**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-KSB**


(Mark
      One)




**x** **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES**


**EXCHANGE
      ACT OF 1934**




For
      the
      year ended October 31, 2007




**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.**


(Name
      of
      small business issuer as specified in its charter)




Delaware
            20-0653570(State
                of Incorporation)
            (I.R.S. EmployerIdentification
                No.)





Pharma-Bio
      Serv Building, Industrial Zone Lot 14, Barrio Higuillar, Dorado, Puerto Rico
      00646


(Address
      of principal executive offices)




787-278-2709


(Issuer's
      telephone number)




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










Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for 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. x YES o NO




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form-KSB. o




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




Revenues
      for the Registrant’s most recent fiscal year: $16,204,851




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant was approximately $3,376,500 based upon the
      closing sale price as quoted on the OTC Bulletin Board of $0.62 on January
      24,
      2008.




The
      number of shares outstanding of the registrant's Common Stock as of January
      14,
      2008 was 19,615,539.


Transitional
      Small Business Disclosure Format (Check one):  YES o NO x




Documents
      incorporated by reference: None











**PHARMA-BIO
      SERV, INC.**


**FORM
      10-KSB**


**FOR
      THE YEAR ENDED OCTOBER 31, 2007**




**TABLE
      OF CONTENTS**




Page**PART
                I**ITEM
                1
            DESCRIPTION
                OF BUSINESS
            1ITEM
                2
            DESCRIPTION
                OF PROPERTY
            12ITEM
                3
            LEGAL
                PROCEEDINGS
            12ITEM
                4
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            12**PART
                II**ITEM
                5
            MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
            13ITEM
                6
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS
            14ITEM
                7
            CONSOLIDATED
                FINANCIAL STATEMENTS (See F-1)
            21ITEM
                8
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            22ITEM
                8A
            CONTROLS
                AND PROCEDURES
            22ITEM
                8B
            OTHER
                INFORMATION
            22**PART
                III**ITEM
                9
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION
                16(A) OF THE EXCHANGE ACT
            23ITEM
                10
            EXECUTIVE
                COMPENSATION
            25ITEM
                11
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDERS MATTERS
            27ITEM
                12
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS
            29ITEM
                13
            EXHIBITS
            30ITEM
                14
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            31**SIGNATURES**
            32ITEM
                7
            CONSOLIDATED
                FINANCIAL STATEMENTS
            F-1









**PART
      I**





**FORWARD
      LOOKING STATEMENTS**




This
      report on Form 10-KSB contains certain forward-looking statements that are
      based
      on current expectations. In light of the important factors that can materially
      affect results, including those set forth in this paragraph and below, the
      inclusion of forward-looking information herein should not be regarded as a
      representation by the Company or any other person that the objectives or plans
      of the Company will be achieved. The Company may be unable to expand its
      customer base and to replace customers upon the completion of contracts, and
      may
      encounter competitive, technological, financial and business challenges making
      it more difficult than expected to continue to develop and market its services.
      In addition, the market may not accept the Company's existing and future
      services, changes relating to the business of our clients, tax, economic,
      industry trends and other factors relating to Puerto Rico and other markets
      in
      which we do business, our ability to retain existing key management personnel,
      and our ability to make acquisitions and other material adverse changes
      affecting our operations or business may have a significant negative effect.
      Assumptions relating to budgeting, marketing, and other management decisions
      are
      subjective in many respects and thus susceptible to interpretations and periodic
      revisions based on actual experience and business developments, the impact
      of
      which may cause us to alter our marketing and other budgets, which may in turn
      affect our financial position and results of operations. You should not place
      undue reliance on forward-looking statements contained herein, which speak
      solely as of the date of this Form 10-KSB, and the forward looking statements
      are qualified in their entirety by reference to the material contained in "Risk
      Factors" and "Management's Discussion and Analysis of Financial Condition and
      Results of Operations" contained in this annual report. We assume no
      responsibility to update any forward-looking statements as a result of new
      information, future events, or otherwise.










**ITEM
      1**  **DESCRIPTION
      OF BUSINESS**





**Introduction**




We
      are a
      Puerto Rico based company 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 of
      America.




Our
      mission is to become a leader in validation, regulatory compliance and technical
      support services, helping our clients meet the challenges of regulatory
      enforcement and globalization.




We
      assist
      our clients in complying with government regulations by offering a full range
      of
      consulting services in the areas relating to compliance with the regulations
      of
      the Food and Drug Administration (the “FDA”) and matters relating to the
      introduction of new pharmaceutical products, project management, technology
      transfers, validation, and training services. We provide validation, regulatory
      compliance and value-added consulting services as problem solving solutions
      to
      our customers in the pharmaceutical, chemical (bulk manufacturing),
      biotechnology and medical devices industries in Puerto Rico, the United States
      of America and soon in Ireland.





In
      addition, in 2008 we plan to launch in Puerto Rico our new microbiological
      testing facility incorporating the latest technology and test methodologies
      meeting pharmacopeia industry standards and regulations. We intend to offer
      microbiological testing and related services to our core industries already
      serviced as well as the cosmetic and food industries.





Our
      engineering and life science professionals include former quality assurance
      managers or directors from pharmaceutical companies, and experienced and
      well-trained professionals with bachelors, masters and doctorate degrees in
      health sciences and engineering. Our objective is to offer a global flexible,
      common sense and cost effective approach to meet our clients’ needs, strategies
      and budget objectives.




-1-




**Organization;
      Reverse Acquisition**




Pharm-Bio
      Serv, Inc. is a Delaware corporation, organized in 2004 under the name Lawrence
      Consulting Group, Inc. The corporate name was changed to Pharma-Bio Serv, Inc.
      in February 2006. Our executive offices are located at Pharma-Bio Serv Building,
      Industrial Zone Lot 14, Barrio Higuillar, Dorado, Puerto Rico 00646, (787)
      278-2709. Our website is www.pharmaservpr.com. Information on our website or
      any
      other website is not part of this annual report.





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. The acquisition of Pharma-PR was
      accounted for as a reverse acquisition, with Pharma-PR being the accounting
      acquiring party. The accounting rules for reverse acquisitions require that
      beginning with the date of the merger, January 25, 2006, our balance sheet
      includes the assets and liabilities of Pharma-PR and our equity accounts were
      recapitalized to reflect the net equity of Pharma-Bio. In addition, our
      historical operating results will be the operating results of Pharma-PR. This
      transaction is referred to in this annual report as the reverse
      acquisition.




References
      to “we,” “us,” “our” and similar words refer to Pharma-Bio, commencing with the
      acquisition of Pharma-PR and the consummation of the private placement which
      occurred contemporaneously with the acquisition.





**Risk
      Factors**





**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
      business.***





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 profit would be impaired by factors in Puerto
      Rico for
      example changes
      in taxes, or regulatory, tax, political or economic conditions which discourage
      these businesses from operating in Puerto Rico and changes in U.S. government
      regulations which affect the need for services such as those provided by
      Pharma-PR.





***Since
      our business is dependent the development and enhancement of patented
      pharmaceutical products or processes, the failure of our clients to obtain
      and
      maintain patents could impair our business.***





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 patents 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.





***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, 2007 and 2006, a very small number of clients accounted for
      a
      disproportionately large percentage of our revenue. For the year ended October
      31, 2007, five customers accounted for approximately 66.7% of revenue. For
      the
      year ended October 31, 2006, four customers accounted for approximately 73.0%
      of
      revenue. 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 we will not sustain significant decreases in revenue from our major
      customers or that we will be able to replace any decline in
      revenue.





-2-


***We
      may be unable to pass on increased labor costs to our
      clients.***





The
      principal components of our costs of revenue are employee compensation
      (salaries, wages, taxes and benefits) and expenses relating to the performance
      of the services. We face increasing labor costs which we seek to pass on to
      our
      customers through increases in our rates. We may not be able to pass these
      cost
      increases to our clients, and, to the extent that we are not able to pass these
      increases to our clients, our gross margin will be reduced.





***Our
      cash requirements include payments totaling $5.5 million due to Elizabeth Plaza,
      which may impair our ability to develop our business.***





Pursuant
      to the merger agreement, we were required to make three payments, each in the
      amount of $2.75 million, on January 25, 2007, 2008, and 2009. These payments
      are
      not contingent upon our earnings, earnings before interest, taxes, depreciation
      and amortization or any other financial criteria. Although we have the resources
      to make the January 2008 payment, we may not have resources, other than from
      our
      operations, from which to make the payment due in January 2009. We cannot assure
      you that we will have available cash from which we can make these payments
      and, even if we do have the available cash, our growth may be impaired if we
      use
      our cash for that purpose.





***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.





***The
      willingness of companies in the pharmaceutical and related industries to conduct
      business in Puerto Rico could significantly impair our business by reducing
      the
      need for our services.***





Since
      our
      business is conducted mainly in Puerto Rico, our ability to generate revenue
      and
      income is dependent upon the willingness of our clients and potential clients
      to
      maintain or increase their operations in Puerto Rico. Our clients may consider
      factors such as tax benefits, Puerto Rico’s economy and other economic
      factors.





***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. Although some tax benefits remain, the
      change in the tax law may affect the willingness of pharmaceutical companies
      to
      continue or to expand their Puerto Rico operations, and we are aware of at
      least
      one pharmaceutical company that has decided to close its Puerto Rico operations
      as a result of the change in the tax laws. To the extent that pharmaceutical
      companies choose to develop and manufacture products outside of Puerto Rico,
      our
      ability to generate new business may be impaired.




***Puerto
      Rico’s economy, including its 2006 governmental financial crisis, may affect the
      willingness of businesses to commence or expand operations in Puerto
      Rico.***





As
      a
      result of Puerto Rico’s 2006 governmental financial crisis, which resulted in
      the closing of government offices, businesses may be reluctant to commence
      or
      expand their operations in Puerto Rico. Further, since Puerto Rico’s economy is
      petroleum-based, the high 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.





-3-




***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 influences by a need to consolidate operations, to reduce
      expenses, to increase their business in geographical regions where there are
      large customer bases, to tax, regulatory and political considerations and many
      other factors. We can not assure you that our customers and potential customers
      will not make extensive reductions or terminate their operations in Puerto
      Rico
      entirely, which could significantly impair our ability to generate
      revenue.





***If
      we are unable to protect our clients’ intellectual property, our ability to
      generate business will be impaired.***





Our
      services either require us to develop intellectual property for clients or
      provide our personnel with access to our clients’ intellectual property. Because
      of the highly competitive nature of the pharmaceutical, biotechnology, medical
      device and chemical manufacturing industries and the sensitivity of our clients’
intellectual property rights, our ability to generate business would be impaired
      if we fail to protect those rights. Although all of our employees and
      contractors are required to sign non-disclosure agreements, any disclosure
      of a
      client’s intellectual property by an employee or contractor may subject us to
      litigation and may impair our ability to generate business either from the
      affected client or other potential clients. In addition, we are required to
      enter into confidentiality agreements and our failure to protect the
      confidential information of our clients may impair our business
      relationship.





***We
      may be subject to liability if our services or solutions for our clients
      infringe upon the intellectual property rights of
      others.***





It
      is
      possible that in performing services for our clients, we may inadvertently
      infringe upon the intellectual property rights of others. In such event, the
      owner of the intellectual property may commence litigation seeking damages
      and
      an injunction against both us and our client, and the client may bring a claim
      against us. Any infringement litigation would be costly, regardless of whether
      we ultimately prevail. Even if we prevail, we will incur significant expenses
      and our reputation would be hurt, which would affect our ability to generate
      business and the terms on which we would be engaged, if at all.




***We
      may be held liable for the actions of our employees or contractors when on
      assignment.***





We
      may be
      exposed to liability for actions taken by our employees or contractors while
      on
      assignment, such as damages caused by their errors, misuse of client proprietary
      information or theft of client property. Due to the nature of our assignments,
      we cannot assure you that we will not be exposed to liability as a result of
      our
      employees or contractors being on assignment.





***To
      the extent that we perform services pursuant to fixed-price or incentive-based
      contracts, our cost of services may exceed our revenue on the
      contract.***





Some
      of
      our revenue is derived from fixed price contracts. Our costs of services may
      exceed revenue of these contracts if we do not accurately estimate the time
      and
      complexity of an engagement. Further, we are seeking contracts by which our
      compensation is based on specified performance objectives, such as the
      realization of cost savings, quality improvements or other performance
      objectives. Our failure to achieve these objectives would reduce our revenue
      and
      could impair our ability to operate profitably.





-4-




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:





·
            Seasonal
                trends, primarily as a result of our hiring
                cycle;





·
            Our
                ability to move employees and contractors from completed projects
                to new
                engagements; and





·
            Our
                ability to manage attrition of our employees and
                contractors.





***Because
      most of our contracts may be terminated on little or no advance notice, our
      failure to generate new business could impair our ability to operate
      profitably.***





Subject
      to cancellation fees, most of our contracts can be terminated by our clients
      with short 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
      short
      notice. As a result, we need to develop new business on an ongoing basis. Since
      our operations are heavily concentrated on companies operating in Puerto Rico
      and, to a lesser extent, Puerto Rico businesses that operate elsewhere, 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.





-5-




***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 December 31, 2008, and as a consultant thereafter,
      In
      December 2007 we contracted a new chief operating officer as part of Ms. Plaza’s
      succession plan. Although we have contracts with Ms. Plaza and the new chief
      operating officer, these agreements do not guarantee that they will continue
      to
      serve in their respective capacities. 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 both to acquire other businesses which
      can increase the range of services and products that we can offer and to
      establish offices in locales 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 Ireland market through a newly formed 80%-owned
      subsidiary. The success of the operation is dependent, among others, 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. As of the date of this report, we do not have any agreement or
      understanding, either formal or informal, as to any acquisition.





***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.





***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.





-6-




***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 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, many of which cannot be presently identified.
      Further, the commencement of business in other countries may be subject to
      significant risks in areas which we are not able to prepare for in
      advance.





-7-


***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/or 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 costs, support-services
                costs
                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.





***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 to pay the deferred payments of $5.5
      million owed to Elizabeth Plaza, and we may never pay cash
      dividends.





**Risks
      Concerning our Securities**





***Because
      there is a limited market in our common stock, stockholders may have difficulty
      in selling our common stock and our common stock may be subject to significant
      price swings.***





There
      is
      a very limited market for our common stock. Since trading commenced in December
      2006, there has been little activity in our common stock and on some days there
      is no trading in our common stock. Because of the limited market for our common
      stock, the purchase or sale of a relatively small number of shares may have
      an
      exaggerated effect on the market price for our common stock. We cannot assure
      stockholders that they will be able to sell common stock or, that if they are
      able to sell their shares, that they will be able to sell the shares in any
      significant quantity at the quoted price.





