**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 SECURITIESEXCHANGE
                ACT OF 1934




For
      the
      quarterly period ended January 31, 2008





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




For
      the
      transition period from ____________ to ____________





Commission
      File No. 000-50956





PHARMA-BIO
      SERV, INC.


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





Delaware
            20-0653570(State
                of Incorporation)
            (I.R.S.
                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)





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).


oyes
xno


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







**PHARMA-BIO
      SERV, INC.**





**FORM
      10-QSB**





**FOR
      THE QUARTER ENDED JANUARY 31, 2008**




**TABLE
      OF CONTENTS**







PagePART
                I FINANCIAL INFORMATIONItem
                1 – Condensed Consolidated Financial StatementsCondensed
                Consolidated Balance Sheet as of January 31,
              2008
                (unaudited)
            3Condensed
                Consolidated Statements of Income for the three-month
              periods
                ended January 31, 2008 and 2007 (unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the three-month
              periods
                ended January 31, 2008 and 2007 (unaudited)
            5Condensed
                Consolidated Statement of Changes in Stockholders’ Equity
              for
                the three-month period ended January 31, 2008 (unaudited)
            6Notes
                to Condensed Consolidated Financial Statements (unaudited)
            7Item
                2 - Management's Discussion and Analysis of Financial Condition
              and
                Results of Operations
            17Item
                3 - Controls and Procedures
            24PART
                II OTHER INFORMATIONItem
                6 –
                Exhibits
            25SIGNATURES
            26


-2-


**PHARMA-BIO
      SERV, INC.**


**Condensed
      Consolidated Balance Sheet (Unaudited)**


**January
      31, 2008**


**ASSETS**:Current
                  assetsCash
                  and cash equivalents
              
              $
              5,352,601Accounts
                  receivable
              
              
              3,163,195Other
              
              
              221,832Total
                  current assets
              
              
              8,737,628Property
                  and equipment
              
              
              1,166,771Other
                  assets, mainly intangible assets
              
              
              117,010Total
                  assets
              
              $
              10,021,409**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**:Current
                  liabilitiesCurrent
                  portion-obligations under capital leases
              
              $
              48,469Accounts
                  payable and accrued expenses
              
              
              1,404,324Due
                  to affiliate
              
              
              5,324,020Income
                  taxes payable
              
              
              642,796Total
                  current liabilities
              
              
              7,419,609Long-term
                  liabilities
              
              
              116,669Total
                  liabilities
              
              
              7,536,278Stockholders'
                  equity:Preferred
                  Stock, $0.0001 par value; authorized10,000,000
                  shares; none outstanding
              
              
              -Common
                  Stock, $0.0001 par value; authorized 50,000,000 shares;issued
                  and outstanding 19,615,539 shares
              
              
              1,961Additional
                  paid-in capital
              
              
              148,717Retained
                  earnings
              
              
              2,328,987Accumulated
                  other comprehensive income
              
              
              5,466Total
                  stockholders' equity
              
              
              2,485,131Total
                  liabilities and stockholders' equity
              
              $
              10,021,409




See
      notes
      to consolidated financial statements.


-3-





**PHARMA-BIO
      SERV, INC.**


**Condensed
      Consolidated Statements of Income (Unaudited)**


**For
      the Three-Month Periods Ended January 31, 2008 and
      2007**





**Three months ended January 31,****2008**
            
            **2007**REVENUES
            
            $
            3,604,303
            
            $
            3,596,374COST
                OF REVENUES
            
            
            2,241,882
            
            
            2,197,822GROSS
                PROFIT
            
            
            1,362,421
            
            
            1,398,552SELLING,
                GENERAL ANDADMINISTRATIVE
                EXPENSES
            
            
            815,910
            
            
            686,029INCOME
                FROM OPERATIONS
            
            
            546,511
            
            
            712,523OTHER
                INCOME (EXPENSES):Interest
                expense
            
            
            (88,110
            )
            
            (129,246
            )Interest
                income
            
            
            43,415
            
            
            21,956Loss
                on disposition of property and equipment
            
            
            -
            
            
            (19,862
            )(44,695
            )
            
            (127,152
            )INCOME
                BEFORE INCOME TAXES
            
            
            501,816
            
            
            585,371INCOME
                TAXES
            
            
            219,093
            
            
            255,955NET
                INCOME
            
            $
            282,723
            
            $
            329,416BASIC
                EARNINGS PER COMMON SHARE
            
            $
            0.01
            
            $
            0.02DILUTED
                EARNINGS PER COMMON SHARE
            
            $
            0.01
            
            $
            0.01WEIGHTED
                AVERAGE NUMBER OF COMMONSHARES
                OUTSTANDING – BASIC
            
            
            19,615,539
            
            
            18,724,953WEIGHTED
                AVERAGE NUMBER OF COMMONSHARES
                OUTSTANDING – DILUTED
            
            
            22,121,341
            
            
            22,231,227




See
      notes
      to consolidated financial statements.


