##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the quarterly period ended
June 30, 2002

INVERESK RESEARCH GROUP, INC.
(Exact name of registrant as specified in its charter)

|                                                                                   |  |                                                
|---------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization)            |  | 43-1955097
(I.R.S. Employer Identification No.)
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |  |                                                
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|11000 Weston Parkway, Suite 100, Cary, NC
(Address of principal executive offices) |  | 27513
(Zip Code)                               

919 460-9005
(Registrants telephone number, including area code)

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 (Box)   No (XBox)

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

|                                        |  |  |            | 
|--------------------------------------- |  |  | ---------- | 
|Common stock, par value $0.01 per share |  |  | 35,770,595 | 



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TABLE OF CONTENTS



|                             |                                                                                               |                                                 |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)                                                     
|                             |                                                                                               | Consolidated Statements of Operations          
|                             |                                                                                               | Consolidated Balance Sheets                    
|                             |                                                                                               | Consolidated Statements of Cash Flows          
|                             |                                                                                               | Consolidated Statements of Shareholders Equity
|                             |                                                                                               | Notes to Consolidated Financial Statements     
|                             | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                             | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II OTHER INFORMATION   



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##### Table of Contents



TABLE OF CONTENTS

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|PART I  | FINANCIAL INFORMATION |                                                                                       |  | 1                                               |   
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|        | ITEM 1.               | FINANCIAL STATEMENTS (UNAUDITED)                                                      |  |                                                 | 1  |     
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|        |                       |                                                                                       |  | Consolidated Statements of Operations           |    |      | 1 | 
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|        |                       |                                                                                       |  | Consolidated Balance Sheets                     |    |      | 2 | 
|       
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|       
|        |                       |                                                                                       |  | Consolidated Statements of Cash Flows           |    |      | 3 | 
|       
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|       
|        |                       |                                                                                       |  | Consolidated Statements of Shareholders Equity |    |      | 4 | 
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|        |                       |                                                                                       |  | Notes to Consolidated Financial Statements      |    |      | 5 | 
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|        | ITEM 2.               | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |  |                                                 | 14 |     
|       
|       
|       
|       
|        | ITEM 3.               | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK                            |  |                                                 | 24 |     
|       
|       
|       
|       
|PART II | OTHER INFORMATION     |                                                                                       |  | 25                                              |   

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##### Table of Contents






PART I FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)




Inveresk Research Group, Inc.

Consolidated Statements of Operations (unaudited)
(In thousands, except per share data)

|                                                                                |                                               |                                                                                   |         |                |         |                |        |                |         |                |         |            |         |   |        |            |         |  
|------------------------------------------------------------------------------- | --------------------------------------------- | --------------------------------------------------------------------------------- | ------- | -------------- | ------- | -------------- | ------ | -------------- | ------- | -------------- | ------- | ---------- | ------- | - | ------ | ---------- | ------- | -
|                                                                                |                                               |                                                                                   |         | 13 weeks ended |         | 13 weeks ended |        | 26 weeks ended |         | 25 weeks ended
|                                                                                |                                               |                                                                                   |         | June 30, 2002  |         | June 24, 2001  |        | June 30, 2002  |         | June 24, 2001 
|                                                                                |                                               |                                                                                   |         |                |         |                |        |                |         |               
|Net service revenue                                                             |                                               | $                                                                                 | 55,549  |                |         | $              | 46,206 |                |         | $              | 108,712 |            |         | $ | 62,180 |           
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Direct costs                                  |                                                                                   |         | (26,571        | )       |                |        | (26,297        | )       |                |         | (54,197    | )       |   |        | (35,213    | )      
|                                                                                |                                               |                                                                                   |         |                |         |                |        |                |         |                |         |            |         |   |        |           
|Gross profit                                                                    |                                               |                                                                                   | 28,978  |                |         |                | 19,909 |                |         |                | 54,515  |            |         |   | 26,967 |           
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Selling, general and administrative expenses: |                                                                                   |         |                |         |                |        |                |         |                |         |            |         |   |        |            |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                                               | Compensation expense in respect of
share options and management equity
incentives |         |                | (48,475 | )              |        |                |        |                |         |            | (53,020 | ) |        |            |        |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                                               | Stamp duty arising on change of
ultimate parent company                           |         |                | (1,545  | )              |        |                |        |                |         |            | (1,545  | ) |        |            |        |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                                               | Other selling, general and
administrative expenses                                |         |                | (14,360 | )              |        |                | (13,042 | )              |         |            | (27,774 | ) |        |            | (16,906 | )
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Depreciation                                  |                                                                                   |         | (2,475         | )       |                |        | (2,418         | )       |                |         | (4,821     | )       |   |        | (3,359     | )      
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Amortization of goodwill and intangibles      |                                                                                   |         |               |         |                |        | (2,367         | )       |                |         |           |         |   |        | (3,155     | )      
|                                                                                |                                               |                                                                                   |         |                |         |                |        |                |         |                |         |            |         |   |        |           
|Income (loss) from operations                                                   |                                               |                                                                                   | (37,877 | )              |         |                | 2,082  |                |         |                | (32,645 | )          |         |   | 3,547  |           
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Interest income                               |                                                                                   |         | 119            |         |                |        | 198            |         |                |         | 200        |         |   |        | 302        |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Interest expense                              |                                                                                   |         | (5,120         | )       |                |        | (4,340         | )       |                |         | (9,217     | )       |   |        | (6,029     | )      
|                                                                                |                                               |                                                                                   |         |                |         |                |        |                |         |                |         |            |         |   |        |           
|Profit (loss) before income taxes                                               |                                               |                                                                                   | (42,878 | )              |         |                | (2,060 | )              |         |                | (41,662 | )          |         |   | (2,180 | )         
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Provision for income taxes                                                      |                                               |                                                                                   | (1,459  | )              |         |                | (738   | )              |         |                | (3,089  | )          |         |   | (810   | )         
|                                                                                |                                               |                                                                                   |         |                |         |                |        |                |         |                |         |            |         |   |        |           
|Net income (loss) before extraordinary item                                     |                                               |                                                                                   | (44,337 | )              |         |                | (2,798 | )              |         |                | (44,751 | )          |         |   | (2,990 | )         
|                                                                                |                                               |                                                                                   |         |                |         |                |        |                |         |                |         |            |         |   |        |           
|Extraordinary item                                                              |                                               |                                                                                   |        |                |         |                | (419   | )              |         |                |        |            |         |   | (419   | )         
|                                                                                |                                               |                                                                                   |         |                |         |                |        |                |         |                |         |            |         |   |        |           
|Net income (loss)                                                               |                                               | $                                                                                 | (44,337 | )              |         | $              | (3,217 | )              |         | $              | (44,751 | )          |         | $ | (3,409 | )         
|                                                                                |                                               |                                                                                   |         |                |         |                |        |                |         |                |         |            |         |   |        |           
|Earnings (loss) per share pre extraordinary item:                               |                                               |                                                                                   |         |                |         |                |        |                |         |                |         |            |         |   |        |           
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Basic                                         |                                                                                   | $       | (1.87          | )       |                | $      | (0.12          | )       |                | $       | (1.89      | )       |   | $      | (0.15      | )      
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Diluted                                       |                                                                                   | $       | (1.87          | )       |                | $      | (0.12          | )       |                | $       | (1.89      | )       |   | $      | (0.15      | )      
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Earnings (loss) per share post extraordinary item:                              |                                               |                                                                                   |         |                |         |                |        |                |         |                |         |            |         |   |        |           
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Basic                                         |                                                                                   | $       | (1.87          | )       |                | $      | (0.14          | )       |                | $       | (1.89      | )       |   | $      | (0.18      | )      
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Diluted                                       |                                                                                   | $       | (1.87          | )       |                | $      | (0.14          | )       |                | $       | (1.89      | )       |   | $      | (0.18      | )      
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Number of shares and common stock equivalents
used in computing loss per share: |                                               |                                                                                   |         |                |         |                |        |                |         |                |         |            |         |   |        |           
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Basic                                         |                                                                                   |         | 23,770,595     |         |                |        | 22,626,740     |         |                |         | 23,628,125 |         |   |        | 19,351,692 |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Diluted                                       |                                                                                   |         | 23,770,595     |         |                |        | 22,626,740     |         |                |         | 23,628,125 |         |   |        | 19,351,692 |        

See accompanying notes to consolidated financial statements.

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##### Table of Contents






Inveresk Research Group, Inc.

Consolidated Balance Sheets
(In thousands)

|                                                                                                                                                                |                                        |   |               |         |              |   |         |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | - | ------------- | ------- | ------------ | - | ------- | ------- | -
|                                                                                                                                                                |                                        |   | June 30, 2002 |         | December 30,
|                                                                                                                                                                |                                        |   | (unaudited)   |         | 2001        
|                                                                                                                                                                |                                        |   |               |         |             
|ASSETS                                                                                                                                                          |                                        |   |               |         |              |   |         |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Current assets:                                                                                                                                                 |                                        |   |               |         |              |   |         |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Cash and cash equivalents              |   | $             | 17,309  |              |   | $       | 16,118  |  
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Accounts receivable                    |   |               | 35,323  |              |   |         | 32,646  |  
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Unbilled receivables                   |   |               | 22,354  |              |   |         | 19,999  |  
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Income taxes receivable                |   |               | 3,721   |              |   |         | 4,335   |  
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Inventories                            |   |               | 1,903   |              |   |         | 2,173   |  
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Other current assets                   |   |               | 10,303  |              |   |         | 2,164   |  
|                                                                                                                                                                |                                        |   |               |         |              |   |         |        
|Total current assets                                                                                                                                            |                                        |   | 90,913        |         |              |   | 77,435  |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Property, plant and equipment                                                                                                                                   |                                        |   | 99,330        |         |              |   | 87,922  |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Intangible assets                                                                                                                                               |                                        |   | 132,195       |         |              |   | 134,517 |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Deferred debt issue costs                                                                                                                                       |                                        |   | 1,882         |         |              |   | 1,952   |        
|                                                                                                                                                                |                                        |   |               |         |              |   |         |        
|                                                                                                                                                                |                                        | $ | 324,320       |         |              | $ | 301,826 |        
|                                                                                                                                                                |                                        |   |               |         |              |   |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                            |                                        |   |               |         |              |   |         |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Current liabilities:                                                                                                                                            |                                        |   |               |         |              |   |         |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Accounts payable                       |   | $             | 8,671   |              |   | $       | 10,118  |  
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Advance billings                       |   |               | 33,656  |              |   |         | 30,380  |  
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Accrued expenses                       |   |               | 28,656  |              |   |         | 21,520  |  
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Income taxes payable                   |   |               | 4,264   |              |   |         | 2,103   |  
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Deferred income taxes                  |   |               | 645     |              |   |         | 559     |  
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Current portion of long term debt      |   |               | 222,886 |              |   |         | 127,648 |  
|                                                                                                                                                                |                                        |   |               |         |              |   |         |        
|Total current liabilities                                                                                                                                       |                                        |   | 298,778       |         |              |   | 192,328 |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Deferred income taxes                                                                                                                                           |                                        |   | 21,484        |         |              |   | 27,053  |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Long term debt                                                                                                                                                  |                                        |   | 221           |         |              |   | 85,109  |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Defined benefit pension scheme obligation                                                                                                                       |                                        |   | 5,215         |         |              |   | 4,721   |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Commitments and contingencies                                                                                                                                   |                                        |   |              |         |              |   |        |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Shareholders equity                                                                                                                                            |                                        |   |               |         |              |   |         |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Preferred shares of common stock, $0.01 par value 10,000,000 authorized, none issued                                                                            |                                        |   |              |         |              |   |        |        
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Ordinary shares of common stock, $0.01 par value 150,000,000 authorized; issued and
fully-paid 23,770,595 and 23,469,088 at June 30, 2002 and December 30, 2001 |                                        |   | 238           |         |              |   | 235     |        
|                                                                                                                                                                |                                        |   |               |         |              |   |         |        
|                                                                                                                                                                | Total common stock                     |   |               | 238     |              |   |         | 235     |  
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Additional paid-in capital             |   |               | 54,113  |              |   |         | 1,118   |  
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Accumulated deficit                    |   |               | (50,535 | )            |   |         | (5,784  | )
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                                | Accumulated other comprehensive income |   |               | (5,194  | )            |   |         | (2,954  | )
|                                                                                                                                                                |                                        |   |               |         |              |   |         |        
|Total shareholders equity                                                                                                                                      |                                        |   | (1,378        | )       |              |   | (7,385  | )      
|                                                                                                                                                                |                                        |   |               |         |              |   |         |        
|                                                                                                                                                                |                                        | $ | 324,320       |         |              | $ | 301,826 |        
|                                                                                                                                                                |                                        |   |               |         |              |   |         |        

See accompanying notes to consolidated financial statements.

