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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





(Mark One)

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

For the fiscal year ended December 31, 2008.

OR



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

For the transition period fromto

Commission file number: 0-21145





ENCORIUM GROUP, INC.

(Exact name
of registrant as specified in its charter)







|                                                                                    |  |                                     
|----------------------------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                                            |  | 56-1668867                          
|(State or other jurisdiction of incorporation or organization)                      |  | (I.R.S. Employer Identification No.)
|                                                                                    | 
|One Glenhardie Corporate Center, 1275 Drummers Lane, Suite 300, Wayne, Pennsylvania |  | 19087                               
|(Address of principal executive offices)                                            |  | (Zip Code)                          

610-975-9533

(Registrants telephone number, including area code)





Securities registered under
Section 12(b) of the Exchange Act:



|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of each class                     |  | Name of each exchange on which registered
|Common Stock, $.001 par value per share |  | NASDAQ Capital Market                    

Securities registered under Section 12(g) of the Exchange Act: NONE





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes   ̈    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No   ̈

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

Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act.



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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   ̈    No  x

As of March 31, 2009, the aggregate market value of the registrants common stock held by non-affiliates of the registrant was $3,537,092 based on the closing
sale price as reported on the National Association of Securities Dealers Automated Quotation System Market System.

Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest practicable date.



|                                        |  |                              
|--------------------------------------- |  | -----------------------------
|Class                                   |  | Outstanding at March 31, 2009
|Common Stock, $.001 par value per share |  | 20,523,883 *                 



|* | Does not include 310,121 shares which are held in treasury.
|- | -----------------------------------------------------------

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement of Encorium Group, Inc. with respect to the 2009 Annual Meeting of
Stockholders are incorporated by reference into Part III of this report









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ENCORIUM GROUP, INC.

FORM 10-K ANNUAL REPORT

INDEX



|                     |  |                                                                                                               |  |     
|-------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----
|                     |  |                                                                                                               |  | Page
|PART I               |  |                                                                                                              
|Item 1.              |  | Business                                                                                                      |  | 2   
|Item 1A.             |  | Risk Factors                                                                                                  |  | 10  
|Item 2.              |  | Properties                                                                                                    |  | 21  
|Item 3.              |  | Legal Proceedings                                                                                             |  | 21  
|Item 4.              |  | Submission of Matters to a Vote of Security Holders                                                           |  | 21  
|                     |  |                                                                                                              
|PART II              |  |                                                                                                               |  |     
|Item 5.              |  | Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |  | 22  
|Item 6.              |  | Selected Financial Data                                                                                       |  | 23  
|Item 7.              |  | Managements Discussion and Analysis of Results of Operations and Financial Condition                         |  | 24  
|Item 7A.             |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 35  
|Item 8.              |  | Financial Statements and Supplementary Data                                                                   |  | 36  
|Item 9.              |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                          |  | 36  
|Item9A(T).           |  | Controls and Procedures                                                                                       |  | 36  
|                     | 
|PART III             |  |                                                                                                              
|Item 10.             |  | Directors, Executive Officers, and Corporate Governance of the Registrant                                     |  | 38  
|Item 11.             |  | Executive Compensation                                                                                        |  | 38  
|Item 12.             |  | Security Ownership of Certain Beneficial Owners and Management                                                |  | 38  
|Item 13.             |  | Certain Relationships and Related Transactions and Director Independence                                      |  | 38  
|Item 14.             |  | Principal Accountant Fees and Services                                                                        |  | 38  
|                     | 
|PART IV              |  |                                                                                                              
|Item 15.             |  | Exhibit and Financial Statements Schedule                                                                     |  | 39  
|                     | 
|FINANCIAL STATEMENTS |  | F-1                                                                                                          



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In this discussion, the terms Company, we, us and our refer to Encorium
Group, Inc. (formerly Covalent Group, Inc.) and our consolidated subsidiaries, except where it is made clear otherwise.

FORWARD LOOKING
STATEMENTS

When used in this Report on Form 10-K and in other public statements, both oral and written, by the Company and Company officers, the words
estimate, project, expect, intend, believe, anticipate and similar expressions are intended to identify forward-looking statements regarding events and trends that may affect
our future operating results and financial position. Such statements are subject to risks and uncertainties that could cause our actual results and financial position to differ materially. Such factors include, among others: (i) the risk that
we may not have sufficient funds to operate our business; (ii) our success in attracting new business and retaining existing clients and projects; (iii) the size, duration and timing of clinical trials we are currently managing may change
unexpectedly; (iv) the termination, delay or cancellation of clinical trials we are currently managing could cause revenues and cash-on-hand to decline unexpectedly; (v) the timing difference between our receipt of contract milestone or
scheduled payments and our incurring costs to manage these trials; (vi) outsourcing trends in the pharmaceutical, biotechnology and medical device industries; (vii) the ability to maintain profit margins in a competitive marketplace;
(viii) our ability to attract and retain qualified personnel; (ix) the sensitivity of our business to general economic conditions; (x) other economic, competitive, governmental and technological factors affecting our operations,
markets, products, services and prices; (xi) announced awards received from existing and potential customers are not definitive until fully negotiated contracts are executed by the parties; (xii) our backlog may not be indicative of future
results and may not generate the revenues expected; (xiii) our ability to successfully integrate the business of Remedium Oy, which we acquired on November 1, 2006; (xiv) the performance of the combined businesses to operate
successfully and generate growth; and (xv) uncertainties regarding the availability of additional capital and continued listing of our common stock on Nasdaq. You should not place undue reliance on any forward-looking statement. We undertake no
obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events. Please refer to the section entitled
Risk Factors beginning on page 9 for a more complete discussion of factors which could cause our actual results and financial position to change.



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PART I



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

This Business section outlines
our current business and sets forth our strategy to further expand our business. However, we do not currently have the funding necessary to carry out our short and long term expansion strategies. As a result, if we are unable to increase our
revenues, reduce our operating costs or secure capital from external sources, we will need to significantly reduce our operating costs which will jeopardize the future strategic initiatives and business plans of the Company.

General

In this discussion, the terms Company,
we, us and our refer to Encorium Group, Inc. (formerly Covalent Group, Inc.) and our consolidated subsidiaries, except where it is made clear otherwise.

We are a clinical research organization (CRO) that engages in the design and management of complex clinical trials for the pharmaceutical, biotechnology and
medical device industries. Our mission is to provide our clients with high-quality, full-service support for their clinical trials. We offer therapeutic expertise, experienced team management and advanced technologies.

We have the capacity and expertise to conduct clinical trials on a global basis. Our clients consist of some of the largest companies in the pharmaceutical,
biotechnology and medical device industries. From protocol design and clinical program development, to proven patient recruitment, to managing the regulatory approval process, we have the resources to directly implement or manage Phase I through
Phase IV clinical trials. We offer a broad range of clinical research and development services supporting Phase I through Phase IV clinical trials, such as strategic trial planning, project management, monitoring, data management and biostatistics,
pharmacovigilance, medical writing, quality assurance, outsourcing of clinical staff, and medical device certification in the European Union. We have clinical trial experience across a wide variety of therapeutic areas, such as cardiovascular,
nephrology, endocrinology/metabolism, hematology, diabetes, neurology, oncology, immunology, vaccines, infectious diseases, gastroenterology, dermatology, hepatology, rheumatology, urology, ophthalmology, womens health and respiratory
medicine. The mix of projects is subject to change from year to year.

On November 1, 2006, we expanded our international presence with the
acquisition of Remedium Oy, a CRO founded in 1996 in Finland which offers clinical trial services to the pharmaceutical and medical device industries. With the acquisition of Remedium, we gained a Northern and Eastern European presence with offices
in Espoo, Turku, Tampere, Oulu and Seinäjoki (Finland), Copenhagen (Denmark), Tallinn (Estonia), Vilnius (Lithuania), Stockholm (Sweden), Bucharest (Romania), Warsaw (Poland), and Ankara (Turkey). Remedium and a number of its subsidiaries have
been renamed using the Encorium name. However, for purposes of clarity, we refer to the acquired company and its subsidiaries using the Remedium name throughout this report. We currently manage all of our European and Asian clinical trial studies
from Remediums facility in Espoo, Finland and our North American and South American clinical trial studies from our headquarters in Wayne, Pennsylvania.

We were initially incorporated in August 1998 in Nevada. In June 2002, we changed our state of incorporation to Delaware. In October 2006, we changed our name to Encorium Group, Inc. from Covalent Group, Inc. in connection with the
acquisition of Remedium.

Industry Overview

The CRO
industry provides independent clinical trial and product development services for the pharmaceutical, biotechnology and medical device industries. Companies in these industries often outsource product development services to CROs in order to manage
the drug development process more efficiently and cost-effectively.



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Outsourcing also enables these companies to access expertise and experience beyond their organizations. Historically, many companies in the pharmaceutical,
biotechnology and medical device industries have performed the majority of their product development internally. Outsourcing drug development activities to CROs provides these companies with a variable cost alternative to the fixed costs associated
with internal drug development. Companies no longer need to staff for peak periods and can benefit from a CROs technical resources, therapeutic expertise, and the global infrastructure required to conduct clinical trials on a worldwide basis.

At the present time, we believe that the percentage of services required for product development that are being outsourced is increasing and will continue
to increase in the future because of numerous factors, including: cost containment pressures; attempts to overcome limitations on internal capacity; a desire to improve the timeline for evaluating and developing new drugs and/or devices; the desire
to increase the percentage of development costs that are variable as compared to fixed costs; the need to perform research relating to new drugs in multiple countries simultaneously; the response to increasingly stringent government regulations in
various countries; and the desire to use external expertise to supplement internal design and development capabilities.

As the investment required to
develop new drugs continues to increase, an opportunity is created to help speed the drug development process or make this process more efficient.

Our
Strategy

Our strategy is to be a leader in the design and management of complex clinical trials by providing our clients with exceptional performance
ensuring that they achieve their goals on-time, on-budget and with superlative quality. Our competitive advantage is based upon our ability to deliver a knowledge-based and intellectually rich level of service that provides our clients with a
well-conceived protocol design and operational plan intended to maximize their return on investment. We believe that many of the reported regulatory delays or rejections for prospective drugs can be directly attributed to underlying issues in
protocol design and development. Our Company is led by experienced executives with significant prior success in the drug development and regulatory approval process. Unlike larger, more conventional CROs, we provide a value-added approach to the
design and management of clinical trials. We believe that our leadership in the design of complex clinical trials, our application of innovative technologies, our therapeutic expertise and our commitment to quality offer clients a means to more
quickly and cost-effectively develop products through the clinical trial process.

A significant aspect of our strategy is to expand our geographic
presence by acquisition or through the formation of strategic partnerships. With the acquisition of Remedium on November 1, 2006, we gained a Northern and Eastern European presence. Founded in 1996, Remedium was a privately owned CRO offering
clinical trial services to the pharmaceutical and medical device industries. Remedium offers a broad range of clinical research and development services supporting Phase I through Phase IV clinical trials, such as strategic trial planning, project
management, monitoring, data management and biostatistics, Pharmacovigilance, medical writing, quality assurance, outsourcing of clinical staff, and medical device certification in the European Union. Remedium has offices Turku, Tampere, Oulu and
Seinajoki (Finland), Copenhagen (Denmark), Tallinn (Estonia), Vilnius (Lithuania), Stockholm (Sweden), Bucharest (Romania), Warsaw (Poland), and Ankara (Turkey). Remedium also utilizes independent contractor relationships in Riga (Latvia), Oslo
(Norway) and Kiev (Ukraine).

We believe this global expansion is necessary in order to provide us with significant strategic benefits, including:



| |  |  | The expansion of our geographic footprint to regions of the world with diverse patient population for the conduct of human clinical trials;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Greater scale to better compete in the clinical research organization market;
| | - |  | -----------------------------------------------------------------------------



| |  |  | Increase in revenue bulk;
| | - |  | -------------------------



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| |  |  | Diversification of business offerings and client services; and
| | - |  | --------------------------------------------------------------



| |  |  | Enhancement of management and business development capabilities.
| | - |  | ----------------------------------------------------------------

Recognizing the dynamic nature of the pharmaceutical and medical device development process, our experience and capabilities enable us to adapt our services to fit our clients specific needs. The distinguishing
features of our services include the following:

Experienced Management

We are an established company led by a senior management team who average greater than 20 years of clinical research experience from both the CRO and pharmaceutical/biotechnology industry perspective. Our President
and Chief Executive Officer, Dr. David Ginsberg, D.O. has over 25 years of executive experience within the biopharmaceutical industries working for such companies as Omnicare Clinical Research, Omnicomm Systems, Concorde Clinical Research and
Wyeth. Dr. Ginsberg received his D.O. from The Philadelphia College of Osteopathic Medicine and his B.A. Degree from Temple University.

Our Executive
Chairman and President of Europe and Asia, Dr. Kai Lindevall, was the co-founder of Remedium. Dr. Lindevall has a Ph.D. in Pharmacology and an M.D. from the University of Tampere in Finland. Dr. Lindevall has worked in the
pharmaceutical industry for the majority of his career.

Credibility in the Clinical Research Marketplace

We have a diversified client base with a good mix of clients based in North America and Europe. We believe we have gained the confidence of our clients as demonstrated by
their entrusting us with broad responsibilities, including designing and implementing global clinical research programs for some of their most important products. We provide leadership in a wide variety of therapeutic areas including cardiovascular,
endocrinology/metabolism, diabetes, nephrology, immunology, vaccines, infectious diseases, gastroenterology, hepatology, womens health, and respiratory medicine.

Global Capabilities

To expand our international presence, on November 1, 2006 we acquired Remedium which has
offices in Turku, Tampere, Oulu and Seinajoki (Finland), Copenhagen (Denmark), Tallinn (Estonia), Vilnius (Lithuania), Stockholm (Sweden), Bucharest (Romania), Warsaw (Poland), and Ankara (Turkey).

We are continuing our strategy to expand our global footprint by acquisition or through the formation of strategic partnerships, since we believe we need a far reaching
global presence in order to effectively compete for large scale clinical trials. We believe we must further enhance our global capabilities in South America in order to increase our global reach and serve a more diverse group of clients.

We have made a determined effort to broaden and diversify our client list. This has resulted in an attractive mix of pharmaceutical and biotechnology companies. We
will continue to focus on expanding our capabilities both in the United States and internationally in an effort to better position us to meet our clients global clinical trial requirements.

Our Services

We offer our clients on a global basis a broad range of
clinical research and development services supporting Phase I through Phase IV clinical trials. Our services include study protocol design, clinical trials management, global data management services, biostatistics, medical and regulatory affairs,
quality assurance and compliance and medical report writing.



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Study Protocol Design

A significant value we provide to our clients is in designing the initial study protocol or in significantly enhancing the protocols design. The study protocol is the critical document provided to the study investigators that defines
the study and details the procedures which must be followed for the proper conduct of the trial. The protocol defines the medical issues the study seeks to examine and the statistical tests that will be conducted. The protocol also defines the
frequency and type of laboratory and clinical measurements to be performed, tracked and analyzed. Also defined is the number of patients required to produce a statistically meaningful result, the period of time over which they must be tracked, and
the frequency and dosage of drug administration.

A properly designed protocol targets the correct primary efficacy variable or safety parameters (i.e. the
key outcome being studied, such as a reduction in sitting diastolic or systolic blood pressure), is statistically sound, effectively incorporates strategic marketing and product positioning issues, and proactively conforms to regulatory guidelines.
We believe that many of the reported regulatory delays or rejections for prospective drugs can be directly attributed to underlying issues in protocol design and study process.

Clinical Trials Management

We serve our clients needs by conducting clinical trials through a project team. A
project manager leads and facilitates all aspects of the conduct of the clinical trial. Other members of the project team typically include representatives from clinical trials management, global data services, regulatory affairs, information
services, quality assurance, medical writing and field monitoring. Within this project-oriented structure, we can manage every aspect of clinical trials conducted in Phases I through Phase IV of the drug development process.

We have adopted global standard operating procedures intended to satisfy global regulatory requirements and serve as tools for controlling and enhancing the quality of
our clinical trials. All of our standard operating procedures are designed and maintained in compliance with Good Clinical Practice (GCP) requirements and the International Conference on Harmonization (ICH) standards which
have been adopted by both the U.S. Food and Drug Administration (the FDA) and the European union. We compile, analyze, interpret and submit data generated during clinical trials in report form to our clients, as well as, at our
clients request, directly to the FDA or other relevant regulatory agencies for purposes of obtaining regulatory approval.

Clinical trials represent
one of the most expensive and time-consuming parts of the overall drug development process. The information generated during these trials is critical for gaining marketing approval from the FDA or other regulatory agencies. We assist our clients
with one or more of the following steps:



| |  |  | Case Report Form Design. Once the study protocol has been finalized, the Case Report Form (CRF) must be developed. The CRF is the document
for collecting the necessary clinical data as defined by the study protocol., which for a single patient in a study could consist of 100 or more pages.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Investigator Recruitment. The success of a clinical trial is dependent upon finding experienced investigators who are capable of performing clinical
trials in accordance with the highest ethical and scientific standards. During clinical trials, physicians (who are also referred to as investigators) at hospitals, clinics or other locations, supervise administration of the drug or study product to
patients. We recruit investigators who contract directly with either us or our clients to participate in clinical trials. Our global investigator database includes thousands of physician-investigators specializing in a multitude of therapeutic
areas.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Patient Enrollment. The investigators find and enroll patients suitable for the study. The speed at which trials can be completed is significantly
affected by the rate at which patients are enrolled. Prior to participating in a clinical trial, patients are required to review information about the study medication and its possible side effects, and sign an informed consent form to record their
knowledge and acceptance of potential side effects. Patients also undergo a medical examination by the investigator to determine whether they meet the requirements of the study protocol. Patients then receive the study medication and are examined by
the investigator as specified by the study protocol.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Study Monitoring and Data Collection. Patients are reviewed or monitored by specially trained field monitors (also known as clinical
research associates). Field monitors visit study sites regularly to ensure that the CRFs are completed correctly and that the data specified in the protocol is obtained. The field monitors send completed CRFs to the data management group within the
Company where they are reviewed for consistency and accuracy before the data is entered into a database. An alternative data flow process utilizes remote data entry technology and a fax based system that frequently enhances the timeliness of
clinical data collection while achieving cost savings to the Sponsor. We are currently involved in studies using both types of data flow processes.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Data Management Services

We have automated the data
management process associated with clinical trial management through our use and customization of industry standard software known as clinical trials management systems. We license Oracle Clinical® and Datafax as our clinical trials management systems, which assists us in the collection, validation and reporting of clinical results to our clients. Our data management professionals provide CRF review and
tracking, data entry, integrated clinical/statistical reports, as well as writing manuscripts for publication.

Biostatistics

Typically, biostatisticians assist clients with all phases of drug development, including biostatistical consulting, database design, data analysis and statistical
reporting. Our services include the use of professionals that assist in the development and review of protocols, the design of appropriate analysis plans and the design of report formats to specifically address the objectives of the study protocol,
as well as the clients individual objectives.

Medical and Regulatory Affairs

Typically, before a drug, biologic, or medical device can be sold in a particular country, it must be approved by the regulatory agency in that country. We provide comprehensive regulatory product registration
services for pharmaceutical, biotechnology products and medical devices in the United States and Europe. These services include regulatory strategy formulation, New Drug Application (NDA) and Biologic License Application document
preparation and review, quality assurance and liaison with the FDA and other regulatory agencies.

Quality Assurance and Compliance

We conduct field inspections that include investigator audits, pre-submission protocol compliance audits and GCP audits. Our staff also provides training sessions to our
personnel, as well as to study site employees. Finally, our Quality Assurance and Compliance group performs audits of study documents as well as data contained in our clinical trials databases.

Report Writing

The statistical analysis findings for data collected
during the trial, together with other clinical data, are presented in study form to our clients, or at a clients request, directly to the FDA or other regulatory agencies for purposes of obtaining regulatory approval.

Patient Registries

Patient registries provide an opportunity to
rapidly populate databases with real-world, patient-derived information that can be analyzed and disseminated in multiple formats. This has become particularly important considering the recent issues that have come to the forefront regarding
long-term patient safety associated with FDA approved and commercially marketed drugs. Data collection, analysis and reporting requirements for patient registries are significantly less stringent than for traditional phase IIIb and IV studies. Their
success is



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independent of investigator experience. Therefore, a patient registry is an ideal tool for reaching out to the primary care population in a clinically
meaningful and credible way. In addition, patient registries facilitate and improve relationship building between biopharmaceutical companies and regional/local opinion leaders and high volume providers. They increase access to these important
community based physicians while creating a credible, necessary, real-world decision database that provides multiple patient safety, commercialization, communication and education opportunities for stakeholders in the healthcare environment.

Clients and Marketing

We provide a broad range of
clinical research and consulting services to the pharmaceutical, biotechnology and medical device industries. Our clients consist of some of the largest companies in the pharmaceutical, biotechnology and medical device industries. In 2008, we
provided services to 85 different clients covering 172 separate studies of which 69 clients and 144 studies were associated with our European operations. For the year ended December 31, 2008, approximately 26% of our net revenues were
attributed to our operations based in the United States and approximately 74% from operations in Europe. For the year ended December 31, 2007, approximately 37% of our net revenue were attributable to our operations based in the United States
and approximately 63% from our operations in Europe. In 2008, our three largest clients accounted for 29% of our net revenues, with the three largest representing 10%, 10% and 9% of our net revenues, respectively. In 2007, our three largest clients
accounted for 38% of our net revenues, with the three largest representing 15%, 12% and 11% of our net revenues, respectively. None of our European clients accounted for more than 10% of our net revenues. Our largest clients for any one year period
may not represent the same customers as in a prior year period.

We are generally awarded contracts based upon our response to requests for proposals
received from pharmaceutical, biotechnology and medical device companies. Our business development and marketing strategy is based on expanding our relationships with our existing clients as well as gaining new clients. The acquisition of Remedium
has given us the ability to attract and serve a more diverse client base due to its presence in Northern and Eastern Europe and has given us access to a new group of clients that Remedium has a successful history of serving. We are focusing our
business development efforts in these regions to assist us in broadening and diversifying our client base.

Our senior executives and project team leaders
all share responsibility for maintaining and enhancing client relationships and business development activities. Our business development program is supported by a marketing and communications program that includes selective advertising in trade
publications, management of the corporate web site, development of marketing materials, and related activities.

Contractual Arrangements

The majority of our contracts are based on a fixed price with the option for additional variable components (i.e. change of scope). Therefore, we
generally bear the risk of cost overruns, but we may also benefit if the costs are lower than we anticipated. Contracts may range from a few months to several years depending on the nature of the work performed. In general, for multi-year contracts,
a portion of the contract fee, typically 10-20% is paid at the time the trial is started, with the balance of the contract fee payable in installments over the trial duration. In some cases, the installments are tied to meeting specific service
criteria, while others have an agreed upon fixed payment plan independent of certain service criteria. For example, installment payments for clinical trial projects may be related to investigator recruitment or patient enrollment. For our contracts
with our clients in Europe that are fee for service, we are paid on a monthly basis for actual hours worked. As with fixed price contracts, we generally bear the risk of cost overruns until a change of scope is signed. However, the risk of
non-payment is minimal since the scope of our services is limited in this type of contractual arrangement. As is typical in the CRO industry, when a client requests a change in the scope of a trial or in the services to be provided by us, we prepare
a work order. An executed work order becomes an amendment to the original contract. Work orders resulting from changes of scope often produce additional revenue for us. We are at risk for any work performed



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outside the scope of the study or in advance of signing a new work order. We attempt to negotiate contract amendments with the client to cover any services
provided outside the terms of the original contract. There can be no assurance that the client will agree to the proposed amendments, and we ultimately bear the risk of cost overruns.

Most of our contracts may be terminated by the client at any time for any reason with prior notice. Our contracts frequently entitle us to receive the costs of winding down the terminated project, as well as all fees
earned by us up to the time of termination. Contracts may be terminated or delayed for several reasons, including, but not limited to unexpected results or adverse patient reactions to the drug, inadequate patient enrollment or investigator
recruitment, manufacturing problems resulting in shortages of the drug, budget constraints of clients or decisions by the client to de-emphasize or terminate a particular trial.

Backlog

Our backlog consists of anticipated net revenue from uncompleted projects which have been authorized by the
client through a written contract or letter of intent. Many of our studies and projects are performed over an extended period of time, which may be several years. Amounts included in backlog have not yet been recognized as net revenue in our
consolidated statements of operations. Once contracted work begins, net revenue is recognized over the life of the contract as services are performed. The recognition of net revenue reduces our backlog while the awarding of new business increases
our backlog. In 2008, we obtained $36.1 million of new business awards, an increase of $6.4 million, as compared to $29.7 million awarded in 2007. Our consolidated backlog was approximately $34.3 million at December 31, 2008, compared to $38.7
million at December 31, 2007, a decrease of $4.4 million. Our backlog at December 31, 2008 consists of $23.8 million from our European operations and $10.5 million for our operations based in the United States. We expect approximately 63%
of this backlog will be recognized as net revenue in 2009, subject to the risk factors listed herein.

We believe that our backlog as of any date may not
necessarily be a meaningful predictor of future results because backlog can be affected by a number of factors including the size and duration of contracts, many of which are performed over several years. Additionally, contracts may be subject to
early termination by the client or delayed for many reasons, as described above. Also, the scope of a contract can change during the course of a study. For these reasons, we might not be able to fully realize our entire backlog as net revenue. For
example, backlog as of December 31, 2006 was originally estimated to be approximately $55 million. However, due to a contract cancellation in January 2007 with approximately $12.8 million remaining, the Companys adjusted backlog as of
December 31, 2006 was approximately $42.5 million. In addition, since our backlog is reported in U.S. Dollars, but the majority of our contracts are denominated in currencies other than the U.S. Dollar, changes in foreign currency exchange
rates could reduce the amount of backlog reported. Also, if clients delay projects, the projects will remain in backlog, but will not generate revenue at the rate originally expected.

Competition

The clinical research organization industry is highly fragmented and is comprised of a number of large,
full-service CROs with global capabilities as well as many smaller companies with limited service offerings. We primarily compete against full-service and limited service CROs, mid-sized CROs, in-house research and development departments of
pharmaceutical and biotechnology companies and, to a lesser extent, universities and teaching hospitals. CROs generally compete on the basis of a number of factors, including the following: expertise and experience in specific therapeutic areas; the
ability to design sound protocols or enhance the design; reputation for on-time quality performance; scope of service offerings; price; ability to enroll patients and recruit investigators; data management capabilities; strengths in various
geographic markets around the world; technological expertise and efficient drug development processes; the ability to acquire, process, analyze and report data in a timely and accurate manner; the ability to manage large-scale clinical trials both
domestically and internationally; and organizational size. Although there can be no assurance that we will continue to do so, we believe that we compete favorably in these areas.



