Statement No. 157, “Fair Value
Measurements”.
Management
does not expect that the application of this standard will have any significant
effect on the Company's consolidated financial statements.
4. In
September 2006, the FASB issued Statement No. 157 “Fair Value Measurement”. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practice. The changes to current practice
resulting from the application of this Statement relate to the definition of
fair value, the methods used to measure fair value, and the expanded disclosures
about fair value measurements. This Statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Earlier application is encouraged,
provided that the reporting entity has not yet issued financial statements for
that fiscal year, including financial statements for an interim period within
that fiscal year. The provisions of this Statement should be applied
prospectively as of the beginning of the fiscal year in which this Statement is
initially applied, except for certain exceptions stated in the
Statement.
Management
does not expect that the application of this standard will have any significant
effect on the Company's consolidated financial statements.
5. In
June 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. This Interpretation also provides guidance on
derecognizing, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. This Interpretation is effective for fiscal
years beginning after December 15, 2006. The application of this standard had no
significant effect on the Company's results of operations or its financial
condition.
6. Other
recently issued FASB Statements or Interpretations, SEC Staff Accounting
Bulletins, and AICPA Emerging Issue Task Force Consensuses have either been
implemented or are not applicable to the Company.
NOTE
C - PROPERTY AND EQUIPMENT
The
balance of property and equipment at October 31, 2008 and 2007 consisted of the
following:
|
|
|
|
|
|
October
31,
|
|
|
|
|
Useful
life (years)
|
|
|
2008
|
|
|
2007
|
|
|
Vehicles
under capital leases
|
|
|
5
|
|
|
$ |
255,129 |
|
|
$ |
221,434 |
|
|
Leasehold
improvements
|
|
|
5
|
|
|
|
566,851 |
|
|
|
19,279 |
|
|
Computers
|
|
|
3
|
|
|
|
253,417 |
|
|
|
185,491 |
|
|
Equipment
|
|
|
3-5
|
|
|
|
752,744 |
|
|
|
119,672 |
|
|
Furniture
and fixtures
|
|
|
10
|
|
|
|
119,349 |
|
|
|
68,509 |
|
|
Projects
in progress
|
|
|
—
|
|
|
|
54,170 |
|
|
|
508,399 |
|
|
Total
|
|
|
|
|
|
|
2,001,660 |
|
|
|
1,122,784 |
|
|
Less:
Accumulated depreciation and amortization
|
|
|
|
|
|
|
(480,085
|
) |
|
|
(322,933
|
) |
|
Property
and equipment, net
|
|
|
|
|
|
$ |
1,521,575 |
|
|
$ |
799,851 |
|
NOTE
D - OTHER ASSETS
At
October 31, 2008 and 2007 non-current other assets included the
following:
|
|
|
October
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Intangible
assets:
|
|
|
|
|
|
|
|
Covenant
not to compete, net of accumulated amortization of $58,333
and
$38,333 in October 31, 2008 and 2007, respectively
|
|
$ |
41,667 |
|
|
$ |
61,667 |
|
|
Customer-related
intangibles, net of accumulated amortization of $141,667
and
$91,667 in October 31, 2008 and 2007, respectively
|
|
|
8,333 |
|
|
|
58,333 |
|
|
Total
intangible assets net of amortization
|
|
|
50,000 |
|
|
|
120,000 |
|
|
Other
assets
|
|
|
13,127 |
|
|
|
14,686 |
|
|
Total
non-current other assets
|
|
$ |
63,127 |
|
|
$ |
134,686 |
|
Covenant
not to compete represents the portion of the payment made in connection with the
purchase of the Pharma-PR stock that was allocated to a non-competition
covenant. Under this agreement, the then sole stockholder of Pharma-PR agreed
not to compete with the Company for a period of five years. The covenant not to
compete of $100,000 is amortized on the straight-line method over the five-year
term of the non-competition covenant.
Customer-related
intangible assets consist mainly of a customer list which Pharma-PR acquired
along with other assets from a business which performs in the United States
consulting services similar to those performed by the Company in Puerto Rico.
The value of the customer list of $150,000 is being amortized on the
straight-line method over its estimated useful life of three years.
Intangible
assets amortization expense for each of the years ended on October 31, 2008 and
2007 amounted to $70,000.
NOTE
E - LINE-OF-CREDIT
The
Company has available an unsecured line-of-credit with a financial institution,
which provides for borrowings up to $250,000. This line of credit may be used as
working capital whenever the Company’s bank account cannot meet its daily cash
requirements. Interest on advances obtained from this line-of-credit will be
paid at 2% over the bank’s prevailing prime rate. At no time during the periods
presented herein was the line-of-credit used.
