**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10-QSB**
 
 (Mark
        One)
  x
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
  For
        the
        quarterly period ended July 31, 2008
 
 o
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
  For
        the
        transition period from ____________ to ____________
 
 Commission
        File No. 000-50956
 
 PHARMA-BIO
        SERV, INC.
 (Exact
        Name of Small Business Issuer as Specified in Its Charter)
 
 Delaware
              20-0653570(State
                  or Other Jurisdiction of
                Incorporation
                  or Organization)
              (IRS
                  Employer
                Identification
                  No.)
 
 Pharma-Bio
        Serv Building, Industrial Zone Lot 14, Barrio Higuillar, Dorado, Puerto Rico
        00646
 (Address
        of Principal Executive Offices)
 
 787-278-2709
 (Issuer's
        Telephone Number, Including Area Code)
 
 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
 
 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
 
 The
        number of shares outstanding of the registrant's Common Stock as of September
        12, 2008 was 20,751,215.
  
 
 **PHARMA-BIO
        SERV, INC.**
 
 **FORM
        10-QSB**
 
 **FOR
        THE QUARTER ENDED JULY 31, 2008**
  **TABLE
        OF CONTENTS**
  PagePART
                  I FINANCIAL INFORMATIONItem
                  1 – Financial StatementsCondensed
                  Consolidated Balance Sheet as of July 31, 2008 (unaudited)
              
              
              3Condensed
                  Consolidated Statements of Income for the three-month periods and
                  nine-month periods ended July 31, 2008 and 2007
                  (unaudited)
              
              
              4Condensed
                  Consolidated Statements of Cash Flows for the three-month periods
                  and
                  nine-month periods ended July 31, 2008 and 2007 (unaudited)
              
              
              5Condensed
                  Consolidated Statement of Changes in Stockholders’ Equity for the
                  nine-month period ended July 31, 2008 (unaudited)
              
              
              6Notes
                  to Condensed Consolidated Financial Statements (unaudited)
              
              
              7Item
                  2 - Management's Discussion and Analysis
              
              
              17Item
                  3 - Controls and Procedures
              
              
              22PART
                  II OTHER INFORMATIONItem
                  6 – Exhibits
              
              
              23SIGNATURES
              
              
              24
  -2-
 
 **PHARMA-BIO
        SERV, INC.**
 **Condensed
        Consolidated Balance Sheet (Unaudited)**
 **July
        31, 2008**
 
 **ASSETS**:Current
                  assetsCash
                  and cash equivalents
              
              $
              2,207,077Accounts
                  receivable
              
              
              4,100,799Other
              
              
              232,882Total
                  current assets
              
              
              6,540,758Property
                  and equipment
              
              
              1,555,205Other
                  assets, mainly intangible assets
              
              
              80,625Total
                  assets
              
              $
              8,176,588**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**:Current
                  liabilitiesCurrent
                  portion-obligations under capital leases
              
              $
              50,285Accounts
                  payable and accrued expenses
              
              
              1,330,407Due
                  to affiliate
              
              
              2,661,531Income
                  taxes payable
              
              
              246,000Total
                  current liabilities
              
              
              4,288,223Long-term
                  liabilities
              
              
              91,072Total
                  liabilities
              
              
              4,379,295Stockholders'
                  equity:Preferred
                  Stock, $0.0001 par value; authorized
                10,000,000
                  shares; none outstanding
              
              
              -Common
                  Stock, $0.0001 par value; authorized 50,000,000
                shares;
                  issued and outstanding 20,751,215 shares
              
              
              2,075Additional
                  paid-in capital
              
              
              615,123Retained
                  earnings
              
              
              3,189,049Accumulated
                  other comprehensive loss
              
              
              (8,954
              )Total
                  stockholders' equity
              
              
              3,797,293Total
                  liabilities and stockholders' equity
              
              $
              8,176,588
  See
        notes
        to condensed consolidated financial statements.
  -3-
 
 **PHARMA-BIO
        SERV, INC.**
 **Condensed
        Consolidated Statements of Income (Unaudited)**
 **For
        the Three-Month and the Nine-Month Periods Ended July 31, 2008 and
        2007**
 
 **Three
                  months ended July 31,**
              
              **Nine
                  months ended July 31,****2008**
              
              **2007**
              
              **2008**
              
              **2007**REVENUES
              
              $
              4,191,873
              
              $
              4,540,730
              
              $
              11,493,969
              
              $
              12,295,868COST
                  OF SERVICES
              
              
              2,547,992
              
              
              2,512,377
              
              
              7,129,868
              
              
              7,107,828GROSS
                  PROFIT
              
              
              1,643,881
              
              
              2,028,353
              
              
              4,364,101
              
              
              5,188,040SELLING,
                  GENERAL ANDADMINISTRATIVE
                  EXPENSES
              
              
              802,194
              
              
              761,629
              
              
              2,304,118
              
              
              2,236,180INCOME
                  FROM OPERATIONS
              
              
              841,687
              
              
              1,266,724
              
              
              2,059,983
              
              
              2,951,860OTHER
                  INCOME (EXPENSES):Interest
                  expense
              
              
              (46,670
              )
              
              (88,546
              )
              
              (179,988
              )
              
              (302,348
              )Interest
                  income
              
              
              11,492
              
              
              24,090
              
              
              69,364
              
              
              67,845Loss
                  on disposition of property and equipment
              
              
              -
              
              
              -
              
              
              -
              
              
              (25,661
              )(35,178
              )
              
              (64,456
              )
              
              (110,624
              )
              
              (260,164
              )INCOME
                  BEFORE TAXES
              
              
              806,509
              
              
              1,202,268
              
              
              1,949,359
              
              
              2,691,696INCOME
                  TAXES
              
              
              291,631
              
              
              507,740
              
              
              806,574
              
              
              1,149,440NET
                  INCOME
              
              $
              514,878
              
              $
              694,528
              
              $
              1,142,785
              
              $
              1,542,256BASIC
                  EARNINGS PER COMMON SHARE
              
              $
              0.03
              
              $
              0.04
              
              $
              0.06
              
              $
              0.08DILUTED
                  EARNINGS PER COMMON SHARE
              
              $
              0.02
              
              $
              0.03
              
              $
              0.05
              
              $
              0.07WEIGHTED
                  AVERAGE NUMBER OF COMMONSHARES
                  OUTSTANDING – BASIC
              
              
              19,892,186
              
              
              19,615,539
              
              
              19,708,428
              
              
              19,315,415WEIGHTED
                  AVERAGE NUMBER OF COMMONSHARES
                  OUTSTANDING – DILUTED
              
              
              22,210,816
              
              
              22,067,885
              
              
              22,153,259
              
              
              22,092,848
  See
        notes
        to condensed consolidated financial statements.
  -4-
 
 **PHARMA-BIO
        SERV, INC.**
 **Condensed
        Consolidated Statements of Cash Flows (Unaudited)**
 **For
        the Three-Month and the Nine-Month Periods Ended July 31, 2008 and
        2007**
 
 **Three
                    months ended July 31,**
                
                **Nine
                    months ended July 31,****2008**
                
                **2007**
                
                **2008**
                
                **2007**CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    income
                
                $
                514,878
                
                $
                694,528
                
                $
                1,142,785
                
                $
                1,542,256Adjustments
                    to reconcile net income to net cashprovided
                    by operating activities:Loss
                    on disposition of property and equipment
                
