þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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20-0653570
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(State or Other Jurisdiction of
Incorporation or Organization)
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(IRS Employer
Identification No.)
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Pharma-Bio Serv Building,
# 6 Road 696
Dorado, Puerto Rico
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00646
(Zip Code)
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(Address of Principal Executive Offices)
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Large accelerated filer
¨
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
þ
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Page
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PART I FINANCIAL INFORMATION
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Item 1 – Financial Statements
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Condensed Consolidated Balance Sheets as of January 31, 2014 and October 31, 2013 (unaudited)
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3
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Condensed Consolidated Statements of Income for the three-month periods ended January 31, 2014 and 2013 (unaudited)
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4
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Condensed Consolidated Statements of Comprehensive Income for the three-month periods ended January 31, 2014 and 2013 (unaudited)
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5
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Condensed Consolidated Statements of Cash Flows for the three-month periods ended January 31, 2014 and 2013 (unaudited)
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6
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Notes to Condensed Consolidated Financial Statements (unaudited)
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7
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
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14
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Item 4 – Controls and Procedures
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19
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PART II OTHER INFORMATION
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Item 1 – Legal Proceedings
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20
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Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
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20
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Item 6 – Exhibits
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20
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SIGNATURES
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21
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Item 1.
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FINANCIAL STATEMENTS
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January 31,
2014*
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October 31,
2013
**
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|||||||
ASSETS:
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||||||||
Current assets
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||||||||
Cash and cash equivalents
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$ | 13,782,775 | $ | 12,045,923 | ||||
Marketable securities
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64,124 | 71,260 | ||||||
Accounts receivable
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5,671,395 | 7,403,987 | ||||||
Other
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658,729 | 767,452 | ||||||
Total current assets
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20,177,023 | 20,288,622 | ||||||
Property and equipment
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884,477 | 976,423 | ||||||
Other assets
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16,839 | 16,891 | ||||||
Total assets
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$ | 21,078,339 | $ | 21,281,936 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
:
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||||||||
Current liabilities
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||||||||
Current portion-obligations under capital leases
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$ | 27,680 | $ | 32,188 | ||||
Accounts payable and accrued expenses
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1,844,385 | 2,825,532 | ||||||
Income taxes payable
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419,238 | 322,731 | ||||||
Total current liabilities
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2,291,303 | 3,180,451 | ||||||
Obligations under capital leases
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45,873 | 51,724 | ||||||
Total liabilities
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2,337,176 | 3,232,175 | ||||||
Stockholders' equity:
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||||||||
Preferred Stock, $0.0001 par value; authorized 10,000,000 shares;
none outstanding
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- | - | ||||||
Common Stock, $0.0001 par value; authorized 50,000,000 shares; issued and outstanding 23,043,094 and 22,702,186 shares at January 31, 2014 and October 31, 2013, respectively
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2,304 | 2,271 | ||||||
Additional paid-in capital
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978,136 | 931,039 | ||||||
Retained earnings
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17,855,106 | 17,193,203 | ||||||
Accumulated other comprehensive loss
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(94,383 | ) | (76,752 | ) | ||||
Total stockholders' equity
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18,741,163 | 18,049,761 | ||||||
Total liabilities and stockholders' equity
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$ | 21,078,339 | $ | 21,281,936 |
*
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Unaudited.
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**
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Condensed from audited financial statements.
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Three months ended January 31,
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||||||||
2014
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2013
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REVENUES
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$ | 7,007,652 | $ | 7,654,392 | ||||
COST OF SERVICES
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4,635,451 | 5,087,624 | ||||||
GROSS PROFIT
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2,372,201 | 2,566,768 | ||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
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1,544,581 | 1,276,464 | ||||||
INCOME FROM OPERATIONS
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827,620 | 1,290,304 | ||||||
OTHER INCOME, NET
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- | 229 | ||||||
INCOME BEFORE INCOME TAXES
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827,620 | 1,290,533 | ||||||
INCOME TAX EXPENSE
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165,687 | 237,288 | ||||||
NET INCOME
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$ | 661,933 | $ | 1,053,245 | ||||
BASIC EARNINGS PER COMMON SHARE
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$ | 0.029 | $ | 0.051 | ||||
DILUTED EARNINGS PER COMMON SHARE
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$ | 0.028 | $ | 0.046 | ||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC
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22,776,093 | 20,785,934 | ||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – DILUTED
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23,725,279 | 22,818,031 |
Three months ended January 31,
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||||||||
2014
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2013
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|||||||
NET INCOME
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$ | 661,933 | $ | 1,053,245 | ||||
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF
RECLASSIFICATION ADJUSTMENTS AND TAXES:
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||||||||
Foreign currency translation (loss) gain
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(10,495 | ) | 28,360 | |||||
Net unrealized losses on available-for-sale securities
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(7,136 | ) | - | |||||
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME
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(17,631 | ) | 28,360 | |||||
COMPREHENSIVE INCOME
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$ | 644,302 | $ | 1,081,605 |
Level 1
:
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Quoted prices in active markets for identical assets and liabilities.
