UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





(Mark
One)


x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
OF 1934





For the
fiscal year ended October 31, 2008





o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934





For the
transition period from _____________ to ______________





Commission
File No. 000-50956





PHARMA-BIO
SERV, INC.


(Exact
Name of Registrant as Specified in Its Charter)




Delaware
              20-0653570(State
      or Other Jurisdiction of
                Incorporation
      or Organization)
              (IRS  Employer
                Identification
      No.)





Pharma-Bio
      Serv Building,
                Industrial
      Zone Lot 14, Barrio Higuillar,
                Dorado,
      Puerto Rico
              00646
                (Zip
      Code)(Address
      of Principal Executive Offices)





Registrant’s
Telephone Number, Including Area Code 787-278-2709





Securities
registered under Section 12(b) of the Exchange Act: None





Securities
registered under Section 12(g) of the Exchange Act: Common Stock, par value
$0.0001 per share





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  ̈ No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  ̈ No x





Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes x
No  ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be contained, to the best of
the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. 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.




Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
              Smaller
      reporting company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes  ̈ No x





The
approximate aggregate market value of common stock held by non-affiliates of the
registrant, based on the closing price for the registrant’s common stock on
April 30, 2008 (the last business day of the second quarter of the registrant’s
current fiscal year), was $11,769,323.





The
number of shares of the registrant’s common stock outstanding as of January 26,
2009 was 20,751,215.





DOCUMENTS
INCORPORATED BY REFERENCE




Portions
of the registrant’s Proxy Statement relative to the 2009 Annual Meeting of
Stockholders are incorporated by reference in Part III hereof.







PHARMA-BIO
SERV, INC.


FORM
10-K


FOR
THE YEAR ENDED OCTOBER 31, 2008





TABLE
OF CONTENTS




PagePART
      IITEM
      1
                                                                    BUSINESS
                                                                    1ITEM
      1A
                                                                    RISK
      FACTORS
                                                                    6ITEM
      1B
                                                                    UNRESOLVED
      STAFF COMMENTS
                                                                    13ITEM
      2
                                                                    PROPERTIES
                                                                    13ITEM
      3
                                                                    LEGAL
      PROCEEDINGS
                                                                    13ITEM
      4
                                                                    SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                                                    13PART
      IIITEM
      5
                                                                    MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS
      AND ISSUER PURCHASES OF EQUITY SECURITIES
                                                                    14ITEM
      6
                                                                    SELECTED
      FINANCIAL DATA
                                                                    15ITEM
      7
                                                                    MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND
      RESULTS OF OPERATIONS
                                                                    15ITEM
      7A
                                                                    QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                                                    23ITEM
      8
                                                                    FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA (See F-1)
                                                                    23ITEM
      9
                                                                    CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND
      FINANCIAL DISCLOSURE
                                                                    23ITEM
      9A
                                                                    CONTROLS
      AND PROCEDURES
                                                                    23ITEM
      9B
                                                                    OTHER
      INFORMATION
                                                                    24PART
      IIIITEM
      10
                                                                    DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                                                                    25ITEM
      11
                                                                    EXECUTIVE
      COMPENSATION
                                                                    25ITEM
      12
                                                                    SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                                                                    25ITEM
      13
                                                                    CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                                                                    25ITEM
      14
                                                                    PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                                                                    25PART
      IVITEM
      15
                                                                    EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                                                                    26SIGNATURES
                                                                    27ITEM
      8
                                                                    FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                                                                    F-1







PART
I





ITEM
1.  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.





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 Annual Report on Form 10-K.





References
to “we,” “us,” “our” and similar words in this Annual Report on Form 10-K 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.


-1-





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:




·
            Training
      Programs - including a Current Good Manufacturing Practices exam prior to
      recruitment and periodic
refreshers;




·
            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;




·
            Safety
      Program - including OSHA, Environmental Health and Safety;
    and




·
            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.





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.




-2-





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:




·
            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;





·
            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;





·
            Motivate
      our professionals and support staff by implementing a compensation program
      which includes both individual performance and overall company performance
      as elements of compensation;





·
            Create
      a pleasant corporate culture and emphasize operational quality safety and
      timely service;





·
            Continue
      to maintain our reputation as a trustworthy and highly ethical partner;
      and





·
            Efficiently
      manage our operating and financial costs and
  expenses.





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.




-3-





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.


-4-




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.





EXECUTIVE
OFFICERS





The
following table sets forth certain information with respect to our executive
officers.




Name
                  
                  Age
                  
                  PositionElizabeth
      Plaza
                  
                  45
                  
                  President,
      Chairman of the Board and DirectorNélida Plaza
                  
                  41
                  
                  Vice
      President and SecretaryPedro
      J. Lasanta
                  
                  49
                  
                  Chief
      Financial Officer and Vice President - Finance and
      Administration




-5-




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 and chief executive officer 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.