NOTE
F - INCOME TAXES
On July
2008, Pharma-Bio and Pharma-PR obtained a Grant of Industrial Tax Exemption
(“the Grant”) from the Puerto Rico Industrial Development Company pursuant to
the terms and conditions set forth in Act No. 135 of December 2, 1997, as
amended. The Grant provides relief on various Puerto Rico taxes, including
income tax, mostly for the Company's new microbiological testing facility and
service activities outside of Puerto Rico. The Grant is effective as of
September 1, 2007 and covers a ten year period. Activities covered by the Grant
are subject to a reduced income tax rate of 7%.
For
fiscal year 2008 Pharma-PR operations not covered in the exempt activities of
the Grant are subject to Puerto Rico income tax at a maximum tax rate of 39% as
provided by the 1994 Puerto Rico Internal Revenue Code, as amended. However, for
the year ended October 31, 2007, the Company was subject to an additional 2.5%
special tax as imposed to corporations and partnerships by Puerto Rico Act No.
41of August 2005, as amended by Act No. 244 of November 2006.
The
operations carried out in the United States by the Company’s subsidiary are
taxed in the United States. With certain limitations, the Company receives a
credit on its Puerto Rico tax for the federal income tax paid. Also, upon
distribution of earnings by the Puerto Rican subsidiary to its parent those
dividends are taxed at the federal level, however, the parent is able to receive
a credit for the taxes paid by the subsidiary on its operations in Puerto Rico,
to the extent of the federal taxes that result from those earnings (determined
at rates which are normally lower than in Puerto Rico). As a result, the income
tax expense of the Company, under its present corporate structure, would
normally be the Puerto Rico taxes on operations in Puerto Rico, plus 10%
withholding in Puerto Rico from dividends paid to the Puerto Rican subsidiary’s
parent, plus federal taxes on operations in the United States.
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.
As of
October 31, 2008 and 2007, the Company has not recognized deferred income taxes
on $3,792,546 and $2,099,583 of undistributed earnings of its Puerto Rican
subsidiary, respectively, since such earnings are considered to be reinvested
indefinitely. If the earnings were distributed in the form of dividends, the
Company would be subject to a $379,255 and $209,958 tollgate tax,
respectively.
The
reasons for the difference between the provision for income tax applicable to
income before provision for income taxes and the amount computed by applying the
applicable statutory tax rate in Puerto Rico were as follows:
|
|
|
Year ended October
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Theoretical
income tax expense by application of statutory rates to the book pre-tax
income
|
|
$ |
1,042,524 |
|
|
$ |
1,401,569 |
|
|
Benefit
of tax grant
|
|
|
(28,660
|
) |
|
|
— |
|
|
Permanent
differences, net
|
|
|
7,423 |
|
|
|
34,733 |
|
|
|
|
$ |
1,021,287 |
|
|
$ |
1,436,302 |
|
At
October 31, 2008, Pharma-Bio, Pharma-IR and Pharma-PR have unused operating
losses of approximately $204,000, $253,000 and $181,000 after considering
various timing differences for income tax purposes, which result in a potential
deferred tax asset of approximately $71,400, $31,600 and $12,300, respectively.
However, an allowance has been provided covering the total amount of such
balance since it is uncertain whether the net operating losses can be used to
offset future taxable income before their expiration dates. Realization of
future tax benefits related to a deferred tax asset is dependent on many
factors, including the company’s ability to generate taxable income.
Accordingly, the income tax expense or benefit will be recognized on a yearly
basis when they are realized. These net operating losses are available to offset
future taxable income and expire for Pharma-Bio and Pharma-PR in 2026 and 2015,
respectively, while for Pharma-IR are available indefinitely.
Effective
November 1, 2007, the Company adopted the provisions of FIN 48 which includes a
two-step approach to recognizing, de-recognizing and measuring uncertain tax
positions accounted for in accordance with SFAS 109. As a result of the
implementation of FIN 48, the Company recognized no increase in the liability
for unrecognized tax benefits. Therefore upon implementation of FIN 48, the
Company recognized no material adjustment to the November 1, 2007 balance of
retained earnings. By the end of 2008, the Company had no uncertain tax
positions that would be reduced as a result of a lapse of the applicable statute
of limitations.
The
Company files income tax returns in the U.S. in federal and various states
jurisdictions, Puerto Rico and Ireland. The 2003 through 2008 tax years are open
and may be subject to potential examination in one or more jurisdictions. We are
not currently under federal, state, Puerto Rico or foreign income tax
examination.
