##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2005oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          
    to   Commission
    file number: 1-16119
  SFBC INTERNATIONAL,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

59-2407464(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)504 Carnegie Center
    Princeton, NJ(Address of principal
    executive offices)

08540(Zip Code)   (609) 951-6800
 (Registrants telephone
    number, including area code)
  11190 Biscayne Boulevard
    Miami, Florida 33181
 (Former name, former address and
    former fiscal year, if changed since last report)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which
    RegisteredNONE

NONE   Securities registered pursuant to Section 12(g) of the
    Act:
   Common Stock
 Series A Junior Participating Preferred Stock Purchase
    Rights
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
      Class

Outstanding at March 20,
    2006Common Stock, $.001 par value
    per share

17,981,010 sharesSeries A Junior Participating
    Preferred Stock Purchase Rights

17,981,010 rights   DOCUMENTS
    INCORPORATED BY REFERENCE
  Document

Parts Into Which
    IncorporatedProxy Statement for the Annual
    Meeting of Stockholders to be held on June 27, 2006

Part III




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##### 



SFBC
    INTERNATIONAL, INC.
  ANNUAL
    REPORT ON
    FORM 10-K
  DECEMBER 31,
    2005
  
  PagePART IItem 1.

Business


1Item 1A.

Risk Factors


22Item 1B.

Unresolved Staff
    Comments


35Item 2.

Property


35Item 3.

Legal
    Proceedings


37Item 4.

Submission of
    Matters to a Vote of Security Holders


38PART IIItem 5.

Market for
    Registrants Common Equity and Related Stockholder Matters
    and Issuer Purchases of Equity Securities


38Item 6.

Selected Financial
    Data


41Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


42Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


58Item 8.

Financial
    Statements and Supplemental Data


59Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


59Item 9A.

Controls and
    Procedures


59Item 9B.

Other
    Information


62PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


62Item 11.

Executive
    Compensation


62Item 12.

Security Ownership
    of Certain Beneficial Owners and Management


62Item 13.

Certain
    Relationships and Related Transactions


62Item 14.

Principal
    Accounting Fees and Services


62PART IVItem 15.

Exhibits and
    Financial Statement Schedules


63Severance Agreement - HantmanSeverance Agreement - KrinskyAnnual Bonus PlanAmended and Restated Credit AgreementSecond Amendment to Amended and Restated Credit AgreementAmended and Restated 1999 Stock PlanRestricted Stock Agreement - GoliebRestricted Stock Agreement - LevineNew Drug Services Amended AgreementSubsidiariesConsent of Independent Registered Public Accounting FirmSection 302 CEO CertificationSection 302 CFO CertificationSection 906 CEO CertificationSection 906 CFO Certification   i




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##### Table of Contents



PART I  Form 10-K, three-for-two
  Item 1.
    Business.  General
    state-of-the-art
    difficult-to-recruit
   1




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Date of Transaction

Name

Current Business

LocationDecember 2004

PharmaNet, Inc.

Late Stage Clinical Trial
    Management

Nine North American offices
    Twelve European offices plus Buenos Aires, Argentina; Sydney,
    Australia; Bangalore, India; Mumbai, India; and SingaporeJuly 2004

Taylor Technology, Inc.

Bioanalytical Laboratory

Princeton, New JerseyOctober 2003

SFBC Anapharm Europe

Bioanalytical Laboratory (49%
    interest in joint venture)

Barcelona, SpainAugust 2003

Clinical Pharmacology Associates(1)

Early Stage Clinical Trials

Miami, FloridaJuly 2003

SFBC New Drug Services Canada,
    Inc.(2)
    (remaining 51% interest not previously owned by Anapharm Inc.)

Late Stage Clinical Trials
    Management

London, Ontario, CanadaMarch 2003

SynFine Research Inc.

Chemical Synthesis

Toronto, Canada 2




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Date of Transaction

Name

Current Business

LocationSeptember 2002

New Drug Services, Inc.(3)

Data Management, Biostatistical
    and Regulatory

Kennett Square, PennsylvaniaMarch 2002

Anapharm Inc.

Early Stage Clinical Trials and
    Bioanalytical Laboratory

Quebec City, CanadaEarly Stage Clinical Trials and
    Clinical Laboratory Services

Montreal, CanadaEarly Stage Clinical Trials
    (opening in third quarter 2006)

Toronto, CanadaBioanalytical Laboratory (opened
    in January 2005)

Toronto, CanadaAugust 2001

KeyStone Laboratories

Bioanalytical Laboratory

Philadelphia, PennsylvaniaFebruary 2001

Lee Coast Research, Inc.

Early Stage Clinical Trials (120
    beds)

Ft. Myers, FloridaMarch 2000

Pharmaceutical Development
    Associates, Inc.(2)

Late Stage Clinical Trials
    Management

Charlotte, North Carolina1984 (formation)

SFBC International, Inc.

Early Stage Clinical Trials and
    Clinical Laboratory Services

Miami, Florida     (1)
    
    Now part of our Miami subsidiary.(2)
    
    Now part of PharmaNet.(3)
    
    Now operating as Clinical Pharmacology Services.  Industry
    Overview
     3




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The
    product development process
  Branded
    drugs
        
    Phase I trials involve testing a drug on a limited number
    of participants, typically 20 to 80 persons per study, to
    determine the drugs basic safety data, including
    tolerability, absorption, metabolism and excretion. This phase,
    which lasts an average of six months to one year, is comprised
    of numerous clinical trials of short duration.
    Phase II trials involve testing a small number of
    participants, typically 100 to 200 persons who qualify for
    inclusion in a clinical trial based upon meeting the applicable
    trial protocols criteria and having a particular medical
    condition, to determine the drugs safety profile and
    effectiveness and how different doses work. This phase, which
    lasts an average of one to two years, is comprised of several
    longer duration clinical trials.
    Phase III trials involve testing large numbers of
    participants with a medical condition, typically several
    hundred, to verify drug efficacy and safety on a large scale.
    These trials usually involve numerous sites.
    Multiple trials are often conducted within each of Phase I
    through Phase III. After successfully completing all three
    clinical phases, a company submits a new drug application, or
    NDA, to the FDA requesting that the drug be approved for
    marketing. The NDA is a comprehensive filing that includes,
    among other things, the results of all pre-clinical studies and
    clinical trials. In other countries in which we operate, a
    similar filing procedure is required with the respective
    equivalent governmental authorities.
    Phase IV clinical trials, which are conducted after drug
    approval, may also be required by the FDA or equivalent foreign
    regulatory authority. These additional trials are required in
    order to monitor long-term risks and benefits, to study
    different dosage levels or to evaluate different safety and
    efficacy parameters.  Generic
    drugs
   4




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505(b)(2)
    approval
    Medical
    devices
    Industry
    trends
   5




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Emergence
    of new research technologies that are resulting in greater drug
    development activities
      Escalating
    research and development expenditures by pharmaceutical
    companies
    Changes
    in the regulatory environment
     6




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30-day
  Growth
    of the biotechnology industry
    Growth
    of the generic drug industry
    Increasingly
    global scope of clinical trials
      Difficulties
    in recruiting trial participants, especially special
    populations
   7




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Our
    Competitive Strengths
    Our
    ability to provide a comprehensive range of clinical development
    and complementary services
    Our
    ability to recruit
     8




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The
    scope of our clinical trials facilities
    $33-$35 million on-site
       9




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Our
    experience
    Our
    Strategy
    Leveraging
    complementary early clinical and late phase development services
    and client relationships
    Leveraging
    our global platform to provide a complete range of drug
    development services worldwide
   10




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Expanding
    our bioanalytical laboratory business
        Restoring
    our Miami business to its former position as a leading provider
    of Phase I clinical trials
    Augmenting
    our current range of services through strategic
    acquisitions
   11




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Our
    Services
    Early
    stage clinical development services
      Laboratory
    services
    Late
    stage clinical development services
    Data
    management and biostatistics
  state-of-the-art
 12




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Issues
    Relating to Our Miami Facility
  The
    Bloomberg Reports
      Structural
    and other Building Department issues
   13




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Parking
    and bed issues
    Land
    lease litigation
  99-year
    Future
    plans with regard to the Miami facility
  state-of-the-art
  Institutional
    Review Board issue
   14




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2005-2006,
    Credentials
    of employees
            FDA
    issues
   15




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United
    States Senate Finance Committee request
    Class
    actions and derivative litigation
    Our
    solution to the problems in Miami
       16




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
    appointing the president of Anapharm to also manage all of our
    bioanalytical laboratories;
    appointing Anapharms chief operating officer to manage all
    of our clinical trial facilities; and
    hiring a new senior executive to initially supervise our Miami
    and Ft. Myers clinical trial facilities.        Montreal
    Tuberculosis Issue
    Clients
    and Marketing
  out-of-pockets out-of-pockets.
   17




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Our
    Competitors
      
    the ability to recruit doctors and special population
    participants for clinical trials;
    medical and scientific expertise in specific therapeutic areas;
    the ability to organize and manage large-scale trials;
    the quality of their services;
    the range of services they provide;
    financial stability; and
    the cost of services they provide.        Indemnification
    and Insurance
   18




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
    indemnification provisions and provisions seeking to limit or
    exclude liability contained in our contracts with clients and
    investigators;
    insurance maintained by clients and investigators and by
    us; and
    complying with various regulatory requirements, including the
    use of institutional review boards and the procurement of each
    participants informed consent to participate in the study.      Government
    Regulation
      
    selecting qualified investigators and sites; 19




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
    obtaining specific written commitments from investigators;
    verifying that informed consents are obtained from participants;
    monitoring the validity and accuracy of data;
    verifying that we account for the drugs provided to us by our
    clients; and
    instructing investigators to maintain records and reports.    right-to-know
         20




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and/or
      Backlog
      Backlog

December 31, 2005


December 31, 2004Total

$
360.9 million


$
311.5 millionLate Stage

$
317.9 million


$
264.2 millionEarly Stage

$
43.0 million


$
47.3 million      21




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Seasonality
    Employees
    Available
    information
  Form 10-K, Form 10-Q, Form 8-K,
 Item 1A.  Risk
    Factors.  Form 10-K
    Risks
    Associated with Recent Actions, Inquiries and Lawsuits
  If we
    are unable to convince our clients that the problems principally
    related to our Miami facility were either not accurately
    reported or have been rectified, we may lose future revenue and
    our future results of operations may be materially and adversely
    affected.
   22




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If we
    are unable to deal with all of the issues affecting the property
    upon which our Miami facility operates, we may lose future
    revenue and our future results of operations may be materially
    and adversely affected.
    