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Some of our largest competitors include Quintiles Transnational Corporation, Covance, Inc., Parexel International
Corporation, Pharmaceutical Product Development, Inc., Icon Clinical Research and Kendle International, Inc. These larger CROs have substantially greater financial and operational resources and larger geographic presences than we do. In general, the
CRO industry is not capital-intensive and the financial costs of entry into the industry are relatively low. Newer, smaller entities with specialty focuses, such as those aligned to a specific disease or therapeutic area, may compete aggressively
against us for clients. Furthermore, clients may also choose to limit the CROs with whom they are willing to work under certain preferred provider relationships. Increased competition might lead to heightened price and other forms of competition
that may materially and adversely affect our operating results and financial position.

Government Regulation

The development and clinical research of new drugs is highly regulated by government agencies. The standards for the conduct of clinical research and development studies
are embodied in governmental regulations and in standards such as the ICH guideline for GCP. These standards stipulate procedures designed to ensure the quality and integrity of data obtained from clinical testing and to protect the rights and
safety of clinical subjects. The FDA and similar regulatory authorities require that test results submitted to such authorities be based on studies conducted in accordance with GCP and regulations providing protections for research participants.

Our obligations under GCP may include, but are not limited to, the following: assuring the selection of investigators who are qualified and have adequate
staff and facilities to conduct the trial properly and safely; obtaining specific written commitments from investigators; verifying that adequate informed consent of trial subjects has been obtained; monitoring clinical trials to ensure that the
rights and well-being of trial subjects are protected and that the reported trial data are accurate, complete, and verifiable from source documents; ensuring that adverse drug reactions are medically evaluated and reported; verifying drug or device
accountability; implementing quality assurance and quality control systems; instructing investigators and study staff to maintain proper records and reports; and permitting appropriate governmental authorities access to source documents for their
review. We must also maintain reports for each study for specified periods for auditing by the study sponsor and by the FDA or similar regulatory authorities. Noncompliance with GCP can result in disqualification of the data collected during a
clinical trial and we could be required to redo the trial under the terms of our contract at no further cost to our client, but at substantial cost to us. CROs such as Encorium are also typically contractually obligated to comply with GCP and other
patient protection regulations. Failure to comply could expose us to contractual liability to our clients.

Intellectual Property

We have developed certain computer software and technically derived procedures that provide separate services and are intended to maximize the quality and effectiveness
of our services. Our intellectual property rights are important to us. We also believe that factors such as the technical expertise, knowledge, ability and experience of our professionals are important and provide significant benefits to our
clients.

Potential Liability and Insurance

We
contract with physicians who serve as investigators in conducting clinical trials to test new drugs on their patients. Drug testing creates a risk of liability for personal injury to or death of the patients, resulting from adverse reactions to the
drugs administered. In addition, although the Company does not believe it is legally accountable for the medical care rendered by third party investigators, it is possible that we could be subject to claims and expenses arising from any professional
malpractice of the investigators with whom we contract. We also may be held liable for errors and omissions in connection with the services we perform.

We
believe that the risk of liability to patients in clinical trials is mitigated by various regulatory requirements, including the role of institutional review boards (IRBs). An IRB is an independent committee that includes both medical
and non-medical personnel whose role is to protect the interests of patients enrolled in the trial.



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In addition, we attempt to reduce our risk through contractual indemnification provisions with clients and investigators.
However, contractual indemnifications generally do not protect us against certain of our own actions such as negligence. In addition, the terms and scope of indemnification provisions vary from client to client and from trial to trial and the
financial performance of these indemnities is not secured. Therefore, we bear the risk that the indemnity may not be sufficient or that the indemnifying party may not have the financial ability to fulfill its indemnification obligations. We also
attempt to reduce our risk by maintaining worldwide professional liability insurance. We believe that our professional liability insurance coverage is adequate; however, there can be no assurance that we will be able to maintain insurance coverage
on terms acceptable to us, if at all. Our operating results and financial position could be materially and adversely affected if we were required to pay damages or bear the costs of defending any claim outside the scope of or in excess of a
contractual indemnification provision or the coverage available under our insurance policies.

Employees

At December 31, 2008, we employed 226 full-time and 9 part-time personnel, of which 169 full-time and 8 part-time personnel were based outside of the United States.
None of our employees are subject to a collective bargaining agreement. We believe that our relations with our employees are good. In addition, during 2008, we supplemented our employee base with contractors on an as-needed basis.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

We may not be able to meet
our cash requirements without implementing cost cutting initiatives, increasing revenues, and maintaining current customer contracts; failure to do so will result in the need to raise additional capital or significantly reduce our operating costs,
which may include the cessation of operations in certain countries.

We anticipate that we will meet our cash requirements through
March of 2010, assuming we are able to fully implement our current costs cutting initiatives, we are able to win additional contracts during fiscal 2009 and we are able to maintain our current customer contracts. In the event we are unable to do so,
in order for the Company to continue as a going concern we will be required to obtain additional capital from external sources or significantly reduce our operating costs, which may include the cessation of operations in some countries.

Our ability to obtain additional financing in the future will depend in part upon prevailing capital market conditions, as well as conditions in our
business and our operating results; and those factors may affect our efforts to arrange additional financing on terms that are satisfactory to us or at all. We have been working with an investment banking firm to seek strategic alternatives,
including outside investments. To date, our efforts to secure additional investments have not proven successful given the general economic and lending environment, coupled with the Companys current financial position.

Given the current levels of the trading price of the Companys common stock, if the Company were to raise additional capital by issuing equity
securities, existing stockholders percentage ownership would be reduced and they would experience substantial dilution. If we were to raise additional funds by issuing debt securities, these debt securities would have rights, preferences, and
privileges senior to those of our common stock, and the terms of the debt securities issued could impose significant restrictions on our operations.

The perception that we may not be able to continue as a going concern may adversely affect our business.

Any
perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations and may adversely affect our ability to win new contracts and/or
raise additional capital.



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Our backlog may not be indicative of future results.

Backlog is the amount of revenue that remains to be earned and recognized on written awards, signed contracts and letters of intent. We cannot be certain
that the backlog we have reported will be indicative of our future results. A number of factors may affect our backlog, including: the ability of clients to reduce or expand the size and duration of the projects (some are performed over several
years); the termination or delay of projects; and a change in the scope of work during the course of a project. In addition since our backlog is reported in U.S. Dollars, but the majority of our contracts are denominated in currencies other than the
U.S. Dollar, changes in the foreign currency exchange rates could reduce the amount of backlog reported.

Also, if clients delay
projects, the projects will remain in backlog, but will not generate revenue at the rate originally expected. Accordingly, historical indications of the relationship of backlog to revenues may not be indicative of future results and should not be
relied upon.

Our inability to forecast our revenue pipeline or convert revenue pipeline into contracts could increase fluctuations in our revenue
and financial results.

We use a pipeline system, a common industry practice, to forecast contract awards and trends in
our business. Our management team monitors the status of all potential contract awards, including the potential dollar amount of each contract transaction. We aggregate these estimates periodically to generate a pipeline and then evaluate the
pipeline to identify trends in our business. This pipeline analysis and related estimates of revenue may differ significantly from actual revenues in a particular reporting period. When customers delay contracts, reduce the amount of their contract
or cancel contracts altogether, it will reduce the rate of conversion of the pipeline into contracts and our revenues will be harmed. Our inability to respond to a variation in the pipeline or in the conversion of the pipeline into contracts in a
timely manner, or at all, could cause us to plan or budget inaccurately and thereby could adversely affect our results of operations and financial condition.

Our operating results can be expected to fluctuate from period to period.

Fluctuating operating results are usually
due to the level of new business awards in a particular period and the timing of the initiation, progress or cancellation of significant projects. Even a short acceleration or delay in such projects could have a material effect on our results in a
given reporting period. Varying periodic results could adversely affect the price of our common stock if investors react to our reporting operating results which are less favorable than in a prior period or lower than those anticipated by investors
or the financial community generally.

Our stock price may continue to experience fluctuations.

The market prices of securities of thinly-traded companies such as ours generally are highly volatile. For example, since January 1, 2008, the price
of our common stock reached a high of $2.42 on February 1, 2008 and a low of $.20 on December 2, 2008.

In this market
environment, the sale of a substantial number of shares of our common stock in the public market or the perception that such a sale might occur would likely have a materially adverse effect on the market price of our common stock.

Any litigation brought against us as a result of this volatility could result in substantial costs and a diversion of our managements attention and
resources, which could negatively impact our financial condition, revenues, results of operations, and the price of our common stock.

If
we raise additional capital by issuing equity securities in a fluctuating market, many or all of our existing stockholders may experience substantial dilution, and if we need to raise capital by issuing equity securities at a time when our stock
price is down, we may have difficulty raising sufficient capital to meet our requirements.



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We may incur additional impairment charges which may adversely affect our results of operations.

The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets , applicable to business combinations. In accordance with these standards, goodwill acquired in connection with the acquisition
of Remedium was not amortized. Under SFAS No. 142, goodwill is subject to impairment testing annually or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. As a result of the decrease in
the stock price of the Company and market volatility generally, we performed an interim goodwill impairment testing as of September 30, 2008. The first step of impairment testing involves a comparison of the fair value of the reporting unit, in
this case Remedium, with its aggregate carrying values, including goodwill and identifiable intangible assets. We determined the fair value of Remedium using a combination of the income approach methodology of valuation, which includes the
discounted cash flow method, and the relative market value approach methodology. The relative market value approach methodology includes the comparison of revenue and income multiples of comparable companies within the industry that the Company
operates. If the carrying amount of Remedium exceeds its fair value, we perform the second step of the impairment test to determine the amount of the impairment loss. The second step of the impairment test involves comparing the implied fair value
of Remediums goodwill and identifiable intangibles with the respective carrying values. As of September 30, 2008, Management was able to complete the first step of the impairment testing, and estimated that the amount of goodwill acquired
in connection with the acquisition of Remedium was impaired, necessitating a non-cash impairment charge of $1.86 million in the third quarter of 2008 and reducing the carrying value of goodwill. Management updated its step one analysis and completed
the second step of the impairment analysis in accordance with SFAS No. 142 as of November 1, 2008 and, due to the continued deterioration of the underlying comparable companies within the CRO industry as it relates to the market value approach
methodology, has determined that an additional non-cash impairment charge of $12.5 million is to be recorded in the fourth quarter of 2008.

Impairment testing involves various estimates and assumptions, which could vary, and an analysis of relevant market data and market capitalization. If our stock price continues to decline or if economic conditions continue to deteriorate,
we may incur additional impairment charges which may adversely impact our results of operations and financial condition.

Failure to develop new
business in our intensely competitive industry will cause our revenues to decline.

The market for clinical research services is
highly competitive. We primarily compete against in-house departments of pharmaceutical, biotechnology and medical device companies and other clinical research organizations. Competitors in our industry range from small, limited-service providers to
full service, global clinical research organizations. Many of our competitors have an established global presence, including Quintiles Transnational Corp., Covance, Inc., Parexel International Corporation, Pharmaceutical Product Development, Inc.,
Icon Clinical Research, and Kendle International, Inc. In addition, many of our competitors have substantially greater financial and other resources than we do. Significant factors in determining whether we will be able to compete successfully
include: our consultative and clinical trials design capabilities; our reputation for on-time quality performance; our expertise and experience in specific therapeutic areas; the scope of our service offerings; our ability to recruit investigators
and study subjects in a timely manner; our strength in various geographic markets; the price of our services; our ability to acquire, process, analyze and report data in a time-saving and accurate manner; our global data services capabilities; our
ability to manage large-scale clinical trials both domestically and internationally; and our size.

If our services are not competitive
based on these or other factors and we are unable to develop an adequate level of new business, our business, backlog position, financial condition and results of operations will be



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materially and adversely affected. In addition, we may compete for fewer clients arising out of consolidation within the pharmaceutical industry and the
growing tendency of drug companies to outsource to a smaller number of preferred clinical research organizations that have far greater resources and capabilities.

Our services may from time to time experience periods of increased price competition that could have a material adverse effect on our profitability and revenues. Additionally, the CRO industry is not highly
capital-intensive, and the financial costs of entry into the industry are relatively low. Therefore, as a general matter, the industry has few barriers to entry. Newer, smaller entities with specialty focuses, such as those aligned to a specific
disease or therapeutic area, may compete aggressively against us for clients.

We depend on a small number of industries and clients for our
business, and the loss of one of our significant clients could cause revenues to drop quickly and unexpectedly.

Historically,
projects in the fields of cardiovascular, oncology, immunology, vaccines, medical devices as well as clinical staff outsourcing have represented 50-75% of our European project work, although the mix of projects is subject to change from year to
year. For the year ended December 31, 2008, net revenues from our three largest clients amounted to 29% of our net revenues, with the three largest clients representing 10%, 10% and 9% of our net revenues, respectively. None of our European
clients represented more than 10% of our net revenues in 2008. For the year ended December 31, 2007, net revenues from our three largest clients amounted to 38% of our net revenues, with the three largest clients representing 15%, 12% and 11%,
respectively.

We expect that a relatively small number of clients will continue to represent a significant percentage of our net revenue.
The contracts with our clients generally can be terminated on short notice. The loss of business from any significant client or our failure to continue to obtain new business would have a material and adverse effect on our business and revenues.

Loss of key personnel, or failure to attract and retain additional personnel, may cause the success and growth of our business to suffer.

Our future success depends on the personal efforts and abilities of the principal members of our senior management and scientific team to
provide strategic direction, develop business, provide service to our clients, manage our operations and finances, and maintain a cohesive and stable environment. The loss of their services might significantly delay or prevent the achievement of
business development and strategic objectives. As a provider of complex clinical trial support services, our success depends on our ability to retain key employees and to attract additional qualified employees. Competition for qualified personnel is
intense and we cannot assure you that we will be able to retain existing personnel or attract and retain additional highly qualified employees in the future. The loss of services of any of our key executives may have a material and adverse affect on
our business operations, results of operations and financial position.

Competition for our key executives and skilled personnel,
particularly those with a medical degree, a Ph.D. or equivalent degrees, is intense. We compete with clinical research organizations, pharmaceutical and biotechnology companies, and academic and research institutions that have far greater financial
resources to recruit skilled personnel. Our inability to attract and retain qualified executives and scientific staff could have a material and adverse affect on our business plan, results of operations and financial condition. There can be no
assurance that we will be able to continue to attract and retain qualified executives and scientific staff in the future.

We may bear financial
losses because our contracts may be delayed or terminated or reduced in scope for reasons beyond our control.

Our contracts
generally may be terminated or reduced in scope either immediately or upon notice. Clients may terminate or delay their contracts for a variety of reasons, including, but not limited to, the failure of products to satisfy safety requirements,
unexpected or undesired clinical results, merger or potential merger-



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related activities, the clients budget constraints, the clients decision to terminate the development of a particular product or to end a
particular study, insufficient patient enrollment in a study, insufficient investigator recruitment, manufacturing problems resulting in shortages of the product, or our failure to perform our obligations under the contract. For example, in January
2007 a client cancelled a contract having $12.8 million in revenues remaining. This risk of loss or delay of contracts potentially has greater effect as we pursue larger outsourcing arrangements with global pharmaceutical companies.

Also, over the past several years we have observed that clients may be more willing to delay, cancel or reduce contracts more rapidly than in the past.
In addition, companies may proceed with fewer clinical trials or conduct them without assistance of contract research organizations as a result of changing priorities or other internal considerations. These factors may cause such companies to cancel
contracts with CROs, such as Encorium. The loss, reduction in scope or delay of a significant contract or the loss or delay of multiple contracts could materially and adversely affect our business, results of operations and financial condition.

The fixed price nature of our contracts could have a negative impact on our operating results.

The majority of our contracts are at fixed prices. As a result, we bear the risk of cost overruns. If we fail to adequately price our contracts, fail to
effectively estimate the cost to complete fixed price contracts, or if we experience significant cost overruns, our business, results of operations and financial condition could be materially and adversely affected. In addition, contacts with our
clients are subject to change orders, which occur when the scope of work performed by us needs to be modified from what was originally contemplated by our contract with the client. This can occur, for example, when there is a change in a key study
assumption or parameter or a significant change in timing. Under U.S. generally accepted accounting principles, we cannot recognize additional revenue anticipated from change orders until appropriate documentation is received by us from the client
authorizing the change made. However, if we incur additional expense in anticipation of receipt of that documentation, we must recognize the expense as incurred. Further, we may not be successful convincing our clients to approve change orders which
change the scope of current contracts. Such under-pricing or significant cost overruns could have a material adverse effect on our business, results of operations, financial condition or cash flows.

Changes in outsourcing trends in the pharmaceutical and biotechnology industries could materially and adversely affect our operating results and growth rate.

Industry trends and economic factors that affect our clients in the pharmaceutical, biotechnology and medical device industries
also affect our business. Our revenues depend greatly on the expenditures made by the pharmaceutical, biotechnology and medical device industries in research and development. The practice of many companies in these industries has been to hire
outside organizations like us to conduct clinical research projects. This practice has grown significantly in the last decade, and we have benefited from this trend. However, if this trend were to change and companies in these industries were to
reduce the number of research and development projects they outsource, our business could be materially and adversely affected. For example, over the past several years, mergers and other factors in the pharmaceutical industry appear to have slowed
decision-making by pharmaceutical companies and delayed drug development projects. The continuation of or increase of these trends could have a negative affect on our business.

Additionally, numerous governments and managed care organizations have undertaken efforts to control growing healthcare costs through legislation,
regulation and voluntary agreements with medical care providers and pharmaceutical companies. If future regulatory cost containment efforts limit the profits that can be derived on new drugs, our clients might reduce their research and development
spending, which could reduce our business.

Failure to comply with existing regulations could harm our reputation and our operating results.

Any failure on our part to comply with applicable regulations could result in the termination of on-going clinical research or the
disqualification of data for submission to regulatory authorities. For example, if we were



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to fail to verify that patient participants were fully informed and had fully consented to a particular clinical trial, the data collected from that trial
could be disqualified. If this were to happen, we could be contractually required to repeat the trial at no further cost to our client, but at a substantial cost to us. The issuance of a notice from the FDA based upon a finding of a material
violation by us of GCP requirements could result in contractual liability to our clients and/or the termination of ongoing studies which could materially and adversely affect our results of operations. Similar notices could be issued from the
regulatory authorities in other countries where we conduct clinical studies. Furthermore, our reputation and prospects for future work could be materially and adversely diminished.

If we are unable to successfully develop and market new services in the United States, Europe and internationally, our results could be materially and adversely affected.

An element of our growth strategy is the successful development and marketing of new services that complement or expand our existing business. If we are
unable to develop new services and create demand for those newly developed services, we may not be able to implement this element of our growth strategy, and our future business, results of operations and financial condition could be materially and
adversely affected. For example, Remedium has invested in the creation and administrative set-up of international subsidiaries which have sustained operating losses to date. We may need to make additional investments in these subsidiaries in the
future and there is no assurance that additional investments will enable us to achieve our objectives. In addition, we are considering expanding our international operations by other means, such as commencing business partnerships or clinical
studies in countries where we do not have subsidiaries. The profitability of our international subsidiaries and operations depends, in part, on client acceptance and use of our services. There can be no assurance that our international subsidiaries
or operations will be profitable in the future or that any revenue resulting from them will be sufficient to recover the investment in them. If our international operations or subsidiaries do not develop as anticipated, our business, results of
operations and financial condition may be materially and adversely affected.

Changes in governmental regulation could reduce the need for the
services we provide, which would negatively affect our future business opportunities.

In recent years the United States Congress,
state legislatures and foreign governments have considered various types of health care reform in order to control growing health care costs. The United States Congress, state legislatures and foreign governments may again address health care reform
in the future. We are unable to predict what legislative proposals will be adopted in the future, if any.

Implementation of health care
reform legislation that results in additional costs to develop new drugs could limit the profits that can be made by our clients from the development of new products. This could adversely affect our clients research and development
expenditures, which could in turn decrease the business opportunities available to us both in the United States and elsewhere. In addition, new laws or regulations may create a risk of liability, increase our costs or limit our service offerings. We
cannot predict the likelihood of any of these events.

Governmental agencies throughout the world, but particularly in the U.S., strictly
regulate the drug development and approval process. Our business involves helping pharmaceutical, biotechnology and medical device companies navigate the regulatory drug approval process. Any changes in drug approval regulatory requirements such as
the introduction of simplified drug approval procedures or an increase in regulatory requirements that we have difficulty satisfying, could eliminate or substantially reduce the need for our services. These and other changes in regulation could have
an impact on the business opportunities available to us. As a result, our business, results of operations and financial condition may be materially and adversely affected.



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Proposed and future laws and regulations, including laws and regulations relating to the confidentiality of patient
information, might increase the cost of our business, increase our risks of liability or limit our service offerings.

Various
governments might adopt healthcare legislation or regulations that are more burdensome than existing regulations. These changes could increase our expenses or limit our ability to offer some of our products or services. For example, the
confidentiality of patient specific information and the circumstances under which it may be released for inclusion in our databases or used in other aspects of our business are subject to substantial government regulation. Additional legislation
governing the possession, use and dissemination of medical record information and other personal health information has been proposed at both the state and national levels and is likely to be proposed in other countries. Proposed federal regulations
governing patient specific health information might require us to implement new security measures that require substantial expenditures or limit our ability to offer some of our products and services. These regulations might also increase our costs
by creating new privacy requirements and mandating additional privacy procedures for our business, thereby materially and adversely affecting our business, results of operations and financial condition.

Adverse changes in general economic or political conditions in any of the major countries in which we do business could adversely affect our business, operating
results and financial position.

Recently, general worldwide economic conditions have experienced a downturn due to slower economic
activity, concerns about inflation and deflation, increased energy costs, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions, the ongoing effects of the war in Iraq, recent international
conflicts and terrorist and military activity, and the impact of natural disasters and public health emergencies. If economic growth in the United States and other countries economies is slowed, many customers may delay or reduce spending
on our services, which would harm our business, results of operations and financial condition.

Our operations may be interrupted by the occurrence
of a natural disaster or other catastrophic event.

We depend upon our clients, study sites and our facilities, as well as the
ability to readily travel among these, for the continued operation of our business. We also depend upon the continuous, effective, reliable and secure operation of our computer hardware, software, networks, telecommunications networks, internet
servers and related infrastructure. However, catastrophic events, including terrorist attacks, could still disrupt our operations, those of our clients or study sites, or our ability to travel among these locations, which would also affect us.
Although we carry business interruption insurance, we might suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies. Any natural disaster or catastrophic event affecting our facilities
could have a material and adverse affect on our business and results of operations.

Our success depends on our ability to keep pace with rapid
technological changes that could make our products and services less competitive or obsolete.

The clinical research aspects of the
pharmaceutical, biotechnology and medical device industries are subject to increasingly rapid technological changes. Our competitors or others might develop technologies, products or services that are more effective or commercially attractive than
our current or future technologies, products or services, or render our technologies, products or services less competitive or obsolete. For example, if our proprietary technology systems were to become less competitive or obsolete, our ability to
develop new business and our operating results would be adversely affected. If competitors introduce superior technologies, products or services and we cannot make enhancements to our technologies, products and services necessary for us to remain
competitive, our competitive position, and in turn our business, results of operations and financial condition, would be materially and adversely affected.



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We may have exposure to substantial personal injury claims and may not have adequate insurance to cover such
claims.

Our business primarily involves the testing of experimental drugs and biologics or other regulated products on consenting
human volunteers pursuant to a study protocol. These tests create a risk of liability for personal injury to or death of volunteers resulting from negative reactions to the drugs administered or from improper care provided by third-party
investigators, particularly to volunteers with life-threatening illnesses. In connection with many clinical trials, we contract with physicians to serve as investigators in conducting clinical trials to test new drugs on human volunteers. We do not
believe that we are legally accountable for the medical care rendered by third party investigators, and we seek to limit our liability with our clients, third party investigators and others. Although our contracts with clients generally include
indemnity provisions and we have loss insurance, our financial condition and results of operations could be materially and adversely affected if we had to pay damages or incur defense costs in connection with a claim that is outside the scope of an
indemnity or insurance coverage. Additionally, our financial condition could be materially and adversely affected if our liability exceeds the amount of our insurance.

Contractual indemnification provisions generally do not protect us against liability arising from certain of our own actions, such as negligence. Our financial condition and results of operations could be materially
and adversely affected if we were required to pay damages or bear the cost of defending any claim which is not covered by a contractual indemnification provision, in the event that a party who must indemnify us does not fulfill its indemnification
obligations, or if the amount we are required to pay is beyond the level of our insurance coverage. In addition, we may not be able to continue to maintain adequate insurance coverage on terms acceptable to us.

If we are unable to attract suitable willing volunteers for the clinical trials of our clients, our results could be materially and adversely affected.

One of the factors on which we compete is the ability to recruit independent investigators who can identify volunteers for the clinical
studies we manage on behalf of our clients. These clinical trials rely upon the ready accessibility and willing participation of volunteer subjects. These subjects generally include volunteers from the communities in which the studies are conducted,
which to date have provided an adequate pool of potential subjects for research studies. Many of our contracts include payments for achieving specific targets directly tied to the recruitment of study subjects. The trials we manage and our operating
results could be materially and adversely affected if we are unable to attract suitable and willing volunteers on a consistent basis.

If we are
unable to safeguard our networks and clients data, our clients may not use our services and our business may be harmed.

Our
networks may be vulnerable to unauthorized access, computer hacking, computer viruses and other security problems. An individual who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in
our operations. We may be required to expend significant resources to protect against the threat of security breaches or to alleviate problems caused by any breaches. Security measures that we adopt from time to time may be inadequate.

We may have difficulty obtaining director and officer liability insurance in acceptable amounts for acceptable rates.

We cannot assure that we will be able to obtain in the future sufficient director and officer liability insurance coverage at acceptable rates and with
acceptable deductibles and other limitations. Failure to obtain such insurance could materially harm our financial condition in the event that we are required to defend against and resolve any future securities class actions or other claims made
against us or our management. Further, the inability to obtain such insurance in adequate amounts may impair our future ability to retain and recruit qualified officers and directors.



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We do not intend to pay dividends.

We have never paid any cash dividends on our common stock and do not expect to declare or pay any cash or other dividends in the foreseeable future.

Our business strategy contemplates future acquisitions which may result in us incurring unanticipated expenses or additional debt, difficulty in
integrating our operations and dilution to our stockholders and may harm our operating results.