NOTE
G - DUE TO AFFILIATE
Pursuant
to a plan and agreement of merger dated January 25, 2006, the Company agreed to
pay its then sole stockholder of Pharma-PR three installments of $2,750,000 on
January 25, 2007, 2008 and 2009, including imputed interest of 6.72%. As of
October 31, 2008 and 2007 the outstanding installments balances
were:
|
|
|
October
31,
|
|
|
Installments
due within the year ended October 31,:
|
|
|
2008
|
|
|
|
2007
|
|
|
2009
|
|
$
|
2,750,000
|
|
|
$
|
2,750,000
|
|
|
2008
|
|
|
—
|
|
|
|
2,750,000
|
|
|
Total
installments due
|
|
|
2,750,000
|
|
|
|
5,500,000
|
|
|
Less
imputed interest
|
|
|
(43,108
|
)
|
|
|
(262,235
|
)
|
|
Present
value of minimum payments
|
|
|
2,706,892
|
|
|
|
5,237,765
|
|
|
Current
portion
|
|
|
(2,706,892
|
)
|
|
|
(2,706,892
|
)
|
|
Long-term
portion
|
|
$
|
—
|
|
|
$
|
2,530,873
|
|
NOTE
H – COMMITMENTS AND CONTINGENCIES
Capitalized lease obligations
- The Company leases vehicles under non-cancelable capital lease agreements with
a cost of $255,129 and $221,434 (accumulated depreciation of $160,488 and
$111,147) as of October 31, 2008 and 2007, respectively. Amortization expense
for these assets amounted to $49,341 and $44,286 in the years ended October 31,
2008 and 2007, respectively. The following is a schedule, by year, of future
minimum lease payments under the capitalized leases together with the present
value of the net minimum lease payments at October 31, 2008:
|
Twelve
months ending October 31,
|
|
Amount
|
|
|
2009
|
|
$
|
65,162
|
|
|
2010
|
|
|
40,293
|
|
|
2011
|
|
|
8,054
|
|
|
2012
|
|
|
8,054
|
|
|
2013
|
|
|
2,015
|
|
|
Total
future minimum lease payments
|
|
|
123,578
|
|
|
Less:
Amount of imputed interest
|
|
|
(
8,326
|
)
|
|
Present
value of future minimum lease payments
|
|
|
115,252
|
|
|
Current
portion of obligation under capital leases
|
|
|
(45,318
|
)
|
|
Long-term
portion
|
|
$
|
69,934
|
|
Operating facilities - The
Company conducts its administrative operations in office facilities which are
leased under three different rental agreements.
In
February 2007, the Company entered into a lease agreement with an affiliate of
the chief executive officer for the new headquarters and laboratory testing
facilities in Dorado, Puerto Rico. The lease agreement is for a term of five
years with monthly rental payments of $18,750, $19,687, $20,672, $21,705 and
$22,791 for each of the years under the lease. The lease agreement ends in
January 2012 and provides a five year-renewal option. The agreement also
requires the payment of utilities, property taxes, insurance and a portion of
expenses incurred by the affiliate in connection with the maintenance of common
areas. Through January 2007, a different smaller facility was leased from the
same entity.
In August
2007, the Company renewed its lease agreement for office facilities in Limerick,
Pennsylvania. The lease agreement was renewed for a term of three years with
monthly rental payments of $1,050, $1,100, and $1,150; for each of the years
under the lease which ends in July 2010.
The
Company maintains office facilities in Cork, Ireland. The facilities are under a
month-to-month lease with monthly payments of approximately $750.
The
Company leases certain apartments as dwellings for employees. The leases are
under short-term lease agreements and usually are cancelable upon 30-day
notification.
Minimum
future rental payments under non-cancelable operating leases having remaining
terms in excess of one year as of October 31, 2008 are:
|
|
|
Amount
|
|
|
2009
|
|
$
|
258,459
|
|
|
2010
|
|
|
267,715
|
|
|
2011
|
|
|
270,233
|
|
|
2012
|
|
|
68,372
|
|
|
Total
minimum lease payments
|
|
$
|
864,779
|
|
Rent
expense during the years ended October 31, 2008 and 2007 was $407,554 and
$251,231, respectively.
Contingencies - In the
ordinary course of business, the Company may be a party to legal proceedings
incidental to the business. These proceedings are not expected to have a
material adverse effect on the Company’s business or financial
condition.
NOTE
I - STOCK OPTIONS AND STOCK BASED COMPENSATION
In
October 2005, the Company's board of directors adopted, and on April 25, 2006,
the Company’s stockholders approved, the 2005 Long-Term Incentive Plan, covering
2,500,000 shares of common stock. The 2005 plan provides for the grant of
incentive and non-qualified options, stock grants, stock appreciation rights and
other equity-based incentives to employees, including officers, consultants and
directors. The 2005 plan is to be administered by a committee of independent
directors. In the absence of a committee, the plan is administered by the board
of directors. Options intended to be incentive stock options must be granted at
an exercise price per share which is not less than the fair market value of the
common stock on the date of grant and may have a term which is not longer than
ten years. If the option holder holds at least 10% of the Company’s common
stock, the exercise price must be at least 110% of the fair market value on the
date of grant and the term of the option cannot exceed five years.