                
                -
                
                
                -
                
                
                -
                
                
                25,661Stock-based
                    compensation
                
                
                41,954
                
                
                26,537
                
                
                116,972
                
                
                91,911Depreciation
                    and amortization
                
                
                54,046
                
                
                51,913
                
                
                157,745
                
                
                159,570Imputed
                    interest expense
                
                
                44,600
                
                
                86,302
                
                
                173,766
                
                
                295,031(Increase)
                    decrease in accounts receivable
                
                
                (866,618
                )
                
                (561,348
                )
                
                (540,304
                )
                
                1,223,268(Increase)
                    decrease in other assets
                
                
                (60,453
                )
                
                (66,738
                )
                
                36,331
                
                
                182,798Increase
                    (decrease) in liabilities
                
                
                (210,727
                )
                
                (219,739
                )
                
                (528,861
                )
                
                312,584NET
                    CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
                
                
                (482,320
                )
                
                11,455
                
                
                558,434
                
                
                3,833,079CASH
                    FLOWS FROM INVESTING ACTIVITIES:Acquisition
                    of property and equipment
                
                
                (41,128
                )
                
                (22,090
                )
                
                (742,598
                )
                
                (40,170
                )NET
                    CASH USED IN INVESTING ACTIVITIES
                
                
                (41,128
                )
                
                (22,090
                )
                
                (742,598
                )
                
                (40,170
                )CASH
                    FLOW FROM FINANCING ACTIVITIES:Proceeds
                    from issuance of common stock
                
                
                382,861
                
                
                -
                
                
                382,861
                
                
                -Payments
                    on obligations under capital lease
                
                
                (12,004
                )
                
                (9,815
                )
                
                (33,986
                )
                
                (28,863
                )Payments
                    to affiliate
                
                
                -
                
                
                -
                
                
                (2,750,000
                )
                
                (2,750,000
                )NET
                    CASH PROVIDED BY (USED IN) IN FINANCING ACTIVITIES
                
                
                370,857
                
                
                (9,815
                )
                
                (2,401,125
                )
                
                (2,778,863
                )NET
                    (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                
                
                (152,591
                )
                
                (20,450
                )
                
                (2,585,289
                )
                
                1,014,046CASH
                    AND CASH EQUIVALENTS - BEGINNING OF PERIOD
                
                
                2,359,668
                
                
                3,309,531
                
                
                4,792,366
                
                
                2,275,035CASH
                    AND CASH EQUIVALENTS – END OF PERIOD
                
                $
                2,207,077
                
                $
                3,289,081
                
                $
                2,207,077
                
                $
                3,289,081SUPPLEMENTAL
                    DISCLOSURES OFCASH
                    FLOW INFORMATION:Cash
                    paid during the period for:Income
                    taxes
                
                $
                616,981
                
                $
                593,329
                
                $
                1,005,323
                
                $
                743,329Interest
                
                $
                2,070
                
                $
                2,245
                
                $
                351,356
                
                $
                511,026SUPPLEMENTARY
                    SCHEDULES OF NON-CASHINVESTING
                    AND FINANCING ACTIVITIES:Accounts
                    payable incurred in projects in process
                
                $
                -
                
                $
                -
                
                $
                84,306
                
                $
                -Income
                    tax withheld by clients to be used as a credit inthe
                    Company’s income tax return
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                53,573Obligations
                    under capital lease incurred for theacquisition
                    of a vehicle
                
                $
                -
                
                $
                -
                
                $
                33,695
                
                $
                -Conversion
                    of cashless exercises warrants to sharesof
                    common stock
                
                $
                -
                
                $
                -
                
                
                -
                
                $
                $
                    130
 
 See
        notes
        to condensed consolidated financial statements.
 
 -5-
  **PHARMA-BIO
        SERV, INC.**
 **Condensed
        Consolidated Statement of Changes in Stockholders' Equity
        (Unaudited)**
 **For
        the Nine-Month Period Ended July 31, 2008**
  **Additional**
              
              
              
              **Accumulated**
                **Other****Common
                  Stock**
              
              **Preferred Stock**
              
              **Paid-in**
              
              **Retained**
              
              **Comprehensive****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Earnings**
              
              **Income
                  (Loss)**
              
              **Total**BALANCE
                  AT OCTOBER 31, 2007
              
              
              19,615,539
              
              $
              1,961
              
              
              -
              
              $
              -
              
              $
              115,404
              
              $
              2,046,264
              
              $
              3,554
              
              $
              2,167,183CONVERSION
                  OF WARRANTS TO
                SHARES
                  OF COMMON STOCK
              
              
              1,135,676
              
              
              114
              
              
              -
              
              
              -
              
              
              382,747
              
              
              -
              
              
              -
              
              
              382,861STOCK-BASED
                  COMPENSATION
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              116,972
              
              
              -
              
              
              -
              
              
              116,972COMPREHENSIVE
                  INCOME:NET
                  INCOME
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,142,785
              
              
              -
              
              
              1,142,785OTHER
                  COMPREHENSIVE LOSS:FOREIGN
                  CURRENCY TRANSLATION ADJUSTMENT
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (12,508
              )
              
              (12,508
              )OTHER
                  COMPREHENSIVE LOSS
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (12,508
              )COMPREHENSIVE
                  INCOME
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,130,277BALANCE
                  AT JULY 31, 2008
              
              
              20,751,215
              
              $
              2,075
              
              
              -
              
              $
              -
              
              $
              615,123
              
              $
              3,189,049
              
              $
              (8,954
              )
              $
              3,797,293
  See
        notes
        to condensed consolidated financial statements.
  -6-
  **PHARMA-BIO
        SERV, INC.**
 **Notes
        To Condensed Consolidated Financial Statements (Unaudited)**
 **For
        the Three-Month and Nine-Month Periods Ended July 31, 2008 and
        2007**
 
 **NOTE
        A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
        POLICIES**
 
 **ORGANIZATION**
 
 Pharma-Bio
        Serv, Inc. (“Pharma-Bio”) is a Delaware corporation organized on January 14,
        2004. Pharma-Bio is the parent company of Pharma-Bio Serv PR, Inc.
        (“Pharma-PR”), a Puerto Rico corporation, Pharma-Bio Serv US, Inc.
        (“Pharma-US”), a Delaware corporation, and Pharma-Bio Serv Validation &
Compliance Limited (“Pharma-IR”), a majority owned Irish corporation.
        Pharma-Bio, Pharma-PR, Pharma-US and Pharma-IR are collectively referred
        to as
        the “Company.” The Company operates in Puerto Rico, the United States and in
        Ireland under the name of Pharma-Bio Serv and is engaged in providing technical
        compliance consulting services primarily to the pharmaceutical, chemical,
        medical device and biotechnology industries.
 
 Pharma-US
        is a wholly owned subsidiary, which was organized in Delaware in July 2008.
        As
        of July 31, 2008, this subsidiary was in development stage and has not incurred
        significant revenues or expenses.
 
 **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES**
 
 The
        unaudited condensed consolidated financial statements for the three-month
        and
        nine-month periods ended on July 31, 2008 and 2007 presented herein have
        been
        prepared in accordance with accounting principles generally accepted in the
        United States of America for interim financial statements and with the
        instructions to Form 10-QSB and Regulation S-B pertaining to interim financial
        statements and reflect all adjustments, consisting of normal recurring
        adjustments and accruals which, in the opinion of management, are considered
        necessary for a fair presentation of the Company’s financial position, results
        of operations and cash flows. Results of operations for interim periods are
        not
        necessarily indicative of the results that may be expected for the full
        year.
 
