##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|  |  |                                                                                   
|- |  | ----------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004


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) |  | (IRS Employer
    Identification No.)

11190 Biscayne Blvd., Miami, FL 33181


(Address of principal executive offices) (Zip code)


(305) 895-0304


(Registrants telephone number, including area code)


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


None


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


Common Stock


(Title of Class)


þ o


þ


þ o






DOCUMENTS INCORPORATED BY REFERENCE












---

TABLE OF CONTENTS



|                                              |                                                                                                                          |  |  |  |  |  |  | 
|--------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART I                                       
|                                              | Item 1. Business.                                                                                                       
|                                              | Item 2. Property.                                                                                                       
|                                              | Item 3. Legal Proceedings.                                                                                              
|                                              | 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.
|                                              | Item 6. Selected Financial Data.                                                                                        
|                                              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation.                           
|                                              | Item 7A. Quantitative and Qualitative Disclosures About Market 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.                                                                                       
|                                              | Item 9B. Other Information.                                                                                             
|PART III                                     
|                                              | Item 10. Directors and Executive Officers of the Registrant.                                                            
|                                              | Item 11. Executive Compensation.                                                                                        
|                                              | Item 12. Security Ownership of Certain Beneficial Owners and Management.                                                
|                                              | Item 13. Certain Relationships and Related Transactions.                                                                
|                                              | Item 14. Principal Accounting Fees and Services.                                                                        
|PART IV                                      
|                                              | Item 15. Exhibits, Financial Statement Schedules.                                                                       
|SIGNATURES                                   
|Credit and Security Agreement                
|Form of Stock Option Agreement               
|Amended & Restated Stock Option Agreement    
|Summary of Bonus Compensation                
|Jeffrey P. McMullen Employment Agreement     
|Subsidiaries of SFBC International Inc.      
|Consent of Grant Thornton LLP                
|Sec 302 Chief Executive Officer Certification
|Sec 302 Chief Financial Officer Certification
|Sec 906 Chief Executive Officer Certification
|Sec 906 Chief Financial Officer Certification



---



##### Table of Contents






PART I









|        |          
|------- | ---------
|Item 1. | Business.

General










2



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|                    |  |                                                                                                        |  |                                                                     |  |                                                                                                                          
|------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------
|Date of Transaction |  | Name                                                                                                   |  | Current Business                                                    |  | Location                                                                                                                 
|                    |  |                                                                                                        |  |                                                                     |  |                                                                                                                          
|December 2004       |  | PharmaNet, Inc.                                                                                        |  | Phase II  IV Clinical Trials                                       |  | Six United States offices
    Ten European offices
    Buenos Aires, Argentina
    Sydney, Australia
    Bangalore, India
|July 2004           |  | Taylor Technology, Inc.                                                                                |  | Bioanalytical Laboratory                                            |  | Princeton, New Jersey                                                                                                    
|October 2003        |  | SFBC Anapharm Europe                                                                                   |  | Bioanalytical Laboratory (49% interest in joint venture)            |  | Barcelona, Spain                                                                                                         
|August 2003         |  | Clinical Pharmacology Associates                                                                       |  | Phase I Clinical Trials                                             |  | Miami, Florida                                                                                                           
|July 2003           |  | SFBC New Drug Services Canada, Inc. (remaining 51% interest not
    previously owned by Anapharm Inc.) |  | Phase III  IV Clinical Trials Management                           |  | London, Ontario, Canada                                                                                                  
|March 2003          |  | Synfine Research Inc.                                                                                  |  | Chemical Synthesis                                                  |  | Toronto, Canada                                                                                                          
|September 2002      |  | New Drug Services, Inc.                                                                                |  | Data Management, Biostatistical and Regulatory                      |  | Kennett Square, Pennsylvania                                                                                             
|March 2002          |  | Anapharm Inc.                                                                                          |  | Phase I Clinical Trials (130 beds) and Bioanalytical
    Laboratory |  | Quebec City, Canada                                                                                                      
|                    |  |                                                                                                        |  | Phase I Clinical Trials                                             |  | Montreal, Canada                                                                                                         
|                    |  |                                                                                                        |  | (150 beds) and Clinical Laboratory Services                         |  |                                                                                                                          
|                    |  |                                                                                                        |  | Bioanalytical Laboratory                                            |  | Toronto, Canada                                                                                                          
|                    |  |                                                                                                        |  | (opened in January 2005)                                            |  |                                                                                                                          
|August 2001         |  | KeyStone Laboratories                                                                                  |  | Bioanalytical Laboratory                                            |  | Philadelphia, Pennsylvania                                                                                               

3



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##### Table of Contents



|                    |  |                                             |  |                                                                         |  |                          
|------------------- |  | ------------------------------------------- |  | ----------------------------------------------------------------------- |  | -------------------------
|Date of Transaction |  | Name                                        |  | Current Business                                                        |  | Location                 
|                    |  |                                             |  |                                                                         |  |                          
|February 2001       |  | Lee Coast Research, Inc.                    |  | Phase I  IV Clinical Trials (120 beds)                                 |  | Ft. Myers, Florida       
|March 2000          |  | Pharmaceutical Development Associates, Inc. |  | Phase II  IV Clinical Trials Management                                |  | Charlotte, North Carolina
|1984 (formation)    |  | SFBC International, Inc.                    |  | Phase I Clinical Trials (600 beds) and Clinical Laboratory
    Services |  | Miami, Florida           

Industry Overview






The product development process




| |              
| | -------------
| | Branded drugs







4



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Phase I trials involve testing a drug on a limited number
    of participants, typically 20 to 80 persons, 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
    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, typically several hundred, to verify drug efficacy
    and safety on a large scale. These trials 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 and clinical
    studies. 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









5



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| |                   
| | ------------------
| | 505(b)(2) approval





| |                
| | ---------------
| | Medical devices



Industry trends








| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Emergence of new research technologies that are resulting
    in greater drug development activities





6



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| |                                                                                 
| | --------------------------------------------------------------------------------
| | Escalating research and development expenditures by
    pharmaceutical companies





| |                                      
| | -------------------------------------
| | Changes in the regulatory environment







| |                                     
| | ------------------------------------
| | Growth of the biotechnology industry



7



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| |                                    
| | -----------------------------------
| | Growth of the generic drug industry





| |                                             
| | --------------------------------------------
| | Increasingly global scope of clinical trials







| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Difficulties in recruiting trial participants, especially
    special populations





8



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Our Competitive Strengths






| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Our ability to provide a comprehensive range of clinical
    development and complementary services





| |                       
| | ----------------------
| | Our ability to recruit











9



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| |                                            
| | -------------------------------------------
| | The scope of our clinical trials facilities













| |               
| | --------------
| | Our experience



Our Strategy




10



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| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Leveraging complementary SFBC and PharmaNet services and
    client relationships





| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | Leveraging our global platform to provide a complete range
    of drug development services worldwide





| |                                                
| | -----------------------------------------------
| | Expanding our bioanalytical laboratory business









| |                                                                            
| | ---------------------------------------------------------------------------
| | Augmenting our current range of services through strategic
    acquisitions



11



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| |                                                                         
| | ------------------------------------------------------------------------
| | Increasing utilization of our central laboratory services
    capability



Our Services






| |                                          
| | -----------------------------------------
| | Early stage clinical development services







| |                    
| | -------------------
| | Laboratory services







| |                                         
| | ----------------------------------------
| | Late-stage clinical development services



12



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| |                                  
| | ---------------------------------
| | Data management and biostatistics



Clients and Marketing






Our Competitors








| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | the ability to recruit doctors and special population
    participants for clinical trials;
|
| |  | medical and scientific expertise in specific therapeutic areas;                            

13



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| |   |                                                       
| | - | ------------------------------------------------------
| |  | 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








| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

14



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Government Regulation








| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | selecting qualified investigators and sites;                                  
|
| |  | 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.                    





15



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Backlog






16



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Seasonality




Employees




Available information


www.sfbci.com







|        |          
|------- | ---------
|Item 2. | Property.



|                                  |  |             |         |  |                 |          |                  |  |                  |              |  |  |          | 
|--------------------------------- |  | ----------- | ------- |  | --------------- | -------- | ---------------- |  | ---------------- | ------------ |  |  | -------- | 
|                                  |  | Approximate |         |  |                 |          |                  |  |                 
|                                  |  | Square      |         |  |                 |          |                  |  | Approximate Base |             
|Location                          |  | Footage     |         |  | Type of Holding |          | Lease Expiration |  |                  | Monthly Rent | 
|                                  |  |             |         |  |                 |          |                  |  |                  |              | 
|Miami, FL                         |  |             | 160,000 |  |                 | Owned(1) |                  |  | N/A              |              |  |  | N/A      | 
|Princeton, NJ                     |  |             | 121,990 |  |                 | Leased   |                  |  | June 2011        |              |  |  | $177,902 | 
|Princeton, NJ                     |  |             | 35,000  |  |                 | Leased   |                  |  | December 2015    |              |  |  | $76,000  | 
|Charlotte, NC                     |  |             | 17,604  |  |                 | Leased   |                  |  | June 2010        |              |  |  | $22,005  | 
|Kennett Square, PA                |  |             | 8,000   |  |                 | Leased   |                  |  | August 2006      |              |  |  | $15,700  | 
|Philadelphia, PA                  |  |             | 8,000   |  |                 | Leased   |                  |  | month-to-month   |              |  |  | $4,167   | 
|Ft. Myers, FL                     |  |             | 25,818  |  |                 | Leased   |                  |  | April 2007       |              |  |  | $28,402  | 
|Blue Bell, PA                     |  |             | 44,708  |  |                 | Leased   |                  |  | July 2014        |              |  |  | $75,328  | 
|Washington, DC                    |  |             | 8,323   |  |                 | Leased   |                  |  | November 2011    |              |  |  | $29,824  | 
|Research Triangle Park (Cary), NC |  |             | 19,255  |  |                 | Leased   |                  |  | November 2008    |              |  |  | $36,103  | 
|Chicago (Deerfield), IL           |  |             | 6,788   |  |                 | Leased   |                  |  | February 2006    |              |  |  | $10,129  | 
|San Diego, CA                     |  |             | 6,884   |  |                 | Leased   |                  |  | May 2005         |              |  |  | $17,210  | 

17



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|                              |  |             |        |  |                 |        |                  |                          |                  |              |              |  |             | 
|----------------------------- |  | ----------- | ------ |  | --------------- | ------ | ---------------- | ------------------------ | ---------------- | ------------ | ------------ |  | ----------- | 
|                              |  | Approximate |        |  |                 |        |                  |                          |                 
|                              |  | Square      |        |  |                 |        |                  |                          | Approximate Base |             
|Location                      |  | Footage     |        |  | Type of Holding |        | Lease Expiration |                          |                  | Monthly Rent |             
|                              |  |             |        |  |                 |        |                  |                          |                  |              |             
|Quebec City, Canada           |  |             | 77,156 |  |                 | Leased |                  | May 2006 to August 2006  |                  |              | CDN $100,000 | 
|Montreal, Canada              |  |             | 54,000 |  |                 | Leased |                  | March 2008 to March 2011 |                  |              | CDN $98,000  | 
|Toronto, Canada               |  |             | 20,000 |  |                 | Owned  |                  |                          | N/A              |              |              |  | N/A         | 
|London, Ontario, Canada       |  |             | 7,500  |  |                 | Leased |                  |                          | June 2006        |              |              |  | CDN $14,000 | 
|Buenos Aires, Argentina       |  |             | 4,736  |  |                 | Leased |                  |                          | October 2005     |              |              |  | 11,376ARS   | 
|High Wycombe, U.K             |  |             | 45,000 |  |                 | Leased |                  |                          | August 2012      |              |              |  | 43,452GBP   | 
|Paris, France                 |  |             | 7,760  |  |                 | Leased |                  |                          | July 2011        |              |              |  | 33,819EUR   | 
|Frankfurt, Germany            |  |             | 7,792  |  |                 | Leased |                  |                          | May 2005         |              |              |  | 12,219EUR   | 
|Munich, Germany               |  |             | 1,245  |  |                 | Leased |                  |                          | December 2006    |              |              |  | 1,792EUR    | 
|Stockholm, Sweden             |  |             | 2,476  |  |                 | Leased |                  |                          | April 2005       |              |              |  | 22,584SEK   | 
|Amersfoort, Netherlands       |  |             | 12,959 |  |                 | Leased |                  |                          | August 2007      |              |              |  | 15,473EUR   | 
|Zurich (Zumikon), Switzerland |  |             | 6,468  |  |                 | Leased |                  |                          | February 2006    |              |              |  | 10,298CHF   | 
|Warsaw, Poland                |  |             | 2,938  |  |                 | Leased |                  |                          | November 2007    |              |              |  | 39,788PLN   | 
|Madrid, Spain                 |  |             | 5,242  |  |                 | Leased |                  |                          | September 2006   |              |              |  | 13,886EUR   | 
|Moscow, Russia                |  |             | 4,466  |  |                 | Leased |                  |                          | September 2007   |              |              |  | 29,382USD   | 
|Bangalore, India              |  |             | 5,768  |  |                 | Leased |                  |                          | November 2007    |              |              |  | 274,615INR  | 
|Sydney, Australia             |  |             | 11,840 |  |                 | Leased |                  |                          | November 2008    |              |              |  | 21,473AUD   | 






|    |                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | A portion of the underlying land is subject to a land lease
    expiring in 2045 with a base monthly rent of approximately
    $1,250. In February 2005, we purchased the adjoining land for
    approximately $950,000 including closing costs.




Item 3.     Legal
Proceedings.






18



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






PART II







|        |                                                                                                                         
|------- | ------------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity and Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities.

Market Information




|                                     |  |      |       |  |     |   |       | 
|------------------------------------ |  | ---- | ----- |  | --- | - | ----- | 
|                                     |  | High |       |  | Low |  
|                                     |  |      |       |  |     |  
|Fiscal year ended December 31, 2003  |  |      |       |  |     |   |       | 
|First Quarter                        |  | $    | 12.37 |  |     | $ | 8.53  | 
|Second Quarter                       |  |      | 12.87 |  |     |   | 8.87  | 
|Third Quarter                        |  |      | 25.07 |  |     |   | 11.52 | 
|Fourth Quarter                       |  |      | 23.46 |  |     |   | 14.59 | 
|Fiscal year ending December 31, 2004 |  |      |       |  |     |   |       | 
|First Quarter                        |  | $    | 21.33 |  |     | $ | 17.33 | 
|Second Quarter                       |  |      | 31.50 |  |     |   | 18.39 | 
|Third Quarter                        |  |      | 35.22 |  |     |   | 25.10 | 
|Fourth Quarter                       |  |      | 41.00 |  |     |   | 25.62 | 

Holders




Dividend Policy




19



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Recent Sales of Unregistered Securities




|                  |  |      |                     |           |           |               |                |            |               |                |            |           |                 |              |         |     |  |  |       | 
|----------------- |  | ---- | ------------------- | --------- | --------- | ------------- | -------------- | ---------- | ------------- | -------------- | ---------- | --------- | --------------- | ------------ | ------- | --- |  |  | ----- | 
|                  |  |      |                     |           |           |               |                |            |               | Stock Options  |           
|                  |  |      |                     |           |           | Stock Options |                |            | Stock Options |                |            | (Variable |                
|                  |  |      |                     | Number of |           |               | ($40.39        |            |               | ($44.43        |            |           | Exercise Prices |             
|                  |  |      |                     | Shares    |           |               | Exercise Price |            |               | Exercise Price |            |           | per             |             
|Date              |  | Name |                     |           | Purchased |               |                | per Share) |               |                | per Share) |           |                 | Share)(1)(2) |        
|                  |  |      |                     |           |           |               |                |            |               |                |            |           |                 |              |        
|December 22, 2004 |  |      | Pablo Fernandez     |           |           |               | 3,632          |            |               |                | 5,448      |           |                 |              | 30,000  |     |  |  |      | 
|December 22, 2004 |  |      | Steven A. George    |           |           |               | 4,993          |            |               |                | 7,489      |           |                 |              | 30,000  |     |  |  | 3,208 | 
|December 22, 2004 |  |      | Dalvir S. Gill      |           |           |               | 4,826          |            |               |                | 7,239      |           |                 |              | 30,000  |     |  |  |      | 
|December 22, 2004 |  |      | John P. Hamill      |           |           |               | 597            |            |               |                | 895        |           |                 |              | 30,000  |     |  |  |      | 
|December 22, 2004 |  |      | Gregory M. Hockel   |           |           |               | 5,172          |            |               |                | 7,758      |           |                 |              | 30,000  |     |  |  |      | 
|December 22, 2004 |  |      | Ian B. Holmes       |           |           |               | 2,864          |            |               |                | 2,864      |           |                 |              | 30,000  |     |  |  |      | 
|December 22, 2004 |  |      | Jack Green          |           |           |               | 71,146         |            |               |                | 106,719    |           |                 |              |        |     |  |  |      | 
|December 22, 2004 |  |      | James P. Burns, Jr. |           |           |               | 45,002         |            |               |                | 45,002     |           |                 |              |        |     |  |  |      | 
|December 22, 2004 |  |      | Mary F. Johnson     |           |           |               | 37,050         |            |               |                | 55,575     |           |                 |              |        |     |  |  | 3,379 | 
|December 22, 2004 |  |      | Michael E. Laird    |           |           |               |               |            |               |                |           |           |                 |              | 30,000  |     |  |  | 6,758 | 
|December 22, 2004 |  |      | Sean P. Larkin      |           |           |               | 2,864          |            |               |                | 2,864      |           |                 |              | 30,000  |     |  |  |      | 
|December 22, 2004 |  |      | Jeffrey P. McMullen |           |           |               | 69,200         |            |               |                | 103,800    |           |                 |              | 135,000 | (2) |  |  |      | 
|December 22, 2004 |  |      | Thomas J. Newman    |           |           |               | 9,537          |            |               |                | 14,305     |           |                 |              | 30,000  |     |  |  |      | 
|December 22, 2004 |  |      | Robert Reekie       |           |           |               | 337            |            |               |                | 505        |           |                 |              | 30,000  |     |  |  | 1,013 | 
|December 22, 2004 |  |      | Robin C. Sheldrick  |           |           |               | 1,751          |            |               |                | 2,626      |           |                 |              | 30,000  |     |  |  |      | 






|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The exercise prices are $23.67 per share except for 3,040
    options granted to Mr. George, 1,520 of which are
    exercisable at $5.27 per share and 1,520 of which are
    exercisable at $7.90 per share.
|   
|(2) | Fully vested.                                                                                                                                                                                                