Effective
November 1, 2006, the Company adopted the provisions of SFAS No.123R,
“Share-Based Payment” (“SFAS 123R”), and S.E.C. Staff Accounting Bulletin No.
107 (“SAB 107”). The Company recognizes stock-based compensation based on the
fair value of the awards. Stock-based compensation cost is measured at the grant
date based on the fair value of the award and is recognized as expense over the
requisite service period, which generally represents the vesting period, and
includes an estimate of awards that will be forfeited.
The 2005
Plan stock options activity and status for the years ended October 31, 2008 and
2007 was as follows:
| |
|
Year
ended October 31,
|
|
| |
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Number
of
|
|
|
Average
Option
|
|
|
Number
of
|
|
|
Average
Option
|
|
|
|
|
Shares
|
|
|
Exercise
Price
|
|
|
Shares
|
|
|
Exercise
Price
|
|
|
Outstanding
at beginning of year
|
|
|
1,199,355 |
|
|
$ |
0.7496 |
|
|
|
1,348,090 |
|
|
$ |
0.7344 |
|
|
Granted
|
|
|
415,000 |
|
|
$ |
0.6821 |
|
|
|
100,000 |
|
|
$ |
0.7675 |
|
|
Exercised
|
|
|
- |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Forfeited
|
|
|
(257,583
|
) |
|
$ |
0.7363 |
|
|
|
(248,735
|
) |
|
$ |
0.7399 |
|
|
Total
outstanding at end of year
|
|
|
1,356,772 |
|
|
$ |
0.7213 |
|
|
|
1,199,355 |
|
|
$ |
0.7496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
exercisable stock
options
at end of year
|
|
|
479,648 |
|
|
$ |
0.7359 |
|
|
|
75,000 |
|
|
$ |
0.6000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
31,
2008
|
|
|
|
|
|
|
October
31,
2007
|
|
|
|
|
|
|
Weighted
average remaining years
in
contractual life for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
outstanding options
|
|
2.7
years
|
|
|
|
|
|
|
3.3
years
|
|
|
|
|
|
|
Outstanding
exercisable options
|
|
2.5
years
|
|
|
|
|
|
|
3.4
years
|
|
|
|
|
|
|
Shares
of common stock available
for
issuance pursuant to future
stock
option grants
|
|
|
1,143,228
|
|
|
|
|
|
|
|
1,300,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table presents the stock-based compensation included in the Company’s
consolidated statement of income and the effect in earnings per
share:
|
|
|
Year ended October
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Stock-based
compensation expense:
|
|
|
|
|
|
|
|
Cost
of services
|
|
$ |
17,245 |
|
|
$ |
60,990 |
|
|
Selling,
general and administrative
|
|
|
24,941 |
|
|
|
54,414 |
|
|
Stock-based
compensation before tax
|
|
|
42,186 |
|
|
|
115,404 |
|
|
Income
tax benefit
|
|
|
— |
|
|
|
— |
|
|
Net
stock-based compensation expense
|
|
$ |
42,186 |
|
|
$ |
115,404 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect
on earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
(0.002 |
) |
|
$ |
(0.006 |
) |
|
Diluted
earnings per share
|
|
$ |
(0.002 |
) |
|
$ |
(0.005 |
) |
As of
October 31, 2008, estimated stock based compensation expense to be recognized in
future periods for granted nonvested stock options amounted to approximately
$97,000. These nonvested stock options compensation expense will be recognized
in a weighted average period of approximately 1.7 years.
The fair
value of stock-based awards to employees is calculated using the Black-Scholes
option pricing model. The Black-Scholes model requires subjective assumptions,
including future stock price volatility and expected time to exercise, which
greatly affect the calculated values. The expected term of the option has been
estimated using the “simplified” method as provided in Securities and Exchange
Commission (“SEC”) Staff Accounting Bulletin No. 107. Under this method, the
expected term equals the arithmetic average of the vesting term and the
contractual term of the option. The risk-free rate is based on the U.S. Treasury
rates in effect during the corresponding period of grant. The expected
volatility is based on the historical volatility of the Company’s stock price.
These factors could change in the future, which would affect fair values of
stock options granted in such future periods, and could cause volatility in the
total amount of the stock-based compensation expense reported in future
periods.
The
following weighted average assumptions were used to estimate the fair value of
stock options granted for the years ended October 31, 2008 and
2007:
|
|
|
Year
ended October 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Expected
dividend yield
|
|
|
0.0 |
% |
|
|
0.0
|
% |
|
Expected
stock price volatility
|
|
|
82.6 |
% |
|
|
10.0
|
% |
|
Risk
free interest rate
|
|
|
3.2 |
% |
|
|
4.7
|
% |
|
Expected
life of options
|
|
3.5
years
|
|
|
2.65
years
|
|
|
Weighted
average fair value of options granted
|
|
$ |
0.1197 |
|
|
$ |
0.1506 |
|
As of
October 31, 2008 the outstanding stock options have no aggregate intrinsic value
since the closing stock price on such date was below the exercise price of the
stock options. The aggregate intrinsic value represents the difference between
the Company’s stock price at year end and the exercise price, multiplied by the
number of in-the money options had all option holders exercised their options.