We expect to acquire complementary
businesses in the future as part of our business strategy. We may not realize the anticipated benefits of an acquisition and each acquisition has numerous risks. These risks include: (i) the inability to successfully integrate acquired
businesses or to realize anticipated synergies, economies of scale or other expected value; (ii) difficulties in managing and coordinating operations at new sites; (iii) the loss or termination of key employees of acquired businesses;
(iv) the loss of key customers of acquired businesses; (v) performance of acquired products; (vi) unanticipated expenses in connection with refining and improving acquired products; (vii) diversion of managements attention
from other business concerns; and (viii) risks of entering businesses and markets in which we have no direct or limited prior experience. Acquisitions may result in the utilization of cash and marketable securities, dilutive issuances of equity
securities and the incurrence of debt, any of which would weaken our financial position. In addition, acquisitions may result in the creation of (i) certain definite-lived intangible assets that increase amortization expense, (ii) goodwill
and other indefinite-lived intangible assets that subsequently may result in large write-downs should these assets become impaired and (iii) earn-out or other payments that may need to be expensed rather than recorded as additional goodwill.

In addition, in order to finance any acquisition, we might need to raise additional funds through public or private financings or use our
cash reserves. In that event, we could be forced to obtain equity or debt financing on terms that are not favorable to us or that result in dilution to our stockholders. Use of our cash reserves for acquisitions could limit our financial flexibility
in the future.

We may not be able to identify or complete transactions with attractive acquisition candidates, which could adversely affect our
business strategy.

As part of our business strategy, we have pursued, and may continue to pursue, targeted acquisition
opportunities that we believe would complement our business. If we are not able to acquire strategically attractive businesses, we may not be able to remain competitive in our industry or achieve our overall growth plans.

We currently fail to meet two of NASDAQs listing requirements and if our common stock is delisted it could negatively impact the price of our common stock,
our ability to access the capital markets and the liquidity of our common stock.

Our common stock began trading on the NASDAQ
Capital Market in December 1997. There are several requirements for continued listing on the NASDAQ Capital Market including, but not limited to, a minimum stock price of $1.00 per share and either (i) $2.5 million or more in stockholders
equity, (ii) market capitalization of $35 million or more, or (iii) net income in the last fiscal year, or two of the last three fiscal years, of $500,000 or more.

For the last 30 consecutive business days the bid price of our common stock has closed below the minimum $1.00 per share required for continued inclusion
on the NASDAQ Capital Market, and consequently we are not in compliance with the requirements for continued listing of our common stock. However, given the current extraordinary market conditions, NASDAQ has suspend enforcement of the bid price and
market value of publicly held shares requirements through July 19, 2009. As a result, if the Companys closing bid price of the Companys common stock is less than $1.00 for a period of thirty consecutive days after July 19,
2009, we may



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receive notification from NASDAQ that our common stock will be delisted from the NASDAQ Capital Market unless the stock closes at or above $1.00 per share
for at least ten consecutive days during the 180-day period following such notification.

In addition, on September 25, 2008, the
Company received a notification from NASDAQ stating that the Company failed to comply with NASDAQs independent audit committee requirements as set forth in Marketplace Rule 4350. The Company has until the earlier of the Companys next
annual shareholders meeting or September 5, 2009 to regain compliance. If we fail to comply and cannot remedy our noncompliance during any applicable notice or grace periods, our common stock could be delisted from the Nasdaq Capital
Market.

If delisted from the NASDAQ Capital Market, our common stock will likely be quoted in the over-the-counter market in the so-called
pink sheets or quoted in the OTC Bulletin Board. In addition, our common stock would be subject to the rules promulgated under the Securities Exchange Act of 1934 relating to penny stocks. These rules require brokers who sell
securities that are subject to the rules, and who sell to persons other than established customers and institutional accredited investors, to complete required documentation, make suitability inquiries of investors and provide investors with
information concerning the risks of trading in the security. These requirements would make it more difficult to buy or sell our common stock in the open market. In addition, the delisting of our common stock could materially adversely affect our
ability to raise capital on terms acceptable to us or at all. Delisting from the NASDAQ Capital Market could also have other negative results, including the potential loss of confidence by clients and employees, the loss of institutional investor
interest and fewer business development opportunities.

Failure to comply with Section 404 of the Sarbanes-Oxley Act could negatively impact the
market price of our stock Failure to maintain effective internal controls in accordance price.

If, in the future, we fail to
maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal control environment could negatively impact the market price of our common stock.

If branded pharmaceutical, biotechnology, generic drug or medical device companies reduce their expenditures, our future revenue and profitability may be reduced.

Our business and continued expansion depend on the research and development expenditures of our clients which, in turn, are
impacted by their profitability. If these companies want to reduce costs, they may proceed with fewer clinical trials and other drug development. An economic downturn or other factors may cause our clients to decrease their research and development
expenditures which could adversely affect our revenues and profitability.

Actions or inspections by regulatory authorities may cause clients not to
award future contracts to us or to cancel existing contracts, which may have a material and adverse effect on our results of operations.

We may be subject to continuing inspections of our facilities and documentation in connection with studies we have conducted in support of marketing applications, or routine inspections of our facilities that have yet to be inspected by
regulatory authorities. Regulatory authorities can have significant authority over the conduct of clinical trials, and they have the power to take regulatory and legal action in response to violations of clinical standards, subject protection and
regulatory requirements in the form of civil and criminal fines, injunctions and other measures. If, for example, the FDA obtains an injunction, such action could result in significant obstacles to future operations. Additionally, there is a risk
that actions by regulatory authorities, if they result in significant inspectional observations or other measures, could cause clients not to award us future contracts or to cancel existing contracts. Depending upon the amount of revenue lost, the
results could have a material and adverse affect on our results of operations.



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We might lose business opportunities as a result of healthcare reform.

Numerous governments have undertaken efforts to control healthcare costs through legislation, regulation and voluntary agreements with healthcare
providers and drug companies. Healthcare reform could reduce the demand for our services and, as a result, our revenue. In the last several years, the U.S. Congress has reviewed several comprehensive healthcare reform proposals. The proposals are
intended to expand healthcare coverage for the uninsured and reduce the growth of total healthcare expenditures. Congress has also considered and may adopt legislation which could have the effect of putting downward pressure on the prices that
pharmaceutical and biotechnology companies can charge for prescription drugs. Any such legislation could cause our customers to spend less on research and development. If this were to occur, we could have fewer clinical trials for our business,
which could reduce our earnings. Similarly, pending healthcare reform proposals outside the U.S. could negatively impact revenues from foreign operations.

Our business is subject to international economic, political and other risks that could negatively affect our results of operations or financial position.

A significant portion of our revenues are derived from countries outside the U.S. and we anticipate that revenues from foreign operations will grow.
Accordingly, our business is subject to risks associated with doing business internationally, including:



| |  |  | less stable political and economic environments and changes in a specific countrys or regions political or economic conditions,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | potential negative consequences from changes in tax laws affecting our ability to repatriate profits,
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | unfavorable labor regulations,
| | - |  | ------------------------------



| |  |  | greater difficulties in managing and staffing foreign operations,
| | - |  | -----------------------------------------------------------------



| |  |  | the need to ensure compliance with the numerous regulatory and legal requirements applicable to our business in each of these jurisdictions, and to maintain an
effective compliance program to ensure compliance,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in trade policies, regulatory requirements and other barriers,
| | - |  | ----------------------------------------------------------------------



| |  |  | civil unrest or other catastrophic events, and
| | - |  | ----------------------------------------------



| |  |  | longer payment cycles of foreign customers and difficulty collecting receivables in foreign jurisdictions.
| | - |  | ----------------------------------------------------------------------------------------------------------

These factors are beyond our control. The realization of any of these or other risks associated with operating in foreign countries could have a material
adverse effect on our business, results of operations or financial condition.

Our substantial non-U.S. operations expose us to currency risks.

We operate in many countries and are subject to exchange rate gains and losses for multiple currencies. We may also be subject to
foreign currency transaction risk when our service contracts are denominated in a currency other than the currency in which we incur expenses or earn fees related to such contracts. Changes in the exchange rate foreign currencies and the U.S. dollar
could materially affect the translation of our subsidiaries financial results into U.S. dollars for purposes of reporting our consolidated financial results.



|ITEM 1B. | Unresolved Staff Comments
|-------- | -------------------------

None



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|ITEM 2. | PROPERTIES
|------- | ----------

The Company leases all of its
facilities. The Company currently manages all of its North and South American clinical trial studies from its headquarters in Wayne, Pennsylvania. In July, 2008, the Company entered into a lease amendment which extended the term of the lease from
2009 to 2014, reduced the amount of square footage under the lease by 11,042 square feet to approximately 22,287 square feet and reduced the rent due to approximately $53 thousand per month.

We currently manage the majority of European and Asian clinical trials from Encoriums facility in Espoo, Finland. We lease approximately 13,552 square feet in
Espoo, Finland from an independent landlord under a lease expiring on October 31, 2013. The rent in 2009 including parking is approximately 38 thousand per month (or approximately $54 thousand per month based on an exchange rate of
1.00 EUR~1.4097 USD).



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

The Company was not
involved in any material litigation as of December 31, 2008.



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

Not Applicable



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PART II



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

Market Information

Our common stock is quoted in the NASDAQ Capital
Market under the symbol ENCO. Our symbol was changed from CVGR to ENCO in connection with the change of our name to Encorium Group, Inc. from Covalent Group, Inc. The following table indicates the high and low bid sale prices per share
for each quarter over the last two fiscal years.



|              |  |          |      |         |   |          |  |         |      |  |   |     
|------------- |  | -------- | ---- | ------- | - | -------- |  | ------- | ---- |  | - | ----
|              |  | 2008     |      | 2007   
|Quarter Ended |  | High Bid |      | Low Bid |   | High Bid |  | Low Bid
|31-Mar        |  | $        | 1.95 |         | $ | 1.88     |  | $       | 6.38 |  | $ | 3.27
|30-Jun        |  |          | 1.60 |         |   | 1.45     |  |         | 4.00 |  |   | 2.76
|30-Sep        |  |          | .37  |         |   | .29      |  |         | 3.19 |  |   | 2.31
|31-Dec        |  | $        | .31  |         | $ | .23      |  | $       | 3.10 |  | $ | 1.52

Holders

As of
March 1, 2009, there were approximately 593 holders of record of our common stock. However, we believe that there are approximately 2,600 additional shareholders in street name, who beneficially own our common stock in various
brokerage accounts.

Dividend Policy

We have never
declared a cash dividend on our common stock and do not anticipate paying cash dividends in the foreseeable future.

Recent Sales of Unregistered
Securities

Except as otherwise previously disclosed in our Quarterly Reports on Form 10-Q or our Current Reports on Form 8-K, we did not sell any
unregistered securities during fiscal 2008.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

In October 2008 the Board of Directors of the Company approved a stock repurchase program in an amount of up to $250,000. During the three months ended December 31,
2008, the Company purchased 79,257 shares of Common Stock at an average price of $0.36 per share in open market transactions as follows:



|            |  |                                   |  |                               |      |                                                                                  |        |                                                                                           |   |           
|----------- |  | --------------------------------- |  | ----------------------------- | ---- | -------------------------------------------------------------------------------- | ------ | ----------------------------------------------------------------------------------------- | - | ----------
|Period 2008 |  | (a)Total Numberof SharesPurchased |  | (b)AveragePrice Paid perShare |      | (c)Total Number of SharesPurchased as Part of PubliclyAnnounced Plans orPrograms |        | (d)Approximate Dollar Value of Sharesthat May Yet Be Purchased Underthe Plans or Programs
|Oct. 1  31 |  | 60,157                            |  | $                             | 0.40 |                                                                                  | 60,157 |                                                                                           | $ | 225,809.57
|Nov. 1  30 |  |                                  |  |                               |     |                                                                                  | 60,157 |                                                                                           | $ | 225,809.57
|Dec. 1  31 |  | 19,100                            |  | $                             | .22  |                                                                                  | 79,257 |                                                                                           | $ | 221,536.19



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

The following table
represents selected historical consolidated financial data. The statement of operations data for the years ended December 31, 2008, 2007 and 2006 and balance sheet data at December 31, 2008 and 2007 are derived from our audited
consolidated financial statements included elsewhere in this report. The statement of operations data for the years ended December 31, 2005 and 2004 and the balance sheet data at December 31, 2006, 2005, and 2004, are derived from audited
consolidated financial statements not included in this report. The historical results are not necessarily indicative of the operating results to be expected in the future. The selected data should be read together with Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and notes to the financial statements.



|                                                                  |  |                                       |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|----------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                                  |  | 2008                                  |         |   | 2007 |   |        | 2006 |  |   | 2005   |   |  | 2004 |       
|Consolidated Statement of Operations Data:                        |  | (in thousands, except per share data) |        
|Total revenue                                                     |  | $                                     | 35,912  |   |      | $ | 36,802 |      |  | $ | 17,684 |   |  | $    | 12,727 |   |  | $ | 18,977 |  
|Operating expenses                                                |  |                                       | 57,190  |   |      |   | 40,370 |      |  |   | 18,442 |   |  |      | 14,352 |   |  |   | 24,449 |  
|                                                                  |  |                                       |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Loss from operations                                              |  |                                       | (21,278 | ) |      |   | (3,568 | )    |  |   | (758   | ) |  |      | (1,625 | ) |  |   | (5,471 | )
|Other income                                                      |  |                                       | 101     |   |      |   | 285    |      |  |   | 282    |   |  |      | 140    |   |  |   | 3      |  
|                                                                  |  |                                       |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Loss before income taxes                                          |  |                                       | (21,177 | ) |      |   | (3,283 | )    |  |   | (476   | ) |  |      | (1,484 | ) |  |   | (5,468 | )
|Income tax (benefit) provision                                    |  |                                       | (104    | ) |      |   | (532   | )    |  |   | 18     |   |  |      |       |   |  |   | (1,245 | )
|                                                                  |  |                                       |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net loss                                                          |  | $                                     | (21,073 | ) |      | $ | (2,751 | )    |  | $ | (494   | ) |  | $    | (1,484 | ) |  | $ | (4,223 | )
|                                                                  |  |                                       |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net loss per common share:                                        |  |                                       |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Basic                                                             |  | $                                     | (1.02   | ) |      | $ | (0.14  | )    |  | $ | (0.04  | ) |  | $    | (0.11  | ) |  | $ | (0.32  | )
|Diluted                                                           |  | $                                     | (1.02   | ) |      | $ | (0.14  | )    |  | $ | (0.04  | ) |  | $    | (0.11  | ) |  | $ | (0.32  | )
|                                                                  |  |                                       |         |   |     
|Weighted average common and common equivalent shares outstanding: |  |                                       |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Basic                                                             |  |                                       | 20,589  |   |      |   | 19,167 |      |  |   | 13,990 |   |  |      | 13,347 |   |  |   | 13,239 |  
|Diluted                                                           |  |                                       | 20,589  |   |      |   | 19,167 |      |  |   | 13,990 |   |  |      | 13,347 |   |  |   | 13,239 |  
|                                                                  |  |                                       |         |   |     
|Consolidated Balance Sheet Data:                                  |  |                                       |         |   |      |   |        |      |  |   |        |   |  |      |       
|Cash and cash equivalents                                         |  | $                                     | 5,706   |   |      | $ | 9,109  |      |  | $ | 5,533  |   |  | $    | 7,104  |   |  | $ | 3,166  |  
|Working capital(1) (2) (3)                                        |  |                                       | (1,415  | ) |      |   | 4,368  |      |  |   | (3,908 | ) |  |      | 5,896  |   |  |   | 7,111  |  
|Total assets                                                      |  |                                       | 21,093  |   |      |   | 37,530 |      |  |   | 38,297 |   |  |      | 9,843  |   |  |   | 12,823 |  
|Long term debt                                                    |  |                                       | 190     |   |      |   | 118    |      |  |   | 8      |   |  |      | 37     |   |  |   | 63     |  
|Total liabilities                                                 |  |                                       | 16,915  |   |      |   | 13,425 |      |  |   | 20,995 |   |  |      | 3,530  |   |  |   | 5,014  |  
|Shareholders equity                                              |  | $                                     | 4,178   |   |      | $ | 24,106 |      |  | $ | 17,302 |   |  | $    | 6,313  |   |  | $ | 7,809  |  



|(1) | Working capital is calculated as current assets minus current liabilities.
|--- | --------------------------------------------------------------------------

|(2) | Working capital for 2006 was impacted by the accrual of a non-cash payment of $4 million related to the issuance of our common stock to the former Remedium stockholders pursuant to
the acquisition agreement.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Working capital for 2008, 2007 and 2006 includes a deferred tax liability related to the amortization of intangible assets acquired in connection with the Remedium acquisition of
$74 thousand, $217 thousand and $604 thousand, respectively. Since amortization of intangibles are not deductible by the Company for income tax purposes, the deferred tax liability represents the difference between tax expense calculated for
financial reporting purposes (book) and tax expense reported to foreign jurisdictions.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Overview

We are a clinical research organization that engages in the
design and management of complex clinical trials for the pharmaceutical, biotechnology and medical device industries. Our mission is to provide our clients with high quality, full-service support for their clinical trials. We offer therapeutic
expertise, experienced team management and advanced technologies. Our headquarters is in Wayne, Pennsylvania and our international operations are based in Espoo, Finland.

The following discussion should be read in conjunction with the Companys consolidated financial statements and notes thereto.

We anticipate that will meet our cash requirements through March of 2010, assuming we are able to fully implement our current costs cutting initiatives, we are able to win additional contracts during fiscal 2009 and we are able to maintain
our current customer contracts. In the event we are unable to do so, we will be required to obtain additional capital from external sources or significantly reduce our operating costs, which may include the cessation of operations in some countries.

Net revenue is derived principally from the design, management and monitoring of clinical research studies. Clinical research service contracts generally
have terms ranging from several months to several years. A portion of the contract fee is generally payable upon execution of the contract, with the balance payable in installments over the life of the contract. Several of our older contracts
contain payment schedules that are weighted towards the later stages of the contract. The majority of our net revenue is recognized from fixed price contracts on a proportional performance basis. To measure the performance, we compare actual direct
costs incurred to estimated total contract direct costs, which we believe is the best indicator of the performance of the contract obligations as the costs relate to the labor hours incurred to perform the service.

Contracts generally may be terminated by clients immediately or with short notice. Clinical trials may be terminated or delayed for several reasons including, among
others, unexpected results or adverse patient reactions to the drug, inadequate patient enrollment or investigator recruitment, manufacturing problems resulting in shortages of the drug, budget constraints of clients or decisions by the client to
de-emphasize or terminate a particular trial, development efforts on a particular drug or our failure to properly perform our obligations. Depending on the size of the trial in question, a clients decision to terminate or delay a trial in
which we participate could have a material and adverse effect on our backlog, future revenue and results from operations.

Critical Accounting Policies
and Estimates

Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the periods presented. On an ongoing basis, management evaluates its judgments and estimates. Management bases its judgments and estimates on historical experience and on various other factors that are
believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Management considers the following policies to be most critical in understanding the more complex judgments
that are involved in preparing our consolidated financial statements and the uncertainties that could affect our results of operations and financial condition.



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Revenue Recognition

The majority of our net revenue is recognized from fixed price contracts on a proportional performance method based on assumptions regarding the estimated completion of the project. This method is used because management considers total
costs incurred to be the best available measure of progress on these contracts. Works is also performed under time and material contracts whereby we recognize revenue as hours are worked based on the hourly billing rate for each contract.

Each month costs are accumulated on each project and compared to total estimated cost to complete to determine the degree of completion for that
particular project. This determines the percentage of completion for the project. This percentage of completion is multiplied by the contract value to determine the amount of revenue to be recognized. As the work progresses, original estimates may
be adjusted due to revisions in the scope of work or other factors and a contract modification may be negotiated with the customer to cover additional costs. Our accounting policy for recognizing revenue for changes in scope is to recognize revenue
when the Company has reached agreement with the client, the services pursuant to the change in scope have been performed, the price has been set forth in the change of scope document and collectibility is reasonably assured based on our course of
dealings with the client. We bear the risk of cost overruns on work performed absent a signed contract modification. Because of the inherent uncertainties in estimating costs, it is reasonably possible that the cost estimates used will change in the
near term and may have a material adverse impact on our financial performance.

In the past, we have had to commit unanticipated resources to complete
projects resulting in lower gross margins on those projects. We may experience similar situations in the future although our current contracts in process are of a shorter duration and subject to less cost volatility. Should our estimated costs on
fixed price contracts prove to be low in comparison to actual costs, future margins could be reduced, absent our ability to negotiate a contract modification.

There are no standard billing and payment provisions which are present in each contract. Each contract has separate and distinct billing and payment terms which are the result of negotiation between us an the client. Billings and the
related payment terms from fixed price contracts are generally determined by provisions in the contract that may include certain payment schedules and the submission of required billing detail. The payment schedule in the contract reflects the value
of services to be performed by us at the initiation of the contract. The payment schedule may include the value of certain interim service components as well as periodic payments which are reasonably assured at the start of the contract and which we
expect to receive during the duration of the contract. Accordingly, cash receipts, including the receipt of up front payments, periodic payments and payments related to the achievement of certain billing mechanisms, do not necessarily correspond to
cost incurred and revenue recognized on contracts. A contracts payment structure typically requires an upfront payment of 10% to 20% of the contract value at or shortly after the initiation of the contract, a series of periodic payments over
the life of the contract and payments based upon the achievement of certain billing mechanisms. The upfront payments are deferred and recognized as revenues and services are performed under the proportional performance method. Periodic payments,
including payments related to the achievement of certain billing mechanisms in the contract, are invoiced pursuant to the terms of the contract once the agreed upon services criteria have been achieved. Payments based upon interim billing mechanisms
are included in the value of the contract because we expect to receive them during the term of the contract. All payments received pursuant to the contract are recognized in accordance with the proportional performance method. In a comprehensive
full service drug development program, the client would not generally purchase certain service components separately but as an integrated, full service arrangement in connection with the development of the drug.

Clients generally may terminate a contract on short notice which might cause unplanned periods of excess capacity and reduced revenues and earnings. Client initiated
delays or cancellations for ongoing clinical trials can come suddenly and may not be foreseeable. To offset the effects of early termination of significant contracts, we attempt to negotiate the payment of an early termination fee as part of the
original contract. Generally, we have



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not been successful in negotiating such fees. Our contracts typically require payment to us of expenses incurred to wind down a study and fees earned to
date. Therefore, revenue recognized prior to cancellation does not require a significant adjustment upon cancellation. If we determine that a loss will result from the performance of a fixed price contract, the entire amount of the estimated loss is
charged against income in the period in which such determination is made.

Our accounting policy for recognizing revenue for terminated projects requires
us to perform a reconciliation of study activities versus the activities set forth in the contract. We negotiate with the client, pursuant to the terms of the existing contract, regarding the wind up of existing study activities in order to clarify
which services the client wants us to perform. Once we and the client agree on the reconciliation of study activities and the agreed upon services have been performed by us, we would record the additional revenue provided collectibility is
reasonably assured.

Our operations have experienced, and may continue to experience, period-to-period fluctuations in net service revenue and results from
operations. Because we generate a large proportion of our revenues from services performed at hourly rates, our revenues in any period are directly related to the number of employees and the number of hours worked by those employees during that
period. Our results of operations in any one quarter can fluctuate depending upon, among other things, the number of weeks in the quarter, the number and related contract value of ongoing client engagements, the commencement, postponement and
termination of engagements in the quarter, the mix of revenue, the extent of cost overruns, employee hiring, employee utilization, vacation patterns, exchange rate fluctuations and other factors.

Reimbursable Out-of-Pocket Expenses

On behalf of our clients,
we pay fees to investigators and other out-of-pocket costs for which we are reimbursed at cost, without mark-up or profit. In connection with the required implementation on January 1, 2002, of Financial Accounting Standards Board Emerging
Issues Task Force Rule No. 01-14, Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred(EITF 01-14), out-of-pocket costs are included in Operating Expenses,
while the reimbursements received are reported separately as Reimbursement Revenue in the Consolidated Statements of Operations.

As is customary in the
industry, we will continue to exclude from revenue and expense in the Consolidated Statements of Income fees paid to investigators and the associated reimbursement since we act as an agent on behalf of the pharmaceutical company sponsors with regard
to investigator payments, in accordance with the Financial Accounting Standards Board Emerging Issues Task Force Rule No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent (EITF 99-19). These
investigator fees are not reflected in our Net Revenue, Reimbursement Revenue, Reimbursement Out-of-Pocket Expenses, and/or Direct Expenses. The amounts of these investigator fees were $8.8 million, $5.3 million, and $2.4 million for the years ended
December 31, 2008, 2007, and 2006, respectively.

Concentration of Credit Risk

Our accounts receivable and costs and estimated earnings in excess of related billings on uncompleted contracts are concentrated with a small number of companies within
the pharmaceutical, biotechnology and medical device industries. The significant majority of this exposure is to large, well established firms. Credit losses have historically been minimal. As of December 31, 2008, the total of accounts
receivable and costs and estimated earnings in excess of related billings on uncompleted contracts was $6.1 million. Of this amount, the exposure to our three largest clients was 38% of the total, with the three largest clients representing 15%, 12%
and 11% of total exposure, respectively. As of December 31, 2007, the total of accounts receivable and costs and estimated earnings in excess of related billings on uncompleted contracts was $5.8 million. Of this amount, the exposure to our
three largest clients was 39% of the total, with the three largest clients representing 25%, 7%, and 7% of total exposure, respectively.



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Stock-Based Compensation

Effective January 1, 2006 the company adopted SFAS No. 123R, Share Based Payment(SFAS No. 123R), using the Modified Prospective Approach. SFAS No. 123R revises SFAS
No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees
(APB No. 25). SFAS No. 123R requires the cost of all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at grant date, or the
date of later modification, over the requisite service period. In addition, SFAS No. 123R requires unrecognized cost (based on the amounts previously disclosed in our pro forma footnote disclosure) related to options vesting after the date of
initial adoption to be recognized in the financial statements over the remaining requisite service period. Accordingly, prior period amounts have not been restated.

Under the Modified Prospective Approach, the amount of compensation expense recognized includes compensation expense for all share-based payments granted prior to, but not yet fully vested as of January 1, 2006,
based on the grant date fair value estimated in accordance with SFAS No. 123 and compensation expense for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with SFAS
No. 123R. Prior to adoption of SFAS No. 123R, we determined share-based compensation expense by applying the intrinsic value method provided for in APB Opinion No. 25.