    Our principal Miami facility is required to obtain a building
    permit by late April 2006 and to make structural repairs within
    180 days thereafter that are necessary to operate the
    facility in compliance with applicable regulations.
    We very recently learned that the County Building Department
    believes the Miami facility should be classified as a generic
    I-2 or institutional classification. This will increase our
    remediation costs unless we appeal the ruling and are
    successful. Additionally, we need to comply with all Fire
    Department requirements in connection with our remediation plan.
    We are uncertain whether the Fire Department will approve our
    remediation plan, whether additional revisions will be required
    and what, if any, costs we will incur.
    The owner of the land lease covering the South building and a
    small part of the central annex has instituted a lawsuit to have
    the Court declare that we defaulted under the land lease, which
    if adversely determined, would cause us to move from the South
    building and a portion of an annex to the North building which
    would involve a material cash capital expenditure and reduce the
    bed capacity to approximately 250 beds.
    Regardless, if we successfully resolve the above problems, we
    may not have sufficient parking to operate either the current
    facility or simply the North building and the majority of the
    annex. Construction of a parking structure not only requires
    zoning approval which is a lengthy process, but also involves a
    material cost.
    While we own an empty building in the City of Miami which was
    operated by Clinical Pharmacology Associates before our purchase
    of it in 2003, we estimate that it would take six months to
    obtain the necessary regulatory approvals and make structural
    improvements to operate that property as a Phase I clinical
    trials facility. Presently, we have no intent to re-open that
    property.
    The issues affecting our Miami facility and adverse publicity
    may also cause employees to leave us and subjects who
    participate in our Phase I trials in Miami may decline to
    do so in the future.      While
    we are cooperating with the requests of the Senate Finance
    Committee for documents and will produce current employees if
    their presence before the Committee or its staff is requested,
    we are concerned that continued public disclosure could cause
    clients to withhold future work from us.
  and/or
 23




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Depending
    upon the outcome, the inquiry by the SEC can result in our being
    sued by the SEC and being subject to equitable relief including
    payment of a fine and civil monetary penalties.
  Form 8-K
  The
    pending FDA open item and other FDA inspections may cause
    clients not to award future contracts to us or cancel existing
    contracts, which may have a material and adverse affect on our
    future results of operations.
    While
    we have insurance coverage in connection with the pending class
    actions, the potential adverse outcome may exceed our insurance
    coverage.
   24




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If
    there is an adverse outcome in the securities class action
    lawsuits that have been filed against us, our business may be
    materially harmed. Further, defending against these and other
    lawsuits may be expensive and could divert the attention of our
    management.
  and/or
    If we
    are unable to stabilize our operations in Miami, we may be
    unable to compete effectively in that area.
    The
    risks set forth immediately above as well as those in the
    balance of these risk factors may cause us not to meet our 2006
    or future earnings guidance, which could cause our stock price
    to fall substantially.
    Risks
    Related to Our Business
  We
    have grown rapidly over the last few years, and our growth has
    placed, and is expected to continue to place, significant
    demands on us.
   25




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A
    significant portion of our growth has come from acquisitions,
    and we may make more acquisitions in the future as part of our
    continuing growth strategy. This growth strategy subjects us to
    numerous risks.
    
    we will identify suitable acquisition candidates;
    we will receive the required consent under our outstanding
    credit facility;
    we can consummate acquisitions on acceptable terms;
    we can successfully integrate any acquired business into our
    operations or successfully manage the operations of any acquired
    business; or
    we will be able to retain an acquired companys significant
    client relationships, goodwill and key personnel or otherwise
    realize the intended benefits of any acquisition.   26




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We are
    subject to changes in outsourcing trends and regulatory
    requirements affecting the branded pharmaceutical,
    biotechnology, generic drug and medical device industries which
    could adversely affect our operating results.
    If
    branded pharmaceutical, biotechnology, generic drug or medical
    device companies reduce their expenditures, our future revenue
    and profitability may be reduced.
    If we
    do not continue to generate a large number of new client
    contracts, or if our clients cancel or defer contracts, our
    future profitability may be adversely affected.
    
    manufacturing problems resulting in a shortage or unavailability
    of the drug we are testing;
    a decision by a client to de-emphasize or cancel the development
    of a drug;
    unexpected clinical trial results;
    adverse participant reaction to a drug;
    an action by regulatory authorities (for example, in the United
    States, the FDA, and in Canada, the TPD);
    continued publicity relating to the Senate Finance
    Committees interest in our Miami facility;
    inadequate participant enrollment; and
    any of the factors discussed in the other risk factors relating
    to issues regarding our Miami facility.   27




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At any
    given time, one or a limited number of clients may account for a
    large percentage of our revenue, which means that we could face
    a greater risk of loss of revenue if we lose a major
    client.
    We may
    bear financial risk if we under-price our contracts or overrun
    cost estimates.
    If we
    are not able to remediate the material weaknesses relating to
    our internal controls or if we incur further instances of
    breakdowns in our internal controls, current and potential
    stockholders could lose confidence in our financial reporting,
    which would harm our business and the price of our common
    stock.
    Our
    indebtedness may impact our financial condition and results of
    operations and the terms of our outstanding indebtedness may
    limit our activities.
   28




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
    we may be required to use a portion of our cash flow from
    operations for the payment of principal and interest due on our
    outstanding indebtedness;
    our outstanding indebtedness and leverage will increase the
    impact of negative changes in general economic and industry
    conditions, as well as competitive pressures; and
    the level of our outstanding indebtedness may affect our ability
    to obtain additional financing for working capital, capital
    expenditures or general corporate purposes.    
    seek additional financing in the debt or equity markets;
    seek to refinance or restructure all or a portion of our
    indebtedness;
    sell selected assets; or
    reduce or delay planned capital expenditures.      
    incur indebtedness;
    create liens;
    make investments or loans;
    engage in transactions with affiliates;
    pay dividends or make other distributions on, or redeem or
    repurchase, capital stock;
    issue capital stock;
    make capital expenditures;
    sell assets; and
    pursue mergers or acquisitions.   29




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We may
    not have sufficient funds to pay the principal return upon
    conversion or to repurchase our outstanding convertible senior
    notes under circumstances when we are required to do
    so.
      Our
    operating results can be expected to fluctuate from period to
    period.
    If we
    are required to write off goodwill or other intangible assets,
    our financial position and results of operations would be
    adversely affected.
   30




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Our
    business is subject to international economic, political and
    other risks that could negatively affect our results of
    operations or financial position.
    
    Less stable political and economic environments and changes in a
    specific countrys or regions political or economic
    conditions;
    Potential negative consequences from changes in tax laws
    affecting our ability to repatriate profits;
    Unfavorable labor regulations;
    Greater difficulties in managing and staffing foreign operations;
    Currency fluctuations;
    Changes in trade policies, regulatory requirements and other
    barriers;
    Civil unrest or other catastrophic events; and
    Longer payment cycles of foreign customers and difficulty
    collecting receivables in foreign jurisdictions.    Our
    substantial non-United States operations expose us to currency
    risks.
    We
    could be adversely affected by tax law changes in Canada or in
    other jurisdictions.
   31




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Governmental
    authorities may question our inter-company transfer pricing
    policies or change their laws in a manner that could increase
    our effective tax or otherwise harm our business.
    Because
    we are smaller than our largest competitors, we may lack the
    resources needed to compete effectively.
    If we
    do not continue to develop new assay methods for our analytical
    applications, we may be unable to compete with other entities
    offering bioanalytical laboratory services.
    We
    risk potential liability when conducting clinical trials, which
    could cost us large amounts of money.
    
    adverse side effects and reactions resulting from administering
    these drugs to a clinical trial participant;
    unintended consequences resulting from the procedures
    and/or
    changes in medical practice to which a study participant may be
    subject as part of a clinical trial;
    improper administration of these drugs; or
    potential professional malpractice of our employees or
    contractors, including physicians.   32




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We
    face a risk of liability from our handling and disposal of
    medical wastes, which could cause us to incur significant costs
    or otherwise adversely affect us.
  clean-up
  Failure
    to comply with applicable governmental regulations could harm
    our operating results and reputation.
  and/or and/or and/or
  If we
    lose the services of our key personnel or are unable to attract
    qualified staff, our business could be adversely
    affected.
    Our
    business depends on the continued effectiveness and availability
    of our information technology infrastructure, and failures of
    this infrastructure could harm our operations.
   33




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Risks
    Related to Our Common Stock
  We may
    issue a substantial amount of our common stock in the future
    which could cause dilution to new investors and otherwise
    adversely affect our stock price.
    Recent
    changes in accounting standards could limit the desirability of
    granting stock options, which could harm our ability to attract
    and retain employees, and could also negatively impact our
    results of operations.
  out-of-the-money
  Our
    stock price can be extremely volatile, and your investment could
    suffer a decline in value.
    
    actual or anticipated variations in quarterly operating results,
    including changes in our guidance as to forecasted earnings;
    changes in financial estimates by securities analysts;
    media articles such as the Bloomberg Reports;
    adverse events arising in connection with our Miami facility
    including events related to the property;
    loss of a major client or contract;
    new service offerings introduced or announced by our competitors; 34




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
    changes in market valuations of other similar companies;
    our announcement of significant acquisitions, strategic
    partnerships, joint ventures or capital commitments;
    additions or departures of key personnel; and
    sales of our common stock, including short sales.    Anti-takeover
    provisions in our charter documents and under Delaware law may
    make an acquisition of us, which may be beneficial to our
    stockholders, more difficult, which could depress our stock
    price.
     Item 1B.  Unresolved
    Staff Comments.    Item 2.
    Properties.    Approximate Square





Approximate BaseLocation

Footage

Type of Holding

Expiration

Monthly RentMiami, FL

160,000

Owned

N/A


N/AMiami, FL

Land

Leased

2045

$
1,250 35




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Approximate Square





Approximate BaseLocation

Footage

Type of Holding

Expiration

Monthly RentMiami, FL

15,000 (plus land)

Owned

N/A


N/AKennett Square, PA

8,000

Leased

August 2006 in part
    and balance is
    month to month with
    90 day notice for
    termination

$
15,700Philadelphia, PA

8,000

Leased

month to month with
    90 day notice for
    termination

$
4,167Quebec City, Canada

79,529

Leased

June 2007 to August
    2007

$
91,806Quebec City, Canada

Land

Owned

N/A


N/AMontreal, Canada

57,596

Leased

March 2011

$
90,519Toronto, ON, Canada

18,390

Owned

N/A


N/ABarcelona, Spain

4,200

Leased

August 2008

$
2,474Ft. Myers, FL

25,818

Leased

December 2007

$
31,010Tampa, FL

3,650

Leased

November 2006

$
3,473Pinellas Park, FL

756

Leased

August 2006

$
809Princeton, NJ

151,579

Leased

March 2006 to
    March 2016

$
102,525Princeton, NJ

121,990

Leased

June 2011

$
177,902Blue Bell, PA

44,708

Leased

July 2014

$
75,328Washington, DC

8,323

Leased

November 2011

$
29,824Research Triangle Park (Cary), NC

19,255

Leased

November 2008

$
36,103Chicago (Deerfield), IL

12,112

Leased

December 2012

$
15,645San Diego, CA

12,055

Leased

July 2012

$
25,315Boston, MA

6,098

Leased

October 2010

$
11,942Charlotte, NC

17,604

Leased

June 2010

$
22,005Buenos Aires, Argentina

4,736

Leased

September 2008

$
3,829High Wycombe, U.K.