 **Consolidation**
 
 The
        accompanying condensed consolidated financial statements include the accounts
        of
        the Company and all of its wholly owned and majority-owned subsidiaries.
        All
        intercompany transactions and balances have been eliminated in
        consolidation.
 
 **Use
        of Estimates**
  The
        preparation of condensed consolidated financial statements in conformity
        with
        accounting principles generally accepted in the United States of America
        requires management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities and disclosure of contingent assets and
        liabilities at the date of the consolidated financial statements and the
        reported amounts of revenues and expenses during the reporting periods. Actual
        results may differ from these estimates.
  **Fair
        Value of Financial Instruments**
  The
        carrying value of the Company's financial instruments (excluding obligations
        under capital leases and amounts due to affiliate): cash and cash equivalents,
        accounts receivable, accounts payable and accrued liabilities, are considered
        reasonable estimates of fair value due to their 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.
  -7-
 
 **Revenue
        Recognition**
  Revenue
        is primarily derived from: (1) time and materials contracts (representing
        approximately 90% of total revenues), which is recognized by applying the
        proportional performance model, whereby revenue is recognized as performance
        occurs, and (2) short-term fixed-fee contracts or "not to exceed" contracts
        (representing approximately 10% of total revenues), which revenue is recognized
        similarly, except that certain milestones also have to be reached before
        revenue
        is recognized. If the Company determines that a fixed-fee or “not to exceed”
contract will result in a loss, the Company recognizes the estimated loss
        in the
        period in which such determination is made.
  **Cash
        Equivalents**
  For
        purposes of the condensed consolidated statements of cash flows, cash
        equivalents include investments in a money market obligations trust that
        is
        registered under the U.S. Investment Company Act of 1940 and liquid investments
        with original maturities of three months or less.
 
 **Accounts
        Receivable**
  Accounts
        receivable are recorded at their estimated realizable value. Accounts are
        deemed
        past due when payment has not been received within the stated time period.
        The
        Company's policy is to review individual past due amounts periodically and
        write
        off amounts for which all collection efforts are deemed to have been exhausted.
        Due to the nature of the Company’s customers, bad debts are accounted for using
        the direct write-off method whereby an expense is recognized only when a
        specific account is determined to be uncollectible. The effect of using this
        method approximates that of the allowance method.
 
 **Income
        Taxes**
  The
        Company follows the provisions of Statement of Financial Accounting Standards
        Board No. 109, "Accounting for Income Taxes," which requires an asset and
        liability approach method of accounting for income taxes. This method measures
        deferred income taxes by applying enacted statutory rates in effect at the
        balance sheet date to the differences between the tax basis of assets and
        liabilities and their reported amounts on the financial statements. The
        resulting deferred tax assets or liabilities are adjusted to reflect changes
        in
        tax laws as they occur. A valuation allowance is provided when it is more
        likely
        than not that a deferred tax asset will not be realized.
 
 **Property
        and equipment**
  Owned
        property and equipment, and leasehold improvements are stated at cost. Equipment
        and vehicles under capital leases are stated at the lower of fair market
        value
        or net present value of the minimum lease payments at the inception of the
        leases.
  Depreciation
        and amortization of owned assets are provided for, when placed in service,
        in
        amount sufficient to relate the cost of depreciable assets to operations
        over
        their estimated service lives, using straight-line basis. Assets under capital
        leases and leasehold improvements are amortized, over the shorter of the
        estimated useful lives of the assets or lease term. Major renewals and
        betterments that extend the life of the assets are capitalized, while
        expenditures for repairs and maintenance are expensed when
        incurred.
  The
        Company evaluates for impairment its long-lived assets to be held and used,
        and
        long-lived assets to be disposed of, whenever events or changes in circumstances
        indicate that the carrying amount of an asset may not be
        recoverable. **** Based
        on
        management estimates, no impairment of the operating properties was
        present.
 
 **Intangible
        assets**
 
 Definite-lived
        intangible assets, such as customer lists and covenants not to compete, are
        amortized on a straight-line basis over their estimated useful lives. The
        Company continually evaluates the reasonableness of the useful lives of these
        assets.
  -8-
 
 **Stock-based
        Compensation**
  Effective
        November 1, 2006, the Company adopted the provisions of SFAS No. 123R,
“Share-Based Payment” (“SFAS 123R”), and Staff Accounting Bulletin No. 107
        (“SAB 107”) using the modified prospective method, which results in the
        provisions of SFAS 123R being applied to the consolidated financial statements
        on a prospective basis. Under the modified prospective recognition method,
        restatement of consolidated income from prior periods is not required, and
        accordingly, the Company has not provided such restatements. Under the modified
        prospective provisions of SFAS 123R, compensation expense is recorded for
        the
        unvested portion of previously granted awards that were outstanding on
        November 1, 2006 and all subsequent awards. SFAS 123R requires that all
        stock-based compensation expense be recognized in the consolidated financial
        statements based on the fair value of the awards. Stock-based compensation
        cost
        is measured at the grant date based on the fair value of the award and is
        recognized as expense over the requisite service period, which generally
        represents the vesting period, and includes an estimate of awards that will
        be
        forfeited. The Company calculates the fair value of stock options using the
        Black-Scholes option-pricing model at grant date. SFAS 123R also amends SFAS
        No. 95, “Statement of Cash Flows”, to require that excess tax benefits
        related to stock-based compensation be reflected as cash flows from financing
        activities rather than cash flows from operating activities. The Company
        does
        not recognize such cash flow from financing activities since there has been
        no
        tax benefit related to the stock-based compensation.
 
 **Income
        Per Share of Common Stock**
  Basic
        income per share of common stock is calculated dividing net income by the
        weighted average number of shares of common stock outstanding. Diluted income
        per share includes the dilution of common stock equivalents.
  The
        diluted weighted average shares of common stock outstanding were calculated
        using the treasury stock method for the respective periods.
 
 **Foreign
        Operations**
 
 The
        functional currency of the Company’s foreign subsidiary is its local currency.
        The assets and liabilities of the Company’s foreign subsidiary are translated
        into U.S. dollars at exchange rates in effect at the balance sheet date.
        Income
        and expense items are translated at the average exchange rates prevailing
        during
        the period. The cumulative translation effect for subsidiaries using a
        functional currency other than the U.S. dollar is included as a cumulative
        translation adjustment in stockholders’ equity and as a component of
        comprehensive income.
 
 The
        Company’s intercompany accounts are typically denominated in the functional
        currency of the foreign subsidiary. Gains and losses resulting from the
        remeasurement of intercompany receivables that the Company considers to be
        of a
        long-term investment nature are recorded as a cumulative translation adjustment
        in stockholders’ equity and as a component of comprehensive income, while gains
        and losses resulting from the remeasurement of intercompany receivables from
        those international subsidiaries for which the Company anticipates settlement
        in
        the foreseeable future are recorded in the consolidated statements of
        operations. The net gains and losses recorded in the condensed consolidated
        statements of income were not significant for the periods presented.
 