This amount changes based on the fair market value of the Company’s stock. For
the years ended October 31, 2008 and 2007 no stock options were
exercised.
Pursuant
to the acquisition of Pharma-PR, Pharma-Bio agreed that it would issue 100
shares of common stock to each of Pharma-PR's eligible employees. Such shares
will not be issued until Pharma-Bio is eligible to use a Form S-8
registration statement in connection with the issuance of such shares.
Approximately 16,500 shares of common stock may be issued pursuant to this
program.
On
December 2008, subsequent to our fiscal year end herein reported, in accordance
with the 2005 Long-Term Incentive Plan, the Company awarded 180,000 stock
options to certain employees and executives.
NOTE
J – WARRANTS
At
October 31, 2008 and 2007 the Company had outstanding warrants to purchase
11,053,216 and 12,188,892 shares, respectively, of the Company’s common stock at
prices ranging from $0.06 to $1.65 per share for both years. The warrants became
exercisable at various dates commencing in 2004 and expire at various dates
through 2014.
Warrants
for the purchase of 466,667 and 669,009 common shares with exercise prices of
$0.7344 and $0.06, respectively, were exercised by two warrant holders in July
2008. Proceeds in excess of the common shares’ par value were recorded in the
consolidated financial statements as Additional Paid-in Capital.
On
January 23, 2009, the Board of Directors of the Company authorized a one year
extension on the expiration date of the outstanding warrants issued pursuant to,
and subject to the terms and conditions of, those certain Series C Common Stock
Purchase Warrants of the Company, dated as of January 25, 2006, and which were
set to expire on January 24, 2009. In total, this extension of the expiration
date of the common stock purchase warrants identified above will apply to an
aggregate of 973,225 warrants. These warrants have an exercise price of
$0.7344.
NOTE
K – EARNINGS PER SHARE
The
following data show the amounts used in the calculations of basic and diluted
earnings per share.
|
|
|
Years ended October
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Net
income available to common equity holders - used to compute basic and
diluted earnings per share
|
|
$ |
1,487,796 |
|
|
$ |
1,901,167 |
|
|
Weighted
average number of common shares - used to compute basic earnings per share
|
|
|
19,970,549 |
|
|
|
19,391,063 |
|
|
Effect
of warrants to purchase common stock
|
|
|
2,288,467 |
|
|
|
2,775,119 |
|
|
Effect
of options to purchase common stock
|
|
|
— |
|
|
|
— |
|
|
Weighted
average number of shares - used to compute diluted earnings per
share
|
|
|
22,259,016 |
|
|
|
22,166,182 |
|
Warrants
for the purchase of 8,972,625 and 9,439,292 shares of common stock for the years
ended in October 31, 2008 and 2007, respectively, were not included in computing
diluted earnings per share because their effects were antidilutive. In addition,
options for the purchase of 1,356,772 and 1,199,355 shares of common stock for
the years ended in October 31, 2008 and 2007, respectively, were not included in
computing diluted earnings per share because their effects were also
antidilutive.
NOTE
L - CONCENTRATION OF RISKS
Cash
and cash equivalents
The
Company maintains cash deposits in a FDIC insured bank and in a money market
obligations trust, registered under the US Investment Company Act of 1940, as
amended. The bank deposit balances frequently exceed federally insured limits.
The money market fund is insured until April 30, 2009 under the United States
Treasury Temporary Guarantee Program. No losses have been experienced or are
expected on these accounts.
Accounts
receivable and revenues
Management
deems all its accounts receivable to be fully collectible, and, as such, does
not maintain any allowances for uncollectible receivables.
The
Company's revenues, and the related receivables, are concentrated in the
pharmaceutical industry in Puerto Rico, the United States of America and
Ireland. Although 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 three customers, who
accounted for 10% or more of its revenues in either of the years ended October
31, 2008 or 2007. During the year ended October 31, 2008 revenues from these
customers were 29%, 28% and 0%, or a total of 57%, as compared to the same
period last year for 26%, 11% and 22%, or a total of 59%, respectively. At
October 31, 2008 and 2007 amounts due from these customers represented 49% and
45% of total accounts receivable balance, respectively.
NOTE
M - RETIREMENT PLAN
Pharma-PR
has a qualified profit sharing plan in accordance with the provision of Section
l165(a)(3)(A) of the Puerto Rico Code, for employees who meet certain age and
service period requirements. The Company makes contributions to this plan as
required by the provisions of the plan document. Contributions for the years
ended October 31, 2008 and 2007 were $60,640 and $69,595,
respectively.