45,000

Leased

August 2012

$
83,715Paris, France

7,760

Leased

July 2011

$
46,143Frankfurt, Germany

7,792

Leased

May 2007

$
16,671Munich, Germany

1,245

Leased

December 2006

$
2,445Stockholm, Sweden

2,476

Leased

January 2008

$
3,419Amersfoort, Netherlands

12,959

Leased

August 2007

$
21,111Zurich (Zumikon), Switzerland

6,468

Leased

February 2006

$
9,102Warsaw, Poland

2,938

Leased

November 2007

$
13,285Madrid, Spain

5,242

Leased

September 2006

$
18,946Moscow, Russia

4,466

Leased

September 2007

$
29,382Bangalore, India

5,768

Leased

November 2007

$
6,286Sydney, Australia

11,840

Leased

November 2008

$
16,751Mumbai, India

13,265

Leased

August 2008

$
15,962London, Ontario, Canada

7,461

Leased

June 2006

$
11,573St. Petersburg, Russia

4,370

Leased

December 2008

$
25,373 36




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Approximate Square





Approximate BaseLocation

Footage

Type of Holding

Expiration

Monthly RentSingapore

3,079

Leased

April 2008

$
8,563Kiev, Ukraine

4,806

Leased

February 2007

$
83,715   Item 3.
    Legal
    Proceedings.          Rule 10b-5
   37




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Item 4.
    Submission
    of Matters to a Vote of Security Holders.   PART II  Item 5.
    Market
    for Registrants Common Equity and Related Stockholder
    Matters and Issuer Purchases of Equity Securities.  Market
    Information
  three-for-two
 38




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##### Table of Contents



High


LowFiscal year ending
    December 31, 2004First Quarter

$
21.33


$
17.33Second Quarter


31.50



18.39Third Quarter


35.22



25.10Fourth Quarter


41.00



25.62Fiscal year ending
    December 31, 2005First Quarter

$
43.71


$
33.50Second Quarter


39.28



27.86Third Quarter


45.73



37.41Fourth Quarter


45.29



12.38   Holders
    Dividend
    Policy
    Securities
    Authorized for Issuance Under Equity Compensation
    Plans
    Number of Securities to be





Number of SecuritiesIssued Upon Exercise of


Weighted Average Price of


Remaining Available forPlan Category

Outstanding Options


Outstanding Stock
    Options


Future Issuance1999 Stock Plan approved by
    security holders


1,460,367


$
18.59



216,063Employee Stock Purchase Plan
    approved by security holders


83,582


$
13.61



194,961Stock Option Agreements not by
    approved security holders


862,697


$
41.42



   Recent
    Sales of Unregistered Securities
   39




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##### Table of Contents



Purchase
    of Equity Securities by the Issuer and Affiliated
    Purchasers
  (d)(c)


Maximum NumberTotal Number of


(or ApproximateShares (or Units)


Dollar Value) of(a)


(b)


Purchased as Part


Shares (or Units)Number of


Average Price


of Publicly


That May yet beShares (or Units)


Paid per Share (or


Announced Plans or


Purchased Under thePeriod

Purchased


Unit)


Programs(1)


Plans or ProgramsJanuary
    1  January 31, 2005





$







$
February
    1  February 28, 2005





$







$
March
    1  March 31, 2005





$







$
April
    1  April 30, 2005





$







$
May
    1  May 31, 2005





$







$
June
    1  June 30, 2005





$







$
July
    1  July 31, 2005





$







$
September
    1  September 30, 2005





$







$
October
    1  October 31, 2005





$







$
November
    1  November 30, 2005


100,000


$
31.30



100,000


$
26,700,000December
    1  December 31, 2005


506,300


$
18.36



506,300


$
17,600,000Total


606,300


$
20.49



606,300


$
17,600,000     (1)
    
    SFBC initially announced its share repurchase program in 2001,
    authorizing it to repurchase up to 1,000,000 shares of its
    common stock. SFBC announced on December 2, 2005 that it
    had amended its share repurchase program and authorized the
    repurchase of up to $30 million of its common stock. 40




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##### Table of Contents



Item 6.
    Selected
    Financial Data.  three-for-two
  2001


2002


2003


2004


2005(In thousands, except per share
    data)Consolidated statements of
    operations data:Direct revenue

$
31,471


$
64,740


$
93,784


$
148,919


$
334,751Direct costs

$
18,151


$
36,728


$
49,241


$
75,793


$
191,139Selling, general and
    administrative expenses

$
7,556


$
17,867


$
29,965


$
45,598


$
102,343Goodwill impairment

















$
20,315Total direct costs and expenses

$
25,707


$
54,595


$
79,206


$
121,391


$
313,797Earnings from operations

$
5,764


$
10,145


$
14,579


$
27,529


$
20,954Interest expense-netInterest income

$
359


$
447


$
272


$
1,346


$
891Interest (expense)

$
(27
)

$
(282
)

$
(427
)

$
(2,691
)

$
(12,017
)Earnings before taxes

$
6,096


$
10,310


$
14,424


$
26,183


$
9,828Income tax expense

$
2,276


$
2,442


$
2,842


$
6,199


$
4,496Earnings before minority interest

$
3,820


$
7,868


$
11,582


$
19,985


$
5,331Minority interest in joint venture













$
326


$
552Net earnings

$
3,820


$
7,868


$
11,582


$
19,659


$
4,779Earnings per shareBasic

$
0.63


$
0.74


$
0.99


$
1.31


$
0.27Diluted

$
0.54


$
0.70


$
0.92


$
1.25


$
0.26   As of
    December 31,2001


2002


2003


2004


2005Consolidated balance sheet
    data:Cash and cash equivalents

$
39,103


$
6,361


$
56,020


$
24,909


$
30,668Accounts receivable, net

$
10,454


$
21,754


$
32,858


$
98,067


$
117,872Working capital

$
44,593


$
20,805


$
79,381


$
51,097


$
51,594Total assets

$
60,484


$
85,959


$
173,051


$
558,187


$
572,537Long term debt, including current
    portion

$
9


$
4,148


$
5,651


$
277,517


$
168,223Stockholders equity

$
54,631


$
68,559


$
149,943


$
172,415


$
282,282  41




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.    Overview
        2005


2004


2003(1)SFBC Miami


12



12



12SFBC Ft. Myers


12



12



12SFBC Analytical


12



12



12Anapharm


12



12



12SFBC Charlotte(1)


12



12



12SFBC New Drug Services(1)


12



12



12Clinical Pharmacology Associates(2)


12



12



5SFBC New Drug Services Canada(3)


12



12



6SFBC Taylor Technology


12



5



0PharmaNet(4)


12



0



0     (1)
    
    We merged SFBC Charlotte into SFBC New Drug Services in April
    2003. In 2005, the former SFBC New Drug Services was divided
    into two entities. The early stage portion was operated as a
    stand alone entity, Clinical Pharmacology Services. The late
    stage portion was merged into PharmaNet operations.(2)
    
    Included in SFBC Miami.(3)
    
    SFBC New Drug Services Canada was a 49% subsidiary of SFBC
    from March 15, 2002 through June 2003 and its results were
    reported during that time using the equity method.(4)
    
    As a result of our acquisition of PharmaNet on December 22,
    2004, PharmaNets net revenue and operating expenses
    (excluding amortization of intangibles) during the nine-day
    period had a net neutral effect on net earnings and were not
    included in our financial results for 2004.    
    Our direct revenue increased to approximately
    $334.8 million from approximately $148.9 million;
    Our net earnings decreased from approximately $19.7 million
    to approximately $4.8 million primarily as a result of a
    one time non-cash goodwill impairment charge of approximately
    $20.3 million incurred in our Miami operations; 42




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##### Table of Contents




    Our earnings per share decreased from $1.25 to $0.26 per
    share primarily as a result of a one time non-cash goodwill
    impairment charge of approximately $20.3 million, incurred
    in our Miami operations;
    We reduced the amount borrowed on our credit facility from
    $125.0 million to $17.0 million primarily as a result
    of our March 2005 public offering and we incurred non-cash
    write-offs of deferred financing charges of approximately
    $3.3 million as a result of this paydown and amendments on
    our credit facility;
    Net cash provided by operating activities was approximately
    $49.4 million;
    We purchased land in Quebec City, Canada intended to house a new
    expanded facility for Anapharms operations;
    Excluding allocation of corporate overhead, our late stage
    subsidiary, PharmaNet, which we acquired on December 22,
    2004, had recorded direct revenue of $157.5 million and
    pre-tax earnings of approximately $18.5 million in pre-tax
    profits from operations which includes a loss of approximately
    $1.4 million from the merged operations of SFBC New Drug
    Services and the late stage Canadian business;
    Excluding allocation of corporate overhead, Anapharm had record
    direct revenue of $86.5 million and pre-tax earnings of
    $15.4 million;
    Our Miami operations were significantly affected by the events
    described in Item 1 of this Report which resulted in a
    $20.3 million impairment charge. The events also led to an
    approximate $3.8 million severance charge. Additionally, we
    incurred additional legal costs of approximately
    $0.7 million resulting to the events which affected this
    facility;
    While our Miami subsidiarys direct revenue increased by
    approximately 20.9% to $58.7 million, its direct revenue
    and earnings from operations fell significantly in the second
    half of the year, particularly in the fourth quarter.    out-of-pocket out-of-pockets, out-of-pocket
  out-of-pocket
 43