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##### Table of Contents






Inveresk Research Group, Inc.

Consolidated Statements of Cash Flows (unaudited)
(In thousands)

|                                                                                                         |                                       |   |                |        |                |   |          |        |  
|-------------------------------------------------------------------------------------------------------- | ------------------------------------- | - | -------------- | ------ | -------------- | - | -------- | ------ | -
|                                                                                                         |                                       |   | 26 weeks ended |        | 25 weeks ended
|                                                                                                         |                                       |   | June 30, 2002  |        | June 24, 2001 
|                                                                                                         |                                       |   |                |        |               
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                     |                                       |   |                |        |                |   |          |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Net income (loss)                                                                                        |                                       | $ | (44,751        | )      |                | $ | (3,409   | )     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:                 |                                       |   |                |        |                |   |          |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Non-cash compensation expense in respect of exercise of share options and management
equity incentives   |                                       |   | 52,934         |        |                |   |         |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Depreciation of property, plant and equipment                                                            |                                       |   | 4,821          |        |                |   | 3,359    |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Amortization of goodwill and intangible assets                                                           |                                       |   |               |        |                |   | 3,155    |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Deferred pension obligations                                                                             |                                       |   | 272            |        |                |   | 64       |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Deferred income taxes                                                                                    |                                       |   | 422            |        |                |   | 255      |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Amortization of deferred loan issue costs                                                                |                                       |   | 140            |        |                |   | 781      |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Interest on 10% unsecured subordinated loan stock due 2008, not payable until the loan
stock is redeemed |                                       |   | 5,889          |        |                |   | 3,337    |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Changes in operating assets and liabilities:                                                             |                                       |   |                |        |                |   |          |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Accounts receivable                   |   |                | (5,032 | )              |   |          | (6,390 | )
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Advance billings                      |   |                | 3,276  |                |   |          | 1,938  |  
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Inventories                           |   |                | 270    |                |   |          | (107   | )
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Accounts payable and accrued expenses |   |                | 5,689  |                |   |          | 3,133  |  
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Income taxes                          |   |                | 2,775  |                |   |          | (816   | )
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Other assets and liabilities          |   |                | (8,139 | )              |   |          | (1,400 | )
|                                                                                                         |                                       |   |                |        |                |   |          |       
|Net cash provided by operating activities                                                                |                                       |   | 18,566         |        |                |   | 3,900    |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                     |                                       |   |                |        |                |   |          |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Purchase of ClinTrials Research Inc. net of cash acquired of $5,700                                      |                                       |   |               |        |                |   | (115,147 | )     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Purchases of property, plant and equipment                                                               |                                       |   | (12,813        | )      |                |   | (2,310   | )     
|                                                                                                         |                                       |   |                |        |                |   |          |       
|Net cash used in investing activities                                                                    |                                       |   | (12,813        | )      |                |   | (117,457 | )     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                     |                                       |   |                |        |                |   |          |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Issue of common stock                                                                                    |                                       |   | 64             |        |                |   | 388      |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Repayments of short-term borrowings                                                                      |                                       |   | (3,661         | )      |                |   | (3,038   | )     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Proceeds from long-term borrowings, net of issue costs                                                   |                                       |   |               |        |                |   | 156,440  |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Repayments of long-term debt                                                                             |                                       |   |               |        |                |   | (38,311  | )     
|                                                                                                         |                                       |   |                |        |                |   |          |       
|Net cash provided (used) by financing activities                                                         |                                       |   | (3,597         | )      |                |   | 115,479  |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Effect on foreign currency exchange rate changes on cash                                                 |                                       |   | (965           | )      |                |   | (4,754   | )     
|                                                                                                         |                                       |   |                |        |                |   |          |       
|Increase (decrease) in cash and cash equivalents                                                         |                                       |   | 1,191          |        |                |   | (2,832   | )     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Cash and cash equivalents at beginning of period                                                         |                                       |   | 16,118         |        |                |   | 9,686    |       
|                                                                                                         |                                       |   |                |        |                |   |          |       
|Cash and cash equivalents at end of period                                                               |                                       | $ | 17,309         |        |                | $ | 6,854    |       
|                                                                                                         |                                       |   |                |        |                |   |          |       

See accompanying notes to consolidated financial statements.

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##### Table of Contents






Inveresk Research Group, Inc.

Consolidated Statements of Shareholders Equity (Unaudited)
(In thousands)

|                                                                                  |                                                                       |   |         |         |        |  |            |   |          |   |          |   |               |   |               |   |       |   |          |         |             |   |        |        |  
|--------------------------------------------------------------------------------- | --------------------------------------------------------------------- | - | ------- | ------- | ------ |  | ---------- | - | -------- | - | -------- | - | ------------- | - | ------------- | - | ----- | - | -------- | ------- | ----------- | - | ------ | ------ | -
|                                                                                  |                                                                       |   |         |         |        |  |            |   |          |   |          |   |               |   |               |   |       |   | Retained |         | Accumulated
|                                                                                  |                                                                       |   |         |         |        |  | Number of  |   |          |   |          |   | Additional    |   | Earnings      |   | Other
|                                                                                  |                                                                       |   |         |         |        |  | Ordinary   |   | Ordinary |   | Paid-in  |   | (Accumulated  |   | Comprehensive
|                                                                                  |                                                                       |   | Total   |         | Shares |  | Shares     |   | Capital  |   | Deficit) |   | Income (Loss)
|                                                                                  |                                                                       |   |         |         |        |  |            |   |          |   |          |   |              
|Balance at December 30, 2001                                                      |                                                                       | $ | (7,385  | )       |        |  | 23,469,088 |   |          | $ | 235      |   |               | $ | 1,118         |   |       | $ | (5,784   | )       |             | $ | (2,954 | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Issue of common stock                                                             |                                                                       |   | 64      |         |        |  | 301,507    |   |          |   | 3        |   |               |   | 61            |   |       |   |         |         |             |   |       |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Compensation expense in respect of
share options and management equity
incentives |                                                                       |   | 52,934  |         |        |  |           |   |          |   |         |   |               |   | 52,934        |   |       |   |         |         |             |   |       |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Comprehensive income (loss):                                                      |                                                                       |   |         |         |        |  |            |   |          |   |          |   |               |   |               |   |       |   |          |         |             |   |        |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Foreign currency translation
adjustments                              |   |         | (2,240  | )      |  |            |  |          |   |          |  |               |   |               |  |       |   |          |        |             |   |        | (2,240 | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Net income (loss) for period to June 30,
2002                         |   |         | (44,751 | )      |  |            |  |          |   |          |  |               |   |               |  |       |   |          | (44,751 | )           |   |        |       |  
|                                                                                  |                                                                       |   |         |         |        |  |            |   |          |   |          |   |               |   |               |   |       |   |          |         |             |   |        |       
|Comprehensive (loss)                                                              |                                                                       |   | (46,991 | )       |        |  |            |   |          |   |          |   |               |   |               |   |       |   |          |         |             |   |        |       
|                                                                                  |                                                                       |   |         |         |        |  |            |   |          |   |          |   |               |   |               |   |       |   |          |         |             |   |        |       
|                                                                                  |                                                                       |   | (1,378  | )       |        |  | 23,770,595 |   |          |   | 238      |   |               |   | 54,113        |   |       |   | (50,535  | )       |             |   | (5,194 | )     
|                                                                                  |                                                                       |   |         |         |        |  |            |   |          |   |          |   |               |   |               |   |       |   |          |         |             |   |        |       
|Balance at December 31, 2000                                                      |                                                                       | $ | 247     |         |        |  | 15,803,724 |   |          | $ | 158      |   |               | $ | 807           |   |       | $ | (664     | )       |             | $ | (54    | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Issue of common stock                                                             |                                                                       |   | 388     |         |        |  | 7,665,364  |   |          |   | 77       |   |               |   | 311           |   |       |   |         |         |             |   |       |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Comprehensive income (loss):                                                      |                                                                       |   |         |         |        |  |            |   |          |   |          |   |               |   |               |   |       |   |          |         |             |   |        |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Foreign currency translation
adjustments                              |   |         | 155     |        |  |            |   |          |   |          |  |               |   |               |  |       |   |          |        |             |   |        | 155    |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Cumulative-effect adjustment for
FAS 133 (net of income taxes of $58) |   |         | (135    | )      |  |            |   |          |   |          |  |               |   |               |  |       |   |          |        |             |   |        | (135   | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Net income (loss) for period to
June 24, 2001                         |   |         | (3,409  | )      |  |            |   |          |   |          |  |               |   |               |  |       |   |          | (3,409  | )           |   |        |       |  
|                                                                                  |                                                                       |   |         |         |        |  |            |   |          |   |          |   |               |   |               |   |       |   |          |         |             |   |        |       
|Comprehensive (loss)                                                              |                                                                       |   | (3,389  | )       |        |  |            |   |          |   |          |   |               |   |               |   |       |   |          |         |             |   |        |       
|                                                                                  |                                                                       |   |         |         |        |  |            |   |          |   |          |   |               |   |               |   |       |   |          |         |             |   |        |       
|                                                                                  |                                                                       | $ | (2,754  | )       |        |  | 23,469,088 |   |          | $ | 235      |   |               | $ | 1,118         |   |       | $ | (4,073   | )       |             | $ | (34    | )     
|                                                                                  |                                                                       |   |         |         |        |  |            |   |          |   |          |   |               |   |               |   |       |   |          |         |             |   |        |       

See accompanying notes to consolidated financial statements.

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##### Table of Contents






Inveresk Research Group, Inc.

Notes to Consolidated Financial Statements
(dollars in thousands)

In this discussion, the terms the Group, the Company, we, us and our
refer to Inveresk Research Group, Inc. and its subsidiaries, except where it is
made clear that we mean only a particular company.



|1. |  | Basis of Presentation
|-- |  | ---------------------

The accompanying consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. In
accordance with those rules and regulations, they do not include all of the
information and footnotes required by U.S. generally accepted accounting
principles (GAAP) for complete financial statements.

In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) considered necessary to present fairly the financial position,
results of operations and cash flows for the interim periods presented. The
financial statements should be read in conjunction with our audited
consolidated financial statements at and for the year ended December 30, 2001.
The results of operations for the 13-week and 26-week periods ended June 30,
2002 are not necessarily indicative of the results of operations that may be
expected for the year ending December 31, 2002.

In 2001 the Groups fiscal quarters ended on the last Sunday of each quarter.
In 2002 our fiscal quarters end on the last calendar day of each quarter. In
2002 the second quarter contained 13 weeks and ended on June 30, 2002. The
first quarter contained 13 weeks and ended on March 31, 2002. In 2001 the
second quarter contained 13 weeks and ended on June 24, 2001. The first
quarter contained 12 weeks and ended on March 25, 2001.

On June 25, 2002 the Group changed its ultimate parent company from a company
organized in Scotland to a corporation organized in Delaware. This was
accomplished through a share exchange transaction in which all the shareholders
of Inveresk Research Group Limited (our former ultimate parent company)
exchanged their shares for shares of common stock of Inveresk Research Group,
Inc. (our new ultimate parent company). With the exception of the incurrence
of stamp duty charges of $1.545 million, this transaction had no impact on the
consolidated assets or liabilities of the Group. The accompanying financial
statements have been prepared as if the change of ultimate parent company had
taken place prior to the periods presented. Accordingly, the shareholders
equity and earnings per share at the dates and for periods before June 25, 2002
are presented on the basis of the capital structure of Inveresk Research Group,
Inc., calculated by multiplying the numbers of shares of Inveresk Research Group
Limited outstanding at the dates and for the periods presented by the weighted
average exchange ratio used in the share exchange transaction.



|2. |  | Initial Public Offering
|-- |  | -----------------------

The Company completed its initial public offering of 12,000,000 shares of
common stock, at a price of $13 per share, after June 30, 2002. We used the
net proceeds of the offering, together with drawings under our new bank credit
facility, to repay all of the outstanding principal and interest under our
previously outstanding bank debt and under our 10% unsecured subordinated loan
stock due 2008. Because the closing of the offering did not occur until the
third quarter of 2002, the receipt of the net proceeds of the offering, and the
use of those proceeds, is not reflected in the accompanying interim financial
statements.

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##### Table of Contents



Inveresk Research Group, Inc.

