UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            ------------------------
                                    FORM 10-K
                (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended: December 31, 2006

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

                         COMMISSION FILE NUMBER 0-33505

                            ------------------------

                           LIFE SCIENCES RESEARCH INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                                    MARYLAND
                 (JURISDICTION OF INCORPORATION OR ORGANIZATION)
                                   52-2340150
                         IRS Employer Identification No.
            PO BOX 2360, METTLERS ROAD, EAST MILLSTONE, NJ 08875-2360
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 732 649-9961

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


-------------------------------------     --------------------------------------
        TITLE OF EACH CLASS                        NAME OF EACH EXCHANGE ON
Voting Common Stock $0.01 par value                   WHICH REGISTERED
                                                           NYSE Arca


           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      None

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

                 Yes __                      No  X

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

                Yes __                       No  X

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

                Yes X                        No __

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

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 126-2 of the Exchange Act.

Large accelerated filer __     Accelerated filer X     Non accelerated filer _

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

                 Yes __                    No X

The aggregate market value of the Voting Common Stock held by non-affiliates of
the Registrant was $111,531,355 on June 30, 2006 (based upon the last reported
sales price of the registrant's common stock on the "Other OTC Market"), the
last business day of Registrant's most recently completed second fiscal quarter.

Indicate the number of outstanding shares of each of the Registrant's classes of
common stock as of the latest practicable date.

As of March 7, 2007 the Registrant had outstanding 12,781,077 shares of Voting
Common Stock


<PAGE>
<TABLE>

TABLE OF CONTENTS
<CAPTION>

ITEM

                                     PART I
                                                                                          PAGE
<S>    <C>                                                                                <C>

1.     Business..........................................................................   4

1A.    Risk Factors .....................................................................  14

1B.    Unresolved Staff Comments.........................................................  18

2.     Properties .......................................................................  18

3.     Legal Proceedings ................................................................  18

4.     Submission of Matters to a Vote of Security Holders ..............................  18

                                     PART II

5.     Market For Registrant's Common Equity, Related Stockholder Matters and Issuer
       Purchases of Equity Securities....................................................  19

6.     Selected Consolidated Financial Data .............................................  23

7.     Management's Discussion and Analysis of Financial Condition and Results
       of Operation .....................................................................  25

7A.    Quantitative and Qualitative Disclosures About Market Risk .......................  39

8.     Financial Statements and Supplementary Data  .....................................  40

9.     Changes in and Disagreements with Accountants on Accounting and Financial
       Disclosure .......................................................................  80

9A.    Controls and Procedures ..........................................................  80

9B.    Other Information.................................................................  80

                                    PART III

10.    Directors, Executive Officers and Corporate Governance............................  81

11.    Executive Compensation  ..........................................................  84

12.    Security Ownership of Certain Beneficial Owners and Management and Related
       Stockholder Matters .............................................................. 101

13.    Certain Relationships, Related Transactions and Director Independence............  103

14.    Principal Accountant Fees and Services  .........................................  104

                                     PART IV

15.    Exhibits and Financial Statements Schedules .....................................  105

</TABLE>

<PAGE>

                                     PART I

ITEM 1.  BUSINESS

INTRODUCTION

Life Sciences Research, Inc. ("LSR") and subsidiaries (collectively, the
"Company") is a global contract research organization, offering worldwide
pre-clinical and non-clinical testing services for biological safety evaluation
research to the pharmaceutical and biotechnology, as well as the agrochemical
and industrial chemical companies. The Company serves the rapidly evolving
regulatory and commercial requirements to perform safety evaluations on new
pharmaceutical compounds and chemical compounds contained within the products
that humans use, eat and are otherwise exposed to. In addition, the Company
tests the effect of such compounds on the environment and also performs work on
assessing the safety and efficacy of veterinary products.

As the Company continues to build on improving fundamentals, we have the
following strategy and goals:

o    To grow to significant  profitability and improved return on investment for
     our shareholders.

o    To be appreciated as the listening,  understanding  and reliable partner in
     creative  compound  development  and safety  assessment and to be the first
     choice for the industries we serve.

o    To provide our employees with the opportunity for individual development in
     a caring, rewarding and safe working environment.

o    To be recognized positively in the local communities in which we operate.

LSR was incorporated on July 19, 2001 as a Maryland corporation. It was formed
specifically for the purpose of making a recommended all share offer (the
"Offer") for Life Sciences Research Ltd (LSR Ltd) formerly Huntingdon Life
Sciences Group plc ("Huntingdon"). The Offer was made on October 16, 2001 and
was declared unconditional on January 10, 2002, at which time LSR acquired
approximately 89% of the outstanding ordinary shares of Huntingdon in exchange
for approximately 5.3 million shares of LSR Voting Common Stock. The subsequent
offer period expired on February 7, 2002, by which time approximately 92% of the
outstanding ordinary shares had been offered for exchange. LSR completed its
compulsory purchase under UK law of the remaining outstanding ordinary shares of
Huntingdon on March 26, 2002 at which time Huntingdon became a wholly owned
subsidiary of LSR, in exchange for a total of approximately 5.9 million shares
of LSR Voting Common Stock (the "Exchange Offer").

Under accounting principles generally accepted in the United States ("US GAAP"),
the Company whose stockholders retain the majority interest in a combined
business must be treated as the acquirer for accounting purposes. Accordingly,
the Exchange Offer is accounted for as a reverse acquisition for financial
reporting purposes. The reverse acquisition is deemed a capital transaction and
the net assets of Huntingdon (the accounting acquirer) are carried forward to
LSR (the legal acquirer and the reporting entity) at their carrying value before
the combination. Although Huntingdon was deemed to be the acquiring corporation
for financial accounting and reporting purposes, the legal status of LSR as the
surviving corporation does not change. The relevant acquisition process utilizes
the capital structure of LSR and the assets and liabilities of Huntingdon are
recorded at historical cost. The equity of LSR is the historical equity of
Huntingdon, retroactively restated to reflect the number of shares issued in the
Exchange Offer.

