##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


ANNUAL REPORT


PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2004


Commission file number: 000-51029





PRA INTERNATIONAL


(Exact name of Registrant as Specified in Its Charter)


|                                                   |  |                                         
|-------------------------------------------------- |  | ----------------------------------------
|Delaware                                           |  | 54-2040171                              
|(State or Other Jurisdiction of
    Incorporation) |  | (I.R.S. Employer
    Identification No.)

12120 Sunset Hills Road


Suite 600


Reston, Virginia 20190


(Address of principal executive offices)


(703) 464-6300


(Registrants telephone number, including area code)


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $0.01 par value per share





þ o


o


o þ




Documents Incorporated by Reference












---










PRA INTERNATIONAL


FORM 10-K ANNUAL REPORT


FOR THE YEAR ENDED DECEMBER 31, 2004


TABLE OF CONTENTS


|             |  |                                                                                           |  |      |    |  |  | 
|------------ |  | ----------------------------------------------------------------------------------------- |  | ---- | -- |  |  | 
|             |  |                                                                                           |  | Page |   
|             |  |                                                                                           |  |      |   
|Part I      
|Item 1.      |  | Business                                                                                  |  |      | 3  | 
|Item 2.      |  | Description of Properties                                                                 |  |      | 18 | 
|Item 3.      |  | Legal Proceedings                                                                         |  |      | 18 | 
|Item 4.      |  | Submission of Matters to a Vote of Security
    Holders                                   |  |      | 19 | 
|Part II     
|Item 5.      |  | Market for Registrants Common Equity
    and Related Stockholder Matters                 |  |      | 19 | 
|Item 6.      |  | Selected Consolidated Financial Data                                                      |  |      | 21 | 
|Item 7.      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |  |      | 23 | 
|Item 7A.     |  | Quantitative and Qualitative Disclosures
    About Market Risk                            |  |      | 42 | 
|Item 8.      |  | Index to Consolidated Financial
    Statements                                            |  |      | 44 | 
|Item 9.      |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure  |  |      | 45 | 
|Item 9A.     |  | Controls and Procedures                                                                   |  |      | 45 | 
|Part III    
|Item 10.     |  | Directors and Executive Officers of the
    Registrant                                    |  |      | 46 | 
|Item 11.     |  | Executive Compensation                                                                    |  |      | 46 | 
|Item 12.     |  | Security Ownership of Certain Beneficial
    Owners and Management                        |  |      | 46 | 
|Item 13.     |  | Certain Relationships and Related
    Transactions                                        |  |      | 46 | 
|Item 14.     |  | Principal Accountant Fees and Services                                                    |  |      | 46 | 
|Part IV     
|Item 15.     |  | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K                      |  |      | 47 | 
|EX-4.4      
|EX-21.1     
|EX-23.1     
|EX-31.1     
|EX-31.2     
|Exhibit 32.1



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS










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##### Table of Contents






PART I







|        |         
|------- | --------
|ITEM 1. | BUSINESS

Overview










| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | creating drug development and regulatory strategy plans;                       
|
| |  | executing Phase I clinical trials;                                             
|
| |  | performing Phase II through IV multi-center,
    international clinical trials;
|
| |  | developing and analyzing integrated global clinical databases;                 
|
| |  | preparing and submitting regulatory filings around the
    world; and          
|
| |  | managing long-term drug safety programs.                                       



CRO Industry




| |         
| | --------
| | Overview



3



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##### Table of Contents









| |                             
| | ----------------------------
| | Global Drug Approval Process



U.S. Approval Process.


EU Approval Process.


4



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##### Table of Contents









Japan Approval Process.




| |                       
| | ----------------------
| | Drug Development Cycle





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Phase I. Phase I trials are conducted in
    healthy individuals and usually involve 20 to 80 subjects and
    typically range from six to 12 months. These trials are
    designed to establish the basic safety, dose tolerance, and
    metabolism of the clinical product candidate. If the trial
    establishes basic safety and metabolism of the clinical product
    candidate, Phase II trials begin.                                                                    
|
| |  | Phase II. Phase II trials are conducted in
    patients who have the disorder a molecule is designed to treat,
    typically test 100 to 300 patients, and last on average for
    12 to 18 months. Phase II trials are typically
    designed to identify possible adverse effects and safety risks,
    to determine the efficacy of the clinical product candidate, and
    to determine dose tolerance. If the molecule appears safe and
    effective, Phase III trials begin.
|
| |  | Phase III. Phase III trials involve
    significantly larger and more diverse populations than
    Phase I and II trials and are conducted at multiple sites.
    On average, this phase lasts from one to three years. Depending
    on the size and complexity, Phase III CRO contracts can
    exceed $10 million in some cases. During this phase, the
    drugs safety and effectiveness are further examined and
    evaluated.                                             



5



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Post-Approval/ Phase IV. During the course of the
    review process, various regulatory authorities may approve a
    drug for marketing and sale, provided that additional clinical
    trials be conducted. Usually referred to as post-approval or
    Phase IV trials, these trials may either be for submission
    of additional data to regulatory authorities or for
    non-registration purposes, such as additional marketing
    information. These trials are intended to monitor the
    drugs long-term risks and benefits, to analyze different
    dosage levels, to evaluate different safety and efficacy
    parameters in target populations, or to substantiate marketing
    claims. Phase IV trials typically enroll thousands of
    patients and last from six to 24 months.



| |                    
| | -------------------
| | CRO Industry Trends



Globalization of Drug Development.


Increased Number of Products Entering Development.


Biotechnology Industry Growth.




Increased Regulatory Scrutiny.


6



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Need for Quick, Efficient, and Cost-Effective Drug
Development.


Our Competitive Strengths


Global Leadership Position.


Therapeutic Expertise and Scientific Depth.


Attractive Customer Base.


7



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##### Table of Contents





Proven and Incentivized Management Team and Workforce.




Our Strategy




Continue to Leverage and Build Our Expertise in Key
Therapeutic Areas.


Expand the Breadth and Depth of Our Service Offering.


Leverage Our Infrastructure to Improve Operational
Efficiencies.


8



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Augment Our Geographic Reach in Latin America and Asia.


Continue to Pursue a Disciplined Acquisition Strategy.


Description of Service Offerings






| |                                    
| | -----------------------------------
| | Clinical Trials Management Services





| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | clinical program review and consultation;                                  
|
| |  | protocol and case report form, or CRF, design;                             
|
| |  | feasibility studies for investigator interest and patient
    availability;
|
| |  | project management;                                                        
|
| |  | investigator site selection and qualification;                             

9



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| |   |                                                      
| | - | -----------------------------------------------------
| |  | investigational site support and clinical monitoring;
|
| |  | data management;                                     
|
| |  | analysis and reporting;                              
|
| |  | investigator handbook and meetings;                  
|
| |  | medical and scientific publications; and             
|
| |  | regulatory filings.                                  





|                              |  |                                                                                                                                                                                                                
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Therapeutic Areas:            |  | Specific Areas of Expertise:                                                                                                                                                                                   
|                              |  |                                                                                                                                                                                                                
|Analgesic                     |  | Acute and chronic pain                                                                                                                                                                                         
|Cardiovascular disease        |  | Hypertension, angina pectoris, stroke, peripheral arterial
    disease                                                                                                                                         
|Central nervous system        |  | Alzheimers and other dementias, movement disorders,
    schizophrenia, depression, epilepsy, chronic pain, anxiety,
    obsessive-compulsive disorders, panic disorders, insomnia,
    multiple sclerosis     
|Critical care                 |  | ARDS (acute respiratory distress syndrome)                                                                                                                                                                     
|Dermatology                   |  | Wound healing, acne, hair loss, psoriasis                                                                                                                                                                      
|Gastronenterology             |  | Duodenal ulcer, gastric ulcer, gastro-esophogeal reflux disease,
    H.pylori, nonsteroidal anti-inflammatory drug-induced ulcers,
    inflammatory bowel disease, irritable bowel disease,
    Crohns disease
|Genitourinary                 |  | Incontinence, sexual dysfunction                                                                                                                                                                               
|HIV/AIDS                      |  | Primary disease and treatment/prophylaxis of opportunistic
    infections                                                                                                                                      
|Infectious disease            |  | Pneumonia, sinusitis, chronic bronchitis, childhood and adult
    vaccines                                                                                                                                     
|Metabolic/Endocrine disease   |  | Diabetes, growth hormone                                                                                                                                                                                       
|Oncology                      |  | Pancreatic, colorectal, breast, renal cell, lung, other cancers                                                                                                                                                
|Respiratory/Allergy/Pulmonary |  | Asthma, allergic rhinitis                                                                                                                                                                                      
|Rheumatology                  |  | Rheumatoid arthritis, osteoarthritis, lupus                                                                                                                                                                    
|Urology                       |  | Sexual dysfunction, urinary incontinence, overactive bladder                                                                                                                                                   
|Virology                      |  | Herpes simplex, chronic hepatitis B, chronic hepatitis C,
    genital herpes, respiratory syncytial virus, influenza                                                                                           
|Womens health                |  | Osteoporosis, hormone replacement therapy                                                                                                                                                                      

10



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| |                                      
| | -------------------------------------
| | Global Scientific and Medical Affairs



Global Product Development Services.




| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | assess pre-clinical and clinical data, products, and programs;                                                             
|
| |  | analyze markets and competition;                                                                                           
|
| |  | prepare clinical and regulatory approval strategy plans;                                                                   
|
| |  | design clinical studies or programs;                                                                                       
|
| |  | assist in the preparation of a business plan to obtain funding
    and recommend funding sources;                          
|
| |  | identify and form high-level advisory boards;                                                                              
|
| |  | provide high-level consultation on specific scientific and
    clinical issues; and                                        
|
| |  | provide program planning, management, and oversight from IND
    application submission to product registration and launch.

Global Medical and Safety Services.






| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | reporting of serious adverse events in clinical trials;                      
|
| |  | processing and reporting of adverse drug reactions for marketed
    products;
|
| |  | periodic safety update reports;                                              
|
| |  | safety and pharmaco-epidemiological studies;                                 
|
| |  | global database access and integrated safety summaries; and                  
|
| |  | consulting and system analysis.                                              

Global Regulatory Affairs.


11



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| |   |                                                              
| | - | -------------------------------------------------------------
| |  | guidance on product submission and registration requirements;
|
| |  | client updates on legislative changes;                       
|
| |  | expeditious regulatory review;                               
|
| |  | timely clinical trial start-up; and                          
|
| |  | electronic regulatory submissions.                           









| |                                       
| | --------------------------------------
| | Clinical Pharmacology Center (Phase I)



Project Assurance






12



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Clinical Trial Management System, or CTMS. CTMS is a
    company-wide system used to track and report on the information
    associated with managing a clinical trial, from initiation
    through closeout. The system is based upon Siebels
    eClinical product, and allows any authorized user to access data
    about any clinical trial from anywhere in the world. We believe
    that this system is critical to our ability to successfully
    conduct global clinical programs.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | PRA Estimator. PRA Estimator is our proprietary
    comprehensive bid development tool which analyzes every customer
    specification and request along with therapeutic and patient
    recruitment requirements, using a set of complex algorithms to
    develop a number of comprehensive bid response scenarios.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Electronic Trial Master File, or e-TMF. e-TMF is a
    company-wide document management system that enables all
    documents to be scanned, indexed, and warehoused electronically.
    The system, which is built on a Documentum platform, allows
    access to documents by any authorized user in any of our
    offices. We believe the benefits of this system include enhanced
    global project coordination, work-sharing across locations,
    increased document accountability and tracking ability,
    increased security of documents, return of all clinical trial
    study documents to clients in electronic form, and facilitation
    of electronic regulatory submissions.                                                                                                                                                                                                                                              
|
| |  | Electronic Regulatory Submissions. Our electronic
    regulatory submissions capability is based on CoreDossier, an
    industry-accepted software system. This system allows documents
    to be created, indexed, and cross-referenced electronically for
    ease of editing while in production and for ease of review by
    the appropriate regulatory authorities. Electronic submissions
    can be used at the IND and the NDA submission stages.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | PRA Clinical Data Manager® and Oracle
    Clinical. We offer two state-of-the-art data management
    systems which we believe provide added flexibility and ease of
    data transfer for our clients and ultimately timely submissions
    to the appropriate regulatory authority.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Electronic Data Capture, or EDC. We believe electronic
    data capture, which involves direct entry of clinical trials
    data by investigational sites, is gaining acceptance by clients
    worldwide. EDC permits more rapid data acquisition and locking
    of final databases. We believe that many pharmaceutical and
    biotechnology companies will use EDC for their trials at some
    point in the near future. EDC technology continues to advance
    and standards are constantly being upgraded. Therefore, we have
    chosen to work with a number of third party providers and client
    specifications for electronic data capture in the field. We have
    seamless integration software for data transfer to our two
    primary data management systems previously mentioned. We have
    facilitated EDC for approximately 40 clinical trials at roughly
    1,900 investigational sites involving 17,000 patients.
|
| |  | Customer Relationship Management, or CRM. This is a
    company-wide system based on the system suite from Siebel
    designed to manage customer relations. This system allows
    customer relationships and contacts to be tracked and shared
    worldwide to ensure consistent customer interactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Customers and Suppliers




13



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Sales and Marketing






Competition








14



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| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | the cost and experience necessary to develop broad therapeutic
    expertise;                     
|
| |  | the ability to manage large, complex international clinical
    programs;                         
|
| |  | the ability to deliver high-quality services consistently for
    large drug development projects;
|
| |  | the experience to prepare regulatory submissions throughout the
    world; and                    
|
| |  | the infrastructure and knowledge to respond to the global needs
    of clients.                   



Backlog






Intellectual Property






| |   |                                                   
| | - | --------------------------------------------------
| |  | PRA® (including a design);                        
|
| |  | PRA International®;                               
|
| |  | PRA Clinical Data Manager®;                       
|
| |  | PRA e-TMF®; and                                   
|
| |  | Project
    Assurancesm
    (application pending).