Notes to Consolidated Financial Statements
(dollars in thousands)

The following unaudited pro forma presentation is intended to reflect what our
assets and liabilities would have been if on June 30, 2002 we had completed the
initial public offering, the initial drawdown under our new bank credit
facility and the related application of those funds to the repayment of debt.

|                          |  |                 |         |  
|------------------------- |  | --------------- | ------- | -
|                          |  | Pro
Forma
as of
|                          |  | June 30, 2002  
|                          |  |                
|Total current assets      |  |                 | 76,247  |  
|                         
|                         
|                         
|                         
|Total other assets        |  |                 | 231,525 |  
|                         
|                         
|                         
|                         
|Total current liabilities |  |                 | (75,892 | )
|                         
|                         
|                         
|                         
|Total other liabilities   |  |                 | (96,505 | )
|                          |  |                 |         |  
|Shareholders equity      |  |                 | 135,375 |  
|                          |  |                 |         |  

On completion of the initial public offering, the Company recorded an
extraordinary charge, net of tax, of approximately $1.467 million, attributable
primarily to the elimination of deferred financing costs associated with the
debt that was repaid and cancelled at the completion of the offering. That
charge is not reflected in the accompanying financial statements, but
it is reflected in the foregoing pro forma presentation.



|3. |  | Summary of Significant Accounting Policies
|-- |  | ------------------------------------------

Earnings (Loss) Per Share

Earnings (loss) per share is computed in accordance with FAS 128, Earnings per
Share. FAS 128 requires presentation of both Basic Earnings per Share (Basic
EPS) and Diluted Earnings per Share (Diluted EPS). Basic EPS is based on the
weighted average number of shares of common stock outstanding during the year
while Diluted EPS also includes the dilutive effect of common stock
equivalents. The number of common stock equivalents not reflected in Diluted
EPS because they were anti-dilutive were 1,570,099 in 2002 and 203,660 in 2001.
Historical earnings (loss) per share have been computed assuming the historical
outstanding shares in Inveresk Research Group Limited were converted to
ordinary shares in Inveresk Research Group, Inc. using the conversion ratios
applied when the change of ultimate parent company became effective.

Intangible assets

In July 2001, the FASB issued FAS 141, Business Combinations, and FAS 142,
Goodwill and Other Intangible Assets. FAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. FAS 141 also specifies the criteria that intangible assets acquired
in a purchase method business combination must meet to be recognized and
reported apart from goodwill, noting that any purchase price allocable to an
assembled workforce may not be accounted for separately. FAS 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of FAS 142. FAS 142 also requires that intangible assets
with definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with FAS 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.

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##### Table of Contents



Inveresk Research Group, Inc.

Notes to Consolidated Financial Statements
(dollars in thousands)

FAS 142 is effective from January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001 will not be amortized, but instead tested for
impairment at least annually in accordance with the provisions of FAS 142. We
did not identify any intangible asset with indefinite lives. We continued to
amortize goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 prior to the time FAS 142 took effect.

FAS 142 requires that we complete a first phase of the impairment review for
goodwill by June 30, 2002. That required review was completed at the date of
adoption of FAS 142 and annual impairment tests have also been completed during
the second quarter of 2002 using balances recorded as at March 31, 2002. These
did not result in any impairment of goodwill.

FAS 142 required that the net book value of intangible assets relating to the
assembled workforce acquired in prior business contributions be transferred to
goodwill when FAS 142 took effect on January 1, 2002. If FAS 142 had been
applied from January 1, 2001 our amortization expense in the calendar year 2001
would have been reduced by approximately $7.91 million from the level we
recorded under prior accounting rules. The following table contains a
pro
forma presentation of our income before extraordinary item, net income and
related per share amounts, calculated as if FAS 142 had been in effect
throughout the periods presented.

|                                                                                |         |   |               |            |               |   |               |            |               |   |              |            |   |   |      |            |   |   |          |            | 
|------------------------------------------------------------------------------- | ------- | - | ------------- | ---------- | ------------- | - | ------------- | ---------- | ------------- | - | ------------ | ---------- | - | - | ---- | ---------- | - | - | -------- | ---------- | 
|                                                                                |         |   |               |            |               |   |               |            |               |   |              |            |   |   |      |            |   |   | 52 weeks
|                                                                                |         |   | 13 weeks      |            | 13 weeks      |   | 26 weeks      |            | 25 weeks      |   | ended       
|                                                                                |         |   | ended         |            | ended         |   | ended         |            | ended         |   | December 30,
|                                                                                |         |   | June 30, 2002 |            | June 24, 2001 |   | June 30, 2002 |            | June 24, 2001 |   | 2001        
|                                                                                |         |   |               |            |               |   |               |            |               |   |             
|Net income (loss) before extraordinary item                                     |         | $ | (44,337       | )          |               | $ | (680          | )          |               | $ | (44,751      | )          |   | $ | (165 | )          |   | $ | 2,378    |           
|                                                                                |         |   |               |            |               |   |               |            |               |   |              |            |   |   |      |            |   |   |          |           
|Net income (loss)                                                               |         | $ | (44,337       | )          |               | $ | (1,099        | )          |               | $ | (44,751      | )          |   | $ | (584 | )          |   | $ | 1,959    |           
|                                                                                |         |   |               |            |               |   |               |            |               |   |              |            |   |   |      |            |   |   |          |           
|Earnings (loss) per share pre
extraordinary item:                               |         |   |               |            |               |   |               |            |               |   |              |            |   |   |      |            |   |   |          |           
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Basic   |   | $             | (1.87      | )             |   | $             | (0.03      | )             |   | $            | (1.89      | ) |   | $    | (0.01      | ) |   | $        | 0.10       | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Diluted |   | $             | (1.87      | )             |   | $             | (0.03      | )             |   | $            | (1.89      | ) |   | $    | (0.01      | ) |   | $        | 0.10       | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Earnings (loss) per share post
extraordinary item:                              |         |   |               |            |               |   |               |            |               |   |              |            |   |   |      |            |   |   |          |           
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Basic   |   | $             | (1.87      | )             |   | $             | (0.05      | )             |   | $            | (1.89      | ) |   | $    | (0.03      | ) |   | $        | 0.08       | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Diluted |   | $             | (1.87      | )             |   | $             | (0.05      | )             |   | $            | (1.89      | ) |   | $    | (0.03      | ) |   | $        | 0.08       | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Number of shares and common stock
equivalents used in computing loss per
share: |         |   |               |            |               |   |               |            |               |   |              |            |   |   |      |            |   |   |          |           
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Basic   |   |               | 23,770,595 |               |   |               | 22,626,740 |               |   |              | 23,628,125 |   |   |      | 19,351,692 |   |   |          | 23,349,278 | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Diluted |   |               | 23,770,595 |               |   |               | 22,626,740 |               |   |              | 23,628,125 |   |   |      | 19,351,692 |   |   |          | 23,349,278 | 

In accordance with FAS 128 there is no dilution shown in relation to the share
options outstanding in the year ended December 30, 2001. This was because
exercise of all the options concerned was conditional upon completion of a
listing of the Companys shares on a recognized stock exchange and this
condition had not been satisfied by the end of 2001.

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##### Table of Contents



Inveresk Research Group, Inc.

Notes to Consolidated Financial Statements
(dollars in thousands)

Other Recent Account Pronouncements

In June 2001, the Financial Accounting Standards
Board issued FAS 143,
Accounting for Asset Retirement Obligations. FAS 143 requires the fair value
of a liability for asset retirement obligations to be recognized in the period
in which it is incurred if a reasonable estimate of the fair value can be made.
The associated asset retirement costs are capitalized as part of the carrying
amount of the related long-lived asset.

FAS 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The Company does not have any significant asset
retirement obligations and, accordingly, the adoption of FAS 143 is not
expected to have any material impact on its results of operations or its
financial position.

In April 2002, the FASB issued FAS 145, Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. The
principal change reflected in these pronouncements is that gains or losses from
extinguishment of debt which are classified as extraordinary items by FAS 4
will no longer be classified as such. The provisions of FAS 145 are effective
for fiscal years beginning after May 15, 2002 although early application of the
Statement related to the rescission of FAS 4 is encouraged. The Company plans
to adopt FAS 145 for its fiscal year ending December 31, 2003. When adopted,
prior extraordinary items related to the extinguishment of debt will need to be
reclassified.



|4. |  | Shareholders Equity
|-- |  | --------------------

As described in Note 1, during the quarter ended June 30, 2002, we completed a
transaction that created a new ultimate parent company for our Group. All the
outstanding shares of Inveresk Research Group Limited (our former ultimate
holding company, organized in Scotland) were exchanged for shares of common
stock of Inveresk Research Group, Inc. (our new ultimate parent company,
organized in Delaware).

The capital structure is presented on the basis described in Note 1 and is as
follows:

|                                                                                                                                                                |  |          |     |              |  |   |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | --- | ------------ |  | - | --- | 
|                                                                                                                                                                |  | June 30, |     | December 30,
|                                                                                                                                                                |  | 2002     |     | 2001        
|                                                                                                                                                                |  |          |     |             
|Preferred shares of common stock, $0.01 par value 10,000,000 authorized, none issued                                                                            |  | $        |    |              |  | $ |    | 
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Ordinary shares of common stock, $0.01 par value 150,000,000 authorized; issued and
fully-paid 23,770,595 and 23,469,088 at June 30, 2002 and December 30, 2001 |  |          | 238 |              |  |   | 235 | 
|                                                                                                                                                                |  |          |     |              |  |   |     | 
|                                                                                                                                                                |  | $        | 238 |              |  | $ | 235 | 
|                                                                                                                                                                |  |          |     |              |  |   |     | 

The increase of 301,507 shares during 2002 represents the exercise of options
to acquire 301,507 shares at an exercise price of $0.21 per share.

On July 3, 2003, we completed our initial public offering of 12,000,000 shares
of common stock. Immediately following this offering, we had 35,770,595 shares
of common stock outstanding.



|5. |  | Intangible Assets
|-- |  | -----------------

The following table sets forth changes in intangible assets, including changes
required when FAS 142 took effect (see Note 3 above).

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##### Table of Contents



Inveresk Research Group, Inc.

Notes to Consolidated Financial Statements
(dollars in thousands)

|                              |  |          |         |              |  |   |         |  
|----------------------------- |  | -------- | ------- | ------------ |  | - | ------- | -
|                              |  | June 30, |         | December 30,
|                              |  | 2002     |         | 2001        
|                              |  |          |         |             
|Goodwill                      |  | $        | 144,648 |              |  | $ | 115,709 |  
|                             
|                             
|                             
|                             
|Workforce                     |  |          |        |              |  |   | 30,831  |  
|                              |  |          |         |              |  |   |         |  
|                              |  |          | 144,648 |              |  |   | 146,540 |  
|                             
|                             
|                             
|                             
|Less accumulated amortization |  |          | (12,453 | )            |  |   | (12,023 | )
|                              |  |          |         |              |  |   |         |  
|                              |  | $        | 132,195 |              |  | $ | 134,517 |  
|                              |  |          |         |              |  |   |         |  



|6. |  | Credit Facilities and Debt
|-- |  | --------------------------

At June 30, 2002, we had in place the same bank credit facility as at December
30, 2001. Shortly after June 30, 2002, we received the net proceeds from our
initial public offering. We then used those proceeds, a drawdown of $70
million under a new bank credit facility and cash on hand to repay and cancel
all our outstanding debt under our old bank credit facility and the whole of
the 10% unsecured subordinated loan stock due 2008.

As a result of these transactions, at July 5, 2002 our total bank debt was $70
million and we had no debt remaining in respect of the 10% unsecured
subordinated loan stock due 2008.

The $70 million of bank debt drawn under our new bank credit facility is
repayable in U.S. dollars and bears interest at LIBOR plus 1.25%. The total
amount available to us under this facility is $75 million. The first scheduled
principal repayment under the facility is due on June 30, 2004.



|7. |  | Stock Option Plans
|-- |  | ------------------

The Company issues options to employees pursuant to various stock option plans
and arrangements. The objectives of these arrangements include attracting and
retaining personnel and promoting the success of the Company by providing
employees with the opportunity to acquire shares.

All options issued and outstanding at December 30, 2001 were issued by Inveresk
Research Group Limited. Those options subsequently were exchanged for stock
options issued by Inveresk Research Group, Inc. These replacement
options had exercise prices, exercise periods and other terms substantially equal to those that were
replaced. The data with respect to stock options set forth below gives effect
to the issuance of the replacement options as if they had been issued at the
same time as the options they replaced.