Income Taxes

The Company estimates its tax liability based on current tax laws in the statutory jurisdictions
in which it operates. Because the Company conducts business on a global basis, its effective tax rate has and will continue to depend upon the geographic distribution of its pre-tax earnings (losses) among jurisdictions with varying tax rates. These
estimates include judgments about deferred tax assets and liabilities resulting from temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. The Company has
assessed the realization of deferred tax assets and a valuation allowance has been established against excess net operating losses based on an assessment that it is more likely than not that realization cannot be assured. The ultimate realization of
this tax benefit is dependent upon the generation of sufficient operating income in the respective tax jurisdictions.

Goodwill and Intangible Assets

The Company follows the provisions of SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and
Other Intangible Assets, applicable to business combinations. The Company also follows the provisions of SFAS No. 144,  Accounting for the Impairment or Disposal of Long-Lived Assets, applicable to its accounting
for impairment of goodwill and intangible assets. In accordance with these standards, goodwill acquired in connection with the acquisition of Remedium was not amortized. However, the identifiable intangible assets acquired in connection with the
acquisition of Remedium will be amortized over their useful lives. Pursuant to SFAS No. 142, Management of the Company must make an assessment of goodwill impairment annually or whenever events or changes in circumstances indicate that the
carrying amount may not be fully recoverable. If carrying value exceeds current fair value, then goodwill is considered impaired and is reduced to fair value via a charge to earnings. Management made an assessment of Remediums fair value as
November 1, 2007, one year from the acquisition date, in order to determine whether the amount of goodwill and related intangible assets acquired had been impaired. As of November 1, 2007, management determined that both goodwill and
intangible assets acquired in connection with the acquisition of Remedium were not impaired and that no adjustment to the carrying values was necessary as of that date.

Due to changes in key personnel, adverse market conditions and a significant decrease in the Companys market capital during the third quarter of 2008, the Company made an interim assessment of Remediums
fair value as of September 30, 2008 to determine whether the amount of goodwill and the identifiable intangibles acquired in connection with the acquisition of Remedium were impaired. The test for impairment involves a two step



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process. The first step of impairment testing involves a comparison of the fair value of the reporting unit, in this case Remedium, with its aggregate
carrying values, including goodwill and identifiable intangible assets. We determined the fair value of Remedium using a combination of the income approach methodology of valuation, which includes using the discounted cash flow method, and the
relative market value approach methodology. The relative market value approach methodology includes the comparison of revenue and income multiples of comparable companies within the industry that the Company operates. If the carrying amount of
Remedium exceeds its fair value, we perform the second step of the impairment test to determine the amount of the impairment loss. The second step of the impairment test involves comparing the implied fair value of Remediums goodwill and
identifiable intangibles with the respective carrying values. As of September 30, 2008, Management was able to complete the first step of the impairment testing, and estimated that the amount of goodwill acquired in connection with the
acquisition of Remedium was impaired, necessitating a non-cash impairment charge of $1.86 million in the third quarter of 2008 and reducing the carrying value of goodwill. Management updated its step one analysis and completed the second step
of the impairment analysis in accordance with SFAS No. 142 as of November 1, 2008 and, due to the continued deterioration of the underlying comparable companies within the CRO industry as it relates to the market value approach methodology, has
determined that an additional non-cash impairment charge of $12.50 million is to be recorded in the fourth quarter of 2008.

Results of Operations

The following table sets forth amounts for certain items in our consolidated statements of operations expressed as a percentage of net revenue. The
following table excludes revenue and costs related to reimbursable out-of-pocket expenses because they are not generated by the services we provide, do not yield any gross profit to us, and do not have any impact on our net income. We believe this
information is useful to our investors because it presents the net revenue and expenses that are directly attributable to the services we provide to our clients and provides a more accurate picture of our operating results and margins.

Percentage of Net Revenue, Excluding Reimbursable Out-of-Pocket Expenses



|                                    |  |                         |    |  |        |    |  |        |   
|----------------------------------- |  | ----------------------- | -- |  | ------ | -- |  | ------ | --
|                                    |  | Year Ended December 31, |   
|                                    |  | 2008                    |    |  | 2007   |    |  | 2006   |   
|Net revenue                         |  | 100.00                  | %  |  | 100.00 | %  |  | 100.00 | % 
|Operating Expenses                  |  |                         |    |  |        |    |  |        |   
|Direct                              |  | 70.58                   | %  |  | 63.96  | %  |  | 62.98  | % 
|Selling, general and administrative |  | 46.58                   | %  |  | 39.07  | %  |  | 37.40  | % 
|Depreciation and amortization       |  | 5.61                    | %  |  | 8.25   | %  |  | 4.56   | % 
|Impairment charge                   |  | 47.59                   | %  |  |       | %  |  |       | % 
|Loss from Operations                |  | (70.36                  | )% |  | (11.27 | )% |  | (4.94  | )%
|Net Loss                            |  | (69.68                  | )% |  | (8.69  | )% |  | (3.23  | )%

Year Ended December 31, 2008 Compared With Year Ended December 31, 2007

Net revenue for 2008 decreased $1.5 million to $30.2 million as compared to $31.7 million for 2007, a 4.4% decrease. The decline in revenues for 2008 was primarily due to
a $3.7 million decrease in revenue generated in the United States, which was offset in part by a $2.2 million increase in revenue generated by the Companys European operations. Net revenues for 2008 generated in the U.S. were $7.9 million
as compared to $11.6 million for 2007, a decrease of $3.7 million. The decrease in net revenues in the U.S. was primarily due to a decrease in the number of contracts and related contract values of active clinical studies being conducted by the
Company in the United States during 2008. Net revenues generated by our European operations were $22.3 million as compared to $20.1 million for 2007, an increase of $2.2 million. Of the $2.2 million increase in net revenues generated by our European
operations, $1.4 million was attributable to favorable foreign currency fluctuations for the year ended December 31, 2008 as compared to the same prior year period. Approximately $800 thousand of the increase in net revenues from our European
operations was attributable to organic growth



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resulting from new business awards during 2008. As a percentage of total net revenues, net revenues for 2008 from our European operations represented 74%
compared to 63% of net revenues for 2007, an 11% increase. Consequently, the percentage of net revenues generated in the United States has decreased from 37% in 2007 to 26% for 2008 due to the decline in the number of contracts and related contract
values of active studies being conducted by the Companys U.S. operations. Our consolidated backlog at the end of 2008 decreased $4.4 million to $34.3 million compared to our backlog of $38.7 million at the end of 2007.

We may experience annual cost increases in the future in our ongoing clinical projects without a corresponding increase in revenues. To the extent the actual estimated
cost to complete utilized at the end of 2008 increased by 5% to 10% than the estimates actually utilized, the Companys 2008 reported revenues would have been reduced by $339 thousand and $665 thousand, respectively. The Companys
consolidated net loss for 2008 would have increased by the same amount as the decline in revenues. This assumes that the Company would have been unsuccessful in negotiating change orders during 2008 that would provide for reimbursement of the excess
costs. For periods beyond 2008, the impact on the Companys net income and financial position would depend upon the actual costs incurred to complete the project and whether the Company was successful in negotiating change orders for
reimbursement of the excess costs. See Footnote No. 2, Revenue Recognition, for the Companys revenue recognition accounting policies.

Reimbursement revenue consisted of reimbursable out-of-pocket expenses incurred on behalf of our clients. Reimbursements are made at cost, without mark-up or profit, and therefore have no impact on net income.

Direct expenses included compensation and other expenses directly related to conducting clinical studies. These costs increased by $1.1 million to $21.3 million for the
year ended December 31, 2008 from $20.2 million for the year ended December 31, 2007. The increase in direct expenses resulted principally from a $2.1 million increase in direct expenses incurred by our European operations which were
offset in part by a $1 million decrease in direct expenses incurred in the United States. Direct expenses incurred by our European operations totaled $14.2 million for the year ended December 31, 2008 as compared to $12.1 million for the year
ended December 31, 2007, an increase of $2.1 million. Of the $2.1 million increase in direct expense incurred by our European operations, approximately $1 million was attributable to unfavorable foreign currency fluctuations for the year ended
December 31, 2008 as compared to the same prior year period. In addition, direct expenses increased as a result of additional staff and subcontractors utilized to meet the resource requirements of active clinical trials being conducted by our
European operations during 2008 compared to the same prior year period. Direct expenses in the United States totaled $7.1 million for the year ended December 31, 2008 compared with $8.1 million in 2007, a $1 million decrease. The decrease in
direct cost in the U.S. was due to staff reductions and a decrease in subcontractors utilized to meet the resourcing requirements of active clinical trials in the U.S. during 2008 compared to the same prior year period. Direct expenses as a
percentage of net revenue increased to 71% for the year ended December 31, 2008 compared to 64% for the year ended December 31, 2007, an increase of 7%. The 7% increase in direct expenses as a percentage of revenues was principally due to
revenue reductions in the U.S. resulting from a combination of decreased utilization of our personnel on clinical study activities and a decrease in the number of active clinical studies, as well as an increase in the number of personnel and
subcontractors that were utilized on active clinical trials in Europe. The percentage increase was also impacted by unfavorable foreign currency fluctuations from our European operations for the year ended December 31, 2008 compared with the
same prior year period.

Selling, general, and administrative expenses included the salaries, wages and benefits of all administrative, financial and
business development personnel and all other support expenses not directly related to specific contracts. Selling, general and administrative expenses increased by $1.7 million to $14.1 million for the year ended December 31, 2008 from $12.4
million for the year ended December 31, 2007. Of the $1.7 million increase in SG&A, approximately $900 thousand was attributable to the proposed acquisition of Prologue and proposed business combination with Linkcon that were terminated
during the third quarter of 2008. SG&A expenses incurred by our European operations increased by $900 thousand to $7.4 million for the year ended December 31, 2008 compared to $6.5 million for the year ended December 31, 2007. Of the
$900 increase in



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SG&A incurred by our European operations, approximately $525 thousand was attributable to unfavorable foreign currency fluctuations for the year ended
December 31, 2008 compared to the same prior year period. The remainder of the increase in SG&A incurred by our European operations was the result of staff additions and increased personnel costs. SG&A expenses incurred in the United
States increase by $800 thousand to $6.5 million for the year ended December 31, 2008 from $5.7 million for the year ended December 31, 2007. Excluding the $900 thousand of cost associated with the proposed acquisitions and business
combinations incurred in the United States, SG&A expenses decreased by $100 thousand compared to the same prior year period. The decrease in SG&A expense for our U.S. operations was the result of staff reductions and reductions in overhead
expenses. Selling, general and administrative expenses as a percentage of net revenue increased to 47% for the year ended December 31, 2008 from 39% for the year ended December 31, 2007, an 8% increase. The increase in SG&A expense was
primarily attributable to the merger and acquisition activity that was terminated during the third quarter of 2008 and unfavorable foreign currency fluctuations for the year ended December 31, 2008 compared to the same prior year period.

Due to changes in key personnel, adverse market conditions and a significant decrease in the Companys market capital during the third quarter of
2008, the Company made an interim assessment of Remediums fair value as of September 30, 2008 to determine whether the amount of goodwill and the identifiable intangibles acquired in connection with the acquisition of Remedium were impaired.
The test for impairment involves a two step process. The first step of impairment testing involves a comparison of the fair value of the reporting unit, in this case Remedium, with its aggregate carrying values, including goodwill and identifiable
intangible assets. We determined the fair value of Remedium using a combination of the income approach methodology of valuation, which includes the discounted cash flow method, and the relative market value approach methodology. The relative market
value approach methodology includes the comparison of revenue and income multiples of comparable companies within the industry that the Company operates. If the carrying amount of Remedium exceeds its fair value, we perform the second step of the
impairment test to determine the amount of the impairment loss. The second step of the impairment test involves comparing the implied fair value of Remediums goodwill and identifiable intangibles with the respective carrying values. As of
September 30, 2008, Management was able to complete the first step of the impairment testing, and estimated that the amount of goodwill acquired in connection with the acquisition of Remedium was impaired, necessitating a non-cash impairment
charge of $1.86 million in the third quarter of 2008 and reducing the carrying value of goodwill. Management updated its step one analysis and completed the second step of the impairment analysis in accordance with SFAS No. 142 as of
November 1, 2008 and, due to the continued deterioration of the underlying comparable companies within the CRO industry as it related to the market value approach methodology, has determined that an additional non-cash impairment charge of
$12.50 million is to be recorded in the fourth quarter of 2008.

Loss from operations for the year ended December 31, 2008 increased by $17.7 million
to $21.3 million from $3.6 million for the year ended December 31, 2007, primarily for the reasons noted in the preceding paragraphs.

Net interest
income for the year ended December 31, 2008 decreased by $184 thousand to $101 thousand from $285 thousand for the year ended December 31, 2007. The $184 thousand decrease was due primarily to a reduction of amount of cash on hand during
2008 compared to the same prior year period.



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The tax benefit recognized relates primarily to the reversal of a deferred tax liability related to the acquisition of
Remedium. The deferred tax liability represents the difference between the assigned value of the intangible assets acquired and the tax basis of these assets. The Company had approximately $8.8 million of federal net operating loss carryforwards
available at the end of 2008. The Company recorded a full valuation allowance against the remaining available net operating loss carryforward in the U.S. In addition, the Company has approximately $13.4 million of state loss carryforwards for which
the Company recorded a full valuation allowance. The Company also has certain foreign net operating loss carryforwards available which also have been fully reserved.

The net loss for the year ended December 31, 2008 increased to $21.1 million, or $1.02 per diluted share, as compared to $2.8 million, or $.14 per diluted share for the year ended December 31, 2007,
primarily for the reasons noted above.

Year Ended December 31, 2007 Compared With Year Ended December 31, 2006

Net revenue for 2007 grew by $16.3 million to $31.7 million as compared to $15.3 million for 2006 due to the acquisition of Remedium. This was the first full year of
operations for the combined Company. Net revenue generated by Remedium in Europe was $20.1 million or 63% compared to $11.6 million or 37% of net revenue generated in the United States. Net revenues for 2007 generated in the U.S. decreased by $775
thousand to $11.6 million from $12.3 million for 2006. The decrease in net revenues in the U.S. was primarily due to a decrease in the number of contracts and related contract values of active clinical studies being conducted by the Company in the
United States during 2007. Our consolidated backlog at the end of 2007 decreased $3.8 to $38.7 million compared to our backlog of $42.5 million at the end of 2006.

In 2004, net revenue was adversely affected by cost increases approximating $1.4 million or 8.8% in the cost to complete for two legacy projects that were winding down as they entered the final stage of their development schedules. These
legacy projects experienced significant increases in their costs to complete without a corresponding increase in revenue in 2004 resulting in lower gross margins and reduced profitability on these projects. The changes in cost estimates and related
revenue adjustments for these legacy projects had a material impact on our net income for 2004. In 2005 there was no material impact on net revenue related to these legacy projects which were completed during 2005. In 2006 and 2007, changes in cost
estimates regarding our existing contracts did not materially impact our net revenues.

We may experience similar annual cost increases in the future in
our ongoing clinical projects without a corresponding increase in revenues. To the extent the actual estimated cost to complete utilized at the end of 2007 were higher by 5% and 10%, respectively, than the estimates actually utilized, the
Companys 2007 reported revenues would have been reduced by $349 thousand and $628 thousand, respectively. The Companys consolidated net loss for 2007 would have increased by the same amount as the decline in revenues. This assumes that
the Company would have been unsuccessful in negotiating change orders during 2007 that would provide for reimbursement of the excess costs. For periods beyond 2007, the impact on the Companys net income and financial position would depend upon
the actual costs incurred to complete the project and whether the Company was successful in negotiating change orders for reimbursement of the excess costs. See Footnote No. 2, Revenue Recognition, for the Companys revenue recognition
accounting policies.

Reimbursement revenue consisted of reimbursable out-of-pocket expenses incurred on behalf of our clients. Reimbursements are made at
cost, without mark-up or profit, and therefore have no impact on net income.

Direct expenses included compensation and other expenses directly related to
conducting clinical studies. These costs increased by $10.5 million to $20.2 million for the year ended December 31, 2007 from $9.7 million for the year ended December 31, 2006. The increase in direct expenses resulted principally from the
expenses incurred by Remediums operations in Europe which totaled $12.1 million for the year ended December 31, 2007. Direct expenses in the United States totaled $8.1 million for the year ended December 31, 2007 compared with $7.7
million in 2006, a $400 thousand increase. The increase in direct cost in the United States was due to hiring of



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additional managers to oversee the management of our clinical trials. Direct expenses as a percentage of net revenue remained relatively unchanged at 64% for
the year ended December 31, 2007 compared to 63% for the year ended December 31, 2006, an increase of 1%.

Selling, general, and administrative
expenses included the salaries, wages and benefits of all administrative, financial and business development personnel and all other support expenses not directly related to specific contracts. Selling, general and administrative expenses increased
by $6.7 million to $12.4 million for the year ended December 31, 2007 from $5.7 million for the year ended December 31, 2006. The increase in SG&A resulted principally from expenses incurred by Remediums operations in Europe
which totaled $6.5 million. SG&A in the United States increased by $1.4 million to $5.7 million for the year ended December 31, 2007 as compared with $4.3 million for the year ended December 31, 2006. The increase in SG&A in the
United States was principally due to increases in business development and marketing activities as the Company added additional personnel in this function and activities related to compliance with the requirements of Section 404 of the Sarbanes
Oxley Act. Selling, general and administrative expenses as a percentage of net revenue was relatively unchanged at 39% for the year ended December 31, 2006 as compared to 37% of net revenue for the year ended December 31, 2006, an increase
of 2%.

Depreciation and amortization expense increased by $1.9 million to $2.6 million for the year ended December 31, 2007 from $700 thousand for
the year ended December 31, 2006, primarily as a result of $1.9 million of amortization of intangibles related to the Remedium acquisition.

Loss from
operations increased by $2.8 million to $3.6 million, primarily for the reasons noted in the preceding paragraphs.

Net interest income for the year ended
December 31, 2007 remained relatively unchanged at $285 thousand compared to net interest income of $282 thousand for the year ended December 31, 2006.

The tax benefit recognized relates primarily to the reversal of a deferred tax liability related to the acquisition of Remedium Oy. The deferred tax liability represents the difference between the assigned value of the intangible assets
acquired and the tax basis of these assets. The Company had approximately $3.6 million of federal net operating loss carryforwards available at the end of 2007. The Company recorded a full valuation allowance against the remaining available net
operating loss carryforward in the United States. In addition, the Company has approximately $7.8 million of state loss carryforwards for which the Company recorded a full valuation allowance. The Company also has certain foreign net operating loss
carryforwards available which also have been fully reserved.

The net loss for the year ended December 31, 2007 increased to $2.8 million, or $.14 per
diluted share, as compared to $495 thousand, or $.04 per diluted share for the year ended December 31, 2006, primarily for the reasons noted above.

Liquidity and Capital Resources

As of December 31, 2008 and December 31, 2007, we had cash and cash equivalents of approximately
$5.7 million and $9.1 million, respectively, and total liabilities of approximately $16.9 million and $13.4 million, respectively. The $3.4 million decrease in our cash balance as of December 31, 2008 was primarily due to $2.8 million of cash
used to fund ongoing operations, $334 thousand used to purchase property and equipment, $30 thousand used to pay obligations under capital lease arrangements and $28 thousand used to repurchase the Companys capital stock.

We anticipate that will meet our cash requirements through March of 2010, assuming we are able to fully implement our current costs cutting initiatives, we are able to
win additional contracts during fiscal 2009 and we are able to maintain our current customer contracts. In the event we are unable to do so, in order for the Company



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to continue as a going concern we will be required to obtain additional capital from external sources or significantly reduce our operating costs, which may
include the cessation of operations in some countries.

Our ability to obtain additional financing in the future will depend in part upon prevailing
capital market conditions, as well as conditions in our business and our operating results; and those factors may affect our efforts to arrange additional financing on terms that are satisfactory to us or at all. We have been working with an
investment banking firm to seek strategic alternatives, including outside investments. To date, our efforts to secure additional investments have not proven successful given the general economic and lending environment, coupled with the
Companys current financial position.

Given the current levels of the trading price of the Companys common stock, if the Company were to raise
additional capital by issuing equity securities, existing stockholders percentage ownership would be reduced and they would experience substantial dilution. If we were to raise additional funds by issuing debt securities, these debt securities
would have rights, preferences, and privileges senior to those of our common stock, and the terms of the debt securities issued could impose significant restrictions on our operations.

Our contracts usually require a portion of the contract amount to be paid at the time the contract is initiated. Additional payments are generally made upon completion of negotiated deliverables, or on a regularly
scheduled basis, throughout the life of the contract. Several of our contracts contain payment schedules that are weighted towards the later stages of the contract. Accordingly, cash receipts do not necessarily correspond to costs incurred and
revenue recognized. For terminated studies, our contracts entitle us to receive the costs and expenses of winding down the terminated project as well as all fees earned by us up to the time of termination.

Net revenue is recognized on a proportional performance basis. We typically receive a low volume of large-dollar receipts. As a result, the number of days net revenue
outstanding in accounts receivable, costs and estimated earnings in excess of related billings, customer advances, and billings in excess of related costs will fluctuate due to the timing and size of billings and cash receipts. At December 31,
2008, the net days revenue outstanding was (35) days compared to (21) days at December 31, 2007. Compared to December 31, 2007, accounts receivable on a consolidated basis decreased $200 thousand million to $4.6 million at
December 31, 2008. Of the accounts receivable balance at December 31, 2008, approximately 3% of the total was over 60 days past the due date.

Compared to December 31, 2007, costs and estimated earnings in excess of related billings on uncompleted contracts increased by $450 thousand to $1.4 million at December 31, 2008. The $450 thousand increase resulted from certain
deliverables contained in the contracts with our clients that the Company did not achieve by December 31, 2008. The balance at December 31, 2008 primarily consisted of four clinical trials, which individually constituted 41%, 13%, 11% and
9% of the balance. These amounts are expected to be billed during 2009 as billing targets are met. The liability account billings in excess of related costs and estimated earnings on uncompleted contracts remained relatively unchanged at $3.3
million as of December 31, 2008 from $3.3 million as of December 31, 2007. The $2.1 million increase in customer advances to $5.3 million as of December 31, 2008 from $3.2 million as of December 31, 2007 resulted from an increase
of advance payments received from our clients for reimbursable expense and payments to investigators.

Our net cash used by operating activities increased
by $3.5 million to $2.8 million for the year ended December 31, 2008 from cash provided by operating activities of $700 thousand for the year ended December 31, 2007. This change primarily resulted from decreases in billings in excess of
related costs and estimated earnings on uncompleted contracts and customer advances, which was offset by decreases in our accounts receivable, cost and estimated earnings in excess of related billings on uncompleted contracts.

Net cash used in investing activities decreased $2.1 million to $334 thousand for the year ended December 31, 2008 from $2.4 million for the year ended
December 31, 2007. The decrease was principally due to a $1.7 million reduction in the amount of cash used to complete the acquisition of Remedium in 2007 compared to



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2008. The amount cash used for property and equipment purchases decreased by $375 thousand to $334 thousand in 2008 compared to $709 thousand for 2007.
Purchases of property and equipment for the year ended December 31, 2008 included software and hardware, including host servers and computers for our corporate office and field-based personnel. Net cash provided by financing activities
decreased $5 million to $58 thousand for the year ended December 31, 2008 compared to $5.1 million for the year ended December 31, 2007 principally due to the sale of 1,748,252 shares of common stock in a private placement at a price of
$2.86 per share less applicable fees and expenses during 2007. The Company also received $470 thousand from the exercise of employee stock options for the year ended December 31, 2007 compared to $0 for the year ended December 31, 2008. As
a result of these cash flows, our cash and cash equivalents balance at December 31, 2008 was $5.7 million as compared to $9.1 million at December 31, 2007, a decrease of $3.4 million.

The Company has two significant lines of credit for its European operations. The first credit facility amounting to $705 thousand is with Svenska Handelsbanken AB with
interest charged at Handlesbanken Avista +0.9%, which at year-end was approximately 1.8%. The second significant line of credit amounting to $423 thousand is with Okopankki Oyj with interest charged at 1 month euribor +0.5%, which at year end was
approximately 3.5%. There were no borrowings under these credit facilities at December 31, 2008. Commitments by the banks generally expire one year from the date of the agreement and are generally renewed. (Amounts were converted based on an
exchange rate of 1.00 EUR ~ 1.4097 USD)

Off Balance Sheet Financing Arrangements

As of December 31, 2008, we did not have any off-balance sheet financing arrangements or any equity ownership interests in any variable interest entity or other minority owned ventures.

Contractual Obligations and Commitments

In October 2008, we entered
into a financing agreement for application software to be used in our European operations. This financing agreement is being accounted for as a capital lease obligation. The present value of the capital lease obligation and the corresponding asset
value of the software acquired was $142 thousand. In August 2007, we entered into a lease agreement for several pieces of office equipment that are being accounted for as capital lease obligations. This lease was recorded as an asset and in general
was for peripheral office equipment. The present value of the capital lease obligation and the corresponding asset value of the equipment acquired was $151 thousand. We did not enter into any capital lease obligations in 2006.

We are committed under a number of non-cancelable operating leases, primarily related to office space and other office equipment. In 2009, we anticipate capital
expenditures of approximately $200,000$300,000 for leasehold improvements, software applications, workstations, personal computer equipment and related assets. A significant portion of our service agreement commitments, which are primarily
comprised of investigator payments, are expected to be reimbursed under agreements with clients.

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement(SFAS No. 157). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This statement is effective for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The Company has evaluated the impact of SFAS No. 157 and has determined that it did not have a material impact on our consolidated financial statements or results of operations.

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of
FASB Statements No. 87, 88, 106, and 132(R)(SFAS No. 158). SFAS No. 158 requires an employer to recognize the over funded or under funded status of a defined



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benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in
that funded status in the year in which the changes occur through comprehensive income of a business. SFAS No. 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position,
with limited exceptions. This statement is effective for the first fiscal year ending after December 15, 2006 for initial recognition and December 15, 2008 for measurement of plan assets and benefit obligations. We have evaluated the
impact of SFAS No. 158 and have determined that it did not have a material impact on our consolidated financial statements or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115 (SFAS No. 159). SFAS
No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This statement is effective in the first fiscal year that begins after November 15, 2007.
We have evaluated the impact of SFAS No. 159 and have determined that it did not have a material impact on our consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R) which replaces SFAS No. 141, Business Combinations. The scope of SFAS 141R is broader than that of SFAS
No. 141, which applied only to business combinations in which control was obtained by transferring consideration. SFAS 141R revises accounting and reporting standards for business combinations and applies to all transactions or other
events in which an entity obtains control of one or more businesses by transferring consideration as well as combinations achieved without the transfer of consideration. By applying the same method of accounting  the acquisition method 
to all transactions and other events in which one entity obtains control over one or more other businesses, this statement is intended to improve the comparability of the information about business combinations provided in financial
reports. SFAS 141R applies prospectively to business combinations with an acquisition date on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We have evaluated the impact of SFAS
141R, and have determined that it did not have a material impact on our consolidated financial statements.