15



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Government Regulation












| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | comply with specific requirements governing the selection of
    qualified investigators;                                                                                     
|
| |  | obtain specific written commitments from the investigators;                                                                                                                   
|
| |  | obtain IRB review and approval of the clinical trial;                                                                                                                         
|
| |  | verify that appropriate patient informed consent is obtained
    before the patient participates in a clinical trial;                                                         
|
| |  | ensure adverse drug reactions resulting from the administration
    of a drug or biologic during a clinical trial are medically
    evaluated and reported in a timely manner;
|
| |  | monitor the validity and accuracy of data;                                                                                                                                    
|
| |  | verify drug or device accountability;                                                                                                                                         
|
| |  | instruct investigators and studies staff to maintain records and
    reports; and                                                                                             
|
| |  | permit appropriate governmental authorities access to data for
    their review.                                                                                              





16



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Employees




Liability and Insurance




17



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Environmental Regulation and Liability









|        |                          
|------- | -------------------------
|ITEM 2. | DESCRIPTION OF PROPERTIES








|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS



18



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






PART II







|        |                                                                              
|------- | -----------------------------------------------------------------------------
|ITEM 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
    STOCKHOLDER MATTERS







|                   |  |      |       |  |     |   |       | 
|------------------ |  | ---- | ----- |  | --- | - | ----- | 
|Calendar Year 2004 |  | High |       |  | Low |  
|                   |  |      |       |  |     |  
|First Quarter      |  |      | N/A   |  |     |   | N/A   | 
|Second Quarter     |  |      | N/A   |  |     |   | N/A   | 
|Third Quarter      |  |      | N/A   |  |     |   | N/A   | 
|Fourth Quarter     |  | $    | 24.95 |  |     | $ | 19.00 | 



Dividend Policy






19



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##### Table of Contents



Securities Authorized for Issuance Under Equity Compensation
Plans




Recent Sales of Unregistered Securities




Use of Proceeds from Initial Public Offering






|                                          |  |            |           |                 |             |   |             |             |  |           |                |  |  |   |             | 
|----------------------------------------- |  | ---------- | --------- | --------------- | ----------- | - | ----------- | ----------- |  | --------- | -------------- |  |  | - | ----------- | 
|                                          |  |            |           | Aggregate Price |             |   |             |             | 
|                                          |  | Number of  |           |                 | of Offering |   |             |             |  | Aggregate |               
|                                          |  | Shares     |           |                 | Amount      |   |             | Number of   |  |           | Offering Price | 
|                                          |  | Registered |           |                 | Registered  |   |             | Shares Sold |  |           | of Shares Sold | 
|                                          |  |            |           |                 |             |   |             |             |  |           |                | 
|Common stock sold by us                   |  |            | 3,872,834 |                 |             | $ | 73,583,846  |             |  |           | 3,872,834      |  |  | $ | 73,583,846  | 
|Common stock sold by selling stockholders |  |            | 3,027,166 |                 |             | $ | 57,516,154  |             |  |           | 3,027,166      |  |  | $ | 57,516,154  | 
|                                          |  |            |           |                 |             |   |             |             |  |           |                | 
|                                          |  |            | 6,900,000 |                 |             | $ | 131,100,000 |             |  |           | 6,900,000      |  |  | $ | 131,100,000 | 
|                                          |  |            |           |                 |             |   |             |             |  |           |                | 



|                       |              |  |               |   |               |  |                |   |               |          |  |   |           |  |  |   |           | 
|---------------------- | ------------ |  | ------------- | - | ------------- |  | -------------- | - | ------------- | -------- |  | - | --------- |  |  | - | --------- | 
|Underwriting Discounts |              |  |               |   | Underwriters |  |                |   | Total Company |         
|and Commissions        |              |  | Finders Fees |   | Expenses      |  | Other Expenses |   |               | Expenses | 
|                       |              |  |               |   |               |  |                |   |               |          | 
|$                      | 5,150,869.22 |  |               | $ |              |  |                | $ |              |          |  | $ | 1,413,056 |  |  | $ | 6,563,925 | 



20



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|        |                                     
|------- | ------------------------------------
|ITEM 6. | SELECTED CONSOLIDATED FINANCIAL DATA



|                                                          |                                      |               |        |           |                 |           |        |           |                |  |   |                         |            |        |      |         |            |         |   |        |            |         |   |         |            |         | 
|--------------------------------------------------------- | ------------------------------------ | ------------- | ------ | --------- | --------------- | --------- | ------ | --------- | -------------- |  | - | ----------------------- | ---------- | ------ | ---- | ------- | ---------- | ------- | - | ------ | ---------- | ------- | - | ------- | ---------- | ------- | 
|                                                          |                                      | Predecessor   |        |           |                 | Successor |       
|                                                          |                                      |               |        |           |                 |           |       
|                                                          |                                      |               |        |           | Period from     |           |        |          
|                                                          |                                      | Year Ended    |        |           | Period from     |           |        |           | June 28, 2001  |  |   | Year Ended December 31, |           
|                                                          |                                      | December 31,  |        |           | January 1, 2001 |           |        |           | to December 31 |  |   |                         |           
|                                                          |                                      | 2000          |        |           | to June 27 2001 |           |        |           | 2001           |  |   | 2002                    |            |        | 2003 |         |            | 2004    |  
|                                                          |                                      |               |        |           |                 |           |        |           |                |  |   |                         |            |        |      |         |            |         |  
|Revenue                                                   |                                      |               |        |           |                 |           |        |           |                |  |   |                         |            |        |      |         |            |         |   |        |            |         |   |         |           
|                                                          | Service revenue                      |               | $      | 99,136    |                 |           | $      | 55,477    |                |  |   | $                       | 59,600     |        |      | $       | 176,365    |         |   | $      | 247,888    |         |   | $       | 277,479    |        
|                                                          | Reimbursement revenue                |               |        | 14,672    |                 |           |        | 7,491     |                |  |   |                         | 8,316      |        |      |         | 24,648     |         |   |        | 42,109     |         |   |         | 30,165     |        
|                                                          |                                      |               |        |           |                 |           |        |           |                |  |   |                         |            |        |      |         |            |         |  
|                                                          |                                      | Total revenue |        | $         | 113,808         |           |        | $         | 62,968         |  |   |                         | $          | 67,916 |      |         | $          | 201,013 |   |        | $          | 289,997 |   |         | $          | 307,644 | 
|Operating expenses                                        |                                      |               |        |           |                 |           |        |           |                |  |   |                         |            |        |      |         |            |         |   |        |            |         |   |         |           
|                                                          | Direct costs                         |               |        | 53,711    |                 |           |        | 29,078    |                |  |   |                         | 31,008     |        |      |         | 94,761     |         |   |        | 126,501    |         |   |         | 134,067    |        
|                                                          | Reimbursable out-of-pocket costs     |               |        | 14,672    |                 |           |        | 7,491     |                |  |   |                         | 8,316      |        |      |         | 24,648     |         |   |        | 42,109     |         |   |         | 30,165     |        
|                                                          | Selling, general, and administrative |               |        | 33,707    |                 |           |        | 19,548    |                |  |   |                         | 19,903     |        |      |         | 57,897     |         |   |        | 80,585     |         |   |         | 90,139     |        
|                                                          | Depreciation and amortization        |               |        | 4,359     |                 |           |        | 2,244     |                |  |   |                         | 5,016      |        |      |         | 6,956      |         |   |        | 8,967      |         |   |         | 9,691      |        
|                                                          | Merger costs(1)                      |               |        |          |                 |           |        | 1,000     |                |  |   |                         |           |        |      |         |           |         |   |        |           |         |   |         |           |        
|                                                          | Management fee                       |               |        |          |                 |           |        |          |                |  |   |                         | 396        |        |      |         | 800        |         |   |        | 800        |         |   |         | 704        |        
|                                                          | Option repurchase(2)                 |               |        |          |                 |           |        |          |                |  |   |                         |           |        |      |         |           |         |   |        |           |         |   |         | 3,713      |        
|Vested option bonus(2)                                    |                                      |               |       |           |                 |           |       |           |                |  |   |                        |            |        |      |        |            |         |   |       |            |         |   | 2,738   |           
|                                                          |                                      |               |        |           |                 |           |        |           |                |  |   |                         |            |        |      |         |            |         |  
|Income from operations                                    |                                      |               | 7,359  |           |                 |           | 3,607  |           |                |  |   | 3,277                   |            |        |      | 15,951  |            |         |   | 31,035 |            |         |   | 36,427  |           
|Interest expense, net                                     |                                      |               | (909   | )         |                 |           | (158   | )         |                |  |   | (2,279                  | )          |        |      | (4,100  | )          |         |   | (6,856 | )          |         |   | (3,643  | )         
|Other income (expenses), net                              |                                      |               | 353    |           |                 |           | 53     |           |                |  |   | 13                      |            |        |      | (721    | )          |         |   | (4,023 | )          |         |   | (38     | )         
|                                                          |                                      |               |        |           |                 |           |        |           |                |  |   |                         |            |        |      |         |            |         |  
|Income before income taxes                                |                                      |               | 6,803  |           |                 |           | 3,502  |           |                |  |   | 1,011                   |            |        |      | 11,130  |            |         |   | 20,156 |            |         |   | 32,746  |           
|Provision for income taxes                                |                                      |               | 3,298  |           |                 |           | 1,751  |           |                |  |   | 1,139                   |            |        |      | 5,493   |            |         |   | 6,909  |            |         |   | 11,997  |           
|                                                          |                                      |               |        |           |                 |           |        |           |                |  |   |                         |            |        |      |         |            |         |  
|Net income (loss)                                         |                                      | $             | 3,505  |           |                 | $         | 1,751  |           |                |  | $ | (128                    | )          |        | $    | 5,637   |            |         | $ | 13,247 |            |         | $ | 20,749  |           
|                                                          |                                      |               |        |           |                 |           |        |           |                |  |   |                         |            |        |      |         |            |         |  
|Net income (loss) per share                               |                                      |               |        |           |                 |           |        |           |                |  |   |                         |            |        |      |         |            |         |   |        |            |         |   |         |           
|                                                          | Basic                                |               | $      | 0.50      |                 |           | $      | 0.25      |                |  |   | $                       | (0.01      | )      |      | $       | 0.37       |         |   | $      | 0.83       |         |   | $       | 1.13       |        
|                                                          | Diluted                              |               | $      | 0.37      |                 |           | $      | 0.21      |                |  |   | $                       | (0.01      | )      |      | $       | 0.32       |         |   | $      | 0.71       |         |   | $       | 1.02       |        
|Shares used to compute net income (loss) per share(3)(4): |                                      |               |        |           |                 |           |        |           |                |  |   |                         |            |        |      |         |            |         |   |        |            |         |   |         |           
|                                                          | Basic                                |               |        | 3,300,859 |                 |           |        | 3,301,574 |                |  |   |                         | 13,965,364 |        |      |         | 15,204,232 |         |   |        | 15,965,408 |         |   |         | 18,442,313 |        
|                                                          | Diluted                              |               |        | 4,445,284 |                 |           |        | 3,968,335 |                |  |   |                         | 13,965,364 |        |      |         | 17,557,632 |         |   |        | 18,666,012 |         |   |         | 20,329,852 |        
|Other Financial Data:                                     |                                      |               |        |           |                 |           |        |           |                |  |   |                         |            |        |      |         |            |         |   |        |            |         |   |         |           
|Net cash provided by operating activities                 |                                      | $             | 10,264 |           |                 | $         | 5,394  |           |                |  | $ | 21,332                  |            |        | $    | 28,442  |            |         | $ | 2,058  |            |         | $ | 71,636  |           
|Net cash used in investing activities                     |                                      |               | (3,895 | )         |                 |           | (3,238 | )         |                |  |   | (2,721                  | )          |        |      | (24,625 | )          |         |   | (9,599 | )          |         |   | (32,350 | )         
|Net cash provided by (used in) financing activities       |                                      |               | (2,987 | )         |                 |           | 128    |           |                |  |   | (995                    | )          |        |      | (14,581 | )          |         |   | 26,028 |            |         |   | (6,430  | )         

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|                                          |  |              |        |             |                 |   |       |                |  |   |                         |  |  |      |        |  |      |   |        |  |  |   |        | 
|----------------------------------------- |  | ------------ | ------ | ----------- | --------------- | - | ----- | -------------- |  | - | ----------------------- |  |  | ---- | ------ |  | ---- | - | ------ |  |  | - | ------ | 
|                                          |  | Predecessor  |        |             | Successor       |  
|                                          |  |              |        |             |                 |  
|                                          |  |              |        | Period from |                 |   |      
|                                          |  | Year Ended   |        |             | Period from     |   |       | June 28, 2001  |  |   | Year Ended December 31, | 
|                                          |  | December 31, |        |             | January 1, 2001 |   |       | to December 31 |  |   |                         | 
|                                          |  | 2000         |        |             | to June 27 2001 |   |       | 2001           |  |   | 2002                    |  |  | 2003 |        |  | 2004 |  
|                                          |  |              |        |             |                 |   |       |                |  |   |                         |  |  |      |        |  |      |  
|Non-GAAP Data:                            |  |              |        |             |                 |   |       |                |  |   |                         |  |  |      |        |  |      |   |        |  |  |   |        | 
|Adjusted EBITDA(5)                        |  | $            | 12,071 |             |                 | $ | 5,904 |                |  | $ | 8,306                   |  |  | $    | 22,186 |  |      | $ | 35,979 |  |  | $ | 52,531 | 
|Adjusted EBITDA as a % of service revenue |  |              | 12.2%  |             |                 |   | 10.6% |                |  |   | 13.9%                   |  |  |      | 12.6%  |  |      |   | 14.5%  |  |  |   | 18.9%  | 
|EBITDA(5)                                 |  | $            | 12,071 |             |                 | $ | 5,904 |                |  | $ | 8,306                   |  |  | $    | 22,186 |  |      | $ | 35,979 |  |  | $ | 46,080 | 
|EBITDA as a % of service revenue          |  |              | 12.2%  |             |                 |   | 10.6% |                |  |   | 13.9%                   |  |  |      | 12.6%  |  |      |   | 14.5%  |  |  |   | 16.6%  | 

|                                                           |  |                    |        |   |  |                        |   |         |      |  |   |         |   |  |      |         |   |  |   |         | 
|---------------------------------------------------------- |  | ------------------ | ------ | - |  | ---------------------- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | 
|                                                           |  | Predecessor        |        |   |  | Successor              |  
|                                                           |  |                    |        |   |  |                        |  
|                                                           |  | As of December 31, |        |   |  | As of December 31,     |  
|                                                           |  |                    |        |   |  |                        |  
|                                                           |  | 2000               |        |   |  | 2001                   |   |         | 2002 |  |   | 2003    |   |  | 2004 |        
|                                                           |  |                    |        |   |  |                        |   |         |      |  |   |         |   |  |      |        
|                                                           |  | (Dollars in        |        |   |  |                       
|                                                           |  | thousands)         |        |   |  | (Dollars in thousands) |  
|Consolidated Balance Sheet Data:                           |  |                    |        |   |  |                        |   |         |      |  |   |         |   |  |      |         |   |  |   |         | 
|Cash and cash equivalents                                  |  | $                  | 3,885  |   |  |                        | $ | 23,712  |      |  | $ | 13,798  |   |  | $    | 32,328  |   |  | $ | 65,888  | 
|Marketable securities                                      |  |                    |       |   |  |                        |   |        |      |  |   |        |   |  |      |        |   |  |   | 24,500  | 
|Working capital                                            |  |                    | (4,204 | ) |  |                        |   | (5,279  | )    |  |   | (43,429 | ) |  |      | (8,449  | ) |  |   | 11,478  | 
|Total assets                                               |  |                    | 77,111 |   |  |                        |   | 180,261 |      |  |   | 254,547 |   |  |      | 298,558 |   |  |   | 337,344 | 
|Longterm debt and capital leases, less current maturities |  |                    | 4,533  |   |  |                        |   | 44,437  |      |  |   | 32,509  |   |  |      | 57,810  |   |  |   | 75      | 
|Stockholders equity                                       |  |                    | 16,409 |   |  |                        |   | 43,253  |      |  |   | 59,088  |   |  |      | 74,565  |   |  |   | 150,379 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Comprises payments to management in connection with our June
    2001 recapitalization.                                                                                                                                                                                                                                                                                                                                      
|   
|(2) | Includes a $3.7 million charge for the repurchase of
    options, predominantly from former employees, and a
    $2.7 million charge for a per-vested-option bonus paid to
    all employee option holders, both of which were executed in
    connection with the culmination of the January 2004 tender
    process.                                                                                                       
|   
|(3) | Net income (loss) per share and shares used to compute net
    income (loss) per share amounts for 2000, and 2001 are presented
    on an unaudited basis. Net income (loss) per share includes
    $1.8 million for 2000, and $0.9 million for the period
    from January 1, 2001 to June 27, 2001 for dividends
    and accretion on preferred stock, which reduces net income
    available to common stockholders.      
|   
|(4) | Net income (loss) per share and shares used to compute net
    income (loss) per share for all periods following the
    predecessor period gives effect to a four-for-one stock split of
    our common stock effected prior to completion of the offering.                                                                                                                                                                 
|   
|(5) | Adjusted EBITDA and EBITDA are not substitutes for operating
    income, net income, or cash flow from operating activities as
    determined in accordance with GAAP as measures of performance or
    liquidity. See Managements Discussion and Analysis
    of Financial Condition and Results of Operations 
    Non-GAAP Financial Measures. For each of the periods
    indicated, the following table sets forth a

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| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | reconciliation of EBITDA and Adjusted EBITDA to net cash
    provided by (used in) operating activities and to net income
    (loss).