1,520,099 of the options became fully vested (immediately exercisable in full)
upon completion of the Companys initial public offering and will expire 10
years after the original date of grant. 50,000 will vest in equal annual
installments over the three years from the original date of grant.

|                                 |  |               |           |                |  |   |      | 
|-------------------------------- |  | ------------- | --------- | -------------- |  | - | ---- | 
|                                 |  | Shares of     |           |                |  |  
|                                 |  | Common Stock  |           | Weighted      
|                                 |  | Issuable Upon |           | Average       
|                                 |  | Exercise      |           | Exercise Price
|                                 |  |               |           |               
|Outstanding at December 30, 2001 |  |               | 1,148,532 |                |  | $ | 0.22 | 
|                                
|                                
|                                
|                                
|Granted                          |  |               | 730,441   |                |  | $ | 0.89 | 
|                                
|                                
|                                
|                                
|Forfeited                        |  |               | (7,367    | )              |  | $ | 0.19 | 
|                                
|                                
|                                
|                                
|Exercised                        |  |               | (301,507  | )              |  | $ | 0.21 | 
|                                 |  |               |           |                |  |   |      | 
|Outstanding at June 30, 2002     |  |               | 1,570,099 |                |  |   |      | 
|                                 |  |               |           |                |  |   |      | 

- 9 -



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##### Table of Contents



Inveresk Research Group, Inc.

Notes to Consolidated Financial Statements
(dollars in thousands)

The following table summarizes the exercise prices of the options outstanding
at June 30, 2002:

|              |           |                |  |                 
|------------- | --------- | -------------- |  | ----------------
|Shares of     |           |               
|Common Stock  |           |               
|Issuable Upon |           |               
|Exercise      |           | Exercise Price
|              |           |               
|              | 329,891   |                |  | $0.03 per share 
|             
|             
|             
|             
|              | 149,664   |                |  | $0.05 per share 
|             
|             
|             
|             
|              | 255,337   |                |  | $0.19 per share 
|             
|             
|             
|             
|              | 785,207   |                |  | $0.40 per share 
|             
|             
|             
|             
|              | 50,000    |                |  | $13.00 per share
|              |           |               
|              | 1,570,099 |                |  |                 
|              |           |               

The weighted average exercise price of our outstanding stock options was $0.66
per share at June 30, 2002 and $0.22 at December 30, 2001.

In the quarter ended March 31, 2002, the terms of the options held by one
individual were amended to enable him to exercise his options prior to the
completion of our initial public offering. Compensation expense was recorded
in respect of those options in the quarter ended March 31, 2002, reducing
income from operations by $4.545 million and net income by $4.490 million.

In the quarter ended June 30, 2002, compensation expense of $19.383 million has
been recorded in respect of the outstanding share options that vested in
accordance with their terms. We recorded an additional compensation expense of
$29.092 million in connection with our initial public offering, when the
percentage equity interest held by certain members of our management team
increased in accordance with the terms governing the original issuance of
shares to those individuals.



|8. |  | Analysis of tax charge
|-- |  | ----------------------

The Companys consolidated effective tax rate differed from the federal
statutory rate as set forth below:

|                                                                                                     |  |               |         |               |  |               |      |               |  |   |         |   |  |   |      |  
|---------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ------------- |  | ------------- | ---- | ------------- |  | - | ------- | - |  | - | ---- | -
|                                                                                                     |  | 13 weeks      |         | 13 weeks      |  | 26 weeks      |      | 25 weeks     
|                                                                                                     |  | ended         |         | ended         |  | ended         |      | ended        
|                                                                                                     |  | June 30, 2002 |         | June 24, 2001 |  | June 30, 2002 |      | June 24, 2001
|                                                                                                     |  |               |         |               |  |               |      |              
|Federal statutory rate                                                                               |  | $             | (15,008 | )             |  | $             | (721 | )             |  | $ | (14,582 | ) |  | $ | (763 | )
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Non deductible compensation expense on
exercise of share options                                     |  |               | 14,543  |               |  |               |     |               |  |   | 15,906  |   |  |   |     |  
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Canadian Research and Development tax credits                                                        |  |               | (1,128  | )             |  |               | (584 | )             |  |   | (2,225  | ) |  |   | (584 | )
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Amortization of excess of purchase price
over net assets acquired                                    |  |               |        |               |  |               | 458  |               |  |   |        |   |  |   | 613  |  
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Difference between foreign income taxed at
US Federal Statutory rates and foreign
income tax expense |  |               | 2,690   |               |  |               | 225  |               |  |   | 3,146   |   |  |   | 231  |  
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Increase in federal valuation allowance                                                              |  |               | (18     | )             |  |               | 608  |               |  |   | 122     |   |  |   | 608  |  
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Increase in valuation allowance against
losses of foreign subsidiaries                               |  |               | 363     |               |  |               | 388  |               |  |   | 816     |   |  |   | 388  |  
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Other                                                                                                |  |               | 17      |               |  |               | 364  |               |  |   | (94     | ) |  |   | 317  |  
|                                                                                                     |  |               |         |               |  |               |      |               |  |   |         |   |  |   |      |  
|                                                                                                     |  | $             | 1,459   |               |  | $             | 738  |               |  | $ | 3,089   |   |  | $ | 810  |  
|                                                                                                     |  |               |         |               |  |               |      |               |  |   |         |   |  |   |      |  

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##### Table of Contents



Inveresk Research Group, Inc.

Notes to Consolidated Financial Statements
(dollars in thousands)



|9. |  | Segment Reporting
|-- |  | -----------------

The Company is a full-service drug development services group serving the
pharmaceutical, biotechnology and medical device industries. Our drug
development services comprise two operating segments  pre-clinical and
clinical. Pre-clinical services are performed in Tranent, Scotland and
Montreal, Quebec, Canada. Clinical services consist of designing, monitoring,
and managing trials of new pharmaceutical and biotechnology products on humans,
and providing clinical data management, biostatistical, product registration,
and pharmacovigilance services. Clinical service activities and revenues are
performed and earned primarily in the United States and Europe. The Companys
European clinical operations are performed in Maidenhead, England and
Edinburgh, Scotland with its primary satellite offices in Brussels, Belgium and
Glasgow, Scotland. The operating results of the Company in the individual
European countries apart from the United Kingdom are immaterial.

Financial data by segment are as follows:

|                                                                   |  |              |        |          |  |       |        |   |  |   |        | 
|------------------------------------------------------------------ |  | ------------ | ------ | -------- |  | ----- | ------ | - |  | - | ------ | 
|                                                                   |  | Pre-clinical |        | Clinical |  | Total
|                                                                   |  |              |        |          |  |      
|13 Weeks Ended June 30, 2002                                       |  |              |        |          |  |       |        |   |  |   |        | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net service revenue from external customers                        |  | $            | 36,367 |          |  | $     | 19,182 |   |  | $ | 55,549 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Inter segment revenues                                             |  |              | 497    |          |  |       | 1,302  |   |  |   | 1,799  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Depreciation                                                       |  |              | 1,892  |          |  |       | 583    |   |  |   | 2,475  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Segment income from operations                                     |  |              | 11,356 |          |  |       | 2,381  |   |  |   | 13,737 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Expenditures for long-lived assets in 13 weeks ended June 30, 2002 |  |              | 7,072  |          |  |       | 79     |   |  |   | 7,151  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   |  |              |        |          |  |       |        |   |  |   |        | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|13 Weeks Ended June 24, 2001                                       |  |              |        |          |  |       |        |   |  |   |        | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net service revenues from external customers                       |  | $            | 27,193 |          |  | $     | 19,013 |   |  | $ | 46,206 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Inter segment revenues                                             |  |              | 1,280  |          |  |       | 354    |   |  |   | 1,634  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Depreciation and amortization                                      |  |              | 2,930  |          |  |       | 1,855  |   |  |   | 4,785  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Segment income (loss) from operations                              |  |              | 4,795  |          |  |       | (1,352 | ) |  |   | 3,443  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Expenditures for long-lived assets in 13 weeks ended June 24, 2001 |  |              | 1,409  |          |  |       | 214    |   |  |   | 1,623  | 

|                                                                   |  |              |         |          |  |       |         |   |  |   |         | 
|------------------------------------------------------------------ |  | ------------ | ------- | -------- |  | ----- | ------- | - |  | - | ------- | 
|                                                                   |  | Pre-clinical |         | Clinical |  | Total
|                                                                   |  |              |         |          |  |      
|26 Weeks Ended June 30, 2002                                       |  |              |         |          |  |       |         |   |  |   |         | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net service revenues from external customers                       |  | $            | 70,846  |          |  | $     | 37,866  |   |  | $ | 108,712 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Inter segment revenues                                             |  |              | 1,000   |          |  |       | 1,650   |   |  |   | 2,650   | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Depreciation                                                       |  |              | 3,658   |          |  |       | 1,163   |   |  |   | 4,821   | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Segment income from operations                                     |  |              | 21,738  |          |  |       | 3,151   |   |  |   | 24,889  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Segment assets at June 30, 2002                                    |  |              | 266,471 |          |  |       | 173,935 |   |  |   | 440,406 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Long-lived assets at June 30, 2002                                 |  |              | 145,663 |          |  |       | 85,862  |   |  |   | 231,525 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Expenditures for long-lived assets in 26 weeks ended June 30, 2002 |  |              | 12,617  |          |  |       | 196     |   |  |   | 12,813  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   |  |              |         |          |  |       |         |   |  |   |         | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|25 Weeks Ended June 24, 2001                                       |  |              |         |          |  |       |         |   |  |   |         | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net service revenues from external customers                       |  | $            | 38,585  |          |  | $     | 23,595  |   |  | $ | 62,180  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Inter segment revenues                                             |  |              | 2,560   |          |  |       | 675     |   |  |   | 3,235   | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Depreciation and amortization                                      |  |              | 4,396   |          |  |       | 2,118   |   |  |   | 6,514   | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Segment income (loss) from operations                              |  |              | 5,845   |          |  |       | (572    | ) |  |   | 5,273   | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Segment assets at December 30, 2001                                |  |              | 239,360 |          |  |       | 159,252 |   |  |   | 398,612 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Long-lived assets at December 30, 2001                             |  |              | 137,634 |          |  |       | 84,805  |   |  |   | 222,439 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Expenditures for long-lived assets in 25 weeks ended June 24, 2001 |  |              | 2,058   |          |  |       | 252     |   |  |   | 2,310   | 

The following table summarizes net service revenues and long-lived assets by
geographic area.

- 11 -



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##### Table of Contents



Inveresk Research Group, Inc.

Notes to Consolidated Financial Statements
(dollars in thousands)

|                                             |  |     |       |        |  |        |        |       |  |   |        |  |  |   |        | 
|-------------------------------------------- |  | --- | ----- | ------ |  | ------ | ------ | ----- |  | - | ------ |  |  | - | ------ | 
|                                             |  | USA |       | Canada |  | Europe |        | Total
|                                             |  |     |       |        |  |        |        |      
|13 Weeks Ended June 30, 2002                 |  |     |       |        |  |        |        |       |  |   |        |  |  |   |        | 
|                                            
|                                            
|                                            
|                                            
|Net service revenue from external customers  |  | $   | 8,540 |        |  | $      | 22,536 |       |  | $ | 24,473 |  |  | $ | 55,549 | 
|                                            
|                                            
|                                            
|                                            
|                                             |  |     |       |        |  |        |        |       |  |   |        |  |  |   |        | 
|                                            
|                                            
|                                            
|                                            
|13 Weeks Ended June 24, 2001                 |  |     |       |        |  |        |        |       |  |   |        |  |  |   |        | 
|                                            
|                                            
|                                            
|                                            
|Net service revenues from external customers |  | $   | 7,858 |        |  | $      | 15,808 |       |  | $ | 22,540 |  |  | $ | 46,206 | 

|                                             |  |     |        |        |  |        |        |       |  |   |         |  |  |   |         | 
|-------------------------------------------- |  | --- | ------ | ------ |  | ------ | ------ | ----- |  | - | ------- |  |  | - | ------- | 
|                                             |  | USA |        | Canada |  | Europe |        | Total
|                                             |  |     |        |        |  |        |        |      
|26 Weeks Ended June 30, 2002                 |  |     |        |        |  |        |        |       |  |   |         |  |  |   |         | 
|                                            
|                                            
|                                            
|                                            
|Net service revenue from external customers  |  | $   | 16,299 |        |  | $      | 43,524 |       |  | $ | 48,889  |  |  | $ | 108,712 | 
|                                            
|                                            
|                                            
|                                            
|Long-lived assets at June 30, 2002           |  |     | 36,389 |        |  |        | 70,774 |       |  |   | 124,362 |  |  |   | 231,525 | 
|                                            
|                                            
|                                            
|                                            
|                                             |  |     |        |        |  |        |        |       |  |   |         |  |  |   |         | 
|                                            
|                                            
|                                            
|                                            
|25 Weeks Ended June 24, 2001                 |  |     |        |        |  |        |        |       |  |   |         |  |  |   |         | 
|                                            
|                                            
|                                            
|                                            
|Net service revenues from external customers |  | $   | 7,909  |        |  | $      | 15,808 |       |  | $ | 38,463  |  |  | $ | 62,180  | 
|                                            
|                                            
|                                            
|                                            
|Long-lived assets at December 30, 2001       |  |     | 36,956 |        |  |        | 65,053 |       |  |   | 120,430 |  |  |   | 222,439 | 

The Companys operations in Europe comprise operations in a number of countries
that are co-ordinated from the United Kingdom. No European country is
significant in terms of revenues generated or assets held apart from the United
Kingdom.