On June 14, 2005, the Company entered into and consummated purchase and sale
agreements with Alconbury Estates Inc. and subsidiaries (collectively
"Alconbury") for the sale and leaseback of the Company's three operating
facilities in Huntingdon and Eye, England and East Millstone, New Jersey (the
"Sale/Leaseback Transaction"). Alconbury was newly formed in June 2005 and
controlled by LSR's Chairman and CEO, Andrew Baker. The total consideration paid
by Alconbury for the three properties was $40 million, consisting of $30 million
in cash and a five year, $10 million variable rate subordinated promissory note,
which Alconbury paid in full on June 30, 2006, together with accrued interest of
$0.6 million.

The proceeds from the Sale/Leaseback Transaction (plus additional cash on hand)
were used by the Company to pay in full its (pound)22.6 million non-bank debt
($41.1 million based on exchange rates at the time).

In accordance with the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 46R (FIN 46R), the Company has reflected the consolidation of
Alconbury from June 14, 2005 through June 29, 2006, the period in which the
Company was considered the "primary beneficiary" of Alconbury's variable
interests. Effective June 30, 2006, the requirement under FIN46R to include
Alconbury in the Consolidated Financial Statements no longer applied and the
Company has therefore reflected the "deconsolidation" of this entity in the
financial statements. This deconsolidation required the Company to record the
gain and loss associated with the sale of the properties, and recognize the
associated changes in depreciation, interest, and rent expenses. In 2006 the
Company recognized a non-cash loss of $48.9 million for the sale of the UK
properties, and recorded a deferred gain of $9.6 million for the US property,
which is being amortized over the term of the lease. Please refer to Note 3 for
additional detail of the impact of this deconsolidation.

On March 2, 2006, the Company entered into a $70 million loan (the "New
Financing") under the terms of a Financing Agreement dated March 1, 2006 with a
third party lender. Net proceeds from the loan were approximately $63 million
and a portion of these proceeds were used to redeem the $46.2 million
outstanding principal amount of the Company's 7.5% Convertible Capital Bonds,
which were due to mature in September 2006. The balance of the proceeds was held
for general corporate purposes.

LSR's executive office is based at the Princeton Research Center in East
Millstone, New Jersey.

HISTORY

Huntingdon was originally incorporated in the UK in 1951 as a limited liability
company to provide contract research services to the UK pharmaceutical,
agrochemical and food industries. In 1964 it was acquired by the US company,
Becton Dickinson. Over the next 20 years it successfully established itself as a
leading Contract Research Organization (CRO) with business across a number of
sectors and with a number of leading pharmaceutical and agrochemical companies.
In April 1983, Huntingdon was re-registered as a public limited company and in
1988 it was floated on the London Stock Exchange. In early 1989 Huntingdon
obtained a listing for its ADR's on the New York Stock Exchange.

In 1995, it acquired the toxicology business of APBI, which included
laboratories near Princeton, New Jersey and Newcastle and Eye, Suffolk in the UK
for a total consideration of $43 million. Immediately upon acquisition, the
toxicology business of APBI in the UK was merged with that of Huntingdon
Research Center Limited and the name of that company changed to Huntingdon Life
Sciences Limited. The US business acquired operates as Huntingdon Life Sciences,
Inc.

In the first half of 1997, allegations were made relating to animal care and
Good Laboratory Practice (GLP) against Huntingdon's operating subsidiaries in
the UK and US. Those allegations and the UK Government's subsequent statement in
the House of Commons in July 1997 about its investigation into those allegations
caused the cancellation of booked orders and a decline in new orders.
Significant operating losses and cash outflows resulted during the period from
mid 1997 through 1998. Given the medium to long term element of many of
Huntingdon's activities and the reluctance of clients to place new work until
its finances were stabilized, Huntingdon required a substantial injection of
financing to both initially restore confidence and then to fund operations
during the period until it returned to profitability.

On September 2, 1998 a group of new investors, led by Andrew Baker, subscribed
(pound)15 million ($25 million based on the exchange rates at the time) for 120
million ordinary shares while existing shareholders and institutional investors
took up a further 57 million shares, contributing (pound)7.1 million ($11.8
million). After expenses of (pound)1.7 million ($2.9 million), the issue of
shares raised (pound)20.4 million ($33.9 million). On the same date Huntingdon's
bankers agreed to continue Huntingdon's credit facilities at (pound)24.5 million
($40.8 million) until August 31, 2000 and this amount remained fully drawn down.
This debt was refinanced on January 20, 2001 by means of a loan from HLSF LLC, a
subsidiary company of the Stephens Group Inc., a related party at the time,
which subsequently transferred the debt to an unrelated third party. That debt
was paid in full on June 14, 2005 from the proceeds of the Sale/Leaseback
Transaction plus cash on hand.

Since the involvement of the new investor group in 1998, the management team,
led by Andrew Baker and Brian Cass, believes that LSR has successfully addressed
many of the Company's past difficulties. Relationships with customers have been
restored and sales have grown consistently at an encouraging rate.

In November 1999, a new so called "animal rights" group known as "Stop
Huntingdon Animal Cruelty" (SHAC) was formed in the UK with Huntingdon as its
target. Since then, activists in both the UK and the US have continued focusing
on Huntingdon (now LSR), its staff and directors, but also many other
stakeholders in the business, including shareholders, financial institutions,
suppliers and customers. For further details see Other Information Pertaining to
the Company - Animal Rights Activism, below.

In October 2001, LSR commenced the Offer for Huntingdon, which was completed in
March 2002 with Huntingdon becoming a wholly owned subsidiary of LSR. The effect
of the Offer was to re-domicile Huntingdon's corporate and legal existence to
the US. As a US company incorporated in Maryland, LSR benefits from a more
hospitable corporate environment, including corporate governance and privacy
rules and regulations that benefit LSR security holders. Moreover, the
investment community in the US is more familiar with the CRO industry, since
most publicly traded CRO's are domiciled in the US.