|                                          |                                     |                                           |        |             |                 |                        |       |             |                 |   |   |                         |        |        |      |        |        |         |   |        |        |         |   |        |         |        |  
|----------------------------------------- | ----------------------------------- | ----------------------------------------- | ------ | ----------- | --------------- | ---------------------- | ----- | ----------- | --------------- | - | - | ----------------------- | ------ | ------ | ---- | ------ | ------ | ------- | - | ------ | ------ | ------- | - | ------ | ------- | ------ | -
|                                          |                                     | Predecessor                               |        |             |                 | Successor              |      
|                                          |                                     |                                           |        |             |                 |                        |      
|                                          |                                     |                                           |        | Period from |                 |                        |       | Period from |                 |   |  
|                                          |                                     | Year Ended                                |        |             | January 1, 2001 |                        |       |             | June 28, 2001   |   |   | Year Ended December 31, |       
|                                          |                                     | December 31,                              |        |             | to June 27,     |                        |       |             | to December 31, |   |   |                         |       
|                                          |                                     | 2000                                      |        |             | 2001            |                        |       |             | 2001            |   |   | 2002                    |        |        | 2003 |        |        | 2004    |  
|                                          |                                     |                                           |        |             |                 |                        |       |             |                 |   |   |                         |        |        |      |        |        |         |  
|                                          |                                     | (Dollars in thousands)                    |        |             |                 | (Dollars in thousands) |      
|Adjusted EBITDA                           |                                     | $                                         | 12,071 |             |                 | $                      | 5,904 |             |                 |   | $ | 8,306                   |        |        | $    | 22,186 |        |         | $ | 35,979 |        |         | $ | 52,531 |        
|                                          | Option repurchase                   |                                           |        |            |                 |                        |       |            |                 |   |   |                         |       |        |      |        |       |         |   |        |       |         |   |        | (3,713  | )     
|                                          | Vested option bonus                 |                                           |        |            |                 |                        |       |            |                 |   |   |                         |       |        |      |        |       |         |   |        |       |         |   |        | (2,738  | )     
|                                          |                                     |                                           |        |             |                 |                        |       |             |                 |   |   |                         |        |        |      |        |        |         |  
|EBITDA                                    |                                     |                                           | 12,071 |             |                 |                        | 5,904 |             |                 |   |   | 8,306                   |        |        |      | 22,186 |        |         |   | 35,979 |        |         |   | 46,080 |        
|                                          | Depreciation and amortization       |                                           |        | (4,359      | )               |                        |       | (2,244      | )               |   |   |                         | (5,016 | )      |      |        | (6,956 | )       |   |        | (8,967 | )       |   |        | (9,691  | )     
|                                          | Interest expense, net               |                                           |        | (909        | )               |                        |       | (158        | )               |   |   |                         | (2,279 | )      |      |        | (4,100 | )       |   |        | (6,856 | )       |   |        | (3,643  | )     
|                                          | Provision for income taxes          |                                           |        | (3,298      | )               |                        |       | (1,751      | )               |   |   |                         | (1,139 | )      |      |        | (5,493 | )       |   |        | (6,909 | )       |   |        | (11,997 | )     
|                                          |                                     |                                           |        |             |                 |                        |       |             |                 |   |   |                         |        |        |      |        |        |         |  
|Net income (loss)                         |                                     |                                           | 3,505  |             |                 |                        | 1,751 |             |                 |   |   | (128                    | )      |        |      | 5,637  |        |         |   | 13,247 |        |         |   | 20,749 |        
|                                          | Depreciation and amortization       |                                           |        | 4,359       |                 |                        |       | 2,244       |                 |   |   |                         | 5,016  |        |      |        | 6,956  |         |   |        | 8,967  |         |   |        | 9,691   |       
|                                          | Provision for doubtful receivables  |                                           |        |            |                 |                        |       | 250         |                 |   |   |                         | 76     |        |      |        | 1,888  |         |   |        | 4,851  |         |   |        | 1,914   |       
|                                          | Amortization of debt discount       |                                           |        | 54          |                 |                        |       |            |                 |   |   |                         | 126    |        |      |        | 379    |         |   |        | 1,642  |         |   |        |        |       
|                                          | Stock-based compensation            |                                           |        | 33          |                 |                        |       |            |                 |   |   |                         |       |        |      |        |       |         |   |        |       |         |   |        |        |       
|                                          | Provision for deferred income taxes |                                           |        | (1,551      | )               |                        |       | 612         |                 |   |   |                         | (2,672 | )      |      |        | (1,228 | )       |   |        | (3,997 | )       |   |        | 2,606   |       
|                                          | Debt issuance costs write-off       |                                           |        |            |                 |                        |       |            |                 |   |   |                         |       |        |      |        |       |         |   |        | 750    |         |   |        | 1,241   |       
|                                          | Changes in assets and liabilities:  |                                           |        |             |                 |                        |       |             |                 |   |   |                         |        |        |      |        |        |         |   |        |        |         |   |        |         |       
|                                          |                                     | Accounts receivable and unbilled services |        |             | (12,944         | )                      |       |             | 5,794           |   |   |                         |        | (8,711 | )    |        |        | (29,251 | ) |        |        | (18,538 | ) |        |         | 15,373 |  
|                                          |                                     | Prepaid expenses and other assets         |        |             | (1,579          | )                      |       |             | (5,187          | ) |   |                         |        | 2,934  |      |        |        | 1,444   |   |        |        | 408     |   |        |         | 1,226  |  
|                                          |                                     | Accounts payable and accrued expenses     |        |             | (1,438          | )                      |       |             | 4,330           |   |   |                         |        | 452    |      |        |        | 3,481   |   |        |        | (4,873  | ) |        |         | 7,793  |  
|                                          |                                     | Income taxes                              |        |             | 788             |                        |       |             | (1,605          | ) |   |                         |        | 434    |      |        |        | 989     |   |        |        | (481    | ) |        |         | 12,150 |  
|                                          |                                     | Advance billings                          |        |             | 19,037          |                        |       |             | (2,795          | ) |   |                         |        | 23,805 |      |        |        | 38,147  |   |        |        | 82      |   |        |         | (1,107 | )
|                                          |                                     |                                           |        |             |                 |                        |       |             |                 |   |   |                         |        |        |      |        |        |         |  
|Net cash provided by operating activities |                                     | $                                         | 10,264 |             |                 | $                      | 5,394 |             |                 |   | $ | 21,332                  |        |        | $    | 28,442 |        |         | $ | 2,058  |        |         | $ | 71,636 |        
|                                          |                                     |                                           |        |             |                 |                        |       |             |                 |   |   |                         |        |        |      |        |        |         |  






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS



Overview




23



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24



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| |                
| | ---------------
| | Service Revenue







| |                                                               
| | --------------------------------------------------------------
| | Reimbursement Revenue and Reimbursable Out-of-Pocket
    Costs





| |             
| | ------------
| | Direct Costs



25



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| |                                              
| | ---------------------------------------------
| | Selling, General, and Administrative Expenses





| |                              
| | -----------------------------
| | Depreciation and Amortization





| |             
| | ------------
| | Income Taxes







| |                           
| | --------------------------
| | Exchange Rate Fluctuations



|                  |                 |      |  |        |      |  |  |        |  |  |  |        | 
|----------------- | --------------- | ---- |  | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                  |                 | Year | 
|                  |                 |      | 
|                  |                 | 2002 |  |        | 2003 |  |  | 2004   | 
|                  |                 |      |  |        |      |  |  |        | 
|U.S. Dollars per: |                 |      |  |        |      |  |  |        |  |  |  |       
|                  | Euro            |      |  | 0.9463 |      |  |  | 1.1378 |  |  |  | 1.2466 | 
|                  | Pound Sterling  |      |  | 1.5056 |      |  |  | 1.6431 |  |  |  | 1.8362 | 
|                  | Canadian Dollar |      |  | 0.6393 |      |  |  | 0.7181 |  |  |  | 0.7716 | 

Results of Operations




26



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|                                     |                        |                    |       |     |  |                   |  |       |                         |  |  |       |     |  |      |       |     |      |  |       |      |  |  |       |      | 
|------------------------------------ | ---------------------- | ------------------ | ----- | --- |  | ----------------- |  | ----- | ----------------------- |  |  | ----- | --- |  | ---- | ----- | --- | ---- |  | ----- | ---- |  |  | ----- | ---- | 
|                                     |                        | Predecessor        |       |     |  | Successor         | 
|                                     |                        |                    |       |     |  |                   | 
|                                     |                        | Period from        |       |     |  | Period from       |  |       | Year Ended December 31, | 
|                                     |                        | January 1, 2001 to |       |     |  | June 28, 2001 to  |  |       |                         | 
|                                     |                        | June 27, 2001      |       |     |  | December 31, 2001 |  |       | 2001(a)                 |  |  | 2002  |     |  | 2003 |       |     | 2004 | 
|                                     |                        |                    |       |     |  |                   |  |       |                         |  |  |       |     |  |      |       |     |      | 
|Service revenue                      |                        |                    | 100.0 | %   |  |                   |  | 100.0 | %                       |  |  | 100.0 | %   |  |      | 100.0 | %   |      |  | 100.0 | %    |  |  | 100.0 | %   
|Direct costs                         |                        |                    | 52.5  |     |  |                   |  | 52.0  |                         |  |  | 52.2  |     |  |      | 53.7  |     |      |  | 51.0  |      |  |  | 48.3  |     
|Selling, general, and administrative |                        |                    | 35.2  |     |  |                   |  | 33.4  |                         |  |  | 34.3  |     |  |      | 32.8  |     |      |  | 32.5  |      |  |  | 32.5  |     
|Depreciation and amortization        |                        |                    | 4.0   |     |  |                   |  | 8.4   |                         |  |  | 6.3   |     |  |      | 4.0   |     |      |  | 3.6   |      |  |  | 3.5   |     
|Merger costs                         |                        |                    | 1.8   |     |  |                   |  |      |                         |  |  | 0.9   |     |  |      |      |     |      |  |      |      |  |  |      |     
|Management fee                       |                        |                    |      |     |  |                   |  | 0.7   |                         |  |  | 0.3   |     |  |      | 0.5   |     |      |  | 0.3   |      |  |  | 0.3   |     
|Option repurchase                    |                        |                    |      |     |  |                   |  |      |                         |  |  |      |     |  |      |      |     |      |  |      |      |  |  | 1.3   |     
|Vested option bonus                  |                        |                    |      |     |  |                   |  |      |                         |  |  |      |     |  |      |      |     |      |  |      |      |  |  | 0.9   |     
|                                     | Income from operations |                    |       | 6.5 |  |                   |  |       | 5.5                     |  |  |       | 6.0 |  |      |       | 9.0 |      |  |       | 12.5 |  |  |       | 13.1 | 
|Interest expense                     |                        |                    | (0.6  | )   |  |                   |  | (4.0  | )                       |  |  | (2.4  | )   |  |      | (2.4  | )   |      |  | (2.9  | )    |  |  | (1.4  | )   
|Interest income                      |                        |                    | 0.3   |     |  |                   |  | 0.2   |                         |  |  | 0.2   |     |  |      | 0.1   |     |      |  | 0.1   |      |  |  | 0.1   |     
|Other income (expenses), net         |                        |                    | 0.1   |     |  |                   |  |      |                         |  |  | 0.1   |     |  |      | (0.4  | )   |      |  | (1.6  | )    |  |  |      |     
|Income before income taxes           |                        |                    | 6.3   |     |  |                   |  | 1.7   |                         |  |  | 3.9   |     |  |      | 6.3   |     |      |  | 8.1   |      |  |  | 11.8  |     
|Provision for income taxes           |                        |                    | 3.1   |     |  |                   |  | 1.9   |                         |  |  | 2.5   |     |  |      | 3.1   |     |      |  | 2.8   |      |  |  | 4.3   |     
|Net income (loss)                    |                        |                    | 3.2   | %   |  |                   |  | (0.2  | )%                      |  |  | 1.4   | %   |  |      | 3.2   | %   |      |  | 5.3   | %    |  |  | 7.5   | %   






|    |                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The figures for 2001 represent the aggregate of the predecessor
    period from January 1, 2001 to June 27, 2001 and the
    successor period from June 28, 2001 to December 31,
    2001. Such a combined presentation is not consistent with GAAP
    but is provided to facilitate the readers ability to
    compare 2001 periods with subsequent years.



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003







27



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Year Ended December 31, 2003 Compared to Year Ended
December 31, 2002








28



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Year Ended December 31, 2002 Compared to Year Ended
December 31, 2001










29



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Variation in Quarterly Operating Results




Liquidity and Capital Resources








30



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31



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Contractual Obligations and Commercial Commitments




|                                            |  |                        |        |   |           |   |           |           |  |   |         |  |  |       |        |  |  |   |         |  
|------------------------------------------- |  | ---------------------- | ------ | - | --------- | - | --------- | --------- |  | - | ------- |  |  | ----- | ------ |  |  | - | ------- | -
|                                            |  | Payments Due by Period |       
|                                            |  |                        |       
|                                            |  | Less Than              |        |   |           |   | More Than |           |  |  
|                                            |  | One Year               |        |   | 1-3 Years |   |           | 3-5 Years |  |   | 5 Years |  |  | Total |       
|                                            |  |                        |        |   |           |   |           |           |  |   |         |  |  |       |       
|                                            |  | (Dollars in thousands) |       
|Long-term debt, including interest payments |  | $                      |       |   |           | $ |          |           |  | $ |        |  |  | $     |       |  |  | $ |        |  
|Service purchase commitments                |  |                        | 754    |   |           |   | 1,508     |           |  |   |        |  |  |       |       |  |  |   | 2,262   |  
|Capital lease, including interest payments  |  |                        | 175    |   |           |   | 62        |           |  |   | 2       |  |  |       |       |  |  |   | 239     |  
|Operating leases                            |  |                        | 17,679 |   |           |   | 27,853    |           |  |   | 21,144  |  |  |       | 43,125 |  |  |   | 109,801 |  
|Less: sublease income                       |  |                        | (1,287 | ) |           |   | (843      | )         |  |   |        |  |  |       |       |  |  |   | (2,130  | )
|                                            |  |                        |        |   |           |   |           |           |  |   |         |  |  |       |       
|Total                                       |  | $                      | 17,321 |   |           | $ | 28,580    |           |  | $ | 21,146  |  |  | $     | 43,125 |  |  | $ | 110,172 |  
|                                            |  |                        |        |   |           |   |           |           |  |   |         |  |  |       |       

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Off-Balance Sheet Arrangements




Non-GAAP Financial Measures












Critical Accounting Policies and Estimates




33



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Revenue Recognition




Allowance for Doubtful Accounts




Tax Valuation Allowance






34



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| |                         
| | ------------------------
| | Stock-Based Compensation











| |                  
| | -----------------
| | Long-Lived Assets





| |                                                
| | -----------------------------------------------
| | Goodwill and Indefinite-Lived Intangible Assets





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Inflation




Potential Liability and Insurance




Risk Factors




Risks Related to Our Business




| |                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our contracts are generally terminable on little or no
    notice. Termination of a large contract for services or multiple
    contracts for services could adversely affect our revenue and
    profitability.







| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | the failure of the product being tested to satisfy safety or
    efficacy requirements;
|
| |  | unexpected or undesired clinical results of the product; and                           
|
| |  | the clients decision to forego a particular study.                                    





| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | insufficient patient enrollment or investigator recruitment;                                                                                        
|
| |  | the clients decision to downsize its product development
    portfolios;                                                                           
|
| |  | the clients dissatisfaction with our performance,
    including the quality of data provided and our ability to meet
    agreed upon schedules; and
|
| |  | production problems resulting in shortages of the drug or
    required clinical supplies.                                                           



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| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Our quarterly operating results may vary, which could
    negatively affect the market price of our common stock.





| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | We depend on a limited number of clients and a loss of or
    significant decrease in business from them could affect our
    business.





| |                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because most of our clinical development service revenue
    is from long-term fixed-fee contracts, we would lose money in
    performing these contracts if our costs of performing them were
    to exceed the fixed fees payable to us.





| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | Our business depends on our senior management team, and
    the loss of any member of the team may harm our business.