NOTE
N – SUBSEQUENT EVENT
On
December 2008, Pharma-PR acquired the operations and assets of Puerto Rico-based
Integratek Corp. (“Integratek”), an information technology services and
consulting firm. Pursuant to the Asset Purchase Agreement between Integratek
Corp. and Pharma-PR, Pharma-PR acquired approximately $100,000 in tangible net
assets, and will disburse, on various installments within 90 days from closing,
a total amount of approximately $210,000 for the purchase of the operations and
net assets.
Item
13. Other Expenses of Issuance and Distribution
The
estimated expenses of the registration, all of which will be paid by us, are as
follows:
|
Item
|
|
Amount
|
|
|
SEC
filing fee
|
|
$ |
1,134.22 |
† |
|
Printing
and filing
|
|
|
5,000.00 |
* |
|
Legal
expenses, including blue sky
|
|
|
10,000.00 |
* |
|
Accounting
expenses
|
|
|
4,000.00 |
* |
|
Miscellaneous
|
|
|
1,000.00 |
* |
|
Total
|
|
$ |
21,134.22 |
* |
†
Previously paid.
Item
14. Indemnification of Officers and Directors
Section
145 of the Delaware General Corporation Law provides that a corporation may
indemnify directors and officers as well as other employees and individuals
against expenses including attorneys’ fees, judgments, fines and amounts paid in
settlement in connection with various actions, suits or proceedings, whether
civil, criminal, administrative or investigative other than an action by or in
the right of the corporation, a derivative action, if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses including attorneys’ fees
incurred in connection with the defense or settlement of such actions, and the
statute requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation. The
statute provides that it is not exclusive of other indemnification that may be
granted by a corporation’s certificate of incorporation, bylaws, agreement, a
vote of stockholders or disinterested directors or otherwise.
Our
certificate of incorporation provides that we will indemnify and hold harmless,
to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law, as amended from time to time, each person that such section
grants us the power to indemnify.
The
Delaware General Corporation Law permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for any breach
of the director’s duty of loyalty to the corporation or its stockholders; acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; payments of unlawful dividends or unlawful stock
repurchases or redemptions, or any transaction from which the director derived
an improper personal benefit.
Our
certificate of incorporation provides that, to the fullest extent permitted by
applicable law, none of our directors will be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a
director.
Each
selling stockholder and the Company have agreed to mutual indemnification
provisions with respect to certain liabilities incurred in connection with this
offering as the result of claims made under the Securities Act of 1933, the
Securities Exchange Act of 1934 or state law.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or controlling persons of the Company, pursuant
to the foregoing provisions, or otherwise, the Company has been advised that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered
hereunder, the Company will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Item 15. Recent Sales of Unregistered
Securities.
1. On
January 25, 2006, contemporaneously with the consummation of the acquisition,
the Company sold, in a private placement, 47 units, each unit consisting of
25,000 shares of series A preferred stock, warrants to purchase 85,100 shares of
common stock at $1.10 per share and warrants to purchase 85,100 shares of common
stock at $1.65 per share. In the private placement, the Company issued an
aggregate of 1,175,000 shares of series A preferred stock (which were
convertible into an aggregate of 15,998,800 shares of common stock), warrants
(“Investor Warrants A”) to purchase 3,999,700 shares of common stock at $1.10
per share, and warrants (“Investor Warrants B”)to purchase 3,999,700 shares of
common stock at $1.65 per share, to 42 accredited investors. The Company paid
brokerage commissions of 10% of the gross purchase price and an aggregate
non-accountable expense allowance of 3% of the gross purchase price with respect
to the units sold. In certain cases, the broker waived the commission and
non-accountable expense allowance, and the investor paid the purchase price less
the commission and non-accountable expense allowance. The purchase price for the
47 units sold was $11,750,000. Broker-dealers waived commission and
non-accountable expense allowance with respect to $628,750, the Company paid
commissions and non-accountable expense allowances totaling $898,750, and the
Company issued warrants (“Broker-dealer Warrants”) to purchase an aggregate of
1,439,892 shares of common stock. These warrants have an exercise price of
$0.7344 per share and had an original term of three years, which on January 2009
was extended by the Company’s Board of Directors for an additional year. As of
October 31, 2008, 466,667 Broker-dealer Warrants were exercised, while all
Investor Warrants A and Investor Warrants B remain outstanding.
Each
share of series A preferred stock was automatically converted into 13.616 shares
of common stock, or an aggregate of 15,998,800 shares of common stock upon the
filing on April 25, 2006, of a restated certificate of incorporation which
increased the authorized capital stock to 10,000,000 shares of preferred stock
and 50,000,000 shares of common stock.