20



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|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data.



|                                             |                          |                                       |        |        |      |   |        |        |  |   |        |        |  |      |         |        |  |   |         |         | 
|-------------------------------------------- | ------------------------ | ------------------------------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | ---- | ------- | ------ |  | - | ------- | ------- | 
|                                             |                          | 2000                                  |        |        | 2001 |   |        | 2002   |  |   | 2003   |        |  | 2004 |        
|                                             |                          |                                       |        |        |      |   |        |        |  |   |        |        |  |      |        
|                                             |                          | (In thousands, except per share data) |       
|Consolidated statements of operations data:  |                          |                                       |        |        |      |   |        |        |  |   |        |        |  |      |         |        |  |   |         |        
|Net revenue                                  |                          | $                                     | 19,694 |        |      | $ | 31,471 |        |  | $ | 64,740 |        |  | $    | 103,853 |        |  | $ | 159,585 |        
|Direct costs                                 |                          |                                       | 11,997 |        |      |   | 18,151 |        |  |   | 36,728 |        |  |      | 59,309  |        |  |   | 86,458  |        
|Selling, general and administrative expenses |                          |                                       | 4,252  |        |      |   | 7,556  |        |  |   | 17,867 |        |  |      | 29,965  |        |  |   | 45,598  |        
|                                             |                          |                                       |        |        |      |   |        |        |  |   |        |        |  |      |        
|                                             | Total costs and expenses |                                       |        | 16,249 |      |   |        | 25,707 |  |   |        | 54,595 |  |      |         | 89,274 |  |   |         | 132,056 | 
|                                             | Earnings from operations |                                       |        | 3,445  |      |   |        | 5,764  |  |   |        | 10,145 |  |      |         | 14,579 |  |   |         | 27,529  | 
|Other income (expense)                       |                          |                                       |        |        |      |   |        |        |  |   |        |        |  |      |         |        |  |   |         |        
|Interest income                              |                          |                                       | 123    |        |      |   | 359    |        |  |   | 447    |        |  |      | 272     |        |  |   | 1,346   |        
|Interest expense                             |                          |                                       | (175   | )      |      |   | (27    | )      |  |   | (282   | )      |  |      | (427    | )      |  |   | (2,691  | )      
|                                             |                          |                                       |        |        |      |   |        |        |  |   |        |        |  |      |        
|                                             | Earnings before taxes    |                                       |        | 3,393  |      |   |        | 6,096  |  |   |        | 10,310 |  |      |         | 14,424 |  |   |         | 26,184  | 
|Income tax expense                           |                          |                                       | 1,342  |        |      |   | 2,276  |        |  |   | 2,442  |        |  |      | 2,842   |        |  |   | 6,199   |        
|                                             |                          |                                       |        |        |      |   |        |        |  |   |        |        |  |      |        
|Earnings before minority interest            |                          | $                                     | 2,051  |        |      | $ | 3,820  |        |  | $ | 7,868  |        |  | $    | 11,582  |        |  | $ | 19,985  |        
|                                             |                          |                                       |        |        |      |   |        |        |  |   |        |        |  |      |        
|Minority interest in joint venture           |                          |                                       |       |        |      |   |       |        |  |   |       |        |  |      |        |        |  |   | 326     |        
|Net earnings                                 |                          | $                                     | 2,051  |        |      | $ | 3,820  |        |  | $ | 7,868  |        |  | $    | 11,582  |        |  | $ | 19,659  |        
|                                             |                          |                                       |        |        |      |   |        |        |  |   |        |        |  |      |        
|Earnings per share                           |                          |                                       |        |        |      |   |        |        |  |   |        |        |  |      |         |        |  |   |         |        
|                                             | Basic                    |                                       | $      | 0.52   |      |   | $      | 0.63   |  |   | $      | 0.74   |  |      | $       | 0.99   |  |   | $       | 1.31    | 
|                                             | Diluted                  |                                       | $      | 0.51   |      |   | $      | 0.54   |  |   | $      | 0.70   |  |      | $       | 0.92   |  |   | $       | 1.25    | 

|                                          |  |                    |        |  |      |   |        |      |  |   |        |  |  |      |         |  |  |   |         | 
|----------------------------------------- |  | ------------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------- |  |  | - | ------- | 
|                                          |  | As of December 31, |       
|                                          |  |                    |       
|                                          |  | 2000               |        |  | 2001 |   |        | 2002 |  |   | 2003   |  |  | 2004 |        
|                                          |  |                    |        |  |      |   |        |      |  |   |        |  |  |      |        
|Consolidated balance sheet data:          |  |                    |        |  |      |   |        |      |  |   |        |  |  |      |         |  |  |   |         | 
|Cash and cash equivalents                 |  | $                  | 6,788  |  |      | $ | 39,103 |      |  | $ | 6,361  |  |  | $    | 56,020  |  |  | $ | 24,909  | 
|Accounts receivable, net                  |  |                    | 7,059  |  |      |   | 10,454 |      |  |   | 21,754 |  |  |      | 32,858  |  |  |   | 98,067  | 
|Working capital                           |  |                    | 10,192 |  |      |   | 44,593 |      |  |   | 20,805 |  |  |      | 79,381  |  |  |   | 67,639  | 
|Total assets                              |  |                    | 15,769 |  |      |   | 60,484 |      |  |   | 85,959 |  |  |      | 173,051 |  |  |   | 558,187 | 
|Long term debt, including current portion |  |                    | 410    |  |      |   | 9      |      |  |   | 4,148  |  |  |      | 5,651   |  |  |   | 277,517 | 
|Stockholders equity                      |  |                    | 11,303 |  |      |   | 54,631 |      |  |   | 68,559 |  |  |      | 149,943 |  |  |   | 172,415 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operation.



21



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Overview








|                                 |  |      |    |  |         |  |    |      |  |  |     | 
|-------------------------------- |  | ---- | -- |  | ------- |  | -- | ---- |  |  | --- | 
|                                 |  | 2004 |    |  | 2003(1) |  |    | 2002 | 
|                                 |  |      |    |  |         |  |    |      | 
|SFBC Miami                       |  |      | 12 |  |         |  | 12 |      |  |  | 12  | 
|SFBC Ft. Myers                   |  |      | 12 |  |         |  | 12 |      |  |  | 12  | 
|SFBC Analytical                  |  |      | 12 |  |         |  | 12 |      |  |  | 12  | 
|Anapharm                         |  |      | 12 |  |         |  | 12 |      |  |  | 9.5 | 
|SFBC Charlotte(1)                |  |      | 12 |  |         |  | 12 |      |  |  | 12  | 
|SFBC New Drug Services(1)        |  |      | 12 |  |         |  | 12 |      |  |  | 4   | 
|Clinical Pharmacology(2)         |  |      | 12 |  |         |  | 5  |      |  |  | 0   | 
|SFBC New Drug Services Canada(3) |  |      | 12 |  |         |  | 6  |      |  |  | 0   | 
|SFBC Taylor Technology           |  |      | 5  |  |         |  | 0  |      |  |  | 0   | 
|PharmaNet(4)                     |  |      | 0  |  |         |  | 0  |      |  |  | 0   | 






|    |                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We merged SFBC Charlotte into SFBC New Drug Services in April
    2003.                                                                                                                                                                                                                              
|   
|(2) | Included in SFBC Miami.                                                                                                                                                                                                                                                                              
|   
|(3) | SFBC New Drug Services Canada was a 49% subsidiary of the
    Company 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 revenue increased to approximately $159.6 million from
    approximately $103.9 million;                                                                                                                                                                 
|
| |  | Our earnings increased to approximately $19.7 million from
    approximately $11.6 million;                                                                                                                                                                  
|
| |  | Our earnings per share increased to $1.25 from $0.92 per
    share;                                                                                                                                                                                          
|
| |  | We issued $143.75 million of convertible senior notes in
    August;                                                                                                                                                                                         
|
| |  | We entered into a $160 million secured credit facility in
    December consisting of a $120 million term loan, which was
    fully funded at December 31, and a $40 million
    revolving line of credit of which we had drawn $5 million
    at December 31;
|
| |  | We acquired PharmaNet, Inc. in December;                                                                                                                                                                                                                     
|
| |  | We acquired Taylor Technology, Inc. in July; and                                                                                                                                                                                                             

22



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| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We purchased the building which contains our executive offices,
    our principal Miami Phase I and II facility and our
    clinical laboratory in February.











Critical Accounting Estimates




23



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Revenue and Cost Recognition.












Collectibility of Accounts Receivable.


24



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Income Taxes.








Goodwill.


Impairment of Assets.


25



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Stock Based Compensation.


Other Estimates.


Results of Operations




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



|                                            |         |                                       |         |      |      |  |       |   |  |   |         |      |  |  |       |   | 
|------------------------------------------- | ------- | ------------------------------------- | ------- | ---- | ---- |  | ----- | - |  | - | ------- | ---- |  |  | ----- | - | 
|                                            |         | 2004                                  |         |      | 2003 | 
|                                            |         |                                       |         |      |      | 
|                                            |         | (In thousands, except per share data) |        
|Net revenue                                 |         | $                                     | 159,585 |      |      |  | 100.0 | % |  | $ | 103,853 |      |  |  | 100.0 | %
|Direct costs                                |         |                                       | 86,458  |      |      |  | 54.2  |   |  |   | 59,309  |      |  |  | 57.1  |  
|SG&A                                        |         |                                       | 45,598  |      |      |  | 28.6  |   |  |   | 29,965  |      |  |  | 28.9  |  
|Interest Expense (Income)                   |         |                                       | (1,345  | )    |      |  | 0.8   |   |  |   | (155    | )    |  |  | 0.1   |  
|Earnings before taxes and minority interest |         |                                       | 26,183  |      |      |  | 16.4  |   |  |   | 14,424  |      |  |  | 13.9  |  
|Minority Interest in Joint venture          |         |                                       | 326     |      |      |  | 0.2   |   |  |   |        |      |  |  | 0.0   |  
|Income tax expense                          |         |                                       | 6,199   |      |      |  | 3.9   |   |  |   | 2,842   |      |  |  | 2.7   |  
|Net earnings                                |         | $                                     | 19,659  |      |      |  | 12.3  | % |  | $ | 11,582  |      |  |  | 11.2  | %
|Earnings per share(1)                       |         |                                       |         |      |      |  |       |   |  |   |         |      |  |  |       |  
|                                            | Basic   |                                       | $       | 1.31 |      |  |       |   |  |   | $       | 0.99 |  |  |       |   | 
|                                            | Diluted |                                       | $       | 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.

26



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| |            
| | -----------
| | Net revenue







| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | An increase in Anapharms consolidated revenue from
    $49.3 million to approximately $72 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





| |                     
| | --------------------
| | Gross profit margins





27



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| |                                             
| | --------------------------------------------
| | Selling, general and administrative expenses









| |                          
| | -------------------------
| | Interest income (expense)





28



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| |                    
| | -------------------
| | Income tax expenses







| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | the relative profits generated in the United States, Canada and
    all other foreign jurisdictions;
|
| |  | our ability to utilize Canadian tax credits; and                                                    
|
| |  | the applicable foreign tax rates then in effect.                                                    





| |                   
| | ------------------
| | Earnings per share



29



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



|                      |         |      |         |      |      |  |       |   |  |   |        |      |  |  |       |   | 
|--------------------- | ------- | ---- | ------- | ---- | ---- |  | ----- | - |  | - | ------ | ---- |  |  | ----- | - | 
|                      |         | 2003 |         |      | 2002 | 
|                      |         |      |         |      |      | 
|Net revenue           |         | $    | 103,853 |      |      |  | 100.0 | % |  | $ | 64,740 |      |  |  | 100.0 | %
|Gross profit margins  |         |      | 44,543  |      |      |  | 42.9  |   |  |   | 28,012 |      |  |  | 43.3  |  
|Earnings before taxes |         |      | 14,424  |      |      |  | 13.9  |   |  |   | 10,310 |      |  |  | 15.9  |  
|Income tax expense    |         |      | 2,842   |      |      |  | 2.7   |   |  |   | 2,442  |      |  |  | 3.8   |  
|Net earnings          |         | $    | 11,582  |      |      |  | 11.2  | % |  | $ | 7,868  |      |  |  | 12.2  | %
|Earnings per share(1) |         |      |         |      |      |  |       |   |  |   |        |      |  |  |       |  
|                      | Basic   |      | $       | 0.99 |      |  |       |   |  |   | $      | 0.74 |  |  |       |   | 
|                      | Diluted |      | $       | 0.92 |      |  |       |   |  |   | $      | 0.70 |  |  |       |   | 






|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(1) | The earnings per share have been adjusted to reflect the May
    2004 three-for-two stock split effected as a stock dividend.



| |            
| | -----------
| | Net revenue







| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in Anapharms revenue to approximately
    $49.3 million from $25.0 million;                                                  
|
| |  | A material increase in our United States Phase I and
    Phase II revenue;                                                                
|
| |  | Our acquisition of Clinical Pharmacology in August 2003 which
    provided additional Phase I revenue of approximately
    $4 million; and
|
| |  | A full year of operations at Anapharm and the Kennett Square,
    Pennsylvania location of SFBC New Drug Services.                        





| |             
| | ------------
| | Direct costs



30



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| |                     
| | --------------------
| | Gross profit margins





| |                                             
| | --------------------------------------------
| | Selling, general and administrative expenses







| |                 
| | ----------------
| | Interest expense





| |                    
| | -------------------
| | Income tax expenses





| |                   
| | ------------------
| | Earnings per share



31



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Effects of Inflation




Liquidity and Capital Resources










32



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33



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Contractual Obligations


|                                                                                       |       |                        |             |             |        |  |            |            |           |  |            |            |  |         |            |            |  |  |            |            | 
|-------------------------------------------------------------------------------------- | ----- | ---------------------- | ----------- | ----------- | ------ |  | ---------- | ---------- | --------- |  | ---------- | ---------- |  | ------- | ---------- | ---------- |  |  | ---------- | ---------- | 
|                                                                                       |       | Payments Due by Period |            
|                                                                                       |       |                        |            
|                                                                                       |       |                        |             | Less Than   |        |  |            |            | More Than | 
|                                                                                       |       | Total                  |             |             | 1 Year |  |            | 1-3 Years  |           |  | 3-5 Years  |            |  | 5 Years |           
|                                                                                       |       |                        |             |             |        |  |            |            |           |  |            |            |  |         |           
|Credit Facility Obligations                                                            |       | $                      | 125,000,000 |             |        |  | 15,000,000 |            |           |  | 30,000,000 |            |  |         | 50,000,000 |            |  |  | 30,000,000 |           
|Interest on Convertible Notes(1)                                                       |       |                        | 64,723,438  |             |        |  | 6,468,750  |            |           |  | 6,468,750  |            |  |         | 6,468,750  |            |  |  | 45,317,188 |           
|Capital Lease Obligations                                                              |       |                        | 8,643,389   |             |        |  | 3,275,255  |            |           |  | 4,594,651  |            |  |         | 773,483    |            |  |  |           |           
|Operating Lease Obligations                                                            |       |                        | 73,130,349  |             |        |  | 13,219,240 |            |           |  | 22,243,524 |            |  |         | 17,121,396 |            |  |  | 20,546,189 |           
|Purchase Obligations                                                                   |       |                        | 2,411,970   |             |        |  | 1,832,131  |            |           |  | 579,839    |            |  |         |           |            |  |  |           |           
|Other Long-Term Liabilities Reflected on the Registrants
    Balance Sheet under GAAP |       |                        | 1,341,530   |             |        |  | 900,334    |            |           |  | 441,196    |            |  |         |           |            |  |  |           |           
|                                                                                       |       |                        |             |             |        |  |            |            |           |  |            |            |  |         |           
|                                                                                       | Total |                        | $           | 275,250,676 |        |  |            | 37,497,273 |           |  |            | 64,327,960 |  |         |            | 74,363,629 |  |  |            | 95,863,377 | 
|                                                                                       |       |                        |             |             |        |  |            |            |           |  |            |            |  |         |           






|    |                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | No provision has been made for the possible redemption of our
    convertible notes on or after August 15, 2009 as described
    above or for the possible conversion of our convertible senior
    notes.

