NOTE C - INCOME TAXES

On December 22, 2017, Public Law 115-97, commonly known as the Tax Cuts and Jobs Act of 2017 (the “TCJA”), was enacted. TCJA imposed a mandatory one-time transition tax (the “Transition Tax”) over foreign subsidiaries undistributed earnings and profits (“E&Ps”) earned prior to a date set by the statute. Based on the Company’s E&Ps, the Transition Tax was determined to be approximately $2.7 million. The Transition Tax liability was paid over a period of eight years, which started with the Company’s second quarter of fiscal year 2019 and ended in the second quarter of fiscal year 2026. Previously, most of these E&Ps’ were not repatriated since such E&Ps’ were considered to be reinvested indefinitely in the foreign location, therefore no US tax liability was incurred unless the E&Ps were repatriated as a dividend. After December 31, 2017, the TCJA established a 100% tax exemption on the foreign-source portion of dividends received attributable to E&Ps, with certain limitations.

On July 4, 2025, Public Law 119-21, One, Big, Beautiful, Bill Act (“OBBBA”) was enacted and changed the GILTI provisions that were part of the TCJA for taxing foreign subsidiaries earnings. OBBBA renames the GILTI provision to “net Controlled Foreign Corporation ( “CFC” ) tested income” and increases the effective tax rate on net CFC tested income from 10.5% to approximately 12.6%. Also, OBBBA includes some limitations on foreign tax credits, if any, to be used against net CFC tested income. The Company will be subject to the above named OBBBA provisions effective for our fiscal year ended October 31, 2027. We are currently assessing its impact on our consolidated financial statements.

In June 2011, Pharma-Bio, Pharma-PR and Pharma-Serv obtained a Grant of Industrial Tax Exemption pursuant to the terms and conditions set forth in Act No. 73 of May 28, 2008 (“the Grant”) issued by the Puerto Rico Industrial Development Company (“PRIDCO”). The Grant was effective as of November 1, 2009, and covered a fifteen-year period which expired on October 31, 2024. Under the provisions of Puerto Rico Acts 60-2019 and 73-2008, the Company requested that PRIDCO extend the Grant for an additional term of fifteen years. As of the date of this filing, we have not received a status update from PRIDCO for this request. Furthermore, under ACT 20-2012, the Company obtained another tax grant from PRIDCO which, with certain limitations, also covers the services provided by the Company’s Puerto Rico subsidiaries to parties located outside of Puerto Rico. The ACT 20-2012 tax grant is for a twenty-year term which ends on December 30, 2039. The income generated under the provisions of the above-mentioned grants is subject to a fixed income tax rate of 4%, and the related earnings are exempt from Puerto Rico earnings distribution tax.

Puerto Rico operations not covered in the exempt activities of the Grant are subject to Puerto Rico income tax at a maximum tax rate of 37.5% as provided by the 1994 Puerto Rico Internal Revenue Code, as amended. The operations conducted in the United States by the Company’s subsidiaries, are taxed in the United States at a maximum regular federal income tax rate of 21%. The Spanish subsidiary operations in Spain are taxed at a regular income tax rate of 25%.

Deferred income tax assets and liabilities are computed for differences between the condensed 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. Realization of future tax benefits related to a deferred tax asset is dependent on many factors. Accordingly, the income tax benefit will be recognized when realization is determined to be more probable than not.

The Company files income tax returns in the United States (federal and various states jurisdictions), Puerto Rico, Spain and Brazil. The 2021 (2020 for Puerto Under Rico) through 2025 tax years are open and may be subject to potential examination in one or more jurisdictions. Currently, the Company is not under a federal, state, Puerto Rico or foreign income tax examination.