Elizabeth
Plaza and Nélida Plaza are sisters.




ITEM
1A.  RISK FACTORS.





This
Annual Report on Form 10-K 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.





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.


-6-




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.


-7-




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.


-8-




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.




-9-





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.


-10-





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.


-11-





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.


-12-





ITEM
1B.  UNRESOLVED STAFF COMMENTS.





Not
applicable.





ITEM
2.  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.





ITEM
3.  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.





ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.





Our
Annual Meeting of Stockholders was held on August 18, 2008 at our executive
offices.  The stockholders approved the following items:





1.
                          The
      election of five directors to serve until the 2009 Annual Meeting of
      Stockholders or until their successors are elected and
      qualified;
                          For
                          
                          Against
                          
                          AbstainElizabeth
      Plaza
                          12,242,157
                          
                          -
                          
                          -Kirk
      Michel
                          12,242,157
                          
                          -
                          
                          -Dov
      Perlysky
                          12,242,157
                          
                          -
                          
                          -Howard
      Spindel
                          12,242,157
                          
                          -
                          
                          -Irving
      Wiesen
                          12,242,157
                          
                          -
                          
                          -2.
                          To
      ratify the selection of Horwath Velez & Co. PSC as our independent
      certified public accountants for the fiscal year ending October 31,
      2008
                          12,242,157
                          
                          -
                          
                          -




-13-




PART
II





ITEM 5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY
SECURITIES.





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
      BidJanuary
      31, 2007 (commencing December 4, 2006)
                
                $
                1.68
                
                
                $
                0.49April
      30, 2007
                
                
                1.05
                
                
                
                0.52July
      31, 2007
                
                
                0.67
                
                
                
                0.43October
      31, 2007
                
                
                1.15
                
                
                
                0.56January
      31, 2008
                
                
                0.99
                
                
                
                0.51April
      30, 2008
                
                
                0.72
                
                
                
                0.42July
      31, 2008
                
                
                0.64
                
                
                
                0.45October
      31, 2008
                
                
                0.60
                
                
                
                0.27





On
January 21, 2009, the closing price of our common stock on the Over the Counter
Bulletin Board was $0.50 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 per share of
                            outstanding options and
                            warrants
                          
                          Number of securities
                            remaining available for
                            future issuance under
                            equity compensation
                            plansEquity
      compensation plans approved by security holders
                          
                          
                          1,356,772
                          
                          $
                          0.7213
                          
                          
                          1,143,228Equity
      compensation plans not approved by security holders
                          
                          
                          2,804,216
                          
                          $
                          0.2941
                          
                          
                          16,500





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.


-14-




ITEM
6.  SELECTED FINANCIAL DATA.





Not Applicable.





ITEM 7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND
      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 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 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 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.


-15-





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
                                    
                                    
                                    2007Puerto
      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.


-16-





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
                            
                            
                            2007Revenues
                            
                            $
                            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 andadministrative
      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.


-17-





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.


-18-





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.


-19-





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.


-20-




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.


-21-




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. 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.




-22-





·
            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.





ITEM
7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK.





Not
Applicable.





ITEM
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.





Our
Consolidated Financial Statements, together with the report of our independent
registered public accounting firm are included herein immediately following the
signature page of this report. See Index to Consolidated Financial Statements on
page F-1.





ITEM 9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL
      DISCLOSURE.




Not
applicable.




ITEM
9A.  CONTROLS AND PROCEDURES.




Management’s
Annual Report on Internal Control Over Financial Reporting




Our
management is responsible for establishing and maintaining adequate “internal
control over financial reporting,” as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. This rule defines internal control over
financial reporting as a process designed by, or under the supervision of, a
company’s chief executive officer and chief financial officer, 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. Our internal control over financial
reporting includes those policies and procedures that:




•
            
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      company;




•
            
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company
      are being made only in accordance with authorizations of management and
      directors of the company; and




•
            
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the company’s assets that
      could have a material effect on the financial
  statements.




Because
of its inherent limitations, our internal control systems and procedures may not
prevent or detect misstatements. An internal control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, have
been detected. Also, projections of any evaluation of effectiveness to future
periods are subject to the risks that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies and
procedures may deteriorate.


-23-




We, under
the supervision of and with the participation of our management, including the
Chief Executive Officer and Chief Financial Officer, assessed the effectiveness
of the Company’s internal control over financial reporting as of October 31,
2008, based on criteria for effective internal control over financial reporting
described in “Internal Control — Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, our Chief Executive Officer and Chief Financial Officer concluded
that the Company maintained effective internal control over financial reporting
as of October 31, 2008, based on the specified criteria.