Off Balance Sheet Commitments










New Accounting Pronouncements






34



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Forward-Looking Statements






Risk Factors




| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



35



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| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A significant portion of our growth has come from
    acquisitions, and we plan to 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.





| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | Our December 2004 acquisition of PharmaNet represented our
    largest acquisition and has not yet been integrated into our
    operations.



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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 and
    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 Food and Drug Administration, or FDA, and in Canada,
    the Therapeutic Products Directorate, or TPD); and
|
| |  | inadequate participant enrollment.                                                                                                                                                         



37



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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.





| |                                                                              
| | -----------------------------------------------------------------------------
| | We are exposed to risks relating to evaluations of our
    internal controls.







38



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| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our indebtedness may impact our financial condition and
    results of operations and the terms of our outstanding
    indebtedness may limit our activities.





| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we will 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.                                                          

39



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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 actual financial results might vary from our publicly
    disclosed preliminary results and forecasts.





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



40



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| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are required to write off goodwill or other
    intangible assets, our financial position and results of
    operations would be adversely affected.





| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



41



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| |                                                                 
| | ----------------------------------------------------------------
| | We could be adversely affected by tax law changes in
    Canada.





| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 scientific methods,
    or assays, 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                                                                                                                               

42



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| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | potential professional malpractice of our employees or
    contractors, including physicians.





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Failure to comply with applicable governmental regulations
    could harm our operating results and reputation.





| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | If we lose the services of our key personnel or are unable
    to attract qualified staff, our business could be adversely
    affected.



43



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##### Table of Contents





| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business depends on the continued effectiveness and
    availability of our information technology infrastructure, and
    failures of this infrastructure could harm our
    operations.





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | 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;                                                                           

44



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##### Table of Contents





| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | loss of a major client or contract;                                                                             
|
| |  | new service offerings introduced or announced by our competitors;                                               
|
| |  | 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 7A. | Quantitative and Qualitative Disclosures About Market
    Risk.



Market risk




45



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##### Table of Contents







Currency risk




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






46



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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.                                                                                                                                





47



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Changes in Internal Control Over Financial Reporting









|         |                   
|-------- | ------------------
|Item 9B. | Other Information.






PART III







|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant.

Directors and Executive Officers




|                           |  |     |    |  |             |                                                              
|-------------------------- |  | --- | -- |  | ----------- | -------------------------------------------------------------
|Names                      |  | Age |    |  | Position(s)
|                           |  |     |    |  |            
|Lisa Krinsky, M.D.         |  |     | 41 |  |             | Chairman of the Board and President (Chief Operating Officer)
|Arnold Hantman, C.P.A      |  |     | 68 |  |             | Chief Executive Officer, Treasurer and Director              
|Gregory B. Holmes, Pharm.D |  |     | 48 |  |             | Executive Vice President of Clinical Operations              
|David Natan, C.P.A         |  |     | 51 |  |             | Vice President of Finance (Chief Financial Officer)          
|Jeffrey P. McMullen        |  |     | 53 |  |             | President and Chief Executive Officer of PharmaNet           
|Marc LeBel, Pharm.D        |  |     | 50 |  |             | President of Anapharm                                        
|Jack Levine, C.P.A         |  |     | 54 |  |             | Director                                                     
|David Lucking              |  |     | 51 |  |             | Director                                                     
|Leonard I. Weinstein, Ph.D |  |     | 59 |  |             | Director                                                     

Lisa Krinsky, M.D.


48



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##### Table of Contents



Arnold Hantman, C.P.A.


Gregory B. Holmes, Pharm.D.


David Natan, C.P.A.


Jeffrey P. McMullen


Marc LeBel, Pharm.D.


Jack Levine, C.P.A.


David Lucking


Leonard I. Weinstein, Ph.D.


49



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##### Table of Contents







Committees of the Board of Directors




Audit Committee








Nominating Committee




Section 16(a) Beneficial Ownership Reporting
Compliance.




Code of Ethics


www.sfbci.com


50



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|         |                        
|-------- | -----------------------
|Item 11. | Executive Compensation.

Executive Compensation




SUMMARY COMPENSATION TABLE


|                         |                          |      |      |                     |            |           |              |                 |     |            |              |         |     |              |   |   |     |  |         |         |  |   |        |   | 
|------------------------ | ------------------------ | ---- | ---- | ------------------- | ---------- | --------- | ------------ | --------------- | --- | ---------- | ------------ | ------- | --- | ------------ | - | - | --- |  | ------- | ------- |  | - | ------ | - | 
|                         |                          |      |      |                     |            | Long Term |              |                 |    
|                         |                          |      |      | Annual Compensation |            |           | Compensation |                 |     |           
|                         |                          |      |      |                     |            |           |              |                 |     |           
|(a)                      |                          | (b)  |      |                     | (c)        |           |              | (d)             |     |            | (e)          |         |     | (f)          |   |   | (g) | 
|                         |                          |      |      |                     |            |           |              |                 |     |            |              |         |     |              |   |   |     | 
|                         |                          |      |      |                     |            |           |              |                 |     | Securities |              |         |    
|                         |                          |      |      |                     |            |           |              | Other Annual    |     |            | Underlying   |         |     | All Other    |  
|Name and                 |                          |      |      |                     |            |           |              | Compensation(2) |     |            | Options/SARs |         |     | Compensation |  
|Principal Position       |                          | Year |      |                     | Salary ($) |           |              | Bonus ($)       |     |            | ($)          |         |     | (#)          |   |   | ($) | 
|                         |                          |      |      |                     |            |           |              |                 |     |            |              |         |     |              |   |   |     | 
|Arnold Hantman,          |                          |      | 2004 |                     |            | $         | 400,000      |                 |     | $          | 178,475      | (1)     |     |              |  |   |     |  | 75,000  |         |  | $ | 0      |  
|                         | Chief Executive          |      |      | 2003                |            |           | $            | 325,000         |     |            | $            | 129,115 | (1) |              |   |  |     |  |         | 0       |  |   | $      | 0 | 
|                         | Officer                  |      |      | 2002                |            |           | $            | 250,000         |     |            | $            | 25,000  | (1) |              |   |  |     |  |         | 60,000  |  |   | $      | 0 | 
|Lisa Krinsky, M.D.,      |                          |      | 2004 |                     |            | $         | 475,000      |                 |     | $          | 297,458      | (1)     |     |              |  |   |     |  | 75,000  |         |  | $ | 0      |  
|                         | President                |      |      | 2003                |            |           | $            | 400,000         |     |            | $            | 215,190 | (1) |              |   |  |     |  |         | 0       |  |   | $      | 0 | 
|                         |                          |      |      | 2002                |            |           | $            | 325,000         |     |            | $            | 35,000  | (1) |              |   |  |     |  |         | 60,000  |  |   | $      | 0 | 
|Gregory B. Holmes, Ph.D, |                          |      | 2004 |                     |            | $         | 325,000      |                 |     | $          | 200,000      |         |     |              |  |   |     |  | 135,000 |         |  | $ | 90,000 |  
|                         | Executive Vice President |      |      | 2003                |            |           | $            | 275,000         |     |            | $            | 75,000  |     |              |   |  |     |  |         | 0       |  |   | $      | 0 | 
|                         | of Clinical Operations   |      |      | 2002                |            |           | $            | 200,000         |     |            | $            | 140,000 |     |              |   |  |     |  |         | 115,000 |  |   | $      | 0 | 
|Marc LeBel, Ph.D.        |                          |      | 2004 |                     |            | $         | 265,508      |                 |     | $          | 135,592      |         |     |              |  |   |     |  | 30,000  |         |  | $ | 0      |  
|                         |                          |      |      | 2003                |            |           | $            | 199,500         |     |            | $            | 55,000  |     |              |   |  |     |  |         | 0       |  |   | $      | 0 | 
|                         |                          |      |      | 2002                |            |           | $            | 140,194         | (3) |            | $            | 0       |     |              |   |  |     |  |         | 35,000  |  |   | $      | 0 | 
|Gary Ingenito(4)         |                          |      | 2004 |                     |            | $         | 290,000      |                 |     | $          | 150,000      |         |     |              |  |   |     |  | 27,000  |         |  | $ | 18,000 |  
|                         |                          |      |      | 2003                |            |           | $            | 72,500          |     |            | $            | 0       |     |              |   |  |     |  |         | 0       |  |   | $      | 0 | 
|                         |                          |      |      | 2002                |            |           | $            | 0               |     |            | $            | 0       |     |              | $ | 0 |     |  |         | 0       |  |   | $      | 0 | 






|    |                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents bonuses paid in the year indicated, but earned in the
    prior year.                                                                                                                                                                                                                    
|   
|(2) | For each of the named executive officers, the aggregate amount
    of personal benefits, which vary by individual and include car
    allowances and insurance, disability, life and medical
    insurance, does not exceed the lesser of 10% of the total salary
    and bonus reported or $50,000.
|   
|(3) | Represents salary paid by us from March 15, 2002 through
    December 31, 2002. Dr. LeBel was not employed by us
    prior to March 15, 2002.                                                                                                                                                       
|   
|(4) | Dr. Ingenito joined us in October 2003 and resigned in
    January 2005. His 18,000 vested options expire in April 2005;
    the remaining 9,000 unvested options expired effective with his
    resignation.                                                                                       

Executive Compensation Agreements




51



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|                      |  |                     |         |  |                  |   |         |                  |  |   |         | 
|--------------------- |  | ------------------- | ------- |  | ---------------- | - | ------- | ---------------- |  | - | ------- | 
|Person                |  | 2004 Base Salary(1) |         |  | 2003 Base Salary |   |         | 2002 Base Salary | 
|                      |  |                     |         |  |                  |   |         |                  | 
|Lisa Krinsky, M.D.    |  | $                   | 475,000 |  |                  | $ | 400,000 |                  |  | $ | 325,000 | 
|Arnold Hantman        |  | $                   | 400,000 |  |                  | $ | 325,000 |                  |  | $ | 250,000 | 
|Dr. Gregory B. Holmes |  | $                   | 325,000 |  |                  | $ | 275,000 |                  |  | $ | 200,000 | 






|    |                                
|--- | -------------------------------
|(1) | Retroactive to January 1, 2004.





|                   |  |   |         | 
|------------------ |  | - | ------- | 
|Dr. Lisa Krinsky   |  | $ | 250,000 | 
|Mr. Arnold Hantman |  | $ | 250,000 | 
|Dr. Gregory Holmes |  | $ | 250,000 | 
|Mr. David Natan    |  | $ | 125,000 | 
|Other Employees    |  | $ | 225,000 | 







52



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##### Table of Contents











Compensation of Directors




53



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##### Table of Contents





Compensation Committee Interlocks and Insider
Participation






Option/ SAR Grants in Last Fiscal Year


|                   |  |            |         |     |              |  |      |           |  |  |                            |                             |                           |    |         |  |     |   |         |  |  |   |           | 
|------------------ |  | ---------- | ------- | --- | ------------ |  | ---- | --------- |  |  | -------------------------- | --------------------------- | ------------------------- | -- | ------- |  | --- | - | ------- |  |  | - | --------- | 
|                   |  | Number of  |         |     |              |  |      |           |  |  | Potential Realizable Value |                            
|                   |  | Securities |         |     | % of Total   |  |      |           |  |  |                            | at Assumed Annual Rates     |                          
|                   |  | Underlying |         |     | Option/SARs  |  |      |           |  |  |                            | of Stock Price Appreciation |                          
|                   |  | Options/   |         |     | Granted to   |  |      | Exercise  |  |  |                            |                             | for Five Year Option Term |   
|                   |  | SARs       |         |     | Employees in |  |      | Price per |  |  | Expiration                 |                             |                           |    |        
|Name               |  | Granted    |         |     | Fiscal Year  |  |      | Share     |  |  | Date                       |                             |                           | 5% |         |  | 10% |  
|                   |  |            |         |     |              |  |      |           |  |  |                            |                             |                           |    |         |  |     |  
|Lisa Krinsky, M.D. |  |            | 75,000  |     |              |  | 6.1  | %         |  |  | 27.23                      |                             |                           |    | 7/27/09 |  |     | $ | 564,236 |  |  | $ | 1,246,814 | 
|Arnold Hantman     |  |            | 75,000  |     |              |  | 6.1  | %         |  |  | 27.23                      |                             |                           |    | 7/27/09 |  |     | $ | 564,236 |  |  | $ | 1,246,814 | 
|Dr. Gregory Holmes |  |            | 135,000 |     |              |  | 11.0 | %         |  |  | 24.37                      |                             |                           |    | 4/29/09 |  |     | $ | 908,953 |  |  | $ | 2,008,547 | 
|Dr. Marc LeBel     |  |            | 45,000  |     |              |  | 3.7  | %         |  |  | 24.37                      |                             |                           |    | 4/29/09 |  |     | $ | 302,984 |  |  | $ | 669,516   | 
|Dr. Gary Ingenito  |  |            | 27,000  | (1) |              |  | 2.2  | %         |  |  | 24.37                      |                             |                           |    | 4/29/09 |  |     | $ | 181,791 |  |  | $ | 401,709   | 






|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 9,000 of the options granted to Dr. Ingenito expired upon
    his resignation. The remaining 18,000 options will expire in
    April 2005, which is three months following his resignation.

Aggregated Option/ SAR Exercises in Last Fiscal Year and
FY-End Option/ SAR Values


|                   |  |              |         |  |          |                        |           |             |                              |                 |               |  |  |             |        |  |               |   |           |  |  |   |           | 
|------------------ |  | ------------ | ------- |  | -------- | ---------------------- | --------- | ----------- | ---------------------------- | --------------- | ------------- |  |  | ----------- | ------ |  | ------------- | - | --------- |  |  | - | --------- | 
|                   |  |              |         |  |          | Number of Securities   |           |             |                             
|                   |  |              |         |  |          | Underlying Unexercised |           |             | Value of Unexercised In-The- |                
|                   |  |              |         |  |          | Options/SARs at Fiscal |           |             | Money Options/SARs at        |                
|                   |  | Shares       |         |  |          |                        | Year-End  |             |                              | Fiscal Year-End |              
|                   |  | Acquired on  |         |  | Value    |                        |           |             |                              |                 |               | 
|Name               |  | Exercise (#) |         |  | Realized |                        |           | Exercisable |                              |                 | Unexercisable |  |  | Exercisable |        |  | Unexercisable |  
|                   |  |              |         |  |          |                        |           |             |                              |                 |               |  |  |             |        |  |               |  
|Lisa Krinsky, M.D. |  |              | 150,000 |  |          | $                      | 2,989,500 |             |                              |                 | 164,300       |  |  |             | 25,000 |  |               | $ | 3,535,839 |  |  | $ | 306,750   | 
|Arnold Hantman     |  |              | 75,000  |  |          | $                      | 1,494,750 |             |                              |                 | 149,300       |  |  |             | 25,000 |  |               | $ | 3,201,339 |  |  | $ | 306.750   | 
|Dr. Gregory Holmes |  |              | 112,500 |  |          | $                      | 1,445,625 |             |                              |                 | 187,500       |  |  |             | 45,000 |  |               | $ | 4,146,150 |  |  | $ | 1,517,100 | 
|Dr. Marc LeBel     |  |              | 0       |  |          |                        | N/A       |             |                              |                 | 73,750        |  |  |             | 23,750 |  |               | $ | 1,691,325 |  |  | $ | 226,950   | 
|Dr. Gary Ingenito  |  |              | 0       |  |          |                        | N/A       |             |                              |                 | 18,000        |  |  |             | 9,000  |  |               | $ | 272,340   |  |  | $ | 136,170   | 






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management.