-8-





***The
      exercise of outstanding options and warrants may have a dilutive effect on
      the
      price of our common stock.***





To
      the
      extent that outstanding stock options and warrants are exercised, dilution
      to
      our stockholders will occur. Moreover, the terms upon which we will be able
      to
      obtain additional equity capital may be adversely affected, since the holders
      of
      the outstanding options and warrants can be expected to exercise them at a time
      when we would, in all likelihood, be able to obtain any needed capital on terms
      more favorable to us than the exercise terms provided by the outstanding options
      and warrants.





***Because
      we are not subject to compliance with rules requiring the adoption of certain
      corporate governance measures, our stockholders have limited protections against
      interested director transactions, conflicts of interest and similar
      matters.***





The
      Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by
      the
      Commission and others, require the implementation of various measures relating
      to corporate governance. These measures are designed to enhance the integrity
      of
      corporate management and the securities markets. Because we are not presently
      required to comply with many of the corporate governance provisions and because
      we chose to avoid incurring the substantial additional costs associated with
      such compliance any sooner than necessary, we have not yet adopted all of these
      measures. Until we comply with such corporate governance measures, regardless
      of
      whether such compliance is required, the absence of such standards of corporate
      governance may leave our stockholders without protections against interested
      director transactions, conflicts of interest and similar matters and investors
      may be reluctant to provide us with funds necessary to expand our operations.
      Furthermore, commencing with our current fiscal year, which ends October 31,
      2008, we will be required to have a more formal and documented internal control
      structure in place. We may incur significant expenses during the year to enable
      us to take steps that are necessary in order to establish the required internal
      controls.





**Our
      Business**





We
      offer
      consulting services to the pharmaceutical industry. Our engineering and life
      science professionals include former quality assurance managers or directors
      from pharmaceutical companies, and experienced and well-trained professionals
      with bachelors, masters and doctorate degrees in health sciences and
      engineering. Our objective is to offer a flexible, common sense and cost
      effective approach to meet our clients’ needs, strategies and budget
      objectives.





We
      have
      established quality systems for our employees which include:




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




·
            Recruitment
                Full Training Program - including employee manual, dress code, time
                sheets
                and good projects management and control procedures, job descriptions,
                and
                firm operating and administration
                procedures;




·
            Safety
                Program - including OSHA and health (medical surveillance, certificate
                of
                good health, drug screening, background checks including conduct
                certificates, alcohol and smoke free
                policy);




·
            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.




In
      January 2006, we acquired certain assets for a purchase price of $300,000.
      The
      acquired assets include a client list and a validation compliance service
      business in the United States market. The purchase price was paid in three
      installments of $100,000. We have also hired nine former employees of that
      business.





We
      have
      recently entered into the Ireland market through the formation of an 80%- owned
      subsidiary. We intend to provide the Ireland market the same services we are
      currently providing in the Puerto Rico and United States markets.





-9-


**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 United States which provides us access to affiliated companies in
      other
      markets. We see 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.





As
      part
      of our growing strategy and our plans to globalize and enter in new markets,
      we
      have invested on our infrastructure to support our expansion plans. We expect
      to
      invest approximately $1 million in equipment and improvements for a new
      microbiological testing lab which is scheduled to open in early 2008. We
      invested approximately $265,000 during the year ended October 31, 2007 and
      we
      will be investing the balance during the year ended October 31, 2008. In
      addition, in fiscal year 2007 we strengthened our executive staff to support
      our
      new laboratory facility, our market expansions in the United States, and most
      recently, Europe. We have also moved our headquarters to new facilities that
      will house our microbiology testing laboratory, our new customer-specialized
      training facilities, and our operational and administrative
      offices.





Our
      business strategy is based on a commitment to provide premium quality and
      professional consulting services and reliable customer service to our customer
      base. Our business strategy and objectives are as follow:




·
            Continue
                growth in consulting services in each technical service, quality
                assurance, regulatory compliance, 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.




**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 attend
      exhibitions, conferences, conventions and seminars as either exhibitors,
      sponsors or conference speakers.





**Marketing**




We
      conduct our marketing activities primarily within the local Puerto Rico and,
      to
      a lesser extent, 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.





-10-




**Principal
      Customers**





Three
      customers accounted for 10% or more of our revenue during the year ended October
      31, 2007, while four accounted for more than 10% of our revenue during the
      year
      ended October 31, 2006. 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.





Subsequent
      to October 31, 2007 one of the major customers, which represented 23% of the
      Company’s 2007 revenues, announced its plans to close its Puerto Rico operations
      during 2008. As of October 31, 2007, the outstanding balance of this customer
      represented 5% of total accounts receivable. Management considers the amount
      to
      be fully collectible. Although past performance is no indication of future
      performance, in the past, in the ordinary course of business, the Company has
      been successful substituting customer losses by adding new customers or projects
      to its base.




**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 validation and compliance consulting services consist of large
      public and private companies such as Fluor Corporation, Foster Wheeler Corp.,
      Siemens, Skanska Pharmaceutical, and Washington Group International, 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 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 is based primarily on reputation, track
      record, experience, quality of service and price. 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.





Because
      of recent consolidations in the pharmaceutical consulting business in Puerto
      Rico, we are faced with an increasing number of larger companies that offer
      a
      wider range of services than we do and which also have better access to capital.
      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 affecting their, and thus, potentially, our profit.




The
      market of qualified and/or 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 benefits,
      quality training and a low turnover of qualified employees.





-11-




**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.




**Personnel**




We
      currently employ 14 administrative and technical staff employees and
      approximately 145 technical personnel who provide consulting services to our
      clients. Most of our technical personnel are employees, although we do engage
      independent consultants on a contract basis. In general, when we subcontract
      independent consultants, it is for specific projects where we do not expect
      to
      require their services on a long-term basis. If we see a longer term
      requirement, we may replace the independent consultants with our own employees,
      or extend the contracts to the independent contractor as the need and
      availability dictates. 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, 8 th place as
      one of the “Puerto Rico 20 best employers” in 2006.








**ITEM
                2 DESCRIPTION OF PROPERTY**





In
      February 2007, we and Plaza Professional Center, Inc., a company controlled
      by
      Elizabeth Plaza, rescinded our old facilities lease agreement and entered into
      a
      new agreement for our new main resource facilities. These facilities will house
      our microbiology testing laboratory to open in 2008, our new
      customer-specialized training facilities and, our operational and administrative
      offices. The agreement is for a five year term, with initial monthly payments
      of
      $18,750, which will increase by 5% annually. 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 at a monthly rental of $1,050 during the first
      year, $1,100 during the second year, and $1,150 for the third year. The
      agreement may be terminated earlier by giving a prior 90 days written
      notice.





Our
      Ireland start-up office facilities are located in Cork, Ireland. Currently,
      the
      facilities are under a month-to-month lease with monthly payments of
      approximately $750.




We
      believe that our present facilities, including our new facility in Puerto Rico,
      are adequate to meet our needs and that, if we require additional space, it
      is
      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 any of these proceedings will have a material adverse effect
      on our business or financial condition.








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




None.





-12-





**PART
      II**





**ITEM
                5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS**




**Market
      Information**




Prior
      to
      December 4, 2006, there was no market for our common stock. Since December
      4,
      2006, our common stock has been traded on the OTC Bulletin Board under the
      symbol PBSV. The following table sets forth, the reported high and low closing
      bid quotations for our common stock by fiscal quarters through January 23,
      2008.
      The bid prices reflect inter-dealer quotations, do not include retail markups,
      markdowns or commissions and do not necessarily reflect actual
      transactions.





Quarter
                Ending
            High
                Bid
            Low
                BidJanuary
                31, 2007 (from 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 ((through January 23, 2008)
            0.99
            0.51




On
      January 24, 2008, the closing bid price of our common stock was
      $0.62.




As
      of
      December 31, 2007, we had approximately 85 record holders of our common
      stock.




Prior
      to
      the reverse acquisition, we were 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 our income was taxed to our then
      sole
      stockholder, Elizabeth Plaza. While we were taxed as an N Corporation we made
      distributions to Ms. Plaza, including approximately $834,000 during the year
      ended October 31, 2006. Other than the distributions to Ms. Plaza 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 shares
      of
      our common stock may be issued as of October 31, 2007.


Plan
                Category
            
            Number
                of shares to be issued upon exercise of outstanding options and
                warrants
            
            Weighted-average
                exercise price per share of outstanding options and
                warrants
            
            Number
                of shares remaining available for future issuance under equity
                compensation plansEquity
                compensation plans approved by security holders
            
            
            1,199,355
            
            $
            0.7496
            
            
            1,300,645Equity
                compensation plans not approved by security holders
            
            
            3,939,892
            
            $
            0.3065
            
            
            16,500





The
      shares of common stock 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.





The
      equity compensation plans not approved by security holders are (i) warrants
      to
      purchase 1,439,892 which were issued to brokers in connection with the January
      2006 private placement, (ii) warrants to purchase 2,500,000 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.





-13-




**ITEM
                6 MANAGEMENT’S DISCUSSION AND
                ANALYSIS**





**Overview**




The
      following discussion of our results of operations and financial condition should
      be read in conjunction with our consolidated financial statements and the
      related notes appearing elsewhere in this prospectus. The following discussion
      includes forward-looking statements. For a discussion of important factors
      that
      could cause actual results to differ from results discussed in the
      forward-looking statements, see “Forward Looking Statements.”




We
      are a
      validation and compliance consulting service firm with a base in Puerto Rico,
      servicing the Puerto Rico and, to a lesser extent, the United States and other
      markets. The validation and compliance consulting service market in Puerto
      Rico
      and the United States 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 and validation
      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 through their Puerto Rico operations. Our staff
      includes more than 145 experienced engineering and life science professionals,
      and includes former quality assurance managers or directors, and experienced
      and
      well-trained professionals with bachelors, masters and doctorate degrees in
      health sciences and engineering.




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 to us cannot exceed a stated amount. For time and materials
      contracts, our revenue is principally a function of the number of its compliance
      and validation professional employees 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
      the management and monitoring of the project progress. If we underestimate
      our
      costs on any contract, we would sustain a loss on the contract.




We
      believe the most significant factors to achieving future business growth are
      our
      ability to (a) continue to provide quality value-added validation and compliance
      services to our clients; (b) recruit and retain highly educated and experienced
      validation and compliance professionals; (c) further expand our products and
      services to address the expanding compliance needs of the clients; and (d)
      expand our market presence into the United States, Latin America and Europe
      in
      order to respond to the international validation and compliance demands of
      our
      clients.




Our
      business has been dependent upon a small number of clients. During the years
      ended October 31, 2007 and 2006, a very small number of clients accounted for
      a
      disproportionately large percentage of our revenue. For the year ended October
      31, 2007, five customers accounted for approximately 66.7% of revenue. For
      the
      year ended October 31, 2006, four customers accounted for approximately 73.0%
      of
      revenue. 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.  However, the loss of or
      significant reduction in the scope of work performed for any major customer
      could impair our ability to operate profitably.





Although
      our business is affected by seasonal factors such as vacation and holiday work
      policies, we do not believe that our business is seasonal. However, because
      our
      business is based on performing services under contracts which relate to
      specific projects, there may be a lag between the completion of one project
      and
      the commencement of the following project. This lag may cause some decline
      in
      revenues and a related decline in gross margin.




-14-


On
      January 9, 2006, we acquired, for $300,000, from the individual who was our
      executive vice president and chief operating officer during February and March
      2006, certain assets of Integrated Validation Service, a United States-based
      business that performs consulting services for the pharmaceutical and biotech
      industries. These assets include a client list and the validation compliance
      service business that was operated by that individual. The purchase price was
      paid in three installments, each in the amount of $100,000. We also hired nine
      former employees of the business. This acquisition was made pursuant to our
      strategy to expand our operations beyond Puerto Rico with a view to lessening
      our dependence upon a small number of Puerto Rico pharmaceutical companies.
      Revenues from our United States operations for the years ended October 31,
      2007
      and 2006 were approximately $2,322,000 and $678,000, respectively.




The
      principal components of our costs of revenue are employee compensation
      (salaries, wages, taxes and benefits) and expenses relating to the performance
      of the services. We face increasing labor costs which we seek to pass on to
      our
      customers through increases in our rates. However, there is often a delay
      between the increase in our costs and the increases in our billing rate, which
      may result in a reduced gross margin during that period. Although we have been
      successful in the past in being able to increase our billing rates to reflect
      our increased labor costs, we cannot give any assurance that we will continue
      to
      be able to do so.





On
      January 25, 2006, we acquired Pharma-PR in a transaction which was accounted
      for
      as a reverse acquisition, with Pharma-PR being deemed the accounting acquirer.
      Pursuant to the acquisition agreement, we paid Elizabeth Plaza, the sole
      stockholder of Pharma-PR, $10,000,000 plus 1,150,000 shares of our common stock.
      In addition, Ms. Plaza was to receive three payments, each in the amount of
      $2,750,000, payable on January 25, 2007, 2008 and 2009. During fiscal year
      ended
      October 31, 2007 we made the first payment. The second payment, net of imputed
      interest, is a current liability at October 31, 2007. In 2006 we also paid
      Ms.
      Plaza $88,161 because Pharma-PR’s net tangible book value exceeded $5,500,000
      and $125,227 to reimburse Ms. Plaza for taxes which she paid personally on
      our
      income during the period December 1, 2005 to January 24, 2006. See “Item 12.
      Certain Relationships and Related Transactions.”





As
      a
      result of the reverse acquisition that closed on January 25, 2006, Pharma-PR
      is
      treated as the accounting acquirer and the results of operations for periods
      prior to January 25, 2006 reflect only the operations of Pharma-PR.





**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.




Cash
      and
      cash equivalents - For purposes of the statements of cash flows, cash and cash
      equivalents include liquid investments with original maturities of three months
      or less.




Revenue
      Recognition - We recognize revenues from time and material contracts by applying
      the proportional performance model, whereby revenue is recognized as performance
      occurs. In the case of fixed-fee or “not to exceed” contracts, which are
      generally short-term contracts, 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
      recognize the estimated loss in the period in which such determination is
      made.




Bad
      Debts
      - 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.





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.





-15-




Depreciation
      of owned assets, and amortization of assets under capital leases and leasehold
      improvements, are provided using the straight-line basis over the shorter of
      the
      estimated useful lives of the assets or lease term. Major renewals and
      betterments that extend the life of the assets are capitalized, while
      expenditures for repairs and maintenance are expensed when
      incurred.