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and/or
    Critical
    Accounting Estimates
      Revenue and Cost Recognition. percentage-of-completion
  percentage-of-completion
   44




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EITF 01-14 out-of-pockets out-of-pocket
    Collectibility of Accounts Receivable.
      Income Taxes.
   45




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Goodwill.
  Impairment of Assets.
  Stock Based Compensation.
  Other Estimates.
 46




---



##### Table of Contents



Results
    of Operations
  Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
    2005


2004(In thousands, except per share
    data)Direct revenue

$
334,751



100.0
%

$
148,919



100.0
%Direct costs


191,139



57.1



75,793



50.9SG&A


102,343



30.6



45,598



30.6Goodwill impairment


20,315



6.1







Interest (expense) - net


(11,126
)


(3.3
)


(1,345
)


(0.9
)Earnings before taxes and minority
    interest


9,828



2.9



26,183



17.6Minority interest in joint venture


552



0.2



326



0.2Income tax expense


4,496



1.3



6,199



4.2Net earnings

$
4,779



1.4
%

$
19,659



13.2
%Earnings per share(1)Basic

$
0.27






$
1.31Diluted

$
0.26






$
1.25   (1)
    
    The earnings per share have been adjusted to reflect the May
    2004
    three-for-two
    stock split as a stock dividend.  Direct
    revenue
  out-of-pocket
    
    PharmaNet contributed approximately $152.5 million in
    direct revenue;
    An increase in Anapharms direct revenue from
    $74.9 million to approximately $86.5 million in direct
    revenue;
    A significant increase in our early stage direct revenue in
    Miami from approximately $48.5 million to
    $58.7 million. However, 60% of the 2005 net revenue
    came in the first half, 24% in the third quarter and 16% in the
    fourth quarter; and
    A full year of operations at Taylor Technology, Inc. which we
    acquired in July 2004.   47




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##### Table of Contents



Direct
    costs
    Gross
    profit margins
      Selling,
    general and administrative expenses
             48




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##### Table of Contents



Interest
    income (expense)
        Income
    tax expenses
  non-U.S. and non-U.S. and
    
    the relative profits generated primarily in the United States,
    Canada and Europe;
    our ability to utilize Canadian tax credits; 49




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##### Table of Contents




    the applicable foreign tax rates then in effect; and
    transfer pricing.    Earnings
    per share
  3-for-2
       50




---



##### Table of Contents



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


2003(In thousands, except per share
    data)Direct revenue

$
148,919



100.0
%

$
93,784



100.0
%Direct costs


75,793



50.9



49,241



52.5SG&A


45,598



30.6



29,965



32.0Interest Expense (Income)


(1,345
)


(0.9
)


(155
)


(0.1
)Earnings before taxes and minority
    interest


26,183



17.6



14,424



15.4Minority Interest in Joint venture


326



0.2







0.0Income tax expense


6,199



4.2



2,842



3.0Net earnings

$
19,659



13.2
%

$
11,582



12.3
%Earnings per share(1)Basic

$
1.31






$
0.99Diluted

$
1.25






$
0.92     (1)
    
    The earnings per share have been adjusted to reflect the May
    2004
    three-for-two
    stock split as a stock dividend.  Direct
    revenue
      
    An increase in Anapharms consolidated revenue from
    $49.3 million to approximately $74.9 million;
    A significant increase in our United States Phase I and
    Phase II revenue;
    A full year of operations from Clinical Pharmacology;
    Our acquisition of Taylor Technology, Inc.; and
    A full year of operations from SFBC Anapharm Europe.    Direct
    costs
  out-of-pocket
 51




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Gross
    profit margins
    Selling,
    general and administrative expenses
        Interest
    income (expense)
    Income
    tax expenses
   52




---



##### Table of Contents



Earnings
    per share
  3-for-2
    Effects
    of Inflation
    Liquidity
    and Capital Resources
       53




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##### Table of Contents



54




---



##### Table of Contents



55




---



##### Table of Contents



Contractual
    Obligations
  Payments Due by PeriodLess Than








More ThanTotal


1 Year


1-3 Years


3-5 Years


5 YearsCredit Facility and Line of Credit
    Obligations(1)

$
17,000,000


$
17,000,000











Convertible Notes


143,750,000















143,750,000Interest on Convertible Notes


61,453,125



3,234,375



6,468,750



6,468,750



45,281,250Capital Lease Obligations


7,532,624



3,071,051



3,729,732



731,841



Operating Lease Obligations


71,088,306



13,999,772



24,091,514



18,199,033



14,797,987Purchase Obligations(2)


16,229,970



14,288,782



1,941,188







Other Long-Term Liabilities
    Reflected on the Registrants Balance Sheet under GAAP


2,455,992



2,227,996



227,996







Total

$
319,510,017


$
53,821,977


$
36,459,180


$
25,399,624


$
203,829,237     (1)
    
    The $17.0 million is presently due in 2009. It is listed as
    due in less than one year solely because of the credit facility
    violations at December 31, 2005, which were subsequently
    waived.(2)
    
    Currently Anapharm is contractually committed to build a
    100,000 square foot building estimated to cost
    approximately $15,000,000. Anapharm has indicated to the builder
    that it wishes to expand the size of the building to
    approximately 150,000 square feet. The extra
    50,000 square feet is anticipated to cost an additional
    amount of approximately $7,000,000. Anapharm has indicated to
    third parties that it is interested in entered into a sale
    leaseback transaction including the sale of the underlying land
    it purchased for $1.6 million in December 2005. Anapharm
    will not enter into a contractual agreement to build the extra
    50,000 square foot unless it can be assured of entering
    into a sale leaseback arrangement. Consequently, the $7,000,000
    has been excluded from the contractual obligation table.  Off
    Balance Sheet Commitments
       56




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##### Table of Contents



New
    Accounting Pronouncements
        Forward-Looking
    Statements
   57




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Market
    risk
  available-for-sale available-for-sale available-for-sale
      Currency
    risk
   58




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##### Table of Contents



Interest
    rate risk
    Item 8.
    Financial
    Statements and Supplementary Data.    Item 9.
    Changes
    In and Disagreements With Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures.  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(b)
       59




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##### Table of Contents



Managements
    Report on Internal Control Over Financial Reporting
    
    pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of our assets;
    provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that our receipts and expenditures are being made only in
    accordance with authorization by management and our board of
    directors; and
    provide reasonable assurance regarding prevention or timely
    detection of an unauthorized acquisition, use or disposition of
    our assets that could have a material effect on our financial
    statements.        
    The audit for the year ended December 31, 2005 resulted in
    a number of adjusting entries. This was due to untimely review
    of reconciliations and the lack of appropriate accounting
    personnel.
    The Companys failure to identify, evaluate and disclose
    certain related party information to the Companys audit
    committee and independent auditors.    Managements
    Plans
  Regulation S-K Form 10-K
    
    In late December 2005, our Board of Directors adopted a
    resolution requiring all related party transactions, regardless
    of materiality, be first approved by our Audit Committee and
    then by the full Board of Directors;
    In March 2006, we modified our hiring practices and amended our
    Code of Ethics to require prior written approval by our human
    resources department before we hire any personnel. Human
    resources 60




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##### Table of Contents



will inquire as to any relationships to existing employees and
    will then promptly relay such information to the Audit
    Committee, if needed; and  
    In 2006, we hired additional accounting personnel. We cannot
    assure you that our independent registered public accounting
    firm will agree that we have remediated the material weaknesses.    
    a relative of our former president, Lisa Krinsky, was on our
    payroll for approximately seven and one-half years until
    December 2005 with less than $60,000 compensation per year;
    a stepchild of our former chief executive officer, Arnold
    Hantman, was on our payroll in mid-2004 through early January
    2006. During 2004 this stepchild earned approximately $42,000
    but in 2005 she earned more than $60,000;
    a
    sister-in-law
    and
    son-in-law
    of Dr. Gregory B. Holmes, an executive officer, are
    employed at our Ft. Myers, Florida location. This
    employment, their compensation of $65,000 and $45,000
    respectively, and the relationship to Dr. Holmes was
    disclosed in our 2005 proxy statement filed with the SEC.    Changes
    in Internal Control Over Financial Reporting
  Prior Quarter Error.
  Additional Controls and Enhanced
    Procedures.
  
    development of a system of control;
    management is working with project managers and project
    directors sooner in the month, thereby gaining the extra time
    for reviews;
    addition of financially oriented staff to work with project
    managers and project directors;
    monthly analytical reviews by both the operations and finance
    departments;
    creation of a checklist to be used when project managers or
    project directors are changed in the middle of a project;
    the PharmaNet chief operating officer will review and approve
    the revenue recognition on milestone and unit-based
    projects; and
    elimination of a project managers ability to modify an
    earned value analysis for a prior period, without the
    authorization of the finance department.   61




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##### Table of Contents



Item 9B.
    Other
    Information.   PART III  Item 10.
    Directors,
    Executive Officers, Promoters and Control Persons; Compliance
    With Section 16(a) of the Exchange Act.    Item 11.
    Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and
    Management.    Item 13.
    Certain
    Relationships and Related Transactions.    Item 14.
    Principal
    Accounting Fees and Services.  2005


2004Audit Fees(1)

$
1,306,433


$
1,204,794Audit-Related Fees(2)


487,320



11,400Tax Fees(3)


610,368



145,700All Other Fees


0



0Total

$
2,404,121


$
1,361,894     (1)
    
    For 2005 and 2004, Audit Fees consists of an integrated audit
    including the financial statement audit and the audit of our
    internal control over financial reporting required by
    Section 404 of the Sarbanes-Oxley Act, quarterly review
    services, and consents relating to SEC filings.(2)
    
    For 2005 and 2004, Audit Related Services consisted of
    registration statement review (in 2005), due diligence (in
    2004) and audits of employee benefit plans.(3)
    
    For 2005 and 2004, Tax Fees consisted of tax compliance services
    and tax advice including services related to PharmaNets
    foreign operations (2005 only), our European joint venture and
    Anapharm.   62




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##### Table of Contents



PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules.          Exhibit Index
  ExhibitNumber