-4-





**PHARMA-BIO
      SERV, INC.**


**Condensed
      Consolidated Statements of Cash Flows (Unaudited)**


**For
      the Three-Month Periods Ended January 31, 2008 and 2007**





**Three months ended January 31,****2008**
            
            **2007**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            282,723
            
            $
            329,416Adjustments
                to reconcile net income to net cash
              provided
                by operating activities:Loss
                on disposition of property and equipment
            
            
            -
            
            
            19,863Stock-based
                compensation
            
            
            33,313
            
            
            39,022Depreciation
                and amortization
            
            
            50,427
            
            
            54,497Imputed
                interest expense
            
            
            86,255
            
            
            126,611Decrease
                in accounts receivable
            
            
            400,228
            
            
            1,761,246Decrease
                in other assets
            
            
            54,208
            
            
            48,660Increase
                in liabilities
            
            
            107,328
            
            
            288,489NET
                CASH PROVIDED BY OPERATING ACTIVITIES
            
            
            1,014,482
            
            
            2,667,804CASH
                FLOWS FROM INVESTING ACTIVITIES:Acquisition
                of property and equipment
            
            
            (444,042
            )
            
            (10,221
            )NET
                CASH USED IN INVESTING ACTIVITIES
            
            
            (444,042
            )
            
            (10,221
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Payments
                on obligations under capital lease
            
            
            (10,205
            )
            
            (9,426
            )Payments
                to affiliate
            
            
            -
            
            
            (2,500,000
            )NET
                CASH USED IN FINANCING ACTIVITIES
            
            
            (10,205
            )
            
            (2,509,426
            )NET
                INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            560,235
            
            
            148,157CASH
                AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            4,792,366
            
            
            2,275,035CASH
                AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            5,352,601
            
            $
            2,423,192SUPPLEMENTAL
                DISCLOSURES OFCASH
                FLOW INFORMATION:Cash
                paid during the period for:Income
                taxes
            
            $
            -
            
            $
            -Interest
            
            $
            -
            
            $
            503,708SUPPLEMENTARY
                SCHEDULES OF NONCASHINVESTING
                AND FINANCING ACTIVITIES:Accounts
                payable incurred in projects in process
            
            $
            84,306
            
            $
            -Obligation
                under capital lease incurred for the
              acquisition
                of a vehicle
            
            $
            33,695
            
            $
            -Conversion
                of cashless exercise warrants to shares
              of
                common stock
            
            $
            -
            
            $
            130


See
      notes
      to consolidated financial statements.





-5-





**PHARMA-BIO
      SERV, INC.**


**Condensed
      Consolidated Statement of Changes in Stockholders' Equity
      (Unaudited)**


**For
      the Three-Month Period Ended January 31, 2008**





**Additional**
            
            
            
            **Accumulated Other****Common
                Stock**
            
            **Preferred Stock**
            
            **Paid-in**
            
            **Retained**
            
            **Comprehensive****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Capital**
            
            **Earnings**
            
            **Income**
            
            **Total**BALANCE
                AT OCTOBER 31, 2007
            
            
            19,615,539
            
            $
            1,961
            
            
            -
            
            $
            -
            
            $
            115,404
            
            $
            2,046,264
            
            $
            3,554
            
            $
            2,167,183STOCK-BASED
                COMPENSATION
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            33,313
            
            
            -
            
            
            -
            
            
            33,313COMPREHENSIVE
                INCOME:NET
                INCOME
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            282,723
            
            
            -
            
            
            282,723OTHER
                COMPREHENSIVE INCOME:FOREIGN
                CURRENCY TRANSLATION ADJUSTMENT
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,912
            
            
            1,912OTHER
                COMPREHENSIVE INCOME
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,912COMPREHENSIVE
                INCOME
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            284,635BALANCE
                AT JANUARY 31, 2008
            
            
            19,615,539
            
            $
            1,961
            
            
            -
            
            $
            -
            
            $
            148,717
            
            $
            2,328,987
            
            $
            5,466
            
            $
            2,485,131








See
      notes
      to consolidated financial statements.