Principal Stockholders




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|                                                            |                                |              |           |  |         |  |      |   | 
|----------------------------------------------------------- | ------------------------------ | ------------ | --------- |  | ------- |  | ---- | - | 
|                                                            |                                | Shares of    |           |  |        
|Name and Address of Beneficial Owner(1)                     |                                | Common Stock |           |  | Percent | 
|                                                            |                                |              |           |  |         | 
|Lisa Krinsky, M.D.(2)                                       |                                |              | 1,068,530 |  |         |  | 7.0  | %
|Arnold Hantman, C.P.A(3)                                    |                                |              | 580,416   |  |         |  | 3.8  |  
|Gregory B. Holmes, Pharm.D.(4)                              |                                |              | 308,510   |  |         |  | 2.0  |  
|David Natan, C.P.A(5)                                       |                                |              | 27,750    |  |         |  | *    |  
|Jeffrey P. McMullen(6)                                      |                                |              | 204,200   |  |         |  | 1.3  |  
|                                                            | 504 Carnegie Center            |              |           |  |         |  |      |   | 
|                                                            | Princeton, NJ 08540            |              |           |  |         |  |      |   | 
|Marc LeBel, Pharm.D.(7)                                     |                                |              | 153,402   |  |         |  | 1.0  |  
|                                                            | 2050, boul Rene-Levesque Ouest |              |           |  |         |  |      |   | 
|                                                            | Sante-Foy (Quebec)             |              |           |  |         |  |      |   | 
|                                                            | Canada G1V 2K8                 |              |           |  |         |  |      |   | 
|Jack Levine, C.P.A.(8)                                      |                                |              | 120,750   |  |         |  | *    |  
|David Lucking(9)                                            |                                |              | 74,250    |  |         |  | *    |  
|Leonard I. Weinstein, Ph.D.(5)                              |                                |              | 12,500    |  |         |  | *    |  
|All executive officers and directors as a group (9 persons) |                                |              | 2,550,308 |  |         |  | 16.0 | %






| |   |                      
| | - | ---------------------
| | * | Less than one percent



|    |                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Except where indicated, each of the persons listed above has the
    address c/o SFBC International, Inc., 11190 Biscayne
    Boulevard, Miami, Florida 33181.                                                                                
|   
|(2) | Includes 164,300 shares of common stock issuable upon
    exercise of options.                                                                                                                                                                
|   
|(3) | Includes 149,300 shares of common stock issuable upon
    exercise of options. Does not include 2,000 shares of
    common stock held in the name of his wife, as to which
    Mr. Hantman disclaims beneficial ownership.                    
|   
|(4) | Includes 127,500 shares issuable upon exercise of options.                                                                                                                                                                                    
|   
|(5) | All of these shares are issuable upon exercise of options.                                                                                                                                                                                    
|   
|(6) | Includes 135,000 shares issuable upon exercise of options.                                                                                                                                                                                    
|   
|(7) | Includes 73,750 shares issuable upon exercise of options.                                                                                                                                                                                     
|   
|(8) | Includes 2,250 shares held by Jack Levine Trustee, Jack
    Levine, P.A. Money Purchase Plan, 2,250 shares held by Jack
    Levine, Trustee, Jack Levine, P.A. Profit Sharing Trust, and
    101,250 shares issuable upon exercise of options.
|   
|(9) | Includes 37,500 shares of common stock issuable upon
    exercise of options                                                                                                                                                                  

55



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Equity Compensation Plans




|                                                              |  |                  |           |  |             |   |       |                 |  |  |         | 
|------------------------------------------------------------- |  | ---------------- | --------- |  | ----------- | - | ----- | --------------- |  |  | ------- | 
|                                                              |  | Number of        |           |  |             |   |      
|                                                              |  | Securities to be |           |  | Weighted    |   |       | Number of       | 
|                                                              |  | Issued upon      |           |  | Average     |   |       | Securities      | 
|                                                              |  | Exercise of      |           |  | Price of    |   |       | Remaining       | 
|                                                              |  | Outstanding      |           |  | Outstanding |   |       | Available for   | 
|Plan Category                                                 |  | Options          |           |  | Options     |   |       | Future Issuance | 
|                                                              |  |                  |           |  |             |   |       |                 | 
|Equity compensation plans approved by security holders(1)     |  |                  | 1,265,301 |  |             | $ | 15.99 |                 |  |  | 337,952 | 
|Equity compensation plans not approved by security holders(2) |  |                  | 913,947   |  |             | $ | 39.66 |                 |  |  | 0       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of our 1999 Stock Plan and 2004 Employee Stock Purchase
    Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(2) | Includes 7,500 options issued in connection with our 2000
    initial public offering issued to the underwriters of that
    offering. Does not include 3,750 warrants issuable upon exercise
    of the underwriters options issued in connection with our
    2000 initial public offering. Also includes 842,447 options
    issued to PharmaNet executives effective December 22, 2004
    under our 2004 Acquisition Stock Option Plan, and excludes
    200,000 options which we agreed to grant to 10 PharmaNet
    executives on each of December 22, 2005 and 2006, subject
    to continued employment with us on the applicable grant date,
    pursuant to which we will issue each such executive 10,000
    options that will be exercisable at the fair market value on the
    date of issuance.






|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions.








|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Accounting Fees and Services.

|                      |  |      |           |  |      |   |         | 
|--------------------- |  | ---- | --------- |  | ---- | - | ------- | 
|                      |  | 2004 |           |  | 2003 |  
|                      |  |      |           |  |      |  
|Audit Fees(1)         |  | $    | 1,204,794 |  |      | $ | 496,090 | 
|Audit-Related Fees(2) |  | $    | 11,400    |  |      | $ | 63,258  | 
|Tax Fees(3)           |  | $    | 145,700   |  |      | $ | 104,452 | 
|All Other Fees        |  | $    | 0         |  |      | $ | 0       | 
|                      |  |      |           |  |      |  
|Total                 |  | $    | 1,361,894 |  |      | $ | 663,800 | 
|                      |  |      |           |  |      |  






|    |                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For 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 2003, Audit Related Services consisted of due diligence, our
    acquisition of Clinical Pharmacology, and audits of employee
    benefit plans.                                                                                                                                           
|   
|(3) | For 2004 and 2003, Tax Fees consisted of tax compliance services
    and tax advice including services related to our European joint
    venture and Anapharm.                                                                                                                                 



56



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PART IV







|         |                                         
|-------- | ----------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules.









57



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Exhibit Index


|        |    |             |  |                                                                                                   
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .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          |  | Bylaws(1)                                                                                         
|       
|        | 3  | .6          |  | First Amendment to the Bylaws(2)                                                                  
|       
|        | 3  | .7          |  | Second Amendment to the Bylaws(5)                                                                 
|       
|        | 3  | .8          |  | Third Amendment to the Bylaws(4)                                                                  
|       
|        | 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          |  | 1999 Stock Plan(4)                                                                                
|       
|        | 10 | .2          |  | Credit and Security Agreement                                                                     
|       
|        | 10 | .3          |  | Audit Committee Charter(4)                                                                        
|       
|        | 10 | .4          |  | Post-Closing Agreement regarding the Acquisition of 11190
    Biscayne Boulevard, Miami Florida(4)
|       
|        | 10 | .5          |  | Acquisition Agreement (Clinical Pharmacology Associates)(3)                                       
|       
|        | 10 | .6          |  | Agreement and Plan of Merger (Taylor Technology, Inc.)(8)                                         
|       
|        | 10 | .7          |  | Amended and Restated Agreement and Plan of Merger with
    PharmaNet(9)                           
|       
|        | 10 | .8          |  | 2004 Acquisition Stock Option Plan(8)                                                             
|       
|        | 10 | .9          |  | Form of Stock Option Agreement                                                                    
|       
|        | 10 | .10         |  | Amended and Restated Stock Option Agreement (Jeffrey P. McMullen)                                 
|       
|        | 10 | .11         |  | Summary of Bonus Compensation                                                                     
|       
|        | 10 | .12         |  | Jeffrey P. McMullen Employment Agreement                                                          
|       
|        | 21 |             |  | Subsidiaries of SFBC International, Inc.                                                          
|       
|        | 23 |             |  | Consent of Grant Thornton LLP dated March 7, 2005                                                 
|       
|        | 31 | .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 956)                                            
|       
|        | 32 | .2          |  | Certification of Chief Financial Officer (Section 956)                                            






|    |                                                 
|--- | ------------------------------------------------
|(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



---



##### Table of Contents






SIGNATURES






| |                         
| | ------------------------
| | SFBC International, Inc.



| |     |                   
| | --- | ------------------
| | By: | /s/ Arnold Hantman

| |                                        
| | ---------------------------------------
| |                                        
| | Arnold Hantman, Chief Executive Officer





|                                                   |  |                                                                                          |  |               |  | 
|-------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------- |  | 
|                                                  
|/s/ Lisa Krinsky, M.D.Lisa
    Krinsky, M.D.       |  | Chairman of the Board of Directors                                                       |  | March 7, 2005
|                                                  
|/s/ Arnold HantmanArnold
    Hantman               |  | Director                                                                                 |  | March 7, 2005
|                                                  
|/s/ David NatanDavid
    Natan                     |  | Vice President of Finance (Principal Financial Officer and Chief
    Accounting Officer) |  | March 7, 2005
|                                                  
|/s/ Jack LevineJack
    Levine                     |  | Director                                                                                 |  | March 7, 2005
|                                                  
|/s/ Dr. Leonard WeinsteinDr.
    Leonard Weinstein |  | Director                                                                                 |  | March 7, 2005
|                                                  
|/s/ David LuckingDavid
    Lucking                 |  | Director                                                                                 |  | March 7, 2005



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED


PUBLIC ACCOUNTING FIRM
















.












---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED


PUBLIC ACCOUNTING FIRM
























---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


DECEMBER 31, 2004 AND 2003


|                                                                               |                                                                                                                                                                                        |                                            |             |             |              |  |            |             |             | 
|------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------- | ----------- | ------------ |  | ---------- | ----------- | ----------- | 
|                                                                               |                                                                                                                                                                                        | December 31,                               |             |             | December 31, | 
|                                                                               |                                                                                                                                                                                        | 2004                                       |             |             | 2003         | 
|                                                                               |                                                                                                                                                                                        |                                            |             |             |              | 
|ASSETS                                                                        
|Current Assets                                                                 |                                                                                                                                                                                        |                                            |             |             |              |  |            |            
|                                                                               | Cash and cash equivalents                                                                                                                                                              |                                            | $           | 24,908,585  |              |  | $          | 56,020,452  |            
|                                                                               | Investment in marketable securities                                                                                                                                                    |                                            |             | 9,735,708   |              |  |            | 3,911,546   |            
|                                                                               | Accounts receivable, net                                                                                                                                                               |                                            |             | 98,067,099  |              |  |            | 32,857,531  |            
|                                                                               | Income tax receivable                                                                                                                                                                  |                                            |             | 6,996,120   |              |  |            | 1,350,507   |            
|                                                                               | Loans receivable from stockholders                                                                                                                                                     |                                            |             | 207,288     |              |  |            | 210,870     |            
|                                                                               | Deferred income taxes                                                                                                                                                                  |                                            |             | 3,562,407   |              |  |            | 121,565     |            
|                                                                               | Prepaids and other current assets                                                                                                                                                      |                                            |             | 6,788,903   |              |  |            | 4,058,486   |            
|                                                                               |                                                                                                                                                                                        |                                            |             |             |              | 
|                                                                               |                                                                                                                                                                                        | Total current assets                       |             |             | 150,266,110  |  |            |             | 98,530,957  | 
|Loans receivable from stockholders                                             |                                                                                                                                                                                        |                                            | 200,000     |             |              |  | 400,000    |            
|Property and equipment, net                                                    |                                                                                                                                                                                        |                                            | 63,906,271  |             |              |  | 24,177,018 |            
|Goodwill, net                                                                  |                                                                                                                                                                                        |                                            | 292,672,986 |             |              |  | 47,789,383 |            
|Other intangibles, net                                                         |                                                                                                                                                                                        |                                            | 38,421,973  |             |              |  | 2,111,493  |            
|Deferred income taxes                                                          |                                                                                                                                                                                        |                                            |            |             |              |  |           |            
|Other assets, net                                                              |                                                                                                                                                                                        |                                            | 12,719,770  |             |              |  | 41,751     |            
|                                                                               |                                                                                                                                                                                        |                                            |             |             |              | 
|                                                                               |                                                                                                                                                                                        | Total assets                               |             | $           | 558,187,110  |  |            | $           | 173,050,602 | 
|                                                                               |                                                                                                                                                                                        |                                            |             |             |              | 
|                                                                              
|LIABILITIES AND STOCKHOLDERS EQUITY                                          
|Current liabilities                                                            |                                                                                                                                                                                        |                                            |             |             |              |  |            |            
|                                                                               | Accounts payable                                                                                                                                                                       |                                            | $           | 15,203,741  |              |  | $          | 5,765,365   |            
|                                                                               | Accrued liabilities                                                                                                                                                                    |                                            |             | 15,589,798  |              |  |            | 4,913,332   |            
|                                                                               | Purchase consideration due to stockholders                                                                                                                                             |                                            |             | 10,266,357  |              |  |            | 1,739,677   |            
|                                                                               | Client advances, current                                                                                                                                                               |                                            |             | 23,309,597  |              |  |            | 4,733,819   |            
|                                                                               | Line of credit, current                                                                                                                                                                |                                            |             | 5,000,000   |              |  |            |            |            
|                                                                               | Capital lease obligations and notes payable, current                                                                                                                                   |                                            |             | 3,257,288   |              |  |            | 1,997,733   |            
|                                                                               | Long term debt, current                                                                                                                                                                |                                            |             | 10,000,000  |              |  |            |            |            
|                                                                               |                                                                                                                                                                                        |                                            |             |             |              | 
|                                                                               |                                                                                                                                                                                        | Total current liabilities                  |             |             | 82,626,781   |  |            |             | 19,149,926  | 
|Client advances                                                                |                                                                                                                                                                                        |                                            | 27,359,504  |             |              |  |           |            
|Deferred income taxes                                                          |                                                                                                                                                                                        |                                            | 16,165,895  |             |              |  | 303,721    |            
|Capital lease obligations and notes payable                                    |                                                                                                                                                                                        |                                            | 5,510,022   |             |              |  | 3,653,683  |            
|Long term debt                                                                 |                                                                                                                                                                                        |                                            | 110,000,000 |             |              |  |            |            
|2.25% Convertible senior notes payable, due 2024                               |                                                                                                                                                                                        |                                            | 143,750,000 |             |              |  |           |            
|Minority interest in joint venture                                             |                                                                                                                                                                                        |                                            | 359,581     |             |              |  |           |            
|Commitments                                                                    |                                                                                                                                                                                        |                                            |            |             |              |  |           |            
|Stockholders equity                                                           |                                                                                                                                                                                        |                                            |             |             |              |  |            |            
|Preferred stock. $0.10 par value, 5,000,000 shares
    authorized, none issued |                                                                                                                                                                                        |                                            |            |             |              |  |           |            
|                                                                               | Common stock, $0.001 par value, 40,000,000 shares
    authorized, 15,053,888 shares and 14,985,834 shares
    issued and outstanding as of December 31, 2004 and
    December 31, 2003 |                                            |             | 15,054      |              |  |            | 14,986      |            
|                                                                               | Additional paid-in capital                                                                                                                                                             |                                            |             | 123,005,497 |              |  |            | 123,854,436 |            
|                                                                               | Retained earnings                                                                                                                                                                      |                                            |             | 43,882,030  |              |  |            | 24,223,139  |            
|                                                                               | Deferred compensation                                                                                                                                                                  |                                            |             | (83,467     | )            |  |            | (732,380    | )          
|                                                                               | Accumulated other comprehensive earnings                                                                                                                                               |                                            |             | 5,596,213   |              |  |            | 2,583,091   |            
|                                                                               |                                                                                                                                                                                        |                                            |             |             |              | 
|                                                                               |                                                                                                                                                                                        | Total stockholders equity                 |             |             | 172,415,327  |  |            |             | 149,943,272 | 
|                                                                               |                                                                                                                                                                                        |                                            |             |             |              | 
|                                                                               |                                                                                                                                                                                        | Total liabilities and stockholders equity |             | $           | 558,187,110  |  |            | $           | 173,050,602 | 
|                                                                               |                                                                                                                                                                                        |                                            |             |             |              | 