Description3
.1

Certificate of Incorporation(1)3
.2

First Amendment to Certificate of
    Incorporation(1)3
.3

Certificate of Correction to
    Certificate of Incorporation(2)3
.4

Certificate of Correction to
    Certificate of Incorporation(7)3
.5

Certificate of Designation for
    Series A Junior Participating Preferred Stock(12)3
.6

Amended and Restated Bylaws(13)4
.1

Form of Common Stock Certificate(1)4
.2

Indenture relating to
    2.25% Convertible Senior Notes due 2024(6)4
.3

Form of 2.25% Convertible
    Senior Notes due 2024(6)4
.4

Registration Rights Agreement
    relating to 2.25% Convertible Senior Notes due 2024(6)10
.1

Jeffrey P. McMullen Employment
    Agreement(17)10
.2

Gregory B. Holmes Employment
    Agreement(10)10
.3

David Natan Employment
    Agreement(10)10
.4

David Natan Amendment to
    Employment Agreement(11)10
.5

Marc LeBel Employment Agreement(15)10
.6

Marc LeBel Amendment to Employment
    Agreement(10)10
.7

Arnold Hantman Employment
    Agreement(14)10
.8

Lisa Krinsky, M.D. Employment
    Agreement(14)10
.9

Arnold Hantman Severance Agreement10
.10

Lisa Krinsky, M.D. Severance
    Agreement10
.11

Annual Bonus Plan adopted
    May 17, 2005(16)10
.12

Amended and Restated Credit
    Agreement(10)10
.13

First Amendment to the Amended and
    Restated Credit Agreement10
.14

Second Amendment to the Amended
    and Restated Credit Agreement10
.15

Amended and Restated Security
    Agreement(10)10
.16

Amendment to 2004 Employee Stock
    Purchase Plan(10)10
.17

Amended and Restated 1999 Stock
    Plan10
.18

Shareholder Rights Agreement(12)10
.19

Audit Committee Charter(4) 63




---



##### Table of Contents



ExhibitNumber

Description10
.20

Acquisition Agreement (Clinical
    Pharmacology Associates)(3)10
.21

Agreement and Plan of Merger
    (Taylor Technology, Inc.)(8)10
.22

Amended and Restated Agreement and
    Plan of Merger with PharmaNet(9)10
.23

2004 Acquisition Stock Option
    Plan(8)10
.24

Form of Stock Option Agreement(17)10
.25

Amended and Restated Stock Option
    Agreement (Jeffrey P. McMullen)(17)10
.26

Arnold Golieb Restricted Stock
    Agreement10
.27

Jack Levine Restricted Stock
    Agreement10
.28

New Drug Services Amended Agreement21


Subsidiaries of SFBC
    International, Inc.23
.1

Consent of Grant Thornton LLP
    dated March 31, 200631
.1

Certification of Chief Executive
    Officer (Section 302)31
.2

Certification of Chief Financial
    Officer (Section 302)32
.1

Certification of Chief Executive
    Officer (Section 1350)32
.2

Certification of Chief Financial
    Officer (Section 1350)     (1)
    
    Contained in
    Form SB-2
    filed on August 17, 1999(2)
    
    Contained in
    Form SB-2
    filed on October 5, 2000(3)
    
    Contained in
    Form 8-K
    filed on August 19, 2003(4)
    
    Contained in
    Form 10-K
    filed on March 15, 2004(5)
    
    Contained in
    Form 10-KSB
    filed on March 31, 2003(6)
    
    Contained in
    Form S-3
    filed on November 2, 2004(7)
    
    Contained in
    Form 10-Q
    filed on August 4, 2004(8)
    
    Contained in
    Form 8-K
    filed on July 30, 2004(9)
    
    Contained in
    Form 8-K
    filed on December 27, 2004(10)
    
    Contained in
    Form 10-Q
    filed on August 9, 2005(11)
    
    Contained in
    Form 8-K
    filed on December 16, 2005(12)
    
    Contained in
    Form 8-A
    filed on December 28, 2005(13)
    
    Contained in
    Form 8-K
    filed on February 16, 2006(14)
    
    Contained in the
    Form 10-Q
    filed on August 9, 2005(15)
    
    Contained in the
    Form 10-KSB
    filed on April 1, 2002(16)
    
    Originally contain in the
    Form 10-Q
    filed on August 9, 2005. Is being refiled with this
    Form 10-K
    to correct a scriveners error as to the date of adoption.(17)
    
    Contained in the
    Form 10-K
    filed on March 8, 2005 64




---



##### Table of Contents



SIGNATURES
      By
    /s/  Jeffrey P. McMullen          /s/  Jack Levine, CPAJack
    Levine

Chairman of the Board of Directors

March 31, 2006/s/  Jeffrey P.
    McMullenJeffrey
    P. McMullen

Director

March 31, 2006/s/  David NatanDavid
    Natan

Vice President of Finance
    (Principal Financial Officer and
    Chief Accounting Officer)

March 31, 2006/s/  Gregory B.
    HolmesGregory
    B. Holmes

Director

March 31, 2006/s/  Lewis R. Elias,
    M.D.Lewis
    R. Elias

Director

March 31, 2006/s/  Arnold GoliebArnold
    Golieb

Director

March 31, 2006/s/  David LuckingDavid
    Lucking

Director

March 31, 2006  65




---



##### Table of Contents



CONTENTS
  PageReport of Independent Registered
    Public Accountant Firm

F-2Report of Independent Registered
    Public Accountant Firm

F-3Consolidated Financial StatementsConsolidated Balance Sheets

F-5Consolidated Statements of Earnings

F-6Consolidated Statements of Cash
    Flows

F-7Consolidated Statement of Changes
    in Stockholders Equity

F-8Notes to Consolidated Financial
    Statements

F-9  F-42  F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED
    PUBLIC ACCOUNTING FIRM
                  F-2




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED
    PUBLIC ACCOUNTING FIRM
     ,
          
    The audit for the year ended December 31, 2005 resulted in
    a number of adjusting entries. This was due to untimely review
    of reconciliations and the lack of appropriate accounting
    personnel.
    The Companys failure to identify, evaluate and disclose
    certain related party information to the Companys audit
    committee and independent auditors.   F-3




---



##### Table of Contents



F-4




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
 DECEMBER 31,
    2005 AND DECEMBER 31, 2004
  December 31,


December 31,2005


2004ASSETSCurrent AssetsCash and cash equivalents

$
30,668,417


$
24,908,585Investment in marketable securities


8,166,285



9,735,708Accounts receivable, net


117,871,669



98,067,099Income tax receivable


7,140,087



6,996,120Loans receivable from stockholders


203,644



207,288Deferred income taxes


662,615



3,562,407Prepaids and other current assets


13,314,992



6,788,903Total current assets


178,027,709



150,266,110Loans receivable from stockholders






200,000Property and equipment, net


73,265,112



63,906,271Goodwill, net


278,900,299



292,672,986Other intangibles, net


32,300,608



38,421,973Other assets, net


10,043,368



12,719,770Total assets

$
572,537,096


$
558,187,110LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable

$
11,670,062


$
15,203,741Accrued liabilities


25,121,943



15,589,798Purchase consideration due to
    stockholders


2,000,000



10,266,357Client advances, current


67,609,238



39,851,428Line of credit


17,000,000



5,000,000Capital lease obligations and notes
    payable


3,032,818



3,257,288Long term debt, current portion






10,000,000Total current liabilities


126,434,061



99,168,612Client advances


3,721,705



10,817,673Deferred income taxes


11,159,298



16,165,895Capital lease obligations and notes
    payable


4,439,794



5,510,022Long term debt






110,000,0002.25% Convertible senior notes
    payable, due 2024


143,750,000



143,750,000Minority interest in joint venture


750,639



359,581Commitments






Stockholders equityPreferred stock, $0.10 par
    value, 5,000,000 shares authorized, none issued






Common stock, $0.001 par
    value, 40,000,000 shares authorized, 18,493,364 shares
    and 15,053,888 shares issued and outstanding as of
    December 31, 2005 and December 31, 2004


18,493



15,054Additional paid-in capital


242,353,059



123,005,497Retained earnings


48,660,835



43,882,030Deferred compensation


(531,408
)


(83,467
)Accumulated other comprehensive
    earnings


4,224,147



5,596,213Common stock held in treasury, at
    cost, 606,300 shares and zero shares held at December 31,
    2005 and December 31, 2004, respectively


(12,443,527
)


Total stockholders equity


282,281,599



172,415,327Total liabilities and
    stockholders equity

$
572,537,096


$
558,187,110    F-5




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF EARNINGS
 FOR THE
    YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
  Twelve Months Ended
    December 31,2005


2004


2003Net revenueDirect revenue

$
334,750,558


$
148,919,373


$
93,784,195Reimbursed
    out-of-pockets


94,842,390



10,665,311



10,068,341Total net revenue


429,592,948



159,584,684



103,852,536Costs and expensesDirect costs


191,138,865



75,792,683



49,240,713Reimbursable
    out-of-pocket
    expenses


94,842,390



10,665,311



10,068,341Selling, general and
    administrative expenses


102,342,836



45,598,163



29,964,627Impairment of goodwill


20,315,300







Total costs and expenses


408,639,391



132,056,157



89,273,681Earnings from operations


20,953,557



27,528,527



14,578,855Other income (expense)Interest income


890,646



1,345,872



271,935Interest expense


(12,016,506
)


(2,690,995
)


(427,122
)Total other income (expense)


(11,125,860
)


(1,345,123
)


(155,187
)Earnings before income taxes


9,827,697



26,183,404



14,423,668Income tax expense


4,496,491



6,198,571



2,841,960Earnings before minority interest
    in joint venture


5,331,206



19,984,833



11,581,708Minority interest in joint venture


552,401



325,942



Net earnings

$
4,778,805


$
19,658,891


$
11,581,708Earnings per share:Basic

$
0.27


$
1.31


$
0.99Diluted

$
0.26


$
1.25


$
0.92Shares used in computing earnings
    per share:Basic


17,701,810



15,047,245



11,751,885Diluted


18,356,030



15,753,815



12,534,537    F-6




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 FOR THE
    YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
  2005


2004


2003Cash flows from operating activitiesNet earnings

$
4,778,805


$
19,658,891


$
11,581,708Adjustments to reconcile net
    earnings to net cash provided by operating activities:Depreciation and amortization