We
      evaluate for impairment our long-lived assets to be held and used, and
      long-lived assets to be disposed of, whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be
      recoverable.





Income
      Taxes - In Puerto Rico we elected from our inception until January 25, 2006,
      to
      be covered under the provisions of Subchapter N of Subtitle A of the Puerto
      Rico
      Internal Revenue Code (the “Puerto Rico Code”), which is similar to Subchapter S
      of the Internal Revenue Code in that we paid no income taxes since the taxable
      income was taxed to our stockholder. Under the provisions of the Puerto Rico
      Code, we paid the Puerto Rico Secretary of Treasury, on behalf of its
      stockholder, an amount equal to 33% of our taxable income. These payments,
      and
      any income tax withheld, are included in the amount of distributions to
      stockholder in our consolidated financial statements.





Commencing
      with the acquisition of Pharma-PR on January 25, 2006, we are taxed based on
      our
      taxable income under the applicable provisions of the Puerto Rico Code and
      the
      Internal Revenue Code. The consolidated financial statements for the years
      ended
      October 31, 2007 and 2006 reflect a provision for income taxes based on the
      applicable provisions of the Puerto Rico Code, since the income was earned
      by
      the Puerto Rico subsidiary.





Concentration
      of credit risk - Financial instruments which potentially subject us to
      concentrations of credit risk consist principally of cash and cash equivalent
      deposits and trade accounts receivable. We maintain our 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. Our deposit balances frequently
      exceed federally insured limits; however, no losses have been experienced on
      these accounts.





Our
      revenues are concentrated in the pharmaceutical industry in Puerto Rico.
      Approximately $10.8 million, or 66.7%, of the revenues in the year ended October
      31, 2007 were generated by five customers. These customers had an outstanding
      balance at October 31, 2007 representing 45.0% of the total receivables.
      Approximately $10.3 million, or 73.0% of revenue, for the year ended October
      31,
      2006, was generated by four of these customers. These four customers had
      outstanding balances at October 31, 2006 representing 73% of the total
      receivables. We assess the financial strength of our clients and, as a
      consequence, believe that our trade accounts receivable credit risk exposure
      is
      limited.





Retirement
      Plan - We adopted a qualified profit sharing plan in January 2002 (amended
      on
      November 30, 2003) in accordance with the applicable provisions of the Puerto
      Rico Code, for employees who meet certain age and service period requirements.
      We make contributions to this plan as required by the provisions of the plan
      document, amounting to $69,595 and $40,439 for the years ended October 31,
      2007
      and 2006, respectively.




-16-





Stock
      Option Plan - During the year ended October 31, 2004, we granted stock options
      with an exercise price equal to the book value of the common stock as of October
      31, 2003, which we deemed to be the fair value of our common stock. The options
      were to expire ten years from the date of grant and generally vested over a
      three-year period. In connection with our acquisition of Pharma-PR, these
      options were cancelled and we granted the option holders options to purchase
      an
      aggregate of 776,186 shares of common stock in respect of the cancelled options
      and we issued options to purchase an additional 623,814 shares of common stock
      to employees of Pharma-PR, including those whose options were cancelled. In
      addition, options to purchase 75,000 shares of common stock were granted to
      our
      directors pursuant to a provision of the plan that provided for the automatic
      grant of an option to purchase 25,000 shares upon the initial election of an
      independent director. We have subsequently granted options to purchase another
      473,724 shares to employees and independent directors. As of October 31, 2006,
      there were approximately 1,348,090 outstanding options, since some options
      expired because of certain employment terminations.





As
      of
      November 1, 2006 there were outstanding options to acquire 1,348,090 shares
      of
      common stock, of which options, with a weighted-average exercise price of
      $0.7344, to acquire 228,320 shares terminated unexercised. In January 2007,
      the
      Company granted options to purchase 5,000 shares of common stock to each of
      its
      three independent directors and an option to purchase 50,000 shares to its
      new
      general manager. In February 2007, the Company also granted an option to
      purchase 35,000 shares to an independent contractor, of which an option to
      purchase 14,585 shares subsequently became vested and the option to purchase
      the
      remaining 20,414 shares was forfeited. No options were exercised or expired
      during the year ended October 31, 2007. As of October 31, 2007, there were
      outstanding options to purchase 1,199,355 shares. The weighted average of the
      remaining contractual life of the outstanding stock options is 3 years and
      the
      weighted average exercise price is $0.7496.





Fair
      value of financial instruments - The carrying value of our financial instruments
      (excluding obligations under capital leases): cash, accounts receivable,
      accounts payable and accrued liabilities, are considered reasonable estimates
      of
      fair value due to the short period to maturity. We believe, based on current
      rates, that the fair value of its obligations under capital leases approximates
      the carrying amount.





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 financial statements, and the reported amounts
      of
      revenue and expenses during the reporting period. Actual results could differ
      from those estimates.





Foreign
      Operations **-** The
      functional currency of our foreign subsidiary is its local currency. The assets
      and liabilities of our foreign subsidiary are translated into United States
      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 United States dollar is included as a cumulative
      translation adjustment in stockholders’ equity and as a component of
      comprehensive income. For the year ended October 31, 2007, the only foreign
      operations were in Ireland, where the functional currency is the
      Euro.





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 the international subsidiary
      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
      consolidated statements of operations were not significant for the periods
      presented.





-17-





**New
      Accounting Pronouncements**





In
      December 2007, the Financial Accounting Standards Board (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
      financial statements.





In
      February 2007, the Financial Accounting Standards Board (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 financial statements.





In
      September 2006, the Financial Accounting Standards Board (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. The implementation of this Statement will have no
      significant effect on our 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
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. This Interpretation is effective for fiscal
      years beginning after December 15, 2006. Earlier application of the provisions
      of this Interpretation is encouraged if the enterprise has not yet issued
      financial statements, including interim financial statements, in the period
      this
      Interpretation is adopted. We do not expect that the application of this
      standard will have any effect on the Company's 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 the Company.





-18-




**Results
      of Operations**




The
      following table sets forth our statements of operations for the years ended
      October 31, 2007 and 2006, (dollars in thousands) and as a percentage of
      revenue:




Years
                Ended October 31,2007
            
            2006Revenue
            
            $
            16,205
            
            
            100.0
            %
            $
            14,184
            
            
            100.0
            %Cost
                of revenue
            
            
            9,381
            
            
            57.9
            %
            
            8,116
            
            
            57.2
            %Gross
                profit
            
            
            6,824
            
            
            42.1
            %
            
            6,068
            
            
            42.8
            %Selling,
                general and administrative costs
            
            
            3,176
            
            
            19,6
            %
            
            2,226
            
            
            15.7
            %Interest
                expense
            
            
            392
            
            
            2.4
            %
            
            393
            
            
            2.8
            %Interest
                income
            
            
            107
            
            
            0.6
            %
            
            49
            
            
            0.3
            %Loss
                on disposition of property
            
            
            26
            
            
            0.1
            %
            
            4
            
            
            0.0
            %Income
                before income taxes
            
            
            3,337
            
            
            20.6
            %
            
            3,495
            
            
            24.6
            %Income
                tax expense1
            
            
            1,436
            
            
            8.9
            %
            
            1,160
            
            
            8.2
            %Net
                income1
            
            
            1,901
            
            
            11.7
            %
            
            2,335
            
            
            16.4
            %










(1)
            We
                were treated as an N Corporation under the Puerto Rico Internal Revenue
                Code, which is similar to an S Corporation under the Internal Revenue
                Code, prior to the reverse acquisition. As a result, we did not pay
                any
                income tax through January 25, 2006. Subsequently, we have been subject
                to
                income tax in Puerto Rico. If we had not been treated as an N Corporation
                during a portion of the fiscal year ended October 31, 2006, our income
                before income taxes would have been taxed at rates ranging from 39%
                to
                41.5%. The following table shows the income before income taxes,
                pro forma
                income taxes and pro forma net income in dollars (dollars in thousands)
                and as a percentage of revenue:




Years
                Ended October 31,2007
            
            2006Income
                before income taxes (actual for 2007 and 2006)
            
            $
            3,337
            
            
            20.6
            %
            
            $
            3,495
            
            
            24.6
            %Income
                tax expense (2007 actual , 2006 pro-forma)
            
            
            1,436
            
            
            8.9
            %
            
            
            1,518
            
            
            10.7
            %Net
                income (2007 actual , 2006 pro-forma)
            
            $
            1,901
            
            
            11.7
            %
            
            $
            1,977
            
            
            13.9
            %








Revenues .
      Revenues for the year ended October 31, 2007 were $16.2 million, an increase
      of
      $2 million, or 14%, from the revenue of $14.2 million in the prior year. The
      increase is mainly attributable to a project in the United States market which
      generated $1.6 million and other projects attributable to the Puerto Rico
      market.





Cost
      of revenues; gross margin .
      Our
      gross margin decreased from 42.8% to 42.1% during the year ended October 31,
      2007 as compared to the prior year. The decrease of 0.7 percentage points is
      mainly attributable to the value of the options granted to our employees and
      consultants which impacted our professional personnel benefits for an amount
      of
      approximately 0.4 percentage points of revenues.





-19-





Selling,
      General and Administrative Expenses .
      Total
      expenses were approximately $3.2 million during the year ended October 31,
      2007,
      an increase of approximately $950,000, or 42.7%, from the prior year. Such
      increase resulted mainly from expenses related to the expansion of our executive
      staff with the resulting increase in executive compensation, the increase in
      the
      monthly lease payments of our main resources facility, and development expenses
      incurred for our new microbiology laboratory. In addition, during fiscal 2006,
      from November 1, 2005 through January 24, 2006, when we completed the reverse
      acquisition, we were taxed as an N Corporation under the Puerto Rico Code,
      with
      the result that all of our taxable income was taxed directly to Ms. Plaza,
      as
      the sole stockholder of Pharma-PR. During this period, we did not accrue any
      compensation to Ms. Plaza.





Interest
      Expense .
      We have
      been recognizing imputed interest expense incurred in connection with the
      long-term obligations to Ms. Plaza which originated as a result of the reverse
      acquisition. This expense will decrease as annual payments are
      made.




Income
      Tax Expense .
      The
      increase in the income tax expense results from a change in our tax status.
      We
      became a regular corporation taxpayer effective January 25, 2006. Prior to
      that,
      we were covered under the provisions of Subchapter N of Subtitle A of the Puerto
      Rico Internal Revenue Code which are similar to Subchapter S of the Internal
      Revenue Code in that our taxable income was taxed to the stockholders. The
      statutory tax rate in Puerto Rico is 39%, but adjusted to 41.5% for 2006 and
      2007.




Net
      Income . As a
      result of the increase in selling, general and administrative expenses and
      the
      taxation of our net income for the entire year ended 2007, our net income for
      the year ended October 2007 decreased to approximately $1,901,000, or $0.10
      per
      share (basic) and $0.09 per share (diluted), a decline of approximately
      $434,000, or 18.6%, from net income of $2,335,000, or $0.22 per share (basic)
      and $0.13 per share (diluted), for the year ended October 2006.





In
      fiscal
      year 2006 the basic and diluted income per share were also affected by the
      nature of the securities issued in our private placement that was completed
      contemporaneously with the reverse acquisition in January 2006. At that time,
      we
      issued shares of series A preferred stock which were convertible into 15,998,800
      shares of common stock. The series A preferred stock was automatically converted
      into the 15,998,800 shares on April 25, 2006, when we increased our authorized
      capital stock. As a result, the shares of common stock that were issued upon
      conversion of the series A preferred stock are included in determining diluted
      earnings per share from January 25, 2006 until April 24, 2006 and in determining
      basic earnings per share thereafter.








**Liquidity
      and Capital Resources**





Liquidity
      is a measure of our ability to meet potential cash requirements, including
      planned capital expenditures. At October 31, 2007, we had working capital of
      approximately $3.9 million, a decrease of approximately $0.7 million from the
      working capital at October 31, 2006 of approximately $4.6 million. Although
      we
      generated approximately $5.6 million from operations during the year ended
      October 31, 2007, this increase was offset by a payment of $2.75 million to
      Elizabeth Plaza in connection with the acquisition of Pharma-PR. We also have
      obligations to Ms. Plaza for two payments of $2.75 million each due in January
      2008 and 2009.





We
      are
      pursuing possible opportunities of expanding our operations beyond Puerto Rico.
      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 cash flow from operations.





We
      are in
      the process of expanding our operations into Ireland, where we are setting
      up
      facilities to offer our services to companies in the pharmaceutical and related
      industries in Ireland. Present cash outlays for this expansion are not
      significant.





-20-




Our
      primary cash needs consist of payment of compensation to our professional staff,
      overhead expenses and payments due to Ms. Plaza pursuant to the terms of the
      acquisition of Pharma-PR. In addition, since January 25, 2006, we have been
      subject to income tax in Puerto Rico. Our taxable income in Puerto Rico was
      taxed at rates ranging from 39% to 41.5% of taxable income. Beginning in fiscal
      year 2008 our taxable income in Puerto Rico could be taxed to a maximum rate
      of
      39%.





Management
      believes that based on current levels of operations and anticipated growth
      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
      Ms.
      Plaza pursuant to the agreement relating to the acquisition of Pharma-PR, for
      the next twelve months.





While
      uncertainties relating to 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**




Pharma-Bio
      was not involved in any significant off-balance sheet arrangement during the
      fiscal year ended October 31, 2007.














**ITEM
      7 FINANCIAL STATEMENTS**





**The
      financial statements begin on page F-1.**





-21-




**ITEM
                8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURE**





None.





**ITEM
                8A  CONTROLS AND
                PROCEDURES**




As
      of the
      end of the period covered by this report, our chief executive officer and chief
      financial officer evaluated the effectiveness of our disclosure controls and
      procedures. Based on their evaluation, the chief executive officer and chief
      financial officer concluded that our disclosure controls and procedures are
      effective in alerting them to material information that is required to be
      included in the reports that we file or submit under the Securities Exchange
      Act
      of 1934 and that information required to be disclosed in the reports that we
      file or submit under the Securities Exchange Act of 1934 is accumulated and
      communicated to our management, including our chief executive officer and chief
      financial officer, to allow timely decisions regarding required disclosure.




During
      the period covered by this report, there were no changes in the Company's
      internal controls over financial reporting that materially affected, or are
      reasonably likely to materially affect, the Company's internal controls over
      financial reporting.