 **Reclassifications**
 
 Certain
        reclassifications have been made to the July 31, 2007 interim condensed
        consolidated financial statements to conform them to the July 31, 2008 interim
        condensed consolidated financial statements presentation. Such reclassifications
        do not have a material effect on net income as previously
        reported.
  -9-
 
 **NOTE
        B - RECENT ACCOUNTING PRONOUNCEMENTS**
 
 1.
        In
        December 2007, the Financial Accounting Standards Board (FASB) issued SFAS
        No. 141R, *Business
        Combinations (* “SFAS
        141R”). SFAS 141R requires: the assets acquired and liabilities assumed to be
        measured at fair value as of the acquisition date; liabilities related to
        contingent consideration to be remeasured at fair value at each subsequent
        reporting period; and acquisition-related costs to be expensed as these are
        incurred. SFAS 141R also requires additional disclosures of information
        surrounding a business combination. The provisions of SFAS 141R are effective
        for fiscal years beginning on or after December 15, 2008 and apply to
        business combinations that are completed on or after the date of adoption.
        The
        Company has not yet adopted this pronouncement, but expects that the nature
        and
        magnitude of the specific effects will depend upon the nature, terms and
        size of
        the acquisitions the Company completes after the effective date, if
        any.
 
 2.
        In
        December 2007, the FASB issued Statement No. 160 “Noncontrolling Interests in
        Consolidated Financial Statements - an amendment of ARB No. 51”. This Statement
        applies to all entities that prepare consolidated financial statements, but
        will
        affect only those entities that have an outstanding noncontrolling interest
        in
        one or more subsidiaries or that deconsolidate a subsidiary. This statement
        is
        effective for fiscal years, and interim periods within those fiscal years,
        beginning on or after December 15, 2008. Earlier adoption is
        prohibited.
 
 Management
        does not expect that the application of this standard will have any significant
        effect on the Company's consolidated financial statements.
 
 3.
        In
        February 2007, the FASB issued Statement No. 159 “The Fair Value Option for
        Financial Assets and Financial Liabilities - Including an Amendment of FASB
        Statement No. 115”. This Statement permits entities to choose to measure many
        financial instruments and certain other items at fair value. The objective
        is to
        improve financial reporting by providing entities with the opportunity to
        mitigate volatility in reported earnings caused by measuring related assets
        and
        liabilities differently without having to apply complex hedge accounting
        provisions. This Statement is expected to expand the use of fair value
        measurement, which is consistent with the FASB’s long-term measurement
        objectives for accounting for financial instruments. This Statement is effective
        as of the beginning of an entity’s first fiscal year that begins after November
        15, 2007. Early adoption is permitted as of the beginning of a fiscal year
        that
        begins on or before November 15, 2007, provided the entity also elects to
        apply
        the provisions of FASB Statement No. 157, “Fair Value
        Measurements”.
  Management
        does not expect that the application of this standard will have any significant
        effect on the Company's consolidated financial statements.
 
 4.
        In
        September 2006, the FASB issued Statement No. 157 “Fair Value Measurement”. This
        Statement defines fair value, establishes a framework for measuring fair
        value
        in generally accepted accounting principles (GAAP), and expands disclosures
        about fair value measurements. This Statement applies under other accounting
        pronouncements that require or permit fair value measurements, the FASB having
        previously concluded in those accounting pronouncements that fair value is
        the
        relevant measurement attribute. Accordingly, this Statement does not require
        any
        new fair value measurements. However, for some entities, the application
        of this
        Statement will change current practice. The changes to current practice
        resulting from the application of this Statement relate to the definition
        of
        fair value, the methods used to measure fair value, and the expanded disclosures
        about fair value measurements. This Statement is effective for financial
        statements issued for fiscal years beginning after November 15, 2007, and
        interim periods within those fiscal years. Earlier application is encouraged,
        provided that the reporting entity has not yet issued financial statements
        for
        that fiscal year, including financial statements for an interim period within
        that fiscal year. The provisions of this Statement should be applied
        prospectively as of the beginning of the fiscal year in which this Statement
        is
        initially applied, except for certain exceptions stated in the
        Statement.
  The
        implementation of this Statement had no significant effect on the Company’s
        consolidated financial statements.
  -10-
 
 5.
        In
        June 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in
        Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). This
        Interpretation clarifies the accounting for uncertainty in income taxes
        recognized in an enterprise’s financial statements in accordance with FASB
        Statement No. 109, “Accounting for Income Taxes” *.* FIN 48
        prescribes a recognition threshold and measurement attribute for the financial
        statement recognition and measurement of a tax position taken or expected
        to be
        taken in a tax return. This Interpretation also provides guidance on
        derecognizing, classification, interest and penalties, accounting in interim
        periods, disclosure, and transition. This Interpretation is effective for
        fiscal
        years beginning after December 15, 2006. The application of this standard
        had no
        significant effect on the Company's results of operations or its financial
        condition.
 
 6.
        Other
        recently issued FASB Statements or Interpretations, SEC Staff Accounting
        Bulletins, and AICPA Emerging Issue Task Force Consensuses have either been
        implemented or are not applicable to the Company.
  **NOTE
        C - PROPERTY AND EQUIPMENT**
  The
        balance of property and equipment at July 31, 2008 consists of the
        following:
 
 **Useful life********(years)**
              
              **Amount**Vehicles under capital leases
              
              
              5
              
              $
              255,129Leasehold
                  improvements
              
              
              5
              
              
              19,279Computers
              
              
              3
              
              
              217,366Equipment
              
              
              3-5
              
              
              121,622Furniture
                  and fixtures
              
              
              10
              
              
              68,509Projects
                  in progress
              
              
              -
              
              
              1,301,478Total
              
              
              
              
              
              1,983,383Less:
                  Accumulated depreciation and amortization
              
              
              
              
              
              (428,178
              )Property
                  and equipment, net
              
              
              
              
              $
              1,555,205
  **NOTE
        D - OTHER ASSETS**
  At
        July
        31, 2008, non-current other assets include the following:
  Intangible
                  assets:Covenant
                  not to compete, net of accumulated amortization of
                  $53,333
              
              $
              46,667Customer-related
                  intangibles, net of accumulated amortization of
                  $129,167
              
              
              20,833Other
                  assets
              
              
              13,125$
              80,625
 
 Covenant
        not to compete represents the portion of the payment made in connection with
        the
        purchase of the Pharma-PR stock that was allocated to a non-competition
        covenant. Under this agreement, the then sole stockholder of Pharma-PR agreed
        not to compete with the Company for a period of five years. 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.
 
 Intangible
        assets amortization expense for each of the three-month periods ended on
        July
        31, 2008 and 2007 amounted to $17,500, and for each of the nine-month periods
        ended July 31, 2008 and 2007 amounted to $52,500.
  -11-
  **NOTE
        E - LINE-OF-CREDIT**
 
 The
        Company has available an unsecured line-of-credit with a financial institution,
        which provides for borrowings up to $250,000. This line of credit may be
        used as
        working capital whenever the Company’s bank account cannot meet its daily cash
        requirements. Interest on advances obtained from this line-of-credit will
        be
        paid at 2% over the bank’s prevailing prime rate. At no time during the
        nine-month period ended July 31, 2008 was the line-of-credit used.
 
 **NOTE
        F - INCOME TAXES**
 
 On
        July
        2008, Pharma-Bio and Pharma-PR obtained a Grant of Industrial Tax Exemption
        (“the Grant”) from the Puerto Rico Industrial Development Company pursuant to
        the terms and conditions set forth in Act No. 135 of December 2, 1997, as
        amended. The Grant provides relief on various Puerto Rico taxes, including
        income tax, mostly for the Company's new microbiological testing facility
        and
        service activities outside of Puerto Rico. The Grant is effective as of
        September 1, 2007 and covers a ten year period. Activities covered by the
        Grant
        are subject to a reduced income tax rate of 7%.
 