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

Market Risk

The fair values of cash and cash equivalents, restricted cash, accounts receivable, costs and estimated
earnings in excess of related billings on uncompleted contracts, accounts payable, accrued expenses and billings in excess of related costs and estimated earnings on uncompleted contracts were not materially different than their carrying amounts as
reported at December 31, 2008 and December 31, 2007.

As of December 31, 2008, the Company was not counter party to any forward foreign
exchange contracts or any other transaction involving a derivative financial instrument.



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Foreign Currency Exchange Risk

The Company is exposed to foreign currency exchange risk through its international operations. For the year ended December 31, 2008, approximately 72% of our net revenue was derived from contracts denominated in
other than U.S. Dollars compared to 61% of net revenues for the year ended December 31, 2007. The increase in the percentage of net revenue derived from contracts denominated in currencies other than the U.S. Dollar is principally
attributable to an increase in revenue generated by our European operations, favorable foreign exchange fluctuations, and a decrease in revenue generated by our U.S. operations. Since our financial results are reported in U.S. Dollars, changes in
foreign currency exchange rates could adversely affect our results of operations and financial condition. In addition, since our backlog is reported in U.S. dollars, changes in foreign currency exchange rates could reduce the amount of backlog
reported. To date, we have not engaged in any derivative or contractual hedging activities related to our foreign exchange exposures.

Assets and
liabilities of the Companys international operations are translated into U.S. Dollars at exchange rates in effect on the balance sheet date and equity accounts are translated at historical exchange rates. Revenue and expense items are
translated at average exchange rates in effect during the period. Gains or losses from translating foreign currency financial statements are recorded in a separate stockholders equity account entitled Accumulated Other Comprehensive
Income. The cumulative translation adjustment included in accumulated other comprehensive income for the years ended December 31, 2008, 2007 and 2006 was $890 thousand, $150 thousand, and $27 thousand, respectively.

We believe that the effects of inflation generally have not had a material adverse impact on our operations or financial condition.



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

Our financial statements listed below are contained herein beginning at page F-1:



|(a) | Financial Statements
|--- | --------------------



|                                                        |  |    
|------------------------------------------------------- |  | ---
|Report of Independent Registered Public Accounting Firm |  | F-2
|Consolidated Statements of Operations                   |  | F-3
|Consolidated Balance Sheets                             |  | F-4
|Consolidated Statements of Stockholders Equity         |  | F-5
|Consolidated Statements of Cash Flows                   |  | F-6
|Notes to Consolidated Financial Statements              |  | F-7



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

Not applicable.



|ITEM 9A(T). | CONTROLS AND PROCEDURES
|----------- | -----------------------

Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures

A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered
relative to costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Because of the
inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



36



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The Companys principal executive officer and principal financial officer, with the participation of
other members of the Companys management, have evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended) as of the end of the
period covered by this report (the Evaluation Date) and, based on that evaluation, concluded that, as of the Evaluation Date, the Companys disclosure controls and procedures were effective to ensure that information that is
required to be disclosed in its reports under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and
communicated to management, including the Companys principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Managements Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as
amended. Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal ControlIntegrated
Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2008.

This
Annual Report on Form 10-K does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the
Companys registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only managements report in this annual report.

Changes in Internal Control Over Financial Reporting

Our management, including our principal executive and principal financial officers, has evaluated any changes in our internal control over financial reporting that occurred during the year ended December 31, 2008, and has concluded
that there was no change that occurred during the quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART III



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

Information concerning Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act, is incorporated herein by reference to the similarly titled section in our definitive proxy
materials for our 2009 Annual Meeting of Stockholders.

The Company has adopted a Code of Business Conduct and Ethics that applies to all of its directors,
officers and employees. Additionally, it has adopted a Financial Code of Conduct for the Chief Executive Officer and the Chief Financial Officer and any persons who provide similar functions. Both documents are available for review on the
Companys website at www.encorium.com, under the Corporate Governance section. The Company intends to satisfy the applicable disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of its
Codes of Conduct on its website, except as otherwise required by applicable Nasdaq requirements.



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

Information
concerning Executive Compensation is incorporated herein by reference to the similarly titled section in our definitive proxy materials for our 2009 Annual Meeting of Stockholders.



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

Information concerning Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters is incorporated herein by reference to the similarly
titled section in our definitive proxy materials for our 2009 Annual Meeting of Stockholders.

The following table details information regarding the
Companys existing equity compensation plans as of December 31, 2008:

Equity Compensation Plan Information



|                                                           |  |                                                                                           |  |                                                                           |      |                                                                                                                                         |        
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                              |  | (a)Number ofsecurities to beissued upon exerciseof
outstandingoptions, warrantsand rights |  | (b)Weighted-average exerciseprice
ofoutstandingoptions,warrants andrights |      | (c)Number of securitiesremaining availablefor future issuanceunder equitycompensation
plans(excluding securitiesreflected in column(a))
|Equity compensation plans approved by security holders     |  | 954,083                                                                                   |  | $                                                                         | 1.02 |                                                                                                                                         | 942,532
|Equity compensation plans not approved by security holders |  |                                                                                          |  |                                                                           |     |                                                                                                                                         |       
|                                                           |  |                                                                                           |  |                                                                           |      |                                                                                                                                         |        
|Total                                                      |  | 954,083                                                                                   |  | $                                                                         | 1.02 |                                                                                                                                         | 942,532



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

Information concerning Certain Relationships and Related Transactions is incorporated herein by reference to the similarly titled section in our definitive proxy materials for our 2009 Annual Meeting of Stockholders.



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

Information concerning Principal Accountant Fees and Services is incorporated herein by reference to the similarly titled section in our definitive proxy materials for our 2009 Annual Meeting of Stockholders.



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##### Table of Contents

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



|(a) | Financial Statement Schedule.
|--- | -----------------------------

Schedule II- Valuation and
Qualifying Accounts. Filed herewith.



|(b) | Exhibits
|--- | --------



|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|----- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1   |  | - |  | Combination Agreement by and among Covalent Group, Inc., Kai Lindevall, Jan Lilja, Sven-Erik Nilsson, Vesa Manninen, Seppo Oksanen, Heikki Vapaatalo, Riitta Korpela, Agneta Lindevall, and
NTGLT PHARMA BVBA incorporated by reference to Exhibit 2.1 to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2006.                                            
|      |  |  
|2.2   |  | - |  | Amended and Restated Combination Agreement dated as of July 6, 2006 by and among Covalent Group, Inc., Kai Lindevall, Jan Lilja, Sven-Erik Nilsson, Vesa Manninen, Seppo Oksanen, Heikki
Vapaatalo, Riitta Korpela, Agneta Lindevall, and NTGLT PHARMA BVBA incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2006.
|      |  |  
|3.1   |  | - |  | Certificate of Incorporation of Covalent Group, Inc., filed with the Secretary of State of the State of Delaware on April 16, 2002 incorporated by reference to Exhibit 3.2 to our Current Report
on Form 8-K filed with the Securities and Exchange Commission on July 2, 2002.                                                                                                                         
|      |  |  
|3.2   |  | - |  | Certificate of Amendment of Certificate of Incorporation of Covalent Group, Inc. incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K filed with the Securities and Exchange
Commission on April 2, 2007.                                                                                                                                                                          
|      |  |  
|3.3   |  | - |  | Second Amended and Restated Bylaws of Encorium Group, Inc. incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on
September 16, 2008.                                                                                                                                                                                           
|      |  |  
|4.1   |  | - |  | Option Exchange Agreement incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on November 6, 2006.                                                                                                                                                                                                                              
|      |  |  
|4.2*  |  | - |  | Form of Non-Qualified Stock Option Award Agreement incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on
December 14, 2006.                                                                                                                                                                                                    
|      |  |  
|4.3*  |  | - |  | Form of Incentive Stock Option Award Agreement incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on
December 14, 2006.                                                                                                                                                                                                        
|      |  |  
|10.1* |  | - |  | Covalent Group, Inc. 2002 Equity Incentive Plan incorporated by reference to Appendix E to our Definitive Proxy Statement filed with the Securities and Exchange Commission on April 30, 2002.                                                                                                                                                                                                           
|      |  |  
|10.2* |  | - |  | Amended and Restated Covalent Group, Inc. 1996 Stock Incentive Plan incorporated by reference to Annex A of our Definitive Proxy Statement filed with the Securities and Exchange Commission on
May 1, 2000.                                                                                                                                                                                             
|      |  |  
|10.3* |  | - |  | 1995 Stock Option Plan incorporated by reference to Annex A of our Definitive Proxy Statement filed with the Securities and Exchange Commission on May 10, 2000.                                                                                                                                                                                                                                         
|      |  |  
|10.4* |  | - |  | Covalent Group, Inc. 2006 Equity Incentive Plan incorporated by reference to Appendix D of our Definitive Proxy Statement filed with the Securities and Exchange Commission on September 15,
2006.                                                                                                                                                                                                       
|      |  |  
|10.5  |  | - |  | Second Amendment to Lease between Dean Witter Realty Income Partnership II, L.P. and Covalent Group, Inc. dated November 14, 1996 incorporated by reference to Exhibit 10.3 to our Annual
Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30, 1998.                                                                                                                     



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##### Table of Contents

|       |  |   |  |                                                                                                                                                                                                                                                                                                                              
|------ |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6   |  | - |  | Fourth Amendment to Lease between FV Office Partners, L.P. (successor to Dean Witter Realty Income Partnership III, L.P.) and Covalent Group, Inc. dated November 27, 2001 incorporated by
reference to Exhibit 10.13 to our Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on April 1, 2002.
|       |  |  
|10.7   |  | - |  | Fifth Amendment to Lease between FV Office Partners, L.P. and Covalent Group, Inc. dated December 13, 2002 incorporated by reference to Exhibit 10.23 to our Annual Report on Form 10-KSB filed
with the Securities and Exchange Commission on March 31, 2003.                                                               
|       |  |  
|10.8   |  |   |  | Sixth Amendment to Lease between Glenhardie Partner, LP , successor in interest to FV Office Partners, L.P and Encorium Group, Inc. dated July 2, 2008 incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 8, 2008.                        
|       |  |  
|10.9   |  |   |  | Seventh Amendment to Lease between Glenhardie Partner, LP , successor in interest to FV Office Partners, L.P and Encorium Group, Inc. incorporated by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 26, 2008.                                 
|       |  |  
|10.10* |  | - |  | Form of Indemnification Agreement between Covalent Group, Inc., a Delaware Corporation, and its officers and directors incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-QSB filed with the Securities and Exchange Commission on August 13, 2002.                                                
|       |  |  
|10.11* |  | - |  | Executive Employment Agreement between Encorium Group, Inc. and David Ginsberg dated December 3, 2008 incorporated by reference to our Current Report on Form 8-K filed with the Securities
Exchange Commission on December 9, 2008.                                                                                         
|       |  |  
|10.12* |  | - |  | Severance Agreement between Encorium Group, Inc. and David Ginsberg dated December 3, 2008 incorporated by reference to our Current Report on Form 8-K filed with the Securities Exchange
Commission on December 9, 2008.                                                                                                    
|       |  |  
|10.13* |  |   |  | Amended and Restated Non-Qualified Stock Option Award Agreement for David Ginsberg incorporated by reference to our Current Report on Form 8-K filed with the Securities Exchange Commission on
November 10, 2008.                                                                                                           
|       |  |  
|10.14* |  |   |  | Services Agreement between Encorium Group, Inc. and Penn Valley Group dated May 8, 2008 incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on May 13, 2008.                                                                                    
|       |  |  
|10.15* |  |   |  | Non-Qualified Stock Option Award Agreement for PVG Corporation incorporated by reference to our Current Report on Form 8-K filed with the Securities Exchange Commission on December 9, 2008.                                                                                                                                
|       |  |  
|10.16  |  | - |  | Lease Agreement between Ealing Studios and Covalent Group Limited dated March 7, 2006 incorporated by reference to Exhibit 10.13 to our Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 29, 2006.                                                                                      
|       |  |  
|10.17* |  | - |  | Employment Agreement dated November 1, 2006 by and among Remedium Oy, Encorium Group, Inc. and Kai Lindevall incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed
with the Securities and Exchange Commission on November 6, 2006.                                                              
|       |  |  
|10.18* |  | - |  | Executive Severance Agreement, dated November 1, 2006, by and between Encorium Group, Inc. and Kai Lindevall incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed
with the Securities and Exchange Commission on November 6, 2006.                                                              
|       |  |  
|10.19  |  | - |  | Securities Purchase Agreement dated as of May 8, 2007 by and among Encorium Group, Inc,, Capital Ventures International and Enable Growth Partners, LP incorporated by reference to Exhibit
10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 14, 2007.                        



40



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##### Table of Contents

|      |  |   |  |                                                                                                                                                                                                                                                                                                      
|----- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.20 |  | - |  | Registration Rights Agreement dated as of May 9, 2007 by and among Encorium Group, Inc,, Capital Ventures International and Enable Growth Partners, LP incorporated by reference to Exhibit
10.2 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 14, 2007.
|      |  |  
|10.21 |  | - |  | Form of Warrant issued May 9, 2007 incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 14,
2007.                                                                                                                    
|      |  |  
|10.22 |  | - |  | Summary of binding terms included in the Letter of Intent between Encorium Group, Inc. and Prologue Research International, Inc. incorporated by reference to our Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 14, 2008.                                
|      |  |  
|10.23 |  | - |  | Summary of binding terms included in the non-binding term sheet by and among Encorium Group, Inc., Fine SuccessInvestments, Ltd., and Chardan Capital, LLC. incorporated by reference to our
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2008.     
|      |  |  
|10.24 |  | - |  | Lease between Encorium Oy and Mutual Pension Insurance Company effective October 1, 2008. Filed herewith.                                                                                                                                                                                            
|      |  |  
|10.25 |  | - |  | Letter Agreement with Linda Nardone dated November 12, 2007. Filed herewith.                                                                                                                                                                                                                         
|      |  |  
|21    |  | - |  | Subsidiaries of the Registrant. Filed herewith.                                                                                                                                                                                                                                                      
|      |  |  
|23.1  |  | - |  | Consent of Deloitte & Touche LLP. Filed herewith.                                                                                                                                                                                                                                                    
|      |  |  
|31.1  |  | - |  | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                         
|      |  |  
|31.2  |  | - |  | Certification of Principal Accounting Officer required by Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed
herewith.                                                                                                                    
|      |  |  
|32.1  |  | - |  | Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                                                    
|      |  |  
|32.2  |  | - |  | Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                                                    



|* | This exhibit is a management contract or arrangement required to be filed as an exhibit to this report.
|- | -------------------------------------------------------------------------------------------------------



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##### Table of Contents

ENCORIUM GROUP, INC.

CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 and 2005

INDEX



|                                                        |  |     
|------------------------------------------------------- |  | ----
|                                                        |  | Page
|                                                        | 
|Report of Independent Registered Public Accounting Firm |  | F-2 
|                                                        | 
|Consolidated Statements of Operations                   |  | F-3 
|                                                        | 
|Consolidated Balance Sheets                             |  | F-4 
|                                                        | 
|Consolidated Statements of Stockholders Equity         |  | F-5 
|                                                        | 
|Consolidated Statements of Cash Flows                   |  | F-6 
|                                                        | 
|Notes to Consolidated Financial Statements              |  | F-7 



F-1



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of:

Encorium Group, Inc.

Wayne, Pennsylvania

We have audited the accompanying
consolidated balance sheets of Encorium Group, Inc. and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the
three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Encorium Group, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial
statements, the Companys recurring losses from operations, current available cash, and anticipated level of capital requirements necessary to fund its current operations raise substantial doubt about its ability to continue as a going concern.
Managements plans concerning these matters are also discussed in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

April 24, 2009



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##### Table of Contents

Encorium Group, Inc.

Consolidated Statements of Operations



|                                                                 |  |                                  |             |   |      |   |            |      |  |   |            |  
|---------------------------------------------------------------- |  | -------------------------------- | ----------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                 |  | Twelve Months Ended December 31, |            
|                                                                 |  | 2008                             |             |   | 2007 |   |            | 2006 | 
|Net revenue                                                      |  | $                                | 30,241,889  |   |      | $ | 31,650,082 |      |  | $ | 15,325,822 |  
|Reimbursement revenue                                            |  |                                  | 5,669,695   |   |      |   | 5,151,483  |      |  |   | 2,358,691  |  
|                                                                 |  |                                  |             |   |      |   |            |      |  |   |            |  
|Total Revenue                                                    |  |                                  | 35,911,584  |   |      |   | 36,801,565 |      |  |   | 17,684,513 |  
|                                                                 |  |                                  |             |   |      |   |            |      |  |   |            |  
|Operating Expenses                                               |  |                                  |             |   |      |   |            |      |  |   |            |  
|Direct                                                           |  |                                  | 21,343,636  |   |      |   | 20,241,921 |      |  |   | 9,652,920  |  
|Reimbursement out-of-pocket expenses                             |  |                                  | 5,669,695   |   |      |   | 5,151,483  |      |  |   | 2,358,691  |  
|Selling, general and administrative                              |  |                                  | 14,086,520  |   |      |   | 12,366,095 |      |  |   | 5,731,388  |  
|Depreciation and amortization                                    |  |                                  | 1,697,966   |   |      |   | 2,610,505  |      |  |   | 699,286    |  
|Impairment loss                                                  |  |                                  | 14,391,992  |   |      |   |           |      |  |   |           |  
|                                                                 |  |                                  |             |   |      |   |            |      |  |   |            |  
|Total Operating Expenses                                         |  |                                  | 57,189,809  |   |      |   | 40,370,004 |      |  |   | 18,442,285 |  
|                                                                 |  |                                  |             |   |      |   |            |      |  |   |            |  
|Loss from Operations                                             |  |                                  | (21,278,225 | ) |      |   | (3,568,439 | )    |  |   | (757,772   | )
|Interest Income                                                  |  |                                  | 130,647     |   |      |   | 296,884    |      |  |   | 293,061    |  
|Interest Expense                                                 |  |                                  | (29,569     | ) |      |   | (12,143    | )    |  |   | (10,883    | )
|                                                                 |  |                                  |             |   |      |   |            |      |  |   |            |  
|Net Interest Income                                              |  |                                  | 101,078     |   |      |   | 284,741    |      |  |   | 282,178    |  
|                                                                 |  |                                  |             |   |      |   |            |      |  |   |            |  
|Loss before Income Taxes                                         |  |                                  | (21,177,147 | ) |      |   | (3,283,698 | )    |  |   | (475,594   | )
|Income Tax (Benefit) Expense                                     |  |                                  | (103,671    | ) |      |   | (532,271   | )    |  |   | 18,817     |  
|                                                                 |  |                                  |             |   |      |   |            |      |  |   |            |  
|Net Loss                                                         |  | $                                | (21,073,476 | ) |      | $ | (2,751,427 | )    |  | $ | (494,411   | )
|                                                                 |  |                                  |             |   |      |   |            |      |  |   |            |  
|Net Loss per Common Share                                        |  |                                  |             |   |      |   |            |      |  |   |            |  
|Basic                                                            |  | $                                | (1.02       | ) |      | $ | (0.14      | )    |  | $ | (0.04      | )
|Diluted                                                          |  | $                                | (1.02       | ) |      | $ | (0.14      | )    |  | $ | (0.04      | )
|Weighted Average Common and Common Equivalent Shares Outstanding |  |                                  |             |   |      |   |            |      |  |   |            |  
|Basic                                                            |  |                                  | 20,589,364  |   |      |   | 19,167,022 |      |  |   | 13,990,321 |  
|Diluted                                                          |  |                                  | 20,589,364  |   |      |   | 19,167,022 |      |  |   | 13,990,321 |  

See accompanying notes to the consolidated financial statements.



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##### Table of Contents

Encorium Group, Inc.

Consolidated Balance Sheets



|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------- | - | ---------- | -
|                                                                                                                                               |  | December 31,2008 |             |   | December 31,2007 |  
|Assets                                                                                                                                         |  |                  |             |   |                  |   |            |  
|Current Assets                                                                                                                                 |  |                  |             |   |                  |   |            |  
|Cash and cash equivalents                                                                                                                      |  | $                | 5,705,818   |   |                  | $ | 9,109,456  |  
|Investigator advances                                                                                                                          |  |                  | 1,088,768   |   |                  |   | 551,697    |  
|Accounts receivable, less allowance of $97,000 for 2008 and 2007, respectively                                                                 |  |                  | 4,624,161   |   |                  |   | 4,824,795  |  
|Prepaid expenses and other                                                                                                                     |  |                  | 1,206,088   |   |                  |   | 867,651    |  
|Prepaid taxes                                                                                                                                  |  |                  | 28,290      |   |                  |   | 4,031      |  
|Costs and estimated earnings in excess of related billings on uncompleted contracts                                                            |  |                  | 1,443,427   |   |                  |   | 994,777    |  
|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|Total Current Assets                                                                                                                           |  |                  | 14,096,552  |   |                  |   | 16,352,407 |  
|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|Property and Equipment, Net                                                                                                                    |  |                  | 1,211,929   |   |                  |   | 1,293,616  |  
|Intangible Assets                                                                                                                              |  |                  |             |   |                  |   |            |  
|Goodwill                                                                                                                                       |  |                  | 1,366,269   |   |                  |   | 15,388,299 |  
|Other Intangibles, Net                                                                                                                         |  |                  | 3,733,517   |   |                  |   | 4,204,825  |  
|Other assets                                                                                                                                   |  |                  | 684,666     |   |                  |   | 291,148    |  
|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|Total Assets                                                                                                                                   |  | $                | 21,092,933  |   |                  | $ | 37,530,295 |  
|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|                                                                                                                                               |  |                 
|Liabilities and Stockholders Equity                                                                                                           |  |                  |             |   |                  |   |            |  
|Current Liabilities                                                                                                                            |  |                  |             |   |                  |   |            |  
|Accounts payable                                                                                                                               |  | $                | 3,624,071   |   |                  | $ | 1,366,905  |  
|Accrued expenses                                                                                                                               |  |                  | 3,004,627   |   |                  |   | 3,696,404  |  
|Deferred Taxes                                                                                                                                 |  |                  | 206,173     |   |                  |   | 316,675    |  
|Obligations under capital leases                                                                                                               |  |                  | 72,542      |   |                  |   | 29,688     |  
|Billings in excess of related costs and estimated earnings on uncompleted contracts                                                            |  |                  | 3,307,347   |   |                  |   | 3,329,869  |  
|Customer advances                                                                                                                              |  |                  | 5,297,000   |   |                  |   | 3,244,834  |  
|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|Total Current Liabilities                                                                                                                      |  |                  | 15,511,760  |   |                  |   | 11,984,375 |  
|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|Long Term Liabilities                                                                                                                          |  |                  |             |   |                  |   |            |  
|Obligations under capital leases                                                                                                               |  |                  | 189,680     |   |                  |   | 117,723    |  
|Deferred Taxes                                                                                                                                 |  |                  | 897,204     |   |                  |   | 876,308    |  
|Other liabilities                                                                                                                              |  |                  | 316,516     |   |                  |   | 446,253    |  
|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|Total Long Term Liabilities                                                                                                                    |  |                  | 1,403,400   |   |                  |   | 1,440,284  |  
|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|Total Liabilities                                                                                                                              |  |                  | 16,915,160  |   |                  |   | 13,424,659 |  
|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|Stockholders Equity                                                                                                                           |  |                  |             |   |                  |   |            |  
|Common stock, $.001 par value 35,000,000 shares authorized, and 20,834,004 shares issued, 20,523, 883 and 20,603,140 outstanding, respectively |  |                  | 20,834      |   |                  |   | 20,834     |  
|Additional paid-in capital                                                                                                                     |  |                  | 32,417,250  |   |                  |   | 32,154,227 |  
|Additional paid-in capital warrants                                                                                                            |  |                  | 905,699     |   |                  |   | 905,699    |  
|Accumulated deficit                                                                                                                            |  |                  | (29,737,430 | ) |                  |   | (8,663,954 | )
|Accumulated other comprehensive income                                                                                                         |  |                  | 1,298,109   |   |                  |   | 387,054    |  
|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|Less:                                                                                                                                          |  |                  | 4,904,462   |   |                  |   | 24,803,860 |  
|Treasury stock, at cost, 310,121 and 230,864 shares respectively                                                                               |  |                  | (726,689    | ) |                  |   | (698,224   | )
|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|Total Stockholders Equity                                                                                                                     |  |                  | 4,177,773   |   |                  |   | 24,105,636 |  
|                                                                                                                                               |  |                  |             |   |                  |   |            |  
|Total Liabilities and Stockholders Equity                                                                                                     |  | $                | 21,092,933  |   |                  | $ | 37,530,295 |  
|                                                                                                                                               |  |                  |             |   |                  |   |            |  

See accompanying notes to the consolidated financial statements.



F-4



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##### Table of Contents

Encorium Group, Inc.