In March 2002, LSR completed a private placement of approximately 5.1 million
shares of Voting Common Stock at a per share subscription price of $1.50 per
share.

In April 2002, LSR began trading its common stock on the US Over the Counter
Bulletin Board (OTCBB). From February 6, 2006 to December 21, 2006 it traded on
the Other OTC Market. Since December 22, 2006, it has traded on NYSE Arca.

DESCRIPTION OF BUSINESS

The Company provides pre-clinical and non-clinical biological safety evaluation
research services to most of the world's leading pharmaceutical and
biotechnology companies, as well as many agrochemical and industrial chemical
companies. The purpose of this safety evaluation is to identify risks to humans,
animals or the environment resulting from the use or manufacture of a wide range
of chemicals, which are essential components of our clients' products. The
Company's services are designed to meet the regulatory requirements of
governments around the world.

The Company's aim is to develop its business within these markets, principally
in the pharmaceutical sector, and through organic growth. In doing so, the
Company expects to benefit from strong drug pipelines in the pharmaceutical
industry and a growing trend towards greater outsourcing as clients focus more
internal resources on research and increasingly look to variabilize their
development costs.

The Company's sales and marketing functions are specifically focused on two main
groups, pharmaceutical and non-pharmaceutical customers. As much of the research
activity conducted for these two customer groups is similar, the Company
believes it is appropriate, operationally, to view this as one business.

Pharmaceuticals and Biotechnology

The pharmaceutical research and development pathway is shown below:

[GRAPHIC OMITTED]

The Company performs non-clinical testing in support of the drug development
process, primarily work outsourced from the bio-pharmaceutical industry. Over
85% of the Company's orders are derived from this pharmaceutical sector.
Essentially all of this work is performed as a result of regulatory requirements
that seek to minimize the risks associated with the ultimate testing and use of
these compounds in humans.

Pre-clinical testing helps to evaluate both how the drug affects the body as
well as how the body affects the drug. Utilizing advanced laboratory and
toxicological evaluations, this work helps assess safe and appropriate dose
regimens. Other non-clinical testing can focus on identifying and avoiding the
longer-term cancer implications of exposure to the compound, or relating to the
potential of possible reproductive implications, as well as assessing the
stability of pharmaceuticals under a variety of storage conditions.

The Company views its non-clinical market as extending all the way beyond
marketing authorization, although the core market extends to "proof of concept"
in man (Phase 2A). Since 1999, the Company has had collaborative relationships
with a number of Phase I clinical trial units and offers certain laboratory
services in support of clinical trials. The Company's market is further extended
beyond pre-clinical with analytical chemistry support for clinical trials,
establishing the stability of pharmaceuticals under varied storage conditions
and the batch testing of marketed pharmaceuticals for product release.

The Company has also actively pursued opportunities to extend its range of
capabilities supporting late stage drug discovery, focused around in vitro and
in vivo models for lead candidate drug characterization and optimization. This
growing range of biological services is intended to position the Company to take
advantage of the increasing demand for a greater understanding of the physical,
chemical and biological properties of intended therapeutics prior to the
commencement of pre-clinical and clinical testing.

The outsourced market for the late stage clinical trials (Phase 3 and beyond) is
also relevant to the Company. While the Company does not preclude entering this
market in the future, it has no plan to do so in the foreseeable future, as it
is a very different business and one in which a number of major companies are
already firmly established.

Market Growth

It is estimated that the pharmaceutical industry annual research and development
(R & D) spending is over $60 billion per year and is growing at around 10% per
annum. Approximately 20% of this is devoted solely to pre-clinical testing. The
Company believes that approximately 20-25% of the pre-clinical spending is
outsourced which means that the Company is today competing in a market of as
much as $3 billion. It is widely believed that this market will continue to grow
for the foreseeable future, both in absolute dollar amount and in the percentage
of pre-clinical work that is outsourced.

The market for these services is growing, due among other things to the
following:

o    New drug  discovery  is  growing  fueled  by new  technologies  and  strong
     profits.  The information obtained from the Human Genome Project has led to
     the greater  understanding  of the  pathways  underlying  the  mechanism of
     disease. This has, in turn, led to a growth in the use and understanding of
     the  `omics  (genomics,  proteomics,  etc.) and  increased  focus on target
     receptor based discovery.

o    The need to replace earnings from drugs coming off patent,  and anticipated
     decreasing price flexibility in key markets,  is driving an increase in the
     number of drugs being put into development.

o    It is estimated there has been a 33% increase in the numbers of projects in
     pre-clinical development since 2000.

o    There is also a growing trend towards the  outsourcing of development  work
     as clients focus more internal resource on discovery research in the search
     for new lead compounds.

o    The biotechnology  industry has become a significant source of business for
     the Company.  The number of drugs  produced by the  biotechnology  industry
     which  require US Food and Drug  Administration  (FDA)  approval  has grown
     substantially  over the past  decade.  Many  biotechnology  companies  have
     strategically  chosen  not to invest  in asset  intensive  development  and
     regulatory safety evaluation,  but rather to outsource major areas of R & D
     and  utilize  CROs to  perform  these  services.  This  frees them from the
     capital-intensive  requirement  to  establish  and staff their own in-house
     facilities and then the inefficient  utilization of those  capabilities due
     to their sporadic and varied demand.

o    The process of  consolidation  within the  pharmaceutical  industry is also
     accelerating the move towards  outsourcing.  While there is some short-term
     negative impact from mergers, with development pipelines being rationalized
     and a focus on integration rather than development,  longer-term  resources
     are  increasingly  invested in in-house  facilities  for discovery and lead
     optimization rather than development and regulatory safety evaluation.  The
     Company's own research, supported by comments from the major competitors in
     this space, suggest that none of the major global pharmaceutical  companies
     are currently  investing in significant new safety  evaluation  facilities.
     Undertaking  development  work and safety  evaluation is the Company's core
     business.