 For
        fiscal year 2008 Pharma-PR operations not covered in the exempt activities
        of
        the Grant are subject to the Puerto Rico income tax at a maximum tax rate
        of 39%
        as provided by the 1994 Puerto Rico Internal Revenue Code, as amended. However,
        for the year ended October 31, 2007, the Company was subject to an additional
        2.5% special tax as imposed to corporations and partnerships by Puerto Rico
        Act
        No. 41of August 2005, as amended by Act No. 244 of November 2006.
  The
        operations carried out in the United States by the Company’s subsidiary are
        taxed in the United States. With certain limitations, the Company receives
        a
        credit on its Puerto Rico tax for the federal income tax paid. Also, upon
        distribution of earnings by the Puerto Rican subsidiary to its parent those
        dividends are taxed at the federal level, however, the parent is able to
        receive
        a credit for the taxes paid by the subsidiary on its operations in Puerto
        Rico,
        to the extent of the federal taxes that result from those earnings (determined
        at rates which are normally lower than in Puerto Rico). As a result, the
        income
        tax expense of the Company, under its present corporate structure, would
        normally be the Puerto Rico taxes on operations in Puerto Rico, plus 10%
        withholding in Puerto Rico from dividends paid to the Puerto Rican subsidiary’s
        parent, plus federal taxes on operations in the United States.
 
 Deferred
        income tax assets and liabilities are computed for differences between the
        consolidated financial statements and tax bases of assets and liabilities
        that
        will result in taxable or deductible amounts in the future, based on enacted
        tax
        laws and rates applicable to the periods in which the differences are expected
        to affect taxable income.
 
 As
        of
        July 31, 2008, the Company has not recognized deferred income taxes on
        $3,393,976 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 $339,397
        tollgate tax.
 
 The
        reasons for the difference between the provision for income tax applicable
        to
        income before provision for income taxes and the amount computed by applying
        the
        applicable statutory tax rate in Puerto Rico were as follows:
 
 **Three months ended July
                  31,**
              
              **Nine months****ended July
                  31,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Theoretical
                  income tax expense by application of statutory rates to the book
                  pre-tax
                  income
              
              $
              275,529
              
              $
              498,941
              
              $
              768,807
              
              $
              1,117,054Permanent
                  differences, net
              
              
              16,102
              
              
              8,799
              
              
              37,767
              
              
              32,386Income
                  tax expense
              
              $
              291,631
              
              $
              507,740
              
              $
              806,574
              
              $
              1,149,440
  -12-
 
 **NOTE
        G - DUE TO AFFILIATE**
 
 Pursuant
        to a plan and agreement of merger dated January 25, 2006, the Company agreed
        to
        pay its then sole stockholder of Pharma-PR three installments of $2,750,000
        on
        January 25, 2007, 2008 and 2009, including imputed interest. As of July 31,
        2008
        two installments were paid.
 
 Outstanding
        installment as of July 31, 2008:
 
 Installment
                  due January 25, 2009
              
              $
              2,750,000Less:
                  imputed interest
              
              
              (88,469
              )Present
                  value of minimum payment, due within one year
              
              $
              2,661,531
  **NOTE
        H - LEASE COMMITMENTS**
  **Capitalized
        lease obligations** - As of
        July 31, 2008, the Company leases vehicles under non-cancelable capital leases
        with a cost of $255,129 (accumulated depreciation of $147,732). Amortization
        expense for these assets amounted to $12,757 and $11,072 in the three-month
        periods ended July 31, 2008 and 2007, respectively, and $36,585 and $33,216
        in
        the nine-month periods ended July 31, 2008 and 2007, respectively. The following
        is a schedule, by year, of future minimum lease payments under the capitalized
        leases together with the present value of the net minimum lease payments
        at July
        31, 2008:
  **Twelve months ending July
                  31,**
              
              **Amount**2009
              
              $
              56,2942010
              
              
              72,1752011
              
              
              11,2322012
              
              
              8,0542013
              
              
              4,028Total
                  future minimum lease payments
              
              
              151,783Less:
                  Amount of imputed interest
              
              
              (
                  10,426
              )Present
                  value of future minimum lease payments
              
              
              141,357Current
                  portion of obligation under capital leases
              
              
              (50,285
              )Long-term
                  portion
              
              $
              91,072
 
 **Operating
        facilities** - The
        Company conducts its administrative operations in office facilities which
        are
        leased under three different rental agreements.
  -13-
 
 In
        February 2007, the Company entered into a lease agreement with an affiliate
        of
        the chief executive officer for the new headquarters and laboratory testing
        facilities in Dorado, Puerto Rico. The lease agreement is for a term of five
        years with monthly rental payments of $18,750, $19,687, $20,672, $21,705
        and
        $22,791 for each of the years under the lease. The lease agreement ends in
        January 2012 and provides a five year-renewal option. The agreement also
        requires the payment of utilities, property taxes, insurance and a portion
        of
        expenses incurred by the affiliate in connection with the maintenance of
        common
        areas. Through January 2007, a different smaller facility was leased from
        the
        same entity.
 
 In
        August
        2007, the Company renewed its lease agreement for office facilities in Limerick,
        Pennsylvania. The lease agreement was renewed for a term of three years with
        monthly rental payments of $1,050, $1,100, and $1,150; for each of the years
        under the lease which ends in July 2010.
  The
        Company maintains office facilities in Cork, Ireland. The facilities are
        under a
        month-to-month lease with monthly payments of approximately $750.
 
 The
        Company leases certain apartments as dwellings for employees. The leases
        are
        under short-term lease agreements and usually are cancelable upon 30-day
        notification.
 
 Minimum
        future rental payments under non-cancelable operating leases having remaining
        terms in excess of one year as of July 31, 2008 are:
  **Amount**2009
              
              $
              255,3562010
              
              
              268,0642011
              
              
              266,9772012
              
              
              136,744Total
                  minimum lease payments
              
              $
              927,141
 
 Rent
        expense during the three-month periods ended July 31, 2008 and 2007 was $114,652
        and $69,807, respectively, and $303,900 and $158,870 for the nine-month periods
        ended July 31, 2008 and 2007, respectively.
 
 
 **NOTE
        I - STOCK OPTIONS AND STOCK BASED COMPENSATION**
  In
        October 2005, the Company's board of directors adopted, and on April 25,
        2006,
        the Company’s stockholders approved, the 2005 Long-Term Incentive Plan, covering
        2,500,000 shares of common stock. The 2005 plan provides for the grant of
        incentive and non-qualified options, stock grants, stock appreciation rights
        and
        other equity-based incentives to employees, including officers, consultants
        and
        directors. The 2005 plan is to be administered by a committee of independent
        directors. In the absence of a committee, the plan is administered by the
        board
        of directors. Options intended to be incentive stock options must be granted
        at
        an exercise price per share which is not less than the fair market value
        of the
        common stock on the date of grant and may have a term which is not longer
        than
        ten years. If the option holder holds at least 10% of the Company’s common
        stock, the exercise price must be at least 110% of the fair market value
        on the
        date of grant and the term of the option cannot exceed five years.
 