This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management’s report
in this annual report.




Disclosure
Controls and Procedures.




We
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the
period covered by this Annual Report. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by
this Annual Report.




Changes
in Internal Control Over Financial Reporting




Based on
an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
there has been no change in our internal control over financial reporting during
our last fiscal quarter identified in connection with that evaluation that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.




ITEM
9B.  OTHER INFORMATION.




None.


-24-




PART
III




ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




The
information required by this Item will be included in a definitive proxy
statement, pursuant to Regulation 14A, to be filed not later than 120 days after
the close of our fiscal year. Such information is incorporated herein by
reference.




Information
with respect to our executive officers is included in Part I.





ITEM
11.  EXECUTIVE COMPENSATION.




The
information required by this Item will be included in a definitive proxy
statement, pursuant to Regulation 14A, to be filed not later than 120 days after
the close of our fiscal year. Such information is incorporated herein by
reference.




ITEM 12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.




The
information required by this Item will be included in a definitive proxy
statement, pursuant to Regulation 14A, to be filed not later than 120 days after
the close of our fiscal year. Such information is incorporated herein by
reference.




ITEM 13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.




The
information required by this Item will be included in a definitive proxy
statement, pursuant to Regulation 14A, to be filed not later than 120 days after
the close of our fiscal year. Such information is incorporated herein by
reference.




ITEM
14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.




The
information required by this Item will be included in a definitive proxy
statement, pursuant to Regulation 14A, to be filed not later than 120 days after
the close of our fiscal year. Such information is incorporated herein by
reference.




-25-




PART
IV




ITEM
15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.




The
following documents are filed as a part of this Annual Report on Form
10-K:




1.
            All
      Financial Statements:  Consolidated Financial Statements are
      included herein immediately following the signature page of this report.
      See Index to Consolidated Financial Statements on page
  F-1.




2.
            Financial
      Statement
Schedules:  None.




3.
            Exhibits:  The
      following exhibits are filed herewith or are incorporated by reference to
      exhibits previously filed with the Commission, as indicated in the
      description of each.





Incorporated By
ReferenceExhibit
                                                                                                Number
                                                                                              
                                                                                              Exhibit Description
                                                                                              
                                                                                              Form
                                                                                              
                                                                                              File Number
                                                                                              
                                                                                              Exhibit
                                                                                              
                                                                                              Filing Date3.1
                                                                                              
                                                                                              Restated
      Certificate of Incorporation
                                                                                              
                                                                                              8-K
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              99.1
                                                                                              
                                                                                              5/1/20063.2
                                                                                              
                                                                                              By-laws
                                                                                              
                                                                                              10-SB12G
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              3.2
                                                                                              
                                                                                              9/24/20043.3
                                                                                              
                                                                                              Amendment
      No. 1 to the By-laws
                                                                                              
                                                                                              8-K
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              3.1
                                                                                              
                                                                                              6/6/20084.1
                                                                                              
                                                                                              Form
      of warrant issued to Investors in January 2006 private
      placement
                                                                                              
                                                                                              8-K
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              4.2
                                                                                              
                                                                                              1/31/20064.2
                                                                                              
                                                                                              Form
      of warrant held by initial warrant holders
                                                                                              
                                                                                              8-K
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              4.3
                                                                                              
                                                                                              1/31/20064.3
                                                                                              
                                                                                              Form
      of warrant held by San Juan Holdings
                                                                                              
                                                                                              8-K
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              4.4
                                                                                              
                                                                                              1/31/20064.4
                                                                                              
                                                                                              Form
      of warrants issued to broker-dealers in January 2006 private
      placement
                                                                                              
                                                                                              8-K
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              4.5
                                                                                              
                                                                                              1/31/200610.1
                                                                                              
                                                                                              Form
      of subscription agreement for January 2006 private
    placement
                                                                                              
                                                                                              8-K
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              99.1
                                                                                              
                                                                                              1/31/200610.2
                                                                                              
                                                                                              Registration
      rights provisions for the subscription agreement relating to January 2006
      private placement
                                                                                              
                                                                                              8-K
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              99.2
                                                                                              
                                                                                              1/31/200610.3
                                                                                              
                                                                                              Registration
      rights provisions for Elizabeth Plaza and San Juan Holdings,
      Inc.
                                                                                              
                                                                                              8-K
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              99.3
                                                                                              
                                                                                              1/31/200610.4
                                                                                              
                                                                                              Employment
      Agreement dated January 2, 2008 between the Registrant and Elizabeth
      Plaza
                                                                                              