**ITEM
                8B  OTHER
                INFORMATION**




On
      January 2, 2008, **** we
      entered into an agreement with Elizabeth Plaza, amending her employment
      agreement to provide that her executive term would be extended until December
      31, 2008 and thereafter she would continue as a consultant under terms to be
      negotiated. Except for this amendment, Ms. Plaza’s employment agreement is
      unchanged.





In
      December 2007 we entered into an employment agreement with Juan P Gutierrez,
      who
      serves as our chief operating officer, commencing January 15, 2008. Pursuant
      to
      his agreement he will receive an annual salary of $225,000, stock options to
      purchase 100,000 shares of our stock, a discretionary bonus and the use of
      a
      Company provided car.








-22-




**PART
      III**




**ITEM
                9**
              **DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16(a) OF THE EXCHANGE
                  ACT**




**Directors
      and Executive Officers**




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




Name
            
            Age
            
            PositionElizabeth
                Plaza
            
            43
            
            President,
                chairman of the board and directorNélida Plaza
            
            39
            
            Vice
                president and secretaryPedro
                J Lasanta
            
            48
            
            Chief
                financial officer and vice president - finance and
                administrationDov
                Perlysky
            
            44
            
            DirectorKirk
                Michel1
            
            52
            
            DirectorHoward
                Spindel1
            
            62
            
            DirectorIrving
                Wiesen1
            
            52
            
            Director









1
            Member
                of the audit and compensation
                committees.







Elizabeth
      Plaza has been 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 Executive of the Year (Metropolitan-West
      Region). Ms. Plaza is a licensed pharmacist.




Nélida
      Plaza has been 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. Prior thereto,
      she 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. Mr. Lasanta is a certified public
      accountant. 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
& Co He is a cum laude graduate in business administration (accounting) from
      the University of Puerto Rico.




-23-




Dov
      Perlysky had been our president, has been a director since 2004 and has been
      the
      managing member of Nesher, LLC a private investment firm since 2000. On January
      25, 2006, in connection with the reverse acquisition, Mr. Perlysky resigned
      as
      president and became a consultant to us. From 1998 until 2002, Mr. Perlysky
      was
      a vice president in the private client group of Laidlaw Global Securities,
      a
      registered broker-dealer. He received his B.S. in Mathematics and Computer
      Science from the University of Illinois in 1985 and a Masters in Management
      from
      the JL Kellogg Graduate School of Northwestern University in 1991. Mr. Perlysky
      is a director of Engex, Inc., a closed-end mutual fund.




Kirk
      Michel, a director since January 25, 2006, has been a managing director of
      KEMA
      Advisors, Inc., a boutique financial advisory firm located in Hillsborough,
      North Carolina since 2002. KEMA Advisors provides financial advisory services
      to
      middle market companies and governmental agencies. From 1995 to 2002, Mr. Michel
      was the co-founder and a managing director of Bahia Group Holdings, LLC which
      provided corporate finance, public finance and merger and acquisition services
      to middle market companies and governmental agencies. Mr. Michel holds a M.B.A.
      degree from the Columbia University Graduate School of Business and a B.A.
      in
      Economics from Northwestern University.




Howard
      Spindel, a director since January 25, 2006, has been a consultant with
      Integrated Management Solutions, a securities industry consulting and
      recruitment firm which he founded, since 1985. In this capacity, he has also
      acted as a financial and operations principal, general securities principal,
      registered representative and options principal for several broker-dealers
      during this period. He is also a director of Engex, Inc., a closed-end mutual
      fund. Mr. Spindel received a B.S. in accounting from Hunter
      College.




Irving
      Wiesen, a director since January 25, 2006, has practiced as an attorney
      specializing in food and drug law and regulation in the pharmaceutical and
      medical device industries for more than twenty-five years. For more than the
      past five years he has been of counsel to the New York law firms, Ullman,
      Shapiro and Ullman, LLP and Cohen, Tauber, Spievack & Wagner. Prior to that,
      Mr. Wiesen was a partner in the New York food and drug law firm, Bass &
Ullman, and also served as division counsel of Boehringer Ingelheim
      Pharmaceuticals, Inc. Mr. Wiesen represents pharmaceutical, medical device
      and
      biotechnology companies in all aspects of FDA regulation, corporate practice
      and
      compliance, litigation and allied commercial transactions. Mr. Wiesen received
      his J.D. degree from the New York University School of Law and holds an M.A.
      in
      English Literature from Columbia University and a B.A., cum laude, from Yeshiva
      University.




Elizabeth
      Plaza and Nélida Plaza are sisters. There is no other family relationship among
      our officers and directors.




**Board
      Committees**




The
      board
      of directors has three committees, the audit committee, the compensation
      committee and the mergers and acquisition committee. Kirk Michel, Howard Spindel
      and Irving Wiesen, each of whom is an independent director, are the members
      of
      the audit and compensation committees. Mr. Spindel is the audit committee
      financial expert. Dov Perlysky, Kirk Michel and Irving Wiesen are the members
      of
      the mergers and acquisition committee. The mergers and acquisition committee
      was
      formed to assist us with our business strategy and objectives as they relate
      to
      acquisitions discussed above.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Securities Exchange Act requires our executive officers and
      directors, and persons who own more than 10% of our common stock, to file
      reports regarding ownership of, and transactions in, our securities with the
      Securities and Exchange Commission and to provide us with copies of those
      filings. Based solely on our review of the copies of such forms received by
      us,
      or written representations from certain reporting persons, the following
      officers, directors and 10% stockholders were late in filing a Form 3 or 4
      during 2007:  Howard
      Spindel, Irving Wiesen W. Kirk Michel did not timely file Form 4s for
      transactions that occurred on January 3, 2007. The Form 4’s were filed on
      January 9, 2007. Dov Perlysky did not timely file a Form 4 for transactions
      that
      occurred on 12/19/06. The Form 4 was subsequently filed on January 28, 2007.
      Barron Partners, L.P. failed to timely file a Form 4 for transactions that
      occurred on January 24, 2007, the form was subsequently filed on February 8,
      2007.





-24-





**Code
        of Ethics**
 
 We
        have
        adopted a Code of Ethics that applies to all its senior management and
        directors.
  **ITEM
          10 EXECUTIVE COMPENSATION**
  **Summary
        Compensation Table**
  Set
        forth
        below is information for our chief executive officer and the only other officer
        whose total compensation exceeded $100,000 for the fiscal year ended October
        31,
        2007.
 
 Name
                  and Principal Position
              
              Fiscal
                  Year
              
              Salary
              
              Bonus
              
              Option
                  Awards ($)
              
              All
                  Other Compensation
              
              TotalElizabeth
                  Plaza, president and
                chief
                  executive officer
              
              
              2007
                2006
              
              $
              250,000
                173,378
              
              
              --
                --
              
              $
              --
                --
              
              $
              24,828
                34,423
              
              $
              274,828
                207,801Nélida
                  Plaza, vice president
              
              
              2007
                2006
              
              
              150,000
                130,120
              
              
              --
                --
              
              
              --
                78,873
              
              
              11,592
                17,094
              
              
              161,592
                226,087
 
 Prior
        to
        the reverse acquisition, Pharma-PR, which was then wholly owned by Elizabeth
        Plaza, had granted Nélida Plaza an option to purchase 500 shares of its common
        stock at an exercise price of $138.19 per share. At the consummation of the
        reverse merger in January 2006, we granted Ms. Nélida Plaza options to purchase
        131,455 shares of common stock at an exercise price of $0.7344 per share,
        the
        fair market value on the date of grant, of which an option to purchase 94,083
        shares of our common stock was issued to replace options granted prior to
        the
        reverse acquisition.
  No
        bonuses were paid to any of the officers and no stock or other equity
        compensation was provided to any of the officers during the years ended October
        31, 2007 and 2006.
  Other
        compensation for Elizabeth Plaza in fiscal year 2007 and 2006 includes Ms.
        Plaza’s automobile allowance pursuant her employment agreement. In addition, in
        fiscal year 2006, other compensation also includes personal expenses incurred
        prior to January 25, 2006 when she was the sole stockholder of Pharma-PR.
  Other
        compensation paid to Nélida Plaza includes the following:
 
 Years
                  Ended October 31,Description
              
              2007
              
              2006Housing
              
              $
              —
              
              $
              4,428Life
                  insurance
              
              
              —
              
              
              2,005Automobile
                  allowance, including lease payment
              
              
              11,592
              
              
              10,660$
              11,592
              
              $
              17,093
 
 Payments
        for housing and life insurance were discontinued after December 31,
        2005.
  -25-
 
 Prior
        to
        the reverse acquisition, Pharma-PR was taxed as a Subchapter N corporation
        under
        the Puerto Rico tax law, which is similar to treatment as an S Corporation
        under
        the Internal Revenue Code. As a result, Elizabeth Plaza was taxed on Pharma-PR’s
        income. Up to December 2005, we did not pay Elizabeth Plaza any salary. We
        made
        distributions to Ms. Plaza in the amount of $834,000 for the year ended October
        31, 2006 and approximately $8.0 million for the year ended October 31,
        2005.
 
 As
        a
        result of our acquisition of Pharma-PR, Pharma-PR’s status as a Subchapter N
        corporation terminated on January 25, 2006, the date of our acquisition of
        Pharma-PR. Ms. Plaza is responsible for any taxes which are payable as a
        result
        of the Pharma-PR’s loss of its Subchapter N status under the Puerto Rico tax
        laws. However, we, and not Ms. Plaza, are responsible for any taxes on the
        Pharma-PR’s taxable income during the period from the December 1, 2005 to
        January 24, 2006, which amounted to $125,227, and was paid on June 15,
        2006 **.**
 
 **Employment
        Agreements**
 
 On
        January 25, 2006, we entered into employment agreements with Elizabeth Plaza
        and
        Nélida Plaza. Our agreement with Elizabeth Plaza, as extended to December 31,
        2008 provides that Ms. Plaza will serve as our president and chief executive
        officer for which she will receive a salary at the annual rate of $250,000.
        The
        Company will also provide Ms. Plaza with an automobile allowance at the annual
        rate of $24,828, discretionary bonuses and stock options or other equity-based
        incentives as shall be determined by our compensation committee, except that
        her
        bonus shall not be less than 4% or more than 50% of her salary. If we terminate
        Ms. Plaza’s employment other than for cause or as a result of her death or
        disability, we are required to pay Ms. Plaza the balance of her compensation
        for
        her employment terms and her consulting term and other benefits, including
        a pro
        rata portion of the bonus that would have been paid to her, and her obligations
        under her non-competition provision terminate. Since the bonus is discretionary,
        with a minimum bonus of 4% of Ms. Plaza’s salary, unless the compensation
        committee shall have provided for a greater bonus prior to the termination
        of
        Ms. Plaza’s employment without cause, Ms. Plaza would not be entitled to a bonus
        greater than $10,000, which is 4% of $250,000, the amount of the bonus to
        be
        based on the remaining employment term. Upon termination of the agreement
        Ms.
        Plaza will serve as a consultant under terms to be negotiated.
  Our
        agreement with Nélida Plaza provides that Ms. Plaza will serve as vice president
        for a term of three years for which she will receive annual compensation
        at the
        annual rate of $150,000. She is also entitled to bonus compensation as is
        determined by the compensation committee, not to exceed 50% of her salary.
        We
        also agreed to make the lease payments on the automobile she currently leases.
        Such payments are at the annual rate of approximately $11,592. If we terminate
        Ms. Plaza’s employment other than for cause or as a result of her death or
        disability, we are required to pay Ms. Plaza her compensation for the balance
        of
        the term and other benefits, including a pro rata portion of the bonus that
        would have been paid to her, and her obligations under her non-competition
        provision terminate. Since Ms. Plaza’s employment contract provides for a
        discretionary bonus, unless the compensation committee shall have provided
        for a
        bonus to Ms. Plaza prior to the termination of her employment without cause,
        Ms.
        Plaza would not be entitled to any bonus payment.
  The
        employment agreements with both Elizabeth Plaza and Nélida Plaza provide that
        during the term of the agreement and for two years thereafter, the executive
        will not, directly or indirectly engage in a competing business or solicit
        any
        customer or seek to persuade any customer to reduce the amount of business
        it
        does with us or seek to persuade any employee to leave our employ.
  On
        November 5, 2007 we entered into an employment agreement with Pedro Lasanta,
        our
        chief financial officer, pursuant to which we pay Mr. Lasanta an annual salary
        of $100,000 plus a monthly car allowance of $500. The agreement has a one-year
        term, which we may extend subject to the approval of the president and chief
        executive officer and the audit committee. Mr. Lasanta’s employment agreement
        has a non-competition provision pursuant to which he agrees that during the
        term
        of the agreement and for one year thereafter, Mr. Lasanta will not, directly
        or
        indirectly, engage in a competing business or solicit any customer or seek
        to
        persuade any customer to reduce the amount of business it does with us or
        seek
        to persuade any employee to leave our employ.
  In
        December 2007 we entered into an employment agreement with Juan P Gutierrez,
        who
        serves as our chief operating officer, commencing January 15, 2008. Pursuant
        to
        his agreement he will receive an annual salary of $225,000, stock options
        to
        purchase 100,000 shares of our stock, a discretionary bonus and the use of
        a
        Company provided car.
  -26-
  **ITEM
          11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
          STOCKHOLDERS MATTERS**
  The
        following table provides information as to shares of common stock beneficially
        owned as of December 31, 2007 by:
  ·
              each
                  director;·
              each
                  officer named in the summary compensation
                  table;
 
 ·
              each
                  person owning of record or known by us, based on information provided
                  to
                  us by the persons named below, to own beneficially at least 5%
                  of our
                  common stock; and·
              all
                  directors and executive officers as a group.
 
 Name
              
              Shares
                  of Common Stock Beneficially Owned
              
              PercentageElizabeth
                  Plaza
                Sardinera
                  Beach Building, Suite 2 Marginal Costa de Oro
                Dorado,
                  Puerto Rico 00646
              
              
              1,150,000
              
              
              5.0
              %Dov
                  Perlysky
                445
                  Central Avenue, Suite 305
                Cedarhurst,
                  New York 11516
              
              
              1,164,554
              
              
              5.0
              %Kirk
                  Michel
              
              
              533,706
              
              
              2.3
              %Howard
                  Spindel
              
              
              30,000
              
              
              *Irving
                  Wiesen
              
              
              30,000
              
              
              *All
                  officers and directors as a group (five individuals owning
                  stock)
              
              
              2,908,260
              
              
              12.6
              %San
                  Juan Holdings, Inc.(2)
                MCS
                  Plaza, Suite #305
                255
                  Ponce de León Ave.
                Hato
                  Rey, PR  00917
              
              
              4,886,443
              
              
              21.1
              %Cede
                  & Co
              
              
              4,243,619
              
              
              18.3
              %Venturetek
                  LP(1)
                370
                  Lexington Avenue
                New
                  York, NY 10017
              
              
              3,132,932
              
              
              13.5
              %Barron
                  Partners LP(3)
                730
                  Fifth Avenue
                New
                  York, NY 10019
              
              
              2,537,574
              
              
              10.9
              %
  *
              Less
                  than 1%.
 