F-1



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS


FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


|                                             |                                              |                                                    |             |            |             |   |             |            |            |   |            |            |            | 
|-------------------------------------------- | -------------------------------------------- | -------------------------------------------------- | ----------- | ---------- | ----------- | - | ----------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                             |                                              | Twelve Months Ended                                |            
|                                             |                                              | December 31,                                       |            
|                                             |                                              |                                                    |            
|                                             |                                              | 2004                                               |             |            | 2003        |   |             | 2002       |           
|                                             |                                              |                                                    |             |            |             |   |             |            |           
|Net revenue                                  |                                              | $                                                  | 159,584,684 |            |             | $ | 103,852,536 |            |            | $ | 64,740,047 |           
|Costs and expenses                           |                                              |                                                    |             |            |             |   |             |            |            |   |            |           
|                                             | Direct costs                                 |                                                    |             | 86,457,994 |             |   |             | 59,309,054 |            |   |            | 36,727,571 |           
|                                             | Selling, general and administrative expenses |                                                    |             | 45,598,163 |             |   |             | 29,964,627 |            |   |            | 17,867,455 |           
|                                             |                                              |                                                    |             |            |             |   |             |            |           
|                                             |                                              | Total costs and expenses                           |             |            | 132,056,157 |   |             |            | 89,273,681 |   |            |            | 54,595,026 | 
|                                             |                                              | Earnings from operations                           |             |            | 27,528,527  |   |             |            | 14,578,855 |   |            |            | 10,145,021 | 
|Other income (expense)                       |                                              |                                                    |             |            |             |   |             |            |            |   |            |           
|                                             | Interest income                              |                                                    |             | 1,345,872  |             |   |             | 271,935    |            |   |            | 446,662    |           
|                                             | Interest expense                             |                                                    |             | (2,690,995 | )           |   |             | (427,122   | )          |   |            | (281,880   | )         
|                                             |                                              |                                                    |             |            |             |   |             |            |           
|                                             |                                              | Total other income (expense)                       |             |            | (1,345,123  | ) |             |            | (155,187   | ) |            |            | 164,782    | 
|                                             |                                              |                                                    |             |            |             |   |             |            |           
|                                             |                                              | Earnings before income taxes and minority interest |             |            | 26,183,404  |   |             |            | 14,423,668 |   |            |            | 10,309,803 | 
|Income tax expense                           |                                              |                                                    | 6,198,571   |            |             |   | 2,841,960   |            |            |   | 2,441,565  |           
|                                             |                                              |                                                    |             |            |             |   |             |            |           
|                                             |                                              | Earnings before minority interest                  |             |            | 19,984,833  |   |             |            | 11,581,708 |   |            |            | 7,868,238  | 
|Minority interest in joint venture           |                                              |                                                    | 325,942     |            |             |   |            |            |            |   |           |           
|                                             |                                              |                                                    |             |            |             |   |             |            |           
|                                             |                                              | Net earnings                                       |             | $          | 19,658,891  |   |             | $          | 11,581,708 |   |            | $          | 7,868,238  | 
|                                             |                                              |                                                    |             |            |             |   |             |            |           
|Earnings per share:                          |                                              |                                                    |             |            |             |   |             |            |            |   |            |           
|                                             | Basic                                        |                                                    | $           | 1.31       |             |   | $           | 0.99       |            |   | $          | 0.74       |           
|                                             |                                              |                                                    |             |            |             |   |             |            |           
|                                             | Diluted                                      |                                                    | $           | 1.25       |             |   | $           | 0.92       |            |   | $          | 0.70       |           
|                                             |                                              |                                                    |             |            |             |   |             |            |           
|Shares used in computing earnings per share: |                                              |                                                    |             |            |             |   |             |            |            |   |            |           
|                                             | Basic                                        |                                                    |             | 15,047,245 |             |   |             | 11,751,885 |            |   |            | 10,565,277 |           
|                                             |                                              |                                                    |             |            |             |   |             |            |           
|                                             | Diluted                                      |                                                    |             | 15,753,815 |             |   |             | 12,534,537 |            |   |            | 11,230,839 |           
|                                             |                                              |                                                    |             |            |             |   |             |            |           



F-2



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS
EQUITY


FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


|                                                             |                              |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |           |           |  |  |            |   |  |  |             |            | 
|------------------------------------------------------------ | ---------------------------- | ------------ | ---------- | - | ---------- |  | ------ | -------- |  |  | ----------- | ----------- |  | -------- | ---------- | ---------- | ------------- |  | ------- | -------- |  |  | -------- | - |  | ----- | --------- | --------- |  |  | ---------- | - |  |  | ----------- | ---------- | 
|                                                             |                              |              |            |   |            |  |        |          |  |  |             | Accumulated |  |          | Common     |            |               | 
|                                                             |                              | Common Stock |            |   | Additional |  |        | Retained |  |  | Note        |             |  |          |            | Other      |               |  | Stock   |          |  | 
|                                                             |                              |              |            |   | Paid-In    |  |        | Earnings |  |  | Receivable  |             |  | Deferred |            |            | Comprehensive |  |         | Held in  |  |  |         
|                                                             |                              | Shares       |            |   | Par Value  |  |        | Capital  |  |  | (Deficit)   |             |  | Officer  |            |            | Compensation  |  |         | Earnings |  |  | Treasury |   |  | Total |          
|                                                             |                              |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |          
|Balances  January 1, 2002                                   |                              |              | 10,005,480 |   |            |  | 10,005 |          |  |  | 49,910,510  |             |  |          | 4,773,193  |            |               |  | (62,500 | )        |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 54,631,208  |           
|Comprehensive earnings:                                      |                              |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |           |           |  |  |            |   |  |  |             |           
|                                                             | Net earnings                 |              |            |  |            |  |        |         |  |  |             |            |  |          |            | 7,868,238  |               |  |         |         |  |  |          |  |  |       |           |          |  |  |            |  |  |  |             | 7,868,238  | 
|                                                             | Foreign currency translation |              |            |  |            |  |        |         |  |  |             |            |  |          |            |           |               |  |         |         |  |  |          |  |  |       |           | 18,332    |  |  |            |  |  |  |             | 18,332     | 
|                                                             |                              |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |          
|                                                             | Total comprehensive earnings |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |           |           |  |  |            |   |  |  |             | 7,886,570  | 
|Common stock options issued as compensation                  |                              |              |           |   |            |  |       |          |  |  | 35,417      |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 35,417      |           
|Exercise of stock options and warrants                       |                              |              | 505,391    |   |            |  | 506    |          |  |  | 1,320,599   |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 1,321,105   |           
|Common stock issued  Anapharm acquisition                   |                              |              | 251,063    |   |            |  | 251    |          |  |  | 3,255,192   |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 3,255,443   |           
|Common stock issued  NDS acquisition                        |                              |              | 351,090    |   |            |  | 351    |          |  |  | 3,022,228   |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 3,022,579   |           
|Repurchase of common stock                                   |                              |              |           |   |            |  |       |          |  |  |            |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  | (2,176,484 | ) |  |  | (2,176,484  | )         
|Tax benefit resulting from exercise of stock options         |                              |              |           |   |            |  |       |          |  |  | 520,352     |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 520,352     |           
|Repayment of note receivable  officer                       |                              |              |           |   |            |  |       |          |  |  |            |             |  |          |           |            |               |  | 62,500  |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 62,500      |           
|                                                             |                              |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |          
|Balances  December 31, 2002                                 |                              |              | 11,113,023 |   |            |  | 11,113 |          |  |  | 58,064,298  |             |  |          | 12,641,431 |            |               |  |        |          |  |  |         |   |  |       | 18,332    |           |  |  | (2,176,484 | ) |  |  | 68,558,690  |           
|Comprehensive earnings:                                      |                              |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |           |           |  |  |            |   |  |  |             |           
|                                                             | Net earnings                 |              |            |  |            |  |        |         |  |  |             |            |  |          |            | 11,581,708 |               |  |         |         |  |  |          |  |  |       |           |          |  |  |            |  |  |  |             | 11,581,708 | 
|                                                             | Foreign currency translation |              |            |  |            |  |        |         |  |  |             |            |  |          |            |           |               |  |         |         |  |  |          |  |  |       |           | 2,564,759 |  |  |            |  |  |  |             | 2,564,759  | 
|                                                             |                              |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |          
|                                                             | Total comprehensive earnings |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |           |           |  |  |            |   |  |  |             | 14,146,467 | 
|Exercise of stock options and warrants                       |                              |              | 436,433    |   |            |  | 436    |          |  |  | 2,221,108   |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 2,221,544   |           
|Common stock issued  Danapharm acquisition                  |                              |              | 40,719     |   |            |  | 41     |          |  |  | 479,021     |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 479,062     |           
|Common stock issued  CPA acquisition                        |                              |              | 664,608    |   |            |  | 665    |          |  |  | 9,046,865   |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 9,047,530   |           
|Common stock issued as deferred compensation                 |                              |              | 37,500     |   |            |  | 37     |          |  |  | 758,743     |             |  |          |           |            |               |  |        |          |  |  | (732,380 | ) |  |       |          |           |  |  |           |   |  |  | 26,400      |           
|Retirement of treasury shares                                |                              |              | (306,450   | ) |            |  | (306   | )        |  |  | (2,176,178  | )           |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  | 2,176,484  |   |  |  |            |           
|Proceeds from public offering                                |                              |              | 3,000,000  |   |            |  | 3,000  |          |  |  | 55,457,000  |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 55,460,000  |           
|Offering costs                                               |                              |              |           |   |            |  |       |          |  |  | (1,617,161  | )           |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | (1,617,161  | )         
|Tax benefit resulting from exercise of stock options         |                              |              |           |   |            |  |       |          |  |  | 1,620,740   |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 1,620,740   |           
|                                                             |                              |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |          
|Balances  December 31, 2003                                 |                              |              | 14,985,833 |   |            |  | 14,986 |          |  |  | 123,854,436 |             |  |          | 24,223,139 |            |               |  |        |          |  |  | (732,380 | ) |  |       | 2,583,091 |           |  |  |           |   |  |  | 149,943,272 |           
|Comprehensive earnings:                                      |                              |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |           |           |  |  |            |   |  |  |             |           
|                                                             | Net earnings                 |              |            |  |            |  |        |         |  |  |             |            |  |          |            | 19,658,891 |               |  |         |         |  |  |          |  |  |       |           |          |  |  |            |  |  |  |             | 19,658,891 | 
|                                                             | Foreign currency translation |              |            |  |            |  |        |         |  |  |             |            |  |          |            |           |               |  |         |         |  |  |          |  |  |       |           | 3,013,122 |  |  |            |  |  |  |             | 3,013,122  | 
|                                                             |                              |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |          
|                                                             | Total comprehensive earnings |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |           |           |  |  |            |   |  |  |             | 22,672,013 | 
|Exercise of stock options and warrants                       |                              |              | 447,135    |   |            |  | 447    |          |  |  | 1,558,379   |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 1,558,826   |           
|Additional purchase consideration  CPA earnout              |                              |              | 75,354     |   |            |  | 75     |          |  |  | 1,999,925   |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 2,000,000   |           
|Common stock issued  Taylor Technology acquisition          |                              |              | 133,595    |   |            |  | 134    |          |  |  | 3,820,683   |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 3,820,817   |           
|Common stock issued  PharmaNet acquisition                  |                              |              | 258,971    |   |            |  | 259    |          |  |  | 10,075,227  |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 10,075,486  |           
|Options granted  PharmaNet acquisition                      |                              |              |           |   |            |  |       |          |  |  | 6,008,832   |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 6,008,832   |           
|Amortization of common stock issued as deferred compensation |                              |              |           |   |            |  |       |          |  |  |            |             |  |          |           |            |               |  |        |          |  |  | 168,449  |   |  |       |          |           |  |  |           |   |  |  | 168,449     |           
|Forfeiture of common stock issued as deferred compensation   |                              |              | (27,000    | ) |            |  | (27    | )        |  |  | (480,437    | )           |  |          |           |            |               |  |        |          |  |  | 480,464  |   |  |       |          |           |  |  |           |   |  |  |            |           
|Repurchase of common stock                                   |                              |              | (820,000   | ) |            |  | (820   | )        |  |  | (24,951,780 | )           |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | (24,952,600 | )         
|Tax benefit resulting from exercise of stock options         |                              |              |           |   |            |  |       |          |  |  | 1,120,232   |             |  |          |           |            |               |  |        |          |  |  |         |   |  |       |          |           |  |  |           |   |  |  | 1,120,232   |           
|                                                             |                              |              |            |   |            |  |        |          |  |  |             |             |  |          |            |            |               |  |         |          |  |  |          |   |  |       |          
|Balances  December 31, 2004                                 |                              |              | 15,053,888 |   |            |  | 15,054 |          |  |  | 123,005,497 |             |  |          | 43,882,030 |            |               |  |        |          |  |  | (83,467  | ) |  |       | 5,596,213 |           |  |  |           |   |  |  | 172,415,327 |           



F-3



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


|                                                                           |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |             |            |             |             |            |            |             |  
|-------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ----------- | ----------- | ------------ | ---------- | ----------- | ---------- | ----------- | ----------- | ---------- | ---------- | ----------- | -
|                                                                           |                                                                                                 | 2004                                                             |                                           |                                           | 2003        |             |              | 2002       |            
|                                                                           |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |            
|Cash flows from operating activities                                       |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |             |            |             |            
|                                                                           | Net earnings                                                                                    |                                                                  |                                           | 19,658,891                                |             |             |              | 11,581,708 |             |            |             | 7,868,238   |           
|                                                                           | Adjustments to reconcile net earnings to net cash provided by
    operating activities:         |                                                                  |                                           |                                           |             |             |              |            |             |            |             |             |           
|                                                                           |                                                                                                 | Depreciation and amortization                                    |                                           |                                           | 6,914,305   |             |              |            | 4,753,608   |            |             |             | 2,869,671  |           
|                                                                           |                                                                                                 | Amortization of deferred debt issue costs                        |                                           |                                           | 501,152     |             |              |            |            |            |             |             |           |           
|                                                                           |                                                                                                 | Loss on disposal of property and equipment                       |                                           |                                           | 39,116      |             |              |            |            |            |             |             |           |           
|                                                                           |                                                                                                 | Minority interest                                                |                                           |                                           | 325,942     |             |              |            |            |            |             |             |           |           
|                                                                           |                                                                                                 | Provision for bad debt                                           |                                           |                                           | 417,151     |             |              |            | 77,771      |            |             |             | 321,622    |           
|                                                                           |                                                                                                 | Noncash compensation  reduction of note receivable              |                                           |                                           | 200,000     |             |              |            | 200,000     |            |             |             | 200,000    |           
|                                                                           |                                                                                                 | Common stock and options issued as compensation                  |                                           |                                           | 168,449     |             |              |            | 26,400      |            |             |             | 35,417     |           
|                                                                           |                                                                                                 | Tax benefit resulting from exercise of stock options             |                                           |                                           | 1,120,232   |             |              |            | 1,620,740   |            |             |             | 520,352    |           
|                                                                           |                                                                                                 | Changes in assets and liabilities                                |                                           |                                           |             |             |              |            |             |            |             |             |            |           
|                                                                           |                                                                                                 |                                                                  | Accounts receivable                       |                                           |             | (18,945,493 | )            |            |             | (7,695,451 | )           |             |            | (5,761,714 | )          
|                                                                           |                                                                                                 |                                                                  | Income tax receivable                     |                                           |             | 1,392,796   |              |            |             | (1,056,683 | )           |             |            | (290,221   | )          
|                                                                           |                                                                                                 |                                                                  | Prepaid expenses and other current assets |                                           |             | (261,406    | )            |            |             | 312,018    |             |             |            | (2,011,931 | )          
|                                                                           |                                                                                                 |                                                                  | Other assets                              |                                           |             | 319,887     |              |            |             | 188,693    |             |             |            | (42,168    | )          
|                                                                           |                                                                                                 |                                                                  | Accounts payable                          |                                           |             | 2,913,013   |              |            |             | (2,380,710 | )           |             |            | 1,415,242  |            
|                                                                           |                                                                                                 |                                                                  | Accrued liabilities                       |                                           |             | 2,775,384   |              |            |             | 1,872,245  |             |             |            | 1,005,187  |            
|                                                                           |                                                                                                 |                                                                  | Advance billings                          |                                           |             | (1,007,661  | )            |            |             | (113,305   | )           |             |            | 2,236,828  |            
|                                                                           |                                                                                                 |                                                                  | Income taxes payable                      |                                           |             | 520,813     |              |            |             | 684        |             |             |            | (1,550,228 | )          
|                                                                           |                                                                                                 |                                                                  | Deferred income taxes                     |                                           |             | 67,002      |              |            |             | 381,620    |             |             |            | (1,545,755 | )          
|                                                                           |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |            
|Total adjustments                                                          |                                                                                                 |                                                                  | (2,539,318                                | )                                         |             |             | (1,812,370   | )          |             |            | (2,597,698  | )          
|                                                                           |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |            
|                                                                           |                                                                                                 |                                                                  |                                           | Net cash provided by operating activities |             |             | 17,119,573   |            |             |            | 9,769,338   |             |            |            | 5,270,540   |  
|                                                                           |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |            
|Cash flows from investing activities                                       |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |             |            |             |            
|                                                                           | Cash consideration  acquisitions, net of cash acquired                                         |                                                                  |                                           | (250,122,197                              | )           |             |              | (9,289,185 | )           |            |             | (29,228,978 | )         
|                                                                           |                                                                                                 | Additional purchase price consideration                          |                                           |                                           | (3,444,677  | )           |              |            |            |            |             |             |           |           
|                                                                           |                                                                                                 | Purchase of property and equipment                               |                                           |                                           | (21,903,457 | )           |              |            | (5,378,337  | )          |             |             | (5,104,469 | )         
|                                                                           |                                                                                                 | Proceeds from the disposal of property and equipment             |                                           |                                           | 106,552     |             |              |            |            |            |             |             |           |           
|                                                                           |                                                                                                 | Increase in marketable securities                                |                                           |                                           | (5,821,441  | )           |              |            | (1,498,024  | )          |             |             | (2,413,522 | )         
|                                                                           |                                                                                                 | Change in loans to officers/stockholders                         |                                           |                                           | 3,582       |             |              |            | 132,530     |            |             |             | 20,117     |           
|                                                                           |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |            
|                                                                           |                                                                                                 |                                                                  |                                           | Net cash used in investing activities     |             |             | (281,181,638 | )          |             |            | (16,033,016 | )           |            |            | (36,726,852 | )
|Cash flows from financing activities                                       |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |             |            |             |            
|                                                                           |                                                                                                 | Borrowings against lines of credit                               |                                           |                                           | 15,000,000  |             |              |            | 10,300,000  |            |             |             |           |           
|                                                                           |                                                                                                 | Payments on lines of credit                                      |                                           |                                           | (10,000,000 | )           |              |            | (10,300,000 | )          |             |             |           |           
|                                                                           |                                                                                                 | Principal additions to mortgage payable                          |                                           |                                           | 9,000,000   |             |              |            |            |            |             |             |           |           
|                                                                           |                                                                                                 | Principal payments on mortgage payable                           |                                           |                                           | (9,000,000  | )           |              |            |            |            |             |             |           |           
|                                                                           |                                                                                                 | Change in capital lease obligations and notes payable            |                                           |                                           | (2,019,880  | )           |              |            | (138,743    | )          |             |             | (429,951   | )         
|                                                                           |                                                                                                 | 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           |                                           |                                           | (11,226,762 | )           |              |            |            |            |             |             |           |           
|                                                                           |                                                                                                 | Purchase of common stock                                         |                                           |                                           | (24,952,600 | )           |              |            |            |            |             |             | (2,176,689 | )         
|                                                                           |                                                                                                 | Proceeds from the issuance/exercise of warrants and common stock |                                           |                                           | 1,558,126   |             |              |            | 2,221,544   |            |             |             | 1,321,309  |           
|                                                                           |                                                                                                 | Net proceeds from secondary public offering                      |                                           |                                           |            |             |              |            | 53,842,839  |            |             |             |           |           
|                                                                           |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |            
|                                                                           |                                                                                                 |                                                                  |                                           | Net cash provided by financing activities |             |             | 232,109,584  |            |             |            | 55,925,640  |             |            |            | (1,285,331  | )
|Net effect of exchange rate changes on cash                                |                                                                                                 |                                                                  | 840,614                                   |                                           |             |             | (3,006       | )          |             |            |            |            
|Net (decrease) increase in cash and cash equivalents                       |                                                                                                 |                                                                  | (31,111,867                               | )                                         |             |             | 49,658,956   |            |             |            | (32,741,643 | )          
|Cash and cash equivalents at beginning of period                           |                                                                                                 |                                                                  | 56,020,452                                |                                           |             |             | 6,361,496    |            |             |            | 39,103,139  |            
|                                                                           |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |            
|Cash and cash equivalents at end of period                                 |                                                                                                 | $                                                                | 24,908,585                                |                                           |             | $           | 56,020,452   |            |             | $          | 6,361,496   |            
|                                                                           |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |            
|Supplemental disclosures:                                                  |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |             |            |             |            
|                                                                           | Interest paid                                                                                   |                                                                  | $                                         | 1,213,063                                 |             |             | $            | 427,122    |             |            | $           | 271,880     |           
|                                                                           | Income taxes paid                                                                               |                                                                  | $                                         | 2,780,767                                 |             |             | $            | 2,348,672  |             |            | $           | 2,921,103   |           
|Supplemental disclosures of non-cash investing and finance
    activities: |                                                                                                 |                                                                  |                                           |                                           |             |             |              |            |             |            |             |            
|                                                                           | Fair value of net assets (liabilities) assumed in
    connection with acquisition of businesses |                                                                  | $                                         | 6,692,732                                 |             |             | $            | 4,394,987  |             |            | $           | 14,994,000  |           
|                                                                           | Common stock and options issued in connection with acquisition
    of business                  |                                                                  | $                                         | 19,905,135                                |             |             | $            | 9,526,592  |             |            | $           | 6,278,023   |           
|                                                                           | Professional fees accrued in connection with acquisition of
    business                        |                                                                  | $                                         | 165,534                                   |             |             | $            |           |             |            | $           | 73,360      |           
|                                                                           | Common stock options issued as compensation                                                     |                                                                  | $                                         | 168,449                                   |             |             | $            | 26,400     |             |            | $           | 35,417      |           
|                                                                           | Reduction of note receivable in lieu of bonus payment                                           |                                                                  | $                                         | 200,000                                   |             |             | $            | 200,000    |             |            | $           | 200,000     |           
|                                                                           | Capital lease obligation                                                                        |                                                                  | $                                         | 4,393,230                                 |             |             | $            | 823,896    |             |            | $           | 121,095     |           
|                                                                           | Additional purchase consideration related to the acquisition of
    businesses                  |                                                                  | $                                         | 15,605,255                                |             |             | $            | 1,704,378  |             |            | $           |            |           
|                                                                           | Common shares forfeited in lieu of cash payment related to
    option exercises                 |                                                                  | $                                         | 2,269,125                                 |             |             | $            |           |             |            | $           |            |           
|                                                                           | Forfeiture of common stock previously issued as deferred
    compensation                       |                                                                  | $                                         | 480,464                                   |             |             | $            |           |             |            | $           |            |           