                                                                                              10-KSB
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              10.5
                                                                                              
                                                                                              1/31/200810.5*
                                                                                              
                                                                                              Amendment
      to Employment Agreement dated June 9, 2008 between the Registrant and
      Elizabeth Plaza10.6
                                                                                              
                                                                                              Employment
      Agreement dated December 4, 2007 between the Registrant and Juan P.
      Gutierrez
                                                                                              
                                                                                              10-KSB
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              10.6
                                                                                              
                                                                                              1/31/200810.7
                                                                                              
                                                                                              Employment
      Agreement dated January 25, 2006 between the Registrant and Nélida
      Plaza
                                                                                              
                                                                                              8-K
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              99.5
                                                                                              
                                                                                              1/31/200610.8*
                                                                                              
                                                                                              Employment
      Agreement dated November 5, 2007 between the Registrant and Pedro
      Lasanta10.9
                                                                                              
                                                                                              Amendment
      to Employment Agreement dated December 17, 2008 between the Registrant and
      Pedro Lasanta
                                                                                              
                                                                                              8-K
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              99.1
                                                                                              
                                                                                              12/23/200810.10
                                                                                              
                                                                                              Employment
      Agreement dated March 24, 2006 between the Registrant and Manuel
      Morera
                                                                                              
                                                                                              8-K
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              99.1
                                                                                              
                                                                                              4/10/200610.11
                                                                                              
                                                                                              2005
      Long-term incentive plan, as amended
                                                                                              
                                                                                              DEF
      14A
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              Appendix C
                                                                                              
                                                                                              3/26/200710.12
                                                                                              
                                                                                              Lease
      dated March 16, 2004 between Plaza Professional Center, Inc. and the
      Registrant
                                                                                              
                                                                                              SB-2
                                                                                              
                                                                                              333-132847
                                                                                              
                                                                                              10.9
                                                                                              
                                                                                              3/30/200610.13
                                                                                              
                                                                                              Lease
      dated November 1, 2004 between Plaza Professional Center, Inc. and the
      Registrant
                                                                                              
                                                                                              SB-2
                                                                                              
                                                                                              333-132847
                                                                                              
                                                                                              10.10
                                                                                              
                                                                                              3/30/200610.14
                                                                                              
                                                                                              Vendor
      Agreement dated May 4, 2006 between the Registrant and Schering-Plough
      Products, L.L.C.
                                                                                              
                                                                                              SB-2/A
                                                                                              
                                                                                              333-132847
                                                                                              
                                                                                              10.12
                                                                                              
                                                                                              11/8/200610.15
                                                                                              
                                                                                              Agreement
      dated January 17, 2006 between Lilly del Caribe, Inc. and Plaza Consulting
      Group, Inc.
                                                                                              
                                                                                              SB-2/A
                                                                                              
                                                                                              333-132847
                                                                                              
                                                                                              10.13
                                                                                              
                                                                                              11/8/200610.16
                                                                                              
                                                                                              Agreement
      effective as of November 1, 2005 between SB Pharmco Puerto Rico Inc. d/b/a
      GlaxoSmithKline
                                                                                              
                                                                                              SB-2/A
                                                                                              
                                                                                              333-132847
                                                                                              
                                                                                              10.14
                                                                                              
                                                                                              10/27/200614.1
                                                                                              
                                                                                              Code
      of business conduct and ethics for senior management
                                                                                              
                                                                                              10-KSB
                                                                                              
                                                                                              000-50956
                                                                                              
                                                                                              14.1
                                                                                              
                                                                                              2/2/200721.1*
                                                                                              
                                                                                              List
      of Subsidiaries31.1*
                                                                                              
                                                                                              Certification
      of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2*
                                                                                              
                                                                                              Certification
      of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1**
                                                                                              
                                                                                              Certification
      of chief executive officer and chief financial officer pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002





*   Filed
herewith


**  Furnished
herewith





Exhibits
10.4 through 10.11 are management contracts or compensatory plans, contracts or
arrangements.


-26-





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




PHARMA-BIO
      SERV, INC.Dated
      : January 29, 2009
                            By:
                            /s/
      ELIZABETH PLAZAName:
      Elizabeth PlazaTitle:
      President and
CEO