 Effective
        November 1, 2006, the Company adopted the provisions of SFAS No.123R,
“Share-Based Payment” (“SFAS 123R”), and S.E.C. Staff Accounting Bulletin No.
        107 (“SAB 107”). The Company recognizes stock-based compensation based on the
        fair value of the awards. Stock-based compensation cost is measured at the
        grant
        date based on the fair value of the award and is recognized as expense over
        the
        requisite service period, which generally represents the vesting period,
        and
        includes an estimate of awards that will be forfeited.
  -14-
 
 The
        following table presents the stock-based compensation included in the Company’s
        consolidated statement of income:
 
 **Three months****ended July
                  31,**
              
              **Nine months****ended July
                  31,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Stock-based
                  compensation expense:Cost
                  of services
              
              $
              15,397
              
              $
              9,824
              
              $
              45,985
              
              $
              51,914Selling,
                  general and administrative
              
              
              26,556
              
              
              16,713
              
              
              70,987
              
              
              39,997Stock-based
                  compensation before tax
              
              
              41,953
              
              
              26,537
              
              
              116,972
              
              
              91,911Income
                  tax benefit
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  stock-based compensation expense
              
              $
              41,953
              
              $
              26,537
              
              $
              116,972
              
              $
              91,911
 
 During
        the nine-month period ended in July 31, 2008, in accordance with the 2005
        Long-Term Incentive Plan, the Company awarded stock options to certain
        employees, executives and directors to purchase an aggregate of 370,000 shares
        of common stock.
  **NOTE
        J – WARRANTS**
  At
        July
        31, 2008 the Company had outstanding warrants to purchase 11,053,216 shares
        of
        the Company’s common stock at prices ranging from $0.06 to $1.65 per share. The
        warrants became exercisable at various dates commencing in 2004 and expire
        at
        various dates through 2014.
 
 Warrants
        for the purchase of 466,667 and 669,009 common shares with exercise prices
        of
        $0.7344 and $0.06, respectively, were exercised by two warrant holders in
        July
        2008. Proceeds in excess of the common shares’ par value were recorded in the
        accounting records as Additional Paid-in Capital.
  **NOTE
        K – EARNINGS PER SHARE**
 
 The
        following data show the amounts used in the calculations of basic and diluted
        earnings per share.
 
 **Three
                  months****ended
                  July 31,**
              
              **Nine
                  months****ended
                  July 31,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Net
                  income available to common equity holders - used to compute basic
                  and
                  diluted earnings per share
              
              $
              514,878
              
              $
              694,528
              
              $
              1,142,785
              
              $
              1,542,256Weighted
                  average number of common shares - used to compute basic earnings
                  per share
              
              
              19,892,186
              
              
              19,615,539
              
              
              19,708,428
              
              
              19,315,415Effect
                  of warrants to purchase common stock
              
              
              2,318,630
              
              
              2,452,346
              
              
              2,444,831
              
              
              2,777,433Effect
                  of options to purchase common stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -Weighted
                  average number of shares - used to compute diluted earnings per
                  share
              
              
              22,210,816
              
              
              22,067,885
              
              
              22,153,259
              
              
              22,092,848
  Warrants
        for the purchase of 8,972,625 and 9,439,292 shares of common stock for the
        three-month and nine-month periods ended in July 31, 2008 and 2007,
        respectively, were not included in computing diluted earnings per share because,
        their effects were antidilutive. In addition, options for the purchase of
        1,506,772 shares of common stock for the three and nine months periods ended
        in
        July 31, 2008, and 1,413,090 shares of stock for the three and nine months
        periods ended in July 31, 2007, were not included in computing diluted earnings
        per share because their effects were also antidilutive.
  -15-
 
 **NOTE
        L - CONCENTRATION OF RISKS**
  **Cash
        and cash equivalents**
 
 The
        Company maintains cash deposits in a FDIC insured bank and in a money market
        obligations trust, registered under the US Investment Company Act of 1940,
        as
        amended. The bank deposit balances frequently exceed federally insured limits.
        The money market fund is not insured. No losses have been experienced or
        are
        expected on these accounts.
  **Accounts
        receivable and revenues**
 
 Management
        deems all its accounts receivable to be fully collectible, and, as such,
        does
        not maintain any allowances for uncollectible receivables.
  The
        Company's revenues, and the related receivables, are concentrated in the
        pharmaceutical industry in Puerto Rico, the United States of America and
        Ireland. Although few customers represent a significant source of revenue,
        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 three customers,
        which
        accounted for 10% or more of its revenues in either the three-month and nine
        month periods ended July 31, 2008 or 2007. During the three-month period
        ended
        July 31, 2008 revenues from these customers were 31%, 28% and 0%, or a total
        of
        59%, as compared to the same period last year for 16%, 28% and 22%, or a
        total
        of 66%, respectively. For the nine-month period ended July 31, 2008 revenues
        from these customers were 29%, 27% and 0%, or a total of 56%, as compared
        to the
        same period last year for 8%, 27% and 27%, or a total of 62%, respectively.
        At
        July 31, 2008 amounts due from these customers represented 54% of total accounts
        receivable balance.
  **NOTE
        M - RETIREMENT PLAN**
  Pharma-PR
        has a qualified profit sharing plan in accordance with the provision of Section
        l165(a)(3)(A) of the Puerto Rico Code, for employees who meet certain age
        and
        service period requirements. The Company makes contributions to this plan
        as
        required by the provisions of the plan document. Contributions for the
        three-month periods ended July 31, 2008 and 2007 were $15,340 and $18,760,
        respectively ,
        and
        $45,970 and $47,314 for the nine-month period ended July 31, 2008 and 2007,
        respectively.
  -16-
  **Item
        2. Management's Discussion and Analysis**
 
 The
        following discussion of our results of operations and financial condition
        should
        be read in conjunction with the financial statements and the related notes
        included under Part I Item 1. In addition, reference should be made to our
        audited Consolidated Financial Statements and notes thereto and related
        Management’s Discussion and Analysis appearing in our Annual Report on Form
        10-KSB for the year ended October 31, 2007. 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” below.
 
 **Overview**
 
 We
        are a
        validation and compliance consulting service firm with headquarters in Puerto
        Rico, servicing the Puerto Rico, the United States and Europe markets. The
        validation and compliance consulting service market in those markets consists
        of
        local validation and compliance consulting firms, United States dedicated
        validation and compliance consulting firms and large publicly traded and
        private
        domestic and foreign engineering and consulting firms. We provide a broad
        range
        of compliance 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. Our staff includes
        more
        than 145 experienced engineering and life science professionals, and includes
        former quality assurance managers or directors, and experienced and trained
        professionals with bachelors, masters and doctorate degrees in health sciences
        and engineering.
 
 Our
        revenue is derived from time and materials contracts (representing approximately
        90% of total revenues), where the clients are charged for the time, materials
        and expenses incurred on a particular project, and to a lesser extent
        (approximately 10% of total revenues) from fixed-fee contracts or from “not to
        exceed” contracts, which are generally short-term contracts, in which the value
        of the contract cannot exceed a stated amount. For time and materials contracts,
        our revenue is principally a function of the number of compliance and validation
        professionals 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 could
        sustain a loss on the contract or its profitability might be reduced.
 
 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, Europe and possibly other
        emerging pharmaceutical markets, in order to respond to the international
        validation and compliance demands of our clients. Since our business is
        conducted mainly in Puerto Rico, our business may be affected to the extent
        that
        the Puerto Rico’s current economic problems affect the decision of our customers
        and potential customers to locate in Puerto Rico or to continue or expand
        their
        existing operations.
  -17-
 
 On
        July
        1, 2008 the Company received certification as a "minority-controlled company"
        as
        defined by the National Minority Supplier Development Council and Growth
        Initiative ("NMSDC"). In line with the strategy to penetrate the United States
        market, the certification will allow the Company to participate in corporate
        diversity programs available from various potential customers in the United
        States and Puerto Rico. The certification is subject to renewal on July 1,
        2009.
 