-6-


**PHARMA-BIO
      SERV, INC.**


**Notes
      To Condensed Consolidated Financial Statements (Unaudited)**


**For
      the Three-Month Periods Ended January 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, and Pharma-Bio Serv Validation &
Compliance Limited (“Pharma-IR”), an Irish corporation. Pharma-Bio, Pharma-PR
      and Pharma-IR are collectively referred to as the “Company.” The Company
      operates in Puerto Rico, the United States and 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-IR
      is a majority owned subsidiary, organized in Ireland in September 2007. During
      the three-month period ended January 31, 2008, this subsidiary was in its
      development stage and incurred organization expenses of approximately of
      $51,500. During 2008, it is management’s intention to change the current
      corporate structure of this majority owned subsidiary. This structural change
      is
      not expected to have a significant effect on the Company’s future operations or
      its financial position.





**SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





The
      unaudited interim financial statements for the three-month periods ended on
      January 31, 2008 and 2007 presented herein have been prepared in accordance
      with
      accounting principles generally accepted in the United States 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 consolidated financial statements include the accounts of the
      Company and all of its wholly owned and majority-owned subsidiaries. All
      intercompany transactions and balances have been eliminated in
      consolidation.





**Use
      of Estimates**




The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the consolidated financial statements and the reported amounts
      of
      revenues and expenses during the reporting period. 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
      (approximately 10% of total revenues), which revenue is recognized similarly,
      except that certain milestones also have to be reached before revenue is
      recognized. If the Company determines that a fixed-fee or “not to exceed”
contract will result in a loss, the Company recognizes the estimated loss in
      the
      period in which such determination is made.




**Cash
      Equivalents**




For
      purposes of the consolidated statements of cash flows, cash equivalents include
      investments in a money market obligations trust that is registered under the
      U.S. Investment Company Act of 1940 and liquid investments with original
      maturities of three months or less.





**Accounts
      Receivable**




Accounts
      receivable are recorded at their estimated realizable value. Accounts are deemed
      past due when payment has not been received within the stated time period.
      The
      Company's policy is to review individual past due amounts periodically and
      write
      off amounts for which all collection efforts are deemed to have been exhausted.
      Due to the nature of the Company’s customers, bad debts are accounted for using
      the direct write-off method whereby an expense is recognized only when a
      specific account is determined to be uncollectible. The effect of using this
      method approximates that of the allowance method.





**Income
      Taxes**




The
      Company follows the provisions of Statement of Financial Accounting Standards
      Board No. 109, "Accounting for Income Taxes," which requires an asset and
      liability approach method of accounting for income taxes. This method measures
      deferred income taxes by applying enacted statutory rates in effect at the
      balance sheet date to the differences between the tax basis of assets and
      liabilities and their reported amounts on the financial statements. The
      resulting deferred tax assets or liabilities are adjusted to reflect changes
      in
      tax laws as they occur. A valuation allowance is provided when it is more likely
      than not that a deferred tax asset will not be realized.





**Property
      and equipment**




Owned
      property and equipment, and leasehold improvements are stated at cost. Equipment
      and vehicles under capital leases are stated at the lower of fair market value
      or net present value of the minimum lease payments at the inception of the
      leases.




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




The
      Company evaluates for impairment its long-lived assets to be held and used,
      and
      long-lived assets to be disposed of, whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be
      recoverable. **** Based
      on
      management estimate, no impairment of the operating properties is
      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 by dividing net income by the
      weighted average number of shares of common stock outstanding. Diluted income
      per share includes the dilution of common stock equivalents.




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





**Reclassifications**





Certain
      reclassifications have been made to the January 31, 2007 interim condensed
      consolidated financial statements to conform them to the January 31, 2008
      interim condensed consolidated financial statements presentation. Such
      reclassifications do not have an effect on net earnings 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 it will have
      an
      impact on the consolidated financial statements when effective, but 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.





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 will have 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
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. This Interpretation is effective for fiscal
      years beginning after December 15, 2006. Earlier application of the provisions
      of this Interpretation is encouraged if the enterprise has not yet issued
      financial statements, including interim financial statements, in the period
      this
      Interpretation is adopted. Management does not expect that the application
      of
      this standard will have any effect on the Company's results of operations or
      its
      financial condition.





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 January 31, 2008 consists
        of:


Useful
                life
              (years)
            
            
            AmountVehicles
                under capital leases
            
            
            5
            
            $
            255,129Leasehold
                improvements
            
            
            5
            
            
            19,279Computers
            
            
            3
            
            
            198,430Equipment
            
            
            3-5
            
            
            119,672Furniture
                and fixtures
            
            
            10
            
            
            68,509Projects
                in progress
            
            
            -
            
            
            861,612Total
            
            
            
            
            
            1,522,631Less:
                Accumulated depreciation and amortization
            
            
            
            
            
            (355,860
            )Property
                and equipment, net
            
            
            
            
            $
            1,166,771




**NOTE
      D - OTHER ASSETS**




At
      January 31, 2008, non-current other assets include the following:




Intangible
                assets:Covenant
                not to compete, net of accumulated amortization of $43,333
            
            $
            56,667Customer-related
                intangibles, net of accumulated amortization of $104,167
            
            
            45,833Other
                assets
            
            
            14,510$
            117,010





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 January
      31, 2008 and 2007 amounted to $17,500.