The following table reconciles the above totals for net service revenues,
segment income (loss), segment assets and long-lived assets to the appropriate
figures in the financial statements.

|                                                                  |  |               |         |               |  |               |        |               |  |   |          |   |  |   |         |  
|----------------------------------------------------------------- |  | ------------- | ------- | ------------- |  | ------------- | ------ | ------------- |  | - | -------- | - |  | - | ------- | -
|                                                                  |  | 13 weeks      |         | 13 weeks      |  | 26 weeks      |        | 25 weeks     
|                                                                  |  | ended         |         | ended         |  | ended         |        | ended        
|                                                                  |  | June 30, 2002 |         | June 24, 2001 |  | June 30, 2002 |        | June 24, 2001
|                                                                  |  |               |         |               |  |               |        |              
|Net service revenue per above segment analysis                    |  | $             | 57,348  |               |  | $             | 47,840 |               |  | $ | 111,362  |   |  | $ | 65,415  |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Less elimination of inter segment revenues                        |  |               | (1,799  | )             |  |               | (1,634 | )             |  |   | (2,650   | ) |  |   | (3,235  | )
|                                                                  |  |               |         |               |  |               |        |               |  |   |          |   |  |   |         |  
|Net service revenue per financial statements                      |  | $             | 55,549  |               |  | $             | 46,206 |               |  | $ | 108,712  |   |  | $ | 62,180  |  
|                                                                  |  |               |         |               |  |               |        |               |  |   |          |   |  |   |         |  
|Segment income per above segment analysis                         |  | $             | 13,737  |               |  | $             | 3,443  |               |  | $ | 24,889   |   |  | $ | 5,273   |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Corporate overhead, including compensation charges
and stamp duty |  |               | (51,614 | )             |  |               | (1,361 | )             |  |   | (57,534  | ) |  |   | (1,726  | )
|                                                                  |  |               |         |               |  |               |        |               |  |   |          |   |  |   |         |  
|Income (loss) from operations per financial statements            |  | $             | (37,877 | )             |  | $             | 2,082  |               |  | $ | (32,645  | ) |  | $ | 3,547   |  
|                                                                  |  |               |         |               |  |               |        |               |  |   |          |   |  |   |         |  
|                                                                  |  |               |         |               |  |               |        |               |  |   |          |   |  |   |         |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Segment assets per above segment analysis                         |  |               |         |               |  |               |        |               |  | $ | 440,406  |   |  | $ | 398,612 |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Elimination of inter segment balances                             |  |               |         |               |  |               |        |               |  |   | (116,086 | ) |  |   | (96,786 | )
|                                                                  |  |               |         |               |  |               |        |               |  |   |          |   |  |   |         |  
|Assets per financial statements                                   |  |               |         |               |  |               |        |               |  | $ | 324,320  |   |  | $ | 301,826 |  
|                                                                  |  |               |         |               |  |               |        |               |  |   |          |   |  |   |         |  
|                                                                  |  |               |         |               |  |               |        |               |  |   |          |   |  |   |         |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Long lived assets per above segment analysis                      |  |               |         |               |  |               |        |               |  | $ | 231,525  |   |  | $ | 222,439 |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Deferred debt issue costs not allocated to segments               |  |               |         |               |  |               |        |               |  |   | 1,882    |   |  |   | 1,952   |  
|                                                                  |  |               |         |               |  |               |        |               |  |   |          |   |  |   |         |  
|                                                                  |  |               |         |               |  |               |        |               |  | $ | 233,407  |   |  | $ | 224,391 |  
|                                                                  |  |               |         |               |  |               |        |               |  |   |          |   |  |   |         |  

No clients accounted for more than 7.5% of the Companys consolidated net
revenue for any of the periods covered by these financial statements.

- 12 -



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##### Table of Contents



Inveresk Research Group, Inc.

Notes to Consolidated Financial Statements
(dollars in thousands)



|10. |  | Contingencies
|--- |  | -------------

In March 1996, Apotex Inc., a Canadian pharmaceutical manufacturer, filed a
civil lawsuit against the Group in the Court of Ontario. The claim arises out
of research work undertaken by the Company in conjunction with Sheffield University in the early 1990s relating to an Apotex
product. The claim alleges that the Company failed to conduct the study in a
competent and timely manner, causing Apotex to lose the advantage of being the
first into the market with a product under a brand name. The claim seeks
damages of Canadian $32 million for misrepresentation, breach of contract,
special and punitive damages, reimbursement of contract price and costs in
respect of the claim. The proceedings relating to this claim are being managed
by a third party which has agreed to indemnify the Company for any damages it
may incur as a result of this claim. The Company has been advised that the
third party intends to defend this claim vigorously. The Company is not party
to the litigation and it believes that the third party will settle any
liability directly with Apotex without involving the Company. As a result,
liability to the Company is not probable at this point and no reserve has been
made.

- 13 -



---



##### Table of Contents








|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------

The following discussion should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations for
the three year period ended December 30, 2001 contained in our prospectus dated
June 27, 2002.

The information set forth and discussed below for the three and six month
periods ended June 30, 2002 and June 24, 2001 is derived from the Condensed
Consolidated Financial Statements included under Item 1 above. The financial
information set forth and discussed below is unaudited but, in the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. The Companys results of operations for a particular quarter
may not be indicative of the results that may be expected for other quarters or
the entire year.

In 2001 our financial reporting periods ended on the last Sunday in the
quarter. In 2002 our financial reporting periods end on the last calendar day
of each quarter. The financial overview that follows compares the results of
operations for the 13-week and 26-week periods ended June 30, 2002, with the
results for the 13-week and 25-week periods ended March 25, 2001. On April 5,
2001 we completed the acquisition of ClinTrials. Thus the analysis which
follows compares the results of the group for the first six months of 2002,
which include the results of the acquired ClinTrials businesses, with the
equivalent period in 2001, approximately half of which was before the
acquisition.

Overview

Effective on June 25, 2002, we changed our ultimate parent company from a
company organized in Scotland to a corporation organized in Delaware.

We completed our initial public offering of 12,000,000 shares of common stock,
at a price of $13 per share, after June 30, 2002. The net proceeds from the
offering, together with drawings under our new bank credit facility and
existing cash resources, have been used to repay all of the outstanding
principal and interest at June 30, 2002 under our former bank facility and our
10% unsecured subordinated loan stock due 2008.

We have been highly leveraged since the time of our management buyout in 1999
and we incurred significant additional debt in connection with our subsequent
acquisition of ClinTrials Research Inc. in 2001. Our interest expense has
therefore been high in relation to our income before taxes. We believe that
because our interest expense was so high until the completion of our initial
public offering, our income from operations (i.e. before interest expenses) is
a better measure of the past performance of our businesses than income (or
loss) before income taxes.

We operate in two segments for financial reporting purposes: pre-clinical and
clinical. The following table shows a summary of our financial performance for
the 13-week and 26-week periods ended June 30, 2002 compared to the equivalent
periods in 2001.

- 14 -



---



##### Table of Contents



|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |        |  
|----------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | - | ------------- | ------- | ------------- | - | ------------- | ------ | ------------- | - | ------- | ------- | - | - | ------- | ------ | -
|                                                                                                |                                                                  |   | 13 weeks      |         | 13 weeks      |   | 26 weeks      |        | 25 weeks     
|                                                                                                |                                                                  |   | ended         |         | ended         |   | ended         |        | ended        
|                                                                                                |                                                                  |   | June 30, 2002 |         | June 24, 2001 |   | June 30, 2002 |        | June 24, 2001
|                                                                                                |                                                                  |   |               |         |               |   |               |        |              
|Net service revenue:                                                                            |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Pre-clinical                                                                                    |                                                                  | $ | 36,367        |         |               | $ | 27,193        |        |               | $ | 70,846  |         |   | $ | 38,585  |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Clinical                                                                                        |                                                                  |   | 19,182        |         |               |   | 19,013        |        |               |   | 37,866  |         |   |   | 23,595  |       
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                |                                                                  |   | 55,549        |         |               |   | 46,206        |        |               |   | 108,712 |         |   |   | 62,180  |       
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|Direct costs:                                                                                   |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Pre-clinical                                                                                    |                                                                  |   | (15,623       | )       |               |   | (13,103       | )      |               |   | (31,421 | )       |   |   | (18,992 | )     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Clinical                                                                                        |                                                                  |   | (10,948       | )       |               |   | (13,194       | )      |               |   | (22,776 | )       |   |   | (16,221 | )     
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                |                                                                  |   | (26,571       | )       |               |   | (26,297       | )      |               |   | (54,197 | )       |   |   | (35,213 | )     
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                | Gross profit:                                                    |   |               |         |               |   |               |        |               |   |         |         |   |   |         |        |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Pre-clinical                                                     |   |               | 20,744  |               |   |               | 14,090 |               |   |         | 39,425  |   |   |         | 19,593 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Clinical                                                         |   |               | 8,234   |               |   |               | 5,819  |               |   |         | 15,090  |   |   |         | 7,374  |  
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                |                                                                  |   | 28,978        |         |               |   | 19,909        |        |               |   | 54,515  |         |   |   | 26,967  |       
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|Selling, general and administrative expenses:                                                   |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Pre-clinical                                                                                    |                                                                  |   | (7,496        | )       |               |   | (6,365        | )      |               |   | (14,029 | )       |   |   | (9,352  | )     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Clinical                                                                                        |                                                                  |   | (5,270        | )       |               |   | (5,316        | )      |               |   | (10,776 | )       |   |   | (5,828  | )     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Corporate overhead                                                                              |                                                                  |   | (1,594        | )       |               |   | (1,361        | )      |               |   | (2,969  | )       |   |   | (1,726  | )     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Non-recurring compensation expense in respect of share
options and management equity incentives |                                                                  |   | (48,475       | )       |               |   |              |        |               |   | (53,020 | )       |   |   |        |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Stamp duty arising on change of ultimate parent company                                         |                                                                  |   | (1,545        | )       |               |   |              |        |               |   | (1,545  | )       |   |   |        |       
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                |                                                                  |   | (64,380       | )       |               |   | (13,042       | )      |               |   | (82,339 | )       |   |   | (16,906 | )     
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|Depreciation:                                                                                   |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Pre-clinical                                                                                    |                                                                  |   | (1,892        | )       |               |   | (1,697        | )      |               |   | (3,658  | )       |   |   | (2,590  | )     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Clinical                                                                                        |                                                                  |   | (583          | )       |               |   | (721          | )      |               |   | (1,163  | )       |   |   | (769    | )     
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                |                                                                  |   | (2,475        | )       |               |   | (2,418        | )      |               |   | (4,821  | )       |   |   | (3,359  | )     
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|Amortization of goodwill and intangibles:                                                       |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Pre-clinical                                                                                    |                                                                  |   |              |         |               |   | (1,233        | )      |               |   |        |         |   |   | (1,806  | )     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Clinical                                                                                        |                                                                  |   |              |         |               |   | (1,134        | )      |               |   |        |         |   |   | (1,349  | )     
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                |                                                                  |   |              |         |               |   | (2,367        | )      |               |   |        |         |   |   | (3,155  | )     
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                | Income (loss) from operations:                                   |   |               |         |               |   |               |        |               |   |         |         |   |   |         |        |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Pre-clinical                                                     |   |               | 11,356  |               |   |               | 4,795  |               |   |         | 21,738  |   |   |         | 5,845  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Clinical                                                         |   |               | 2,381   |               |   |               | (1,352 | )             |   |         | 3,151   |   |   |         | (572   | )
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Corporate overhead including compensation expense
and stamp duty |   |               | (51,614 | )             |   |               | (1,361 | )             |   |         | (57,534 | ) |   |         | (1,726 | )
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                |                                                                  |   | (37,877       | )       |               |   | 2,082         |        |               |   | (32,645 | )       |   |   | 3,547   |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Interest expense (net)                                                                          |                                                                  |   | (5,001        | )       |               |   | (4,142        | )      |               |   | (9,017  | )       |   |   | (5,727  | )     
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                | Income (loss) before income taxes                                |   |               | (42,878 | )             |   |               | (2,060 | )             |   |         | (41,662 | ) |   |         | (2,180 | )
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Provision for income taxes                                                                      |                                                                  |   | (1,459        | )       |               |   | (738          | )      |               |   | (3,089  | )       |   |   | (810    | )     
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                | Net income (loss) before extraordinary item                      |   |               | (44,337 | )             |   |               | (2,798 | )             |   |         | (44,751 | ) |   |         | (2,990 | )
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Extraordinary item                                                                              |                                                                  |   |              |         |               |   | (419          | )      |               |   |        |         |   |   | (419    | )     
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       
|Net income (loss)                                                                               |                                                                  | $ | (44,337       | )       |               | $ | (3,217        | )      |               | $ | (44,751 | )       |   | $ | (3,409  | )     
|                                                                                                |                                                                  |   |               |         |               |   |               |        |               |   |         |         |   |   |         |       