 (1)
              Mr.
                  David Selengut, the manager of TaurusMax LLC, which is the general
                  partner
                  of Venturetek, LP. has sole voting and dispositive power over the
                  shares
                  beneficially owned by Venturetek. The shares beneficially owned
                  by
                  Venturetek do not include 200 shares of common stock held by Mr.
                  Selengut
                  and 200 shares held by Mr. Selengut’s wife. Mr. Selengut disclaims
                  beneficial ownership of the shares held by his wife.(2)
              Messrs.
                  Ramon Dominguez and Addison M. Levi III have voting and dispositive
                  power
                  over the shares beneficially owned by San Juan Holdings,
                  Inc.(3)
              Mr.
                  Andrew B. Worden, president of the general partner of Barron Partners,
                  has
                  sole voting and dispositive power over the shares beneficially
                  owned by
                  Barron Partners.
  -27-
 
 Except
        as
        otherwise indicated each person has the sole power to vote and dispose of
        all
        shares of common stock listed opposite his name. Each person is deemed to
        own
        beneficially shares of common stock which are issuable upon exercise or
        conversion of currently convertible securities which are exercisable or
        convertible within 60 days of December 31, 2007. The beneficial ownership
        of
        each person named is determined in accordance with the rules of the Securities
        and Exchange Commission under the Securities Exchange Act of 1934. Under
        these
        rules, a person is deemed to beneficially own the total number of shares
        of
        common stock which he or she owns plus the number of shares of common stock
        which are issuable upon exercise of currently exercisable securities. The
        percentage ownership of each person is the percentage that the number of
        shares
        beneficially owned by that person bears to the sum of (a) the outstanding
        common
        stock plus (b) the shares of common stock issuable upon exercise or conversion
        of those currently convertible securities that are owned by that stockholder.
  The
        shares owned by San Juan Holdings, Inc. include 3,286,324 shares of common
        stock
        issuable upon exercise of warrants.
  The
        shares of common stock beneficially owned by Mr. Michel consist of 27,500
        shares
        of common stock issuable upon exercise of options, 340,706 shares of common
        stock owned by KEMA Advisors, of which Mr. Michel is managing director, and
        163,000 shares issuable upon exercise of warrants held by KEMA Advisors.
 
 The
        shares of common stock beneficially owned by Mr. Perlysky represent 1,164,554
        shares of common stock owned by Krovim, LLC. Mr. Perlysky is the manager
        of
        Nesher, LLC, which is the manager of Krovim. Mr. Perlysky disclaims beneficial
        interest in the shares owned by Krovim. Shares owned by Mr. Perlysky do not
        include 772,971 shares owned by LDP Family Partnership or warrants to purchase
        386,048 shares of common stock held by LDP Family Partnership. Mr. Perlysky’s
        wife is general partner of LDP Family Partnership and Mr. Perlysky disclaims
        beneficial ownership in the securities owned by it.
  The
        shares of common stock owned by each of Mr. Spindel and Mr. Wiesen represent
        shares issuable upon exercise of options.
  -28-
  **ITEM
          12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 On
        January 25, 2006, we acquired Pharma-PR from Elizabeth Plaza, as the sole
        stockholder of Pharma-PR. At the closing, we paid Ms. Plaza $10,000,000 and
        issued to Ms. Plaza 1,150,000 shares of common stock. In addition, pursuant
        to
        agreement Ms. Plaza was entitled to three payments, each in the amount of
        $2,750,000, on January 25, 2007, 2008 and 2009. With Ms. Plaza’s consent, the
        first payment was made in two installments, one in January 2007 and the second
        in February 2007. As a condition to closing, Pharma-PR was required to have
        a
        net tangible book value of not less than $5,500,000, of which at least
        $2,000,000 was to be in cash, as of November 30, 2005, with the excess to
        be
        paid to Ms. Plaza. The amount due to Ms. Plaza under this provision was $88,161
        and was paid on June 15, 2006. Pursuant to the merger agreement, we were
        required to reimburse Ms. Plaza for income tax which she paid on our income
        from
        December 1, 2005 until January 24, 2006. This amounted to $125,227 and was
        paid
        on June 15, 2006.
  San
        Juan
        Holdings represented Pharma-PR and Elizabeth Plaza in connection with the
        reverse acquisition. For such services, we issued 600,000 shares of common
        stock
        and warrants to purchase 2,500,000 shares of common stock, with an exercise
        price of $0.06 per share, to San Juan Holdings. In our private placement
        of
        series A preferred stock and warrants, San Juan Holdings purchased three
        units.
        The purchase price for the three units was $750,000. The broker, which is
        an
        affiliate of San Juan Holdings, waived the commission and the non-accountable
        expense allowance with respect to such sales, and as a result, San Juan Holdings
        purchased the three units for a net payment of $652,500. The three units
        were
        comprised of 75,000 shares of series A preferred stock and warrants to purchase
        510,600 shares of common stock. The shares of series A preferred stock became
        converted into 1,021,200 shares of common stock. We also issued 919 shares
        of
        common stock to San Juan Holdings as a result of our failure to filing the
        registration statement of which this prospectus is a part in a timely manner.
        We
        also paid an affiliate of San Juan Holdings a broker’s commission and
        non-accountable expense allowance of $195,000 for sales made to other purchasers
        in the private placement, and we issued to the affiliate three-year warrants
        to
        purchase an aggregate of 275,724 shares of common stock at an exercise price
        of
        $0.7344 per share.
  KEMA
        Advisors, Inc., of which Kirk Michel, a director, is managing director,
        purchased one unit, consisting of 25,000 shares of series A preferred stock
        and
        warrants to purchase an aggregate of 170,200 shares of common stock for
        $250,000. The shares of series A preferred stock became converted into 340,400
        shares of common stock. We also issued 306 shares of common stock to KEMA
        Advisors for our failure to file the registration statement in a timely manner.
  -29-
 
 **ITEM
                  13 EXHIBITS**Exhibit
                  Number
              
              Exhibit
                  Description3.1
              
              Restated
                  Certificate of Incorporation13.2
              
              By-laws24.1
              
              Form
                  of warrant issued to Investors in January 2006 private placement34.2
              
              Form
                  of warrant held by initial warrant holders34.3
              
              Form
                  of warrant held by San Juan Holdings34.4
              
              Form
                  of warrants issued to broker-dealers in January 2006 private placement310.1
              
              Form
                  of subscription agreement for January 2006 private placement310.2
              
              Registration
                  rights provisions for the subscription agreement relating to January
                  2006
                  private placement310.3
              
              Registration
                  rights provisions for Elizabeth Plaza and San Juan Holdings, Inc.310.4
              
              Employment
                  Agreement dated January 2, 2008 between the Registrant and Elizabeth
                  Plaza710.5
              
              Employment
                  Agreement dated December 4, 2007 between the Registrant and Juan
                  P.
                  Gutierrez710.6
              
              Employment
                  agreement dated January 25, 2006, between the Registrant and Nélida Plaza310.7
              
              2005
                  Long-term incentive plan310.8
              
              Registration
                  rights provisions for the subscription agreement310.9
              
              Lease
                  dated March 16, 2004 between Plaza Professional Center, Inc. and
                  the
                  Registrant410.10
              
              Lease
                  dated November 1, 2004 between Plaza Professional Center, Inc.
                  and the
                  Registrant410.11
              
              Vendor
                  Agreement dated May 4, 2006 between the Registrant and Manuel O.
                  Morera510.12
              
              Agreement
                  dated May 4, 2006 between Lilly del Caribe, Inc. and Plaza Consulting
                  Group, Inc.410.13
              
              Agreement
                  dated January 17, 2006 between Lilly del Caribe, Inc. and Plaza
                  Consulting
                  Group, Inc.410.14
              
              Agreement
                  effective as of November 1, 2005 between SB Pharmco Puerto Rico
                  Inc. d/b/a
                  GlaxoSmithKline414.1
              
              Code
                  of business conduct and ethics for senior management621.1
              
              List
                  of Subsidiaries731.1
              
              Certification
                  of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002731.2
              
              Certification
                  of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002732.1
              
              Certification
                  of chief executive officer and chief financial officer pursuant
                  to Section
                  906 of the Sarbanes-Oxley Act of
                  20027
  1
              Filed
                  as an exhibit to the Company’s current report on Form 8-K, which was filed
                  with the Commission on May 1, 2006 and incorporated herein by
                  reference.2
              Filed
                  as an exhibit to the Company’s registration statement of Form 10-SB and
                  incorporated herein by reference.3
              Filed
                  as an exhibit to the Company’s current report on Form 8-K which was filed
                  with the Commission on January 31, 2006 and incorporated herein
                  by
                  reference.4
              Filed
                  as an exhibit to the Company’s registration statement on Form SB-2, File
                  No. 333-132847, which was declared effective by the Commission
                  on November
                  8, 2006 and incorporated herein by reference.5
              Filed
                  as an exhibit to the Company’s current report on Form 8-K which was filed
                  with the Commission on April 10, 2006, and incorporated herein
                  by
                  reference.6
              Filed
                  as an exhibit to the Company’s annual report on Form 10-KSB, which
                  was filed with the Commission on February 2, 2007 and incorporated
                  herein by reference.7
              Filed
                  herewith
  -30-
  **ITEM
          14 PRINCIPAL ACCOUNTANT FEES AND SERVICES**
  Kevane
        Soto Pasarell Grant Thornton LLP (“Kevane”) reviewed our unaudited consolidated
        financial statements for the three quarters of the fiscal year ended July
        31,
        2006. On September 25, 2006, we engaged Horwath Vélez & Co., PSC.
        (“Horwath”) as our registered independent accounting firm. Horwarth
        substantially began its services after October 31, 2006.
  We
        were
        billed by Horwath in 2007 and Kevane in 2006 as follows:
  Description
                  of services:
              
              2007
              
              2006Audit
                  fees
              
              $
              39,900
              
              $
              22,427Audit
                  related fees
              
              
              24,624
              
              
              18,971Tax
                  fees
              
              
              -
              
              
              830All
                  other fees
              
              
              5,295
              
              
              40,144$
              69,819
              
              $
              82,372
  -31-
 
 **SIGNATURES**
  Pursuant
        to the requirements of the Securities Act of 1933, as amended, the Registrant
        certifies that it has reasonable grounds to believe that it meets all the
        requirements for filing on Form 10-KSB and has duly caused this annual report
        on
        Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly
        authorized, in the City of Dorado, Commonwealth of Puerto Rico on
        this 31st day of
        January, 2008.
  **PHARMA-BIO
                  SERV, INC.**By:
              /s/
                  ELIZABETH PLAZAName:
                Elizabeth PlazaTitle:
                  President and CEO
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, as amended, this
        report has been signed by the following persons on behalf of the registrant
        and
        in the capacities and on the dates indicated. Each person whose signature
        appears below hereby authorizes Elizabeth Plaza and Pedro J. Lasanta or either
        of them acting in the absence of the other as his true and lawful
        attorney-in-fact and agent, with full power of substitution and resubstitution
        for him and in his name, place and stead, in any and all capacities to sign
        any
        and all amendments to this report, and to file the same, with all exhibits
        thereto and other documents in connection therewith, with the Securities
        and
        Exchange Commission.
 
 Signature
              
              Title
              
              Date/s/
                  Elizabeth Plaza
              
              President,
                  Chief Executive Officer and Director
              
              January
                  31, 2008Elizabeth
                  Plaza
              
              (Principal
                  Executive Officer)/s/
                  Pedro J. Lasanta
              
              Chief
                  Financial Officer
              
              January
                  31, 2008Pedro
                  J. Lasanta
              
              (Principal
                  Financial and Accounting Officer)/s/
                  Kirk Michel
              
              Director
              
              January
                  31, 2008Kirk
                  Michel/s/
                  Howard Spindel
              
              Director
              
              January
                  31, 2008Howard
                  Spindel/s/
                  Dov Perlysky
              
              Director
              
              January
                  31, 2008Dov
                  Perlysky/s/
                  Irving Wiesen
              
              Director
              
              January
                  31, 2008Irving
                  Wiesen
  -32-
  **INDEX
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 PageReport
                    of Independent Registered Public Accounting Firm on October 31, 2007
                    financial statements - Horwath Vélez & Co., PSC
              
              
              F-2Consolidated
                  Balance Sheet as of October 31, 2007
              
              
              F-3Consolidated
                  Statements of Income for the Years Ended October 31, 2007 and
                  2006
              
              
              F-4Consolidated
                  Statements of Cash Flows for the Years Ended October 31, 2007 and
                  2006
              
              
              F-5Consolidated
                    Statements of Changes in Stockholders’ Equity for the years Ended October
                    31, 2007 and 2006
              
              
              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 sheet of **Pharma-Bio
        Serv, Inc.** as
        of
        October 31, 2007, and the related consolidated statements of income, changes
        in
        stockholders’ equity, and cash flows for each of the years in the two-year
        period ended October 31, 2007. **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 financial position of **Pharma-Bio
        Serv, Inc** as of
        October 31, 2007, and the consolidated results of its operations and its
        cash
        flows for each of the years in the two-year period ended October 31, 2007
        in
        conformity with accounting principles generally accepted in the United States
        of
        America.
  S/HORWATH
        VÉLEZ & CO, PSC
 San
        Juan,
        Puerto Rico
   January
        28, 2008
 Puerto
        Rico Society of Certified Public Accountants
 Stamp
        number 2298338 was
 Affixed
        to the original of this report+
  F-2
  **PHARMA-BIO
        SERV, INC.**
 **Consolidated
        Balance Sheet**
 **October
        31, 2007**
  **ASSETS**:Current
                  assetsCash
                  and cash equivalents
              
              $
              4,792,366Accounts
                  receivable
              
              
              3,559,279Other
              
              
              276,506Total
                  current assets
              
              
              8,628,151Property
                  and equipment
              
              
              799,851Other
                  assets, mainly intangible assets
              
              
              134,686Total
                  Assets
              
              $
              9,562,688**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**:Current
                  liabilitiesCurrent
                  portion-obligations under capital leases
              