-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. During the three-months period
      ended January 31, 2008 the line-of-credit was not used.





**NOTE
      F - INCOME TAXES**




As
      substantially all operations are being carried by the Puerto Rico subsidiary,
      the Company's taxable income is subject to the Puerto Rico income to a maximum
      of a 39% rate provided by the 1994 Puerto Rico Internal Revenue Code, as
      amended. However, for the years ended October 31, 2007 and 2006, the Company
      was
      subject to an additional 2.5% special tax.




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
      January 31, 2008 the Company has not recognized deferred income taxes on
      $2,433,762 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 $243,376
      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
      statutory tax rate in Puerto Rico were as follows:





Three
                months ended
              January
                31,2008
            
            2007Theoretical
                income tax expense by application of statutory rates to the book
                pre-tax
                income
            
            $
            215,779
            
            $
            242,929Permanent
                differences, net
            
            
            3,314
            
            
            13,026Income
                tax expense
            
            $
            219,093
            
            $
            255,955





-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,
      including imputed interest determined in accordance with Section 1274 of the
      Internal Revenue Code.





The
      January 31, 2008 outstanding installments are:





Installment
                paid on February 7, 2008
            
            $
            2,750,000Installment
                due January 25, 2009
            
            
            2,750,000Total
                installments due within one year
            
            
            5,500,000Less:
                imputed interest
            
            
            (175,980
            )Present
                value of minimum payments, due within one year
            
            $
            5,324,020




**NOTE
      H – LEASE COMMITMENTS**




**Capitalized
      lease obligations** - As of
      January 31, 2008, the Company leases vehicles under non-cancelable capital
      leases with a cost of $255,129 (accumulated depreciation of $122,219).
      Amortization expense for these assets amounted to $11,071in each of the
      three-month periods ended January 31, 2008 and 2007. 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 January
      31,
      2008:




**Twelve
                months ending January 31,**
            
            
            **Amount**2009
            
            $
            56,2942010
            
            
            74,9112011
            
            
            32,6162012
            
            
            8,0542013
            
            
            8,055Total
                future minimum lease payments
            
            
            179,930Less:
                Amount of imputed interest
            
            
            (
                14,792
            )Present
                value of future minimum lease payments
            
            
            165,138Current
                portion of obligation under capital leases
            
            
            (48,469
            )Long-term
                portion
            
            $
            116,669





**Operating
      facilities** - The
      Company conducts its administrative operations in office facilities which are
      leased under three different rental agreements.





In
      February 2007, the Company entered into a lease agreement with an affiliate
      of
      the chief executive officer for the new headquarters and laboratory testing
      facilities in Dorado, Puerto Rico. Pursuant to the lease agreement, monthly
      payments commenced at $18,750 and will increase by 5% annually. 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. The agreement is for a five year term and provides for a one
      five
      year-renewal option. 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.


-13-


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 January 31, 2008 are:




**Amount**2009
            
            $
            249,1502010
            
            
            261,5632011
            
            
            267,3662012
            
            
            273,489Total
                minimum lease payments
            
            $
            1,051,568





Rent
      expense during the three-month periods ended January 31, 2008 and 2007 was
      $86,348 and $18,150, 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, and consultants.
      The 2005 plan is to be administered by a committee of independent directors.
      In
      the absence of a committee, the plan is administered by the board of directors.
      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 Staff Accounting Bulletin No. 107 (“SAB
      107”). We recognize stock-based compensation based on the fair value of the
      awards. Stock-based compensation cost is measured at the grant date based on
      the
      fair value of the award and is recognized as expense over the requisite service
      period, which generally represents the vesting period, and includes an estimate
      of awards that will be forfeited.





The
      following table presents the stock-based compensation included in the Company’s
      consolidated statement of income and the effect on earnings per share:




**Three-months
                ended****January
                31,****2008**
            
            **2007**Stock-based
                compensation expense:Cost
                of services
            
            $
            15,526
            
            $
            31,906Selling,
                general and administrative
            
            
            17,787
            
            
            7,116Stock-based
                compensation before tax
            
            
            33,313
            
            
            39,022Income
                tax benefit
            
            
            —
            
            
            —Net
                stock-based compensation expense
            
            $
            33,313
            
            $
            39,022




During
      the three-month period ended in January 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 390,000 shares
      of common stock.


-14-


**NOTE
      J – WARRANTS**





At
      January 31, 2008 the Company had outstanding warrants to purchase 12,188,892
      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.