As a result of these, amongst other factors, it is believed that the overall
market for outsourced services is estimated to be growing at a rate at least
equal to the growth of research and development expenditure by the
pharmaceutical industry.

Non-Pharmaceuticals

The Company currently generates approximately 15% of its orders from safety and
efficacy testing of compounds for the agrochemical, industrial chemical, and
veterinary and food industries. During 2006 non-pharmaceutical orders were
higher than the prior year but a declining percent of total orders, which is
expected to continue. The work involved has many similarities and often uses
many of the same facilities, equipment, and scientific disciplines to those
employed in pre-clinical testing of pharmaceutical compounds.

The Company's business in these areas is again driven by governmental regulatory
requirements. The Company's services address safety concerns surrounding a
diverse range of products, spanning such areas as agricultural herbicides and
other pesticides, medical devices, veterinary medicines, and specialty chemicals
used in the manufacture of pharmaceutical intermediates, and manufactured
foodstuffs and products. The Company believes it is a clear market leader in
programs designed to assess the safety, environmental impact and efficacy of
agricultural chemicals as well as in programs to take new specialty chemicals to
market.

Market Growth

It is estimated that the worldwide market for outsourced contract research from
non-pharmaceutical industries is approximately $300 million. The growth in the
non-pharmaceutical business is driven both by the introduction of novel
compounds, and by legislation concerning the safety and environmental impact of
existing products.

The Company believes that this segment is likely to experience relatively low
growth in the next few years, although a number of market segments included in
this broad area of business have the potential for some growth in the future due
to the following:

o    Continued  implementation  of  testing  requirements  for `high  production
     volume' (HPV) chemical products in Europe and the US.

o    Introduction of new  legislation  for the  notification of new and existing
     chemicals that are in use within the European Union (REACH).

o    Safety testing of specific  formulations of crop  protection  products on a
     country-by-country basis within the European Union (91/414).

o    More stringent regulations affecting compounds, which have the potential to
     adversely affect the environment, (e.g. biocides and endocrine disrupters).

o    Growth in  concerns  over food  safety,  (e.g.  additives  and  genetically
     modified foods, and the introduction of `nutraceuticals').

o    Developments of new markets such as China and the EU accession countries.

Safety testing in these industries is also more likely to be outsourced as,
unlike the pharmaceutical industry, fewer companies have comprehensive internal
laboratory facilities. While overall R & D is not growing, we believe that
increased outsourcing could provide business opportunities in this market.

Customers

The Company offers worldwide pre-clinical and non-clinical testing for
biological safety evaluation research services to human and veterinary
pharmaceutical and biotechnology companies, as well as agrochemical, industrial
chemical and food companies. In 2006 the Company received orders from companies
ranging from the largest in their industries to small and start-up
organizations. 47 clients placed over $1 million of orders with the Company and
the ten largest clients accounted for approximately 46% of orders. No single
client accounted for more than 10% of net revenues for 2006.

For net revenues from clients, assets attributable to each of the Company's
business segments, other segment information and a geographical analysis of
revenues from clients (based on the location of the client) for each of the last
three fiscal years, see note 14 to the audited consolidated financial statements
included elsewhere in this Annual Report.

Backlog

The majority of the Company's net revenues are earned under contracts, which
range in duration from a few months to three years. Revenue from these contracts
is recognized over the term of the contract as services are rendered. The
Company maintains an order backlog to track anticipated net revenues for work
that has yet to be earned. Aggregate backlog at December 31, 2006 was $175
million compared to $122 million at December 31, 2005, which represents an
increase of 43% exclusive of the impact of foreign exchange.

Segment Information

For a discussion of geographic segment information please see "Segment Analysis"
beginning on page 30 and "Geographical Analysis" beginning on page 76.


COMPETITION

Competition in both the pharmaceutical and non-pharmaceutical market segments
ranges from:

o    in-house R&D divisions of large pharmaceutical, agrochemical and industrial
     chemical companies who perform their own safety assessments; to

o    "full  service"  providers  - CROs like LSR,  who  provide a full  range of
     non-clinical  safety services to the industries (such as Covance,  Inc. and
     Charles River Laboratories, Inc.); and

o    "niche"  suppliers  focusing on specific  services,  geographic  areas,  or
     industries (such as WIL Research and SafePharm Labs).


GOVERNMENT REGULATION OF OPERATIONS

Regulatory agencies

Since the services provided by the Company are used to support pharmaceutical,
biotechnology, chemical or agrochemical product approval applications, its
laboratories are subject to both formal and informal inspections by appropriate
regulatory and supervisory authorities, as well as by representatives from
client companies. The Company is regularly inspected by US, Japanese and UK
governmental agencies because of the number and complexities of the studies it
undertakes. In 1979, the FDA promulgated the Good Laboratory Practice (GLP)
regulations, defining the standards under which biological safety evaluations
are to be conducted. Other governmental agencies such as the Environmental
Protection Agency (EPA), the Japanese Ministry Of Health and Welfare, the
Japanese Ministry of Agriculture, Forestry and Fisheries, and the UK Department
of Health, have introduced compliance-monitoring programs with similar GLP
standards. During 2006, the Company in the UK had 2 GLP inspections. The Company
has had numerous such inspections since 1995.

The Company's laboratory in the US is subject to the United States Department of
Agriculture (USDA) Animal Welfare Regulations (Title 9, Code of Federal
Regulations, Subchapter A). The laboratory is regularly inspected by USDA
officials for compliance with these regulations. Compliance is assured through
an Institutional Animal Care and Use Committee, comprising staff from a broad
range of disciplines within the Company and including external representation.
Furthermore, in the US there is a voluntary certification program run by an
independent and internationally recognized organization, the Association for
Assessment and Accreditation of Laboratory Animal Care (AAALAC). The Company's
laboratories in both the US and UK are accredited under this program. The
Company's pre-clinical services are subject to industry standards for the
conduct of research and development studies that are embodied in the regulations
for GLP. The FDA and other regulatory authorities require the test results
submitted to such authorities be based on studies conducted in accordance with
GLP. The Company must also maintain reports for each study for specified periods
for auditing by the study sponsor and by FDA or other regulatory authorities.