16,837,766



6,914,305



4,753,608Amortization of deferred debt
    issuance costs


5,066,597



501,152



Impairment of goodwill


20,315,300







Gain on disposal of property and
    equipment


140,959



39,116



Minority interest


552,401



325,942



Provision for bad debt


569,385



417,151



77,771Noncash
    compensation  reduction of note receivable


200,000



200,000



200,000Stock based compensation


460,999



168,449



26,400Tax benefit resulting from exercise
    of stock options


4,612,417



1,120,232



1,620,740Changes in assets and liabilitiesAccounts receivable


(20,373,955
)


(18,945,493
)


(7,695,451
)Income tax receivable


(143,967
)


1,392,796



(1,056,683
)Prepaid expenses and other current
    assets


(6,526,089
)


(261,406
)


312,018Other assets


(1,098,323
)


319,887



188,693Accounts payable


(3,533,679
)


2,913,013



(2,380,710
)Accrued liabilities


9,007,493



2,775,384



1,872,245Client advances


20,661,842



(1,007,661
)


(113,305
)Income taxes payable






520,813



684Deferred income taxes


(2,094,839
)


67,002



381,620Total adjustments


44,654,307



(2,539,318
)


(1,812,370
)Net cash provided by operating
    activities


49,433,112



17,119,573



9,769,338Cash flows from investing activitiesCash consideration for
    acquisitions, net of cash acquired






(250,122,197
)


(9,289,185
)Additional purchase price
    consideration from prior acquisitions


(9,912,838
)


(3,444,677
)


Purchase of property and equipment


(20,411,351
)


(21,903,457
)


(5,378,337
)Proceeds from the disposal of
    property and equipment


129,885



106,552



Net change in long term investments
    and marketable securities


1,569,423



(5,821,441
)


(1,498,024
)Change in loans extended to
    stockholders


(16,356
)


3,582



132,530Net cash used in investing
    activities


(28,641,237
)


(281,181,638
)


(16,033,016
)Cash flows from financing activitiesBorrowings on lines of credit


66,000,000



15,000,000



10,300,000Payments on lines of credit


(54,000,000
)


(10,000,000
)


(10,300,000
)Principal additions to long term
    debt






9,000,000



Principal payments on long term debt


(120,000,000
)


(9,000,000
)


Change in capital lease obligations
    and notes payable


(3,415,937
)


(2,019,880
)


(138,743
)Proceeds from the issuance of long
    term debt






120,000,000



Proceeds from the issuance of
    convertible senior notes






143,750,000



Debt issue costs attributable to
    financing instruments


(1,291,872
)


(11,226,762
)


Dividend payment made to
    non-controlling interest


(90,842
)






Purchase of treasury stock


(12,443,527
)






Purchase of common stock, retired






(24,952,600
)


Proceeds from stock issued under
    employee stock purchase and option plans


2,866,292



1,558,826



2,221,544Net proceeds from secondary public
    stock offering


108,049,969







53,842,839Net cash (used in) provided by
    financing activities


(14,325,917
)


232,109,584



55,925,640Net effect of exchange rate changes
    on cash


(706,126
)


840,614



(3,006
)Net increase (decrease) in cash and
    cash equivalents


5,759,832



(31,111,867
)


49,658,956Cash and cash equivalents at
    beginning of period


24,908,585



56,020,452



6,361,496Cash and cash equivalents at end of
    period

$
30,668,417


$
24,908,585


$
56,020,452Supplemental disclosures:Interest paid

$
10,791,781


$
1,213,063


$
427,122Income taxes paid

$
4,743,267


$
2,780,767


$
2,348,672Supplemental disclosures of
    non-cash investing and finance activities:Fair value of net assets
    (liabilities) assumed in connection with acquisition of
    businesses

$



$
10,331,630


$
4,394,987Additional purchase consideration
    related to the acquisition of a business

$
2,000,000


$
15,605,255


$
1,704,378Common stock issued in connection
    with acquisition of business or additional consideration

$
2,000,000


$
19,905,135


$
9,526,592Professional fees accrued in
    connection with acquisition of business

$



$
165,534


$
Change in the valuation of
    identifiable intangible assets related to the acquisition of a
    business

$
2,142,000


$



$
Restricted stock and restricted
    stock units issued as compensation

$
460,999


$
168,449


$
26,400Restricted stock units issued as
    long term incentive compensation to executives

$
1,677,061


$



$
Common stock forfeited in lieu of
    cash payment related to option exercises

$
645,000


$
2,269,125


$
Forfeiture of common stock issued
    as deferred compensation

$
768,121


$
480,464


$
Note receivable relieved in lieu of
    bonus payment

$
200,000


$
200,000


$
200,000Capital lease obligations

$
2,001,104


$
4,393,230


$
823,896    F-7




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
 FOR THE
    YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
  AccumulatedAdditional


Retained





OtherCommon Stock


Paid-In


Earnings


Deferred


Comprehensive


Common StockShares


Par Value


Capital


(Deficit)


Compensation


Earnings


Held in Treasury


TotalBalances  December 31,
    2002


11,113,023


$
11,113


$
58,064,298


$
12,641,431


$



$
18,332


$
(2,176,484
)

$
68,558,690Comprehensive earnings:Net earnings














11,581,708















11,581,708Foreign currency translation






















2,564,759







2,564,759Total comprehensive earnings






























14,146,467Issuance of common stock in
    connection with exercise of stock options and warrants


436,433



436



2,221,108



















2,221,544Proceeds from issuance of common
    stock in connection with public offering


3,000,000



3,000



55,457,000



















55,460,000Costs related to public offering










(1,617,161
)


















(1,617,161
)Issuance of common stock in
    connection with Danapharm acquisition


40,719



41



479,021



















479,062Issuance of common stock in
    connection with CPA acquisition


664,608



665



9,046,865



















9,047,530Issuance of common stock as
    deferred compensation


37,500



37



758,743







(732,380
)










26,400Retirement of common stock held in
    treasury


(306,450
)


(306
)


(2,176,178
)














2,176,484



Tax benefit resulting from the
    exercise of stock options










1,620,740



















1,620,740Balances  December 31,
    2003


14,985,833


$
14,986


$
123,854,436


$
24,223,139


$
(732,380
)

$
2,583,091






$
149,943,272Comprehensive earnings:Net earnings














19,658,891















19,658,891Foreign currency translation






















3,013,122







3,013,122Total comprehensive earnings






























22,672,013Issuance of common stock in
    connection with exercise of stock options and warrants


447,135



447



1,558,379



















1,558,826Issuance of common stock as
    additional purchase consideration for CPA earnout


75,354



75



1,999,925



















2,000,000Issuance of common stock in
    connection with Taylor Technology acquisition


133,595



134



3,820,683



















3,820,817Issuance of common stock in
    connection with PharmaNet acquisition


258,971



259



10,075,227



















10,075,486Stock options granted in connection
    with PharmaNet acquisition










6,008,832



















6,008,832Amortization of common stock issued
    as deferred compensation


















168,449











168,449Forfeiture of common stock issued
    as deferred compensation


(27,000
)


(27
)


(480,437
)






480,464











Repurchase and retirement of common
    stock


(820,000
)


(820
)


(24,951,780
)


















(24,952,600
)Tax benefit resulting from the
    exercise of stock options










1,120,232



















1,120,232Balances  December 31,
    2004


15,053,888


$
15,054


$
123,005,497


$
43,882,030


$
(83,467
)

$
5,596,213






$
172,415,327Comprehensive earnings:Net earnings














4,778,805















4,778,805Foreign currency translation






















(1,372,066
)






(1,372,066
)Total comprehensive earnings






























3,406,739Issuance of common stock in
    connection with exercise of stock options and warrants


232,408



232



1,212,674



















1,212,906Issuance of common stock in
    connection with Employee Stock Purchase Plan


55,039



55



1,653,333



















1,653,388Proceeds from issuance of common
    stock in connection with public offering


3,078,000



3,078



110,210,702



















110,213,780Costs related to public offering










(2,163,811
)


















(2,163,811
)Stock options granted in connection
    with PharmaNet acquisition










913,382



















913,382Issuance of common stock as
    additional purchase consideration for CPA earnout


53,740



54



1,999,946



















2,000,000Issuance of common stock as
    deferred compensation


52,115



52



1,677,008







(1,677,060
)










Amortization of common stock issued
    as deferred compensation


















460,998











460,998Forfeiture of common stock issued
    as deferred compensation


(31,826
)


(32
)


(768,089
)






768,121











Repurchase of common stock


























(12,443,527
)


(12,443,527
)Tax benefit resulting from exercise
    of stock options










4,612,417



















4,612,417Balances  December 31,
    2005


18,493,364


$
18,493


$
242,353,059


$
48,660,835


$
(531,408
)

$
4,224,147


$
(12,443,527
)

$
282,281,599    F-8




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE A  SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES
    three-for-two
        Revenue
    and Cost Recognition
  percentage-of-completion units-of-work units-of-work
  out-of-pockets out-of-pocket out-of-pockets out-of-pockets out-of-pocket
   F-9




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
     Collectibility
    of Accounts Receivable
          Income
    Taxes
        Impairment
    of Assets
   F-10




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
      Goodwill
    Stock
    Based Compensation
    OTHER
    ACCOUNTING POLICIES
  Principles
    of Consolidation
   F-11




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
    Cash
    and Cash Equivalents
    Investment
    in Marketable Securities
  available-for-sale available-for-sale available-for-sale
      Property
    and Equipment
    Buildings

40 yearsFurniture and fixtures

7 yearsMachinery, equipment and software

3-7 yearsTransportation

5 yearsLeasehold improvements

Shorter of remaining life of
    asset
    or remaining term of the lease   Goodwill
    and Intangible Assets
   F-12




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
           F-13




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
     Goodwill, net at December 31,
    2003

$
47,789,383Addition resulting from
    acquisitions


236,058,857Earnout relating to Clinical
    Pharmacology acquisition


8,000,000Earnout relating to New Drug
    Services acquisition


486,657Other adjustments


338,089Goodwill, net at December 31,
    2004

$
292,672,986Revaluation of separately
    identifiable intangible assets related to PharmaNet acquisition


2,142,000Earnout relating to New Drug
    Services acquisition


2,000,000Other adjustments


2,400,613Goodwill Impairment


(20,315,300
)Goodwill, net at December 31,
    2005

$
278,900,299     December 31, 2005


December 31, 2004Weighted Average

Gross





GrossAmortization Period

Carrying


Accumulated


Carrying


Accumulated(Years)