**NOTE
      K – EARNINGS PER SHARE**





The
      following data show the amounts used in the calculations of basic and diluted
      earnings per share for the three-month periods ended in January 31, 2008 and
      2007.




Three
                months ended
              January
                31,2008
            
            2007Net
                income available to common equity holders –
                used to
                compute basic and diluted earnings per share
            
            $
            280,723
            
            $
            329,416Weighted
                average number of common shares – used to compute basic earnings per
                share
            
            
            19,615,539
            
            
            18,724,953Effect
                of warrants to purchase common stock
            
            
            2,500,936
            
            
            3,448,533Effect
                of options to purchase common stock
            
            
            4,866
            
            
            57,741Weighted
                average number of shares – used to compute dilute earnings per
                share
            
            
            22,121,341
            
            
            22,231,227





Warrants
      and options for 9,687,956 and 1,481,906, respectively, for the purchase of
      shares of common stock for the three-month period ended in January 31, 2008
      and
      warrants for 7,999,400 for the purchase of shares of common stock for the
      three-month period ended in January 31, 2007 were not included in computing
      diluted earnings per share because their effects were antidilutive.





**NOTE
      L - CONCENTRATION OF RISKS**




**Cash
      and cash equivalents**





The
      Company maintains cash deposits in a FDIC insured bank and in a money market
      obligations trust, registered under the US Investment Company Act of 1940,
      as
      amended. The bank deposit balances frequently exceed federally insured limits.
      The money market fund is not insured. No losses have been experienced on these
      accounts.




**Accounts
      receivable and revenues**





Management
      deems all its accounts receivables to be fully collectible, and, as such, does
      not maintain any allowances for uncollectible receivables.




The
      Company's revenues, and the related receivables, are concentrated in the
      pharmaceutical industry in Puerto Rico and the United States of America.
      Although few customers represent a significant source of revenue, our functions
      are not a continuous process, accordingly, the client base for which our
      services are typically rendered, on a project-by-project basis, changes
      regularly.


-15-





The
      Company provides a substantial portion of its services to four customers, which
      account 10% or more of our revenues in either the three months ended January
      31,
      2008 or 2007. During one or both of the three-month periods ended January 31,
      2008 and 2007, revenues over 10% for services provided to these customers
      represent 66% and 62% of total revenues, respectively. Individually, these
      customers represent total revenues of 27%, 25%, 14%, and 0% in the three-month
      period ended January 31, 2008; and 21%, 0%, 6%, and 35% in the three-month
      period ended January 31, 2007, respectively. At January 31, 2008 amounts due
      from these customers represent 59% 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 January 31, 2008 and 2007 were $15,841 and $13,601,
      respectively.


-16-




**Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations**





The
      following discussion of our results of operations and financial condition should
      be read in conjunction with the financial statements and the related notes.
      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."





**Overview**





We
      are a
      validation and compliance consulting service firm based in Puerto Rico,
      servicing the Puerto Rico, the United States and other markets. The validation
      and compliance consulting service market in Puerto Rico and the United States
      consists of local validation and compliance consulting firms, United States
      dedicated validation and compliance consulting firms and large publicly traded
      and private domestic and foreign engineering and consulting firms. We provide
      a
      broad range of compliance and validation consulting services. We market our
      services to pharmaceutical, chemical, biotechnology and medical devices, and
      allied products companies in Puerto Rico, the United States and Europe. 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 to us cannot exceed a stated amount. For time and materials
      contracts, our revenue is principally a function of the number of compliance
      and
      validation professional employees and the number of hours billed per
      professional. To the extent that our revenue is based on fixed-fee or “not to
      exceed” contracts, our ability to operate profitably is dependent upon our
      ability to estimate accurately the costs that we will incur on a project and
      to
      the management and monitoring of the project progress. If we underestimate
      our
      costs on any contract, we would sustain a loss on the contract.





We
      believe the most significant factors to achieving future business growth are
      our
      ability to (a) continue to provide quality value-added validation and compliance
      services to our clients; (b) recruit and retain highly educated and experienced
      validation and compliance professionals; (c) further expand our products and
      services to address the expanding compliance needs of the clients; and (d)
      expand our market presence, into the United States, 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, as well as the continued presence in Puerto Rico of an
      office of the federal Food and Drug Administration and the continuation of
      tax
      benefits available to our customers under the Puerto Rico Internal Revenue
      Code.
      Recently, some of our major clients have reduced or discontinued some or all
      of
      their Puerto Rico operations; this may affect our revenue and net income.