The Company's operations in the UK are regulated by the Animals (Scientific
Procedures) Act 1986. This legislation, administered by the UK Home Office,
provides for the control of scientific procedures carried out on animals and
regulation of their environment. Personal licenses are issued by the UK Home
Office to personnel who are competent to perform regulated procedures and each
program of work must be authorized in advance by a Project Licensee. Premises
where procedures are carried out must also be formally designated by the UK Home
Office. Consultations and inspections are regularly undertaken in order to
ensure continued compliance with regulatory and legislative requirements, the
Company had 22 such visits in 2006.

At each of its research centers, the Company ensures the availability of
suitably experienced and qualified veterinary staff backed by a 24-hour call out
system.


COMPLIANCE WITH ENVIRONMENTAL REGULATIONS

While the Company conducts its business to comply with certain environmental
regulations, compliance with such regulations does not impact significantly on
its earnings or competitive position. Management believes that its operations
are currently in material compliance with all applicable environmental
regulations.


OTHER INFORMATION PERTAINING TO THE COMPANY

Human Resources

The Company's most important resource is its people. They have created the
Company's knowledge base, its expertise and its excellent scientific reputation.
Scientists from the Company are represented at the highest levels on several US,
UK and international committees on safety and toxicity testing. Several staff
members are considered leaders in their respective fields. They frequently
lecture at scientific seminars and regularly publish articles in scientific
journals. This recognition has resulted in frequent assignments from clients for
consultation services. Some of the Company's staff serve by invitation or
election on a number of scientific and industrial advisory panels and groups of
certain organizations and agencies such as the FDA, the EPA, the UK Department
of Health, and the World Health Organization.

To ensure that this experience and expertise is transmitted throughout the
organization, the Company conducts training programs. For example, the Company's
study director training programs train graduate staff in all phases of
toxicology. Also, in conjunction with the Institute of Animal Technology, the
Company maintains what it believes to be one of the largest animal technician
training programs in the world. The Company employs approximately 240 licensed
personnel at any one time.

The number of employees in the Company at December 31, 2006 and 2005 were as
follows:

                                           2006              2005
                                     -----------        -----------
US ..........................              278                268
UK ..........................            1,188              1,128
Japan .......................               11                 11
                                     -----------        -----------
                                         1,477              1,407
                                     -----------        -----------

Management and Labor Relations

The Company's labor force is non-union and there has never been any disruption
of the business through strikes or other employee action. The Company regularly
reviews its pay and benefits packages and believes that its labor relations,
policies and practices and management structure are appropriate to support its
competitive position.

Acquisition of Huntingdon Life Sciences KK (HLS KK)

HLSKK has acted as the Company's marketing representative in Japan since 1996.
This Company was a joint venture, 50% of which was owned by Huntingdon. On July
1, 2003, the remaining 50% of the shares in HLS KK, not previously owned by
Huntingdon, was purchased, resulting in HLS KK becoming a wholly owned
subsidiary of Huntingdon. The purchase price was payable over a three year
period, and was equal to the greater of (a) $1 million or (b) the commission
which would have been paid if the purchase had not happened at rates of between
2.5% and 4.5% of billings generated. Payments during that three year period were
made at the rate which had been in effect for commissions prior to the
acquisition, and was payable semi-annually. The amount paid in 2006 representing
the final payments due under the purchase agreement was $415,000, and in 2005
the amount paid was $666,000.

Prior to July 1, 2003, the shares owned by Huntingdon in HLS KK were held as an
investment, as the day to day control of HLS KK was not exercised by the
Company.

Research and Development

In addition to experience gained through research activities performed for
clients, the Company engages in research in order to respond to the changing
needs of clients and to maintain competitiveness within the industries in which
it operates. Most of the research undertaken, however, is an inherent part of
the research carried out on behalf of clients in completing studies and as such
it is not identified separately.

Know-how and Patents

The Company believes that its proprietary know-how plays an important role in
the success of its business. Where the Company considers it appropriate, steps
are taken to protect its know-how through confidentiality agreements and
protection through registration of title or use. However the Company has no
patents, trademarks, licenses, franchises or concessions which are material and
upon which any of the services offered are dependent.

Quality Assurance

The Company maintains extensive quality assurance programs, designed to ensure
that all testing programs meet client requirements, as well as all relevant
codes, standards and regulations. Based on a Master Schedule, periodic
inspections are conducted as testing programs are performed to assure adherence
to project specifications or protocols and final reports are extensively
inspected to ensure consistency with data collected.

Animal Rights Activism

During the last decade there was an escalation in animal rights activity that
targeted biomedical research internationally including academic, government and
commercial organizations. As part of this increase a new campaign group (Stop
Huntingdon Animal Cruelty, SHAC) was formed in the UK in November 1999. SHAC's
broad aim is to end all animal research, while its immediate and publicly stated
goal at that time was to "shut HLS down within three years". During 2000 this
campaign broadened and intensified with a range of Huntingdon's stakeholders
becoming targets, including staff, directors, institutional and individual
shareholders, customers, financial institutions and other suppliers. The protest
activities took many forms, both legal and illegal, such as demonstrations
outside the Company's facilities and in local towns; distribution of propaganda;
abuse, intimidation and threats directed at many of the stakeholders listed
above; and, in occasional cases, acts of violence.

During 2001 and 2002 the incidents of violent protest in the UK diminished.
However, activists focused their protest activities on the Company's financial
institutions in unsuccessful attempts to deprive Huntingdon of its bank
financing and to stop the US re-domiciling transaction. During this period, due
in large part to the successful US re-domiciling, the activities of SHAC and
other animal rights groups expanded to and intensified in the US, focusing on a
similar range of stakeholders as had been targeted in the UK.