Amount


Amortization


Amount


AmortizationIntangible assets subject to
    amortizationInternally-developed software

5.0

$
454,000


$
(131,000
)

$
454,000


$
(40,000
)Subject Database

4.0


900,000



(844,000
)


900,000



(619,000
)Employment and non-compete
    agreements

3.4


1,426,000



(1,152,000
)


1,408,000



(468,000
)Methodologies

4.1


2,568,000



(1,946,000
)


2,568,000



(1,410,000
)Technology

5.0


3,859,000



(791,000
)


6,981,000



(41,000
)Contracts and customer
    relationships

6.5


12,450,000



(2,542,000
)


13,529,000



(848,000
)Subtotal




21,657,000



(7,406,000
)


25,840,000



(3,426,000
)Intangible assets not subject to
    amortizationTrade names




18,050,000







16,008,000



Total



$
39,707,000


$
(7,406,000
)

$
41,848,000


$
(3,426,000
)    F-14




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
    2006

$
3,030,0002007


2,802,0002008


2,782,0002009


2,622,0002010


1,603,000Thereafter


1,412,000$
14,251,000   Concentration
    of Credit Risk
    Fair
    Value of Financial Instruments
    Net
    Earnings Per Share
     F-15




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
         Stock
    Compensation
       F-16




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
       2005


2004


2003Net Earnings (Loss):As reported

$
4,778,805


$
19,658,891


$
11,581,708Pro forma


(3,061,884
)


15,677,247



9,786,684Basic earnings (loss) per share:As reported

$
0.27


$
1.31


$
0.99Pro forma


(0.17
)


1.04



0.83Diluted earnings (loss) per share:As reported

$
0.26


$
1.25


$
0.92Pro forma


(0.17
)


1.00



0.78            F-17




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
             Segment
    Reporting
    Legal
    Costs
    Advertising
    Expenses
   F-18




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
   Comprehensive
    Earnings
    Foreign
    Currency Translation
    Volume
    Rebates
    Reclassifications
    New
    Accounting Pronouncements
   F-19




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
       Investments
    NOTE B  MAJOR
    CUSTOMERS
      NOTE C  ACCOUNTS
    RECEIVABLE
    2005


2004Accounts
    receivable  billed

$
67,492,398


$
52,669,711Accounts
    receivable  unbilled


51,240,129



46,464,402Less allowance for changes in
    contracts


(512,614
)


(512,614
)Less allowance for doubtful
    accounts


(348,244
)


(554,400
)$
117,871,669


$
98,067,099  F-20




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
     Allowance for


Allowance forChanges in


DoubtfulContracts


AccountsBalance  January 1,
    2003

$
154,024


$
589,895Acquisitions






2003 provision


358,590



77,7712003 reductions






(205,687
)Balance  December 31,
    2003


512,614



461,979Acquisitions






110,2832004 provision






417,1512004 reductions






(435,013
)Balance  December 31,
    2004


512,614



554,4002005 provision






569,3852005 reductions






(775,541
)Balance  December 31,
    2005

$
512,614


$
348,244     NOTE D  RELATED
    PARTY TRANSACTIONS
      2005


2004


2003Salaries and benefits

$
326,306


$
290,996


$
89,300Contract Labor


115,343



159,408



254,500$
441,649


$
450,404


$
343,800      F-21




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
    Loans
    Receivable from Officers/Stockholders
    Note
    Receivable from Minority Interest
     NOTE E  PROPERTY
    AND EQUIPMENT
    2005


2004Land and Buildings

$
25,656,308


$
17,602,295Furniture and Fixtures


12,100,859



11,170,447Leasehold improvements


15,086,878



16,809,949Machinery and equipment


40,069,823



32,535,963Computer hardware and software


21,297,577



21,557,104114,211,445



99,675,758Less accumulated depreciation


(40,946,333
)


(35,769,487
)$
73,265,112


$
63,906,271      F-22




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
      NOTE F  ACCRUED
    LIABILITIES
    2005


2004Salaries, bonuses, and benefits(1)

$
13,103,051


$
7,569,801Professional fees


2,579,019



1,502,387Deferred rent


2,244,210



2,439,930Interest


1,246,948



1,477,932Value added tax


1,609,404



PharmaNet 401(k) Plan


544,652



Other


3,794,659



2,599,748$
25,121,943


$
15,589,798     (1)
    
    Includes $3,825,000 related to severance agreements.  NOTE G  DEBT
    AND CAPITAL LEASES
  Convertible
    Senior Notes Payable
  and/or
 F-23




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
   Credit
    Facility
               F-24




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
     Capital
    Leases Obligations, Long-term Debt and
    Notes Payable
    2005


2004Capital lease obligations

$
7,016,621


$
8,032,721Long-term Debt, classified as
    current at December 31, 2005


17,000,000



125,000,000Convertible Senior Notes


143,750,000



143,750,000Notes
    payable  other


455,991



734,589168,222,612



277,517,310Less current portion


20,032,818



18,257,288Long-term portion

$
148,189,794


$
259,260,022       December 31,2005


2004Equipment

$
16,486,914


$
14,485,810Less: Accumulated Depreciation


(6,416,757
)


(5,076,913
)$
10,070,157


$
9,408,898  F-25




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
     Amount2006

$
3,071,0512007


2,633,9212008


1,095,8112009


647,7972010 and thereafter


84,044Total minimum lease payments


7,532,624Less: Amount representing interest


(516,003
)Present value of minimum lease
    payments


7,016,621Less: Current portion


(2,804,822
)Long  term
    obligation under capital leases

$
4,211,799   NOTE H  COMMITMENTS
    AND CONTINGENCIES
  Leases
    2006

$
13,999,7722007


13,131,2662008


10,960,2482009


9,296,5372010


8,902,496Thereafter


14,797,987$
71,088,306     Litigation
    and Inquiries
     F-26




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  Form 8-K
    Rule 10b-5
   F-27




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
       Employment
    Agreements
  2007-2008.
   F-28




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
   Employee
    Stock Purchase Plan and PharmaNet 401(k) Plan
       F-29




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
   NOTE I  INCOME
    TAXES
      2005


2004


2003Current:Federal

$
1,731,448


$
4,060,842


$
2,410,139Foreign


7,042,116



876,479



144,741State


1,801,775



477,851



353,839Deferred


(6,078,848
)


783,399



(66,759
)$
4,496,491


$
6,198,571


$
2,841,960     Deferred
    Tax Asset (Liability)  Current
  2005


2004Accounts receivable

$
303,505


$
302,933Accrued expenses


1,199,798



885,471Prepaid expenses


(746,433
)


(269,525
)Net temporary differences due to
    conversion to accrual basis from cash basis


(84,720
)


173,729Net operating loss carryforwards






2,625,710Capital loss carryforwards


658



658Other


(10,193
)


Valuation allowance






(156,569
)Net current asset

$
662,615


$
3,562,407  F-30




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
   Deferred
    Tax Asset (Liability)  Long Term
  2005


2004Research and Development Tax
    Credits Carryforward

$
12,675,923


$
10,622,049Net Operating Loss Carryforwards


2,580,124



Deferred compensation


(8,593
)


15,189Deferred rent


682,664



874,462Foreign tax credits






535,477AMT tax credits






200,000NJ AMA tax credits


792,295



Advance payments


(312,607
)


(147,478
)Depreciation and amortization


(6,579,140
)


(7,433,966
)Deferred tax liability, research
    and development credits


(5,269,958
)


(4,252,860
)Foreign currency translation
    adjustment


(2,700,684
)


(2,008,748
)Acquired intangible assets


(12,477,363
)


(14,359,948
)Other






(210,072
)Valuation allowance


(541,959
)


Net non-current (liability)

$
(11,159,298
)

$
(16,165,895
)   2005


2004


2003Income taxes statutory rate

$
3,440,000



9,164,000


$
4,904,000State income taxes


974,000



1,181,000



1,340,000Goodwill impairment


7,110,000







Permanent differences and other


(357,000
)


271,000



56,000Tax on foreign income which
    differs from US statutory rate


(1,830,000
)






Research and development Tax
    Credits


(5,283,000
)


(4,408,000
)


(3,458,000
)Valuation allowance


440,000



(9,000
)


$
4,496,000



6,199,000


$
2,842,000        F-31




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
        2005


2004


2003United States


(18,556,280
)

$
13,105,488


$
6,803,031Foreign


28,383,977



13,077,916



7,620,6379,827,697


$
26,183,404


$
14,423,668   NOTE J  EQUITY
  Secondary
    Public Offerings
    Stock
    Based Compensation
       F-32




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
             F-33




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
     2005


2004


2003Weighted-





Weighted-





Weighted-Average





Average





AverageNumber of


Exercise


Number of


Exercise


Number of


ExerciseOptions


Price


Options


Price


Options


PriceOutstanding at beginning of year


2,171,748


$
25.97



1,499,702


$
9.49



1,908,025


$
8.89Granted


494,640



25.05



1,253,447



36.85



67,500



13.25Exercised


(250,284
)


10.20



(540,395
)


7.09



(435,447
)


6.82Forfeited


(93,040
)


33.71



(41,006
)


7.20



(40,376
)


14.89Outstanding at end of year


2,323,064


$
27.07



2,171,748


$
25.97



1,499,702


$
9.49Exercisable at end of year


2,271,481


$
26.95



1,435,909


$
23.22



1,105,626


$
9.18     Options Outstanding


Options ExercisableWeighted-Average


Weighted-





Weighted-Remaining


Average





AverageContractual


Exercise





ExerciseRange of Exercise
    Prices

Shares


Life


Price


Shares


Price$ 4.00 - $12.99


493,014



6.23


$
9.88



490,514


$
9.87$13.86 - $19.89


468,169



5.68


$
15.01



457,420


$
14.95$23.67 - $38.63


533,792



3.98


$
29.35



495,458


$
28.68$40.39 - $44.43


828,089



3.98


$
42.66



828,089


$
42.662,323,064











2,271,481     Other
      NOTE K  BUSINESS
    COMBINATIONS
  PharmaNet,
    Inc.
     F-34




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
          Current assets

$
69,194,000Property, plant, and equipment


14,167,000Intangible assets


32,650,000Goodwill


226,231,000Other Assets


2,556,000Total assets acquired


344,798,000Current liabilities


(54,256,000
)Total liabilities assumed


(94,194,000
)Net assets acquired

$
250,604,000      F-35




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
   Taylor
    Technology, Inc.
      Current assets

