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 Annual Report on Form 10-K, and our Consolidated Financial Statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Overview

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

We actively operate in Puerto Rico, the United States, Europe and Brazil and pursue to further expand these markets by strengthening our business development infrastructure and by constantly realigning our business strategies as new opportunities and challenges arise.

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

We consider our core business to be Food and Drug Administration ("FDA") and international agencies regulatory compliance consulting related services. Accordingly, based on a corporate strategy to refocus the Company on consulting services, on September 17, 2018, we sold substantially all of our laboratory business assets (the "Laboratory Assets") and discontinued our efforts on pursuing businesses that were not considered significant to the Company, including calibrations and a small laboratory in Spain. The sale of the Laboratory Assets for $5 million generated a net tax gain of approximately $2.7 million. For further details see Note B to our consolidated financial statements.

In line with the strategy to further penetrate the United States and Puerto Rico markets, we submit annually for renewal the certification as a "minority-controlled company" as defined by the National Minority Supplier Development Council and Growth Initiative ("NMSDC"). This certification, which has been held by us since July 2008, allows us to participate in corporate diversity programs available from various potential customers in the United States and Puerto Rico.

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

As more fully disclosed in Note E of the Company's consolidated financial statements included herewith, the Company is subject to the recent Tax Reform provisions, including an estimated one-time non-recurring Transition Tax of $2.7 million, that was recorded as of October 31, 2018, and which is payable within eight years which started on February 2019. The payment is being funded from our working capital.

The following table sets forth information as to our revenue for the years ended October 31, 2019 and 2018, by geographic regions (dollars in thousands).




                   Year ended October 31


                   2019              2018
Revenues by Region
Puerto Rico         $16,798   86.1%   $14,439   81.1%
United States       2,188     11.2%   2,138     12.0%
Europe              315       1.6%    1,153     6.5%
Other               206       1.1%    67        0.4%
                    $19,507   100.0%  $17,797   100.0%




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For the year ended October 31, 2019, the Company's revenues from continuing operations were $19.5 million, an increase of $1.7 million when compared to the same period last year. The revenue increase is mainly attributable to increases in projects in the Puerto Rico and Brazil consulting markets of $2.4 and $0.1 million, respectively, partially offset by a decline in the European consulting market of $0.8 million. When compared to the same period last year, gross profit decreased 0.3 percentage points. The small variance in gross margin is mainly attributable to the end of last fiscal year's more favorable consulting projects in the Puerto Rico consulting market. Selling, general and administrative expenses were approximately $4.5 million, a net decrease in expenses of approximately $119,000 as compared to the same period last year. The decrease is mainly attributable to end of current fiscal year savings on promotions and operational support expenses. During April 2019, we collected and recorded in other income approximately $0.2 million for the settlement of the Company's insurance claim for business interruption losses and additional expenses incurred resulting from the Hurricanes. These factors resulted in a net income from continuing operations of approximately $2.1 million for the year ended October 31, 2019, and including last year's non-recurring 2018 US Tax Reform $2.7 million Transition Tax charge, this represented a net earnings improvement of $3.3 million. (See "Results of Operations" below.)

In September 2018, we sold our Laboratory Assets. After considering last fiscal year's $2.5 million net income from discontinued operations and related gain on segment disposal and last year's non-recurring 2018 US Tax Reform Transition Tax, our net income for the year ended October 31, 2019 had an improvement in earnings of approximately $0.8 million over fiscal last year's earnings.

The Puerto Rico government financial crisis, the Tax Reform, other tax reforms on the markets where we do business, and Puerto Rico Act 154-2010, all pose current and future challenges which may adversely affect our future performance. We believe that our future profitability and liquidity will be highly dependent on the effect the local economy and global economy, changes in tax laws and healthcare reform, and worldwide life science manufacturing industry consolidations will have on our operations, and our ability to seek service opportunities and adapt to industry trends.