The
subscription agreement pursuant to which the series A preferred stock and
warrants were issued required the Company to file a registration statement
within 60 days after the effective date of the merger between the Company and
Plaza Acquisition Corp. The effective date of the merger was January 25, 2006,
therefore, the 60-day term expired on March 26, 2006. Since the Company failed
to file the registration statement by that date, the Company was required to
issue .0003 shares of common stock for each share of common stock issued upon
conversion of the series A preferred stock for each day of delay. The Company
was three days late, therefore, 14,401 shares of common stock were issued to the
former holders of the series A preferred stock.
The
warrants issued in the private placement expire five years from the closing date
and are callable by the Company if the closing price of the common stock is at
least twice the exercise price of the warrants for twenty consecutive trading
days. The securities were issued in reliance upon an exemption
from registration provided by Section 4(2) and Rule 506.
2. In
January 2006, the Company granted 1,400,000 options to purchase common stock to
key employees. No shares have been issued pursuant to the plan. The options were
granted pursuant to Section 4(2) of the Securities Act, as amended, as issuances
not involving a public offering. No consideration was received for the grant of
the options and no
options may be exercised until and unless a registration statement on Form S-8
has been filed with the SEC. The shares issuable upon exercise of the options
will be registered pursuant to the Securities Act on a Form S-8.
The
Company believes that all of the above transactions were transactions not
involving any public offering within the meaning of Section 4(2) of the
Securities Act, as amended, since (a) each of the transactions involved the
offering of such securities to a substantially limited number of persons; (b)
each person took the securities as an investment for his/her/its own account and
not with a view to distribution; (c) each person had access to information
equivalent to that which would be included in a registration statement on the
applicable form under the Securities Act, as amended; (d) each person had
knowledge and experience in business and financial matters to understand the
merits and risk of the investment; therefore no registration statement needed to
be in effect prior to such issuances.
Item
16. Exhibits
|
|
|
|
|
Incorporated By
Reference
|
|
Exhibit Number
|
|
Exhibit Description
|
|
Form
|
|
File Number
|
|
Exhibit
|
|
Filing Date
|
|
3.1
|
|
Restated
Certificate of Incorporation
|
|
8-K
|
|
000-50956
|
|
99.1
|
|
5/1/2006
|
|
3.2
|
|
By-laws
|
|
10-SB12G
|
|
000-50956
|
|
3.2
|
|
9/24/2004
|
|
3.3
|
|
Amendment
No. 1 to the By-laws
|
|
8-K
|
|
000-50956
|
|
3.1
|
|
6/6/2008
|
|
4.1
|
|
Form
of warrant issued to Investors in January 2006 private
placement
|
|
8-K
|
|
000-50956
|
|
4.2
|
|
1/31/2006
|
|
4.2
|
|
Form
of warrant held by initial warrant holders
|
|
8-K
|
|
000-50956
|
|
4.3
|
|
1/31/2006
|
|
4.3
|
|
Form
of warrant held by San Juan Holdings
|
|
8-K
|
|
000-50956
|
|
4.4
|
|
1/31/2006
|
|
4.4
|
|
Form
of warrants issued to broker-dealers in January 2006 private
placement
|
|
8-K
|
|
000-50956
|
|
4.5
|
|
1/31/2006
|
|
5.1
|
|
Opinion
of Akerman Senterfitt*
|
|
|
|
|
|
|
|
|
|
10.1
|
|
Form
of subscription agreement for January 2006 private
placement
|
|
8-K
|
|
000-50956
|
|
99.1
|
|
1/31/2006
|
|
10.2
|
|
Registration
rights provisions for the subscription agreement relating to January 2006
private placement
|
|
8-K
|
|
000-50956
|
|
99.2
|
|
1/31/2006
|
|
10.3
|
|
Registration
rights provisions for Elizabeth Plaza and San Juan Holdings,
Inc.
|
|
8-K
|
|
000-50956
|
|
99.3
|
|
1/31/2006
|
|
10.4
|
|
Employment
Agreement dated January 2, 2008 between the Registrant and Elizabeth
Plaza
|
|
10-KSB
|
|
000-50956
|
|
10.5
|
|
1/31/2008
|
|
10.5
|
|
Amendment
to Employment Agreement dated June 9, 2008 between the Registrant and
Elizabeth Plaza
|
|
10-K
|
|
000-50956
|
|
10.5
|
|
1/29/2009
|
|
10.6
|
|
Employment
Agreement dated December 4, 2007 between the Registrant and Juan P.