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Level 2:
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Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
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Level 3
:
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Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
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Type of security as of January 31, 2014
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Amortized Cost
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Gross
Unrealized Gains
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Gross
Unrealized
Losses
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Estimated
Fair Value
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||||||||||
U.S. Treasury securities
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$ |
4,500,000
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$
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—
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$
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—
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$
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4,500,000
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||||||
Other government-related debt securities:
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||||||||||||||
Puerto Rico Commonwealth Government Development Bond
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95,000
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—
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(30,876
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)
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64,124
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|||||||||
Total interest-bearing and available-for-sale securities
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$ |
4,595,000
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$
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—
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$
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(30,876
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)
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$
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4,564,124
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Type of security as of October 31, 2013
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Amortized Cost
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Gross
Unrealized Gains
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Gross
Unrealized
Losses
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Estimated
Fair Value
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|||||||||||
U.S. Treasury securities
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$ |
$4,500,000
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$
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—
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$
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—
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$
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4,500,000
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|||||||
Other government-related debt securities:
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|||||||||||||||
Puerto Rico Commonwealth Government Development Bond
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95,000
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—
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(23,740
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)
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71,260
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||||||||||
Total interest-bearing and available-for-sale securities
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$ |
$4,595,000
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$
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—
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$
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(23,740
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)
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$
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4,571,260
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Classification in the Consolidated Balance Sheets
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January 31,
2014
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October 31,
2013
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Cash and cash equivalents
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$ | 4,500,000 | $ | 4,500,000 | ||||
Marketable securities
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64,124 | 71,260 | ||||||
Total available-for-sale securities
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$ | 4,564,124 | $ | 4,571,260 |
Three months
ended January 31,
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||||||||
2014
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2013
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|||||||
Net income available to common equity holders - used to compute basic and diluted earnings per share
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$ | 661,933 | $ | 1,053,245 | ||||
Weighted average number of common shares - used to compute basic earnings per share
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22,776,093 | 20,785,934 | ||||||
Effect of warrants to purchase common stock
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190,387 | 1,892,881 | ||||||
Effect of restricted stock units to common stock
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17,345 | - | ||||||
Effect of options to purchase common stock
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741,454 | 139,216 | ||||||
Weighted average number of shares - used to compute diluted earnings per share
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23,725,279 | 22,818,031 |
Three months ended January 31,
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||||||||
2014
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2013
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REVENUES:
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Puerto Rico consulting
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$ | 3,521,211 | $ | 3,544,765 | ||||
United States consulting
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2,321,340 | 2,749,703 | ||||||
Europe consulting
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683,329 | 854,774 | ||||||
Lab (microbiological and chemical testing)
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453,056 | 366,646 | ||||||
Other segments¹
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28,716 | 138,504 | ||||||
Total consolidated revenues
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$ | 7,007,652 | $ | 7,654,392 | ||||
INCOME (LOSS) BEFORE TAXES:
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||||||||
Puerto Rico consulting
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$ | 618,347 | $ | 778,303 | ||||
United States consulting
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334,923 | 572,311 | ||||||
Europe consulting
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(81,444 | ) | (84,733 | ) | ||||
Lab (microbiological and chemical testing)
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19,073 | (10,291 | ) | |||||
Other segments¹
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(63,279 | ) | 34,943 | |||||
Total consolidated income before taxes
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$ | 827,620 | $ | 1,290,533 |
¹
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Other segments represent activities that fall below the reportable threshold and are carried out in Puerto Rico and the United States. These activities include a technical seminars/training division, an information technology services and consulting division, and corporate headquarters, as applicable.
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ITEM 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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Three months ended
January 31,
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Revenues by Region:
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2014
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2013
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Puerto Rico
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$ | 4,003 | 57.1 | % | $ | 4,050 | 52.9 | % | ||||||||
United States
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2,321 | 33.1 | % | 2,749 | 35.9 | % | ||||||||||
Europe
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683 | 9.8 | % | 855 | 11.2 | % | ||||||||||
$ | 7,007 | $ | 7,654 |
Three months ended
January 31,
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2014
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2013
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Revenues
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$ | 7,007 | 100.0 | % | $ | 7,654 | 100.0 | % | ||||||||
Cost of services
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4,635 | 66.2 | % | 5,088 | 66.5 | % | ||||||||||
Gross profit
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2,372 | 33.8 | % | 2,566 | 33.5 | % | ||||||||||
Selling, general and
administrative costs
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1,544 | 22.0 | % | 1,276 | 16.7 | % | ||||||||||
Other income, net
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- | 0.0 | % | - | 0.0 | % | ||||||||||
Income before income taxes
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828 | 11.8 | % | 1,290 | 16.8 | % | ||||||||||
Income tax expense
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166 | 2.4 | % | 237 | 3.1 | % | ||||||||||
Net income
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662 | 9.4 | % | 1,053 | 13.7 | % |
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●
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Because our business is concentrated in the pharmaceutical industry,
any changes in that industry or in the markets we serve could impair our ability to generate revenue and realize a profit.