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If we are unable to recruit and retain qualified
personnel, we may not be able to expand our business or remain
competitive.




Our business could be harmed if we are unable to manage
our growth effectively.




Our exposure to exchange rate fluctuations could
negatively impact our results of operations.








We are subject to certain risks associated with our
foreign operations.








| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | tax rates in certain foreign countries may exceed those in the
    United States and foreign earnings may be subject to withholding
    requirements or the imposition of tariffs, exchange controls, or
    other restrictions, including restrictions on
    repatriation; and

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| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | general economic and political conditions in countries where we
    operate may have an adverse effect on our operations in those
    countries.





| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | foreign customers may have longer payment cycles than customers
    in the United States;                                                  
|
| |  | we may have difficulty complying with a variety of foreign laws
    and regulations, some of which may conflict with United States
    law;
|
| |  | the difficulty of enforcing agreements and collecting
    receivables through certain foreign legal systems; and                           
|
| |  | the difficulties associated with managing a large organization
    spread throughout various countries.                                    





We provide services to emerging companies which may be
unable to pay us.




We have a significant amount of goodwill on our balance
sheet, and a downturn in our business or industry could require
us to take a charge to earnings, which may negatively affect the
market price of our common stock.




Our business depends significantly on the continued
effectiveness of our information technology infrastructure, and
failures of such technology could harm our operations.




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Our business could be harmed if we cannot successfully
integrate future acquisitions.




We compete in a highly competitive market and if we do not
compete successfully our business could be harmed.




Risks Related to Our Industry


Our business could be harmed if the companies in the
pharmaceutical and biotechnology industries to whom we offer our
services reduce their research and development activities or
reduce the extent to which they outsource clinical
development.




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Our business and the businesses of our customers are
subject to extensive regulation, and our results of operations
could be harmed if regulatory standards change significantly or
if we fail to maintain compliance with evolving, complex
regulations.








Circumstances beyond our control could cause the CRO
industry to suffer reputational or other harm that could result
in an industry-wide reduction in demand for CRO services, which
could harm our business.




If we incur liability for hazardous material
contamination, our business would be harmed.




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Our services are subject to evolving industry standards
and rapid technological changes.




Our clinical research services create a risk of liability
and, if we are required to pay damages or to bear the costs of
defending any claim not covered by contractual indemnity or
insurance, this could cause material harm to our
business.




Health care industry reform could reduce or eliminate our
business opportunities.









|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK

Interest Rate Risk




Foreign Exchange Risk




42



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Foreign Currency Hedges




43



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|        |                                           
|------- | ------------------------------------------
|ITEM 8. | INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                                                  |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                  |  | Page |    
|                                                                                                                                                  |  |      |    
|Report of Independent Registered Public Accounting Firm                                                                                           |  |      | F-2 | 
|Consolidated Balance Sheets as of December 31, 2003 and 2004                                                                                      |  |      | F-3 | 
|Consolidated Statements of Operations for the years ended
    December 31, 2002, December 31, 2003 and December 31,
    2004                      |  |      | F-4 | 
|Consolidated Statements of Changes in Stockholders Equity
    for the years ended December 31, 2002, December 31,
    2003 and December 31, 2004 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the years ended
    December 31, 2002, December 31, 2003 and December 31,
    2004                      |  |      | F-7 | 
|Notes to Consolidated Financial Statements                                                                                                        |  |      | F-8 | 

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE






ITEM 9A  CONTROLS AND PROCEDURES


Effectiveness of Our Disclosure Controls and Procedures






Changes in Internal Control Over Financial Reporting











PART III




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|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT














|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION








|         |                                                                   
|-------- | ------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT








|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES



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PART IV







|         |                                                                     
|-------- | --------------------------------------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
    FORM 8-K

|                                |                              |  |   |        |  
|------------------------------- | ---------------------------- |  | - | ------ | -
|Allowance for Doubtful Accounts |                              |  |   |       
|                                | Balance at December 31, 2001 |  | $ | 915    |  
|                                | Provisions                   |  |   | 1,888  |  
|                                | Write-offs/ Recoveries       |  |   | 145    |  
|                                |                              |  |  
|                                | Balance at December 31, 2002 |  |   | 2,948  |  
|                                | Provisions                   |  |   | 4,851  |  
|                                | Write-offs/ Recoveries       |  |   | (3,219 | )
|                                |                              |  |  
|                                | Balance at December 31, 2003 |  |   | 4,580  |  
|                                | Provisions                   |  |   | 1,914  |  
|                                | Write-offs/ Recoveries       |  |   | (1,597 | )
|                                |                              |  |  
|                                | Balance at December 31, 2004 |  | $ | 4,897  |  
|                                |                              |  |  
|Income Tax Valuation Allowance  |                              |  |   |       
|                                | Balance at December 31, 2001 |  | $ | 1,677  |  
|                                | Provisions                   |  |   | 1,819  |  
|                                | Releases                     |  |   |       |  
|                                |                              |  |  
|                                | Balance at December 31, 2002 |  |   | 3,496  |  
|                                | Provisions                   |  |   | 7,117  |  
|                                | Releases                     |  |   | (2,344 | )
|                                |                              |  |  
|                                | Balance at December 31, 2003 |  |   | 8,269  |  
|                                | Provisions                   |  |   | 569    |  
|                                | Releases                     |  |   | (2,539 | )
|                                |                              |  |  
|                                | Balance at December 31, 2004 |  | $ | 6,299  |  
|                                |                              |  |  

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Report of Independent Registered Public Accounting Firm


on


Financial Statement Schedules










| |                                   
| | ----------------------------------
| | /s/ PricewaterhouseCoopers
    LLP
| |                                   
| | PricewaterhouseCoopers LLP        





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PRA INTERNATIONAL AND SUBSIDIARIES


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                       |                                                                                               |  |  |     | 
|------------------------------------------------------ | --------------------------------------------------------------------------------------------- |  |  | --- | 
|Consolidated Financial Statements of PRA International |                                                                                               |  |  |    
|                                                       | Report of Independent Registered Public
    Accounting Firm, Pricewaterhouse Coopers LLP      |  |  | F-2 | 
|                                                       | Consolidated Balance Sheets                                                                   |  |  | F-3 | 
|                                                       | Consolidated Statements of Operations                                                         |  |  | F-4 | 
|                                                       | Consolidated Statements of Changes in Stockholders Equity
    and Other Comprehensive Income |  |  | F-5 | 
|                                                       | Consolidated Statements of Cash Flows                                                         |  |  | F-7 | 
|                                                       | Notes to Consolidated Financial
    Statements                                                |  |  | F-8 | 





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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM










| |                               
| | ------------------------------
| | /s/ PricewaterhouseCoopers LLP





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PRA INTERNATIONAL AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                                                |                                                |                                            |         |         |         |  |         |         |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|                                                                                                                                                                                                                |                                                | As of December 31,                         |        
|                                                                                                                                                                                                                |                                                |                                            |        
|                                                                                                                                                                                                                |                                                | 2003                                       |         |         | 2004    | 
|                                                                                                                                                                                                                |                                                |                                            |         |         |         | 
|                                                                                                                                                                                                                |                                                | (Dollars in thousands,                     |        
|                                                                                                                                                                                                                |                                                | except per share                           |        
|                                                                                                                                                                                                                |                                                | amounts)                                   |        
|ASSETS                                                                                                                                                                                                         
|Current assets                                                                                                                                                                                                  |                                                |                                            |         |         |         |  |         |        
|                                                                                                                                                                                                                | Cash and cash equivalents                      |                                            | $       | 32,328  |         |  | $       | 65,888  |        
|                                                                                                                                                                                                                | Marketable securities                          |                                            |         |        |         |  |         | 24,500  |        
|                                                                                                                                                                                                                | Accounts receivable and unbilled services, net |                                            |         | 99,517  |         |  |         | 84,480  |        
|                                                                                                                                                                                                                | Prepaid expenses and other current assets      |                                            |         | 5,860   |         |  |         | 5,844   |        
|                                                                                                                                                                                                                | Deferred tax assets                            |                                            |         | 8,211   |         |  |         | 5,069   |        
|                                                                                                                                                                                                                |                                                |                                            |         |         |         | 
|                                                                                                                                                                                                                |                                                | Total current assets                       |         |         | 145,916 |  |         |         | 185,781 | 
|Fixed assets, net                                                                                                                                                                                               |                                                |                                            | 21,875  |         |         |  | 21,661  |        
|Goodwill                                                                                                                                                                                                        |                                                |                                            | 100,937 |         |         |  | 101,340 |        
|Other intangibles, net of accumulated amortization of $5,234 and
    $4,132 as of December 31, 2004, and 2003, respectively                                                                                     |                                                |                                            | 25,899  |         |         |  | 25,409  |        
|Other assets                                                                                                                                                                                                    |                                                |                                            | 3,931   |         |         |  | 3,153   |        
|                                                                                                                                                                                                                |                                                |                                            |         |         |         | 
|                                                                                                                                                                                                                | Total assets                                   |                                            | $       | 298,558 |         |  | $       | 337,344 |        
|                                                                                                                                                                                                                |                                                |                                            |         |         |         | 
|                                                                                                                                                                                                               
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                           
|Current liabilities                                                                                                                                                                                             |                                                |                                            |         |         |         |  |         |        
|                                                                                                                                                                                                                | Accounts payable                               |                                            | $       | 13,537  |         |  | $       | 15,040  |        
|                                                                                                                                                                                                                | Accrued expenses                               |                                            |         | 25,310  |         |  |         | 32,437  |        
|                                                                                                                                                                                                                | Income taxes payable                           |                                            |         |        |         |  |         | 11,875  |        
|                                                                                                                                                                                                                | Advance billings                               |                                            |         | 112,836 |         |  |         | 114,801 |        
|                                                                                                                                                                                                                | Long-term debt, current portion                |                                            |         | 2,682   |         |  |         | 150     |        
|                                                                                                                                                                                                                |                                                |                                            |         |         |         | 
|                                                                                                                                                                                                                |                                                | Total current liabilities                  |         |         | 154,365 |  |         |         | 174,303 | 
|Deferred tax liability                                                                                                                                                                                          |                                                |                                            | 10,016  |         |         |  | 9,349   |        
|Other liabilities                                                                                                                                                                                               |                                                |                                            | 1,802   |         |         |  | 3,238   |        
|Long-term debt                                                                                                                                                                                                  |                                                |                                            | 57,810  |         |         |  | 75      |        
|                                                                                                                                                                                                                |                                                |                                            |         |         |         | 
|                                                                                                                                                                                                                |                                                | Total liabilities                          |         |         | 223,993 |  |         |         | 186,965 | 
|Commitments and contingencies (Note 12)                                                                                                                                                                         |                                                |                                            |         |         |         |  |         |        
|Stockholders equity                                                                                                                                                                                            |                                                |                                            |         |         |         |  |         |        
|Common stock $0.01 par value; 36,000,000 shares
    authorized as of December 31, 2004 and 2003; 22,337,822 and
    15,273,044 shares issued and outstanding as of
    December 31, 2004 and 2003, respectively |                                                |                                            | 153     |         |         |  | 223     |        
|Exchangeable shares; $0.01 par value; 1,115,796 shares
    authorized, issued and outstanding as of December 31, 2003                                                                                           |                                                |                                            | 11      |         |         |  |        |        
|Treasury stock                                                                                                                                                                                                  |                                                |                                            |        |         |         |  | (93     | )      
|Additional paid-in capital  common stock                                                                                                                                                                       |                                                |                                            | 47,306  |         |         |  | 124,737 |        
|Additional paid-in capital  exchangeable shares                                                                                                                                                                |                                                |                                            | 7,102   |         |         |  |        |        
|Notes receivable from stockholders                                                                                                                                                                              |                                                |                                            | (401    | )       |         |  |        |        
|Accumulated other comprehensive income                                                                                                                                                                          |                                                |                                            | 1,638   |         |         |  | 2,858   |        
|Retained earnings                                                                                                                                                                                               |                                                |                                            | 18,756  |         |         |  | 22,654  |        
|                                                                                                                                                                                                                |                                                |                                            |         |         |         | 
|Total stockholders equity                                                                                                                                                                                      |                                                |                                            | 74,565  |         |         |  | 150,379 |        
|                                                                                                                                                                                                                |                                                |                                            |         |         |         | 
|                                                                                                                                                                                                                |                                                | Total liabilities and stockholders equity |         | $       | 298,558 |  |         | $       | 337,344 | 
|                                                                                                                                                                                                                |                                                |                                            |         |         |         | 



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PRA INTERNATIONAL AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                            |         |                                         |         |      |         |   |         |      |         |   |         |      |         | 
|------------------------------------------- | ------- | --------------------------------------- | ------- | ---- | ------- | - | ------- | ---- | ------- | - | ------- | ---- | ------- | 
|                                            |         | Year Ended December 31,                 |        
|                                            |         |                                         |        
|                                            |         | 2002                                    |         |      | 2003    |   |         | 2004 |        
|                                            |         |                                         |         |      |         |   |         |      |        
|                                            |         | (Dollars in thousands, except per share |        
|                                            |         | amounts)                                |        
|Revenue                                     |         |                                         |         |      |         |   |         |      |         |   |         |     
|Service revenue                             |         | $                                       | 176,365 |      |         | $ | 247,888 |      |         | $ | 277,479 |     
|Reimbursement revenue                       |         |                                         | 24,648  |      |         |   | 42,109  |      |         |   | 30,165  |     
|                                            |         |                                         |         |      |         |   |         |      |        
|                                            |         | Total revenue                           |         |      | 201,013 |   |         |      | 289,997 |   |         |      | 307,644 | 
|Operating expenses                          |         |                                         |         |      |         |   |         |      |         |   |         |     
|Direct costs                                |         |                                         | 94,761  |      |         |   | 126,501 |      |         |   | 134,067 |     
|Reimbursable out-of-pocket costs            |         |                                         | 24,648  |      |         |   | 42,109  |      |         |   | 30,165  |     
|Selling, general, and administrative        |         |                                         | 57,897  |      |         |   | 80,585  |      |         |   | 90,139  |     
|Option purchase                             |         |                                         |        |      |         |   |        |      |         |   | 3,713   |     
|Employee per option bonus related to tender |         |                                         |        |      |         |   |        |      |         |   | 2,738   |     
|Depreciation and amortization               |         |                                         | 6,956   |      |         |   | 8,967   |      |         |   | 9,691   |     
|Management fee                              |         |                                         | 800     |      |         |   | 800     |      |         |   | 704     |     
|                                            |         |                                         |         |      |         |   |         |      |        
|                                            |         | Income from operations                  |         |      | 15,951  |   |         |      | 31,035  |   |         |      | 36,427  | 
|Interest expense                            |         |                                         | (4,247  | )    |         |   | (7,190  | )    |         |   | (4,023  | )   
|Interest income                             |         |                                         | 147     |      |         |   | 334     |      |         |   | 380     |     
|Other expenses, net                         |         |                                         | (721    | )    |         |   | (4,023  | )    |         |   | (38     | )   
|                                            |         |                                         |         |      |         |   |         |      |        
|Income before income taxes                  |         |                                         | 11,130  |      |         |   | 20,156  |      |         |   | 32,746  |     
|Provision for income taxes                  |         |                                         | 5,493   |      |         |   | 6,909   |      |         |   | 11,997  |     
|                                            |         |                                         |         |      |         |   |         |      |        
|                                            |         | Net income                              |         | $    | 5,637   |   |         | $    | 13,247  |   |         | $    | 20,749  | 
|                                            |         |                                         |         |      |         |   |         |      |        
|Net income per share                        |         |                                         |         |      |         |   |         |      |         |   |         |     
|                                            | Basic   |                                         | $       | 0.37 |         |   | $       | 0.83 |         |   | $       | 1.13 |        
|                                            | Diluted |                                         | $       | 0.32 |         |   | $       | 0.71 |         |   | $       | 1.02 |        



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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS


EQUITY AND OTHER COMPREHENSIVE INCOME


|                                |                                                                                     |                                                                          |            |                     |   |                |     |           |   |              |           |            |   |               |    |              |   |              |   |               |   |          |   |       |   |        |        |       |   |   |       |       |   |   |      |   |   |   |       |   |      |   |        |        |   |   |        |        |      |   |   |        |      |  
|------------------------------- | ----------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ---------- | ------------------- | - | -------------- | --- | --------- | - | ------------ | --------- | ---------- | - | ------------- | -- | ------------ | - | ------------ | - | ------------- | - | -------- | - | ----- | - | ------ | ------ | ----- | - | - | ----- | ----- | - | - | ---- | - | - | - | ----- | - | ---- | - | ------ | ------ | - | - | ------ | ------ | ---- | - | - | ------ | ---- | -
|                                |                                                                                     |                                                                          |            |                     |   |                |     |           |   |              |           |            |   | Additional    |    | Additional   |   |              |   |               |   |          |   |       |   |       
|                                |                                                                                     |                                                                          |            |                     |   |                |     | Paid-In   |   | Paid-In      |           | Notes      |   | Accumulated   |    | Retained     |   |              |   | Other        
|                                |                                                                                     | Common Stock                                                             |            | Exchangeable Shares |   | Treasury Stock |     | Capital  |   | Capital     |           | Receivable |   | Other         |    | Earnings/    |   |              |   | Comprehensive
|                                |                                                                                     |                                                                          |            |                     |   |                |     | Common    |   | Exchangeable |           | from       |   | Comprehensive |    | (Accumulated |   |              |   | Income/      
|                                |                                                                                     | Shares                                                                   |            | Amount              |   | Shares         |     | Amount    |   | Shares       |           | Amount     |   | Stock         |    | Shares       |   | Stockholders |   | Income/(Loss) |   | Deficit) |   | Total |   | (Loss)
|                                |                                                                                     |                                                                          |            |                     |   |                |     |           |   |              |           |            |   |               |    |              |   |              |   |               |   |          |   |       |   |       
|Balance as of December 31, 2001 |                                                                                     |                                                                          | 14,458,588 |                     |   | $              | 145 |           |   |              |          |            |   | $             |   |              |   |              |  |               |   | $        |  |       |   | $      | 43,663 |       |   | $ |      |       |   | $ | (401 | ) |   | $ | (26   | ) |      | $ | (128   | )      |   | $ | 43,253 |        |      |   |   |       
|                                | Issuance of equity securities in connection with purchase
    business combinations |                                                                          |            | 227,824             |   |                |     | 2         |   |              |           | 1,115,796  |   |               |    | 11           |   |              |   |              |   |          |   |      |   |        |        | 2,431 |   |   |       | 7,102 |   |   |      |  |   |   |       |  |      |   |        |       |   |   |        | 9,546  |      |   |   |        |     
|                                | Exercise of common stock options                                                    |                                                                          |            | 71,520              |   |                |     | 1         |   |              |           |           |   |               |    |             |   |              |   |              |   |          |   |      |   |        |        | 2     |   |   |       |      |   |   |      |  |   |   |       |  |      |   |        |       |   |   |        | 3      |      |   |   |        |     
|                                | Net income                                                                          |                                                                          |            |                    |   |                |     |          |   |              |           |           |   |               |    |             |   |              |   |              |   |          |   |      |   |        |        |      |   |   |       |      |   |   |      |  |   |   |       |  |      |   |        | 5,637  |   |   |        | 5,637  |      |   | $ | 5,637  |     
|                                | Other comprehensive income                                                          |                                                                          |            |                     |   |                |     |           |   |              |           |            |   |               |    |              |   |              |   |               |   |          |   |       |   |        |        |       |   |   |       |       |   |   |      |   |   |   |       |   |      |   |        |        |   |   |        |        |      |   |   |        |     
|                                |                                                                                     | Foreign currency translation adjustment, net of tax                      |            |                     |  |                |     |           |  |              |           |            |  |               |    |              |  |              |   |               |  |          |   |       |  |        |        |       |  |   |       |       |  |   |      |   |  |   |       |   | 931  |   |        |        |  |   |        |        | 931  |   |   |        | 931  |  
|                                |                                                                                     | Fair market value adjustments on interest rate agreement, net of
    tax |            |                     |  |                |     |           |  |              |           |            |  |               |    |              |  |              |   |               |  |          |   |       |  |        |        |       |  |   |       |       |  |   |      |   |  |   |       |   | (282 | ) |        |        |  |   |        |        | (282 | ) |   |        | (282 | )
|                                |                                                                                     |                                                                          |            |                     |   |                |     |           |   |              |           |            |   |               |    |              |   |              |   |               |   |          |   |       |   |        |        |       |   |   |       |       |   |   |      |   |   |   |       |   |      |   |        |        |   |   |        |        |      |   |   |       
|                                | Comprehensive income                                                                |                                                                          |            |                     |   |                |     |           |   |              |           |            |   |               |    |              |   |              |   |               |   |          |   |       |   |        |        |       |   |   |       |       |   |   |      |   |   |   |       |   |      |   |        |        |   |   |        |        |      |   | $ | 6,286  |     
|                                |                                                                                     |                                                                          |            |                     |   |                |     |           |   |              |           |            |   |               |    |              |   |              |   |               |   |          |   |       |   |        |        |       |   |   |       |       |   |   |      |   |   |   |       |   |      |   |        |        |   |   |        |        |      |   |   |       
|Balance as of December 31, 2002 |                                                                                     |                                                                          | 14,757,932 |                     |   |                | 148 |           |   |              | 1,115,796 |            |   |               | 11 |              |   |              |  |               |   |          |  |       |   |        | 46,096 |       |   |   | 7,102 |       |   |   | (401 | ) |   |   | 623   |   |      |   | 5,509  |        |   |   | 59,088 |        |      |   |   |       
|                                | Issuance of common stock in connection with purchase business
    combination       |                                                                          |            | 156,824             |   |                |     | 2         |   |              |           |           |   |               |    |             |   |              |   |              |   |          |   |      |   |        |        | 1,174 |   |   |       |      |   |   |      |  |   |   |       |  |      |   |        |       |   |   |        | 1,176  |      |   |   |        |     
|                                | Exercise of common stock options                                                    |                                                                          |            | 115,088             |   |                |     | 1         |   |              |           |           |   |               |    |             |   |              |   |              |   |          |   |      |   |        |        | 36    |   |   |       |      |   |   |      |  |   |   |       |  |      |   |        |       |   |   |        | 37     |      |   |   |        |     
|                                | Exercise of warrants                                                                |                                                                          |            | 243,200             |   |                |     | 2         |   |              |           |           |   |               |    |             |   |              |   |              |   |          |   |      |   |        |        |      |   |   |       |      |   |   |      |  |   |   |       |  |      |   |        |       |   |   |        | 2      |      |   |   |        |     
|                                | Net income                                                                          |                                                                          |            |                    |   |                |     |          |   |              |           |           |   |               |    |             |   |              |   |              |   |          |   |      |   |        |        |      |   |   |       |      |   |   |      |  |   |   |       |  |      |   |        | 13,247 |   |   |        | 13,247 |      |   | $ | 13,247 |     
|                                | Other comprehensive income                                                          |                                                                          |            |                     |   |                |     |           |   |              |           |            |   |               |    |              |   |              |   |               |   |          |   |       |   |        |        |       |   |   |       |       |   |   |      |   |   |   |       |   |      |   |        |        |   |   |        |        |      |   |   |        |     
|                                |                                                                                     | Foreign currency translation adjustment, net of tax                      |            |                     |  |                |     |           |  |              |           |            |  |               |    |              |  |              |   |               |  |          |   |       |  |        |        |       |  |   |       |       |  |   |      |   |  |   |       |   | 908  |   |        |        |  |   |        |        | 908  |   |   |        | 908  |  
|                                |                                                                                     | Fair market value adjustments on interest rate agreement, net of
    tax |            |                     |  |                |     |           |  |              |           |            |  |               |    |              |  |              |   |               |  |          |   |       |  |        |        |       |  |   |       |       |  |   |      |   |  |   |       |   | 107  |   |        |        |  |   |        |        | 107  |   |   |        | 107  |  
|                                |                                                                                     |                                                                          |            |                     |   |                |     |           |   |              |           |            |   |               |    |              |   |              |   |               |   |          |   |       |   |        |        |       |   |   |       |       |   |   |      |   |   |   |       |   |      |   |        |        |   |   |        |        |      |   |   |       
|                                | Comprehensive income                                                                |                                                                          |            |                     |   |                |     |           |   |              |           |            |   |               |    |              |   |              |   |               |   |          |   |       |   |        |        |       |   |   |       |       |   |   |      |   |   |   |       |   |      |   |        |        |   |   |        |        |      |   | $ | 14,262 |     
|                                |                                                                                     |                                                                          |            |                     |   |                |     |           |   |              |           |            |   |               |    |              |   |              |   |               |   |          |   |       |   |        |        |       |   |   |       |       |   |   |      |   |   |   |       |   |      |   |        |        |   |   |        |        |      |   |   |       
|Balance as of December 31, 2003 |                                                                                     |                                                                          | 15,273,044 |                     |   | $              | 153 |           |   |              | 1,115,796 |            |   | $             | 11 |              |   |              |  |               |   | $        |  |       |   | $      | 47,306 |       |   | $ | 7,102 |       |   | $ | (401 | ) |   | $ | 1,638 |   |      | $ | 18,756 |        |   | $ | 74,565 |        |      |   |   |       



F-5



---



##### Table of Contents



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS


EQUITY AND OTHER COMPREHENSIVE INCOME


|                                |                                                                                                |                                                                          |            |           |                     |   |     |                |   |   |           |            |   |              |    |     |             |  |        |               |   |   |              |     |       |              |         |               |               |   |       |          |   |   |       |        |   |        |       |   |       |   |        |         |   |   |         |         |       |  |   |        |       | 
|------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ---------- | --------- | ------------------- | - | --- | -------------- | - | - | --------- | ---------- | - | ------------ | -- | --- | ----------- |  | ------ | ------------- | - | - | ------------ | --- | ----- | ------------ | ------- | ------------- | ------------- | - | ----- | -------- | - | - | ----- | ------ | - | ------ | ----- | - | ----- | - | ------ | ------- | - | - | ------- | ------- | ----- |  | - | ------ | ----- | 
|                                |                                                                                                |                                                                          |            |           |                     |   |     |                |   |   |           |            |   | Additional   |    |     | Additional  |  |        |               |   |   |              |     |       |              |         |              
|                                |                                                                                                |                                                                          |            |           |                     |   |     | Paid-In        |   |   | Paid-In   |            |   | Notes        |    |     | Accumulated |  |        | Retained      |   |   |              |     | Other |             
|                                |                                                                                                | Common Stock                                                             |            |           | Exchangeable Shares |   |     | Treasury Stock |   |   | Capital  |            |   | Capital     |    |     | Receivable  |  |        | Other         |   |   | Earnings/    |     |       |              |         | Comprehensive |              
|                                |                                                                                                |                                                                          |            |           |                     |   |     |                |   |   | Common    |            |   | Exchangeable |    |     | from        |  |        | Comprehensive |   |   | (Accumulated |     |       |              |         | Income/       |              
|                                |                                                                                                | Shares                                                                   |            |           | Amount              |   |     | Shares         |   |   | Amount    |            |   | Shares       |    |     | Amount      |  |        | Stock         |   |   | Shares       |     |       | Stockholders |         |               | Income/(Loss) |   |       | Deficit) |   |   | Total |        |   | (Loss) |      
|                                |                                                                                                |                                                                          |            |           |                     |   |     |                |   |   |           |            |   |              |    |     |             |  |        |               |   |   |              |     |       |              |         |               |               |   |       |          |   |   |       |        |   |        |      
|Balance as of December 31, 2003 |                                                                                                |                                                                          | 15,273,044 |           |                     | $ | 153 |                |   |   | 1,115,796 |            |   | $            | 11 |     |             |  |       |               |   | $ |             |     |       | $            | 47,306  |               |               | $ | 7,102 |          |   | $ | (401  | )      |   | $      | 1,638 |   |       | $ | 18,756 |         |   | $ | 74,565  |         |       |  |   |       
|                                | Issuance of common stock for cash and stock                                                    |                                                                          |            | 14,116    |                     |   |     |               |   |   |           |           |   |              |    |    |             |  |        |              |   |   |              |    |       |              |         | 150           |               |   |       |         |   |   |       |       |   |        |       |  |       |   |        |        |   |   |         | 150     |       |  |   |        |      
|                                | Exercise of common stock options                                                               |                                                                          |            | 1,212,174 |                     |   |     | 12             |   |   |           |           |   |              |    |    |             |  |        |              |   |   |              |    |       |              |         | 2,766         |               |   |       |         |   |   |       | (1,777 | ) |        |       |  |       |   |        |        |   |   |         | 1,001   |       |  |   |        |      
|                                | Exercise of warrants                                                                           |                                                                          |            | 729,596   |                     |   |     | 7              |   |   |           |           |   |              |    |    |             |  |        |              |   |   |              |    |       |              |         | (6            | )             |   |       |         |   |   |       |       |   |        |       |  |       |   |        |        |   |   |         | 1       |       |  |   |        |      
|                                | Purchase of treasury stock                                                                     |                                                                          |            | (14,216   | )                   |   |     |               |   |   |           |           |   |              |    |    |             |  |        | 14,216        |   |   |              | (93 | )     |              |         |              |               |   |       |         |   |   |       |       |   |        |       |  |       |   |        |        |   |   |         | (93     | )     |  |   |        |      
|                                | Declaration of dividends                                                                       |                                                                          |            |          |                     |   |     |               |   |   |           |           |   |              |    |    |             |  |        |              |   |   |              |    |       |              |         |              |               |   |       |         |   |   |       |       |   |        |       |  |       |   |        | (16,851 | ) |   |         | (16,851 | )     |  | $ | 20,749 |      
|                                | Net income                                                                                     |                                                                          |            |          |                     |   |     |               |   |   |           |           |   |              |    |    |             |  |        |              |   |   |              |    |       |              |         |              |               |   |       |         |   |   |       |       |   |        |       |  |       |   |        | 20,749  |   |   |         | 20,749  |       |  |   |        |      
|                                | Interest on notes receivable from stockholders                                                 |                                                                          |            |          |                     |   |     |               |   |   |           |           |   |              |    |    |             |  |        |              |   |   |              |    |       |              |         |              |               |   |       |         |   |   |       | (113   | ) |        |       |  |       |   |        |        |   |   |         | (113    | )     |  |   |        |      
|                                | Payment on notes receivable from stockholders                                                  |                                                                          |            |          |                     |   |     |               |   |   |           |           |   |              |    |    |             |  |        |              |   |   |              |    |       |              |         |              |               |   |       |         |   |   |       | 2,291  |   |        |       |  |       |   |        |        |   |   |         | 2,291   |       |  |   |        |      
|                                | Issuance of common stock in connection with initial public
    offering, net of $6,564 in fees |                                                                          |            | 4,007,312 |                     |   |     | 40             |   |   |           |           |   |              |    |    |             |  |        |              |   |   |              |    |       |              |         | 67,419        |               |   |       |         |   |   |       |       |   |        |       |  |       |   |        |        |   |   |         | 67,459  |       |  |   |        |      
|                                | Transfer of exchangeable shares                                                                |                                                                          |            | 1,115,796 |                     |   |     | 11             |   |   |           | (1,115,796 | ) |              |    | (11 | )           |  |        |              |   |   |              |    |       |              |         | 7,102         |               |   |       | (7,102   | ) |   |       |       |   |        |       |  |       |   |        |        |   |   |         |        |       |  |   |        |      
|                                | Other comprehensive income                                                                     |                                                                          |            |           |                     |   |     |                |   |   |           |            |   |              |    |     |             |  |        |               |   |   |              |     |       |              |         |               |               |   |       |          |   |   |       |        |   |        |       |   |       |   |        |         |   |   |         |         |       |  |   |        |      
|                                |                                                                                                | Foreign currency translation adjustment, net of tax                      |            |           |                    |   |     |                |  |   |           |            |  |              |    |     |            |  |        |               |  |   |              |     |      |              |         |               |              |   |       |          |  |   |       |        |  |        |       |   | 1,175 |   |        |         |  |   |         |         | 1,175 |  |   |        | 1,175 | 
|                                |                                                                                                | Fair market value adjustments on interest rate agreement, net of
    tax |            |           |                    |   |     |                |  |   |           |            |  |              |    |     |            |  |        |               |  |   |              |     |      |              |         |               |              |   |       |          |  |   |       |        |  |        |       |   | 45    |   |        |         |  |   |         |         | 45    |  |   |        | 45    | 
|                                |                                                                                                |                                                                          |            |           |                     |   |     |                |   |   |           |            |   |              |    |     |             |  |        |               |   |   |              |     |       |              |         |               |               |   |       |          |   |   |       |        |   |        |      
|                                | Comprehensive income                                                                           |                                                                          |            |           |                     |   |     |                |   |   |           |            |   |              |    |     |             |  |        |               |   |   |              |     |       |              |         |               |               |   |       |          |   |   |       |        |   |        |       |   |       |   |        |         |   |   |         |         |       |  | $ | 21,969 |      
|                                |                                                                                                |                                                                          |            |           |                     |   |     |                |   |   |           |            |   |              |    |     |             |  |        |               |   |   |              |     |       |              |         |               |               |   |       |          |   |   |       |        |   |        |      
|Balance as of December 31, 2004 |                                                                                                |                                                                          | 22,337,822 |           |                     | $ | 223 |                |   | $ |          |            |   | $            |   |     |             |  | 14,216 |               |   | $ | (93          | )   |       | $            | 124,737 |               |               | $ |      |          |   | $ |      |        |   | $      | 2,858 |   |       | $ | 22,654 |         |   | $ | 150,379 |         |       |  |   |       
|                                |                                                                                                |                                                                          |            |           |                     |   |     |                |   |   |           |            |   |              |    |     |             |  |        |               |   |   |              |     |       |              |         |               |               |   |       |          |   |   |       |        |   |        |      