 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 growth strategy and our plans to enter new markets, we have invested
        in
        our infrastructure to support our expansion plans. This investment includes
        facilities, systems and, the strengthening of our executive staff to support
        our
        new laboratory facility, our market expansions in the United States, and
        most
        recently, Europe. In addition, by the end of fiscal year 2008 we will invest
        a
        total of approximately $1.4 million in equipment and improvements for a new
        microbiological testing laboratory (“the Lab”). As of July 31, 2008, we have
        invested approximately $1.3 million and have budgeted the balance for the
        remaining of our fiscal year 2008. Our new Lab facility incorporates the
        latest
        technology and test methodologies meeting pharmacopoeia industry standards
        and
        regulations. We offer microbiological testing and related services to our
        core
        industries already serviced as well as the cosmetic and food industries.
        During
        the quarter ended July 31 2008, as part of the development of the Lab, the
        Lab
        has been subject to audits by potential customers. These audits are part
        of the
        industry vendor certification process standards for quality related
        services.
 
 Recently,
        some of our clients, mostly triggered by worldwide operations consolidation,
        have reduced or discontinued some or all of their Puerto Rico operations.
        Our
        strategy to penetrate the United States market has been successful in gaining
        new customers and revenues, and has also partially offset the Puerto Rico
        market
        decline in revenues in the nine months ended July 31, 2008 by approximately
        $1.8
        million, for a total net revenue decrease in that period of approximately
        $0.8
        million. In order to maintain volume in the Puerto Rico market we are constantly
        ensuring that we are price competitive and have adjusted our pricing and
        gross
        margin structure accordingly. In addition, we have implemented cost containment
        measures, refocused our Puerto Rico operations strategy and reduce its overhead
        costs.
 
 Our
        client base, for which our services are typically rendered, on a
        project-by-project basis, changes regularly. Therefore, in any given year
        a
        small number of customers could represent a significant source of our revenue
        for that year. For the nine-month periods ended July 31, 2008 and 2007, three
        customers accounted for approximately 59% and 55% of revenue, respectively.
        The
        loss of or significant reduction in the scope of work performed for any major
        customer or our inability to replace customers upon completion of contracts
        could adversely affect our revenue and impair our ability to operate
        profitably.
 
 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 that 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.
  -18-
 
 The
        principal components of our costs of services are employee compensation
        (salaries, wages, taxes and benefits) and expenses relating to the performance
        of the services. In order to ensure that our pricing is competitive yet minimize
        the impact in our margins, we deal with increasing labor costs by (i) selecting
        resources according to our cost for specific projects, (ii) negotiate, where
        applicable, rates with the resource, (iii) subcontract labor and, (iv) negotiate
        and pass rate increases to our customers, as applicable. Although this strategy
        has been successful in the past, we cannot give any assurance that we will
        continue to be able to do so.
 
 The
        following table sets forth information as to our revenue for the three-month
        and
        nine-month periods ended July 31, 2008, by geographic regions (dollars in
        thousands).
 
 **Three months**
                **ended July 31, 2008**
              
              **Nine months**
                **ended July 31, 2008****Revenues**
              
              **Percent**
              
              **Revenues**
              
              **Percent****Revenues by Region****Puerto
                  Rico**
              
              $
              2,888
              
              
              68.9
              %
              $
              8,173
              
              
              71.1
              %**United
                  States**
              
              
              1,218
              
              
              29.0
              %
              
              3,209
              
              
              27.9
              %**Ireland**
              
              
              86
              
              
              2.1
              %
              
              112
              
              
              1.0
              %$
              4,192
              
              
              
              
              $
              11,494
  
 On
        July
        2008, Pharma-Bio and Pharma-PR obtained a Grant of Industrial Tax Exemption
        (“the Grant”) from the Puerto Rico Industrial Development Company pursuant to
        the terms and conditions set forth in Act No. 135 of December 2, 1997, as
        amended. The Grant provides relief on various Puerto Rico taxes, including
        income tax, mostly for the Company's new microbiological testing facility
        and
        service activities outside of Puerto Rico. The Grant is effective as of
        September 1, 2007 and covers a ten year period. Activities covered by the
        Grant
        are subject to a reduced income tax rate of 7%. For the nine months ended
        in
        July 31, 2008 the Grant represented savings of approximately $40,000 on income
        taxes mostly related to the Company’s activities rendered from Puerto Rico to
        the US market. In May 28, 2008 a new tax incentive law (“Act No. 73”) was
        enacted in Puerto Rico. The Company is considering whether to convert the
        Grant
        to the provisions of Act No. 73.  If converted and granted, the Company
        might enjoy additional exemptions of various taxes and certain tax
        credits.
 
 **Critical
        Accounting Policies and Estimates**
 
 There
        were no material changes during the nine months ended July 31, 2008 to the
        critical accounting policies reported in our Annual Report on Form 10-KSB
        for
        the fiscal year ended October 31, 2007.
  -19-
  **Results
        of Operations**
  The
        following table sets forth our statements of operations for the three-month
        and
        nine-month periods ended July 31, 2008 and 2007, (dollars in thousands) and
        as a
        percentage of revenue:
  **Three months ended**
                **July 31,**
              
              **Nine months ended**
                **July 31,****2008******
              
              **2007**
              
              **2008**
              
              **2007**Revenues
              
              $
              4,192
              
              
              100.0
              %
              $
              4,540
              
              
              100.0
              %
              $
              11,494
              
              
              100.0
              %
              $
              12,296
              
              
              100.0
              %Cost
                  of services
              
              
              2,548
              
              
              60.8
              %
              
              2,512
              
              
              55.3
              %
              
              7,130
              
              
              62.0
              %
              
              7,108
              
              
              57.8
              %Gross
                  profit
              
              
              1,644
              
              
              39.2
              %
              
              2,028
              
              
              44.7
              %
              
              4,364
              
              
              38.0
              %
              
              5,188
              
              
              42.2
              %Selling,
                  general and administrative costs
              
              
              802
              
              
              19.1
              %
              
              762
              
              
              16.8
              %
              
              2,304
              
              
              20.0
              %
              
              2,236
              
              
              18.2
              %Interest
                  expense
              
              
              46
              
              
              1.1
              %
              
              88
              
              
              1.9
              %
              
              180
              
              
              1.6
              %
              
              302
              
              
              2.5
              %Interest
                  income
              
              
              11
              
              
              -0.3
              %
              
              24
              
              
              -0.5
              %
              
              69
              
              
              -0.6
              %
              
              68
              
              
              -0.6
              %Loss
                  on disposition of property
              
              
              -
              
              
              0.0
              %
              
              -
              
              
              0.0
              %
              
              -
              
              
              0.0
              %
              
              26
              
              
              0.2
              %Income
                  before income taxes
              
              
              807
              
              
              19.3
              %
              
              1,202
              
              
              26.5
              %
              
              1,949
              
              
              17.0
              %
              
              2,692
              
              
              21.9
              %Income
                  tax expense
              
              
              292
              
              
              7.0
              %
              
              508
              
              
              11.2
              %
              
              806
              
              
              7.0
              %
              
              1,150
              
              
              9.4
              %Net
                  income
              
              
              515
              
              
              12.3
              %
              
              694
              
              
              15.3
              %
              
              1,143
              
              
              10.0
              %
              
              1,542
              
              
              12.5
              %
  Revenues .
        Revenues for the quarter ended July 31, 2008 were $4.2 million, a net decrease
        of approximately $0.3 million or 7.7%, when compared to the same quarter
        last
        year. The reduction is mainly attributable to the decrease of approximately
        $0.8
        million in the Puerto Rico market service revenue, partially offset by gains
        in
        the United States market of approximately $0.4 million and $0.1 million
        generated by the Ireland operation.
 