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●
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Puerto Rico government enacted ACT 154 of October 22, 2010 may affect the willingness of our customers, or potential new customers, to do business in Puerto Rico and consequently affect our business.
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●
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Changes in tax benefits may affect the willingness of companies to continue or expand their operations in Puerto Rico.
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●
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Puerto Rico’s economy, including its governmental financial crisis, may affect the willingness of businesses to commence or expand operations in Puerto Rico.
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●
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Other factors, including economic factors, may affect the decision of businesses to continue or expand their operations in the markets we serve.
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●
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Our business and operating results may be impacted if we are unable to maintain our certification as a minority-controlled company.
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●
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Because our business is dependent upon a small number of clients, the loss of a major client could impair our ability to operate profitably.
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●
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Customer procurement and sourcing practices intended to reduce costs could have an adverse affect on our margins and profitability.
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●
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Since our business is dependent upon the development and enhancement of patented pharmaceutical products or processes by our clients, the failure of our clients to obtain and maintain patents could impair our ability to operate profitably.
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●
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We may be unable to pass on increased labor costs to our clients.
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●
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Consolidation in the pharmaceutical industry may have a harmful effect on our business.
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●
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Because the pharmaceutical industry is subject to government regulations, changes in government regulations relating to this industry may affect the need for our services.
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●
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Our reputation and divisions may be impacted by regulatory standards impacting our customer products.
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●
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If we are unable to protect our clients’ intellectual property, our ability to generate business will be impaired.
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●
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We may be subject to liability if our services or solutions for our clients infringe upon the intellectual property rights of others.
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●
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We may be held liable for the actions of our employees or contractors when on assignment.
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●
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To the extent that we perform services pursuant to fixed-price or incentive-based contracts, our cost of services may exceed our revenue on the contract.
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●
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Because most of our contracts may be terminated on little or no advance notice, our failure to generate new business could impair our ability to operate profitably.
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●
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Because we are dependent upon our management, our ability to develop our business may be impaired if we are not able to engage skilled personnel.
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●
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We may not be able to continue to grow unless we consummate acquisitions or enter markets outside of Puerto Rico, the United States and Ireland.
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●
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Our cash could be adversely affected if the financial institutions in which we hold our cash fail.
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●
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If we identify a proposed acquisition, we may require substantial cash to fund the cost of the acquisition.
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●
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If we make any acquisitions, they may disrupt or have a negative impact on our business.
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●
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Because there is a limited market in our common stock, stockholders may have difficulty in selling our common stock and our common stock may be subject to significant price swings.
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●
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Our revenues, operating results and profitability will vary from quarter to quarter, which may result in increased volatility of our stock price.
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●
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The issuance of securities, whether in connection with an acquisition or otherwise, may result in significant dilution to our stockholders.
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(a)
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Exhibits:
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10.1
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Consulting Agreement, effective January 1, 2014, between Pharma-Bio Serv Inc., Strategic Consultants International, LLC and Elizabeth Plaza (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 31, 2013 and incorporated herein by reference).
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10.2
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Employment Agreement Amendment, effective January 1, 2014, by and among the Company, Pharma-Bio Serv PR, Inc. and Nelida Plaza (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 2, 2014 and incorporated herein by reference).+
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10.3
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Employment Agreement Amendment, effective January 1, 2014, by and between the Company and Pedro Lasanta (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 2, 2014 and incorporated herein by reference).+
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10.4
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Amendment to 2005 Long-term Incentive Plan, as amended.+
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Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of the chief executive officer and chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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+
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Management contracts or compensatory plans, contracts or arrangements.
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PHARMA-BIO SERV, INC
.
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/s/ Elizabeth Plaza
|
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Elizabeth Plaza
|
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Chairman
|
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(Principal Executive Officer)
|
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/s/ Pedro J. Lasanta
|
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Pedro J. Lasanta
|
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Chief Financial Officer and Vice President Finance and Administration
|
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(Principal Financial Officer and Principal Accounting
Officer)
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Dated: March 17, 2014
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PHARMA-BIO SERV, INC.
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|||
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By:
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/s/ Pedro J. Lasanta | |
Name: Pedro J. Lasanta | |||
Title: (Principal financial and accounting officer) | |||
1.
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I have reviewed this quarterly report on Form 10-Q of Pharma-Bio Serv Inc.;
|
2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Elizabeth Plaza
|
||
Elizabeth Plaza
|
||
Chairman of the Board of Directors
(principal executive officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Pharma-Bio Serv Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Pedro J. Lasanta
|
||
Pedro J. Lasanta
|
||
Chief Financial Officer
(principal financial and accounting officer)
|
/s/ Elizabeth Plaza
|
/s/ Pedro J. Lasanta
|
|
Elizabeth Plaza
|
Pedro J. Lasanta
|
|
Chairman of the Board of Directors
(principal executive officer)
|
Chief Financial Officer
(principal financial and accounting officer)
|