F-6



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                      |                                     |                                                     |                                           |        |         |         |         |        |         |        |         |       |        |         |  
|------------------------------------------------------------------------------------- | ----------------------------------- | --------------------------------------------------- | ----------------------------------------- | ------ | ------- | ------- | ------- | ------ | ------- | ------ | ------- | ----- | ------ | ------- | -
|                                                                                      |                                     | Year Ended December 31,                             |                                          
|                                                                                      |                                     |                                                     |                                          
|                                                                                      |                                     | 2002                                                |                                           |        | 2003    |         |         | 2004   |        
|                                                                                      |                                     |                                                     |                                           |        |         |         |         |        |        
|                                                                                      |                                     | (Dollars in thousands)                              |                                          
|Cash flow from operating activities                                                   |                                     |                                                     |                                           |        |         |         |         |        |         |        |         |      
|Net income                                                                            |                                     | $                                                   | 5,637                                     |        |         | $       | 13,247  |        |         | $      | 20,749  |      
|Adjustments to reconcile net income to net cash provided by
    operating activities: |                                     |                                                     |                                           |        |         |         |         |        |         |        |         |      
|                                                                                      | Depreciation and amortization       |                                                     |                                           | 6,956  |         |         |         | 8,967  |         |        |         | 9,691 |       
|                                                                                      | Provision for doubtful receivables  |                                                     |                                           | 1,888  |         |         |         | 4,851  |         |        |         | 1,914 |       
|                                                                                      | Amortization of debt discount       |                                                     |                                           | 379    |         |         |         | 1,642  |         |        |         |      |       
|                                                                                      | Provision for deferred income taxes |                                                     |                                           | (1,228 | )       |         |         | (3,997 | )       |        |         | 2,606 |       
|                                                                                      | Debt issuance costs writeoff        |                                                     |                                           |       |         |         |         | 750    |         |        |         | 1,241 |       
|                                                                                      | Changes in assets and liabilities:  |                                                     |                                           |        |         |         |         |        |         |        |         |       |       
|                                                                                      |                                     | Accounts receivable and unbilled services           |                                           |        | (29,251 | )       |         |        | (18,538 | )      |         |       | 15,373 |        
|                                                                                      |                                     | Prepaid expenses and other assets                   |                                           |        | 1,444   |         |         |        | 408     |        |         |       | 1,226  |        
|                                                                                      |                                     | Accounts payable and accrued expenses               |                                           |        | 3,481   |         |         |        | (4,873  | )      |         |       | 7,793  |        
|                                                                                      |                                     | Income taxes                                        |                                           |        | 989     |         |         |        | (481    | )      |         |       | 12,150 |        
|                                                                                      |                                     | Advance billings                                    |                                           |        | 38,147  |         |         |        | 82      |        |         |       | (1,107 | )      
|                                                                                      |                                     |                                                     |                                           |        |         |         |         |        |        
|                                                                                      |                                     |                                                     | Net cash provided by operating activities |        |         | 28,442  |         |        |         | 2,058  |         |       |        | 71,636  |  
|                                                                                      |                                     |                                                     |                                           |        |         |         |         |        |        
|Cash flow from investing activities                                                   |                                     |                                                     |                                           |        |         |         |         |        |         |        |         |      
|Purchase of fixed assets                                                              |                                     |                                                     | (7,763                                    | )      |         |         | (8,140  | )      |         |        | (8,781  | )    
|Disposal of fixed assets                                                              |                                     |                                                     |                                          |        |         |         | 540     |        |         |        | 1,131   |      
|Purchase of marketable securities                                                     |                                     |                                                     |                                          |        |         |         |        |        |         |        | (24,500 | )    
|Cash paid for acquisitions, net of cash acquired                                      |                                     |                                                     | (16,862                                   | )      |         |         | (1,999  | )      |         |        | (200    | )    
|                                                                                      |                                     |                                                     |                                           |        |         |         |         |        |        
|                                                                                      |                                     |                                                     | Net cash used in investing activities     |        |         | (24,625 | )       |        |         | (9,599 | )       |       |        | (32,350 | )
|                                                                                      |                                     |                                                     |                                           |        |         |         |         |        |        
|Cash flow from financing activities                                                   |                                     |                                                     |                                           |        |         |         |         |        |         |        |         |      
|Proceeds from issuance of debt                                                        |                                     |                                                     | 10,758                                    |        |         |         | 69,700  |        |         |        | 5,000   |      
|Repayment of debt and capital leases                                                  |                                     |                                                     | (25,341                                   | )      |         |         | (43,710 | )      |         |        | (65,275 | )    
|Proceeds from initial public offering, net of issuance costs                          |                                     |                                                     |                                          |        |         |         |        |        |         |        | 67,020  |      
|Issuance of stockholder notes receivable                                              |                                     |                                                     |                                          |        |         |         |        |        |         |        | (1,777  | )    
|Stockholder receivable payment                                                        |                                     |                                                     |                                          |        |         |         |        |        |         |        | 2,178   |      
|Payment of dividends                                                                  |                                     |                                                     |                                          |        |         |         |        |        |         |        | (16,852 | )    
|Purchase of treasury stock                                                            |                                     |                                                     |                                          |        |         |         |        |        |         |        | (93     | )    
|Proceeds from stock option and warrant exercises                                      |                                     |                                                     | 2                                         |        |         |         | 38      |        |         |        | 3,369   |      
|                                                                                      |                                     |                                                     |                                           |        |         |         |         |        |        
|                                                                                      |                                     | Net cash provided by (used in) financing activities |                                           |        | (14,581 | )       |         |        | 26,028  |        |         |       | (6,430 | )      
|Effect of exchange rate on cash and cash equivalents                                  |                                     |                                                     | 850                                       |        |         |         | 43      |        |         |        | 704     |      
|                                                                                      |                                     |                                                     |                                           |        |         |         |         |        |        
|Increase (decrease) in cash and cash equivalents                                      |                                     |                                                     | (9,914                                    | )      |         |         | 18,530  |        |         |        | 33,560  |      
|Cash and cash equivalents at beginning of period                                      |                                     |                                                     | 23,712                                    |        |         |         | 13,798  |        |         |        | 32,328  |      
|                                                                                      |                                     |                                                     |                                           |        |         |         |         |        |        
|Cash and cash equivalents at end of period                                            |                                     | $                                                   | 13,798                                    |        |         | $       | 32,328  |        |         | $      | 65,888  |      
|                                                                                      |                                     |                                                     |                                           |        |         |         |         |        |        
|Supplemental disclosure of cash flow information                                      |                                     |                                                     |                                           |        |         |         |         |        |         |        |         |      
|                                                                                      | Cash paid for taxes                 |                                                     | $                                         | 4,951  |         |         | $       | 11,666 |         |        | $       | 3,890 |       
|                                                                                      |                                     |                                                     |                                           |        |         |         |         |        |        
|                                                                                      | Cash paid for interest              |                                                     | $                                         | 3,995  |         |         | $       | 4,980  |         |        | $       | 2,630 |       
|                                                                                      |                                     |                                                     |                                           |        |         |         |         |        |        



F-7



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|    |                                                          
|--- | ---------------------------------------------------------
|(1) | Summary of Operations and Significant Accounting Policies



| |                     
| | --------------------
| | Nature of Operations









| |                            
| | ---------------------------
| | Principles of Consolidation





| |                        
| | -----------------------
| | Risks and Other Factors







| |                 
| | ----------------
| | Use of Estimates



F-8



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                 
| | ----------------
| | Cash Equivalents





| |                  
| | -----------------
| | Unbilled Services





| |             
| | ------------
| | Fixed Assets



|                               |  |                                              
|------------------------------ |  | ---------------------------------------------
|Furniture and equipment        |  | 7 years                                      
|Computer hardware and software |  | 3-7 years                                    
|Leasehold improvements         |  | The shorter of 10 years
    or the lease term



| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets





| |                               
| | ------------------------------
| | Goodwill and Other Intangibles





| |                 
| | ----------------
| | Advance Billings



F-9



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                    
| | -------------------
| | Revenue Recognition









| |                                                               
| | --------------------------------------------------------------
| | Reimbursement Revenue and Reimbursable Out-of-Pocket
    Costs







| |                      
| | ---------------------
| | Significant Customers



|           |  |              |    |   |      |  |    |      |  |  |    |  
|---------- |  | ------------ | -- | - | ---- |  | -- | ---- |  |  | -- | -
|           |  | Year Ended   |   
|           |  | December 31, |   
|           |  |              |   
|           |  | 2002         |    |   | 2003 |  |    | 2004 | 
|           |  |              |    |   |      |  |    |      | 
|Customer A |  |              | 12 | % |      |  | *  |      |  |  | *  |  
|Customer B |  |              | *  |   |      |  | 11 | %    |  |  | 16 | %
|Customer C |  |              | *  |   |      |  | 10 | %    |  |  | 12 | %






|  |                                                                             
|- | ----------------------------------------------------------------------------
|* | Less than 10% of consolidated service revenues in the respective
    period.





| |                             
| | ----------------------------
| | Concentration of Credit Risk



F-10



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|           |  |              |    |   |      |  |    |  
|---------- |  | ------------ | -- | - | ---- |  | -- | -
|           |  | As of        |   
|           |  | December 31, |   
|           |  |              |   
|           |  | 2003         |    |   | 2004 | 
|           |  |              |    |   |      | 
|Customer B |  |              | 10 | % |      |  | 16 | %
|Customer C |  |              | *  |   |      |  | 15 | %






|  |                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------
|* | Less than 10% of consolidated accounts receivable and unbilled
    services as of the end of each period.





| |                             
| | ----------------------------
| | Foreign Currency Translation





| |                            
| | ---------------------------
| | Comprehensive Income (Loss)





| |             
| | ------------
| | Income Taxes





| |                         
| | ------------------------
| | Stock-Based Compensation



F-11



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                    |  |                                   |       |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                    |  | Year Ended December 31,           |      
|                                                                                                                                    |  |                                   |      
|                                                                                                                                    |  | 2002                              |       |   | 2003 |   |        | 2004 | 
|                                                                                                                                    |  |                                   |       |   |      |   |        |      | 
|                                                                                                                                    |  | (Dollars in thousands, except per |      
|                                                                                                                                    |  | share amounts)                    |      
|Net income, as reported                                                                                                             |  | $                                 | 5,637 |   |      | $ | 13,247 |      |  | $ | 20,749 |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards,
    net of tax |  |                                   | (176  | ) |      |   | (281   | )    |  |   | (398   | )
|                                                                                                                                    |  |                                   |       |   |      |   |        |      | 
|FAS No. 123 pro forma net income                                                                                                    |  | $                                 | 5,461 |   |      | $ | 12,966 |      |  | $ | 20,351 |  
|                                                                                                                                    |  |                                   |       |   |      |   |        |      | 
|Basic net income per share, as reported                                                                                             |  | $                                 | 0.37  |   |      | $ | 0.83   |      |  | $ | 1.13   |  
|Basic net income per share, pro forma                                                                                               |  | $                                 | 0.36  |   |      | $ | 0.81   |      |  | $ | 1.10   |  
|Diluted net income per share, as reported                                                                                           |  | $                                 | 0.32  |   |      | $ | 0.71   |      |  | $ | 1.02   |  
|Diluted net income per share, pro forma                                                                                             |  | $                                 | 0.31  |   |      | $ | 0.69   |      |  | $ | 1.00   |  





|                                               |  |                         |      |   |      |   |      |      |  |   |       |  
|---------------------------------------------- |  | ----------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ----- | -
|                                               |  | Year Ended December 31, |     
|                                               |  |                         |     
|                                               |  | 2002                    |      |   | 2003 |   |      | 2004 | 
|                                               |  |                         |      |   |      |   |      |      | 
|Weighted-average fair value of options granted |  | $                       | 0.83 |   |      | $ | 0.75 |      |  | $ | 5.29  |  
|Risk-free rate                                 |  |                         | 3.50 | % |      |   | 2.54 | %    |  |   | 3.25  | %
|Expected life, in years                        |  |                         | 4.0  |   |      |   | 4.0  |      |  |   | 4.6   |  
|Dividend yield                                 |  |                         | 0    | % |      |   | 0    | %    |  |   | 0     | %
|Volatility                                     |  |                         | 0    | % |      |   | 0    | %    |  |   | 25.23 | %



| |                    
| | -------------------
| | Debt Issuance Costs





| |                     
| | --------------------
| | Net income per share





F-12



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |            
| | -----------
| | Derivatives





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements







| |                 
| | ----------------
| | Reclassification





|    |             
|--- | ------------
|(2) | Acquisitions





| |                         
| | ------------------------
| | ClinCare Consulting BVBA



F-13



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                     |  |   |       |  
|---------------------------------------------------- |  | - | ----- | -
|Accounts receivable                                  |  | $ | 266   |  
|Other current assets                                 |  |   | 23    |  
|Fixed assets and other tangible assets               |  |   | 15    |  
|Goodwill and identifiable intangibles                |  |   | 2,686 |  
|Liabilities                                          |  |   | (196  | )
|                                                     |  |   |      
|Purchase price, net of cash acquired of $1.2 million |  | $ | 2,794 |  
|                                                     |  |   |      



| |                
| | ---------------
| | Valid-Trio GmbH





| |                             
| | ----------------------------
| | CroMedica International Inc.





|                  |  |   |         |  
|----------------- |  | - | ------- | -
|Other assets      |  | $ | 19,038  |  
|Other liabilities |  |   | (24,980 | )
|Goodwill          |  |   | 28,351  |  
|Intangible assets |  |   | 2,917   |  
|                  |  |   |        
|                  |  | $ | 25,326  |  
|                  |  |   |        



| |                                  
| | ---------------------------------
| | Staticon International España, SA