Results of Operations

On September 17, 2018, the Company sold substantially all of its Laboratory Assets. Accordingly, the operations of the Lab are treated as a discontinued operation in the following table that sets forth our statements of operations for the year ended October 31, 2019 and 2018 (dollars in thousands, and as a percentage of revenues for continuing operations only):




                                          Year ended October 31,


                                          2019                2018

Revenues                                   $19,507   100.0%    $17,797   100.0%
Cost of services                           13,330    68.3%     12,110    68.0%
Gross profit                               6,177     31.7%     5,687     32.0%
Selling, general and administrative
expenses                                   4,480     23.0%     4,599     25.8%
Other income, net                          526       2.7%      436       2.4%
Income from continuing operations before
income taxes                               2,223     11.4%     1,524     8.6%
Income tax and US Tax Reform transition
tax expense                                136       0.7%      2,785     15.6%
Net income (loss) from continuing
operations                                 2,087     10.7%     (1,261)   -7.1%

Discontinued operations, net of tax


  Net loss from operations through
disposal                                   -                   (171)
  Gain on disposal                         -                   2,712
Net income from discontinued operations    -                   2,541

Net income                                 2,087               1,280

Revenues. Revenues from continuing operations for the year ended October 31, 2019 were $19.5 million, an increase of approximately $1.7 million, or 9.6%, when compared to last year. The increase is mainly attributable to increases in projects in the Puerto Rico and Brazil consulting markets of $2.4 and $0.1 million, respectively, partially offset by a decline in the European consulting market of $0.8 million.

Cost of Services; gross profit. The overall gross profit from continuing operations for the year ended in October 31, 2019 reflected a gross profit decrease of 0.3 percentage points, when compared to last year. The small variance in gross profit is mainly attributable to the end of last fiscal year's more favorable consulting projects in the Puerto Rico consulting market.




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Selling, General and Administrative Expenses. Selling, general and administrative expenses from continuing operations for the year ended in October 31, 2019 were approximately $4.5 million, a net decrease in expenses of approximately $0.1 million as compared to last year. The decrease is mainly attributable to end of current fiscal year savings on promotions and operational support expenses.

Other Income, net. Other income for the year ended on October 31, 2019 was approximately $0.5 million, an increase of $0.1 million when compared to last year.

As a result of the Hurricanes, the Company recorded other income (i) insurance proceeds of $199,000 and $148,000 on fiscal year 2019 and fiscal year 2018, respectively, and (ii) a Salaries Subsidy of $220,000 in fiscal year 2018. For additional information see Note L to the Company's consolidated financial statements included herewith. By the end of fiscal year 2018 the Company sold its Laboratory Assets and received from the Purchaser a Promissory Note, which as of October 31, 2019 has generated approximately $120,000 on interest income. For further information see Note C to the Company's consolidated financial statements included herewith.

Income Tax and US Tax Reform Transition Tax Expense. The income tax expense is mainly attributable to (i) the effect to the effective tax rate attained considering the effect of the Puerto Rico Act 73 Tax Grant and (ii) the US Transition Tax which impacted our fiscal year ended October 31, 2018. For additional information on the US Transition Tax, see Note E of the Company's consolidated financial statements included herewith.

Net Income (Loss) from Continuing Operations. Net income from continuing operations for the year ended October 31, 2019 was approximately $2.1 million, an improvement of $3.3 million when compared to the same period last year.

After considering last year's non-recurring 2018 US Tax Reform $2.7 million Transition Tax charge, the increase in net income from continuing operations for the year ended October 31, 2019 when compared to the same period last year is mainly attributable to the improvement in revenue and related gross profit, savings on promotions and operational support expenses, plus net other income.

For the year ended October 31, 2019, net income from continuing operations per common share for both basic and diluted were $0.090, an improvement of $0.145 per share, when compared to the same period last year.

Net Income from Discontinued Operations. The Company completed the sale of its Laboratory Assets on September 17, 2018. The net income from this discontinued operation for the year ended October 31, 2018 was approximately $2.5 million. Discontinued operations net earnings per share for the year ended October 31, 2018, for both basic and diluted was $0.110.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including planned capital expenditures. As of October 31, 2019, the Company had approximately $22.3 million in working capital.

On June 13, 2014, the Board of Directors of the Company authorized the Company to repurchase up to two million shares of its common stock (the "Company Stock Repurchase Program"). During the year ended October 31, 2019, the Company repurchased an aggregate of 86,422 shares of its common stock, of which 23,450 shares were purchased within the repurchase program.