We
      are
      actively pursuing new markets as part of our growth strategy. We have a
      well-established and consistent relationship with the major pharmaceutical,
      biotechnology, medical device and chemical manufacturing companies in Puerto
      Rico and United States which provides us access to affiliated companies in
      other
      markets. We see opportunities in markets that could yield profitable margins
      using our professional consulting force and also provide new services such
      as
      those performed by our new microbiological testing laboratory
      facility.


-17-


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, we expect to invest approximately $1 million
      in
      equipment and improvements for a new microbiological testing lab which is
      scheduled to open fiscal 2008. As of January 31, 2008 we have invested
      approximately $820,000 and have budgeted the balance for the remaining of our
      fiscal year 2008. Our new microbiological testing facility will incorporate
      the
      latest technology and test methodologies meeting pharmacopeia industry standards
      and regulations. We will offer microbiological testing and related services
      to
      our core industries already serviced as well as the cosmetic and food
      industries.





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. For the
      three-month periods ended January 31, 2008 and 2007, three customers accounted
      for approximately 66% and 62% of revenue, respectively. The loss of or
      significant reduction in the scope of work performed for any major customer
      could impair our ability to operate profitably. Although past performance is
      no
      indication of future performance, in the past, in the ordinary course of
      business, the Company has been successful substituting customer losses by adding
      new customers or projects to its base.





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





The
      principal components of our costs of revenue are employee compensation
      (salaries, wages, taxes and benefits) and expenses relating to the performance
      of the services. In order to maintain our pricing competiveness and 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.





During
      the three months ended January 31, 2008, substantially all of our revenue was
      generated in Puerto Rico. The following table sets forth information as to
      our
      revenue for the three months ended January 31, 2008, by geographic regions
      (dollars in thousands).


**Region**
              
              **Revenue**
              
              **Percent**Puerto
                  Rico
              
              $
              2,724
              
              
              75.6
              %United
                  States
              
              
              880
              
              
              24.4
              %Total
              
              $
              3,604





On
      August
      2007 Pharma-PR filed in Puerto Rico an application for tax exemption under
      Act
      135 of December 2, 1997. The exemption, if granted, may provide relief on
      various Puerto Rico taxes, including income tax, mostly for our new
      microbiological testing facility. Recently, the application obtained the
      favorable endorsement from the Puerto Rico Industrial Development Company,
      but
      still needs final approval from the PR Department of Treasury and the Puerto
      Rico Department of State.


-18-


**Critical
      Accounting Policies and Estimates**





The
      discussion and analysis of our financial condition and results of operations
      are
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with generally accepted accounting principles (“GAAP”) in the United
      States. We believe the following are the critical accounting policies that
      impact the financial statements, some of which are based on management’s best
      estimates available at the time of preparation. Actual experience may differ
      from these estimates.





Consolidation **-** The
      accompanying consolidated financial statements include the accounts of the
      Company and all of its wholly owned and majority-owned subsidiaries. All
      intercompany transactions and balances have been eliminated in
      consolidation.





Use
      of
      Estimates - The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the consolidated financial statements and the reported amounts
      of
      revenues and expenses during the reporting period. 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.




Revenue
      Recognition -
      Revenue is primarily derived from: (1) time and materials contracts
      (representing approximately 90% of total revenues), which is recognized by
      applying the proportional performance model, whereby revenue is recognized
      as
      performance occurs, and (2) short-term fixed-fee contracts or "not to exceed"
      contracts (approximately 10% of total revenues), which revenue is recognized
      similarly, except that certain milestones also have to be reached before revenue
      is recognized. If the Company determines that a fixed-fee or “not to exceed”
contract will result in a loss, the Company recognizes the estimated loss in
      the
      period in which such determination is made.




Cash
      Equivalents - For
      purposes of the consolidated statements of cash flows, cash equivalents include
      investments in a money market obligations trust that is registered under the
      U.S. Investment Company Act of 1940 and liquid investments with original
      maturities of three months or less.





Accounts
      Receivable -
      Accounts receivable are recorded at their estimated realizable value. Accounts
      are deemed past due when payment has not been received within the stated time
      period. The Company's policy is to review individual past due amounts
      periodically and write off amounts for which all collection efforts are deemed
      to have been exhausted. Due to the nature of the Company’s customers, bad debts
      are accounted for using the direct write-off method whereby an expense is
      recognized only when a specific account is determined to be uncollectible.
      The
      effect of using this method approximates that of the allowance
      method.





Income
      Taxes - The
      Company follows the provisions of Statement of Financial Accounting Standards
      Board No. 109, "Accounting for Income Taxes," which requires an asset and
      liability approach method of accounting for income taxes. This method measures
      deferred income taxes by applying enacted statutory rates in effect at the
      balance sheet date to the differences between the tax basis of assets and
      liabilities and their reported amounts on the financial statements. The
      resulting deferred tax assets or liabilities are adjusted to reflect changes
      in
      tax laws as they occur. A valuation allowance is provided when it is more likely
      than not that a deferred tax asset will not be realized.