F-4



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES














| |                             
| | ----------------------------
| | Revenue and Cost Recognition







F-5



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                      
| | -------------------------------------
| | Collectibility of Accounts Receivable











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







F-6



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                     
| | --------------------
| | Impairment of Assets





OTHER ACCOUNTING POLICIES




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





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





| |                                    
| | -----------------------------------
| | Investment in Marketable Securities



F-7



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                       
| | ----------------------
| | Property and Equipment



|                                  |  |                                                         |           | 
|--------------------------------- |  | ------------------------------------------------------- | --------- | 
|Buildings                         |  |                                                         | 40 years  | 
|Furniture and fixtures            |  |                                                         | 7 years   | 
|Machinery, equipment and software |  |                                                         | 3-7 years | 
|Transportation                    |  |                                                         | 5 years   | 
|Leasehold improvements            |  | Shorter of remaining life of asset or term of the lease



| |                               
| | ------------------------------
| | Goodwill and Intangible Assets





F-8



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                      |  |   |             |  
|----------------------------------------------------- |  | - | ----------- | -
|Goodwill, net at December 31, 2002                    |  | $ | 30,151,148  |  
|Addition resulting from acquisitions                  |  |   | 17,066,334  |  
|Earnout relating to New Drug Services acquisition     |  |   | 675,000     |  
|Other adjustments                                     |  |   | (103,099    | )
|                                                      |  |   |            
|Goodwill, net at December 31, 2003                    |  | $ | 47,789,383  |  
|Addition resulting from acquisitions                  |  |   | 236,058,857 |  
|Earnout relating to Clinical Pharmacology acquisition |  |   | 8,000,000   |  
|Earnout relating to New Drug Services acquisition     |  |   | 486,657     |  
|Other adjustments                                     |  |   | 338,089     |  
|                                                      |  |   |            
|Goodwill, net at December 31, 2004                    |  | $ | 292,672,986 |  
|                                                      |  |   |            



|                                              |                                       |                     |  |       |                   |  |   |              |            |       |          |            |            |              |   |           |           |  |   |          |            |  
|--------------------------------------------- | ------------------------------------- | ------------------- |  | ----- | ----------------- |  | - | ------------ | ---------- | ----- | -------- | ---------- | ---------- | ------------ | - | --------- | --------- |  | - | -------- | ---------- | -
|                                              |                                       | December 31, 2004   |  |       | December 31, 2003 | 
|                                              |                                       |                     |  |       |                   | 
|                                              |                                       | Weighted Average    |  |       | Gross             |  |   |              |            | Gross |          |            |           
|                                              |                                       | Amortization Period |  |       | Carrying          |  |   | Accumulated  |            |       | Carrying |            |            | Accumulated  |  
|                                              |                                       | (Years)             |  |       | Amount            |  |   | Amortization |            |       | Amount   |            |            | Amortization |  
|                                              |                                       |                     |  |       |                   |  |   |              |            |       |          |            |            |              |  
|Intangible assets subject to amortization     |                                       |                     |  |       |                   |  |   |              |            |       |          |            |            |              |   |           |           |  |   |         
|                                              | Internally-developed software         |                     |  | 5     |                   |  | $ | 454,000      |            |       | $        | (40,000    | )          |              | $ |          |           |  | $ |         |           
|                                              | Subject Database                      |                     |  | 4     |                   |  |   | 900,000      |            |       |          | (619,000   | )          |              |   | 900,000   |           |  |   | (394,000 | )         
|                                              | Employment and non-compete agreements |                     |  | 4 - 5 |                   |  |   | 1,408,000    |            |       |          | (468,000   | )          |              |   | 824,000   |           |  |   | (303,000 | )         
|                                              | Methodologies                         |                     |  | 4     |                   |  |   | 2,568,000    |            |       |          | (1,410,000 | )          |              |   | 1,721,000 |           |  |   | (853,000 | )         
|                                              | Technology                            |                     |  | 4     |                   |  |   | 6,981,000    |            |       |          | (41,000    | )          |              |   |           |           |  |   |          |           
|                                              | Contracts and customer relationships  |                     |  | 3 - 4 |                   |  |   | 13,529,000   |            |       |          | (848,000   | )          |              |   | 662,000   |           |  |   | (445,000 | )         
|                                              |                                       |                     |  |       |                   |  |   |              |            |       |          |            |            |              |  
|                                              |                                       | Subtotal            |  |       |                   |  |   |              | 25,840,000 |       |          |            | (3,426,000 | )            |   |           | 4,107,000 |  |   |          | (1,995,000 | )
|Intangible assets not subject to amortization |                                       |                     |  |       |                   |  |   |              |            |       |          |            |            |              |   |           |           |  |   |         
|                                              | Trade names                           |                     |  |      |                   |  |   | 16,008,000   |            |       |          |           |            |              |   |          |           |  |   |         |           
|                                              |                                       |                     |  |       |                   |  |   |              |            |       |          |            |            |              |  
|                                              |                                       | Total               |  |       |                   |  |   | $            | 41,848,000 |       |          | $          | (3,426,000 | )            |   | $         | 4,107,000 |  |   | $        | (1,995,000 | )
|                                              |                                       |                     |  |       |                   |  |   |              |            |       |          |            |            |              |  



F-9



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |  |   |            | 
|---- |  | - | ---------- | 
|2005 |  | $ | 5,729,000  | 
|2006 |  |   | 5,133,000  | 
|2007 |  |   | 5,001,000  | 
|2008 |  |   | 4,982,000  | 
|2009 |  |   | 1,569,000  | 
|     |  |   |           
|     |  | $ | 22,414,000 | 
|     |  |   |           



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





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





| |                       
| | ----------------------
| | Net Earnings Per Share







F-10



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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







F-11



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                            |             |      |   |            |      |  |   |            |  |  |   |           | 
|--------------------------- | ----------- | ---- | - | ---------- | ---- |  | - | ---------- |  |  | - | --------- | 
|                            |             | 2004 |   |            | 2003 |  |   | 2002       | 
|                            |             |      |   |            |      |  |   |            | 
|Net Earnings:               |             |      |   |            |      |  |   |            |  |  |   |          
|                            | As reported |      | $ | 19,658,891 |      |  | $ | 11,581,708 |  |  | $ | 7,868,238 | 
|                            | Pro forma   |      |   | 15,677,247 |      |  |   | 9,786,684  |  |  |   | 5,719,131 | 
|Basic earnings per share:   |             |      |   |            |      |  |   |            |  |  |   |          
|                            | As reported |      | $ | 1.31       |      |  | $ | 0.99       |  |  | $ | 0.74      | 
|                            | Pro forma   |      |   | 1.04       |      |  |   | 0.83       |  |  |   | 0.54      | 
|Diluted earnings per share: |             |      |   |            |      |  |   |            |  |  |   |          
|                            | As reported |      | $ | 1.25       |      |  | $ | 0.92       |  |  | $ | 0.70      | 
|                            | Pro forma   |      |   | 1.00       |      |  |   | 0.78       |  |  |   | 0.51      | 











| |                  
| | -----------------
| | Segment Reporting

Disclosures about Segments of an Enterprise
and Related Information,




| |                     
| | --------------------
| | Advertising Expenses



F-12



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##### 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-13



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |            
| | -----------
| | Investments

Consolidation of Variable Interest Entities


NOTE B  MAJOR CUSTOMERS






F-14



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE C  ACCOUNTS RECEIVABLE




|                                        |  |      |            |   |      |   |            |  
|--------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                        |  | 2004 |            |   | 2003 |  
|                                        |  |      |            |   |      |  
|Accounts receivable  billed            |  | $    | 52,669,711 |   |      | $ | 18,315,934 |  
|Accounts receivable  unbilled          |  |      | 51,676,406 |   |      |   | 15,516,190 |  
|Less allowance for changes in contracts |  |      | (5,724,618 | ) |      |   | (512,614   | )
|Less allowance for doubtful accounts    |  |      | (554,400   | ) |      |   | (461,979   | )
|                                        |  |      |            |   |      |  
|                                        |  | $    | 98,067,099 |   |      | $ | 32,857,531 |  
|                                        |  |      |            |   |      |  



|                            |                 |               |           |           |               |   |         |          |  
|--------------------------- | --------------- | ------------- | --------- | --------- | ------------- | - | ------- | -------- | -
|                            |                 | Allowance for |           |           | Allowance for |  
|                            |                 | Changes in    |           |           | Doubtful      |  
|                            |                 | Contracts     |           |           | Accounts      |  
|                            |                 |               |           |           |               |  
|Balance  January 1, 2002   |                 | $             | 128,138   |           |               | $ | 260,489 |         
|                            | Acquisitions    |               |           |          |               |   |         | 147,373  |  
|                            | 2002 provision  |               |           | 25,886    |               |   |         | 387,236  |  
|                            | 2002 reductions |               |           |          |               |   |         | (205,203 | )
|                            |                 |               |           |           |               |  
|Balance  December 31, 2002 |                 | $             | 154,024   |           |               |   | 589,895 |         
|                            | Acquisitions    |               |           |          |               |   |         |         |  
|                            | 2003 provision  |               |           | 358,590   |               |   |         | 77,771   |  
|                            | 2003 reductions |               |           |          |               |   |         | (205,687 | )
|                            |                 |               |           |           |               |  
|Balance  December 31, 2003 |                 |               | 512,614   |           |               |   | 461,979 |         
|                            | Acquisitions    |               |           | 5,212,004 |               |   |         | 110,283  |  
|                            | 2004 provision  |               |           |          |               |   |         | 417,151  |  
|                            | 2004 reductions |               |           |          |               |   |         | (435,013 | )
|                            |                 |               |           |           |               |  
|Balance  December 31, 2004 |                 | $             | 5,724,618 |           |               | $ | 554,400 |         
|                            |                 |               |           |           |               |  



NOTE D  LOANS RECEIVABLE FROM OFFICERS/
STOCKHOLDERS




F-15



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






NOTE E  PROPERTY AND EQUIPMENT




|                               |  |      |            |  |      |   |            | 
|------------------------------ |  | ---- | ---------- |  | ---- | - | ---------- | 
|                               |  | 2004 |            |  | 2003 |  
|                               |  |      |            |  |      |  
|Land and Buildings             |  | $    | 17,602,295 |  |      | $ | 1,119,590  | 
|Furniture and Fixtures         |  |      | 11,170,447 |  |      |   | 1,918,214  | 
|Leasehold improvements         |  |      | 16,809,949 |  |      |   | 6,917,391  | 
|Machinery and equipment        |  |      | 32,535,963 |  |      |   | 19,883,183 | 
|Computer hardware and software |  |      | 21,557,104 |  |      |   | 829,696    | 
|                               |  |      |            |  |      |  
|                               |  |      | 99,675,756 |  |      |   | 30,668,074 | 
|Less accumulated depreciation  |  |      | 35,769,487 |  |      |   | 6,491,056  | 
|                               |  |      |            |  |      |  
|                               |  | $    | 63,906,271 |  |      | $ | 24,177,018 | 
|                               |  |      |            |  |      |  





NOTE F  ACCRUED LIABILITIES




|                                |  |      |            |  |      |   |           | 
|------------------------------- |  | ---- | ---------- |  | ---- | - | --------- | 
|                                |  | 2004 |            |  | 2003 |  
|                                |  |      |            |  |      |  
|Salaries, bonuses, and benefits |  | $    | 7,569,801  |  |      | $ | 3,041,659 | 
|Professional fees               |  |      | 1,502,387  |  |      |   | 320,772   | 
|Deferred rent                   |  |      | 2,439,930  |  |      |   | 265,774   | 
|Interest                        |  |      | 1,477,932  |  |      |   |          | 
|Other                           |  |      | 2,599,748  |  |      |   | 1,285,127 | 
|                                |  |      |            |  |      |  
|                                |  | $    | 15,589,798 |  |      | $ | 4,913,332 | 
|                                |  |      |            |  |      |  