              $
              41,987Accounts
                  payable and accrued expenses
              
              
              1,592,389Due
                  to affiliate - current
              
              
              2,706,892Income
                  taxes payable
              
              
              423,703Total
                  current liabilities
              
              
              4,764,971Due
                  to affiliate
              
              
              2,530,873Other
                  long-term liabilities
              
              
              99,661Total
                  liabilities
              
              
              7,395,505
  Stockholders'
                  equity:Preferred
                  Stock, $0.0001 par value; authorized10,000,000
                  shares; none outstanding
              
              
              -Common
                  Stock, $0.0001 par value; authorized 50,000,000 shares;issued
                  and outstanding 19,615,539 shares
              
              
              1,961Additional
                  paid-in capital
              
              
              115,404Retained
                  earnings
              
              
              2,046,264Accumulated
                  other comprehensive income
              
              
              3,554Total
                  stockholders' equity
              
              
              2,167,183Total
                  Liabilities and Stockholders' Equity
              
              $
              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, 2007 and 2006**
 
 **Years
                  ended October 31,****2007**
              
              **2006**REVENUES
              
              $
              16,204,851
              
              $
              14,184,445COST
                  OF REVENUES
              
              
              9,380,916
              
              
              8,116,207GROSS
                  PROFIT
              
              
              6,823,935
              
              
              6,068,238SELLING,
                  GENERAL ANDADMINISTRATIVE
                  EXPENSES
              
              
              3,176,140
              
              
              2,225,714INCOME
                  FROM OPERATIONS
              
              
              3,647,795
              
              
              3,842,524OTHER
                  INCOME (EXPENSES):Interest
                  expense
              
              
              (392,171
              )
              
              (392,742
              )Interest
                  income
              
              
              107,505
              
              
              49,050Loss
                  on disposition of property and equipment
              
              
              (25,660
              )
              
              (3,664
              )(310,326
              )
              
              (347,356
              )INCOME
                  BEFORE INCOME TAX
              
              
              3,337,469
              
              
              3,495,168INCOME
                  TAX
              
              
              1,436,302
              
              
              1,159,828NET
                  INCOME
              
              $
              1,901,167
              
              $
              2,335,340BASIC
                  EARNINGS PER COMMON SHARE
              
              $
              0.10
              
              $
              0.22DILUTED
                  EARNINGS PER COMMON SHARE
              
              $
              0.09
              
              $
              0.13WEIGHTED
                  AVERAGE NUMBER OF COMMONSHARES
                  OUTSTANDING - BASIC
              
              
              19,391,063
              
              
              10,508,938WEIGHTED
                  AVERAGE NUMBER OF COMMONSHARES
                  OUTSTANDING - DILUTED
              
              
              22,166,182
              
              
              17,880,265
  See
        notes
        to consolidated financial statements.
  F-4
 
 **PHARMA-BIO
        SERV, INC.**
 **Consolidated
        Statements of Cash Flows**
 **For
        the Years Ended October 31, 2007 and 2006**
 
 **Years
                  ended October 31,****2007**
              
              **2006**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income for the year
              
              $
              1,901,167
              
              $
              2,335,340Loss
                  on disposition of property and equipment
              
              
              25,660
              
              
              3,664Stock-based
                  compensation
              
              
              115,404
              
              
              -Depreciation
                  and amortization
              
              
              208,225
              
              
              194,977Imputed
                  interest expense
              
              
              382,804
              
              
              379,961Decrease
                  (increase) in accounts receivable
              
              
              2,245,364
              
              
              (870,275
              )Decrease
                  (increase) in other assets
              
              
              188,298
              
              
              (468,084
              )Increase
                  (decrease) in liabilities
              
              
              561,794
              
              
              (17,725
              )NET
                  CASH PROVIDED BY OPERATING ACTIVITIES
              
              
              5,628,716
              
              
              1,557,858CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchases
                  of property and equipment
              
              
              (322,512
              )
              
              (104,922
              )Cash
                  acquired as part of the Pharma-PR acquisition
              
              
              -
              
              
              28,943NET
                  CASH USED IN INVESTING ACTIVITIES
              
              
              (322,512
              )
              
              (75,979
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Net
                  proceeds from the sale of preferred stock
              
              
              -
              
              
              10,000,000Payment
                  for purchase of Pharma-PR stock
              
              
              -
              
              
              (9,900,000
              )Payment
                  for non-compete covenant
              
              
              -
              
              
              (100,000
              )Payments
                  on capital lease obligations
              
              
              (38,873
              )
              
              (35,459
              )Payments
                  to affiliate
              
              
              (2,750,000
              )
              
              (213,388
              )Distributions
                  to stockholder
              
              
              -
              
              
              (749,554
              )NET
                  CASH USED IN FINANCING ACTIVITIES
              
              
              (2,788,873
              )
              
              (998,401
              )NET
                  INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              2,517,331
              
              
              483,478CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF YEAR
              
              
              2,275,035
              
              
              1,791,557CASH
                  AND CASH EQUIVALENTS AT END OF YEAR
              
              $
              4,792,366
              
              $
              2,275,035
 
 See
        notes
        to consolidated financial statements.
  F-5
 
 **PHARMA-BIO
        SERV, INC.**
 **Consolidated
        Statements of Cash Flows - (Continued)**
 **For
        the Years Ended October 31, 2007 and 2006**
 
 **Years
                  ended October 31,**SUPPLEMENTAL
                  DISCLOSURES OF
              
              **2007**
              
              **2006**CASH
                  FLOW INFORMATION:Cash
                  Paid for:Income
                  tax
              
              $
              1,134,301
              
              $
              1,038,126Interest
              
              $
              513,076
              
              $
              12,781SUPPLEMENTARY
                  SCHEDULES OF NONCASHINVESTING
                  AND FINANCING ACTIVITIES:Conversion
                  of preferred stock to common stock
              
              $
              -
              
              $
              1,483Conversion
                  of cashless exercise warrants to shares
                of
                  common stock
              
              $
              130
              
              $
              -Application
                  of down payment to acquisition price ofproperty
                  and equipment
              
              $
              -
              
              $
              37,655Income
                  tax withheld by clients but used as a credit in theincome
                  tax return of a stockholder (non-cash distribution)
              
              $
              -
              
              $
              84,561Disposed
                  partially depreciated property and equipmentwith
                  accumulated depreciation of $68,962
              
              $
              94,962
              
              $
              -Accounts
                  payable incurred forproject
                  in process
              
              $
              246,502
              
              $
              -Debt
                  incurred in the acquisition of certain assets fromanother
                  company
              
              $
              -
              
              $
              200,000Debt
                  payable to affiliate originated in the acquisition ofPharma-PR,
                  net of $1,025,000 imputed interest
              
              $
              -
              
              $
              7,225,000
 
 See
        notes
        to consolidated financial statements.
  F-6
  **PHARMA-BIO
        SERV, INC.**
 **CONSOLIDATED
        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**
 **FOR
        THE YEARS ENDED OCTOBER 31, 2007 AND 2006**
  **Additional**
              
              
              
              
              
              **Accumulated
                  Other****Common
                  Stock**
              
              
              **Preferred
                  Stock**
              
              
              **Paid-in**
              
              
              **Retained**
              
              
              **Comprehensive****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              
              **Earnings**
              
              
              **Income**
              
              
              **Total**
  BALANCE
                    AT OCTOBER 31, 2005 (PHARMA-PR -ONLY)
                
                
                50,000
                
                $
                1,000
                
                
                -
                
                $
                -
                
                $
                -
                
                $
                5,979,569
                
                $
                -
                
                $
                5,980,569RECLASSIFICATION
                    OF $0.02 COMMON STOCK
                
                
                (50,000
                )
                
                (1,000
                )
                
                -
                
                
                -
                
                
                1,000
                
                
                -
                
                
                -
                
                
                -ISSUANCE
                      OF $0.0001 COMMON STOCK IN CONNECTION WITH RECLASSIFICATION
                      OF
                      EQUITY
                
                
                275,900
                
                
                28
                
                
                -
                
                
                -
                
                
                20,947
                
                
                -
                
                
                -
                
                
                20,975TWO-FOR-ONE
                    SHARE DISTRIBUTION
                
                
                275,900
                
                
                28
                
                
                -
                
                
                
                
                
                (28
                )
                
                -
                
                
                -
                
                
                -ISSUANCE
                    OF $0.0001 COMMON STOCK
                
                
                1,750,000
                
                
                174
                
                
                -
                
                
                -
                
                
                844,385
                
                
                -
                
                
                -
                
                
                844,559ISSUANCE
                    OF $0.0001 PREFERRED STOCK
                
                
                -
                
                
                -
                
                
                1,175,000
                
                
                118
                
                
                10,171,383
                
                
                -
                
                
                -
                
                
                10,171,501ISSUANCE
                      OF STOCK WARRANTS TO PURCHASE 2,500,000  SHARES OF COMMON STOCK AT
                      $0.06
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,686,000
                
                
                (1,686,000
                )
                
                -
                
                
                -ISSUANCE
                        OF STOCK WARRANTS TO PURCHASE 1,600,000 SHARES OF COMMON
                        STOCK AT
                        $0.06
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                800
                
                
                (800
                )
                
                -
                
                
                -CAPITAL
                    PAYMENT
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (12,724,487
                )
                
                (5,647,284
                )
                
                -
                
                
                (18,371,771
                )CONVERSION
                    OF PREFERRED STOCK TO COMMON STOCK
                
                
                15,998,800
                
                
                1,600
                
                
                (1,175,000
                )
                
                (118
                )
                
                -
                
                
                (1,482
                )
                
                -
                
                
                -ADDITIONAL
                      SHARES FROM CONVERSION OF PREFERRED STOCK TO COMMON
                      STOCK
                
                
                14,401
                
                
                1
                
                
                -
                
                
                -
                
                
                -
                
                
                (1
                )
                
                -
                
                
                -NET
                    INCOME
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                2,335,340
                
                
                -
                
                
                2,335,340DISTRIBUTIONS
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (834,115
                )
                
                -
                
                
                (834,115
                )BALANCE
                    AT OCTOBER 31, 2006 (CONSOLIDATED)
                
                
                18,315,001
                
                
                1,831
                
                
                -
                
                
                -
                
                
                -
                
                
                145,227
                
                
                -
                
                
                147,058CASHLESS
                    CONVERSION OF WARRANTSTO
                    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 (CONSOLIDATED)
                
                
                19,615,539
                
                $
                1,961
                
                
                -
                
                $
                -
                
                $
                115,404
                
                $
                2,046,264
                
                $
                3,554
                
                $
                2,167,183
 
 See
        notes
        to consolidated financial statements.
  F-7
  **PHARMA-BIO
        SERV, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED OCTOBER 31, 2007 AND 2006**
  **NOTE
        A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
        POLICIES**
  **BASIS
        OF PRESENTATION**
  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”), which was formerly Plaza Consulting Group, Inc., a Puerto Rico
        corporation, and Pharma-Bio Serv Validation & Compliance Limited
        (“Pharma-IR”) an Irish corporation. Pharma-Bio, Pharma-PR and Pharma-IR are
        collectively referred to as the “Company.” The Company operates in Puerto Rico,
        the United States and soon in Ireland under the name of Pharma Serv and is
        engaged in providing technical compliance consulting services primarily to the
        pharmaceutical, chemical, medical device and biotechnology industries.
  On
        January 25, 2006, Pharma-Bio acquired Pharma-PR in a transaction which is
        accounted for as a reverse acquisition. Although Pharma-Bio is the company
        that
        made the acquisition, for accounting purposes, Pharma-PR is treated as the
        acquiring company. As a result, the financial statements reflect the results
        of
        operations and cash flows of Pharma-PR prior to January 25, 2006 and the
        combined operations of Pharma-Bio and Pharma-PR from and after January 25,
        2006.
  Pharma-IR
        is a majority owned subsidiary, which was organized in Ireland in September
        2007. As of October 31, 2007, this subsidiary was in development stage and
        incurred organization expenses of approximately $39,800. During 2008, it
        is
        management’s intention to change the current corporate structure of this
        majority own subsidiary but this is not expected to have a significant effect
        on
        the Company’s future operations or its financial position.
 
 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.
 
 **REVERSE
        ACQUISITION**
  On
        January 25, 2006, pursuant to a plan and agreement of merger (the "Plaza
        Agreement") dated as of October 31, 2005, among Pharma-Bio, Plaza Acquisition
        Corp., a wholly-owned subsidiary of Pharma-Bio ("Acquisition Company"),
        Pharma-PR and Elizabeth Plaza, the sole stockholder of Pharma-PR, Pharma-Bio
        acquired Pharma-PR. The acquisition was effected by the merger of Acquisition
        Company into Pharma-PR. Pursuant to the Plaza Agreement, Ms. Plaza, as the
        sole
        stockholder of Pharma-PR, received at the closing $10,000,000 plus 1,150,000
        shares of Pharma-Bio's common stock. In addition, the Plaza Agreement provides
        for us to make three annual payments to Ms. Plaza, each in the amount of
        $2,750,000, payable on January 25, 2007, 2008 and 2009. See Note H with respect
        to payments made and obligations due to related parties.
  At
        the
        closing, all of the present officers and directors of Pharma-Bio resigned
        from
        their respective positions, except that Mr. Dov Perlysky, who was president
        and
        a director of Pharma-Bio, resigned as an officer, but continued as a director.
        At the closing, Pharma-Bio elected four directors, including Ms. Plaza. The
        other three are independent directors.
  Pharma-Bio
        raised the funds necessary to make the $10,000,000 payment due to Ms. Plaza
        through the private placement of units consisting of shares of a series A
        preferred stock and warrants to purchase 7,999,400 common stock. The series
        A
        preferred stock was automatically converted into 15,998,800 shares of common
        stock upon an increase in Pharma-Bio's authorized common stock. See Note
        C.
  The
        acquisition of Pharma-PR and the private placement resulted in a change of
        control of Pharma-Bio. As a result of the reverse acquisition accounting
        treatment, Pharma-PR is deemed to be the acquiring company for accounting
        purposes. The transaction was accounted for as a reverse acquisition because
        former owners of Pharma-PR, together with the purchasers in the private
        placement who purchased the series A preferred stock and warrants in connection
        with the acquisition of Pharma-PR, gained control of Pharma-Bio. Effective
        on
        the acquisition date, Pharma-Bio's balance sheet includes the assets and
        liabilities of Pharma-PR and its equity accounts have been recapitalized
        to
        reflect the equity of Pharma-Bio.
 