Property
      and equipment - Owned
      property and equipment, and leasehold improvements are stated at cost. Equipment
      and vehicles under capital leases are stated at the lower of fair market value
      or net present value of the minimum lease payments at the inception of the
      leases.


-19-


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





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





Intangible
      assets -
      Definite-lived intangible assets, such as customer lists and covenants not
      to
      compete, are amortized on a straight-line basis over their estimated useful
      lives. The Company continually evaluates the reasonableness of the useful lives
      of these assets.





Stock-based
      Compensation -
      Effective November 1, 2006, the Company adopted the provisions of SFAS
      No. 123R, “Share-Based Payment” (“SFAS 123R”), and Staff Accounting
      Bulletin No. 107 (“SAB 107”) using the modified prospective method, which
      results in the provisions of SFAS 123R being applied to the consolidated
      financial statements on a prospective basis. Under the modified prospective
      recognition method, restatement of consolidated income from prior periods is
      not
      required, and accordingly, the Company has not provided such restatements.
      Under
      the modified prospective provisions of SFAS 123R, compensation expense is
      recorded for the unvested portion of previously granted awards that were
      outstanding on November 1, 2006 and all subsequent awards. SFAS 123R
      requires that all stock-based compensation expense be recognized in the
      consolidated financial statements based on the fair value of the awards.
      Stock-based compensation cost is measured at the grant date based on the fair
      value of the award and is recognized as expense over the requisite service
      period, which generally represents the vesting period, and includes an estimate
      of awards that will be forfeited. The Company calculates the fair value of
      stock
      options using the Black-Scholes option-pricing model at grant date. SFAS 123R
      also amends SFAS No. 95, “Statement of Cash Flows”, to require that excess
      tax benefits related to stock-based compensation be reflected as cash flows
      from
      financing activities rather than cash flows from operating activities. The
      Company does not recognize such cash flow from financing activities since there
      has been no tax benefit related to the stock-based compensation.





Income
      Per Share of Common Stock - Basic
      income per share of common stock is calculated by dividing net income by the
      weighted average number of shares of common stock outstanding. Diluted income
      per share includes the dilution of common stock equivalents.





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





Reclassifications **-** Certain
      reclassifications have been made to the January 31, 2007 interim consolidated
      financial statements to conform them to the January 31, 2008 interim
      consolidated financial statements presentation. Such reclassifications do not
      have an effect on net earnings as previously reported.


-20-


**New
      Accounting Pronouncements**





In
      December 2007, the Financial Accounting Standards Board (FASB) issued SFAS
      No. 141R, *Business
      Combinations (* “SFAS
      141R”). SFAS 141R requires: the assets acquired and liabilities assumed to be
      measured at fair value as of the acquisition date; liabilities related to
      contingent consideration to be remeasured at fair value at each subsequent
      reporting period; and acquisition-related costs to be expensed as these are
      incurred. SFAS 141R also requires additional disclosures of information
      surrounding a business combination. The provisions of SFAS 141R are effective
      for fiscal years beginning on or after December 15, 2008 and apply to
      business combinations that are completed on or after the date of adoption.
      The
      Company has not yet adopted this pronouncement, but expects that it will have
      an
      impact on the consolidated financial statements when effective, but 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.





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.





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.





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 will have no significant effect on the
      Company’s consolidated financial statements.


-21-


In
      June
      2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in
      Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). This
      Interpretation clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise’s financial statements in accordance with FASB
      Statement No. 109, “Accounting for Income Taxes” *.* FIN 48
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. This Interpretation also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. This Interpretation is effective for fiscal
      years beginning after December 15, 2006. Earlier application of the provisions
      of this Interpretation is encouraged if the enterprise has not yet issued
      financial statements, including interim financial statements, in the period
      this
      Interpretation is adopted. Management does not expect that the application
      of
      this standard will have any effect on the Company's results of operations or
      its
      financial condition.





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.