$
2,213,000Property, plant, and equipment


3,808,000Intangible assets


2,949,000Goodwill


14,941,000Other Assets


224,000Total assets acquired


24,135,000Current liabilities


(3,109,000
)Total liabilities assumed


(3,394,000
)Net assets acquired

$
20,741,000        F-36




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
   Unaudited
    Pro Forma Results
    2005


2004(Unaudited)Net revenue(1)

$
429,592,948


$
341,826,154Net earnings

$
4,778,805


$
16,681,287Earnings per
    share  basic

$
0.27


$
1.08Earnings per
    share  diluted

$
0.26


$
1.04     (1)
    
    Includes reimbursed
    out-of-pockets.      2005


2004Earnout related to Clinical
    Pharmacology Associates acquisition

$



$
4,000,000Earnout related to New Drug
    Services acquisition


2,000,000



300,000Purchase price adjustment related
    to TTI acquisition






606,941Purchase price adjustment related
    to PharmaNet acquisition






5,359,416$
2,000,000


$
10,266,357   NOTE L  GEOGRAPHIC
    INFORMATION
    2005


2004


2003United States

$
186,800,956


$
71,038,447


$
54,524,075Canada


88,739,721



76,100,669



50,223,298Europe


54,945,330



3,169,942



54,063Rest of World


6,139,528







336,625,535



150,309,058



104,801,436Eliminations


(1,874,977
)


(1,389,685
)


(948,900
)Consolidated direct revenue

$
334,750,558


$
148,919,373


$
103,852,536  F-37




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
   Property
    and equipment, net
  2005


2004United States

$
40,224,945


$
35,456,449Canada


26,172,979



22,281,156Europe


5,932,362



5,293,015Rest of world


934,826



875,651$
73,265,112


$
63,906,271     NOTE M  SEGMENT
    REPORTING
   F-38




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
     Early Stage


Late Stage


Other ReconcilingDevelopment


Development


Items(1)


TotalDirect revenue2005

$
177,221,149


$
157,529,409






$
334,750,5582004

$
135,044,464


$
13,874,909






$
148,919,3732003

$
85,653,817


$
8,130,378






$
93,784,195Depreciation and amortization(2)2005

$
8,923,473


$
7,914,293






$
16,837,7662004

$
6,620,936


$
293,369






$
6,914,3052003

$
4,671,069


$
82,539






$
4,753,608Goodwill impairment2005

$
20,315,300










$
20,315,3002004














2003














Operating income2005

$
14,916,573


$
18,311,009


$
(12,274,025
)

$
20,953,5572004

$
33,015,150


$
1,424,213


$
(6,910,836
)

$
27,528,5272003

$
20,157,748


$
(2,516,730
)

$
(3,062,163
)

$
14,578,855Interest revenue2005

$
381,364


$
237,496


$
271,786


$
890,6462004

$
254,981






$
1,090,891


$
1,345,8722003

$
115,453


$
12,346


$
144,136


$
271,935Interest expense2005

$
364,797


$
15,621


$
11,636,088


$
12,016,5062004

$
366,244






$
2,324,751


$
2,690,9952003

$
256,486


$
24,437


$
146,199


$
427,122Total assets2005

$
204,609,444


$
367,927,652






$
572,537,0962004

$
215,893,403


$
342,293,707






$
558,187,110Capital expenditures2005

$
17,482,976


$
5,049,614






$
22,532,5902004

$
25,974,071


$
322,616






$
26,296,6872003

$
6,090,707


$
111,526






$
6,202,233   (1)
    Represents corporate allocations.(2)
    The early stage segment was housed at the Companys
    corporate headquarters in Miami in 2005, 2004 and 2003.
    Depreciation associated with the area used for corporate
    headquarters is considered immaterial and has been allocated to
    the early stage segment.  NOTE N  SUBSEQUENT
    EVENTS
   F-39




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
   F-40




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
   NOTE O  QUARTERLY
    FINANCIAL DATA (unaudited)
    Consolidated
    Statement of Earnings Quarterly for the year 2005(1)
  31-Mar


30-Jun


30-Sep


31-Dec


TotalDirect revenue

$
77,306,576


$
82,378,527


$
87,507,026


$
87,558,429


$
334,750,558Reimbursed
    out-of-pockets


19,136,369



24,025,879



22,386,016



29,294,126



94,842,390Net revenue


96,442,945



106,404,406



109,893,042



116,852,555



429,592,948Costs and expensesDirect costs


43,894,723



45,649,031



49,013,908



52,581,203



191,138,865Reimbursable
    out-of-pockets


19,136,369



24,025,331



22,386,016



29,294,674



94,842,390Selling, general and
    administrative Expenses


21,578,083



24,611,452



25,873,824



30,279,477
(2)


102,342,836Impairment of goodwill














20,315,300



20,315,300Total costs and expenses


84,609,175



94,285,814



97,273,748



132,470,654



408,639,391Earnings from operations


11,833,770



12,118,592



12,619,294



(15,618,099
)


20,953,557Other income (expense)Interest income


397,556



156,776



140,309



196,005



890,646Interest expense(3)


(5,511,083
)


(3,052,881
)


(1,780,407
)


(1,672,135
)


(12,016,506
)Total other income (expense)


(5,113,527
)


(2,896,105
)


(1,640,098
)


(1,476,130
)


(11,125,860
)Earnings before income taxes


6,720,243



9,222,487



10,979,196



(17,094,229
)


9,827,697Income tax expense (benefit)


1,637,658



1,987,730



1,624,389



(753,286
)


4,496,491Earnings before minority interest
    in joint venture


5,082,585



7,234,757



9,354,807



(16,340,943
)


5,331,206Minority Interest in Joint Venture


57,682



116,583



192,590



185,546



552,401Net Earnings

$
5,024,903


$
7,118,174


$
9,162,217


$
(16,526,489
)

$
4,778,805Earnings per share:Basic

$
0.32


$
0.39


$
0.50


$
(0.91
)

$
0.27Diluted

$
0.30


$
0.38


$
0.48


$
(0.88
)

$
0.26   (1)
    During 2005, a clerical error made by a PharmaNet, Inc. employee
    resulted in the overstatement of net revenue and net pre-tax
    income by $609,000 for the quarter ended March 31, 2005.
    Due to additional F-41




---



##### Table of Contents



SFBC
    INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  work performed on the contract in question, the error
    self-corrected during the quarter ended September 30, 2005
    and there was no impact for the results of operations for 2005.
    Amendments to
    Form 10-Q
    for the periods ended March 31 and June 30, 2005 have
    been filed with the Securities and Exchange Commission.  (2)
    Includes approximately $3.8 million of severance charges.(3)
    In the first and second quarter of 2005, the Company paid down a
    significant portion of its debt which resulted in write-offs of
    deferred financing costs of approximately $3.3 million.  Consolidated
    Statement of Earnings Quarterly for the year 2004
  31-Mar


30-Jun


30-Sep


31-Dec


TotalNet revenueDirect revenue

$
30,120,094


$
33,329,790


$
37,212,516


$
48,256,974


$
148,919,374Reimbursed
    out-of-pockets


3,365,445



3,088,260



3,148,147



1,063,459



10,665,311Net revenue


33,485,539



36,418,050



40,360,663



49,320,433



159,584,684Costs and expensesDirect costs


15,398,503



16,909,199



18,724,664



24,760,319



75,792,683Reimbursable
    out-of-pockets


3,365,445



3,088,260



3,148,147



1,063,459



10,665,311Selling, general and
    administrative Expenses


10,034,111



9,850,883



10,816,253



14,896,915



45,598,163Total costs and expenses


28,798,059



29,848,342



32,689,064



40,720,693



132,056,157Earnings from operations


4,687,480



6,569,708



7,671,599



8,599,740



27,528,527Other income (expense)Interest income


172,686



193,413



401,775



577,999



1,345,872Interest expense


(105,548
)


(135,132
)


(749,565
)


(1,700,751
)


(2,690,995
)Total other income (expense)


67,138



58,281



(347,790
)


(1,122,752
)


(1,345,123
)Earnings before income taxes


4,754,618



6,627,989



7,323,809



7,476,988



26,183,404Income tax expense


1,028,310



1,686,251



2,020,821



1,463,190



6,198,571Earnings before minority interest
    in joint venture


3,726,308



4,941,738



5,302,988



6,013,798



19,984,833Minority Interest in Joint Venture






194,408



32,188



99,346



325,942Net Earnings

$
3,726,308


$
4,747,330


$
5,270,800


$
5,914,452


$
19,658,891Earnings per share:Basic

$
0.25


$
0.31


$
0.35


$
0.40


$
1.31Diluted

$
0.24


$
0.30


$
0.34


$
0.38


$
1.25     (1)
    
    On July 23, 2004, the Company acquired TTI. On
    December 22, 2004, the Company acquired PharmaNet.
    PharmaNets earnings from operations during the period from
    December 22, 2004 to December 31, 2004 are considered
    immaterial and have been excluded from SFBCs consolidated
    results.(2)
    
    On August 11, 2004, the Company issued $143.75 million
    of convertible senior notes with an annual interest rate of
    2.25%. On December 22, 2004, the Company borrowed
    $125.0 million under a new credit facility. F-42




---



##### Table of Contents



SFBC
    INTERNATIONAL
   Schedule II
   Valuation and Qualifying Accounts
  Balance at





Charged


Charged to





Balance atBeginning





to Costs


Other





End ofDescription

of Period


PharmaNet(1)


and Expenses


Accounts


Deductions


PeriodYear ended December 31, 2005
    Reserves deducted from assets to which they apply:Allowance for doubtful accounts

$
554,400






$
569,384






$
(775,540
)

$
348,244Allowance for change in contracts


512,614



















512,614Deferred tax valuation allowance


156,569







385,390











541,959Year ended December 31, 2004
    Reserves deducted from assets to which they apply:Allowance for doubtful accounts


461,979



110,283



417,151







(435,013
)


554,400Allowance for change in contracts


512,614



















512,614Deferred tax valuation allowance






156,569















156,569Year ended December 31, 2003
    Reserves deducted from assets to which they apply:Allowance for doubtful accounts


589,895







77,771







(205,687
)


461,979Allowance for change in contracts


154,024







358,590











512,614Deferred tax valuation allowance






















     (1)
    
    Reflects the additions due to the acquisition of PharmaNet on
    December 22, 2004. F-43