F-16



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE G  DEBT AND CAPITAL LEASES




| |                                 
| | --------------------------------
| | Convertible Senior Notes Payable





| |                
| | ---------------
| | Credit Facility



F-17



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                                 
| | ----------------------------------------------------------------
| | Capital Leases Obligations, Long-term Debt and
    Notes Payable



|                          |  |      |             |  |      |   |           | 
|------------------------- |  | ---- | ----------- |  | ---- | - | --------- | 
|                          |  | 2004 |             |  | 2003 |  
|                          |  |      |             |  |      |  
|Capital lease obligations |  | $    | 8,032,721   |  |      | $ | 4,699,026 | 
|Long-term Debt            |  |      | 125,000,000 |  |      |   |          | 
|Convertible Senior Notes  |  |      | 143,750,000 |  |      |   |          | 
|Notes payable  other     |  |      | 734,589     |  |      |   | 952,388   | 
|                          |  |      |             |  |      |  
|                          |  |      | 277,517,310 |  |      |   | 5,651,414 | 
|Less current portion      |  |      | 18,257,288  |  |      |   | 1,997,731 | 
|                          |  |      |             |  |      |  
|Long  term portion       |  | $    | 259,260,022 |  |      | $ | 3,653,683 | 
|                          |  |      |             |  |      |  





|                               |  |              |            |   |      |   |            |  
|------------------------------ |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                               |  | December 31, |           
|                               |  |              |           
|                               |  | 2004         |            |   | 2003 |  
|                               |  |              |            |   |      |  
|Equipment                      |  | $            | 14,485,810 |   |      | $ | 9,772,254  |  
|Less: Accumulated Depreciation |  |              | (5,076,913 | ) |      |   | (4,107,979 | )
|                               |  |              |            |   |      |  
|                               |  | $            | 9,408,898  |   |      | $ | 5,664,275  |  
|                               |  |              |            |   |      |  

F-18



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                            |  |        |            |  
|------------------------------------------- |  | ------ | ---------- | -
|                                            |  | Amount |           
|                                            |  |        |           
|2005                                        |  | $      | 3,275,255  |  
|2006                                        |  |        | 2,504,752  |  
|2007                                        |  |        | 2,089,899  |  
|2008                                        |  |        | 607,703    |  
|2009 and thereafter                         |  |        | 165,780    |  
|                                            |  |        |           
|Total minimum lease payments                |  |        | 8,643,389  |  
|Less: Amount representing interest          |  |        | (610,668   | )
|                                            |  |        |           
|Present value of minimum lease payments     |  |        | 8,032,721  |  
|Less: Current portion                       |  |        | (2,963,894 | )
|                                            |  |        |           
|Long  term obligation under capital leases |  | $      | 5,068,827  |  
|                                            |  |        |           



|                            |  |        |             | 
|--------------------------- |  | ------ | ----------- | 
|                            |  | Amount |            
|                            |  |        |            
|2005                        |  | $      | 15,000,000  | 
|2006                        |  |        | 15,000,000  | 
|2007                        |  |        | 15,000,000  | 
|2008                        |  |        | 25,000,000  | 
|2009 and thereafter         |  |        | 55,000,000  | 
|                            |  |        |            
|Total minimum debt payments |  | $      | 125,000,000 | 
|                            |  |        |            



NOTE H  COMMITMENTS AND CONTINGENCIES




| |       
| | ------
| | Leases



|           |  |   |            | 
|---------- |  | - | ---------- | 
|2005       |  |   | 13,219,240 | 
|2006       |  |   | 11,567,423 | 
|2007       |  |   | 10,676,101 | 
|2008       |  |   | 9,211,840  | 
|2009       |  |   | 7,909,556  | 
|Thereafter |  |   | 20,546,189 | 
|           |  |   |           
|           |  | $ | 73,130,349 | 
|           |  |   |           

F-19



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                   
| | ------------------
| | Spanish litigation





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





| |      
| | -----
| | Other





F-20



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






NOTE I  INCOME TAXES




|         |         |      |           |           |      |   |           |           |  |   |           |           | 
|-------- | ------- | ---- | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|         |         | 2004 |           |           | 2003 |   |           | 2002      | 
|         |         |      |           |           |      |   |           |           | 
|Current: |         |      |           |           |      |   |           |           |  |   |           |          
|         | Federal |      | $         | 4,060,842 |      |   | $         | 2,410,139 |  |   | $         | 2,740,000 | 
|         | Foreign |      |           | 876,479   |      |   |           | 144,741   |  |   |           |          | 
|         | State   |      |           | 477,851   |      |   |           | 353,839   |  |   |           | 315,125   | 
|Deferred |         |      | 783,399   |           |      |   | (66,759   | )         |  |   | (613,560  | )        
|         |         |      |           |           |      |   |           |           | 
|         |         | $    | 6,198,571 |           |      | $ | 2,841,960 |           |  | $ | 2,441,565 |          
|         |         |      |           |           |      |   |           |           | 







| |                                         
| | ----------------------------------------
| | Deferred Tax Asset (Liability)  Current

|                                                                                 |                               |      |           |           |      |   |          |         | 
|-------------------------------------------------------------------------------- | ----------------------------- | ---- | --------- | --------- | ---- | - | -------- | ------- | 
|                                                                                 |                               | 2004 |           |           | 2003 |  
|                                                                                 |                               |      |           |           |      |  
|Accounts receivable                                                              |                               | $    | 302,933   |           |      | $ | 265,430  |        
|Accrued expenses                                                                 |                               |      | 885,471   |           |      |   | 33,872   |        
|Prepaid expenses                                                                 |                               |      | (269,525  | )         |      |   |         |        
|Net temporary differences due to conversion to accrual basis
    from cash basis |                               |      | 173,729   |           |      |   | (177,737 | )      
|Net operating loss carryforwards                                                 |                               |      | 2,469,141 |           |      |   |         |        
|Capital loss carryforwards                                                       |                               |      | 658       |           |      |   |         |        
|                                                                                 |                               |      |           |           |      |  
|                                                                                 | Net current asset (liability) |      | $         | 3,562,407 |      |   | $        | 121,565 | 
|                                                                                 |                               |      |           |           |      |  

F-21



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                               
| | ----------------------------------------------
| | Deferred Tax Asset (Liability)  Long
    Term

|                                                         |                                   |      |             |             |      |   |            |          |  
|-------------------------------------------------------- | --------------------------------- | ---- | ----------- | ----------- | ---- | - | ---------- | -------- | -
|                                                         |                                   | 2004 |             |             | 2003 |  
|                                                         |                                   |      |             |             |      |  
|Research and Development Tax Credits Carryforward        |                                   | $    | 10,622,049  |             |      | $ | 7,958,073  |         
|Deferred compensation                                    |                                   |      | 15,189      |             |      |   |           |         
|Deferred rent                                            |                                   |      | 874,462     |             |      |   | 99,720     |         
|Foreign tax credits                                      |                                   |      | 535,477     |             |      |   |           |         
|AMT tax credits                                          |                                   |      | 200,000     |             |      |   |           |         
|Advance payments                                         |                                   |      | (147,478    | )           |      |   |           |         
|Depreciation and amortization                            |                                   |      | (7,433,966  | )           |      |   | (3,518,986 | )       
|Deferred tax liability, research and development credits |                                   |      | (4,252,860  | )           |      |   | (3,121,543 | )       
|Foreign currency translation adjustment                  |                                   |      | (2,008,748  | )           |      |   | (1,720,985 | )       
|Acquired intangible assets                               |                                   |      | (14,359,948 | )           |      |   |           |         
|Other                                                    |                                   |      | (210,072    | )           |      |   |           |         
|                                                         |                                   |      |             |             |      |  
|                                                         | Net non-current asset (liability) |      | $           | (16,165,895 | )    |   | $          | (303,721 | )
|                                                         |                                   |      |             |             |      |  



|                                     |  |      |            |   |      |   |            |      |  |   |            |  
|------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                     |  | 2004 |            |   | 2003 |   |            | 2002 | 
|                                     |  |      |            |   |      |   |            |      | 
|Income taxes statutory rate          |  | $    | 9,164,191  |   |      | $ | 4,904,000  |      |  | $ | 3,505,000  |  
|State income taxes                   |  |      | 1,180,872  |   |      |   | 1,340,000  |      |  |   | 365,000    |  
|Permanent differences and other      |  |      | 261,508    |   |      |   | 56,000     |      |  |   | 105,000    |  
|Research and development Tax Credits |  |      | (4,408,000 | ) |      |   | (3,458,000 | )    |  |   | (1,533,000 | )
|                                     |  |      |            |   |      |   |            |      | 
|                                     |  | $    | 6,198,571  |   |      | $ | 2,842,000  |      |  | $ | 2,442,000  |  
|                                     |  |      |            |   |      |   |            |      | 









F-22



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|              |  |      |            |  |      |  |            |      |  |  |            | 
|------------- |  | ---- | ---------- |  | ---- |  | ---------- | ---- |  |  | ---------- | 
|              |  | 2004 |            |  | 2003 |  |            | 2002 | 
|              |  |      |            |  |      |  |            |      | 
|United States |  |      | 13,105,488 |  |      |  | 6,803,031  |      |  |  | 7,591,332  | 
|Foreign       |  |      | 13,077,916 |  |      |  | 7,620,637  |      |  |  | 2,718,471  | 
|              |  |      |            |  |      |  |            |      | 
|              |  |      | 26,183,404 |  |      |  | 14,423,668 |      |  |  | 10,309,803 | 
|              |  |      |            |  |      |  |            |      | 

NOTE J  EQUITY




| |                           
| | --------------------------
| | Secondary Public Offerings







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





F-23



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                 |           |           |           |           |          |   |       |           |           |  |           |          |   |           |      |       |          |  |           |          |   |   |      |       | 
|-------------------------------- | --------- | --------- | --------- | --------- | -------- | - | ----- | --------- | --------- |  | --------- | -------- | - | --------- | ---- | ----- | -------- |  | --------- | -------- | - | - | ---- | ----- | 
|                                 |           | 2004      |           |           | 2003     |   |       | 2002      |          
|                                 |           |           |           |           |          |   |       |           |          
|                                 |           |           |           | Weighted- |          |   |       |           | Weighted- |  |           |          |   | Weighted- |     
|                                 |           |           |           | Average   |          |   |       |           | Average   |  |           |          |   | Average   |     
|                                 |           | Number of |           |           | Exercise |   |       | Number of |           |  | Exercise  |          |   | Number of |      |       | Exercise | 
|                                 |           | Options   |           |           | Price    |   |       | Options   |           |  | Price     |          |   | Options   |      |       | Price    | 
|                                 |           |           |           |           |          |   |       |           |           |  |           |          |   |           |      |       |          | 
|Outstanding at beginning of year |           |           | 1,499,702 |           |          | $ | 9.49  |           |           |  | 1,908,024 |          |   | $         | 8.89 |       |          |  | 1,596,501 |          |   | $ | 6.86 |      
|                                 | Granted   |           |           | 1,253,447 |          |   |       | 36.85     |           |  |           | 67,500   |   |           |      | 13.25 |          |  |           | 974,100  |   |   |      | 10.92 | 
|                                 | Exercised |           |           | (540,395  | )        |   |       | 7.09      |           |  |           | (435,447 | ) |           |      | 6.82  |          |  |           | (459,503 | ) |   |      | 3.91  | 
|                                 | Forfeited |           |           | (41,006   | )        |   |       | 7.20      |           |  |           | (40,376  | ) |           |      | 14.89 |          |  |           | (203,075 | ) |   |      | 4.40  | 
|                                 |           |           |           |           |          |   |       |           |           |  |           |          |   |           |      |       |          | 
|Outstanding at end of year       |           |           | 2,171,748 |           |          | $ | 25.97 |           |           |  | 1,499,702 |          |   | $         | 9.49 |       |          |  | 1,908,024 |          |   | $ | 8.89 |      
|Exercisable at end of year       |           |           | 1,435,909 |           |          | $ | 23.22 |           |           |  | 1,105,626 |          |   | $         | 9.18 |       |          |  | 1,119,572 |          |   | $ | 7.94 |      



|                         |  |                     |           |             |                     |  |           |       |  |   |        |           |  |       |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ----------- | ------------------- |  | --------- | ----- |  | - | ------ | --------- |  | ----- | --------- |  |  | - | ----- | 
|                         |  | Options Outstanding |           |             | Options Exercisable | 
|                         |  |                     |           |             |                     | 
|                         |  |                     |           | Weighted-   |                     |  |           |       | 
|                         |  |                     |           | Average     |                     |  | Weighted- |       |  |   |        | Weighted- | 
|                         |  |                     |           | Remaining   |                     |  | Average   |       |  |   |        | Average   | 
|                         |  |                     |           | Contractual |                     |  | Exercise  |       |  |   |        | Exercise  | 
|Range of Exercise Prices |  | Shares              |           |             | Life                |  |           | Price |  |   | Shares |           |  | Price |          
|                         |  |                     |           |             |                     |  |           |       |  |   |        |           |  |       |          
|$ 4.00-$ 7.09            |  |                     | 310,949   |             |                     |  | 6.95      |       |  | $ | 6.06   |           |  |       | 280,951   |  |  | $ | 5.98  | 
|$10.79-$19.89            |  |                     | 628,352   |             |                     |  | 7.35      |       |  | $ | 13.86  |           |  |       | 573,103   |  |  | $ | 13.84 | 
|$24.37-$28.06            |  |                     | 390,000   |             |                     |  | 9.43      |       |  | $ | 25.59  |           |  |       | 102,497   |  |  | $ | 25.15 | 
|$33.49-$44.43            |  |                     | 842,447   |             |                     |  | 9.98      |       |  | $ | 42.52  |           |  |       | 149,358   |  |  | $ | 41.91 | 
|                         |  |                     |           |             |                     |  |           |       |  |   |        |           |  |       |          
|                         |  |                     | 2,171,748 |             |                     |  |           |       |  |   |        |           |  |       | 1,105,909 |  |  |   |       | 
|                         |  |                     |           |             |                     |  |           |       |  |   |        |           |  |       |          









F-24



---



##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE K  BUSINESS COMBINATIONS




| |                
| | ---------------
| | PharmaNet, Inc.











|                               |  |   |             |  
|------------------------------ |  | - | ----------- | -
|Current assets                 |  | $ | 69,194,000  |  
|Property, plant, and equipment |  |   | 14,167,000  |  
|Intangible assets              |  |   | 34,792,000  |  
|Goodwill                       |  |   | 220,957,000 |  
|Other Assets                   |  |   | 2,556,000   |  
|                               |  |   |            
|Total assets acquired          |  |   | 341,666,000 |  
|                               |  |   |            
|Current liabilities            |  |   | (51,124,000 | )
|Total liabilities assumed      |  |   | (91,062,000 | )
|                               |  |   |            
|Net assets acquired            |  | $ | 250,604,000 |  

F-25



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                        
| | -----------------------
| | Taylor Technology, Inc.





|                               |  |   |            |  
|------------------------------ |  | - | ---------- | -
|Current assets                 |  | $ | 2,213,000  |  
|Property, plant, and equipment |  |   | 3,808,000  |  
|Intangible assets              |  |   | 2,949,000  |  
|Goodwill                       |  |   | 15,102,000 |  
|Other Assets                   |  |   | 224,000    |  
|                               |  |   |           
|Total assets acquired          |  |   | 24,296,000 |  
|Current liabilities            |  |   | (3,270,000 | )
|Total liabilities assumed      |  |   | (3,555,000 | )
|                               |  |   |           
|Net assets acquired            |  | $ | 20,741,000 |  





F-26



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                      
| | ---------------------
| | Synfine Research Inc.





| |                                 
| | --------------------------------
| | Danapharm Clinical Research Inc.





| |                                       
| | --------------------------------------
| | Clinical Pharmacology of Florida, Inc.





|                               |  |   |            |  
|------------------------------ |  | - | ---------- | -
|Current assets                 |  | $ | 2,931,000  |  
|Property, plant, and equipment |  |   | 787,000    |  
|Intangible assets              |  |   | 606,000    |  
|Goodwill                       |  |   | 15,503,000 |  
|                               |  |   |           
|Total assets acquired          |  |   | 19,827,000 |  
|Current liabilities            |  |   | (2,109,000 | )
|                               |  |   |           
|Total liabilities assumed      |  |   | (2,109,000 | )
|                               |  |   |           
|Net assets acquired            |  | $ | 17,718,000 |  
|                               |  |   |           

F-27



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                            
| | ---------------------------
| | Unaudited Pro Forma Results



|                             |  |             |             |  |      |   |             | 
|---------------------------- |  | ----------- | ----------- |  | ---- | - | ----------- | 
|                             |  | 2004        |             |  | 2003 |  
|                             |  |             |             |  |      |  
|                             |  | (Unaudited) |            
|Net revenue(1)               |  | $           | 341,826,154 |  |      | $ | 260,481,553 | 
|Net earnings                 |  | $           | 17,148,000  |  |      | $ | 5,929,975   | 
|Earnings per share  basic   |  | $           | 1.15        |  |      | $ | 0.47        | 
|Earnings per share  diluted |  | $           | 1.10        |  |      | $ | 0.44        | 






|    |                                    
|--- | -----------------------------------
|(1) | Includes reimbursed out-of-pockets.





|                                                                       |  |      |            |  |      |   |           | 
|---------------------------------------------------------------------- |  | ---- | ---------- |  | ---- | - | --------- | 
|                                                                       |  | 2004 |            |  | 2003 |  
|                                                                       |  |      |            |  |      |  
|Earnout related to CPA acquisition                                     |  | $    | 4,000,000  |  |      | $ |          | 
|Purchase price adjustment related to CPA acquisition                   |  |      |           |  |      |   | 1,289,677 | 
|Earnout related to NDS acquisition                                     |  |      | 300,000    |  |      |   | 450,000   | 
|Purchase price adjustment related to Taylor Technology
    acquisition |  |      | 606,941    |  |      |   |          | 
|Purchase price adjustment related to PharmaNet acquisition             |  |      | 5,359,416  |  |      |   |          | 
|                                                                       |  |      |            |  |      |  
|                                                                       |  | $    | 10,266,357 |  |      | $ | 1,739,677 | 
|                                                                       |  |      |            |  |      |  



| |              
| | -------------
| | Anapharm Inc.