F-14



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                       |  |   |        |  
|-------------------------------------- |  | - | ------ | -
|Accounts receivable                    |  | $ | 484    |  
|Fixed assets and other tangible assets |  |   | 1,007  |  
|Goodwill                               |  |   | 2,432  |  
|Intangibles                            |  |   | 908    |  
|Liabilities                            |  |   | (1,491 | )
|                                       |  |   |       
|                                       |  | $ | 3,340  |  
|                                       |  |   |       



|    |                      
|--- | ---------------------
|(3) | Marketable securities





|    |                                          
|--- | -----------------------------------------
|(4) | Accounts receivable and unbilled services



|                                      |  |                    |         |   |      |   |        |  
|------------------------------------- |  | ------------------ | ------- | - | ---- | - | ------ | -
|                                      |  | As of December 31, |        
|                                      |  |                    |        
|                                      |  | 2003               |         |   | 2004 |  
|                                      |  |                    |         |   |      |  
|Accounts receivable                   |  | $                  | 55,584  |   |      | $ | 59,384 |  
|Unbilled services                     |  |                    | 48,513  |   |      |   | 29,993 |  
|                                      |  |                    |         |   |      |  
|                                      |  |                    | 104,097 |   |      |   | 89,377 |  
|Less: Allowance for doubtful accounts |  |                    | (4,580  | ) |      |   | (4,897 | )
|                                      |  |                    |         |   |      |  
|                                      |  | $                  | 99,517  |   |      | $ | 84,480 |  
|                                      |  |                    |         |   |      |  



|    |             
|--- | ------------
|(5) | Fixed assets



|                                                |  |                    |         |   |      |   |         |  
|----------------------------------------------- |  | ------------------ | ------- | - | ---- | - | ------- | -
|                                                |  | As of December 31, |        
|                                                |  |                    |        
|                                                |  | 2003               |         |   | 2004 |  
|                                                |  |                    |         |   |      |  
|Leasehold improvements                          |  | $                  | 3,880   |   |      | $ | 4,714   |  
|Computer hardware and software                  |  |                    | 23,731  |   |      |   | 30,473  |  
|Furniture and equipment                         |  |                    | 8,803   |   |      |   | 9,856   |  
|Less: Accumulated depreciation and amortization |  |                    | (14,539 | ) |      |   | (23,382 | )
|                                                |  |                    |         |   |      |  
|                                                |  | $                  | 21,875  |   |      | $ | 21,661  |  
|                                                |  |                    |         |   |      |  

F-15



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                               
|--- | ------------------------------
|(6) | Goodwill and Other Intangibles



|                                                   |  |   |         |  
|-------------------------------------------------- |  | - | ------- | -
|Carrying amount as of December 31, 2002            |  | $ | 100,560 |  
|Acquisitions                                       |  |   | 3,283   |  
|Adjustments to finalize purchase price allocations |  |   | (5,662  | )
|Foreign currency exchange rate changes             |  |   | 2,756   |  
|                                                   |  |   |        
|Carrying amount as of December 31, 2003            |  |   | 100,937 |  
|Foreign currency exchange rate changes             |  |   | 403     |  
|                                                   |  |   |        
|Carrying amount as of December 31, 2004            |  | $ | 101,340 |  
|                                                   |  |   |        



|                                 |  |              |            |  |                         |   |        |                         |  |       |              |  |  |          |        |  |              |   |        |          |  |   |       |  |  |   |        | 
|-------------------------------- |  | ------------ | ---------- |  | ----------------------- | - | ------ | ----------------------- |  | ----- | ------------ |  |  | -------- | ------ |  | ------------ | - | ------ | -------- |  | - | ----- |  |  | - | ------ | 
|                                 |  | Weighted     |            |  | As of December 31, 2003 |   |        | As of December 31, 2004 | 
|                                 |  | Average      |            |  |                         |   |        |                         | 
|                                 |  | Amortization |            |  | Gross                   |   |        |                         |  | Gross |              |  |  |          | Net    | 
|                                 |  | Period       |            |  | Carrying                |   |        | Accumulated             |  |       | Net Carrying |  |  | Carrying |        |  | Accumulated  |   |        | Carrying | 
|                                 |  | (in Years)   |            |  | Amount                  |   |        | Amortization            |  |       | Amount       |  |  | Amount   |        |  | Amortization |   |        | Amount   | 
|                                 |  |              |            |  |                         |   |        |                         |  |       |              |  |  |          |        |  |              |   |        |          | 
|Non-compete and other agreements |  |              | 2          |  |                         | $ | 2,198  |                         |  | $     | 2,131        |  |  | $        | 67     |  |              | $ | 2,776  |          |  | $ | 2,442 |  |  | $ | 334    | 
|Customer relationships           |  |              | 10         |  |                         |   | 7,879  |                         |  |       | 1,501        |  |  |          | 6,378  |  |              |   | 7,897  |          |  |   | 2,319 |  |  |   | 5,578  | 
|Trade names                      |  |              | Indefinite |  |                         |   | 19,954 |                         |  |       | 500          |  |  |          | 19,454 |  |              |   | 19,970 |          |  |   | 473   |  |  |   | 19,497 | 
|                                 |  |              |            |  |                         |   |        |                         |  |       |              |  |  |          |        |  |              |   |        |          | 
|                                 |  |              |            |  |                         | $ | 30,031 |                         |  | $     | 4,132        |  |  | $        | 25,899 |  |              | $ | 30,643 |          |  | $ | 5,234 |  |  | $ | 25,409 | 
|                                 |  |              |            |  |                         |   |        |                         |  |       |              |  |  |          |        |  |              |   |        |          | 





|    |                 
|--- | ----------------
|(7) | Accrued expenses



|                                         |  |                    |         |   |      |   |         |  
|---------------------------------------- |  | ------------------ | ------- | - | ---- | - | ------- | -
|                                         |  | As of December 31, |        
|                                         |  |                    |        
|                                         |  | 2003               |         |   | 2004 |  
|                                         |  |                    |         |   |      |  
|Accrued payroll and related expenses     |  | $                  | 16,645  |   |      | $ | 20,503  |  
|Accrued expenses                         |  |                    | 9,643   |   |      |   | 15,172  |  
|                                         |  |                    |         |   |      |  
|                                         |  |                    | 26,288  |   |      |   | 35,675  |  
|Less current portion of accrued expenses |  |                    | (25,310 | ) |      |   | (32,437 | )
|                                         |  |                    |         |   |      |  
|                                         |  | $                  | 978     |   |      | $ | 3,238   |  
|                                         |  |                    |         |   |      |  

F-16



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |               
|--- | --------------
|(8) | Long-Term Debt



|                                 |  |                    |        |   |      |   |      |  
|-------------------------------- |  | ------------------ | ------ | - | ---- | - | ---- | -
|                                 |  | As of December 31, |       
|                                 |  |                    |       
|                                 |  | 2003               |        |   | 2004 |  
|                                 |  |                    |        |   |      |  
|Senior notes payable             |  | $                  | 60,000 |   |      | $ |     |  
|Obligations under capital leases |  |                    | 492    |   |      |   | 225  |  
|                                 |  |                    |        |   |      |  
|                                 |  |                    | 60,492 |   |      |   | 225  |  
|Less current portion             |  |                    | (2,682 | ) |      |   | (150 | )
|                                 |  |                    |        |   |      |  
|                                 |  | $                  | 57,810 |   |      | $ | 75   |  
|                                 |  |                    |        |   |      |  



| |                 
| | ----------------
| | Credit Agreement







F-17



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                           
| | --------------------------
| | Subordinated Notes Payable







| |               
| | --------------
| | Capital Leases



F-18



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                     |  |           |     |  
|------------------------------------ |  | --------- | --- | -
|                                     |  | Long-Term |    
|Year Ending December 31,             |  | Debt      |    
|                                     |  |           |    
|2005                                 |  | $         | 175 |  
|2006                                 |  |           | 55  |  
|2007                                 |  |           | 7   |  
|2008                                 |  |           | 2   |  
|Less: interest on capitalized leases |  |           | (14 | )
|                                     |  |           |    
|Total                                |  | $         | 225 |  
|                                     |  |           |    



|    |             
|--- | ------------
|(9) | Income Taxes



|          |                     |                         |       |        |        |   |       |        |        |   |        |        |       | 
|--------- | ------------------- | ----------------------- | ----- | ------ | ------ | - | ----- | ------ | ------ | - | ------ | ------ | ----- | 
|          |                     | Year Ended December 31, |      
|          |                     |                         |      
|          |                     | 2002                    |       |        | 2003   |   |       | 2004   |       
|          |                     |                         |       |        |        |   |       |        |       
|Current:  |                     |                         |       |        |        |   |       |        |        |   |        |       
|          | Federal             |                         | $     | 5,236  |        |   | $     | 6,201  |        |   | $      | 6,303  |      
|          | State               |                         |       | 1,294  |        |   |       | 1,390  |        |   |        | 2,086  |      
|          | Foreign             |                         |       | 191    |        |   |       | 3,315  |        |   |        | 1,215  |      
|          |                     |                         |       |        |        |   |       |        |       
|          |                     | Total current           |       |        | 6,721  |   |       |        | 10,906 |   |        |        | 9,604 | 
|          |                     |                         |       |        |        |   |       |        |       
|Deferred: |                     |                         |       |        |        |   |       |        |        |   |        |       
|          | Federal             |                         |       | (1,068 | )      |   |       | (3,344 | )      |   |        | 5,973  |      
|          | State               |                         |       | (160   | )      |   |       | (554   | )      |   |        | 68     |      
|          | Foreign             |                         |       | (651   | )      |   |       | 255    |        |   |        | (1,678 | )    
|          | Valuation allowance |                         |       | 651    |        |   |       | (354   | )      |   |        | (1,970 | )    
|          |                     |                         |       |        |        |   |       |        |       
|          |                     | Total deferred          |       |        | (1,228 | ) |       |        | (3,997 | ) |        |        | 2,393 | 
|          |                     |                         |       |        |        |   |       |        |       
|          |                     | $                       | 5,493 |        |        | $ | 6,909 |        |        | $ | 11,997 |       
|          |                     |                         |       |        |        |   |       |        |       





F-19



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                                 |  |              |      |   |      |  |      |      |  |  |      |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                                                                                                                 |  | Year Ended   |     
|                                                                                                                                                 |  | December 31, |     
|                                                                                                                                                 |  |              |     
|                                                                                                                                                 |  | 2002         |      |   | 2003 |  |      | 2004 | 
|                                                                                                                                                 |  |              |      |   |      |  |      |      | 
|Statutory federal income tax rate                                                                                                                |  |              | 35.0 | % |      |  | 35.0 | %    |  |  | 35.0 | %
|State income taxes                                                                                                                               |  |              | 5.3  |   |      |  | 4.2  |      |  |  | 4.4  |  
|Nondeductible expenses                                                                                                                           |  |              | 1.1  |   |      |  | 1.9  |      |  |  | 1.0  |  
|Amortization of goodwill                                                                                                                         |  |              |     |   |      |  |     |      |  |  |     |  
|Utilization of previously unrecognized foreign operating losses
    and current year foreign losses for which no benefit has been
    recognized |  |              | 4.3  |   |      |  | (3.1 | )    |  |  | (4.2 | )
|Other                                                                                                                                            |  |              | 3.7  |   |      |  | (3.7 | )    |  |  | .4   |  
|                                                                                                                                                 |  |              |      |   |      |  |      |      | 
|Effective income tax rate                                                                                                                        |  |              | 49.4 | % |      |  | 34.3 | %    |  |  | 36.6 | %
|                                                                                                                                                 |  |              |      |   |      |  |      |      | 



|                                     |  |              |        |   |      |   |        |  
|------------------------------------ |  | ------------ | ------ | - | ---- | - | ------ | -
|                                     |  | December 31, |       
|                                     |  |              |       
|                                     |  | 2003         |        |   | 2004 |  
|                                     |  |              |        |   |      |  
|Foreign operating loss carryforwards |  | $            | 8,269  |   |      | $ | 6,299  |  
|Prepaid items                        |  |              | (248   | ) |      |   | (557   | )
|Accruals and reserves                |  |              | 6,066  |   |      |   | 5,957  |  
|Identified intangibles               |  |              | (8,656 | ) |      |   | (8,328 | )
|Depreciation                         |  |              | (3,799 | ) |      |   | (2,869 | )
|Deferred revenue                     |  |              | 4,832  |   |      |   | 1,600  |  
|Valuation allowance                  |  |              | (8,269 | ) |      |   | (6,299 | )
|                                     |  |              |        |   |      |  
|Net deferred tax liability           |  | $            | (1,805 | ) |      | $ | (4,197 | )
|                                     |  |              |        |   |      |  







|     |                     
|---- | --------------------
|(10) | Stockholders Equity



| |                  
| | -----------------
| | Authorized Shares



F-20



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                      
| | ---------------------
| | Common Stock Warrants





| |                        
| | -----------------------
| | Initial Public Offering





| |                        
| | -----------------------
| | Stockholders Agreement





| |                    
| | -------------------
| | Exchangeable Shares





| |                                   
| | ----------------------------------
| | Notes Receivable from Stockholders









| |                                                               
| | --------------------------------------------------------------
| | Stock and Option Repurchase and Dividend and Bonus
    Payment



F-21



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|     |              
|---- | -------------
|(11) | Stock Options







|                                 |  |           |            |   |                  |   |       | 
|-------------------------------- |  | --------- | ---------- | - | ---------------- | - | ----- | 
|                                 |  | Number of |            |   | Weighted Average |  
|                                 |  | Shares    |            |   | Exercise Price   |  
|                                 |  |           |            |   |                  |  
|Outstanding at December 31, 2002 |  |           | 4,993,852  |   |                  | $ | 3.28  | 
|Granted                          |  |           | 382,000    |   |                  |   | 7.81  | 
|Exercised                        |  |           | (115,084   | ) |                  |   | 0.33  | 
|Expired/forfeited                |  |           | (154,744   | ) |                  |   | 3.13  | 
|                                 |  |           |            |   |                  |  
|Outstanding at December 31, 2003 |  |           | 5,106,024  |   |                  |   | 3.69  | 
|Granted                          |  |           | 1,102,500  |   |                  |   | 16.50 | 
|Exercised                        |  |           | (1,346,647 | ) |                  |   | 2.40  | 
|Repurchased                      |  |           | (843,260   | ) |                  |   | 2.25  | 
|Expired/forfeited                |  |           | (619,636   | ) |                  |   | 4.24  | 
|                                 |  |           |            |   |                  |  
|Outstanding at December 31, 2004 |  |           | 3,398,981  |   |                  | $ | 8.46  | 
|                                 |  |           |            |   |                  |  



|                        |  |                     |           |           |               |  |      |                |                     |   |                   |  |  |                |           |  |  |   |      | 
|----------------------- |  | ------------------- | --------- | --------- | ------------- |  | ---- | -------------- | ------------------- | - | ----------------- |  |  | -------------- | --------- |  |  | - | ---- | 
|                        |  | Options Outstanding |           |           |               |  |     
|                        |  |                     |           |           |              
|                        |  |                     |           | Weighted- |               |  |      |                | Options Exercisable |  
|                        |  |                     |           | Average   |               |  |      |                |                     |  
|                        |  | Number Outstanding  |           |           | Remaining     |  |      | Weighted-      |                     |   | Number            |  |  | Weighted-      |          
|                        |  | as of December 31,  |           |           | Contractual   |  |      | Average        |                     |   | Exercisable as of |  |  | Average        |          
|Range of Exercise Price |  | 2004                |           |           | Life in Years |  |      | Exercise Price |                     |   | December 31, 2004 |  |  | Exercise Price |          
|                        |  |                     |           |           |               |  |      |                |                     |   |                   |  |  |                |          
|$ 0.02 - $ 1.48         |  |                     | 48,496    |           |               |  | 6.59 |                |                     | $ | 0.38              |  |  |                | 48,496    |  |  | $ | 0.38 | 
|2.50 -   2.79           |  |                     | 177,329   |           |               |  | 4.23 |                |                     |   | 2.70              |  |  |                | 177,329   |  |  |   | 2.70 | 
|3.18 -   3.49           |  |                     | 1,080,343 |           |               |  | 5.90 |                |                     |   | 3.35              |  |  |                | 861,100   |  |  |   | 3.32 | 
|4.03 -   6.56           |  |                     | 686,234   |           |               |  | 7.60 |                |                     |   | 6.44              |  |  |                | 507,117   |  |  |   | 6.48 | 
|7.50 -   8.56           |  |                     | 344,079   |           |               |  | 8.39 |                |                     |   | 7.84              |  |  |                | 88,000    |  |  |   | 7.83 | 
|10.63 -  19.00          |  |                     | 1,062,500 |           |               |  | 9.65 |                |                     |   | 16.50             |  |  |                |          |  |  |   |     | 
|                        |  |                     |           |           |               |  |      |                |                     |   |                   |  |  |                |          
|                        |  |                     | 3,398,981 |           |               |  | 7.59 |                |                     | $ | 8.46              |  |  |                | 1,682,042 |  |  | $ | 4.36 | 
|                        |  |                     |           |           |               |  |      |                |                     |   |                   |  |  |                |          