Consolidated Statements of Stockholders Equity



|                                                    |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|--------------------------------------------------- |  | --------------------- |  | -------- | ------ | ------------------------ | - | ------------------------------- |  | - | ------------------------------- | - | -------------------- | - | --------- | ------------------------ | - | -------- | - |  | - | ----------- | -
|                                                    |  | Number ofCommonShares |  | ParValue |        | AdditionalPaid-InCapital |   | RetainedEarnings(Accum.Deficit) |  |   | Accum. OtherComprehensiveIncome |   | TreasuryStock atCost |   |           | TotalStockholdersEquity |  
|Balance at December 31, 2005                        |  | 13,501,333            |  | $        | 13,502 |                          | $ | 12,028,415                      |  | $ | (5,418,116                      | ) |                      | $ | 147,737   |                          | $ | (458,974 | ) |  | $ | 6,312,564   |  
|Net Loss                                            |  |                       |  |          |        |                          |   |                                 |  |   | (494,411                        | ) |                      |   |           |                          |   |          |   |  |   | (494,411    | )
|Other comprehensive income                          |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|Foreign currency translation adjustment             |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   | 27,135    |                          |   |          |   |  |   | 27,135      |  
|                                                    |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|Total                                               |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|Comprehensive loss                                  |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   | (467,276    | )
|SFAS 123R Compensation                              |  |                       |  |          |        |                          |   | 389,514                         |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   | 389,514     |  
|Issuance of common sharesexercise of stock options |  | 110,316               |  |          | 110    |                          |   | 306,171                         |  |   |                                 |   |                      |   |           |                          |   | (239,250 | ) |  |   | 67,031      |  
|Issuance of common sharesRemedium Oy acquisition   |  | 3,886,926             |  |          | 3,887  |                          |   | 10,996,113                      |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   | 11,000,000  |  
|                                                    |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|Balance at December 31, 2006                        |  | 17,498,575            |  | $        | 17,499 |                          | $ | 23,720,213                      |  | $ | (5,912,527                      | ) |                      | $ | 174,872   |                          | $ | (698,224 | ) |  | $ | 17,301,833  |  
|Net Loss                                            |  |                       |  |          |        |                          |   |                                 |  |   | (2,751,427                      | ) |                      |   |           |                          |   |          |   |  |   | (2,751,427  | )
|Other comprehensive loss                            |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|SFAS 158 Pension adjustment, net of tax             |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   | 62,127    |                          |   |          |   |  |   | 62,127      |  
|Foreign currency translation adjustment             |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   | 150,055   |                          |   |          |   |  |   | 150,055     |  
|                                                    |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|Total                                               |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|Comprehensive loss                                  |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   | (2,539,245  | )
|SFAS 123R Compensation                              |  |                       |  |          |        |                          |   | 211,102                         |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   | 211,102     |  
|Issuance of common                                  |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|- exercise of stock options                         |  | 173,749               |  |          | 174    |                          |   | 469,853                         |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   | 470,027     |  
|- sales to investors                                |  | 1,748,252             |  |          | 1,748  |                          |   | 3,754,471                       |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   | 3,756,219   |  
|Issuance of warrants for common shares              |  |                       |  |          |        |                          |   | 905,699                         |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   | 905,699     |  
|Issuance of common sharesRemedium Oy acquisition   |  | 1,413,428             |  |          | 1,413  |                          |   | 3,998,588                       |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   | 4,000,001   |  
|                                                    |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|Balance at December 31, 2007                        |  | 20,834,004            |  | $        | 20,834 |                          | $ | 33,059,926                      |  | $ | (8,663,954                      | ) |                      | $ | 387,054   |                          | $ | (698,224 | ) |  | $ | 24,105,636  |  
|Net Loss                                            |  |                       |  |          |        |                          |   |                                 |  |   | (21,073,476                     | ) |                      |   |           |                          |   |          |   |  |   | (21,073,476 | )
|Other comprehensive loss                            |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|SFAS 158 Pension adjustment, net of tax             |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   | 18,198    |                          |   |          |   |  |   | 18,198      |  
|Foreign currency translation adjustment             |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   | 892,857   |                          |   |          |   |  |   | 892,857     |  
|                                                    |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|Total                                               |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   | (20,162,421 | )
|Comprehensive loss                                  |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|SFAS 123R Compensation                              |  |                       |  |          |        |                          |   | 263,023                         |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   | 263,023     |  
|- Common stock repurchase                           |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   | (28,465  | ) |  |   | (28,465     | )
|                                                    |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  
|Balance at December 31, 2008                        |  | 20,834,004            |  |          | 20,834 |                          |   | 33,322,949                      |  |   | (29,737,430                     | ) |                      |   | 1,298,109 |                          |   | (726,689 | ) |  |   | 4,177,773   |  
|                                                    |  |                       |  |          |        |                          |   |                                 |  |   |                                 |   |                      |   |           |                          |   |          |   |  |   |             |  

See accompanying notes to the consolidated financial statements.



F-5



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##### Table of Contents

Encorium Group, Inc.

Consolidated Statements of Cash Flows



|                                                                                                         |  |                                  |             |   |      |   |            |      |  |   |            |  
|-------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ----------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                         |  | Twelve Months Ended December 31, |            
|                                                                                                         |  | 2008                             |             |   | 2007 |   |            | 2006 | 
|Operating Activities:                                                                                    |  |                                  |             |   |      |   |            |      |  |   |            |  
|Net Loss                                                                                                 |  | $                                | (21,073,476 | ) |      | $ | (2,751,427 | )    |  | $ | (494,411   | )
|Adjustments to reconcile net loss to net cash (used) provided by operating activities:                   |  |                                  |             |   |      |   |            |      |  |   |            |  
|Depreciation and amortization                                                                            |  |                                  | 1,697,966   |   |      |   | 2,610,505  |      |  |   | 699,286    |  
|Impairment loss                                                                                          |  |                                  | 14,391,992  |   |      |   |           |      |  |   |           |  
|Share-based compensation expense                                                                         |  |                                  | 263,023     |   |      |   | 211,102    |      |  |   | 389,514    |  
|Changes in assets and liabilities;                                                                       |  |                                  |             |   |      |   |            |      |  |   |            |  
|Investigator advances                                                                                    |  |                                  | (537,616    | ) |      |   | 749,353    |      |  |   | (1,298,673 | )
|Accounts receivable                                                                                      |  |                                  | 53,826      |   |      |   | 2,213,358  |      |  |   | (3,326,765 | )
|Prepaid expenses and other                                                                               |  |                                  | (350,328    | ) |      |   | (242,855   | )    |  |   | 601,664    |  
|Prepaid taxes                                                                                            |  |                                  | (24,259     | ) |      |   | (1,656     | )    |  |   | 10,665     |  
|Costs and estimated earnings in excess of related billings on uncompleted contracts                      |  |                                  | (475,700    | ) |      |   | 477,170    |      |  |   | (999,296   | )
|Other assets                                                                                             |  |                                  | (439,507    | ) |      |   | (3,441     | )    |  |   | (4,667     | )
|Accounts payable                                                                                         |  |                                  | 2,352,909   |   |      |   | (75,019    | )    |  |   | 414,903    |  
|Accrued expenses                                                                                         |  |                                  | (570,836    | ) |      |   | 240,114    |      |  |   | 237,189    |  
|Other liabilities                                                                                        |  |                                  | (98,982     | ) |      |   | (94,163    | )    |  |   | (130,868   | )
|Deferred taxes                                                                                           |  |                                  | (211,988    | ) |      |   | (531,905   | )    |  |   | 19,502     |  
|Billings in excess of related costs and estimated earnings on uncompleted contracts                      |  |                                  | 34,005      |   |      |   | (450,667   | )    |  |   | 2,061,324  |  
|Customer advances                                                                                        |  |                                  | 2,156,474   |   |      |   | (1,694,970 | )    |  |   | 3,738,062  |  
|                                                                                                         |  |                                  |             |   |      |   |            |      |  |   |            |  
|Net Cash (Used) Provided by Operating Activities                                                         |  |                                  | (2,832,497  | ) |      |   | 655,499    |      |  |   | 1,917,429  |  
|                                                                                                         |  |                                  |             |   |      |   |            |      |  |   |            |  
|Investing Activities:                                                                                    |  |                                  |             |   |      |   |            |      |  |   |            |  
|Remedium acquisition, net of cash acquired                                                               |  |                                  |            |   |      |   | (1,730,539 | )    |  |   | (3,331,904 | )
|Cash paid for property and equipment                                                                     |  |                                  | (334,072    | ) |      |   | (708,880   | )    |  |   | (235,606   | )
|                                                                                                         |  |                                  |             |   |      |   |            |      |  |   |            |  
|Net Cash Used In Investing Activities                                                                    |  |                                  | (334,072    | ) |      |   | (2,439,419 | )    |  |   | (3,567,510 | )
|                                                                                                         |  |                                  |             |   |      |   |            |      |  |   |            |  
|Financing Activities:                                                                                    |  |                                  |             |   |      |   |            |      |  |   |            |  
|Net payments under capital leases                                                                        |  |                                  | (29,688     | ) |      |   | (8,094     | )    |  |   | (26,314    | )
|Proceeds from stock issue and warrants                                                                   |  |                                  |            |   |      |   | 4,661,918  |      |  |   |           |  
|Proceeds from exercise of stock options                                                                  |  |                                  |            |   |      |   | 470,027    |      |  |   | 67,031     |  
|Stock repurchase                                                                                         |  |                                  | (28,465     | ) |      |   |           |      |  |   |           |  
|Net payments on short-term borrowings                                                                    |  |                                  |            |   |      |   | (21,562    | )    |  |   |           |  
|                                                                                                         |  |                                  |             |   |      |   |            |      |  |   |            |  
|Net Cash Provided (Used) By Financing Activities                                                         |  |                                  | (58,153     | ) |      |   | 5,102,289  |      |  |   | 40,717     |  
|                                                                                                         |  |                                  |             |   |      |   |            |      |  |   |            |  
|Effect of Exchange Rate Changes on Cash and Cash Equivalents                                             |  |                                  | (178,916    | ) |      |   | 257,994    |      |  |   | 38,376     |  
|Net Increase (Decrease) In Cash and Cash Equivalents                                                     |  |                                  | (3,403,638  | ) |      |   | 3,576,363  |      |  |   | (1,570,988 | )
|Cash and Cash Equivalents, Beginning of Period                                                           |  |                                  | 9,109,456   |   |      |   | 5,533,093  |      |  |   | 7,104,081  |  
|                                                                                                         |  |                                  |             |   |      |   |            |      |  |   |            |  
|Cash and Cash Equivalents, End of Period                                                                 |  | $                                | 5,705,818   |   |      | $ | 9,109,456  |      |  | $ | 5,533,093  |  
|                                                                                                         |  |                                  |             |   |      |   |            |      |  |   |            |  
|Supplemental Disclosure of Non Cash Investing Activities:                                                |  |                                  |             |   |      |   |            |      |  |   |            |  
|Issuance of Common Stock in connection with the Remedium acquisition                                     |  | $                                |            |   |      | $ | 4,000,000  |      |  | $ | 11,000,000 |  
|Accrued acquisition costs for the Remedium acquisition                                                   |  | $                                |            |   |      | $ |           |      |  | $ | 5,714,780  |  
|Deferred tax liability related to goodwill and other intangibles resulting from the Remedium acquisition |  | $                                |            |   |      | $ |           |      |  | $ | 1,697,724  |  

See accompanying notes to the consolidated financial statements.



F-6



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##### Table of Contents

ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. | DESCRIPTION OF BUSINESS:
|-- | ------------------------

In this discussion, the
terms, Company, we, us, and our, refer to Encorium Group, Inc. and subsidiaries (formerly known as, Covalent Group, Inc.), except where it is made clear otherwise.

We are a clinical research organization that engages in the design and management of complex clinical trials for the pharmaceutical, biotechnology and
medical device industries. Our mission is to provide our clients with high quality, full-service support for their clinical trials. We offer therapeutic expertise, experienced team management and advanced technologies. Our headquarters is based in
Wayne, Pennsylvania and our international operations are based in Espoo, Finland.

Our clients consist of many of the largest companies in
the pharmaceutical, biotechnology and medical device industries. From protocol design and clinical program development, to proven patient recruitment, to managing the regulatory approval process, we have the resources to directly implement or manage
Phase I through Phase IV clinical trials and to deliver clinical programs on time and within budget. We have clinical trial experience across a wide variety of therapeutic areas such as cardiovascular, endocrinology/metabolism, diabetes, neurology,
oncology, immunology, vaccines, infectious diseases, gastroenterology, dermatology, hepatology, womens health and respiratory medicine. We have the capacity and expertise to conduct clinical trials on a global basis.

In November 2006, we expanded our international operations with the acquisition of Remedium Oy, a CRO founded in 1996 in Finland which offers clinical
trial services to the pharmaceutical and medical device industries. With this acquisition, we gained a Northern and Eastern European presence to support existing clinical trial contracts and expand our presence internationally. We were incorporated
in August 1989 in Nevada and in June 2002, the Company changed its state of incorporation to Delaware.

The accompanying consolidated
financial statements have been prepared on the basis of the company continuing as a going concern.

We anticipate that will meet our cash
requirements through March of 2010, assuming we are able to fully implement our current costs cutting initiatives, we are able to win additional contracts during fiscal 2009 and we are able to maintain our current customer contracts. In the event we
are unable to do so, we will be required to obtain additional capital from external sources or significantly reduce our operating costs, which may include the cessation of operations in some countries.

Our ability to obtain additional financing in the future will depend in part upon prevailing capital market conditions, as well as conditions in our
business and our operating results; and those factors may affect our efforts to arrange additional financing on terms that are satisfactory to us or at all. We have been working with an investment banking firm to seek strategic alternatives,
including outside investments. To date, our efforts to secure additional investments have not proven successful given the general economic and lending environment coupled with the Companys current financial position.

Given the current levels of the trading price of the Companys common stock, if the Company were to raise additional capital by issuing equity
securities, existing stockholders percentage ownership would be reduced and they would experience substantial dilution. If we were to raise additional funds by issuing debt securities, these debt securities would have rights, preferences, and
privileges senior to those of our common stock, and the terms of the debt securities issued could impose significant restrictions on our operations. These factors have raised substantial doubt about our ability to continue as a going concern for the
foreseeable future. If we are unable to obtain additional capital, we will scale back our operations until such capital is obtained. Our consolidated financial statements do not include any adjustment to reflect the possible future effects on the
recoverability or classification of assets or the amounts and classification of liabilities that may result from the outcome of our ability to continue as a going concern.



F-7



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##### Table of Contents

ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|-- | -------------------------------------------

Use
of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America (generally accepted accounting principles) require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Consolidation

The consolidated financial statements for 2008, 2007 and 2006 include our accounts and
the accounts of our wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

Cash and
Cash Equivalents

We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash
equivalents.

Investigator Advances

We received advance payments from a small number of our clients as part of long-term contracts, which includes a separate cash account to be utilized for payment of investigator fees. As of December 31, 2008 and
2007, this cash amount was $1.1 million and $552 thousand, respectively. This amount is also included in customer advances within current liabilities in the accompanying balance sheets.

Revenue Recognition

The majority of
our net revenue is recognized from fixed price contracts on a proportional performance method based on assumptions regarding the estimated completion of the project. This method is used because management considers total costs incurred to be the
best available measure of progress on these contracts. Work is also performed under time and material contracts whereby we recognize revenue as hours are worked based on the hourly billing rate for each contract.

Each month costs are accumulated on each project and compared to total estimated cost to complete to determine the degree of completion for that
particular project. This determines the percentage of completion for the project. This percentage of completion is multiplied by the contract value to determine the amount of revenue to be recognized. As the work progresses, original estimates may
be adjusted due to revisions in the scope of work or other factors and a contract modification may be negotiated with the customer to cover additional costs. Our accounting policy for recognizing revenue for changes in scope is to recognize revenue
when the Company has reached agreement with the client, the services pursuant to the change in scope have been performed, the price has been set forth in the change of scope document and collectibility is reasonably assured based on our course of
dealings with the client. We bear the risk of cost overruns on work performed absent a signed contract modification. Because of the inherent uncertainties in estimating costs, it is reasonably possible that the cost estimates used will change in the
near term and may have a material adverse impact on our financial performance.

In the past, we have had to commit unanticipated resources
to complete projects resulting in lower gross margins on those projects. We may experience similar situations in the future although our current contracts



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



in process are of a shorter duration and subject to less cost volatility. Should our estimated costs on fixed price contracts prove to be low in comparison
to actual costs, future margins could be reduced, absent our ability to negotiate a contract modification.

There are no standard billing
and payment provisions which are present in each contract. Each contract has separate and distinct billing and payment terms which are the result of negotiation between us and the client. Billings and the related payment terms from fixed price
contracts are generally determined by provisions in the contract that may include certain payment schedules and the submission of required billing detail. The payment schedule in the contract reflects the value of services to be performed by us at
the initiation of the contract. The payment schedule may include the value of certain interim service components as well as periodic payments which are reasonably assured at the start of the contract and which we expect to receive during the
duration of the contract. Accordingly, cash receipts, including the receipt of up front payments, periodic payments and payments related to the achievement of certain billing mechanisms, do not necessarily correspond to cost incurred and revenue
recognized on contracts. A contracts payment structure typically requires an upfront payment of 10% to 20% of the contract value at or shortly after the initiation of the contract, a series of periodic payments over the life of the contract
and payments based upon the achievement of certain billing mechanisms. The upfront payments are deferred and recognized as revenues and services are performed under the proportional performance method. Periodic payments, including payments related
to the achievement of certain billing mechanisms in the contract, are invoiced pursuant to the terms of the contract once the agreed upon services criteria have been achieved. Payments based upon interim billing mechanisms are included in the value
of the contract because we expect to receive them during the term of the contract. All payments received pursuant to the contract are recognized in accordance with the proportional performance method. In a comprehensive full service drug development
program, the client would not generally purchase certain service components separately but as an integrated, full service arrangement in connection with the development of the drug.

Clients generally may terminate a contract on short notice which might cause unplanned periods of excess capacity and reduced revenues and earnings.
Client initiated delays or cancellations for ongoing clinical trials can come suddenly and may not be foreseeable. To offset the effects of early termination of significant contracts, we attempt to negotiate the payment of an early termination fee
as part of the original contract. Generally, we have not been successful in negotiating such fees. Our contracts typically require payment to us of expenses incurred to wind down a study and fees earned to date. Therefore, revenue recognized prior
to cancellation does not require a significant adjustment upon cancellation. If we determine that a loss will result from the performance of a fixed price contract, the entire amount of the estimated loss is charged against income in the period in
which such determination is made.

Our accounting policy for recognizing revenue for terminated projects requires us to perform a
reconciliation of study activities versus the activities set forth in the contract. We negotiate with the client, pursuant to the terms of the existing contract, regarding the wind up of existing study activities in order to clarify which services
the client wants us to perform. Once we and the client agree on the reconciliation of study activities and the agreed upon services have been performed by us, we would record the additional revenue provided collectibility is reasonably assured.

Our operations have experienced, and may continue to experience, period-to-period fluctuations in net revenue and results from operations.
Because we generate a large proportion of our revenues from services performed at hourly rates, our revenues in any period are directly related to the number of employees and the number of hours worked by those employees during that period. Our
results of operations in any one quarter can fluctuate depending upon, among other things, the number of weeks in the quarter, the number and related contract value of ongoing client engagements, the commencement, postponement and termination of
engagements in the quarter, the mix of revenue, the extent of cost overruns, employee hiring, vacation patterns, exchange rate fluctuations and other factors.



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Reimbursable Out-of-Pocket Expenses

On behalf of our clients, we pay fees to investigators and other out-of-pocket costs for which we are reimbursed at cost, without mark-up or profit.
Effective January 1, 2002, in connection with the required implementation of FASB Emerging Issues Task Force Rule No. 01-14 Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred(EITF 01-14), out-of-pocket costs are included in Operating Expenses, while the reimbursements received are reported separately as Reimbursement Revenue in the Consolidated Statements of Operations.

As is customary in the industry, we will continue to exclude from revenue and expense in the Consolidated Statements of Operations fees paid to
investigators and the associated reimbursement since we acts as an agent on behalf of the pharmaceutical company sponsors with regard to investigator payments, in accordance with the Financial Accounting Standards Board Emerging Issues Task Force
Rule No. 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent(EITF 99-19),. These investigator fees are not reflected in our Net Revenue, Reimbursement Revenue, Reimbursement Out-of-Pocket
Expenses, and/or Direct Expenses. The amounts of these investigator fees were $8.8 million, $5.3 million, and $2.4 million for the years ended December 31, 2008, 2007, and 2006 respectively.

Accounts Receivable

Accounts
receivable and costs and estimated earnings in excess of related billings on completed contracts represent amounts due from our clients who are concentrated primarily in the pharmaceutical, biotechnology and medical device industries. Included in
accounts receivable are amounts due from clients in connection with unbilled out-of-pocket pass-through costs in the amount of $369 thousand as of December 31, 2008 and $318 thousand as of December 31, 2007.

Concentration of Credit Risk

Our
accounts receivable and costs and estimated earnings in excess of related billings on uncompleted contracts are concentrated with a small number of companies within the pharmaceutical, biotechnology and medical device industries. The significant
majority of this exposure is to large, well established firms. Credit losses have historically been minimal. As of December 31, 2008, the total of accounts receivable and costs and estimated earnings in excess of related billings on uncompleted
contracts was $6.1 million. Of this amount, the exposure to our three largest clients was 38% of the total, with the three largest clients representing 15%, 12% and 11% of total exposure, respectively. As of December 31, 2007, the total of
accounts receivable and costs and estimated earnings in excess of related billings on uncompleted contracts was $5.8 million. Of this amount, the exposure to our three largest clients was 39% of the total, with the three largest clients representing
25%, 7% and 7% of total exposure, respectively.

Several client contracts contain provisions that allow us to bill and receive advance
payments to be utilized for investigator fees and reimbursable expenses. In some instances, the client requires that we maintain separate cash accounts to be utilized for investigator fees, which are included as Investigator Advances. Funds received
as customer advances, excluding investigator advances for which separate cash accounts are required as part of our contract with the client, are included as part of Cash and Cash Equivalents. The balance of customer advances, including investigator
advances of $1.1 million, was $5.3 million as of December 31, 2008. As of December 31, 2008, there were no customer advances billed, but not received.



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ENCORIUM GROUP, INC

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Financial Instruments

The fair value of cash and cash equivalents, restricted cash, accounts receivable, costs and estimated earnings in excess of related billings on
uncompleted contracts, accounts payable, accrued expenses and billings in excess of related costs and estimated earnings on uncompleted contracts were not materially different than their carrying amounts as reported at December 31, 2008 and
December 31, 2007.

As of December 31, 2008, the Company was not a counter party to any forward foreign exchange contracts or any
other transaction involving a derivative financial instrument.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which
range from 3 to 8 years for equipment and furniture and fixtures and the remaining lease term for leasehold improvements and assets under capital lease. Depreciation and amortization, excluding the amortization of intangible assets, for the years
ended December 31, 2008, 2007 and 2006 was $551 thousand, $618 thousand and $367 thousand, respectively. Expenditures for maintenance and repairs are charged to expense as incurred. When assets are sold, retired, or fully depreciated the cost
and accumulated depreciation are removed from the accounts, and any gain or loss on the sale of property and equipment is included in operations.

Stock-Based Compensation

Effective January 1, 2006 the company adopted SFAS No. 123R, Share Based
Payments, using the Modified Prospective Approach. SFAS No. 123R revises SFAS No. 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123R requires the cost of all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at grant date, or the date of
later modification, over the requisite service period. In addition, SFAS No. 123R requires unrecognized cost (based on the amounts previously disclosed in our pro forma footnote disclosure) related to options vesting after the date of initial
adoption to be recognized in the financial statements over the remaining requisite service period. Accordingly, prior period amounts have not been restated.

Under the Modified Prospective Approach, the amount of compensation expense recognized includes compensation expense for all share-based payments granted prior to, but not yet fully vested as of January 1, 2006,
based on the grant date fair value estimated in accordance with SFAS No. 123 and compensation expense for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with SFAS
No. 123R. Prior to adoption of SFAS No. 123R, we determined share-based compensation expense by applying the intrinsic value method provided for in APB Opinion No. 25. Share-Based Compensation expense for the years ended
December 31, 2008, 2007 and 2006 was $263 thousand, $211 thousand, and $389 thousand or $0.01, $0.01 and $0.03 on a basic and diluted earning per share basis, respectively.

Goodwill and Intangible Assets

The
Company follows the provisions of SFAS No. 141, Business Combinations,and SFAS No. 142, Goodwill and Other Intangible Assets,applicable to business combinations. The Company also follows the
provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, applicable to its accounting for impairment of goodwill and intangible assets. In accordance with these standards, goodwill acquired
in connection with the acquisition of Remedium was not amortized. However, the identifiable intangible assets acquired in connection with the acquisition of Remedium will be amortized



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over their useful lives. Pursuant to SFAS No. 142, Management of the Company must make an assessment of goodwill impairment annually or whenever events
or changes in circumstances indicate that the carrying amount may not be fully recoverable. If carrying value exceeds current fair value, then goodwill is considered impaired and is reduced to fair value via a charge to earnings. Management made an
assessment of Remediums fair value as November 1, 2007, one year from the acquisition date, in order to determine whether the amount of goodwill and related intangible assets acquired had been impaired. As of November 1, 2007,
management determined that both goodwill and intangible assets acquired in connection with the acquisition of Remedium were not impaired and that no adjustment to the carrying values was necessary as of that date.

Due to changes in key personnel, adverse market conditions and a significant decrease in the Companys market capital during the third quarter of
2008, the Company made an interim assessment of Remediums fair value as of September 30, 2008 to determine whether the amount of goodwill and the identifiable intangibles acquired in connection with the acquisition of Remedium were impaired.
The test for impairment involves a two step process. The first step of impairment testing involves a comparison of the fair value of the reporting unit, in this case Remedium, with its aggregate carrying values, including goodwill and identifiable
intangible assets. We determined the fair value of Remedium using a combination of the income approach methodology of valuation, which includes using the discounted cash flow method, and the relative market value approach methodology. The relative
market value approach methodology includes the comparison of revenue and income multiples of comparable companies within the industry that the Company operates. If the carrying amount of Remedium exceeds its fair value, we perform the second step of
the impairment test to determine the amount of the impairment loss. The second step of the impairment test involves comparing the implied fair value of Remediums goodwill and identifiable intangibles with the respective carrying values. As of
September 30, 2008, Management was able to complete the first step of the impairment testing, and estimated that the amount of goodwill acquired in connection with the acquisition of Remedium was impaired, necessitating a non-cash impairment
charge of $1.86 million in the third quarter of 2008 and reducing the carrying value of goodwill. Management updated its step one analysis and completed the second step of the impairment analysis in accordance with SFAS No. 142 as of
November 1, 2008 and, due to the continued deterioration of the underlying comparable companies within the CRO industry as it relates to the market value approach methodology, has determined that an additional non-cash impairment charge of
$12.50 million is to be recorded in the fourth quarter of 2008.

Foreign Currency Translation

Assets and liabilities of the Companys international operations are translated into U.S. dollars at exchange rates in effect on the balance sheet
date and equity accounts are translated at historical exchange rates. Revenue and expense items are translated at average exchange rates in effect during the year. Gains or losses from translating foreign currency financial statements are recorded
in other comprehensive income. The cumulative translation adjustment increased other comprehensive income by $893 thousand for the year ended December 31, 2008 compared to an increase in other comprehensive income of $150 thousand for the
year ended December 31, 2007 and an increase in other comprehensive income of $27 thousand for the year ended December 31, 2006.

Income Taxes

The Company accounts for income taxes in accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires recognition of deferred tax liabilities and assets for the future expected tax consequences of events that have been included in the financial statements or tax returns.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



Under this method deferred tax liabilities and assets are determined based on the difference between the financial statement tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. At December 31, 2008, the Company recorded a full valuation allowance against its net deferred tax assets and net operating loss
carry-forwards given that it is more likely than not that the deferred tax asset will not be realized.