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Signature
                                                
                                                Title
                                                
                                                Date/s/
      Elizabeth Plaza
                                                
                                                President,
      Chief Executive Officer and Director
                                                
                                                January
      29, 2009Elizabeth
      Plaza
                                                
                                                (Principal
      Executive Officer)/s/
      Pedro J. Lasanta
                                                
                                                Chief
      Financial Officer
                                                
                                                January
      29, 2009Pedro
      J. Lasanta
                                                
                                                (Principal
      Financial and Accounting Officer)/s/
      Kirk Michel
                                                
                                                Director
                                                
                                                January
      29, 2009Kirk
      Michel/s/
      Howard Spindel
                                                
                                                Director
                                                
                                                January
      29, 2009Howard
      Spindel/s/
      Dov Perlysky
                                                
                                                Director
                                                
                                                January
      29, 2009Dov
      Perlysky/s/
      Irving Wiesen
                                                
                                                Director
                                                
                                                January
      29, 2009Irving
      Wiesen




-27-


PHARMA-BIO
SERV, INC.
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 PageReport
      of Independent Registered Public Accounting Firm
                          
                          
                          F-2Consolidated
      Balance Sheet as of October 31, 2008 and 2007
                          
                          
                          F-3Consolidated
      Statements of Income for the Years Ended October 31, 2008 and
      2007
                          
                          
                          F-4Consolidated
      Statements of Changes in Stockholders’ Equity for the years Ended October
      31, 2008 and 2007
                          
                          
                          F-5Consolidated
      Statements of Cash Flows for the Years Ended October 31, 2008 and
      2007
                          
                          
                          F-7Consolidated
      Notes to Financial Statements
                          
                          
                          F-8
  F-1
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  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
  F-2
  PHARMA-BIO
SERV, INC.
 Consolidated
Balance Sheets
 October 31, 2008 and
2007
 
 October 31,2008
                        
                        
                        2007ASSETS:Current
      assetsCash
      and cash equivalents
                        
                        $
                        3,087,990
                        
                        
                        $
                        4,792,366Accounts
      receivable
                        
                        
                        3,245,153
                        
                        
                        
                        3,559,279Other
                        
                        
                        194,108
                        
                        
                        
                        276,506Total
      current assets
                        
                        
                        6,527,251
                        
                        
                        
                        8,628,151Property
      and equipment
                        
                        
                        1,521,575
                        
                        
                        
                        799,851Other
      assets, mainly intangible assets
                        
                        
                        63,127
                        
                        
                        
                        134,686Total
      assets
                        
                        $
                        8,111,953
                        
                        
                        $
                        9,562,688LIABILITIES
      AND STOCKHOLDERS’ EQUITY:Current
      liabilitiesCurrent
      portion-obligations under capital leases
                        
                        $
                        45,318
                        
                        
                        $
                        41,987Accounts
      payable and accrued expenses
                        
                        
                        1,189,705
                        
                        
                        
                        1,592,389Due
      to affiliate
                        
                        
                        2,706,892
                        
                        
                        
                        2,706,892Income
      taxes payable
                        
                        
                        48,324
                        
                        
                        
                        423,703Total
      current liabilities
                        
                        
                        3,990,239
                        
                        
                        
                        4,764,971Due
      to affiliate
                        
                        
                        -
                        
                        
                        
                        2,530,873Other
      long-term liabilities
                        
                        
                        69,934
                        
                        
                        
                        99,661Total
      liabilities
                        
                        
                        4,060,173
                        
                        
                        
                        7,395,505Stockholders'
      equity:Preferred
      Stock, $0.0001 par value; authorized10,000,000
      shares; none outstanding
                        
                        
                        -
                        
                        
                        
                        -Common
      Stock, $0.0001 par value; authorized 50,000,000shares;
      issued and outstanding 20,751,215 and 19,615,539shares
      in 2008 and 2007, respectively
                        
                        
                        2,075
                        
                        
                        
                        1,961Additional
      paid-in capital
                        
                        
                        540,337
                        
                        
                        
                        115,404Retained
      earnings
                        
                        
                        3,534,060
                        
                        
                        
                        2,046,264Accumulated
      other comprehensive (loss) income
                        
                        
                        (24,692
                        )
                        
                        
                        3,554Total
      stockholders' equity
                        
                        
                        4,051,780
                        
                        
                        
                        2,167,183Total
      liabilities and stockholders' equity
                        
                        $
                        8,111,953
                        
                        
                        $
                        9,562,688
  See notes
to consolidated financial statements.
  F-3
  PHARMA-BIO
SERV, INC.
 Consolidated
Statements of Income
 For
the Years Ended October 31, 2008 and 2007
 
 Years
      ended October 31,2008
                        
                        
                        2007REVENUES
                        
                        $
                        15,196,393
                        
                        
                        $
                        16,204,851COST
      OF SERVICES
                        
                        
                        9,406,600
                        
                        
                        
                        9,380,916GROSS
      PROFIT
                        
                        
                        5,789,793
                        
                        
                        
                        6,823,935SELLING,
      GENERAL ANDADMINISTRATIVE
    EXPENSES
                        
                        
                        3,135,968
                        
                        
                        