Gutierrez
|
|
10-KSB
|
|
000-50956
|
|
10.6
|
|
1/31/2008
|
|
10.7
|
|
Employment
Agreement dated January 25, 2006 between the Registrant and Nélida
Plaza
|
|
8-K
|
|
000-50956
|
|
99.5
|
|
1/31/2006
|
|
10.8
|
|
Employment
Agreement dated November 5, 2007 between the Registrant and Pedro
Lasanta
|
|
10-K
|
|
000-50956
|
|
10.8
|
|
1/29/2009
|
|
10.9
|
|
Amendment
to Employment Agreement dated December 17, 2008 between the Registrant and
Pedro Lasanta
|
|
8-K
|
|
000-50956
|
|
99.1
|
|
12/23/2008
|
|
10.10
|
|
Employment
Agreement dated March 24, 2006 between the Registrant and Manuel
Morera
|
|
8-K
|
|
000-50956
|
|
99.1
|
|
4/10/2006
|
|
10.11
|
|
2005
Long-term incentive plan, as amended
|
|
DEF
14A
|
|
000-50956
|
|
Appendix
C
|
|
3/26/2007
|
|
10.12
|
|
Lease
dated March 16, 2004 between Plaza Professional Center, Inc. and the
Registrant
|
|
SB-2
|
|
333-132847
|
|
10.9
|
|
3/30/2006
|
|
10.13
|
|
Lease
dated November 1, 2004 between Plaza Professional Center, Inc. and the
Registrant
|
|
SB-2
|
|
333-132847
|
|
10.10
|
|
3/30/2006
|
|
10.14
|
|
Vendor
Agreement dated May 4, 2006 between the Registrant and Schering-Plough
Products, L.L.C.
|
|
SB-2/A
|
|
333-132847
|
|
10.12
|
|
11/8/2006
|
|
10.15
|
|
Agreement
dated January 17, 2006 between Lilly del Caribe, Inc. and Plaza Consulting
Group, Inc.
|
|
SB-2/A
|
|
333-132847
|
|
10.13
|
|
11/8/2006
|
|
10.16
|
|
Agreement
effective as of November 1, 2005 between SB Pharmco Puerto Rico Inc. d/b/a
GlaxoSmithKline
|
|
SB-2/A
|
|
333-132847
|
|
10.14
|
|
10/27/2006
|
|
14.1
|
|
Code
of business conduct and ethics for senior management
|
|
10-KSB
|
|
000-50956
|
|
14.1
|
|
2/2/2007
|
|
21.1
|
|
List
of Subsidiaries
|
|
10-K
|
|
000-50956
|
|
21.1
|
|
1/29/2009
|
|
23.1
|
|
Consent
of Horwath Velez & Co, PSC*
|
|
|
|
|
|
|
|
|
|
24.1
|
|
Power
of Attorney**
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
*
|
Filed
herewith.
|
|
**
|
Previously
filed with the Company's Registration Statement, File No. 333-132847 on
Form SB-2 filed with the SEC on March 30,
2006.
|
Item
17. Undertakings
The
undersigned Company hereby undertakes:
(1) To
file, during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i)
Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii)
Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a twenty percent (20%) change in the
maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement;
(iii)
Include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) For
determining liability under the Securities Act, the Company will treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time to be the initial bona
fide offering.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) For
determining liability of the undersigned Company under the Securities Act to any
purchaser in the initial distribution of the securities, the undersigned Company
undertakes that in a primary offering of securities of the undersigned Company
pursuant to this registration statement, regardless of the underwriting method
used to sell the securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following communications, the
undersigned Company will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned Company relating to the
offering required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned Company or used or referred to by the undersigned
Company;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned Company or its securities provided by
or on behalf of the undersigned Company; and
(iv) Any
other communication that is an offer in the offering made by the undersigned
Company to the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable.
In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act, and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant has duly
caused this Post-Effective Amendment to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Dorado, Commonwealth of Puerto Rico on this 26th day
of February, 2009.
|
|
PHARMA-BIO
SERV, INC.
|
|
|
|
|
|
By:
|
/s/ ELIZABETH
PLAZA
|
|
|
Name:
Elizabeth Plaza
Title:
President and CEO
|
Pursuant
to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Elizabeth Plaza*
|
|
President,
Chief Executive Officer and Director
|
|
February
26, 2009
|
|
Elizabeth
Plaza.
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Pedro J. Lasanta
|
|
Chief
Financial Officer
|
|
February
26, 2009
|
|
Pedro
J. Lasanta
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Kirk Michel*
|
|
Director
|
|
February
26, 2009
|
|
Kirk
Michel
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Dov Perlysky*
|
|
Director
|
|
February
26, 2009
|
|
Dov
Perlysky
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Howard Spindel*
|
|
Director
|
|
February
26, 2009
|
|
Howard
Spindel
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Irving Wiesen*
|
|
Director
|
|
February
26, 2009
|
|
Irving
Wiesen
|
|
|
|
|
|
|
|
|
|
|
|
*By:
/s/ Elizabeth Plaza
|
|
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Elizabeth
Plaza, attorney-in-fact
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