The Company adopted the provisions
of Financial Interpretation Number 48 Accounting for Uncertainty in Income Taxes, an interpretation of SFAS 109(FIN 48), on January 1, 2007. The implementation of FIN 48 did not result in any adjustment of the
Companys beginning tax positions. The impact of the Companys reassessment of its tax positions in accordance with FIN 48 had no material impact on the results of operations, financial condition or liquidity for the years ended
December 31, 2008 and 2007. As of December 31, 2008, the Company has unrecognized U.S. federal and state net operating loss carryforwards of approximately $8.8 million and $13.4 million, respectively. These unrecognized United States
federal and state net operating loss carryforwards have significantly increased due to the losses incurred to date during 2008. In addition, future changes in the unrecognized tax benefit, will have no impact on the effective tax rate due to the
existence of the valuation allowance.

The Company files its tax returns as prescribed by the tax laws of the jurisdiction in which it
operates. None of the Companys tax filings in these jurisdictions are currently under audit. The Companys policy is to recognize interest and penalties in Other Expense.

Earnings (Loss) Per Share

Earnings
(loss) per share is calculated in accordance with SFAS No. 128, Earnings Per Share.Basic earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares plus the dilutive effect of warrants and outstanding stock options under the Companys
equity incentive plans. For 2008, 2007 and 2006 diluted net loss per common share is the same as basic net loss per common share, since the effects of potentially dilutive securities are antidilutive.

Supplemental Cash Flow Information

Cash paid for income taxes net of refunds for the years ended December 31, 2008, 2007, and 2006 was $113 thousand, $58 thousand, $0, respectively. Cash paid for interest for the years ended December 31, 2008, 2007, and 2006 was
$26 thousand, $12 thousand, and $11 thousand, respectively.

Pensions

The Company contributes to state sponsored pension plans for its internationally based employees. The majority of these state sponsored pension plans are
defined contribution plans. The amount of pension expense related to these plans for the years ended December 31, 2008, 2007 and 2006 was $1.7 million, $1.5 million and $200 thousand, respectively.

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We have evaluated the impact of SFAS No. 157 and have
determined that it did not have a material impact on our consolidated financial statements or results of operations.



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ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS No. 158). SFAS No. 158 requires an employer to recognize the over funded or under funded
status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through
comprehensive income of a business. SFAS No. 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. This statement is effective for the first
fiscal year ending after December 15, 2006 for initial recognition and December 15, 2008 for measurement of plan assets and benefit obligations. We have evaluated the impact of SFAS No. 158 and have determined that it did not have a
material impact on our consolidated financial statements or results of operations.

In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types of assets and liabilities. This statement is effective in the first fiscal year that begins after November 15, 2007. We have evaluated the impact of SFAS No. 159 and have
determined that it did not have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS
No. 141 (revised 2007), Business Combinations (SFAS 141R) which replaces SFAS No. 141, Business Combinations. The scope of SFAS 141R is broader than that of SFAS No. 141, which applied only to
business combinations in which control was obtained by transferring consideration. SFAS 141R revises accounting and reporting standards for business combinations and applies to all transactions or other events in which an entity obtains control
of one or more businesses by transferring consideration as well as combinations achieved without the transfer of consideration. By applying the same method of accounting  the acquisition method  to all transactions and other events in
which one entity obtains control over one or more other businesses, this statement is intended to improve the comparability of the information about business combinations provided in financial reports. SFAS 141R applies prospectively to
business combinations with an acquisition date on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We have evaluated the impact of SFAS 141R, and have determined that it will not have a
material impact on our consolidated financial statements.



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ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



|3. | PROPERTY & EQUIPMENT:
|-- | ---------------------



|                                                |  |              |            |   |      |   |            |  
|----------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                |  | December 31, |           
|                                                |  | 2008         |            |   | 2007 |  
|Property & equipment consists of the following: |  |              |            |   |      |   |            |  
|Equipment                                       |  | $            | 1,700,486  |   |      | $ | 1,732,317  |  
|Furniture & fixtures                            |  |              | 472,049    |   |      |   | 540,347    |  
|Leasehold improvements                          |  |              | 1,177,856  |   |      |   | 1,016,581  |  
|Equipment under capital lease                   |  |              | 1,075,235  |   |      |   | 891,920    |  
|                                                |  |              |            |   |      |   |            |  
|Total Property and Equipment                    |  |              | 4,425,626  |   |      |   | 4,181,165  |  
|                                                |  |              |            |   |      |   |            |  
|Accumulated depreciation                        |  |              | (3,213,697 | ) |      |   | (2,887,549 | )
|                                                |  |              |            |   |      |   |            |  
|Property and equipment, net                     |  | $            | 1,211,929  |   |      | $ | 1,293,616  |  
|                                                |  |              |            |   |      |   |            |  

The Company purchased $334 thousand of additional equipment in 2008. There was a decrease in net
book value of European assets due to foreign exchange rate differences totaling $11 thousand.



|4. | INCOME TAXES:
|-- | -------------



|                                |  |                         |             |   |      |   |            |      |  |   |          |  
|------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ---------- | ---- |  | - | -------- | -
|                                |  | Year Ended December 31, |            
|                                |  | 2008                    |             |   | 2007 |   |            | 2006 | 
|Net (loss) income before taxes: |  |                         |             |   |      |   |            |      |  |   |          |  
|United States                   |  | $                       | (5,686,248  | ) |      | $ | (2,422,851 | )    |  | $ | 312,293  |  
|Foreign                         |  |                         | (15,490,899 | ) |      |   | (860,847   | )    |  |   | (787,887 | )
|                                |  |                         |             |   |      |   |            |      |  |   |          |  
|                                |  | $                       | (21,177,147 | ) |      | $ | (3,283,698 | )    |  | $ | (475,594 | )
|                                |  |                         |             |   |      |   |            |      |  |   |          |  

The components of the income tax provision (benefit) are as follows:



|              |  |                         |          |   |      |   |          |      |  |   |       
|------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | ------
|              |  | Year Ended December 31,
|              |  | 2008                    |          |   | 2007 |   |          | 2006
|Current:      |  |                         |          |   |      |   |          |      |  |   |       
|Federal       |  | $                       |         |   |      | $ |         |      |  | $ |      
|Foreign       |  |                         | 194,463  |   |      |   | 69,443   |      |  |   | 18,817
|State         |  |                         |         |   |      |   |         |      |  |   |      
|              |  |                         |          |   |      |   |          |      |  |   |       
|              |  | $                       | 194,463  |   |      | $ | 69,443   |      |  | $ | 18,817
|              |  |                         |          |   |      |   |          |      |  |   |       
|Deferred:     |  |                         |          |   |      |   |          |      |  |   |       
|Federal       |  | $                       |         |   |      | $ |         |      |  |   |      
|Foreign       |  |                         | (298,134 | ) |      |   | (601,714 | )    |  |   |      
|State         |  |                         |         |   |      |   |         |      |  |   |      
|              |  |                         |          |   |      |   |          |      |  |   |       
|Total Company |  | $                       | (103,671 | ) |      | $ | (532,271 | )    |  | $ | 18,817
|              |  |                         |          |   |      |   |          |      |  |   |       



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



The federal statutory income tax rate is reconciled to the effective income tax rate as follows:



|                              |  |                         |    |  |       |    |  |       |   
|----------------------------- |  | ----------------------- | -- |  | ----- | -- |  | ----- | --
|                              |  | Year Ended December 31, |   
|                              |  | 2008                    |    |  | 2007  |    |  | 2006  |   
|Federal statutory rate        |  | (34.0                   | )% |  | (34.0 | )% |  | (34.0 | )%
|Change in valuation allowance |  | 34.0                    | %  |  | 34.0  | %  |  | 34.0  | % 
|Other                         |  | .5                      | %  |  | (16.2 | )% |  | 4.0   | % 
|                              |  |                         |    |  |       |    |  |       |   
|                              |  | .5                      | %  |  | (16.2 | )% |  | 4.0   | % 
|                              |  |                         |    |  |       |    |  |       |   

The components of the net current and long-term deferred tax assets and liabilities, measured under
SFAS No. 109, are as follows:



|                                |  |                         |            |   |      |   |            |      |  |   |           |  
|------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | --------- | -
|                                |  | Year Ended December 31, |           
|                                |  | 2008                    |            |   | 2007 |   |            | 2006 | 
|Deferred Tax Asset              |  |                         |            |   |      |   |            |      |  |   |           |  
|Net operating loss carryforward |  | $                       | 3,473,321  |   |      | $ | 2,035,000  |      |  | $ | 800,000   |  
|Depreciation                    |  |                         |           |   |      |   |           |      |  |   |          |  
|Accrual                         |  |                         | 36,909     |   |      |   | 8,104      |      |  |   |          |  
|Total deferred tax assets       |  |                         | 3,510,230  |   |      |   | 2,035,000  |      |  |   | 800,000   |  
|                                |  |                         |           
|Valuation allowance             |  |                         | (3,473,321 | ) |      |   | (2,035,000 | )    |  |   | (800,000  | )
|                                |  |                         |            |   |      |   |            |      |  |   |           |  
|Net deferred tax asset          |  | $                       | 36,909     |   |      | $ | 8,104      |      |  |   |          |  
|                                |  |                         |            |   |      |   |            |      |  |   |           |  
|                                |  |                         |           
|Deferred tax liabilities        |  |                         |            |   |      |   |            |      |  |   |           |  
|Amortization of Intangibles     |  |                         | 970,714    |   |      |   | 1,093,255  |      |  |   | 1,697,724 |  
|Accrual                         |  |                         | 104,441    |   |      |   | 77,900     |      |  |   | 19,502    |  
|Other                           |  |                         | 28,222     |   |      |   | 21,828     |      |  |   |          |  
|                                |  |                         |            |   |      |   |            |      |  |   |           |  
|Net deferred tax liability      |  | $                       | 1,103,377  |   |      | $ | 1,192,983  |      |  | $ | 1,717,226 |  
|                                |  |                         |            |   |      |   |            |      |  |   |           |  

A deferred tax liability was recognized related to the acquisition of Remedium Oy for the
difference between the assigned value of the intangible assets acquired and the tax basis of the intangible assets acquired. A tax rate of 26% was utilized to establish the deferred tax liability which is the current prevailing corporate income tax
rate in Finland.

At December 31, 2008, the Company had federal net operating loss (NOL) carryforwards of approximately $8.8 million,
the majority of which will expire, if not utilized, between fiscal 2025 and 2028. The Company had state NOL carryforwards of approximately $13.4 million, the majority of which will expire between 2015 and 2018. As of December 31, 2008, the
Company had $1.3 million of foreign net operating loss carryforwards. These net operating loss carryforwards have begun to expire and will continue to expire through 2015.



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ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



Deferred income taxes reflect the net tax effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Due to the Companys recent loss history, and uncertainty regarding the realization of deferred tax assets, a full valuation
allowance has been provided against deferred tax assets directly related to net loss carryforwards as of December 31, 2008. The utilization of federal net operating loss carryforwards is subject to annual limitations in accordance with
Section 382 of the Internal Revenue code. Certain state carryforward net operating losses are also subject to annual limitations. The Company also has certain net operating loss carryforwards in foreign jurisdictions which also have been fully
reserved. As of December 31, 2008, the Company believes that there are no significant uncertain tax positions, and no amounts have been recorded as interest and penalties. The Company does not anticipate any events that would require it to
record a liability related to any uncertain tax position as prescribed by FIN 48.

The Company files its tax returns as prescribed by the
tax laws of the jurisdiction in which it operates. With the exception of the U.S., none of the Companys tax filings in these jurisdictions are currently under audit. The Companys policy is to recognize interest and penalties in Other
Expense.



|5. | LINE OF CREDIT:
|-- | ---------------

The Company has two significant
lines of credit for its European operations. The first credit facility amounting to $705 thousand is with Svenska Handelsbanken AB with interest charged at Handlesbanken Avista +0.9%, which at year-end was approximately 1.8%. The second significant
line of credit amounting to $423 thousand is with Okopankki Oyj with interest charged at 1 month euribor +1.0%, which at year end was approximately 3.5%. None of the combined facility was used at year-end. Commitments by the banks generally expire
one year from the date of the agreement and are generally renewed. (Amounts were converted based on an exchange rate of 1.00 EUR ~ 1.4097 USD)



|6. | EARNINGS (LOSS) PER SHARE:
|-- | --------------------------

Earnings (loss) per
share is calculated in accordance with SFAS No. 128, Earnings Per Share. Basic earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding
during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares plus the dilutive effect of outstanding stock options under the Companys equity incentive plans. For
2008, 2007 and 2006, diluted net loss per common share is the same as basic net loss per share, since the effects of potentially dilutive securities are anitdilutive. Stock options outstanding that are not included in the table below because of
their anti-dilutive effect for the year ended December 31, 2008 were 954,083, for the year ended December 31, 2007 were 1,091,733 and for the year ended December 31, 2006 were 1,130,550.



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ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



The net loss and weighted average common and common equivalent shares outstanding for purposes of
calculating net loss per common share were computed as follows:



|                                                                                                |  |                         |             |   |      |   |            |      |  |   |            |  
|----------------------------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                |  | Year Ended December 31, |            
|                                                                                                |  | 2008                    |             |   | 2007 |   |            | 2006 | 
|Net Loss                                                                                        |  | $                       | (21,073,476 | ) |      | $ | (2,751,427 | )    |  | $ | (494,411   | )
|                                                                                                |  |                         |             |   |      |   |            |      |  |   |            |  
|Weighted average number of common shares outstanding used in computing basic earnings per share |  |                         | 20,589,364  |   |      |   | 19,167,022 |      |  |   | 13,990,321 |  
|Dilutive effect of stock options outstanding                                                    |  |                         |            |   |      |   |           |      |  |   |           |  
|Weighted average shares used in computing diluted earnings per share                            |  |                         | 20,589,364  |   |      |   | 19,167,022 |      |  |   | 13,990,321 |  
|                                                                                                |  |                         |             |   |      |   |            |      |  |   |            |  
|Basic loss per share                                                                            |  | $                       | (1.02       | ) |      | $ | (0.14      | )    |  | $ | (0.04      | )
|Diluted loss per share                                                                          |  | $                       | (1.02       | ) |      | $ | (0.14      | )    |  | $ | (0.04      | )
|                                                                                                |  |                         |             |   |      |   |            |      |  |   |            |  



|7. | STOCKHOLDERS EQUITY:
|-- | ---------------------

Treasury Stock

In October 2008 the Company approved a stock repurchase program in an amount of up to $250,000. During the three months ended
December 31, 2008, the Company purchased 79,257 shares of Common Stock at an average price of $0.36 per share in open market transactions. There were 310,121 common shares in treasury as of December 31, 2008. The shares are valued using
the cost method of accounting for treasury stock.



|8. | STOCK-BASED COMPENSATION:
|-- | -------------------------

Employee Equity
Incentive Plans

2006 Equity Incentive Plan

In November 2006, the Board of Directors approved the 2006 Equity Incentive Plan, which was approved by the stockholders in November 2006. Upon adoption, a total of 1,000,000 shares were available for grant under this
plan. The plan provides for the granting of incentive and non-qualified stock options for the purchase of shares of common stock to directors, officers, employees, advisors and consultants, as defined under the provisions of the plan. Options issued
under the plan are subject to a 3 year vesting period with a contractual term of 10 years.

2002 Equity Incentive Plan

In March 2002, the Board of Directors approved the 2002 Equity Incentive Plan, which was approved by the shareholders in June 2002. Upon adoption, a
total of 1,000,000 shares were available for grant under this plan. The plan provides for the granting of incentive and non-qualified stock options for the purchase of shares of common stock to directors, officers, employees, advisors and
consultants, as defined under the provisions of the plan. Options issued under the plan are subject to a 3 year vesting period with a contractual term of 5 years.



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ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



1996 Equity Incentive Plan

The Companys 1996 Stock Incentive Plan and 1995 Stock Option Plan provide for the granting of incentive and non-qualified stock options for the
purchase of shares of common stock to directors, officers, employees and consultants, as defined under the provisions of the plans. The 1996 Stock Incentive Plan was amended in 2000 to increase the number of common shares available for grant from
2,500,000 to 3,000,000. The stock incentive plan provides for the granting of incentive and non-qualified stock options for the purchase of shares of common stock to directors, employees and non-employee consultants, as defined under the provisions
of the plan. Options issued under the plan are subject to a 4 year vesting period with a contractual term of 5 years. This plan expired in September 2006.

General Option Information

The Company has issued stock options to employees under share-based
compensation plans. Stock options are issued at the current market price on the date of the grant, subject to a vesting period and contractual term associated with the plan the options were issued under. The fair value of each stock option is
estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatility is based on historical volatility of our common stock. We use historical data on exercises of
stock options and other factors to estimate the expected life of the share-based payments granted. For options granted under the 2002 Equity Incentive Plan, we determined the expected life to be 5 years for options granted prior to January 1,
2006 and 4 years for any options granted subsequent to January 1, 2006. We determined the expect life for options granted under the 2006 Equity Incentive Plan to be 7 years. The risk free rate is based on the U.S. Treasury bond rate
commensurate with the expected life of the option.



|                            |  |                         |  |               |  |              
|--------------------------- |  | ----------------------- |  | ------------- |  | -------------
|                            |  | Year Ended December 31,
|                            |  | 2008                    |  | 2007          |  | 2006         
|Risk-free interest rate     |  | 2.05% - 3.63%           |  | 4.01% - 4.81% |  | 4.53% - 5.16%
|Expected dividend yield     |  |                        |  |              |  |             
|Expected life               |  | 7 years                 |  | 7 years       |  | 4 years      
|Weighted average volatility |  | 68%                     |  | 63%           |  | 55%          
|Expected volatility         |  | 50% - 71%               |  | 61% - 64%     |  | 53% - 63%    

Based upon the above assumptions, the weighted average fair value of the stock options granted for
the years ended December 31, 2008, 2007 and 2006 was $0.58, $2.45, and $1.34, respectively.



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##### Table of Contents

ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



A summary of award activity under the stock option plans as of December 31, 2008 and changes
during the three prior years are presented below:



|                                         |  |                 |   |  |                                 |             |                                       |   |                |  |   |                       |   |  |   |     
|---------------------------------------- |  | --------------- | - |  | ------------------------------- | ----------- | ------------------------------------- | - | -------------- |  | - | --------------------- | - |  | - | ----
|                                         |  | Number ofShares |   |  | Range ofExercisePricesper Share |             | WeightedAverageExercisePrice perShare |   | IntrinsicValue |  |   | Share Price@ 12/31/08
|Options outstanding at December 31, 2005 |  | 1,362,873       |   |  | $                               | 1.94 - 4.49 |                                       | $ | 2.50           |  |   |                       |   |  |   |     
|Granted                                  |  | 71,250          |   |  |                                 | 2.02 - 3.14 |                                       |   | 2.81           |  |   |                       |   |  |   |     
|Exercised                                |  | (110,316        | ) |  |                                 | 2.23 - 2.90 |                                       |   | 2.78           |  |   |                       |   |  |   |     
|Canceled                                 |  | (193,257        | ) |  |                                 | 1.94 - 3.19 |                                       |   | 2.31           |  |   |                       |   |  |   |     
|Options outstanding at December 31, 2006 |  | 1,130,550       |   |  | $                               | 2.02 - 4.49 |                                       | $ | 2.53           |  |   |                       |   |  |   |     
|Granted                                  |  | 173,166         |   |  |                                 | 2.67 - 6.08 |                                       |   | 3.74           |  |   |                       |   |  |   |     
|Exercised                                |  | (125,650        | ) |  |                                 | 2.17 - 3.17 |                                       |   | 2.72           |  |   |                       |   |  |   |     
|Canceled                                 |  | (86,333         | ) |  |                                 | 2.02 - 4.49 |                                       |   | 3.20           |  |   |                       |   |  |   |     
|Options outstanding at December 31, 2007 |  | 1,091,733       |   |  | $                               | 2.05 - 6.08 |                                       | $ | 2.64           |  | $ | (2,587,407            | ) |  | $ | 0.27
|Granted                                  |  | 754,250         |   |  |                                 | .24 - 1.90  |                                       |   | 0.40           |  |   | (100,573              | ) |  |   | 0.27
|Exercised                                |  |                |   |  |                                 |            |                                       |   |               |  |   |                      |   |  |   | 0.27
|Canceled                                 |  | (891,900        | ) |  |                                 | 2.17 - 3.92 |                                       |   | 2.49           |  |   | 1,981,552             |   |  |   | 0.27
|Options outstanding at December 31, 2008 |  | 954,083         |   |  | $                               | 0.24 - 6.08 |                                       | $ | 1.02           |  | $ | (711,146              | ) |  | $ | 0.27
|Vested options outstanding at:           |  |                 |   |  |                                 |             |                                       |   |                |  |   |                       |   |  |   |     
|December 31, 2008                        |  | 104,223         |   |  | $                               | 2.05 - 6.08 |                                       | $ | 2.98           |  | $ | (282,580              | ) |  | $ | 0.27
|Non-vested options outstanding at:       |  |                 |   |  |                                 |             |                                       |   |                |  |   |                       |   |  |   |     
|December 31, 2008                        |  | 849,860         |   |  | $                               | 0.24 - 6.08 |                                       | $ | 0.77           |  | $ | (428,566              | ) |  | $ | 0.27

Approximately 256,960 options, net of forfeitures, of the 849,860 non-vested options outstanding as
of December 31, 2008 will vest within the next year.

As of December 31, 2008, there was $465 thousand of total unrecognized
compensation cost related to unvested share-based compensation awards granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of 2.3 years. The Company has a policy of issuing new shares to satisfy
share option exercises.



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ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



The following table summarizes information regarding stock options outstanding at December 31,
2008:



|                         |  |                                      |  |                                                  |  |                               |     
|------------------------ |  | ------------------------------------ |  | ------------------------------------------------ |  | ----------------------------- | ----
|Options Outstanding     
|Range of Exercise Prices |  | NumberOutstanding AtDecember 31,2008 |  | WeightedAverageRemainingContractualLife in Years |  | AverageExercisePrice PerShare
|$0.01-$0.50              |  | 699,250                              |  | 9.83                                             |  | $                             | 0.29
|1.51-2.00                |  | 55,000                               |  | 9.28                                             |  |                               | 1.79
|2.01-2.50                |  | 59,167                               |  | 1.12                                             |  |                               | 2.33
|2.51-3.00                |  | 87,666                               |  | 8.28                                             |  |                               | 2.67
|3.01-3.50                |  | 500                                  |  | 2.73                                             |  |                               | 3.02
|3.51-4.00                |  | 5,000                                |  | 8.26                                             |  |                               | 3.51
|4.01-4.50                |  | 7,500                                |  | 8.16                                             |  |                               | 4.10
|$6.00-$6.50              |  | 40,000                               |  | 8.07                                             |  |                               | 6.08
|                         |  |                                      |  |                                                  |  |                               |     
|                         |  | 954,083                              |  | 9.02                                             |  | $                             | 1.02
|                         |  |                                      |  |                                                  |  |                               |     



|                         |  |                                  |  |                                                  |  |                                       |     
|------------------------ |  | -------------------------------- |  | ------------------------------------------------ |  | ------------------------------------- | ----
|Options Exercisable     
|Range of Exercise Prices |  | Number of SharesExpected to Vest |  | WeightedAverageRemainingContractualLife in Years |  | WeightedAverageExercisePrice PerShare
|$0.01-$0.50              |  |                                 |  |                                                 |  | $                                     | 0.00
|1.51-2.00                |  |                                 |  |                                                 |  |                                       |    
|2.01-2.50                |  | 53,167                           |  | 1.06                                             |  |                                       | 2.33
|2.51-3.00                |  | 33,222                           |  | 7.32                                             |  |                                       | 2.66
|3.01-3.50                |  | 334                              |  | 2.73                                             |  |                                       | 3.02
|3.51-4.00                |  | 1,667                            |  | 8.26                                             |  |                                       | 3.51
|4.01-4.50                |  | 2,500                            |  | 8.16                                             |  |                                       | 4.10
|$6.00-$6.50              |  | 13,333                           |  | 8.07                                             |  |                                       | 6.08
|                         |  |                                  |  |                                                  |  |                                       |     
|                         |  | 104,223                          |  | 4.24                                             |  | $                                     | 2.98
|                         |  |                                  |  |                                                  |  |                                       |     

As of December 31, 2008, there were 942,532 stock options available for grant under our stock
option plans. A summary of stock options expected to vest in the next twelve months, net of forfeitures, are as follows:



|                                       |  |                                  |  |                                                  |  |                                       |     
|-------------------------------------- |  | -------------------------------- |  | ------------------------------------------------ |  | ------------------------------------- | ----
|Options Expected To Vest Within 1
Year
|Range of Exercise Prices               |  | Number of SharesExpected to Vest |  | WeightedAverageRemainingContractualLife in Years |  | WeightedAverageExercisePrice PerShare
|$0.01-$0.50                            |  | 198,121                          |  | 9.83                                             |  | $                                     | 0.29
|1.51-2.00                              |  | 15,583                           |  | 9.28                                             |  |                                       | 1.79
|2.01-2.50                              |  | 5,100                            |  | 1.62                                             |  |                                       | 2.27
|2.51-3.00                              |  | 23,139                           |  | 8.87                                             |  |                                       | 2.67
|3.01-3.50                              |  | 141                              |  | 2.73                                             |  |                                       | 3.02
|3.51-4.00                              |  | 1,417                            |  | 8.26                                             |  |                                       | 3.51
|4.01-4.50                              |  | 2.125                            |  | 8.16                                             |  |                                       | 4.10
|$6.00-$6.50                            |  | 11,334                           |  | 8.07                                             |  |                                       | 6.08
|                                       |  |                                  |  |                                                  |  |                                       |     
|                                       |  | 256,960                          |  | 9.45                                             |  | $                                     | 0.94
|                                       |  |                                  |  |                                                  |  |                                       |     



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ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



Valuation and Expense Information under SFAS No. 123(R)

Effective January 1, 2006 we adopted SFAS No. 123R, Share Based Payments, using the Modified Prospective Approach. SFAS
No. 123R revises SFAS No. 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires the cost of all
share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at grant date, or the date of later modification, over the requisite service period. In addition,
SFAS No. 123R requires unrecognized cost (based on the amounts previously disclosed in our pro forma footnote disclosure) related to options vesting after the date of initial adoption to be recognized in the financial statements over the
remaining requisite service period. Accordingly, prior period amounts have not been restated.