- 15 -



---



##### Table of Contents



The following table summarizes the above results of operations as a percentage
of net service revenue:

|                                              |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |      |   
|--------------------------------------------- | --------------------------------- |  | ------------- | ----- | ------------- |  | ------------- | ---- | ------------- |  | ----- | ----- | -- |  | ----- | ---- | --
|                                              |                                   |  | 13 weeks      |       | 13 weeks      |  | 26 weeks      |      | 25 weeks     
|                                              |                                   |  | ended         |       | ended         |  | ended         |      | ended        
|                                              |                                   |  | June 30, 2002 |       | June 24, 2001 |  | June 30, 2002 |      | June 24, 2001
|                                              |                                   |  |               |       |               |  |               |      |              
|Net service revenue:                          |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|Pre-clinical                                  |                                   |  | 100.0         | %     |               |  | 100.0         | %    |               |  | 100.0 | %     |    |  | 100.0 | %   
|                                             
|                                             
|                                             
|                                             
|Clinical                                      |                                   |  | 100.0         | %     |               |  | 100.0         | %    |               |  | 100.0 | %     |    |  | 100.0 | %   
|                                             
|                                             
|                                             
|                                             
|Total                                         |                                   |  | 100.0         | %     |               |  | 100.0         | %    |               |  | 100.0 | %     |    |  | 100.0 | %   
|                                             
|                                             
|                                             
|                                             
|                                              |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|Direct costs:                                 |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|Pre-clinical                                  |                                   |  | 43.0          | %     |               |  | 48.2          | %    |               |  | 44.4  | %     |    |  | 49.2  | %   
|                                             
|                                             
|                                             
|                                             
|Clinical                                      |                                   |  | 57.1          | %     |               |  | 69.4          | %    |               |  | 60.1  | %     |    |  | 68.7  | %   
|                                             
|                                             
|                                             
|                                             
|Total                                         |                                   |  | 47.8          | %     |               |  | 56.9          | %    |               |  | 49.9  | %     |    |  | 56.6  | %   
|                                             
|                                             
|                                             
|                                             
|                                              |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | Gross profit:                     |  |               |       |               |  |               |      |               |  |       |       |    |  |       |      |   
|                                             
|                                             
|                                             
|                                             
|                                              | Pre-clinical                      |  |               | 57.0  | %             |  |               | 51.8 | %             |  |       | 55.6  | %  |  |       | 50.8 | % 
|                                             
|                                             
|                                             
|                                             
|                                              | Clinical                          |  |               | 42.9  | %             |  |               | 30.6 | %             |  |       | 39.9  | %  |  |       | 31.3 | % 
|                                             
|                                             
|                                             
|                                             
|                                              | Total                             |  |               | 52.2  | %             |  |               | 43.1 | %             |  |       | 50.1  | %  |  |       | 43.4 | % 
|                                             
|                                             
|                                             
|                                             
|                                              |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|Selling, general and administrative expenses: |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|Pre-clinical                                  |                                   |  | 20.6          | %     |               |  | 23.4          | %    |               |  | 19.8  | %     |    |  | 24.2  | %   
|                                             
|                                             
|                                             
|                                             
|Clinical                                      |                                   |  | 27.4          | %     |               |  | 28.0          | %    |               |  | 28.4  | %     |    |  | 24.7  | %   
|                                             
|                                             
|                                             
|                                             
|Total                                         |                                   |  | 115.9         | %     |               |  | 28.2          | %    |               |  | 75.7  | %     |    |  | 27.2  | %   
|                                             
|                                             
|                                             
|                                             
|                                              |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|Depreciation:                                 |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|Pre-clinical                                  |                                   |  | 5.2           | %     |               |  | 6.2           | %    |               |  | 5.2   | %     |    |  | 6.7   | %   
|                                             
|                                             
|                                             
|                                             
|Clinical                                      |                                   |  | 3.0           | %     |               |  | 3.8           | %    |               |  | 3.1   | %     |    |  | 3.3   | %   
|                                             
|                                             
|                                             
|                                             
|Total                                         |                                   |  | 4.5           | %     |               |  | 5.2           | %    |               |  | 4.4   | %     |    |  | 5.4   | %   
|                                             
|                                             
|                                             
|                                             
|                                              |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|Amortization of goodwill and intangibles:     |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|Pre-clinical                                  |                                   |  | 0.0           | %     |               |  | 4.5           | %    |               |  | 0.0   | %     |    |  | 4.7   | %   
|                                             
|                                             
|                                             
|                                             
|Clinical                                      |                                   |  | 0.0           | %     |               |  | 6.0           | %    |               |  | 0.0   | %     |    |  | 5.7   | %   
|                                             
|                                             
|                                             
|                                             
|Total                                         |                                   |  | 0.0           | %     |               |  | 5.1           | %    |               |  | 0.0   | %     |    |  | 5.1   | %   
|                                             
|                                             
|                                             
|                                             
|                                              |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | Income (loss) from operations:    |  |               |       |               |  |               |      |               |  |       |       |    |  |       |      |   
|                                             
|                                             
|                                             
|                                             
|                                              | Pre-clinical                      |  |               | 31.2  | %             |  |               | 17.6 | %             |  |       | 30.7  | %  |  |       | 15.1 | % 
|                                             
|                                             
|                                             
|                                             
|                                              | Clinical                          |  |               | 12.4  | %             |  |               | (7.1 | )%            |  |       | 8.3   | %  |  |       | (2.4 | )%
|                                             
|                                             
|                                             
|                                             
|                                              | Total                             |  |               | (68.2 | )%            |  |               | 4.5  | %             |  |       | (30.0 | )% |  |       | 5.7  | % 
|                                             
|                                             
|                                             
|                                             
|                                              |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|Interest expense (net)                        |                                   |  | 9.0           | %     |               |  | 9.0           | %    |               |  | 8.3   | %     |    |  | 9.2   | %   
|                                             
|                                             
|                                             
|                                             
|                                              |                                   |  |               |       |               |  |               |      |               |  |       |       |    |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | Income (loss) before income taxes |  |               | (77.2 | )%            |  |               | (4.5 | )%            |  |       | (38.3 | )% |  |       | (3.5 | )%

The statements of operations for the 13-week and 26-week periods ended June 30,
2002 do not include any expenses in respect of the amortization of goodwill and
intangibles. This is because FAS 142, which became effective on January 1,
2002, altered the treatment of goodwill such that it is no longer subject to
amortization through the statement of operations. Instead, goodwill is subject
to impairment testing on a periodic basis.

- 16 -



---



##### Table of Contents



Earnings Charges in Respect of the Change in Ultimate Parent Company and in
Respect of Equity-Based Compensation

The transactions through which we changed our ultimate parent company, and
certain equity-based compensation (including stock options) which had been
awarded to our directors, officers and employees before our initial public
offering, had several effects that required us to take charges against earnings
in the second quarter of 2002. These charges comprised:



|(i)   |  | Stamp Duty.As a result of the change in our ultimate parent company we
have been required to pay stamp duty to the U.K. Inland Revenue. The
aggregate amount of the stamp duty payable by the Company in connection
with this transaction was $1.545 million, which has been fully expensed in
the quarter ended June 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|(ii)  |  | A One-time Compensation Charge in Respect of a Change in the Relative
Equity Ownership of Certain Members of Management.Under the terms of a
management incentive scheme originally put in place at the time of our
leveraged buy-out in 1999, managements percentage ownership of the
Companys common stock increased as a consequence of the change in our
ultimate parent company. We are required under applicable accounting
rules to record a one-time compensation expense, or charge, equal to the
increase in value of the equity ownership position of management resulting
from the increase in their percentage ownership of the Company. Based on
the initial public offering price of $13 per share, this one-time
compensation expense amounted to $29.092 million
|     
|(iii) |  | A One-Time Compensation Charge in Respect of Certain Outstanding
Employee Stock Options.Due to certain features of the share options
granted by the Company prior to the initial public offering, we were
required to record a one-time compensation expense in connection with the
offering. Based on the offering price of $13, this one-time compensation
expense amounted to $19.383 million. In addition, we recorded a further
charge for compensation expense on the amendment and exercise of share of
option of $4.545 million in the first quarter of 2002.                                                                                                                                                                                                              

Exchange rate fluctuations

Our consolidated financial statements are prepared in U.S. dollars. Our
principal businesses are based in the United States, United Kingdom and Canada.
Our United Kingdom and Canadian operations record their transactions in local
currencies. Accordingly, fluctuations in the pound sterling and Canadian
dollar exchange rates will impact the results of operations reported in U.S.
dollars.

The results of our non-U.S. operations have been translated from pounds
sterling and Canadian dollars using the following average exchange rates:

|                             |  |                  |        |                  |  |  |        | 
|---------------------------- |  | ---------------- | ------ | ---------------- |  |  | ------ | 
|                             |  | U.S. Dollars per |        | U.S. Dollars per
|                             |  | Pound Sterling   |        | Canadian Dollar 
|                             |  |                  |        |                 
|13 weeks ended June 24, 2001 |  |                  | 1.4220 |                  |  |  | 0.6490 | 
|                            
|                            
|                            
|                            
|13 weeks ended June 30, 2002 |  |                  | 1.4613 |                  |  |  | 0.6433 | 
|                            
|                            
|                            
|                            
|25 weeks ended June 24, 2001 |  |                  | 1.4398 |                  |  |  | 0.6516 | 
|                            
|                            
|                            
|                            
|26 weeks ended June 30, 2002 |  |                  | 1.4444 |                  |  |  | 0.6356 | 
|                             |  |                  |        |                 

The following table sets forth the percentage of our net service revenue
arising in the United Kingdom and Canada:

|                             |  |                |    |        |  |  |    |  
|---------------------------- |  | -------------- | -- | ------ |  |  | -- | -
|                             |  | United Kingdom |    | Canada
|                             |  |                |    |       
|13 weeks ended June 24, 2001 |  |                | 49 | %      |  |  | 34 | %
|                            
|                            
|                            
|                            
|13 weeks ended June 30, 2002 |  |                | 44 | %      |  |  | 41 | %
|                            
|                            
|                            
|                            
|25 weeks ended June 24, 2001 |  |                | 62 | %      |  |  | 25 | %
|                            
|                            
|                            
|                            
|26 weeks ended June 30, 2002 |  |                | 45 | %      |  |  | 40 | %
|                             |  |                |    |       

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In addition, our Canadian business invoices a significant proportion of its
revenues in U.S. dollars, although its costs are largely in Canadian dollars.
This can result in transaction exchange gains or losses that are reflected in
its statement of operations. The foreign currency gains or losses recognized
in the statement of operations and included in Selling, general and
administrative expenses was a loss of $926,000 and $720,000 for the 13 week
and 26 week periods ended June 30, 2002 and a gain of $143,000 and $144,000 for
the 13 week and 26 week periods ended June 24, 2001.

Results of operations

Second quarter 2002 compared to second quarter 2001

Net service revenue. Net service revenue in the second quarter of 2002 was
$55.5 million, an increase of $9.3 million or 20% over second quarter 2001 net
service revenue of $46.2 million.