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

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

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



                                       14

Off-Balance Sheet Arrangements

We were not involved in any significant off-balance sheet arrangements during the fiscal year ended October 31, 2019.

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 subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Segments - On September 17, 2018, the Company sold substantially all of its Laboratory Assets. As a result of the sale, the Company currently operates three reportable business segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, and (iii) Europe technical compliance consulting. Accordingly, the accompanying consolidated financial statements are presented to show these three reportable segments as continuing operations, while the Lab is presented as a discontinued operation.

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 - Accounting standards have established a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting standards have established three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets and liabilities.

Level 2: Observable inputs other than Level 1 prices such as quoted prices for


         similar assets or liabilities, quoted prices in markets with insufficient
         volume or infrequent transactions (less active markets), or model-derived
         valuations in which all significant inputs are observable or can be
         derived principally from or corroborated by observable market data for
         substantially the full term of the assets or liabilities.

Level 3: Prices or valuation techniques that require inputs that are both


         significant to the fair value measurement and unobservable (supported by
         little or no market activity).

The carrying value of the Company's financial instruments (excluding marketable securities and obligations under capital leases), 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 approximates the carrying amount.

Revenue Recognition Continuing operations - In May 2014, the Financial Accounting Standards Board (FASB) issued a new accounting standard that amends the guidance for the recognition of revenue from contracts with customers to transfer goods and services. The FASB subsequently issued additional, clarifying standards to address issues arising from implementation of the new revenue recognition standard. The new revenue recognition standard and clarifying standards require an entity to recognize revenue when control of promised goods or services is transferred to the customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted this new standard as of November 1, 2018, by applying the modified-retrospective method to those contracts that were not completed as of that date. The results for reporting periods beginning after November 1, 2018, are presented in accordance with the new standard, although comparative information has not been restated and continues to be reported under the accounting standards and policies in effect for those periods. The adoption of this new standard had an immaterial impact on our reported total revenues and operating income as compared to what reported amounts would have been under the prior standard.




                                       15

Revenue is primarily derived from: (1) time and materials contracts (representing approximately 99% 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 1% 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 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. 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 mainly 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 an asset and liability approach method of accounting for income taxes. This method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.

The Company follows guidance from the Financial Accounting Standards Board ("FASB") related to Accounting for Uncertainty in Income Taxes, which includes a two-step approach to recognizing, de-recognizing and measuring uncertain tax positions. As of October 31, 2019, the Company had no significant uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations.

Property and equipment - Owned property and equipment, and leasehold improvements are stated at cost. 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 the lease term, including renewals that have been determined to be reasonably assured. 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.

Stock-based Compensation - Stock-based compensation expense is recognized in the consolidated financial statements based on the fair value of the awards granted. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which 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, while for restricted stock units the fair market value of the units is determined by Company's share market value at grant date. Excess tax benefits related to stock-based compensation are reflected as cash flows from financing activities rather than cash flows from operating activities. We have not recognized such cash flow from financing activities since there has been no tax benefit related to the stock-based compensation.

Earnings (Loss) Per Share of Common Stock - Basic earnings (loss) per share of common stock is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted earnings (loss) 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 subsidiaries are their respective local currencies. 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.




                                       16

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.

New Accounting Standards

In February 2016, the FASB issued a new accounting standard that amends the guidance for the accounting and disclosure of leases. This new standard requires that lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about their leasing arrangements. The new standard is effective for interim and annual periods beginning on January 1, 2019 and may be adopted earlier. This standard is effective for the Company's first quarter of fiscal year 2020. The Company does not expect that this standard will have a material impact to its Consolidated Statements of Operations but expects that this standard will have a material impact on the assets and liabilities on its Consolidated Balance Sheets upon adoption.

Forward-Looking Statements

Our business, financial condition, results of operations, cash flows and prospects, and the prevailing market price and performance of our common stock, may be adversely affected by a number of factors, including the matters discussed below. Certain statements and information set forth in this Annual Report on Form 10-K, 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 Annual Report on Form 10-K or when made and we undertake no duty or obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Although we believe that the expectations, plans, intentions and projections reflected in our forward-looking statements are reasonable, such statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks, uncertainties and other factors that our stockholders and prospective investors should consider are discussed in Item 1A Risk Factors above.

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