**Results
      of Operations**




The
      following table sets forth our statements of operations for the three-month
      periods ended January 31, 2008 and 2007, (dollars in thousands) and as a
      percentage of revenue:




Three
                months ended January 31,2008
            
            2007Revenue
            
            $
            3,604
            
            
            100.0
            %
            $
            3,596
            
            
            100.0
            %Cost
                of revenue
            
            
            2,242
            
            
            62.2
            %
            
            2,198
            
            
            61.1
            %Gross
                profit
            
            
            1,362
            
            
            37.8
            %
            
            1,398
            
            
            38.9
            %Selling,
                general and administrative costs
            
            
            816
            
            
            22.7
            %
            
            686
            
            
            19.1
            %Interest
                expense
            
            
            88
            
            
            2.4
            %
            
            129
            
            
            3.6
            %Interest
                income
            
            
            44
            
            
            1.2
            %
            
            22
            
            
            0.6
            %Loss
                on disposition of property
            
            
            -
            
            
            0.0
            %
            
            20
            
            
            0.6
            %Income
                before income taxes
            
            
            502
            
            
            13.9
            %
            
            585
            
            
            16.2
            %Income
                tax expense
            
            
            219
            
            
            6.1
            %
            
            256
            
            
            7.1
            %Net
                income
            
            
            283
            
            
            7.8
            %
            
            329
            
            
            9.1
            %





Revenues .
      Revenues for the three-month periods ended January 31, 2008 and 2007 were $3.6
      million each. For the three-month period ended January 31, 2008, we have been
      successful in penetrating the US market. The increase in revenue in the US
      market has offset the decrease in revenue from the Puerto Rico market volume
      by
      approximately $0.8 million.





Cost
      of revenues; gross margin .
      Our
      gross margin decreased from 38.9% to 37.8% during the three-month period ended
      January 31, 2008 as compared to the same period last year. The decrease of
      $36,000 or 1.1 percentage points is mainly attributable to the Company’s
      strategy to maintain volume in the Puerto Rico market by keeping its pricing
      competitiveness.





Selling,
      General and Administrative Expenses .
      Total
      expenses were approximately $816,000 for the first quarter of 2008, an increase
      of approximately $130,000, or 19% over the same period last year. This increase
      resulted mainly from the increase in the monthly lease payments for our new
      main
      headquarters facility, development expenses for our new microbiology laboratory,
      and start-up expenses incurred for our Ireland operation.


-22-





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. The decrease on income taxes expense is attributable to this factor
      and the decrease of income before income tax.




Net
      Income . As a
      result of the decrease in gross margin, and the increase in selling, general
      and
      administrative expenses, which were offset by the favorable variances in
      interest expense, interest income and statutory tax rate, our net income for
      the
      three-month period ended January 31, 2008 decreased to approximately $283,000,
      or $0.01 per share (basic) and $0.01 per share (diluted), a decline of
      approximately $46,000, or 14%, from net income of $329,000, or $0.02 per share
      (basic) and $0.01 per share (diluted), for the three-month period ended January
      31, 2007.





**Liquidity
      and Capital Resources**





Liquidity
      is a measure of our ability to meet potential cash requirements, including
      planned capital expenditures. For the quarter ended January 31, 2008, we have
      generated approximately $1 million from operations and working capital of
      approximately $1.3 million, notwithstanding our current liability of $5.3
      million due to our chief executive officer arising from our acquisition of
      Pharma-PR in January 2006. These obligations represent the present value of
      a
      payment of $2,750,000, which was made in February 2008, and a final payment
      of
      $2,750,000, that 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 cash flow from operations. Present cash outlays
      for our Ireland operation have not been significant.





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 anticipated growth
      and
      cash flows from operations, the collectability of high quality customer
      receivables will be sufficient to fund anticipated expenses and satisfy other
      possible long-term contractual commitments, including our obligations to pay
      the
      installments 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.


-23-





**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 and to replace customers upon the completion of contracts, and
      may
      encounter competitive, technological, financial and business challenges making
      it more difficult than expected to continue to develop and market its services;
      the market may not accept the Company's existing and future services; the
      Company may be unable to retain existing key management personnel; and there
      may
      be other material adverse changes in the Company's operations or business.
      Further, our business will be affected to the extent that pharmaceutical
      companies reduce the scope of, or terminate their operations in Puerto Rico.
      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 the Company to alter its marketing, or other budgets, which
      may
      in turn affect the Company's 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 of Financial Condition and Results of Operations"
      contained in our Form 10-KSB for the year ended October 31, 2007 and in
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations" 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 are
      effective in alerting them to material information that is required to be
      included in the reports that we file or submit under the Securities Exchange
      Act
      of 1934 and that information required to be disclosed in the reports that we
      file or submit under the Securities Exchange Act of 1934 is accumulated and
      communicated to our management, including our chief executive officer and chief
      financial officer, to allow timely decisions regarding required
      disclosure.





During
      the 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.


-24-





**PART
      II. OTHER INFORMATION**





**Item
      6. Exhibits**





(a)
      Exhibits:





31.1
            Certification
                of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002





31.2
            Certification
                of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002





32.1
            Certification
                of the chief executive officer and chief financial officer pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of
                2002




-25-




**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/s/
                Pedro J. LasantaPedro
                J. Lasanta
              Chief
                Financial OfficerDated:
                March 17, 2008


-26-