Pre-clinical.Net service revenue in the second quarter of 2002 was $36.4
million, an increase of $9.2 million or 34% over revenues of $27.2 million in
the second quarter of 2001. Assuming constant dollar exchange rates, net
service revenues in the pre-clinical segment increased by 33% in the second
quarter of 2002 compared to 2001. Our pre-clinical operations continued to
experience strong demand for its services during the second quarter, both for
its safety evaluation services and its laboratory sciences services.
Utilization rates within pre-clinical remained high, permitting the continued
shift in this segments revenue mix towards higher value-added safety and
pharmacology evaluation services. Our laboratory sciences operations also
continued to experience growing demand for its service, particularly with
regard to business sourced internally in connection with the provision of
higher value-added safety evaluation services.

Clinical.Net service revenue in the second quarter of 2002 was $19.2 million,
an increase of $0.2 million or 1% over revenues of $19.0 million in the second
quarter of 2001. Currency fluctuations did not have a significant effect on
these comparisons. The Phase II-IV business experienced a 4.6% increase in
revenues, generally reflecting higher activity levels in those operations. Our
Phase I clinic, however, experienced a number of project postponements (and one
cancellation) which resulted in it recording 7.1% decrease in revenues compared
to the same period in 2001.

Direct costs.In the second quarter of 2002 direct costs totalled $26.6
million, an increase of $0.3 million, or 1%, from $26.3 million in the second
quarter of 2001. Direct costs were 48% of net service revenue in the second
quarter of 2002 compared to 57% in the second quarter of 2001.

Pre-clinical.Direct costs in the second quarter of 2002 were $15.6 million,
an increase of $2.5 million, or 19%, over costs of $13.1 million in the second
quarter of 2001. In the second quarter of 2002, direct costs were 43% of net
service revenue, compared to 48% in the second quarter of 2001. Improved gross
margins in the pre-clinical segment reflect the continued high utilization
rates being achieved and the shift in business mix towards higher value-added
toxicology and laboratory sciences services.

Clinical.Direct costs in the second quarter of 2002 were $10.9 million, a
decrease of $2.2 million, or 17% over costs of $13.2 million in the second
quarter of 2001. In the second quarter of 2002 direct costs were 57% of net
service revenues compared to 69% in the second quarter of 2001 reflecting the
continued focus of the clinical segment on improved contract pricing and cost
control, particularly in the former ClinTrials businesses.

Selling, general and administrative expenses.In the second quarter of 2002
selling, general and administrative expenses totalled $64.4 million, an
increase of $51.3 million, or 394%, from $13.0 million in the second quarter of
2001. The second quarter of 2002 figures include a non-recurring compensation charge of $48.5 million arising at the time of the Companys
initial public offering in respect of share options and management equity
incentives as well as a $1.5 million charge for stamp duty on the change of
ultimate parent company.

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Before taking account of these non-recurring
charges, selling, general and administrative expenses represented 26%
of net service revenues in the second quarter of 2002, compared with
28% in the second quarter of 2001.

Pre-clinical.Selling, general and administrative costs in the second quarter
of 2002 were $7.5 million, an increase of $1.1 million or 18%, from $6.4
million in the second quarter of 2001. Selling, general and administrative
costs were 21% of net service revenues in the second quarter of 2002, compared
to 23% in the second quarter of 2001. This reflects the continued emphasis by
pre-clinical on cost control and improved business processes at a time when
revenue throughput has increased significantly. Selling, general and
administrative costs were also increased in the second quarter of 2002 as a
consequence of transaction exchange losses during the period totalling $0.9
million.

Clinical.Selling, general and administrative costs in the second quarter of
2002 were $5.3 million, which was unchanged from $5.3 million in the second
quarter of 2001. Selling, general and administrative costs were 28% of net
revenue in the second quarter of 2002 compared to 28% in the second quarter of
2001.

Corporate overhead.Corporate overhead in the second quarter of 2002 includes
a non-recurring compensation charge of $19.4 million in respect of share
options, a non-recurring charge of $29.1 million in respect of management
equity incentives and a charge of $1.5 million relating to stamp duty payable
on the change of ultimate parent company immediately prior to our initial
public offering. Other corporate overhead amounted to $1.6 million. The
increase of $0.2 million, or 17%, over the second quarter of 2001, due
primarily to the additional costs associated with becoming a publicly listed
company.

Amortization of intangible assets.Following the adoption of FAS 142 with
effect from January 1, 2002, there is no amortization of goodwill and
intangibles in the second quarter of 2002. The impact of the adoption of FAS
142 on the prior year comparative figures is shown above. Amortization of
intangible assets in the second quarter of 2001, which was calculated based
upon the Groups accounting policies prior to the adoption of FAS 142 amounted
to $2.4 million.

Income from operations.In the second quarter of 2002, the loss from
operations amounted to $37.9 million, or 68% of net service revenue, after
deducting non-recurring compensation expenses and stamp duty costs of $50.0
million. Income from operations in the second quarter of 2001 amounted to $4.5
million, or 10% of net service revenue, after excluding amortization expense of
$2.4 million.

Pre-clinical.Income from operations increased to $11.4 million in the second
quarter of 2002 compared to $4.8 million in the second quarter of 2001 for the
reasons set forth above.

Clinical.Income from operations was $2.4 million in the second quarter of
2002 compared to a loss of $1.4 million in the second quarter of 2001 for the
reasons set forth above.

First six months of 2002 compared to first six months of 2001

Net service revenue.Net service revenue in the first six months of 2002 was
$108.7 million, an increase of $46.5 million or 75% over first six months 2001
net service revenue of $62.2 million.

Pre-clinical.Net service revenue in the first six months of 2002 was $70.8
million, an increase of $32.3 million or 83% over revenues of $38.6 million in
the first six months of 2001. The acquisition of the Canadian pre-clinical
operations of ClinTrials in April 2001 contributed $43.5 million to net service
revenue in the first six months of 2002 compared to $15.8 million in the first
six months of 2001 when only the post acquisition results were included. Net
service revenue for the original Inveresk pre-clinical operations increased by $4.5 million or 20%.

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Currency
fluctuations did not have a significant effect on these comparisons. Our
pre-clinical operations continued to experience strong demand for its services
during the first half of 2002, both for its safety evaluation services and its
laboratory sciences services. Utilization rates within pre-clinical remained
high, permitting the continued shift in this segments revenue mix towards
higher value-added safety and pharmacology evaluation services. Our laboratory
sciences operations also continued to experience growing demand for its
services, particularly with regard to business sourced internally in connection
with the provision of higher value-added safety evaluation services.
Pre-Clinical revenues in the first six months were also positively impacted by
the receipt of a one-off $0.5 million cancellation fee. Facilities freed up by
this cancellation were fully re-deployed.

Clinical.Net service revenue in the first six months of 2002 was $37.9
million, an increase of $14.3 million or 60% over revenues of $23.6 million in
the first six months of 2001. The acquisition of ClinTrials in April 2001
contributed $26.5 million to net service revenue in the first six months of
2002 compared to $13.1 million in the first six months of 2001 when only the
post acquisition results were included. Net service revenue for the original
Inveresk clinical development operations increased by $0.9 million, or 8%.
Currency fluctuations did not have a significant effect on these comparisons.
Net service revenue from the acquired ClinTrials clinical trials operations
increased by $4.4 million, or 20% over revenues for the first six months of
2001 when such operations were under their previous ownership for the period
prior to April 5, 2001. However, this growth in the ClinTrials clinical trials
operations is due, in substantial part, to poor results in the European
clinical business in the first quarter of 2001. Clinical net service revenues
in the first six months of 2002 generally reflect higher activity levels within
the Phase II-IV operations, offset by lower Phase I revenues due to a number of
trials being postponed.

Direct costs.In the first six months of 2002 direct costs totalled $54.2
million, an increase of $19.0 million, or 54%, from $35.2 million in the first
six months of 2001. Direct costs were 50% of net service revenue in the first
six months of 2002 compared to 57% in the first six months of 2001.

Pre-clinical.Direct costs in the first six months of 2002 were $31.4 million,
an increase of $12.4 million, or 65%, over costs of $19.0 million in the first
six months of 2001. This increase in dollar terms is largely attributable to
the effects of the ClinTrials acquisition in April 2001. In the first six
months of 2002, direct costs were 44% of pre-clinical net service revenue,
compared to 49% in the first six months of 2001. Improved gross margins in the
pre-clinical segment reflect the high utilization rates being achieved and the
continued shift in business mix towards higher value-added toxicology and
laboratory sciences services. The cancellation fee referred to above also had
a positive impact on operating margins in the first six months of 2002. If
this cancellation fee had not arisen the direct costs in the first six months
of 2002 would have represented 45% of net service revenues for pre-clinical.

Clinical.Direct costs in the first six months of 2002 were $22.8 million, an
increase of $6.6 million, or 40% over costs of $16.2 million in the first six
months of 2001. This increase in dollar terms is largely attributable to the
effects of the ClinTrials acquisition in April 2001. In the first six months
of 2002 direct costs were 60% of clinical net service revenues compared to 69%
in the first six months of 2001 reflecting the continued focus of the clinical
segment on improved contract pricing and cost control, particularly in the
former ClinTrials businesses.

Selling, general and administrative expenses.In the first six months of 2002
selling, general and administrative expenses totalled $82.3 million, an
increase of $65.4 million, or 387%, from $16.9 million in the first six months
of 2001. The first six months of 2002 figures include a non-recurring charge
for compensation expense in respect of employee share options and management
equity incentives amounting to $53 million, as well as a $1.5 million charge
for stamp duty on the change of ultimate parent company. Before taking account
of these non-recurring charges, selling, general and administrative expenses
represented 26% of net service revenues in the first six months of 2002,
compared with 27% in the first six months of 2001.

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Pre-clinical.Selling, general and administrative costs in the first six
months of 2002 were $14.0 million, an increase of $4.7 million or 50%, from
$9.4 million in the first six months of 2001. This increase in dollar terms is
largely attributable to the effects of the ClinTrials acquisition in April
2001. Selling, general and administrative costs were 20% of net service
revenues in the first six months of 2002, compared to 24% in the first six
months of 2001. This reflects the continued emphasis by pre-clinical on cost
control and improved business processes at a time when revenue throughput has
increased significantly. Selling, general and administrative costs were also
increased in the first six months of 2002 as a consequence of transaction
exchange losses during the period totalling $0.7 million.

Clinical.Selling, general and administrative costs in the first six months of
2002 were $10.8 million, an increase of $4.9 million or 85%, from $5.8 million
in the first six months of 2001. This increase in dollar terms is partially
attributable to the effects of the ClinTrials acquisition in April 2001.
Selling, general and administrative costs were 28% of net revenue in the first
six months of 2002 compared to 25% in the first six months of 2001 reflecting
the higher cost base in the original ClinTrials business. The selling, general
and administrative expenses in the original Inveresk clinical operations were
marginally lower as a percentage of net service revenue in the first six months
of 2002 compared with the corresponding period in 2001.

Corporate overhead.Corporate overhead in the first six months of 2002
included a non-recurring charge for compensation expense in respect of share
options amounting to $23.9 million, a non-recurring charge amounting to $29.1
million in respect of management equity incentives and a non-recurring charge
of $1.5 million relating to stamp duty payable on the change of ultimate parent
company immediately prior to our initial public offering. Excluding these
non-recurring charges, other corporate overheads amounted to $3.0 million in
the first six months of 2002, an increase of $1.2 million, or 72%, over the
corresponding period in 2001. This increase in dollar terms is partially
attributable to the effects of the ClinTrials acquisition in April 2001 and
also reflects the additional costs associated with becoming a publicly listed
company.

Amortization of intangible assets.Following the adoption of FAS 142 with
effect from January 1, 2001, there is no amortization of goodwill and
intangibles in the first six months of 2002. The impact of the adoption of FAS
142 on the prior year comparative figures is shown above. Amortization of
intangible assets in the first six months of 2001, which was calculated based
upon the groups accounting policies prior to the adoption of FAS 142 amounted
to $3.2 million.

Income from operations.In the first six months of 2002, loss from operations
amounted $32.6 million after deducting non-recurring compensation expense and
stamp duty of $54.6 million. Income from operations in the first six months of
2001 amounted to $6.7 million, or 11% of net service revenue, after excluding
amortization expense of $3.2 million.

Pre-clinical.Income from operations increased to $21.7 million in the first
six months of 2002 compared to $5.8 million in the first six months of 2001 for
the reasons set forth above.

Clinical.Income from operations was $3.2 million in the first six months of
2002 compared to a loss of $0.6 million for the first six months of 2001 for
the reasons set forth above.