 For
        the
        nine-month period ended July 31, 2008 service revenues were $11.5 million,
        a net
        decrease of approximately $0.8 million or 6.5% from the comparable nine-month
        period last year. The decrease in Puerto Rico market service revenues by
        approximately $2.7 million was partially offset by gains in the United States
        market of approximately $1.8 million and $0.1 million generated by the Ireland
        operation.
 
 Service
        revenue gains in the United States market are attributable to the company’s
        strategy to enter in new markets. This strategy has partially offset the
        service
        revenue loss sustained in the Puerto Rico market. Decreases in the Puerto
        Rico
        market service revenue are mostly due to the closing of, or decrease in,
        operations of some pharmaceutical plants located in Puerto Rico, triggered
        by
        operations consolidation.
 
 Cost
        of Services; gross margin .
        The
        gross margin decreased by 5.5 and 4.2 percent points in the three-month and
        nine-month periods ending July 31,2008, respectively, when compared to the
        same
        periods last year. The net gross margin reduction is mainly attributable
        to our
        strategy to maintain volume in the Puerto Rico market by keeping its pricing
        competitiveness.
 
 Selling,
        General and Administrative Expenses .
        Selling, general and administrative expenses were approximately $802,000
        and
        $2,304,000 for the three-month and nine-month periods ended in July 31, 2008,
        respectively. These expenses represent a net increase of approximately $40,000
        and $68,000 for the three-month and nine-month periods ended in July 31,
        2008,
        respectively, as compared to the same periods last year. The net increase
        in
        expenses is mainly attributable to the new Ireland operation which incurred
        expenses for approximately $59,000 and $191,000 for the three and nine months
        periods ended in July 31, 2008, respectively, which were partially offset
        by
        expense containment measures implemented during the current fiscal year,
        geared
        to offset the Puerto Rico market revenue decline.
  -20-
  Interest
        Expense .
        We have
        been recognizing imputed interest expense incurred in connection with the
        long-term obligations originated pursuant to a plan and agreement of merger
        dated January 25, 2006 for the acquisition of Pharma-PR. This expense decreases
        as annual payments are made. The last installment under the plan and agreement
        of merger is due January 25, 2009.
  Income
        Taxes Expense .
        For the
        current fiscal year we are no longer subject to a 2.5% additional special
        tax
        imposed by the Puerto Rico Act No. 41 of August 1, 2005. Therefore, for fiscal
        year 2008 our statutory tax rate in Puerto Rico has decreased to 39% from
        41.5%
        last year. In addition, with the recently granted tax exemption the Company
        benefited by approximately $40,000 in income tax savings. The decrease on
        income
        taxes expense is attributable to this factor and the decrease of income before
        income tax.
  Net
        Income. Our net
        income for the three-month and nine-month periods ended in July 31, 2008
        were
        approximately $515,000 and $1,143,000, respectively, a decline to last year
        comparable periods for approximately $179,000 and $399,000, respectively,
        or 26%
        for both periods.
 
 For
        the
        three-month period ended in July 31, 2008 earnings per common share basic
        and
        diluted were $0.03 and $0.02, respectively, a decline in each of them of
        $0.01
        to last year same period. For the nine-month period ended in July 31, 2008
        earnings per common share basic and diluted were $0.06 and $0.05, respectively,
        both declined by $0.02 when compared to the same period last year.
 
 Our
        net
        income was affected by the decrease in gross margin, expenses related to
        our new
        Ireland operation, partially offset by cost containment measures in selling,
        general and administrative expenses, favorable variances in interest expense,
        interest income and statutory tax rate.
 
 **Liquidity
        and Capital Resources**
 
 Liquidity
        is a measure of our ability to meet potential cash requirements, including
        planned capital expenditures. For the nine months ended July 31, 2008 we
        have
        generated cash flow from operations of approximately $558,000 and working
        capital of approximately $2.2 million, notwithstanding within the same period
        we
        have invested in a laboratory facility approximately $ 1 million, and have
        made
        a payment of $2.75 million pursuant the 2006 Pharma-PR acquisition agreement.
        Under the agreement, a final payment of $2.75 million is due on January 25,
        2009.
 
 We
        are
        pursuing possible opportunities of expanding our operations beyond Puerto
        Rico,
        and in furtherance of this plan, we have set up facilities in Ireland to
        offer
        our services to companies in the pharmaceutical and related industries in
        Ireland. To the extent that we are able to expand our operations, either
        by
        acquisition or by the establishment of operations in a new locale, we will
        incur
        additional overhead, and there may be a delay between the period we commence
        operations and our generation of net cash flow from operations.
 
 Our
        primary cash needs consist of payment of compensation to our professional
        staff,
        overhead expenses, statutory taxes, and payments pursuant to the agreement
        terms
        for the acquisition of Pharma-PR.
 
 Management
        believes that based on current levels of operations and cash flows from
        operations, the collectability of high quality customer receivables will
        be
        sufficient to fund anticipated expenses and satisfy other possible long-term
        contractual commitments, including our obligations to pay the final installment
        due 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.
  -21-
 
 **Forward
        Looking Statements**
 
 This
        Report on Form 10-QSB 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 or 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.
        Our ability to generate profits may be adversely affected if the market does
        not
        accept the Company's existing and future services. In addition, our ability
        to
        generate profits may be adversely affected by 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. If the Company is
        unable
        to retain existing key management personnel, such inability may have a
        significant negative effect on the Company. Further, other material adverse
        changes affecting our operations or business may have a significant negative
        effect on the Company. 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. The reader is therefore cautioned not to place undue reliance
        on
        forward-looking statements contained herein, which speak solely as of the
        date
        of this Form 10-QSB, 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" contained in our Form 10-KSB for the
        year
        ended October 31, 2007 and in "Management's Discussion and Analysis" in this
        Form 10-QSB and in our other filings with the SEC. We assume no responsibility
        to update any forward-looking statements as a result of new information,
        future
        events, or otherwise.
 
 **Item
        3. 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,
        as
        defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e), were effective as
        of
        the end of the period covered by this quarterly report.
 
 During
        the quarterly 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.
  -22-
  **PART
        II. OTHER INFORMATION**
  **Item
        6. Exhibits**
 
 (a)
        Exhibits:
 
 3.1
              Amendment
                  No. 1 to the Bylaws of the Company (incorporated by reference to
                  Exhibit
                  3.1 of the Company’s Current Report on Form 8-K filed on June 6,
                  2008)31.1
              Certification
                  of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 200231.2
              Certification
                  of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002
 
 32.1
              Certification
                  of the chief executive officer pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 200232.2
              Certification
                  of the chief financial officer pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002
  -23-
  **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  **PHARMA-BIO
                  SERV, INC**./s/
                  Elizabeth PlazaElizabeth
                  Plaza
                Chief
                  Executive Officer
                (Principal
                  Executive Officer)/s/
                  Pedro J. LasantaPedro
                  J. Lasanta
                Chief
                  Financial Officer
                (Principal
                  Financial Officer and Principal Accounting Officer)Dated:
                  September 15, 2008
  -24-