To counter this animal rights campaign the Company adopted a strategy of
openness and direct co-operation with all its stakeholders, the media and the
local communities. The Company has taken every opportunity to promote the value
of the work it does in helping its customers bring to market safe and effective
new medicines and other products. Members of the media, national bodies, schools
and local groups have visited the Company, toured the laboratories and animal
facilities, and talked with staff. These visitors have been consistently
impressed with the Company's ethics, its standards of animal welfare and the
professionalism of its staff. As a consequence of the Company's constructive,
high profile public relations activities and the irrationality of the animal
rights messages, media coverage has become increasingly positive. Additionally,
both in the US and the UK, the media has consistently condemned the illegal
protest actions of the SHAC campaign.

Initiated by, and in conjunction with, the Company's leadership on this issue,
there has been a marked increase in communication campaigns designed to inform
the general public. These have focused on the essential nature of animal based
research, the high standards of animal welfare demanded, the commitment to
developing non-animal alternatives and the benefits of such research to society.
Our clients' recognition of our scientific and professional integrity and
leadership was evident in the granting of the prestigious UK Pharma Industry
Individual Achievement Award to Brian Cass, the Company's President and Managing
Director, in October 2001. In further recognition of his contribution to science
and professional achievements, Mr. Cass was appointed as a Commander in the Most
Excellent Order of the British Empire (CBE) in June 2002. The highly prestigious
CBE is awarded on merit, for exceptional achievement or service; it is
recommended by the Prime Minister of Great Britain, but is approved by the
Queen. UK pro-research groups such as the Coalition For Medical Progress and
Pro-Test have spread the message of the value of animal research. During 2006 a
public petition in support of animal research, dubbed the Peoples Petition,
gathered tens of thousands of signatures, including that of Prime Minister Tony
Blair.

In the UK the Company has successfully lobbied politicians and the British
parliament, with great support from industry trade bodies such as the
Association of the British Pharmaceutical Industry, Bioindustry Association, and
Research Defence Society. As a result, the British Government has made very
positive statements in support of the Company specifically and of biomedical
research using animals in general. It has also been extremely critical of the
illegal activities of some animal rights supporters. The Government has adopted
legislation to offer more protection to those targeted and is encouraging the
police and courts to ensure the law is enforced. This national initiative
continues to develop, particularly as the government and police deal with
protecting an increasing range of animal rights targets in the UK. Of particular
note, in April 2005 the Serious Organised Crime and Police Act was introduced
with new powers to deal with protests outside homes, harassment and economic
damage. Moreover in July 2005 that Act was further amended to introduce the new
offense of "interference with business contracts so as to damage an animal
research organization", commonly referred to as the "economic terrorism law".
These new measures are designed to tackle secondary and tertiary targeting by
animal rights extremists, this is the intimidation of businesses doing business
with animal research facilities. UK law enforcement has significantly increased
its investigations and prosecutions of animal rights extremists, utilizing these
new laws. At the end of 2006, eleven leaders of the UK animal rights extremist
movement were in prison, some serving sentences of up to 12 years.

Running in parallel with the introduction of new legislation the Company has
used the civil route to protect itself and its staff. In April 2003 the Company
obtained a groundbreaking legal injunction from the London High Court of Justice
protecting its employees against harassment from SHAC and similar animal rights
activists. This order, obtained under the Protection from Harassment Act, bans
protesters from approaching within 50 yards of employees' homes and sets up
similar exclusion zones around the Company's two UK research centers. Several
months later, a group of five international Japanese pharmaceutical companies
followed a similar course, obtaining protective injunctions for their employees
who were being harassed. Since then approximately two dozen other organizations
similarly targeted by animal rights extremists have obtained injunctions of this
type. Some were targeted for their perceived relationship with the Company;
others for their own independent animal research activities. Notably, during
2004, Oxford University became the target of animal rights extremists attempting
to halt the construction of an animal research facility. The University
successfully obtained a broad-ranging injunction against such protests.

Although the animal rights movement is less developed in the US and appears to
enjoy less public support than in the UK, the Company is addressing it
proactively with actions similar to those it has utilized in the UK. These steps
include a strategy of openness and media co-operation; legislative and
regulatory lobbying in association with industry trade bodies such as Americans
for Medical Progress, National Association for Biomedical Research and the
Foundation for Biomedical Research; and legal actions including close
cooperation with law enforcement authorities at all levels. For example,
following incidents of vandalism associated with home protests against the
Company's US employees, the Company obtained orders of the New Jersey Superior
Court, the New York Supreme Court and the California Supreme Court placing
restrictions on both home protests and protests at the Company's Princeton
Research Center by animal rights activists. During 2002 criminal indictments
were brought against SHAC extremists in New York City and Boston. In the New
York prosecution, felony convictions, including prison terms, have been handed
down. In Washington D.C., legislation was enacted in May 2002 which
significantly increased the penalties under the Animal Enterprise Terrorism Act
for acts of vandalism against medical research and animal based research
facilities. In October 2005, legislation was introduced to expand the Animal
Enterprise Terrorism Act to among other things, address secondary and tertiary
targeting. That legislation was signed into law by President Bush on November
27, 2006.

In May 2004, seven leading US animal rights extremists, including Kevin Kjonaas,
the President of SHAC-USA, were arrested and criminally indicted by the New
Jersey US Attorney's Office on federal charges of animal enterprise terrorism,
interstate stalking and conspiracy to engage in interstate stalking. An
additional criminal charge of conspiracy to anonymously utilize a
telecommunications device to abuse, threaten and harass persons was added to the
indictment in September 2004. On March 2, 2006, SHAC-USA and the six individual
defendants remaining in the case were convicted on all counts. The six
individual defendants were sentenced to terms of between one year and one day
and six years in prison, which they began serving in October 2006. They were
also ordered to jointly pay restitution to the Company in the amount of
$1,000,000.