                        3,176,140INCOME
      FROM OPERATIONS
                        
                        
                        2,653,825
                        
                        
                        
                        3,647,795OTHER
      INCOME (EXPENSES):Interest
      expense
                        
                        
                        (227,449
                        )
                        
                        
                        (392,171
                        )Interest
      income
                        
                        
                        82,707
                        
                        
                        
                        107,505Loss
      on disposition of property and  equipment
                        
                        
                        -
                        
                        
                        
                        (25,660
                        )(144,742
                        )
                        
                        
                        (310,326
                        )INCOME
      BEFORE INCOME TAXES
                        
                        
                        2,509,083
                        
                        
                        
                        3,337,469INCOME
      TAXES
                        
                        
                        1,021,287
                        
                        
                        
                        1,436,302NET
      INCOME
                        
                        $
                        1,487,796
                        
                        
                        $
                        1,901,167BASIC
      EARNINGS PER COMMON SHARE
                        
                        $
                        0.07
                        
                        
                        $
                        0.10DILUTED
      EARNINGS PER COMMON SHARE
                        
                        $
                        0.07
                        
                        
                        $
                        0.09WEIGHTED
      AVERAGE NUMBER OF COMMON  SHARES OUTSTANDING –
    BASIC
                        
                        
                        19,970,549
                        
                        
                        
                        19,391,063WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – DILUTED
                        
                        
                        22,259,016
                        
                        
                        
                        22,166,182
 
 See notes
to consolidated financial statements.
  F-4
  PHARMA-BIO
SERV, INC.
 Consolidated
Statements of Changes in Stockholders' Equity
 For
the Years Ended October 31, 2008 and 2007
  AccumulatedAdditional
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      OtherCommon
      Stock
                                                      
                                                      
                                                      Preferred Stock
                                                      
                                                      
                                                      Paid-in
                                                      
                                                      
                                                      Retained
                                                      
                                                      
                                                      ComprehensiveShares
                                                      
                                                      
                                                      Amount
                                                      
                                                      
                                                      Shares
                                                      
                                                      
                                                      Amount
                                                      
                                                      
                                                      Capital
                                                      
                                                      
                                                      Earnings
                                                      
                                                      
                                                      Income
      (Loss)
                                                      
                                                      
                                                      TotalBALANCE
      AT OCTOBER 31, 2006
                                                      
                                                      
                                                      18,315,001
                                                      
                                                      
                                                      $
                                                      1,831
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      145,227
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      147,058CASHLESS
      CONVERSION OF WARRANTS TO SHARES OF COMMON STOCK
                                                      
                                                      
                                                      1,300,538
                                                      
                                                      
                                                      
                                                      130
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (130
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -STOCK-BASED
      COMPENSATION
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      115,404
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      115,404COMPREHENSIVE
      INCOME:NET
      INCOME
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,901,167
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,901,167OTHER
      COMPREHENSIVE INCOME:FOREIGN
      CURRENCY TRANSLATION ADJUSTMENT
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      3,554
                                                      
                                                      
                                                      
                                                      3,554OTHER
      COMPREHENSIVE INCOME
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      3,554COMPREHENSIVE
      INCOME
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      1,904,721BALANCE
      AT OCTOBER 31, 2007
                                                      
                                                      
                                                      19,615,539
                                                      
                                                      
                                                      
                                                      1,961
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      115,404
                                                      
                                                      
                                                      
                                                      2,046,264
                                                      
                                                      
                                                      
                                                      3,554
                                                      
                                                      
                                                      
                                                      2,167,183CONVERSION
      OF WARRANTS TO SHARES OF COMMON STOCK
                                                      
                                                      
                                                      1,135,676
                                                      
                                                      
                                                      
                                                      114
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      382,747
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      382,861STOCK-BASED
      COMPENSATION
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      42,186
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      42,186COMPREHENSIVE
      INCOME:NET
      INCOME
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,487,796
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,487,796OTHER
      COMPREHENSIVE LOSS:FOREIGN
      CURRENCY TRANSLATION ADJUSTMENT
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (28,246
                                                      )
                                                      
                                                      
                                                      (28,246
                                                      )OTHER
      COMPREHENSIVE LOSS
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (28,246
                                                      )COMPREHENSIVE
      INCOME
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      1,459,550BALANCE
      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.
  F-5
  PHARMA-BIO
SERV, INC.
 Consolidated
Statements of Cash Flows
 For
the Years Ended October 31, 2008 and 2007
 
 Years
      ended October 31,2008
                                    
                                    
                                    2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                                    
                                    $
                                    1,487,796
                                    