F-22



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##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                     |  |                         |            |  |      |  |            |      |  |  |            | 
|---------------------------------------------------- |  | ----------------------- | ---------- |  | ---- |  | ---------- | ---- |  |  | ---------- | 
|                                                     |  | Year Ended December 31, |           
|                                                     |  |                         |           
|                                                     |  | 2002                    |            |  | 2003 |  |            | 2004 | 
|                                                     |  |                         |            |  |      |  |            |      | 
|Weighted-average common shares outstanding  basic   |  |                         | 15,204,232 |  |      |  | 15,965,408 |      |  |  | 18,442,313 | 
|Effect of stock options and warrants                 |  |                         | 2,353,400  |  |      |  | 2,700,604  |      |  |  | 1,887,539  | 
|                                                     |  |                         |            |  |      |  |            |      | 
|Weighted-average common shares outstanding  diluted |  |                         | 17,557,632 |  |      |  | 18,666,012 |      |  |  | 20,329,852 | 
|                                                     |  |                         |            |  |      |  |            |      | 



|     |                              
|---- | -----------------------------
|(12) | Commitments and Contingencies



| |                 
| | ----------------
| | Operating Leases









|                         |  |         |     |  |       |          |         |        |  |   |           |   |  |   |         | 
|------------------------ |  | ------- | --- |  | ----- | -------- | ------- | ------ |  | - | --------- | - |  | - | ------- | 
|                         |  |         |     |  |       | Sublease |         |        | 
|                         |  | Related |     |  |       |          | Rental  |        |  |  
|Year Ending December 31, |  | Party   |     |  | Other |          |         | Income |  |   | Net Total |  
|                         |  |         |     |  |       |          |         |        |  |   |           |  
|2005                     |  | $       | 741 |  |       | $        | 16,938  |        |  | $ | (1,287    | ) |  | $ | 16,392  | 
|2006                     |  |         |    |  |       |          | 15,060  |        |  |   | (778      | ) |  |   | 14,282  | 
|2007                     |  |         |    |  |       |          | 12,793  |        |  |   | (65       | ) |  |   | 12,728  | 
|2008                     |  |         |    |  |       |          | 10,579  |        |  |   |          |   |  |   | 10,579  | 
|2009                     |  |         |    |  |       |          | 10,565  |        |  |   |          |   |  |   | 10,565  | 
|Thereafter               |  |         |    |  |       |          | 43,125  |        |  |   |          |   |  |   | 43,125  | 
|                         |  |         |     |  |       |          |         |        |  |   |           |  
|                         |  | $       | 741 |  |       | $        | 109,060 |        |  | $ | (2,130    | ) |  | $ | 107,671 | 
|                         |  |         |     |  |       |          |         |        |  |   |           |  



| |                      
| | ---------------------
| | Employment Agreements



F-23



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                  
| | -----------------
| | Legal Proceedings







| |          
| | ---------
| | Insurance





| |                          
| | -------------------------
| | Employee Health Insurance





|     |                      
|---- | ---------------------
|(13) | Employee Benefit Plan





|     |                  
|---- | -----------------
|(14) | Lease Termination





F-24



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|     |                           
|---- | --------------------------
|(15) | Related-Party Transactions









|     |                                                      
|---- | -----------------------------------------------------
|(16) | Segment Reporting  Operations by Geographic
    Area



|                  |               |                         |         |         |      |   |         |         |  |   |         |         | 
|----------------- | ------------- | ----------------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                  |               | Year Ended December 31, |        
|                  |               |                         |        
|                  |               | 2002                    |         |         | 2003 |   |         | 2004    | 
|                  |               |                         |         |         |      |   |         |         | 
|Service revenue   |               |                         |         |         |      |   |         |         |  |   |         |        
|                  | United States |                         | $       | 135,887 |      |   | $       | 167,097 |  |   | $       | 175,705 | 
|                  | Canada        |                         |         | 9,660   |      |   |         | 24,880  |  |   |         | 24,704  | 
|                  | Europe        |                         |         | 29,208  |      |   |         | 52,101  |  |   |         | 70,715  | 
|                  | Other         |                         |         | 1,610   |      |   |         | 3,810   |  |   |         | 6,355   | 
|                  |               |                         |         |         |      |   |         |         | 
|                  |               | $                       | 176,365 |         |      | $ | 247,888 |         |  | $ | 277,479 |        
|                  |               |                         |         |         |      |   |         |         | 
|Long-lived assets |               |                         |         |         |      |   |         |         |  |   |         |        
|                  | United States |                         | $       | 104,967 |      |   | $       | 123,971 |  |   | $       | 122,988 | 
|                  | Canada        |                         |         | 15,957  |      |   |         | 11,169  |  |   |         | 10,750  | 
|                  | Europe        |                         |         | 22,012  |      |   |         | 16,280  |  |   |         | 16,512  | 
|                  | Other         |                         |         | 5,085   |      |   |         | 1,222   |  |   |         | 1,313   | 
|                  |               |                         |         |         |      |   |         |         | 
|                  |               | $                       | 148,021 |         |      | $ | 152,642 |         |  | $ | 151,563 |        
|                  |               |                         |         |         |      |   |         |         | 



|     |                  
|---- | -----------------
|(17) | Subsequent Events



F-25



---



##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|     |                         
|---- | ------------------------
|(18) | Quarterly Financial Data



|                                     |         |                    |        |      |          |   |        |               |  |   |              |      |  |   |        |       |  
|------------------------------------ | ------- | ------------------ | ------ | ---- | -------- | - | ------ | ------------- |  | - | ------------ | ---- |  | - | ------ | ----- | -
|                                     |         | Three Months Ended |       
|                                     |         |                    |       
|                                     |         | March 31,          |        |      | June 30, |   |        | September 30, |  |   | December 31, |     
|                                     |         | 2003               |        |      | 2003     |   |        | 2003          |  |   | 2003         |     
|                                     |         |                    |        |      |          |   |        |               |  |   |              |     
|Service revenue                      |         | $                  | 58,844 |      |          | $ | 63,386 |               |  | $ | 64,167       |      |  | $ | 61,491 |      
|Direct costs                         |         |                    | 31,299 |      |          |   | 32,436 |               |  |   | 31,152       |      |  |   | 31,614 |      
|Selling, general, and administrative |         |                    | 17,654 |      |          |   | 20,927 |               |  |   | 20,942       |      |  |   | 21,062 |      
|Depreciation and amortization        |         |                    | 2,185  |      |          |   | 2,081  |               |  |   | 2,237        |      |  |   | 2,464  |      
|Income from operations               |         |                    | 7,506  |      |          |   | 7,741  |               |  |   | 9,636        |      |  |   | 6,153  |      
|Net income (loss)                    |         |                    | 4,005  |      |          |   | 3,613  |               |  |   | 6,557        |      |  |   | (928   | )(1) 
|Net income (loss) per share:         |         |                    |        |      |          |   |        |               |  |   |              |      |  |   |        |      
|                                     | Basic   |                    | $      | 0.25 |          |   | $      | 0.23          |  |   | $            | 0.41 |  |   | $      | (0.06 | )
|                                     | Diluted |                    | $      | 0.21 |          |   | $      | 0.18          |  |   | $            | 0.33 |  |   | $      | (0.06 | )
|FTEs(2)                             |         |                    | 2,102  |      |          |   | 2,121  |               |  |   | 2,106        |      |  |   | 2,172  |      

|                                     |         |           |        |      |          |   |        |               |  |   |              |      |  |   |        |     | 
|------------------------------------ | ------- | --------- | ------ | ---- | -------- | - | ------ | ------------- |  | - | ------------ | ---- |  | - | ------ | --- | 
|                                     |         | March 31, |        |      | June 30, |   |        | September 30, |  |   | December 31, |     
|                                     |         | 2004      |        |      | 2004     |   |        | 2004          |  |   | 2004         |     
|                                     |         |           |        |      |          |   |        |               |  |   |              |     
|Service revenue                      |         | $         | 66,830 |      |          | $ | 69,130 |               |  | $ | 70,311       |      |  | $ | 71,208 |    
|Direct costs                         |         |           | 32,771 |      |          |   | 33,304 |               |  |   | 32,814       |      |  |   | 35,178 |    
|Selling, general, and administrative |         |           | 21,993 |      |          |   | 21,811 |               |  |   | 23,576       |      |  |   | 22,759 |    
|Depreciation and amortization        |         |           | 2,337  |      |          |   | 2,358  |               |  |   | 2,355        |      |  |   | 2,641  |    
|Income from operations               |         |           | 4,265  |      |          |   | 11,136 |               |  |   | 10,964       |      |  |   | 10,062 |    
|Net income                           |         |           | 2,357  |      |          |   | 7,534  |               |  |   | 5,967        |      |  |   | 4,891  |    
|Net income per share:                |         |           |        |      |          |   |        |               |  |   |              |      |  |   |        |    
|                                     | Basic   |           | $      | 0.13 |          |   | $      | 0.42          |  |   | $            | 0.33 |  |   | $      | .25 | 
|                                     | Diluted |           | $      | 0.12 |          |   | $      | 0.37          |  |   | $            | 0.29 |  |   | $      | .22 | 
|FTEs(2)                             |         |           | 2,211  |      |          |   | 2,229  |               |  |   | 2,274        |      |  |   | 2,299  |    






|    |                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In connection with the December 23, 2003 refinancing the
    Company prepaid the $20 million subordinated notes payable.
    Approximately $1.9 million of related debt issuance costs
    were expensed and are included in the quarter ended
    December 31, 2003 loss of $928,000.
|   
|(2) | Represents the average or mathematical number of full time
    equivalent employees for the stated period.                                                                                                                                                                            

F-26



---



##### Table of Contents






SIGNATURES






| |                  
| | -----------------
| | PRA International



| |     |                        
| | --- | -----------------------
| | By: | /s/ Patrick K. Donnelly

| |                         
| | ------------------------
| |                         
| | Name: Patrick K. Donnely

| |        |                        
| | ------ | -----------------------
| | Title: | Chief Executive Officer





|                                                   |  |                                                                                             |                                       |                |      |                |  | 
|-------------------------------------------------- |  | ------------------------------------------------------------------------------------------- | ------------------------------------- | -------------- | ---- | -------------- |  | 
|Signature                                          |  | Title                                                                                       |                                       |                | Date
|                                                   |  |                                                                                             |                                       |                |     
|                                                  
|/s/ Patrick K. DonnellyPatrick
    K. Donnelly     |  |                                                                                             | President and Chief Executive Officer |                |      | March 18, 2005
|                                                  
|/s/ J. Matthew BondJ.
    Matthew Bond             |  | Senior Vice President, Chief Financial Officer, Assistant Treasurer and Assistant Secretary |                                       | March 18, 2005
|                                                  
|/s/ David G. Mathews, IIIDavid
    G. Mathews, III |  |                                                                                             | Vice President and Controller         |                |      | March 18, 2005
|                                                  
|/s/ Jean-Pierre L. ConteJean-Pierre
    L. Conte   |  |                                                                                             | Director                              |                |      | March 18, 2005
|                                                  
|/s/ Melvin D. BoothMelvin
    D. Booth             |  |                                                                                             | Director                              |                |      | March 18, 2005
|                                                  
|/s/ Robert E. ConwayRobert
    E. Conway           |  |                                                                                             | Director                              |                |      | March 18, 2005
|                                                  
|/s/ Armin KesslerArmin
    Kessler                 |  |                                                                                             | Director                              |                |      | March 18, 2005
|                                                  
|/s/ Robert J. WeltmanRobert
    J. Weltman         |  |                                                                                             | Director                              |                |      | March 18, 2005



---



##### Table of Contents






Exhibit Index


|            |    |                        |  |                                                                                                                                        
|----------- | -- | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description of Exhibit
|            |    |                       
|            | 3  | .1(1)                  |  | Second Amended and Restated Certificate of Incorporation of PRA
    International                                                      
|            | 3  | .2(1)                  |  | Amended and Restated Bylaws of PRA International                                                                                       
|           
|            | 4  | .1(1)                  |  | 2001 Stock Option Plan                                                                                                                 
|           
|            | 4  | .2(1)                  |  | 1997 Stock Option Plan                                                                                                                 
|           
|            | 4  | .3(1)                  |  | 1993 Stock Option Plan, as amended and restated                                                                                        
|           
|            | 4  | .4                     |  | 2004 Incentive Award Plan                                                                                                              
|           
|            | 10 | .1(2)                  |  | Credit Agreement by and among PRA International, its affiliates
    and the lenders party thereto                                      
|           
|            | 10 | .2(1)                  |  | Registration Rights Agreement by and among PRA International and
    the parties identified therein                                    
|           
|            | 10 | .3(1)                  |  | Stockholders Agreement by and among PRA International and the
    parties identified therein                                           
|           
|            | 10 | .4(1)                  |  | Form of Stockholder Agreement                                                                                                          
|           
|            | 10 | .5(1)                  |  | Employment and Non-Competition Agreement of Patrick K. Donnelly                                                                        
|           
|            | 10 | .6(1)                  |  | Employment and Non-Competition Agreement of David W. Dockhorn                                                                          
|           
|            | 10 | .7(1)                  |  | Employment and Non-Competition Agreement of Erich Mohr                                                                                 
|           
|            | 10 | .8(1)                  |  | Employment and Non-Competition Agreement of James C. Powers                                                                            
|           
|            | 10 | .9(1)                  |  | Securities Purchase Agreement by and among Genstar Capital
    Partners III, L.P., Stargen III, L.P. and PRA
    International         
|           
|            | 10 | .10(3)                 |  | Form of Option Agreement                                                                                                               
|           
|            | 21 | .1                     |  | Subsidiaries of PRA International                                                                                                      
|           
|            | 23 | .1                     |  | Consent of PricewaterhouseCoopers LLP                                                                                                  
|           
|            | 31 | .1                     |  | Certifications of Chief Executive Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                
|           
|            | 31 | .2                     |  | Certifications of Chief Financial Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                
|            | 32 | .1                     |  | Certifications of Chief Executive Officer and Chief Financial
    Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002






|    |                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to Registration Statement on
    Form S-1 filed on June 14, 2004 (File
    No. 333116424), as amended by Amendment No. 1
    filed on July 29, 2004, by Amendment No. 2 filed on
    September 21, 2004, by Amendment No. 3 filed on
    October 22, 2004, by Amendment No. 4 filed on
    October 28, 2004 and by Amendment No. 5 filed on
    November 16, 2004
|   
|(2) | Incorporated by reference to Form 8-K filed on
    December 29, 2004                                                                                                                                                                                                                                                                                                                        
|   
|(3) | Incorporated by reference to Form 8-K filed on
    February 2, 2005