Management recognizes that there are, and expects that there will always be,
individuals with strong views on animal rights. Such people believe that animals
should not be used for the betterment of humanity, including biomedical
research. Regardless of whether this political issue directly impacts the
Company's business, the Company remains committed to its strategy of informing
the public of the value of biomedical research using animals, of advancing
animal welfare, and of supporting our clients' desire to maximize the safety of
vital new medicines and other products being developed for the benefit of
society.

Available Information

The Company's Internet website is located at http://www.lsrinc.net. The Company
posts on its website its filings with the Securities and Exchange Commission
(SEC) including those on Form 10-K, Form 10-Q and Form 8-K. The reference to the
Company's Internet website does not constitute incorporation by reference of the
information contained on or hyperlinked from the Internet website and should not
be considered part of this document.

The public may read and copy any materials the Company files with the SEC at the
SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Rooms by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The SEC's Internet
website is located at http://www.sec.gov.


<PAGE>


ITEM 1A.  RISK FACTORS

This section discusses various risk factors that are attendant to the Company's
business and the provision of its services. If the events outlined below were to
occur individually or in the aggregate, the Company's business, results of
operations, financial condition, and cash flows could be materially adversely
affected.

Changes in government regulation or in practices relating to the pharmaceutical
industry could decrease the need for the services the Company provides

Governmental agencies throughout the world, but particularly in the United
States, strictly regulate the drug development process. The Company's business
involves helping pharmaceutical and biotechnology companies navigate the
regulatory drug approval process. Changes in regulation, such as a relaxation in
regulatory requirements or the introduction of simplified drug approval
procedures, or an increase in regulatory requirements that the Company has
difficulty satisfying or that make its services less competitive, could
eliminate or substantially reduce the demand for the Company's services. Also,
if government were to introduce measures to contain drug costs or pharmaceutical
and biotechnology company profits from new drugs, the Company's customers may
spend less, or reduce their growth in spending on research and development.

Failure  to comply  with  applicable  governmental  regulations  could  harm the
Company's business

As a company in the contract research industry, the Company is subject to a
variety of governmental regulations, both in the US and the UK, relating to
animal welfare and the conduct of its business. Failure by it to comply with
such laws and regulations could result in material liabilities, the suspension
of licenses or a material adverse effect on its business or financial condition.
In addition, these laws and regulations could significantly restrict the
Company's ability to expand its facilities or require it to acquire costly
equipment or incur other material costs to comply with regulations.

The Company depends on the pharmaceutical and biotechnology industries

The Company's revenues depend greatly on the expenditures made by the
pharmaceutical and biotechnology industries in research and development.
Accordingly, economic factors and industry trends that affect the Company's
clients in these industries also affect its business. For example, if health
insurers were to change their practices with respect to reimbursements for
pharmaceutical products, the Company's customers may spend less, or reduce their
growth in spending on research and development.

Pharmaceutical industry consolidation may negatively impact revenues

The process of consolidation within the pharmaceutical industry should
accelerate the move towards outsourcing work to contract research organizations
such as the Company in the longer term as resources are increasingly invested in
in-house facilities for discovery and lead optimization, rather than development
and regulatory safety evaluation. However, in the short term, there is a
negative impact with development pipelines being rationalized and a focus on
integration rather than development. This can have a material adverse impact on
the Company's net revenues and net income.

The Company competes in a highly competitive market

Competition in both the pharmaceutical and non-pharmaceutical market segments
ranges from in-house research and development divisions of large pharmaceutical,
agrochemical and industrial chemical companies, who perform their own safety
assessments, to contract research organizations like the Company who provide a
full range of services to the industries and niche suppliers focusing on
specific services or industries.

Providers of outsourced drug development services compete on the basis of many
factors, including the following:

o    reputation for on-time quality performance;

o    expertise, experience and stability;

o    scope of service offerings;

o    how well services are integrated;

o    strength in various geographic markets;

o    competitive pricing

o    technological  expertise and efficient drug  development  processes;  and

o    ability to acquire,  process,  analyze  and report  data in a  time-saving,
     accurate manner.

The Company has traditionally competed effectively in the above areas, but there
can be no assurance that it will be able to continue to do so. If the Company
fails to compete successfully, its business could be seriously harmed.

The  Company may not be able to  successfully  develop and market or acquire new
services

The Company may seek to develop and market new services that complement or
expand its existing business or expand its service offerings through
acquisition. If the Company is unable to develop new services and/or create
demand for those newly developed services, or expand its service offerings
through acquisition, its future business, results of operations, financial
condition, and cash flows could be adversely affected.

The Company may expand its business through acquisitions

Although acquisitions do not play a material role in the Company's near term
growth strategy, the Company may expand its business through acquisitions.
Factors which may affect its ability to grow successfully through acquisitions
include:

o    difficulties  and  expenses in  connection  with  integrating  the acquired
     companies and achieving the expected benefits;

o    diversion of management's attention from current operations;

o    the possibility that the Company may be adversely  affected by risk factors
     facing the acquired companies;

o    acquisitions could be dilutive to earnings, or in the event of acquisitions
     made though the issuance of the Company's  common stock to the shareholders
     of the acquired  company,  dilutive to the  percentage  of ownership of the
     Company's existing stockholders;

o    potential  losses  resulting  from  undiscovered  liabilities  of  acquired
     companies  not covered by the  indemnification  the Company may obtain from
     the seller;

o    risks  of not  being  able to  overcome  differences  in  foreign  business
     practices,  language and other  cultural  barriers in  connection  with the
     acquisition of foreign companies; and

o    loss of key employees of the acquired companies.

The Company's non-US locations account for a majority of its revenues, making
the Company exposed to risks associated with operating internationally

Approximately 79% of the Company's revenues are generated by its facilities
outside the United States. As a result of these foreign sales and facilities,
the Company's operations are subject to a variety of risks unique to
international operations, including the following:

o    adverse  changes in value of foreign  currencies  against  the US dollar in
     which results are reported;

o    import and export duties and value-added taxes;

o    import and export  regulation  changes that could erode  profit  margins or
     restrict exports;

o    potential restrictions on the transfer of funds; and

o    the burden and cost of complying with foreign laws.