F-28



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |                           |   |            |            |  
|------------------------------ | ------------------------- | - | ---------- | ---------- | -
|Current assets                 |                           | $ | 10,357,000 |           
|Property, plant, and equipment |                           |   | 9,468,000  |           
|Other assets                   |                           |   | 1,065,000  |           
|Deferred income taxes          |                           |   | 681,000    |           
|Intangible assets              |                           |   | 2,470,000  |           
|Goodwill                       |                           |   | 15,172,000 |           
|                               |                           |   |           
|                               | Total assets acquired     |   |            | 39,213,000 |  
|                               |                           |   |           
|Current liabilities            |                           |   | (5,051,000 | )         
|Capital lease obligations      |                           |   | (3,234,000 | )         
|                               |                           |   |           
|                               | Total liabilities assumed |   |            | (8,285,000 | )
|                               |                           |   |           
|                               | Net assets acquired       |   | $          | 30,928,000 |  
|                               |                           |   |           







| |                        
| | -----------------------
| | New Drug Services, Inc.



F-29



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                               |                           |   |            |            |  
|------------------------------ | ------------------------- | - | ---------- | ---------- | -
|Current assets                 |                           | $ | 3,107,000  |           
|Property, plant, and equipment |                           |   | 209,000    |           
|Other assets                   |                           |   | 45,000     |           
|Intangible assets              |                           |   | 290,000    |           
|Goodwill                       |                           |   | 9,296,000  |           
|                               |                           |   |           
|                               | Total assets acquired     |   |            | 12,947,000 |  
|                               |                           |   |           
|Current liabilities            |                           |   | (1,704,000 | )         
|                               |                           |   |           
|                               | Total liabilities assumed |   |            | (1,704,000 | )
|                               |                           |   |           
|                               | Net assets acquired       |   | $          | 11,243,000 |  
|                               |                           |   |           





NOTE L  GEOGRAPHIC INFORMATION




|                         |  |      |             |   |      |   |             |      |  |   |            |  
|------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ---------- | -
|                         |  | 2004 |             |   | 2003 |   |             | 2002 | 
|                         |  |      |             |   |      |   |             |      | 
|United States            |  | $    | 81,703,758  |   |      | $ | 54,524,075  |      |  | $ | 39,947,937 |  
|Canada                   |  |      | 76,100,669  |   |      |   | 50,223,298  |      |  |   | 24,992,713 |  
|Spain                    |  |      | 3,169,942   |   |      |   | 54,063      |      |  |   |           |  
|                         |  |      |             |   |      |   |             |      | 
|                         |  |      | 160,974,369 |   |      |   | 104,801,436 |      |  |   | 64,940,650 |  
|Eliminations             |  |      | (1,389,685  | ) |      |   | (948,900    | )    |  |   | (200,603   | )
|                         |  |      |             |   |      |   |             |      | 
|Consolidated net revenue |  | $    | 159,584,684 |   |      | $ | 103,852,536 |      |  | $ | 64,740,047 |  
|                         |  |      |             |   |      |   |             |      | 

F-30



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                            
| | ---------------------------
| | Property and equipment, net

|              |  |      |            |  |      |   |            | 
|------------- |  | ---- | ---------- |  | ---- | - | ---------- | 
|              |  | 2004 |            |  | 2003 |  
|              |  |      |            |  |      |  
|United States |  | $    | 35,456,449 |  |      | $ | 7,123,206  | 
|Canada        |  |      | 22,281,156 |  |      |   | 16,061,487 | 
|Europe        |  |      | 5,293,015  |  |      |   | 992,325    | 
|Rest of world |  |      | 875,651    |  |      |   |           | 
|              |  |      |            |  |      |  
|              |  | $    | 63,906,271 |  |      | $ | 24,177,018 | 
|              |  |      |            |  |      |  



NOTE M  SUBSEQUENT EVENTS








F-31



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE N  QUARTERLY FINANCIAL DATA (unaudited)




Condensed Consolidated Statement of Earnings Quarterly for
the year 2004


|                                   |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |            |            |            |   |             |            |             |  
|---------------------------------- | -------------------------------------------- | ------------------------------------------- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | ----- | ---------- | ---------- | ---------- | - | ----------- | ---------- | ----------- | -
|                                   |                                              | 31-Mar                                      |            |            | 30-Jun     |   |            | 30-Sep     |            |   | 31-Dec     |            |            | Total |           
|                                   |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |           
|Net revenue(1)                     |                                              | $                                           | 33,485,539 |            |            | $ | 36,418,050 |            |            | $ | 40,360,663 |            |            | $     | 49,320,432 |            |            | $ | 159,584,684 |           
|Costs and expenses                 |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |            |            |            |   |             |           
|                                   | Direct costs                                 |                                             |            | 18,763,948 |            |   |            | 19,997,459 |            |   |            | 21,872,811 |            |       |            | 25,823,776 |            |   |             | 86,457,994 |            
|                                   | Selling, general and administrative Expenses |                                             |            | 10,034,111 |            |   |            | 9,850,883  |            |   |            | 10,816,253 |            |       |            | 14,896,916 |            |   |             | 45,598,163 |            
|                                   |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |           
|                                   |                                              | Total costs and expenses                    |            |            | 28,798,059 |   |            |            | 29,848,342 |   |            |            | 32,689,064 |       |            |            | 40,720,692 |   |             |            | 132,056,157 |  
|                                   |                                              | Earnings from operations                    |            |            | 4,687,480  |   |            |            | 6,569,708  |   |            |            | 7,671,599  |       |            |            | 8,599,740  |   |             |            | 27,528,527  |  
|Other income (expense)             |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |            |            |            |   |             |           
|                                   | Interest income                              |                                             |            | 172,686    |            |   |            | 193,413    |            |   |            | 401,775    |            |       |            | 577,998    |            |   |             | 1,345,872  |            
|                                   | Interest expense(2)                          |                                             |            | (105,548   | )          |   |            | (135,132   | )          |   |            | (749,565   | )          |       |            | (1,700,750 | )          |   |             | (2,690,995 | )          
|                                   |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |           
|                                   |                                              | Total other income (expense)                |            |            | 67,138     |   |            |            | 58,281     |   |            |            | (347,790   | )     |            |            | (1,122,752 | ) |             |            | (1,345,123  | )
|                                   |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |           
|                                   |                                              | Earnings before taxes and minority interest |            |            | 4,754,618  |   |            |            | 6,627,989  |   |            |            | 7,323,809  |       |            |            | 7,476,988  |   |             |            | 26,183,404  |  
|Income tax expense                 |                                              |                                             | 1,028,310  |            |            |   | 1,686,251  |            |            |   | 2,020,821  |            |            |       | 1,463,189  |            |            |   | 6,198,571   |           
|                                   |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |           
|                                   |                                              | Earnings before minority interest           |            | $          | 3,726,308  |   |            | $          | 4,941,738  |   |            | $          | 5,302,988  |       |            | $          | 6,013,799  |   |             | $          | 19,984,833  |  
|                                   |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |           
|Minority Interest in Joint Venture |                                              |                                             |           |            |            |   | 194,408    |            |            |   | 32,188     |            |            |       | 99,346     |            |            |   | 325,942     |           
|                                   |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |           
|                                   |                                              | Net Earnings                                |            |            | 3,726,308  |   |            |            | 4,747,330  |   |            |            | 5,270,800  |       |            |            | 5,914,453  |   |             |            | 19,658,891  |  
|                                   |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |           
|Earnings per share:                |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |            |            |            |   |             |           
|                                   | Basic                                        |                                             | $          | 0.25       |            |   | $          | 0.31       |            |   | $          | 0.35       |            |       | $          | 0.40       |            |   | $           | 1.31       |            
|                                   |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |           
|                                   | Diluted                                      |                                             | $          | 0.24       |            |   | $          | 0.30       |            |   | $          | 0.34       |            |       | $          | 0.37       |            |   | $           | 1.25       |            
|                                   |                                              |                                             |            |            |            |   |            |            |            |   |            |            |            |       |           

F-32



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Condensed Consolidated Statement of Earnings Quarterly for
the year 2003


|                       |                                              |                              |            |            |            |   |            |            |            |   |            |            |            |       |            |            |            |   |             |            |            |  
|---------------------- | -------------------------------------------- | ---------------------------- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | ----- | ---------- | ---------- | ---------- | - | ----------- | ---------- | ---------- | -
|                       |                                              | 31 - Mar                     |            |            | 30 - Jun   |   |            | 30 - Sep   |            |   | 31 - Dec   |            |            | Total |           
|                       |                                              |                              |            |            |            |   |            |            |            |   |            |            |            |       |           
|Net revenue(3)         |                                              | $                            | 18,670,036 |            |            | $ | 22,483,553 |            |            | $ | 29,078,652 |            |            | $     | 33,620,295 |            |            | $ | 103,852,536 |           
|Costs and expenses     |                                              |                              |            |            |            |   |            |            |            |   |            |            |            |       |            |            |            |   |             |           
|                       | Direct costs                                 |                              |            | 10,568,592 |            |   |            | 12,688,984 |            |   |            | 17,396,095 |            |       |            | 18,655,383 |            |   |             | 59,309,054 |           
|                       | Selling, general and administrative expenses |                              |            | 5,814,860  |            |   |            | 7,232,418  |            |   |            | 7,284,094  |            |       |            | 9,633,255  |            |   |             | 29,964,627 |           
|                       |                                              |                              |            |            |            |   |            |            |            |   |            |            |            |       |           
|                       |                                              | Total costs and expenses     |            |            | 16,383,452 |   |            |            | 19,921,402 |   |            |            | 24,680,189 |       |            |            | 28,288,638 |   |             |            | 89,273,681 |  
|                       |                                              | Earnings from operations     |            |            | 2,286,584  |   |            |            | 2,562,151  |   |            |            | 4,398,463  |       |            |            | 5,331,657  |   |             |            | 14,578,855 |  
|Other income (expense) |                                              |                              |            |            |            |   |            |            |            |   |            |            |            |       |            |            |            |   |             |           
|                       | Interest income                              |                              |            | 52,015     |            |   |            | 37,670     |            |   |            | 26,469     |            |       |            | 155,781    |            |   |             | 271,935    |           
|                       | Interest expense                             |                              |            | (74,439    | )          |   |            | (102,581   | )          |   |            | (126,418   | )          |       |            | (123,684   | )          |   |             | (427,122   | )         
|                       |                                              |                              |            |            |            |   |            |            |            |   |            |            |            |       |           
|                       |                                              | Total other income (expense) |            |            | (22,424    | ) |            |            | (64,911    | ) |            |            | (99,949    | )     |            |            | 32,097     |   |             |            | (155,187   | )
|                       |                                              |                              |            |            |            |   |            |            |            |   |            |            |            |       |           
|                       |                                              | Earnings before taxes        |            |            | 2,264,160  |   |            |            | 2,497,240  |   |            |            | 4,298,514  |       |            |            | 5,363,752  |   |             |            | 14,423,668 |  
|Income tax expense     |                                              |                              | 320,876    |            |            |   | 473,174    |            |            |   | 873,549    |            |            |       | 1,174,361  |            |            |   | 2,841,960   |           
|                       |                                              |                              |            |            |            |   |            |            |            |   |            |            |            |       |           
|                       |                                              | Net earnings                 |            | $          | 1,943,284  |   |            | $          | 2,024,066  |   |            | $          | 3,424,965  |       |            | $          | 4,189,393  |   |             | $          | 11,581,708 |  
|                       |                                              |                              |            |            |            |   |            |            |            |   |            |            |            |       |           
|Earnings per share:    |                                              |                              |            |            |            |   |            |            |            |   |            |            |            |       |            |            |            |   |             |           
|                       | Basic                                        |                              | $          | 0.18       |            |   | $          | 0.19       |            |   | $          | 0.30       |            |       | $          | 0.30       |            |   | $           | 0.99       |           
|                       |                                              |                              |            |            |            |   |            |            |            |   |            |            |            |       |           
|                       | Diluted                                      |                              | $          | 0.17       |            |   | $          | 0.18       |            |   | $          | 0.28       |            |       | $          | 0.29       |            |   | $           | 0.92       |           
|                       |                                              |                              |            |            |            |   |            |            |            |   |            |            |            |       |           






|    |                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On July 23, 2004, the Company acquired Taylor Technology,
    Inc. On December 22, 2004, the Company acquired PharmaNet,
    Inc. 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.                                                                                                       
|   
|(3) | On July 7, 2003, the Company acquired the remaining 51% of
    Danapharm Clinical Research, Inc. On August 4, 2003, the
    Company acquired Clinical Pharmacology.                                                                                                                                                                

F-33



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##### Table of Contents



SFBC INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


SFBC INTERNATIONAL


Schedule II


Valuation and Qualifying Accounts


|                                                                                    |                                   |                     |  |         |              |  |                  |              |  |            |                |         |  |            |            |   |               |  |  |          |   |  |  |           | 
|----------------------------------------------------------------------------------- | --------------------------------- | ------------------- |  | ------- | ------------ |  | ---------------- | ------------ |  | ---------- | -------------- | ------- |  | ---------- | ---------- | - | ------------- |  |  | -------- | - |  |  | --------- | 
|                                                                                    |                                   | Balance at          |  |         |              |  | Charged to Costs |              |  | Charged to |                |         |  |            | Balance at |  
|Description                                                                         |                                   | Beginning of Period |  |         | PharmaNet(1) |  |                  | and Expenses |  |            | Other Accounts |         |  | Deductions |            |   | End of Period | 
|                                                                                    |                                   |                     |  |         |              |  |                  |              |  |            |                |         |  |            |            |   |               | 
|Year ended December 31, 2004 Reserves deducted from assets
    to which they apply: |                                   |                     |  |         |              |  |                  |              |  |            |                |         |  |            |            |   |               |  |  |          |   |  |  |          
|                                                                                    | Allowance for doubtful accounts   |                     |  | 461,979 |              |  |                  | 110,283      |  |            |                | 417,151 |  |            |            |  |               |  |  | (435,013 | ) |  |  | 554,400   | 
|                                                                                    | Allowance for change in contracts |                     |  | 512,614 |              |  |                  | 5,212,004    |  |            |                |        |  |            |            |  |               |  |  |         |   |  |  | 5,724,618 | 
|                                                                                    | Deferred tax valuation allowance  |                     |  |        |              |  |                  | 156,569      |  |            |                |        |  |            |            |  |               |  |  |         |   |  |  | 156,569   | 
|                                                                                    |                                   |                     |  |         |              |  |                  |              |  |            |                |         |  |            |            |   |               | 
|Year ended December 31, 2003 Reserves deducted from assets
    to which they apply: |                                   |                     |  |         |              |  |                  |              |  |            |                |         |  |            |            |   |               |  |  |          |   |  |  |          
|                                                                                    | Allowance for doubtful accounts   |                     |  | 589,895 |              |  |                  |             |  |            |                | 77,771  |  |            |            |   |               |  |  | (205,687 | ) |  |  | 461,979   | 
|                                                                                    | Allowance for change in contracts |                     |  | 154,024 |              |  |                  |             |  |            |                | 358,590 |  |            |            |  |               |  |  |         |   |  |  | 512,614   | 
|                                                                                    | Deferred tax valuation allowance  |                     |  |        |              |  |                  |             |  |            |                |        |  |            |            |  |               |  |  |         |   |  |  |          | 
|                                                                                    |                                   |                     |  |         |              |  |                  |              |  |            |                |         |  |            |            |   |               | 
|Year ended December 31, 2002 Reserves deducted from assets
    to which they apply: |                                   |                     |  |         |              |  |                  |              |  |            |                |         |  |            |            |   |               |  |  |          |   |  |  |          
|                                                                                    | Allowance for doubtful accounts   |                     |  | 260,489 |              |  |                  | 147,373      |  |            |                | 387,236 |  |            |            |  |               |  |  | (205,203 | ) |  |  | 589,895   | 
|                                                                                    | Allowance for change in contracts |                     |  | 128,138 |              |  |                  |             |  |            |                | 25,886  |  |            |            |  |               |  |  |         |   |  |  | 154,024   | 
|                                                                                    | Deferred tax valuation allowance  |                     |  |        |              |  |                  |             |  |            |                |        |  |            |            |  |               |  |  |         |   |  |  |          | 
|                                                                                    |                                   |                     |  |         |              |  |                  |              |  |            |                |         |  |            |            |   |               | 






|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|(1) | Reflects the additions due to the acquisition of PharmaNet Inc.
    on December 22, 2004.

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