                                    
                                    $
                                    1,901,167Adjustments
      to reconcile net income to net cash
                                      provided
      by operating activities:Loss
      on disposition of property and equipment
                                    
                                    
                                    -
                                    
                                    
                                    
                                    25,660Stock-based
      compensation
                                    
                                    
                                    42,186
                                    
                                    
                                    
                                    115,404Depreciation
      and amortization
                                    
                                    
                                    227,152
                                    
                                    
                                    
                                    208,225Imputed
      interest expense
                                    
                                    
                                    219,127
                                    
                                    
                                    
                                    382,804Decrease
      in accounts receivable
                                    
                                    
                                    320,252
                                    
                                    
                                    
                                    2,245,364Decrease
      in other assets
                                    
                                    
                                    73,620
                                    
                                    
                                    
                                    188,298(Decrease)
      increase in liabilities
                                    
                                    
                                    (790,027
                                    )
                                    
                                    
                                    561,794NET
      CASH PROVIDED BY OPERATINGACTIVITIES
                                    
                                    
                                    1,580,106
                                    
                                    
                                    
                                    5,628,716CASH
      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 FINANCINGACTIVITIES
                                    
                                    
                                    (2,427,230
                                    )
                                    
                                    
                                    (2,788,873
                                    )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                                    
                                    
                                    (11,438
                                    )
                                    
                                    
                                    -NET
      (DECREASE) INCREASE IN CASH AND CASHEQUIVALENTS
                                    
                                    
                                    (1,704,376
                                    )
                                    
                                    
                                    2,517,331CASH
      AND CASH EQUIVALENTS - BEGINNING OFYEAR
                                    
                                    
                                    4,792,366
                                    
                                    
                                    
                                    2,275,035CASH
      AND CASH EQUIVALENTS – END OF YEAR
                                    
                                    $
                                    3,087,990
                                    
                                    
                                    $
                                    4,792,366SUPPLEMENTAL
      DISCLOSURES OFCASH FLOW
      INFORMATION:Cash
      paid during the period for:Income
      taxes
                                    
                                    $
                                    1,344,334
                                    
                                    
                                    $
                                    1,134,301Interest
                                    
                                    $
                                    353,455
                                    
                                    
                                    $
                                    513,076SUPPLEMENTARY
      SCHEDULES OF NON-CASHINVESTING AND FINANCING
      ACTIVITIES:Accounts
      payable incurred in projects in process
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    246,502Income
      tax withheld by clients to be used as a credit inthe
      Company’s income tax return
                                    
                                    $
                                    23,621
                                    
                                    
                                    $
                                    53,573Obligations
      under capital lease incurred for theacquisition  of
      a vehicle
                                    
                                    $
                                    33,695
                                    
                                    
                                    $
                                    -Conversion
      of cashless exercises warrants to sharesof
      common stock
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    130
 
 See notes
to consolidated financial statements.
  F-6
  PHARMA-BIO
SERV, INC.
 Notes
To Consolidated Financial Statements
 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.
  F-7
 
 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.
  F-8
  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.
  F-9
  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.
  F-10
 
 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
                  
                  
                  2007Vehicles
      under capital leases
                  
                  
                  5
                  
                  
                  $
                  255,129
                  
                  
                  $
                  221,434Leasehold
      improvements
                  
                  
                  5
                  
                  
                  
                  566,851
                  
                  
                  
                  19,279Computers
                  
                  
                  3
                  
                  
                  
                  253,417
                  
                  
                  
                  185,491Equipment
                  
                  
                  3-5
                  
                  
                  
                  752,744
                  
                  
                  
                  119,672Furniture
      and fixtures
                  
                  
                  10
                  
                  
                  
                  119,349
                  
                  
                  
                  68,509Projects
      in progress
                  
                  
                  -
                  
                  
                  
                  54,170
                  
                  
                  
                  508,399Total
                  
                  
                  
                  
                  
                  
                  2,001,660
                  
                  
                  
                  1,122,784Less:
      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
                  
                  
                  2007Intangible
      assets:Covenant
      not to compete, net of accumulated amortization of $58,333and
      $38,333 in October 31, 2008 and 2007, respectively
                  
                  $
                  41,667
                  
                  
                  $
                  61,667Customer-related
      intangibles, net of accumulated amortization of $141,667and
      $91,667 in October 31, 2008 and 2007, respectively
                  
                  
                  8,333
                  
                  
                  
                  58,333Total
      intangible assets net of amortization
                  
                  
                  50,000
                  
                  
                  
                  120,000Other
      assets
                  
                  
                  13,127
                  
                  
                  
                  14,686Total
      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.
  F-11
 
 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
                      
                      
                      2007Theoretical
      income tax expense by application of statutory rates to the book pre-tax
      income
                      