 F-8
 
 **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES**
  
 **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 period. Actual results could 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 the 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
        (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
        and Cash Equivalents**
  For
        purposes of the consolidated statements of cash flows, cash and cash equivalents
        include 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.
 
 F-9
 
 **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.
 
 Pharma-PR,
        from its inception until January 24, 2006, was covered under the provisions
        of
        Subchapter N of Subtitle A of the Puerto Rico Internal Revenue Code (the
        "Puerto
        Rico Code"), which is similar to Subchapter S of the Internal Revenue Code
        in
        that its taxable income is taxed to the stockholders and therefore there
        is no
        income tax liability for that period. As a result of the completion of the
        reverse acquisition, Pharma-PR and Pharma-Bio are no longer eligible for
        treatment as a Subchapter N corporation. See Note G.
  Although
        Ms. Plaza was responsible for the taxes on the Pharma-PR's taxable income
        for
        the period from December 1, 2005 to January 24, 2006, pursuant to the Plaza
        Agreement, the Company agreed to reimburse Ms. Plaza for the income taxes
        applicable to said taxable income. The reimbursement amounts to $125,227
        and was
        paid on June 15, 2006.
  **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
        of owned assets, and amortization of assets under capital leases and leasehold
        improvements, are provided using the straight-line basis 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.
  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.
  **Intangible
        assets**
  Definite-lived
        intangible assets, such as customer lists and covenants not to compete, are
        amortized on a straight-line basis over their estimated useful lives. The
        Company continually evaluates the reasonableness of the useful lives of these
        assets.
  **Stock-based
        Compensation**
  Effective
        November 1, 2006, the Company adopted the provisions of SFAS No. 123R,
“Share-Based Payment” (“SFAS 123R”), and Staff Accounting Bulletin No. 107
        (“SAB 107”) using the modified prospective method, which results in the
        provisions of SFAS 123R being applied to the consolidated financial statements
        on a prospective basis. Under the modified prospective recognition method,
        restatement of consolidated income from prior periods is not required, and
        accordingly, the Company has not provided such restatements. Under the modified
        prospective provisions of SFAS 123R, compensation expense is recorded for
        the
        unvested portion of previously granted awards that were outstanding on
        November 1, 2006 and all subsequent awards. SFAS 123R requires that all
        stock-based compensation expense be recognized in the consolidated financial
        statements based on the fair value of the awards. Stock-based compensation
        cost
        is measured at the grant date based on the fair value of the award and is
        recognized as expense over the requisite service period, which generally
        represents the vesting period, and includes an estimate of awards that will
        be
        forfeited. The Company calculates the fair value of stock options using the
        Black-Scholes option-pricing model at grant date. SFAS 123R also amends SFAS
        No. 95, “Statement of Cash Flows”, to require that excess tax benefits
        related to stock-based compensation be reflected as cash flows from financing
        activities rather than cash flows from operating activities. The Company
        does
        not recognize such cash flow from financing activities since there has been
        no
        tax benefit related to the stock-based compensation.
 
 F-10
  **Income
        Per Share of Common Stock**
  Basic
        income per share of common stock is calculated by 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. Pursuant to
        reverse
        acquisition accounting treatment, for the year ended October 31, 2006, the
        weighted average number of shares outstanding in the computation of basic
        income
        per share was derived by weighting (i) for the period prior to the reverse
        acquisition transaction, the number of shares outstanding represented the
        1,150,000 shares received by the former stockholder of Pharma-PR and the
        shares
        600,000 shares received by San Juan Holdings, Inc., and (ii) for the period
        after the transaction, the number of shares outstanding represented the shares
        of Pharma-Bio that are outstanding. Diluted income per share includes the
        dilution of common equivalents. Accordingly, the series A preferred stock
        was
        deemed outstanding from the date of issuance until April 25, 2006, when the
        Company’s restated certificate of incorporation was filed with the Secretary of
        State of Delaware and the shares of series A preferred stock were automatically
        converted into common stock. The warrants were deemed to be outstanding from
        the
        date of issuance to the end of the reporting period, except for stock warrants
        issued to the investment banker for Pharma-PR as a result of the reverse
        acquisition, which were deemed to be outstanding through all periods prior
        to
        the reverse acquisition.
  The
        weighted average shares of common stock outstanding (basic and diluted) 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 consolidated statements
        of
        operations were not significant for the periods presented.
 
 
 **Reclassifications**
 
 Certain
        reclassifications have been made to the October 31, 2006 consolidated financial
        statements to conform to the October 31, 2007 consolidated financial statements
        presentation. Such reclassifications do not have an effect on net earnings
        as
        previously reported.
  F-11
 
 **NOTE
        B - RECENT ACCOUNTING PRONOUNCEMENTS**
 
 1.
        In
        December 2007, the Financial Accounting Standards Board (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.
 
 2.
        In
        February 2007, the Financial Accounting Standards Board (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.
 
 3.
        In
        September 2006, the Financial Accounting Standards Board (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.
  The
        implementation of this Statement will have no significant effect on the
        Company’s financial statements.
  4.
        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
        derecognition, classification, interest and penalties, accounting in interim
        periods, disclosure, and transition. This Interpretation is effective for
        fiscal
        years beginning after December 15, 2006. Earlier application of the provisions
        of this Interpretation is encouraged if the enterprise has not yet issued
        financial statements, including interim financial statements, in the period
        this
        Interpretation is adopted. Management does not expect that the application
        of
        this standard will have any effect on the Company's results of operations
        or its
        financial condition.
 
 5.
        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.
  F-12
  **NOTE
        C - CAPITAL TRANSACTIONS**
 
 On
        January 24, 2006, Pharma-Bio effected a two-for-one share distribution with
        respect to its common stock pursuant to which Pharma-Bio issued one share
        of
        common stock for each share outstanding on the record date, January 24, 2006.
        All share and per share information in these financial statements give
        retroactive effect to this share distribution.
  On
        January 25, 2006, contemporaneously with the consummation of the acquisition,
        Pharma-Bio sold, in a private placement, 47 units, each unit consisting of
        25,000 shares of series A preferred stock, warrants to purchase 85,100 shares
        of
        common stock at $1.10 per share and warrants to purchase 85,100 shares of
        common
        stock at $1.65 per share. In the private placement, Pharma-Bio issued an
        aggregate of 1,175,000 shares of series A preferred stock (which were
        convertible into an aggregate of 15,998,800 shares of common stock), warrants
        to
        purchase 3,999,700 shares of common stock at $1.10 per share, and warrants
        to
        purchase 3,999,700 shares of common stock at $1.65 per share, to 42 accredited
        investors. Pharma-Bio paid brokerage commissions of 10% of the gross purchase
        price and an aggregate non-accountable expense allowance of 3% of the gross
        purchase price with respect to the units sold. In certain cases, the broker
        waived the commission and non-accountable expense allowance, and the investor
        paid the purchase price less the commission and non-accountable expense
        allowance. The purchase price for the 47 units sold was $11,750,000.
        Broker-dealers waived commission and non-accountable expense allowance with
        respect to $628,750, Pharma-Bio paid commissions and non-accountable expense
        allowances totaling $898,750, and Pharma-Bio issued warrants to purchase
        an
        aggregate of 1,439,892 shares of common stock. The warrants have an exercise
        price of $0.7344 per share and a term of three years. As of October 31, 2007,
        the warrants disclosed herein were still outstanding.
  Each
        share of series A preferred stock was automatically converted into 13.616
        shares
        of common stock, or an aggregate of 15,998,800 shares of common stock upon
        the
        filing on April 25, 2006, of a restated certificate of incorporation which
        increased the authorized capital stock to 10,000,000 shares of preferred
        stock
        and 50,000,000 shares of common stock.
  The
        subscription agreement pursuant to which the series A preferred stock and
        warrants were issued required Pharma-Bio to file a registration statement
        within
        60 days after the effective date of the merger between Pharma-PR and Plaza
        Acquisition Corp. The effective date of the merger was January 25, 2006,
        therefore, the 60-day term expired on March 26, 2006. Since Pharma-Bio failed
        to
        file the registration statement by that date, Pharma-Bio was required to
        issue
        .0003 shares of common stock for each share of common stock issued upon
        conversion of the series A preferred stock for each day of delay. Pharma-Bio
        was
        three days late, therefore, 14,401 shares of common stock were issued to
        the
        former holders of the series A preferred stock.
  The
        warrants issued in the private placement expire five years from the closing
        date
        and are callable by Pharma-Bio if the closing price of the common stock is
        at
        least twice the exercise price of the warrants for twenty consecutive trading
        days.
  In
        January 2004, Pharma-Bio issued warrants to purchase 1,600,000 shares at
        $0.06
        per share. The warrants may also be converted into shares of common stock
        on a
        cashless basis under certain conditions, but on a reduced number of shares.
        The
        warrants expire on January 16, 2014. In January 2007, warrants to purchase
        a
        total of 1,350,400 shares of common stock were converted to 1,300,538 shares
        of
        common stock pursuant to the cashless exercise provisions. As of October
        31,
        2007, warrants to purchase 249,600 shares remain outstanding.
 
 F-13
  **NOTE
        D - PROPERTY AND EQUIPMENT**
  The
        balance of property and equipment at October 31, 2007 consists of:
  Useful
                  life
                (years)
              
              
              AmountVehicles
                  under capital leases
              
              
              5
              
              $
              221,434Leasehold
                  improvements
              
              
              5
              
              
              19,279Computers
              
              
              3
              
              
              185,491Equipment
              
              
              3-5
              
              
              119,672Furniture
                  and fixtures
              
              
              10
              
              
              68,509Projects
                  in progress
              
              
              -
              
              
              508,399Total
              
              
              
              
              
              1,122,784Less:
                  Accumulated depreciation and amortization
              
              
              
              
              
              (322,933
              )Property
                  and equipment, net
              
              
              
              
              $
              799,851
  **NOTE
        E - OTHER ASSETS**
  At
        October 31, 2007, non-current other assets include the following:
 
 Intangible
                  assets:Covenant
                  not to compete, net of accumulated amortization of $38,333
              
              $
              61,667Customer-related
                  intangibles, net of accumulated amortization of $91,667
              
              
              58,333Other
                  assets
              
              
              14,686$
              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 sole stockholder of Pharma-PR agreed
        not to
        compete with the Company for a period of five years. This amount 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 is being amortized on the straight-line method
        over its estimated useful life of three years.
  The
        amortization expense for the years ended on October 31, 2007 and 2006 amounted
        to $70,000 and $60,000, respectively.
 
 **NOTE
        F - 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 is 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. During the year ended October
        31, 2007 the line-of-credit was not used.
 
 F-14
 
 **NOTE
        G - INCOME TAXES**
  As
        substantially all operations are being carried by the Puerto Rico subsidiary,
        the Company's taxable income is subject to the Puerto Rico income to a maximum
        of a 39% rate provided by the 1994 Puerto Rico Internal Revenue Code, as
        amended. However, on August 1, 2005, Puerto Rico Act No. 41 was approved,
        which
        imposes an additional 2.5% special tax to all corporations and partnerships
        having a net taxable income over $20,000. The Act was effective for taxable
        years commencing after December 31, 2004 and ending on or before December
        31,
        2006; however, on November 10, 2006, Puerto Rico Act No. 244 was approved
        to
        impose the additional 2.5% special tax to taxable years commencing after
        December 31, 2004 and before January 1, 2007. Therefore, the Company's maximum
        effective tax rate was 41.5% for its fiscal years ending on October 31, 2007
        and
        October 31, 2006, and thereafter will be 39%.
  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.
 
 As
        of
        October 31, 2007 the Company has not recognized deferred income taxes on
        $2,099,583 of undistributed earnings of its Puerto Rican subsidiary, 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 $209,958
        tollgate tax.
 
 The
        income tax expense is computed at statutory rates applied to income calculated
        in accordance with the accounting practices described herein and as shown
        in the
        consolidated financial statements. 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.
  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
        statutory tax rate in Puerto Rico were as follows:
  Years
                  ended October 31,2007
              
              2006Theoretical
                  income tax expense by application of statutory rates to the book
                  pre-tax
                  income
              
              $
              1,401,569
              
              $
              1,450,495Permanent
                  Differences:Effect
                  of income subject to taxation under Subchapter N (taxable income
                  taxed to
                  stockholders)
              
              
              
              
              
              (358,037
              )Other
                  permanent differences
              
              
              34,733
              
              
              67,370Income
                  tax expense
              
              $
              1,436,302
              
              $
              1,159,828
  Because
        Pharma-PR was treated as an N Corporation under the Puerto Rico Internal
        Revenue
        Code through January 24, 2006, its income was taxed to its stockholder during
        that period, and Pharma-PR did not pay income tax. Had income tax been paid
        at
        the statutory rate, Pharma-PR’s net income would have been $1,977,303, or $0.19
        per share (basic) and $0.11 per share (diluted), for the year ended October
        31,
        2006 .
  F-15
  **NOTE
        H - RELATED PARTY TRANSACTIONS; DUE TO AFFILIATE**
 
 On
        January 25, 2006, pursuant to the Plaza Agreement, Elizabeth Plaza, as the
        sole
        stockholder of Pharma-PR and affiliate of Pharma-PR, received at the closing
        $10,000,000 plus 1,150,000 shares of Pharma-Bio's common stock. In addition,
        the
        Company agreed to pay Ms. Plaza three payments of $2,750,000, including imputed
        interest determined in accordance with Section 1274 of the Internal Revenue
        Code, on January 25, 2007, 2008, and 2009. In January 2007, Elizabeth Plaza
        agreed to accept the first installment of $2,750,000 in two payments, one
        of
        $2,500,000 in January 2007 and the second of $250,000 in February 2007. The
        October 31, 2007 outstanding payments are due as follows:
  **Twelve
        months ending October 31,**
 2008
              