Under the Modified Prospective Approach, the
amount of compensation expense recognized includes compensation expense for all share-based payments granted prior to, but not yet fully vested as of January 1, 2006, based on the grant date fair value estimated in accordance with SFAS
No. 123 and compensation expense for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with SFAS No. 123R. In accordance with SFAS No. 123R, the amount of
compensation expense recognized shall be reduced by the amount of pre-vested forfeitures the Company expects to occur over the remaining requisite service period. The Company determined that the appropriate rate of pre-vested forfeitures to be 15%
of the total amount of compensation expense to be recognized for those share-based payments granted prior to, but not fully vested as of January 1, 2006 and those granted subsequent to January 1, 2006. The pre-vested forfeiture rate was
determined based on the amount of pre-vested forfeitures experienced by the Company for the past 5 years. Prior to adoption of SFAS No. 123R, we determined share-based compensation expense by applying the intrinsic value method provided for in
APB Opinion No. 25.

For the years ended December 31, 2008, 2007 and 2006, the adoption of SFAS No. 123R resulted in
incremental stock-based compensation expense of $263 thousand, $211 thousand and $389 thousand, or $0.01, $0.01 and $0.03 on a basic and diluted earning per share basis, respectively. The adoption of SFAS No. 123R did not have a net impact on
cash flows from operating, investing or financing activities. A deduction is not allowed for income tax purposes until the options are exercised. The amount of the income tax deduction will be the difference between the fair value of the
Companys common stock and the exercise price at the date of exercise. The tax effect of the income tax deduction in excess of the financial statement expense will be recorded as an increase in additional paid-in-capital. Accordingly, SFAS
No. 123R requires the recognition of a deferred tax asset for the tax effect of the financial statement expense recorded. However, due to our recent loss history, and uncertainty regarding the realization of deferred tax assets, deferred tax
assets have been fully reserved as of December 31, 2008. The net operating losses incurred to date by the Company are being carried forward and may be applied against future taxable income subject to certain limitations set forth in
Section 382 of the Internal Revenue Code.



|9. | EMPLOYEE BENEFIT PLAN:
|-- | ----------------------

The Company sponsors a
401(k) retirement savings plan that is available to substantially all its U.S. based full-time employees who elect to participate. Effective August 1, 2006, the Company began providing a discretionary matching contribution equal to 100% on the
first 2% of the participants compensation (excluding bonus payments). In 2008, 2007 and 2006 company matching contributions were $77 thousand, $78 thousand and $52 thousand, respectively. Matching contributions are determined each payroll
period. The matching contribution is credited to the participant using a graded vesting schedule with six or more years of service required to become fully vested. The method for crediting vesting service is the plan year.



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ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



The Company contributes to state sponsored pension plans for its internationally based employees. The
majority of these state sponsored pension plans are defined contribution plans. The amount of pension expense related to these plans as of December 31, 2008 and 2007 were $1.7 million and $1.5 million, respectively.



|10. | SEGMENT DISCLOSURES:
|--- | --------------------

The Company follows the
provisions of SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information which establishes standards for reporting business segment information. The Company operates in one segment predominantly in the
clinical research industry providing a broad range of clinical research services on a global basis to the pharmaceutical, biotechnology and medical device industries.

The following table summarizes the distribution of net revenue and contracts with significant clients:



|            |  |                         |   |      |                    |      |                       |   |  |                    |  |                       |   |  |                   
|----------- |  | ----------------------- | - | ---- | ------------------ | ---- | --------------------- | - |  | ------------------ |  | --------------------- | - |  | ------------------
|            |  | Year Ended December 31,
|            |  | 2008                    |   | 2007 |                    | 2006
|            |  | Percentage ofRevenues   |   |      | Number ofContracts |      | Percentage ofRevenues |   |  | Number ofContracts |  | Percentage ofRevenues |   |  | Number ofContracts
|Client A    |  | 10                      | % |      | 4                  |      | 15                    | % |  | 2                  |  | 22                    | % |  | 10                
|Client B    |  | 10                      | % |      | 8                  |      | 12                    | % |  | 8                  |  | 18                    | % |  | 2                 
|Client C    |  | 9                       | % |      | 1                  |      | 11                    | % |  | 12                 |  | 11                    | % |  | 1                 
|            |  |                         |   |      |                    |      |                       |   |  |                    |  |                       |   |  |                   
|Top Clients |  | 29                      | % |      | 13                 |      | 38                    | % |  | 22                 |  | 51                    | % |  | 13                
|            |  |                         |   |      |                    |      |                       |   |  |                    |  |                       |   |  |                   

Client A, B, and C in the table above represent the three largest clients for 2008, but do not
necessarily represent the same client for each year shown.

The significant clients above represented 11% and 21%, respectively, of the
balance of cost and estimated earnings in excess of related billings on uncompleted contracts at December 31, 2008 and 2007.

The
following table summarizes the distribution of net revenues from external clients by geographical region for the years ended December 31, 2008, 2007, and 2006.



|             |  |                         |            |      |   |            |  |   |           
|------------ |  | ----------------------- | ---------- | ---- | - | ---------- |  | - | ----------
|             |  | Year Ended December 31,
|             |  | 2008                    |            | 2007 |   | 2006      
|U.S.         |  | $                       | 7,946,595  |      | $ | 11,557,135 |  | $ | 12,331,574
|Finland      |  |                         | 13,551,371 |      |   | 12,017,867 |  |   | 2,067,010 
|Other Europe |  |                         | 8,743,923  |      |   | 8,075,080  |  |   | 927,238   
|             |  |                         |            |      |   |            |  |   |           
|Total        |  | $                       | 30,241,899 |      | $ | 31,650,082 |  | $ | 15,325,822
|             |  |                         |            |      |   |            |  |   |           

The following table summarizes the distribution of the Companys long lived assets by
geographical region as of December 31, 2008 and 2007.



|       |  |      |           |      |   |           
|------ |  | ---- | --------- | ---- | - | ----------
|       |  | 2008 |           | 2007
|U.S.   |  | $    | 881,666   |      | $ | 1,035,025 
|Europe |  |      | 5,430,049 |      |   | 19,851,715
|       |  |      |           |      |   |           
|Total  |  | $    | 6,311,715 |      | $ | 20,886,740
|       |  |      |           |      |   |           



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ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



|11. | CAPITAL AND OPERATING LEASE COMMITMENTS:
|--- | ----------------------------------------

In
October 2008, we entered into a financing agreement for application software to be used in our European operations. This financing agreement is being accounted for as a capital lease obligation. The present value of the capital lease obligation and
the corresponding asset value of the software acquired was $142 thousand. In August 2007, we entered into a lease agreement for several pieces of office equipment that is being accounted for as a capital lease obligation. This lease was recorded as
an asset and in general was for peripheral office equipment. The present value of the capital lease obligation and the corresponding asset value of the equipment acquired was $151 thousand. We did not enter into any capital lease obligations in
2006.

The amount of leased equipment accounted for as a capital lease at December 31, 2008 totaled $293 thousand with associated
accumulated amortization of $62 thousand.

Future minimum lease payments on capital lease obligations at December 31, 2008 are as
follows:



|                                        |  |   |         |  
|--------------------------------------- |  | - | ------- | -
|For the year ending December 31:        | 
|2009                                    |  | $ | 90,220  |  
|2010                                    |  |   | 90,220  |  
|2011                                    |  |   | 90,220  |  
|2012                                    |  |   | 26,838  |  
|                                        |  |   |         |  
|Total                                   |  |   | 297,498 |  
|Less amount representing interest       |  |   | (35,276 | )
|                                        |  |   |         |  
|Present value of capital lease payments |  | $ | 262,222 |  
|                                        |  |   |         |  

We are committed under a number of non-cancelable operating leases, primarily related to office
space and other office equipment. Total lease expense was $2.1 million for the year ended December 31, 2008, $2.2 million for the year ended December 31, 2007, and $1.1 million for the year ended December 31, 2006.

Future minimum lease payments on operating lease obligations at December 31, 2008, are as follows:



|                 |  |       |           |        |   |           |  |           |           |           |   |           |  |   |        
|---------------- |  | ----- | --------- | ------ | - | --------- |  | --------- | --------- | --------- | - | --------- |  | - | -------
|                 |  | Total |           | 1 Year |   | 2-3 Years |  | 4-5 Years |           | > 5 Years
|Operating leases |  | $     | 8,881,405 |        | $ | 2,257,698 |  | $         | 3,378,942 |           | $ | 2,508,052 |  | $ | 736,714
|                 |  |       |           |        |   |           |  |           |           |           |   |           |  |   |        



|12. | OTHER LIABILITIES
|--- | -----------------

As of January 1, 2003, the
Company increased by approximately 12,700 to 34,000 the amount of square feet under lease for its corporate office located in Wayne, Pennsylvania. The term of the lease was also extended to November 30, 2009 and monthly lease payments increased
from $50 thousand to $72 thousand. As an incentive for the Company to acquire the additional space, the lessor granted the Company $814 thousand in lease incentives that were used to pay for architectural fees, renovations and improvement costs for
the new space. The lease incentives were capitalized as if the Company incurred the costs to make the improvements and are included in Property and Equipment. These assets and the related liability are amortized over the remaining life of the lease
at a rate of approximately $116 thousand per year as an additional amortization expense and a reduction in rent expense, respectively. The accounting for these lease incentives has no impact on net income, stockholders equity or cash flow. In
October 2008, the Company extended the lease term to December 31, 2014 from November 30, 2009. The extension of the lease has no impact on the amount or period over which the assets are being amortized.



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##### Table of Contents

ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



|13. | QUARTERLY FINANCIAL DATA (UNAUDITED):
|--- | -------------------------------------



|                          |  |                       |            |   |        |   |            |        |  |   |            |   |  |       |             |   |  |   |             |  
|------------------------- |  | --------------------- | ---------- | - | ------ | - | ---------- | ------ |  | - | ---------- | - |  | ----- | ----------- | - |  | - | ----------- | -
|2008                      | 
|                          |  | For the Quarter Ended |           
|                          |  | 31-Mar                |            |   | 30-Jun |   |            | 30-Sep |  |   | 31-Dec     |   |  | Total |            
|Net Revenues              |  | $                     | 7,483,606  |   |        | $ | 8,262,478  |        |  | $ | 7,438,000  |   |  | $     | 7,057,805   |   |  | $ | 30,241,889  |  
|Loss From Operations      |  |                       | (2,174,213 | ) |        |   | (1,465,231 | )      |  |   | (3,904,692 | ) |  |       | 13,734,089  |   |  |   | (21,278,225 | )
|Net Loss                  |  | $                     | (2,007,380 | ) |        | $ | (1,445,451 | )      |  | $ | (3,881,352 | ) |  | $     | (13,739,293 | ) |  | $ | (21,073,476 | )
|                          |  |                       |            |   |       
|Net Loss Per Common Share |  |                       |            |   |        |   |            |        |  |   |            |   |  |       |             |   |  |   |             |  
|Basic                     |  | $                     | (0.10      | ) |        | $ | (0.07      | )      |  | $ | (0.19      | ) |  | $     | (0.66       | ) |  | $ | (1.02       | )
|Diluted                   |  | $                     | (0.10      | ) |        | $ | (0.07      | )      |  | $ | (0.19      | ) |  | $     | (0.66       | ) |  | $ | (1.02       | )



|                                   |  |                       |           |        |   |            |        |  |   |            |   |  |       |            |   |  |   |            |  
|---------------------------------- |  | --------------------- | --------- | ------ | - | ---------- | ------ |  | - | ---------- | - |  | ----- | ---------- | - |  | - | ---------- | -
|2007                               | 
|                                   |  | For the Quarter Ended |          
|                                   |  | 31-Mar                |           | 30-Jun |   |            | 30-Sep |  |   | 31-Dec     |   |  | Total |           
|Net Revenue                        |  | $                     | 8,811,346 |        | $ | 7,332,431  |        |  | $ | 7,187,322  |   |  | $     | 8,318,983  |   |  | $ | 31,650,082 |  
|Income (Loss) From Operations      |  |                       | 95,873    |        |   | (1,088,152 | )      |  |   | (1,527,486 | ) |  |       | (1,048,674 | ) |  |   | (3,568,439 | )
|Net Income (Loss)                  |  | $                     | 108,733   |        | $ | (846,990   | )      |  | $ | (1,281,007 | ) |  | $     | (732,163   | ) |  | $ | (2,751,427 | )
|                                   |  |                       |           |        |  
|Net Income (Loss) Per Common Share |  |                       |           |        |   |            |        |  |   |            |   |  |       |            |   |  |   |            |  
|Basic                              |  | $                     | 0.01      |        | $ | (0.04      | )      |  | $ | (0.06      | ) |  | $     | (0.04      | ) |  | $ | 0.14       | )
|Diluted                            |  | $                     | 0.01      |        | $ | (0.04      | )      |  | $ | (0.06      | ) |  | $     | (0.04      | ) |  | $ | (0.14      | )



|14. | COMMITMENTS AND CONTINGENCIES:
|--- | ------------------------------

In 2006, we entered
into an employment agreement with one of our officers that calls for specified minimum annual compensation of $275,000 per year over a three-year period and includes provisions for continuation of salary upon termination as defined in the agreement.
This agreement will expire on November 1, 2009. In November 2007, we entered into an employment agreement with another officer that calls for specific minimum annual compensation of $275,000 per year, and includes a provision for continuation
of salary as defined in that agreement. In December 2008, we entered into an employment agreement with another one of our officers that calls for specified minimum annual compensation of $316,000 per year over a three-year period and includes
provisions for continuation of salary upon termination as defined in the agreement.

The contract research organization industry is subject
to legislation and regulations that are revised or amended on an on-going basis. The impact of complying with such legislation and regulations could materially affect our business.

As set forth in the table below, the Company is obligated under outsourcing agreements related to certain aspects of its support functions, which are
reflected as purchase obligations in the table below. Actual amounts paid under these outsourcing agreements could be higher or lower than the amounts shown below as a result of changes in volume and other variables.



|                        |  |                        |         |        |   |           |  |           |   |          |   |   |  |   |  
|----------------------- |  | ---------------------- | ------- | ------ | - | --------- |  | --------- | - | -------- | - | - |  | - | -
|                        |  | Payments due by period
|Contractual Obligations |  | Total                  |         | 1 Year |   | 2-3 Years |  | 4-5 Years |   | >5 years
|Service Agreements      |  | $                      | 596,904 |        | $ | 596,904   |  | $         |  |          | $ |  |  | $ | 



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##### Table of Contents

ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



|15. | ACQUISITION OF REMEDIUM OY
|--- | --------------------------

On November 1,
2006, Encorium Group, Inc. acquired Remedium Oy, a corporation organized under the laws of Finland (Remedium), in which the Company purchased all of the issued and outstanding shares of capital stock of Remedium (the Shares)
pursuant to the Combination Agreement dated July 6, 2006 (the Amended Agreement). The consideration paid at closing to Remediums stockholders (the Stockholders) for the Shares consisted of (i) shares of Common
Stock of the Company with a value of $11 million; and (ii) $2.5 million in cash. An additional cash payment of $1.5 million was paid to the Stockholders on March 30, 2007. The Company issued to the Stockholders additional shares
of Common Stock of the Company with a value of $2 million on November 1, 2007, the anniversary of the closing. The Company also issued additional Earn-Out Shares of its Common Stock with a value of $2 million on April 10, 2007.
The value of the Earn-Out Shares was based on the attainment of certain consolidated net revenue targets by Remedium for the year ended December 31, 2006, as described in the Amended Agreement. The Company incurred approximately
$2.26 million of acquisition related costs as of December 31, 2006, and additional acquisition related costs of $15,760 during 2007. All of the costs associated with the acquisition of Remedium were paid by December 31, 2007. The following
summarizes the cost incurred by the Company in connection with the acquisition:



|                                             |  |   |           
|-------------------------------------------- |  | - | ----------
|Cash payments to Remedium Shareholders       |  | $ | 4,000,000 
|Common Stock issued to Remedium Shareholders |  |   | 15,000,000
|Other acquisition cost                       |  |   | 2,274,060 
|                                             |  |   |           
|Total Acquisition Costs                      |  | $ | 21,274,060
|                                             |  |   |           

The acquisition of Remedium Oy was accounted for as a purchase in accordance with SFAS
No. 141, Business Combinations, and accordingly, the purchase price of $21,274,060 (referenced above) was allocated based on the estimated fair market values of the assets and liabilities acquired. The following table
summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:



|                                                                                   |  |   |           
|---------------------------------------------------------------------------------- |  | - | ----------
|Assets:                                                                            |  |   |           
|Cash and cash equivalents                                                          |  | $ | 1,211,618 
|Accounts Receivable                                                                |  |   | 2,079,409 
|Cost and estimated earnings in excess of related billings on uncompleted contracts |  |   | 43,956    
|Property and equipment                                                             |  |   | 272,304   
|Other assets                                                                       |  |   | 1,059,983 
|Intangible assets                                                                  |  |   | 6,529,711 
|Goodwill                                                                           |  |   | 15,388,299
|                                                                                   |  |   |           
|Total Assets Acquired                                                              |  |   | 26,585,280
|                                                                                   |  |   |           
|Less:                                                                              |  |   |           
|Liabilities Assumed:                                                               |  |   |           
|Accounts Payable                                                                   |  |   | 570,809   
|Accrued Expenses                                                                   |  |   | 2,556,881 
|Billings and estimated earnings in excess of related cost on uncompleted contracts |  |   | 254,192   
|Deferred tax liability                                                             |  |   | 1,697,724 
|Other liabilities                                                                  |  |   | 231,614   
|                                                                                   |  |   |           
|Total Liabilities Assumed                                                          |  |   | 5,311,220 
|                                                                                   |  |   |           
|Net Assets Acquired                                                                |  | $ | 21,274,060
|                                                                                   |  |   |           



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##### Table of Contents

ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



Unaudited pro forma results of operations resulting from the acquisition of Remedium Oy would have
been as follows for the years ended December 31, 2006 as if the business combination had occurred January 1, 2006.



|                                    |  |             |            |  
|----------------------------------- |  | ----------- | ---------- | -
|                                    |  | 2006        |           
|                                    |  | (Unaudited) |           
|Net Revenue(1)                      |  | $           | 25,261,805 |  
|Net Loss                            |  |             | (3,235,446 | )
|Earnings (loss) per share  basic   |  | $           | (0.18      | )
|Earnings (loss) per share  diluted |  | $           | (0.18      | )



| | (1) | Excludes reimbursement revenue
| | --- | ------------------------------



|16. | GOODWILL AND OTHER INTANGIBLES
|--- | ------------------------------

The Company
followed the provisions of SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, applicable to business combinations. The amount of Goodwill that resulted from
the Remedium acquisition, including deferred taxes of $1,697,724, was $15,388,299. In accordance with SFAS No. 141 Business Combinations, the amount of goodwill resulting from the Remedium acquisition was determined as the
excess of cost over the fair values of acquired net assets. In accordance with these standards, goodwill acquired in connection with the acquisition of Remedium was not amortized. Pursuant to SFAS No. 142, Management of the Company must make an
assessment of goodwill impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If carrying value exceeds current fair value, then goodwill is considered impaired and is
reduced to fair value via a charge to earnings. Management made an assessment of Remediums fair value as November 1, 2007, one year from the acquisition date, in order to determine whether the amount of goodwill and related intangible
assets acquired had been impaired. As of November 1, 2007, management determined that both goodwill and intangible assets acquired in connection with the acquisition of Remedium were not impaired and that no adjustment to the carrying values
was necessary as of that date.

Due to changes in key personnel, adverse market conditions and a significant decrease in the Companys
market capital during the third quarter of 2008, the Company made an interim assessment of Remediums fair value as of September 30, 2008 to determine whether the amount of goodwill and the identifiable intangibles acquired in connection
with the acquisition of Remedium were impaired. The test for impairment involves a two step process. The first step of impairment testing involves a comparison of the fair value of the reporting unit, in this case Remedium, with its aggregate
carrying value, including goodwill and identifiable intangible assets. We determined the fair value of Remedium using a combination of the income approach methodology of valuation, which includes the discounted cash flow method, and the relative
market value approach methodology. The relative market value approach methodology includes the comparison of revenue and income multiples of comparable companies within the industry that the Company operates. If the carrying amount of Remedium
exceeds its fair value, we perform the second step of the impairment test to determine the amount of the impairment loss. The second step of the impairment test involves comparing the implied fair value of Remediums goodwill and identifiable
intangibles with the respective carrying values. As of September 30, 2008, Management was able to complete the first step of the impairment testing, and estimated that the amount of goodwill acquired in connection with the acquisition of
Remedium was impaired, necessitating a non-cash impairment charge of $1.86 million in the third quarter of 2008 and reducing the carrying value of goodwill. Management updated its step one analysis and completed the second step of the impairment
analysis in accordance with SFAS No. 142 as of November 1, 2008 and, due to the continued deterioration of the underlying comparable companies within the CRO industry as it relates to the market value approach methodology, has determined
that an additional non-cash impairment charge of $12.50 million is to be recorded in the fourth quarter of 2008.



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##### Table of Contents

ENCORIUM GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



The Company also acquired $6.5 million of unidentifiable intangible assets in connection with the
Remedium acquisition. Of the $6.5 million of acquired intangible assets, $3.9 million was attributed to customer relationships, $2.6 million was attributable to backlog and $53 thousand was attributable to a non-compete agreement. All of these
intangibles are subject to amortization on a straight-line basis. The estimated useful lives for customer relationships, backlog and non-compete agreement are 16 years, 18 months and 4 years, respectively. Amortization expense for the years ended
December 31, 2008 and 2007 was $1.1 million and $2 million, respectively. As of December 31, 2008, estimated amortization of intangibles for the five fiscal years subsequent to December 31, 2008 is as follows:



|     |  |        
|---- |  | -------
|2009 |  | 282,733
|2010 |  | 260,266
|2011 |  | 267,931
|2012 |  | 267,931
|2013 |  | 267,931

The following table summarizes the changes in the Companys goodwill for the years ended
December 31, 2006, 2007 and 2008:



|                                                         |  |   |             |  
|-------------------------------------------------------- |  | - | ----------- | -
|Purchase goodwill related to the Remedium Oy Acquisition |  | $ | 15,372,540  |  
|Goodwill at December 31, 2006                            |  |   | 15,372,540  |  
|Additional purchase consideration                        |  |   | 15,759      |  
|                                                         |  |   |             |  
|Goodwill at December 31, 2007                            |  | $ | 15,388,299  |  
|                                                         |  |   |             |  
|Impairment of goodwill                                   |  |   | (14,391,992 | )
|                                                         |  |   |             |  
|Translation adjustment                                   |  |   | 369,962     |  
|                                                         |  |   |             |  
|Goodwill at December 31, 2008                            |  | $ | 1,366,269   |  
|                                                         |  |   |             |  



|17. | COMMON STOCK AND WARRANTS
|--- | -------------------------

In May 2007, the Company
sold 1,748,252 shares of its common stock, $0.001 par value in a private placement (the Offering) at a price of $2.86 per share and warrants to purchase an aggregate of 874,126 shares of the Companys common stock, $0.001 par value,
at an exercise price of $4.12 per share for a period of five years commencing six months from the date of issuance. The Offering resulted in aggregate gross proceeds to the Company of $5 million before deducting commissions, fees and expenses. The
net proceeds of the transaction are expected to be used to fund organic expansion and, as opportunities arise, for complementary acquisitions, as well as for general corporate purposes and working capital.



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##### Table of Contents

ENCORIUM GROUP, INC

SIGNATURES

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



ENCORIUM GROUP, INC.


|                      |  |  |  | 
|--------------------- |  |  |  | 
|Dated: April 24, 2009 |  |  |  | 

By:

/s/ Dr. David Ginsberg, D.O.Dr. David Ginsberg, D.O. President and Chief Executive Officer


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

Dated: April 24, 2009



By:

/s/ Dr. David Ginsberg, D.O.Dr. David Ginsberg, D.O., President and Chief Executive Officer (Principal Executive Officer)


Dated: April 24, 2009



By:

/s/ Philip L. CalamiaPhilip L. Calamia Interim Chief Financial Officer (Principal Accounting Officer)


Dated: April 24, 2009



By:

/s/ Dr. Kai Lindevall, M.D., Ph.DDr. Kai Lindevall, M.D., Ph.D. Executive Chairman and President, Europe and Asia


Dated: April 24, 2009



By:

/s/ David MorraDavid Morra Director


Dated: April 24, 2009



By

/s/ Petri ManninenPetri Manninen Director


Dated: April 24, 2009



By:

/s/ Jyrki MattilaJyrki Mattila Director


Dated: April 24, 2009



By:

/s/ Shahab FatheazamShahab Fatheazam Director




S-1



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##### Table of Contents

Schedule II

ENCORIUM GROUP, INC.

FINANCIAL STATEMENT SCHEDULE

VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS)



|                                                             |  |                              |    |                                      |   |            |  |                        |   |  |   |   
|------------------------------------------------------------ |  | ---------------------------- | -- | ------------------------------------ | - | ---------- |  | ---------------------- | - |  | - | --
|DESCRIPTION                                                  |  | BALANCE ATBEGINNINGOF PERIOD |    | ADDITIONSCHARGED TOCOSTS ANDEXPENSES |   | DEDUCTIONS |  | BALANCEAT ENDOF PERIOD
|YEAR ENDED DECEMBER 31, 2008 Allowance for doubtful accounts |  | $                            | 97 |                                      | $ |           |  | $                      |  |  | $ | 97
|                                                             |  |                              |    |                                     
|YEAR ENDED DECEMBER 31, 2007 Allowance for doubtful accounts |  | $                            | 97 |                                      | $ |           |  | $                      |  |  | $ | 97
|                                                             |  |                              |    |                                     
|YEAR ENDED DECEMBER 31, 2006 Allowance for doubtful accounts |  | $                            | 35 |                                      | $ | 62         |  | $                      |  |  | $ | 97

Schedule II



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##### Table of Contents

ENCORIUM GROUP, INC

EXHIBIT INDEX



|        |  |                                                                                                                                                             
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                 
|10.24   |  | Lease between Encorium Oy and Mutual Pension Insurance Company Etera effective October 1, 2008.                                                             
|        | 
|10.25   |  | Letter Agreement with Linda Nardone dated November 12, 2007.                                                                                                
|        | 
|21      |  | Subsidiaries of the Registrant.                                                                                                                             
|        | 
|23      |  | Consent of Deloitte & Touche LLP.                                                                                                                           
|        | 
|31.1    |  | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|        | 
|31.2    |  | Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|        | 
|32.1    |  | Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                           
|        | 
|32.2    |  | Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.