                      $
                      1,042,524
                      
                      
                      $
                      1,401,569Benefit
      of tax grant
                      
                      
                      (28,660
                      )
                      
                      
                      -Permanent
      differences, net
                      
                      
                      7,423
                      
                      
                      
                      34,733$
                      1,021,287
                      
                      
                      $
                      1,436,302
  F-12
  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
                                  
                                  
                                  
                                  20072009
                                  
                                  $
                                  2,750,000
                                  
                                  
                                  $
                                  2,750,0002008
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,750,000Total
      installments due
                                  
                                  
                                  2,750,000
                                  
                                  
                                  
                                  5,500,000Less
      imputed interest
                                  
                                  
                                  (43,108
                                  )
                                  
                                  
                                  (262,235
                                  )Present
      value of minimum payments
                                  
                                  
                                  2,706,892
                                  
                                  
                                  
                                  5,237,765Current
      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:
  F-13
 
 Twelve
      months ending October 31,
                            
                            Amount2009
                            
                            $
                            65,1622010
                            
                            
                            40,2932011
                            
                            
                            8,0542012
                            
                            
                            8,0542013
                            
                            
                            2,015Total
      future minimum lease payments
                            
                            
                            123,578Less:
      Amount of imputed interest
                            
                            
                            (
      8,326
                            )Present
      value of future minimum lease payments
                            
                            
                            115,252Current
      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:
  Amount2009
                            
                            $
                            258,4592010
                            
                            
                            267,7152011
                            
                            
                            270,2332012
                            
                            
                            68,372Total
      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.
  F-14
 
 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
                      
                      
                      2007Weighted-
                      
                      
                      
                      
                      
                      Weighted-Number of
                      
                      
                      Average Option
                      
                      
                      Number of
                      
                      
                      Average OptionShares
                      
                      
                      Exercise Price
                      
                      
                      Shares
                      
                      
                      Exercise PriceOutstanding
      at beginning of year
                      
                      
                      1,199,355
                      
                      
                      $
                      0.7496
                      
                      
                      
                      1,348,090
                      
                      
                      $
                      0.7344Granted
                      
                      
                      415,000
                      
                      
                      $
                      0.6821
                      
                      
                      
                      100,000
                      
                      
                      $
                      0.7675Exercised
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      -Forfeited
                      
                      
                      (257,583
                      )
                      
                      $
                      0.7363
                      
                      
                      
                      (248,735
                      )
                      
                      $
                      0.7399Total
      outstanding at end of year
                      
                      
                      1,356,772
                      
                      
                      $
                      0.7213
                      
                      
                      
                      1,199,355
                      
                      
                      $
                      0.7496Outstanding
      exercisable stockoptions
      at end of year
                      
                      
                      479,648
                      
                      
                      $
                      0.7359
                      
                      
                      
                      75,000
                      
                      
                      $
                      0.6000October 31,
                        2008
                      
                      
                      
                      
                      
                      
                      October 31,
                        2007Weighted
      average remaining yearsin
      contractual life for:Total
      outstanding options
                      
                      2.7
      years
                      
                      
                      
                      
                      
                      
                      3.3
      yearsOutstanding
      exercisable options
                      
                      2.5
      years
                      
                      
                      
                      
                      
                      
                      3.4
      yearsShares
      of common stock availablefor
      issuance pursuant to futurestock
      option grants
                      
                      
                      1,143,228
                      
                      
                      
                      
                      
                      
                      
                      1,300,645
  F-15
 
 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
                                    
                                    
                                    2007Stock-based
      compensation expense:Cost
      of services
                                    
                                    $
                                    17,245
                                    
                                    
                                    $
                                    60,990Selling,
      general and administrative
                                    
                                    
                                    24,941
                                    
                                    
                                    
                                    54,414Stock-based
      compensation before tax
                                    
                                    
                                    42,186
                                    
                                    
                                    
                                    115,404Income
      tax benefit
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Net
      stock-based compensation expense
                                    
                                    $
                                    42,186
                                    
                                    
                                    $
                                    115,404Effect
      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
                    
                    
                    2007Expected
      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
      yearsWeighted
      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.
  F-16
 
 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
                            
                            
                            2007Net
      income available to common equity holders - used to compute basic and
      diluted earnings per share
                            
                            $
                            1,487,796
                            
                            
                            $
                            1,901,167Weighted
      average number of common shares - used to compute basic earnings per
      share
                            
                            
                            19,970,549
                            
                            
                            
                            19,391,063Effect
      of warrants to purchase common stock
                            
                            
                            2,288,467
                            
                            
                            
                            2,775,119Effect
      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.
  F-17
 
 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.
  F-18