              $
              2,750,0002009
              
              
              2,750,000Total
                  payments
              
              
              5,500,000Less:
                  imputed interest
              
              
              (262,235
              )Present
                  value of minimum payments
              
              
              5,237,765Current
                  portion
              
              
              (2,706,892
              )Long-term
                  portion
              
              $
              2,530,873
  As
        a
        condition to closing, Pharma-PR was required to have a net tangible book
        value
        of not less than $5,500,000, of which at least $2,000,000 was in cash, as
        of
        November 30, 2005. Subject to the requirement that Plaza have at least
        $2,000,000 in cash as of November 30, 2005, the purchase price was to be
        adjusted upward or downward depending on the net tangible book value, determined
        as provided in the Plaza Agreement. This provision resulted in an additional
        payment to Ms. Plaza in the amount of $88,161, which was paid during the
        third
        quarter of 2006.
  The
        Plaza
        Agreement also provides that Pharma-PR, rather than Ms. Plaza, is responsible
        for the income tax from December 1, 2005 through the closing date, which
        was
        January 25, 2006. Because of the status of Plaza as an N Corporation under
        the
        Puerto Rico Internal Revenue Code, Pharma-PR's net income from December 1,
        2005
        to January 24, 2006 was taxed to Ms. Plaza. The income tax payable by Ms.
        Plaza
        for Pharma-PR's taxable income for that period amounted to $125,227. Pharma-PR
        reimbursed Ms. Plaza the $125,227 during the third quarter of 2006. The $88,161
        payment described in the preceding paragraph and the $125,227 payment described
        in this paragraph are treated as additional payments on account of the purchase
        price of Pharma-PR stock from Mrs. Plaza.
  Pursuant
        to the Puerto Rico Internal Revenue Code, the Company's clients are required
        to
        withhold a percentage of its fees (usually 3%, but sometimes 7%) as withheld
        income tax and remit such amount to the Puerto Rico Department of the Treasury.
        Such payment is treated as a payment on account to the Company's income tax
        obligations. Prior to January 25, 2006, Pharma-PR was an N Corporation, and
        the
        Company's taxable income was taxed to Ms. Plaza, as sole stockholder.
        Accordingly, such withheld taxes were treated as a distribution to Ms. Plaza,
        as
        the Company's sole stockholder since Ms. Plaza was the person entitled to
        take
        the credit for the income tax withheld by the Company's clients in her personal
        income tax return. The amounts withheld prior to January 25, 2006 are recognized
        in the consolidated financial statements as non-cash distributions.
  San
        Juan
        Holdings represented Pharma-PR and Elizabeth Plaza in connection with the
        reverse acquisition. For such services, Pharma-Bio issued 600,000 shares
        of
        common stock and warrants to purchase 2,500,000 shares of common stock, with
        an
        exercise price of $0.06 per share, to San Juan Holdings. In Pharma-Bio's
        private
        placement of series A preferred stock and warrants, San Juan Holdings purchased
        three units. The purchase price for the three units was $750,000. The broker,
        which is an affiliate of San Juan Holdings, waived the commission and
        non-accountable expense allowance with respect to such sales, and as a result,
        San Juan Holdings purchased the three units for a net payment of $652,500.
        Pharma-Bio also paid an affiliate of San Juan Holdings a broker's commission
        and
        non-accountable expense allowance of $195,000 for sales made to other purchasers
        in the private placement, and Pharma-Bio issued to the affiliate three-year
        warrants to purchase an aggregate of 275,724 shares of common stock at an
        exercise price of $0.7344 per share. As of October 31, 2007, warrants to
        purchase the 2,500,000 shares remained outstanding.
 
 F-16
 
 **NOTE
        I - COMMITMENTS**
   **1.
        Contracts**
  On
        January 25, 2006, the Company entered into employment agreements with Elizabeth
        Plaza and Nelida Plaza. The agreement with Elizabeth Plaza, as extended to
        December 31, 2008 provides that Ms. Plaza will serve as president and chief
        executive officer of the Company, for which she will receive a salary at
        the
        annual rate of $250,000. The Company will also provide Ms. Plaza with an
        automobile allowance at the annual rate of $24,828, discretionary bonuses
        and
        stock options or other equity-based incentives as shall be determined by
        the
        compensation committee's board of directors, except that her bonus shall
        not be
        less than 4% nor more than 50% of her salary. If the Company terminates Ms.
        Plaza's employment other than for cause or as a result of her death or
        disability, the Company is required to pay Ms. Plaza the balance of her
        compensation for her employment terms and her consulting term and other
        benefits, including a pro rata portion of the bonus that would have been
        paid to
        her, and her obligations under her non-competition provision terminate. Upon
        termination of the agreement Ms. Plaza will serve as a consultant under terms
        to
        be negotiated.
  The
        Company's agreement with Nelida Plaza provides that Ms. Plaza will serve
        as vice
        president for a term of three years for which she will receive annual
        compensation at the annual rate of $150,000. She is also entitled to such
        bonus
        compensation as is determined by the compensation committee, not to exceed
        50%
        of her salary. The Company also agreed to make the lease payments on the
        automobile she currently leases. Such payments are at the annual rate of
        approximately $11,600. If the Company terminates Ms. Plaza's employment other
        than for cause or as a result of her death or disability, the Company is
        required to pay Ms. Plaza the balance of her compensation for her employment
        terms and her consulting term and other benefits, including a pro rata portion
        of the bonus that would have been paid to her, and her obligations under
        her
        non-competition provision, terminate.
 
 **2.
        Lease commitments**
  **Capitalized
        lease obligations** - As of
        October 31, 2007, the Company leases vehicles under non-cancelable capital
        leases with a cost of $221,434 (accumulated depreciation of $111,147).
        Amortization expense for these assets amounted to $44,286 and $44,805 in
        the
        years ended October 31, 2007 and 2006, 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,
        2007:
 
 
 **Twelve
                  months ending October 31,**
              
              
              **Amount**2008
              
              $
              48,2402009
              
              
              71,2402010
              
              
              32,239Total
                  future minimum lease payments
              
              
              151,719Less:
                  Amount of imputed interest
              
              
              (
                  10,071
              )Present
                  value of future minimum lease payments
              
              
              141,648Current
                  portion of obligation under capital leases
              
              
              (41,987
              )Long-term
                  portion
              
              $
              99,661
 
 F-17
 
 **Operating
        facilities** - The
        Company conducts its administrative operations in office facilities which
        are
        leased under three different rental agreements with the following
        terms:
  **Description**
              
              **Monthly
                  Rent**
              
              **Commitment
                  Term**Headquarter
                  offices and laboratory testing facilities
              
              $
              18,750
              
              Ending
                  in January 2012, with one five year renewal optionCork
                  office facilities
              
              $
              750
              
              Month-to-monthLimerick
                  office space
              
              $
              1,050
              
              Ending
                  in July 2010
 
 The
        first
        lease listed in the table is with an affiliate of the chief executive officer.
        In February 2007, the Company and the affiliate rescinded a former lease
        agreement and entered into a new agreement for the new headquarters and
        laboratory testing facilities. The monthly payments under the new lease
        agreement, which amount to $18,750, will increase by 5% annually. 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 Company paid a monthly rental of $3,200
        for its
        former office facilities.
 
 In
        June
        2006, the Company entered into a lease agreement for office facilities in
        Limerick, Pennsylvania, at a monthly rental of $1,000. The original lease
        term
        expired on July 31, 2007; however, the lease agreement was renewed for an
        additional term of three years at monthly rental of $1,050 during the first
        year, $1,100 during the second year, and $1,150 during the third year of
        the
        lease renewal term.
 
 Minimum
        future rental payments under non-cancelable operating leases having remaining
        terms in excess of one year as of October 31, 2007 are:
 **Amount**2008
              
              $
              246,1882009
              
              
              258,4592010
              
              
              267,7152011
              
              
              270,2332012
              
              
              68,372Total
                  minimum lease payments
              
              $
              1,110,967
 
 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. Rent expense during the years ended October 31, 2007 and 2006
        was
        $251,231 and $98,936, respectively.
 
 **NOTE
        J - 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, and consultants.
        The 2005 plan is to be administered by a committee of independent directors.
        In
        the absence of a committee, the plan is administered by the board of directors.
        Independent directors are not eligible for discretionary options. However,
        each
        newly elected independent director receives at the time of his or her election,
        a five-year option to purchase 25,000 shares of common stock at the market
        price
        on the date of his or her election. In addition, the plan provides for the
        annual grant of an option to purchase 5,000 shares of common stock on the
        first
        trading day of January of each year, commencing January 2007. The options
        to
        directors have a term of five years and become exercisable cumulatively as
        to
        50% of the shares subject to the option six months from the date of grant
        and,
        as to the remaining 50%, 18 months from the date of grant. Pursuant to this
        provision, on January 25, 2006, options to purchase 25,000 shares at $0.7344
        per
        share, being the fair market value on the date of grant, were automatically
        granted to each of the three independent 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 our common stock, the exercise price must be at least 110%
        of
        the fair market value on the date of grant and the term of the option cannot
        exceed five years.
  F-18
 
 Pursuant
        to the Plaza Agreement, all outstanding options issued by Pharma-PR were
        terminated, and the Company granted incentive stock options to purchase an
        aggregate of 1,400,000 shares of common stock at an exercise price of $0.7344
        per share to the holders of such terminated Pharma-PR options pursuant to
        the
        Company's 2005 Long-Term Incentive Plan. Of the total options to purchase
        1,400,000 shares of common stock, options to purchase 776,186 shares of common
        stock were granted to 18 employees whose options to purchase Pharma-PR common
        stock were cancelled. The options to purchase the remaining 623,814 shares
        of
        common stock were granted to both the 18 former holders of Pharma-PR options
        and
        23 additional Pharma-PR employees. The Company subsequently granted options
        to
        purchase other 473,724 shares to employees and independent directors. The
        new
        options have an exercise price of $0.7344, a term of five years and are
        exercisable in installments. As of October 31, 2006, there were approximately
        1,348,090 outstanding options, since some options expired because of certain
        employment terminations.
  As
        of
        November 1, 2006 there were outstanding options to acquire 1,348,090 shares
        of
        common stock, of which options, with a weighted-average exercise price of
        $0.7344, to acquire 228,320 shares terminated unexercised. In January 2007,
        the
        Company granted options to purchase 5,000 shares of common stock to each
        of its
        three independent directors and an option to purchase 50,000 shares to its
        new
        general manager. In February 2007, the Company also granted an option to
        purchase 35,000 shares to an independent contractor, of which an option to
        purchase 14,585 shares subsequently became vested and the option to purchase
        the
        remaining 20,414 shares was forfeited. No options were exercised or expired
        during the year ended October 31, 2007. As of October 31, 2007, there were
        outstanding options to purchase 1,199,355 shares. The weighted average of
        the
        remaining contractual life of the outstanding stock options is 3 years and
        the
        weighted average exercise price is $0.7496.
 
 As
        of
        October 31, 2007 there were 75,000 vested stock options with a weighted average
        value and exercise price of $0.60 and $0.7344, respectively. The remaining
        contractual term for these vested stock options is 3 years.
 
 The
        following table presents the stock-based compensation included in the Company’s
        consolidated statement of income and the effect on earnings per share for
        the
        year ended October 31, 2007:
 
 Stock-based
                  compensation expense:Cost
                  of services
              $
              60,990Selling,
                  general and administrative
              
              54,414Stock-based
                  compensation before tax
              
              115,404Income
                  tax benefit
              
              --Net
                  stock-based compensation expense
              $
              115,404Effect
                  on earnings per share:Basic
                    earnings per share
              $
              (0.006)Diluted
                    earnings per share
              $
              (0.005)
  Prior
        to
        the adoption of SFAS 123R and SAB 107, the Company followed APB 25, and
        compensation cost related to employee stock options was generally not recognized
        because options were granted with exercise prices equal to or greater than
        the
        fair market value at the date of grant. Had compensation cost for the stock
        option plans been determined based on the fair value at the grant date for
        awards for the year ended October 31, 2006, consistent with the provisions
        of
        SFAS No. 123R, the effect on Company’s net income and earnings per share
        would not have been significant.
 
 The
        fair
        value of each stock option granted prior to November 1, 2006 was estimated
        at
        $0.60. For purposes of valuing the options, since there was no public market
        for
        the common stock, the underlying common stock was valued at $0.7344, which
        is
        the price paid by the private placement investors in January 2006, which
        was the
        most recent sale of securities by the Company.
 
 F-19
  The
        fair
        value of each stock option granted on or after November 1, 2006 was estimated
        on
        the date of grant using the Black-Scholes option pricing model using the
        following weighted average assumptions (expected volatility is based upon
        the
        historical volatility of the Company’s stock price):
 
 Expected
                  dividend yield
              
              
              0.0
              %Expected
                  stock price volatility
              
              
              10
              %Risk
                  free interest rate
              
              
              4.7
              %Expected
                  life of options
              
              
              2.65
                  yearsWeighted
                  average fair value per share of options granted during the year
                  ended
                  October 31, 2007
              
              $
              0.1506
 
 Pursuant
        to the Plaza Agreement, Pharma-Bio agreed that it would issue 100 shares
        of
        common stock to each of Pharma-PR's eligible employees. Such shares will
        not be
        issued until Pharma-Bio is eligible to use a Form S-8 registration statement
        in
        connection with the issuance of such shares. Approximately 16,500 shares
        of
        common stock may be issued pursuant to this program.
  On
        December 20, 2007, subsequent to our fiscal year end herein reported, in
        accordance with the 2005 Long-Term Incentive Plan, the Company awarded 240,000
        stock options to certain employees and executives. See Note M.
 
 **NOTE
        K - CONCENTRATION OF RISKS**
  **Cash
        and cash equivalents**
 
 The
        Company maintains our 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 deposit balances frequently exceed federally insured limits;
        however, no losses have been experienced on these accounts .
  **Accounts
        receivable and revenues**
 
 Management
        deems all its accounts receivables 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 and United States of America. Although
        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.
 
 The
        Company provides a substantial portion of its services to various customers,
        which account 10% or more of our revenues. During one or both years ended
        October 31, 2007 and 2006, revenues over 10% for services provided to these
        customers represent 67% and 73% of total revenues, respectively. Individually,
        these customers represent total revenues of 23%, 22%, 10%, 7% and 5% in 2007;
        and 30%, 12%, 0%, 21% and 10% in 2006, respectively. At October 31, 2007
        amounts
        due from these customers represent 29% of total accounts receivable
        balance.
 
 Subsequent
        to October 31, 2007 one of the major customers, which represented 23% of
        the
        Company’s 2007 revenues, announced its plans to close its Puerto Rico operations
        during 2008. As of October 31, 2007, the outstanding balance of this customer
        represented 5% of total accounts receivable. Management considers the amount
        to
        be fully collectible. Although past performance is no indication of future
        performance, in the past, in the ordinary course of business, the Company
        has
        been successful substituting customer losses by adding new customers or projects
        to its base.
 
 F-20
  **NOTE
        L - 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, 2007 and 2006 were $69,595 and $40,439, respectively.
  
 **NOTE
        M - SUBSEQUENT EVENT**
 
 On
        December 20, 2007, in accordance with the Company’s 2005 Long-Term Incentive
        Plan, the Compensation Committee granted a total of 240,000 stock option
        awards
        to employees and executives.
   F-21