Liquidity and capital resources

Cash and cash equivalents totalled $17.3 million at June 30, 2002 compared with
$16.1 million at December 30, 2001. Our principal sources of liquidity are
cash flow from operations and borrowings under our credit facilities and our
10% unsecured subordinated loan stock due 2008.

The Company completed an initial public offering of 12,000,000 shares of its
common stock at a price of $13 per share on July 3, 2002. The net proceeds of
the offering, together with drawings under our new bank facilities
and existing cash resources, have been used in July 2002 to repay all of the
outstanding principal and interest under our old bank credit facility and our
10% unsecured subordinated loan stock due 2008.

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The total amount available under our new bank facilities is $ 75 million. Our
new bank facilities comprise a U.S. dollar denominated term loan facility of
$50 million repayable over a five year period commencing in June 2004 and
ending in June 2007, and a $25 million multi-currency revolving credit facility
repayable on or before June 2005. These facilities bear interest at LIBOR plus
1.25%.

Working capital balances which arise from our contracts with customers comprise
accounts receivable, unbilled receivables and advance billings. A summary of
these balances at June 30, 2002, March 31, 2002 and December 30, 2001 together
with the number of days billings that they represent is set forth below.

|                     |  |               |         |                |  |                   |     |             |  |          |         |             |  |  |     |   |  |   |         |   |  |  |     |  
|-------------------- |  | ------------- | ------- | -------------- |  | ----------------- | --- | ----------- |  | -------- | ------- | ----------- |  |  | --- | - |  | - | ------- | - |  |  | --- | -
|                     |  | June 30, 2002 |         | March 31, 2002 |  | December 30, 2001
|                     |  |               |         |                |  |                  
|                     |  | Balance       |         | No of days     |  | Balance           |     | No of days  |  | Balance  |         | No of days 
|                     |  | ($'000s)      |         | net revenue    |  | ($'000s)          |     | net revenue |  | ($'000s) |         | net revenue
|                     |  |               |         |                |  |                   |     |             |  |          |         |            
|Accounts receivable  |  | $             | 35,323  |                |  |                   | 59  |             |  | $        | 32,258  |             |  |  | 55  |   |  | $ | 32,646  |   |  |  | 66  |  
|                    
|                    
|                    
|                    
|Unbilled receivables |  |               | 22,354  |                |  |                   | 37  |             |  |          | 21,354  |             |  |  | 37  |   |  |   | 19,999  |   |  |  | 40  |  
|                     |  |               |         |                |  |                   |     |             |  |          |         |             |  |  |     |   |  |   |         |   |  |  |     |  
|Sub total            |  |               | 57,677  |                |  |                   | 96  |             |  |          | 53,612  |             |  |  | 92  |   |  |   | 52,645  |   |  |  | 106 |  
|                    
|                    
|                    
|                    
|Advance billings     |  |               | (33,656 | )              |  |                   | (56 | )           |  |          | (29,644 | )           |  |  | (51 | ) |  |   | (30,380 | ) |  |  | (61 | )
|                     |  |               |         |                |  |                   |     |             |  |          |         |             |  |  |     |   |  |   |         |   |  |  |     |  
|                     |  | $             | 24,021  |                |  |                   | 40  |             |  | $        | 23,968  |             |  |  | 41  |   |  | $ | 22,265  |   |  |  | 45  |  
|                     |  |               |         |                |  |                   |     |             |  |          |         |             |  |  |     |   |  |   |         |   |  |  |     |  

The impact of the above balances on our cash flow from operations in 2001 and
in the first and second quarters of 2002 was as follows:

|                                                   |  |               |        |                |  |              |        |   |  |          |        |  
|-------------------------------------------------- |  | ------------- | ------ | -------------- |  | ------------ | ------ | - |  | -------- | ------ | -
|                                                   |  |               |        |                |  |              |        |   |  | 52 weeks
|                                                   |  | 13 weeks      |        | 13 weeks       |  | ended       
|                                                   |  | ended         |        | ended          |  | December 30,
|                                                   |  | June 30, 2002 |        | March 31, 2002 |  | 2001        
|                                                   |  |               |        |                |  |             
|Cash inflow (outflow)                              |  |               |        |                |  |              |        |   |  |          |        |  
|                                                  
|                                                  
|                                                  
|                                                  
|Accounts receivable including unbilled receivables |  | $             | (4,065 | )              |  | $            | (967   | ) |  | $        | (1,682 | )
|                                                  
|                                                  
|                                                  
|                                                  
|Advance billings                                   |  |               | 4,012  |                |  |              | (736   | ) |  |          | (361   | )
|                                                   |  |               |        |                |  |              |        |   |  |          |        |  
|                                                   |  | $             | (53    | )              |  | $            | (1,703 | ) |  | $        | (2,043 | )
|                                                   |  |               |        |                |  |              |        |   |  |          |        |  

The cash generated by operating activities was $13.6 million in the second
quarter of 2002, $5.0 million in the first quarter of 2002 and $19.5 million in
2001. When compared to this, the cash flows relating to working capital
movements are not a major factor affecting liquidity.

We anticipate that our operating cash flow, together with available borrowings
under our credit facilities, will be sufficient to meet our anticipated future
operating expenses, capital expenditures and debt service obligations as they
become due over the next twelve months.

Second Quarter 2002 compared to Second Quarter 2001

Cash flow from operations in the second quarter of 2002 was $13.6 million
compared to $3.6 million in 2001. The increase of $10.0 million reflects the
improvement in income from operations before the non cash compensation charges.
Capital expenditures were $7.2 million compared to $1.6 million in 2001. The
increase is mainly attributable to the expansion of our pre-clinical operations
in Canada where capital expenditure amounted to $6.0 million in the second
quarter of 2002. We are also investing in our United Kingdom pre-clinical
operations where expenditure amounting to $1.0 million in the second quarter
was also significantly ahead of the prior year.

In the second quarter of 2002 we repaid $2.2 million of our bank debt. This
was a scheduled repayment due on June 28, 2002. After offsetting the impact of
exercise of share options, the net cash outflow from financing activities was
$2.2 million compared to an inflow of $115.5 million associated with the
ClinTrials acquisition in the second quarter of 2001.

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First six months of 2002 compared to First six months of 2001

Cash flow from operations in the first six months of 2002 was $18.6 million
compared to $3.9 million in 2001. The increase reflects the significant
increase in the size of our business as a result of the ClinTrials acquisition
and also the improvement in the operating results of the businesses as described
above. Capital expenditures were $12.8 million compared to $2.3 million in
2001. The increase is mainly attributable to the expansion of our pre-clinical
operations in Canada where capital expenditure amounted to $10.3 million in the
first six months of 2002. We are also investing in our United Kingdom
pre-clinical operations where expenditure of $2.3 million in the first half of
2002 was also significantly ahead of the prior year.

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|ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- |  | ----------------------------------------------------------

We are subject to market risks arising from changes in interest rates and
foreign currency exchange rates.

Our primary interest rate exposure results from changes in LIBOR or the base
rates that are used to determine the applicable interest rates under our bank
borrowing facilities. The bank facilities that we put in place at the time of
our initial public offering of shares in June 2002 bear interest at LIBOR plus
1.25%.

Our potential loss over one year that would result from a hypothetical,
instantaneous and unfavorable change of 100 basis points in the interest rate
on all our variable rate obligations would be approximately $0.7 million. We
are currently reviewing our interest rate hedging arrangements. Our bank debt is all
denominated in U.S. dollars and thus fluctuations in exchange rates will not
impact these borrowings.

Our consolidated financial statements are prepared in U.S. dollars. The
functional currency of each of our subsidiaries is the local currency of the
country in which the subsidiary is located. Our principal operating
subsidiaries are located in the United Kingdom and Canada and, together they
accounted for 85% of our net service revenue in the first six months of 2002.
Accordingly, fluctuations in the exchange rates between pounds sterling,
Canadian dollars and U.S. dollars will affect the translation of our results
for financial reporting purposes.

We also have exposure to some foreign currency exchange rate fluctuations for
the cash flows received from our foreign affiliates. This risk is mitigated by
the fact that their operations are conducted in their respective local
currencies, and it is not our intention to repatriate earnings prospectively.
Currently, we do not engage in any foreign currency hedging activities as we do
not believe that our foreign currency exchange risk is material.

We do not use financial instruments for trading or other speculative purposes.

Management does not believe that inflation in past years has had a significant
impact on our results from operations. Management believes that, in the event
inflation affects our costs in the future, we will offset the effect of
inflation and maintain appropriate margins through increased fees.

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PART II OTHER INFORMATION

Item 1. Legal Proceedings.

The information provided in Note 10 to the financial statements contained in
Part I of this Form 10-Q is incorporated herein by reference.

Item 2. Changes in Securities and Use of
Proceeds.

Recent Sales of Unregistered Securities

On June 25, 2002, we issued an aggregate of 23,770,595 shares of our common
stock to the shareholders of Inveresk Research Group Limited in exchange for
all outstanding shares of Inveresk Research Group Limited in connection with
the change in our ultimate parent. The issuance of these shares was not
registered under the Securities Act in reliance upon Section 4(2) of, and Rule
802 under, the Securities Act.

Use of Proceeds from Sales of Registered
Securities

On July 3, 2002, we completed our initial
public offering. The managing underwriters for the offering were Bear Stearns & Co. Inc., UBS Warburg
LLC, William Blair & Company, L.L.C. and SG Cowen Securities Corporation. The
shares of common stock sold in the offering were registered under the
Securities Act of 1933, as amended, on a Registration Statement (File No.
333-85356) that was declared effective by the Securities and Exchange
Commission on June 27, 2002. The Registration Statement covered an
aggregate of 13,800,000 shares of common stock, of which 1,800,000
shares were reserved for issuance pursuant to an over-allotment option
granted to the underwriters. An aggregate of 12,000,000 shares were
sold in the offering at a price to the public of
$13.00 per share. All of the shares of common stock were sold by us and there
were no selling stockholders in the offering. The offering terminated before
the sale of all of the securities registered on the Registration Statement.
The aggregate gross proceeds from the shares of common stock sold by us was
$156.0 million. The estimated aggregate net proceeds to us from the offering
was approximately $142.4 million after deducting an aggregate of $10.9 million
in underwriting discounts and commissions paid to the underwriters and an
estimated $2.7 million in other expenses incurred in connection with the
offering.

We used the proceeds from the offering to repay all of the outstanding
principal and interest under our existing bank credit facilities in the amount
of approximately $89.5 million and used the remainder of the net proceeds,
approximately $52.9 million, to repay a portion of the indebtedness under our
10% unsecured subordinated loan stock due 2008, substantially all of which was
held by our controlling stockholders. Except as described in the
preceding sentence, none of the proceeds from the offering were paid, directly or indirectly, to
any of our officers or directors or any of their associates, or to any persons
owning ten percent or more of our outstanding common stock or to any of our
affiliates.

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Item 4. Submission of Matters to a Vote of
Security Holders.

The stockholders of Inveresk Research Group, Inc.,
acting by unanimous written consent dated June 28, 2002, adopted
resolutions (i) to adopt and
approve the Inveresk Research Group, Inc. 2002 Stock Option Plan and the
Inveresk Research Group, Inc. 2002 Non-Employee Directors Stock Option Plan and
(ii) to elect John Urquhart to serve as a Class I Director, Ian Sword and John
Henderson to serve as Class II Directors and S. Louise McCrary and Walter Nimmo
to serve as Class III Directors of Inveresk Research Group, Inc.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.

3.1    Amended
and Restated Certificate of Incorporation of Inveresk Research Group,
Inc. (incorporated by reference to Exhibit 3.1 of our
Registration Statement on Form S-1, as amended
(File No. 333-85356)).

3.2    Bylaws
of Inveresk Research Group, Inc. (incorporated by reference to
Exhibit 3.2 of our Registration Statement on Form S-1, as
amended (File No. 333-85356)).

4.1    Form
of Stock Certificate (incorporated by reference to Exhibit 4.1
of our Registration Statement on Form S-1, as amended
(File No. 333-85356)).

(b) Reports on Form 8-K.

We
filed a Current Report on Form 8-K, dated July 29, 2002,
including our press release announcing our earnings information for
the period ended June 30, 2002.

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SIGNATURES


Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.



|                   |  |                                                                                                                  
|------------------ |  | -----------------------------------------------------------------------------------------------------------------
|Date:July 29,
2002 |  | INVERESK RESEARCH GROUP, INC.                                                                                    
|                  
|                   |  | By:
/s/ D. J. Paul E. Cowan
     D.J. Paul E.
Cowan
      Chief Financial Officer, Treasurer
       and Secretary