The Company is exposed to exchange rate fluctuations and exchange controls

The Company's long term debt is primarily denominated in US dollars whereas the
Company's functional currency is the UK pound sterling, which results in the
Company recording other income/loss associated with the debt as a function of
relative changes in foreign exchange rates.

The Company operates on a world-wide basis and generally invoices its clients in
the currency of the country in which it operates. Thus, for the most part,
exposure to exchange rate fluctuations is limited as sales are denominated in
the same currency as costs. Trading exposures to currency fluctuations do occur
as a result of certain sales contracts, performed in the UK for US clients,
which are denominated in US dollars and contribute approximately 6% of total
revenues. Management has decided not to hedge against this exposure.

As the Company operates on an international basis, movements in exchange rates,
particularly against sterling, can have a significant impact on its price
competitiveness vis a vis competitors who trade in currencies other than
sterling or dollars.

The Company is reliant upon debt provided by third party lenders

The Company has approximately $94 million of outstanding debt. $70 million of
this debt is due on March 1, 2011 and the remaining debt is represented by
capital leases, primarily related to the sale and leaseback of the Company's
facilities. If the Company is unable to pay or refinance this debt when it
becomes due, or to pay its carrying costs on such debt in the form of interest,
the Company could face a default under the terms of its loan agreement. A
variety of factors, including worsening financial performance, failure to comply
with financial covenants and pressure from animal rights extremists, could make
it difficult to pay or refinance this debt.

The Company's quarterly operating results may vary

The Company's operating results may vary significantly from quarter to quarter
and are influenced by factors over which it has little control such as:

o    exchange rate fluctuations;

o    the  commencement,   completion,  postponement  or  cancellation  of  large
     contracts;

o    the progress of ongoing contracts;

o    changes in the mix of its services.

Management believes that operating results for any particular quarter are not
necessarily a meaningful indication of future results. While fluctuations in the
Company's quarterly operating results could negatively or positively affect the
market price of its common stock, these fluctuations may not be related to the
Company's future overall operating performance.

The Company's contracts are generally terminable on little or no notice.
Termination of a large contract for services or multiple contracts for services
could adversely affect the Company's revenue and profitability

In general, the Company's clients may terminate the agreements that they enter
into with the Company or reduce the scope of services under these contracts upon
little or no notice. Contracts may be terminated for various reasons, including:

o    unexpected or undesired study results;

o    production problems resulting in shortages of the drug being tested;

o    adverse reactions to the drug being tested;

o    regulatory restrictions placed on the drug or compound being tested; or

o    the client's decision to forego or terminate a particular study

Because most of the Company's pre-clinical revenues are from fixed price
contracts, these contracts may be subject to under-pricing and cost overruns

The majority of the Company's contracts with its clients are fixed price
contracts creating the risk of cost overruns under these contracts. The Company
typically has some flexibility under these contracts to adjust the price to be
charged under these contracts if it is asked to provide additional services. If
the Company did have to bear significant costs of under-pricing or cost-overruns
under these contracts, its business, financial condition and operating results
could be adversely affected.

The Company depends on its senior management team, and the loss of any member
may adversely affect its business

The Company believes its success will depend on the continued employment of its
senior management team, especially Andrew Baker (Chairman and CEO) and Brian
Cass (President and Managing Director). If one or more members of the senior
management team were unable or unwilling to continue in their present positions,
those persons could be difficult to replace and the Company's business could be
harmed. If any of the Company's key employees were to join a competitor or to
form a competing company, some of the Company's clients might choose to use the
services of that competitor or new company instead of the Company. Furthermore,
clients or other companies seeking to develop in-house capabilities may hire
away some of the Company's senior management or key employees. The loss of one
or more of these key employees could adversely affect the Company's business.

The Company must recruit and retain qualified personnel

Because of the specialized scientific nature of the Company's business, it is
highly dependent upon qualified scientific, technical and managerial personnel.
There is intense competition for qualified personnel in the pharmaceutical and
biotechnology fields. Therefore, although traditionally the Company has
experienced a relatively low turnover in its staff, in the future it may not be
able to attract and retain the qualified personnel necessary for the conduct and
further development of its business. The loss of the services of existing
personnel, as well as the failure to recruit additional key scientific,
technical and managerial personnel in a timely manner, could have a material
adverse effect on the Company's ability to expand its businesses and remain
competitive in the industries in which it participates.

Reliance on transportation

The Company's operations are reliant on transport for the movement of materials
and supplies, and a significant disruption to the transport systems could have a
material adverse effect on this business.

The Company relies on third parties for important services

The Company depends on third parties to provide it with services critical to its
business. The failure of any of these third parties to adequately provide the
needed services could have a material adverse effect on the Company's business.

An increase in energy costs may significantly  increase the Company's  operating
costs

The Company's business is dependent on various energy sources, including fuel
oil, electricity and natural gas. Rising oil and gas prices in the past year
have increased the Company's operating costs and future increases would have a
similar effect.

Actions of animal rights extremists may affect the Company's business

The Company's development services utilize animals (predominantly rodents) to
test the safety and efficacy of drugs. Such activities are required for the
development of new medicines and medical devices under regulatory regimes in the
United States, Europe, Japan and other countries. The Company is targeted by
extreme animal rights activists who oppose all testing on animals, for whatever
purpose, including the Company's animal testing activities in support of its
safety and efficacy testing for clients. These groups, which include Stop
Huntingdon Animal Cruelty (SHAC) and the Animal Liberation Front (ALF), and Win
Animal Rights (WAR), among others, have publicly stated that the goal of their
campaign is to "shut Huntingdon". Acts of vandalism and other acts by these
animal rights extremists who object to the use of animals in drug development
could have a material adverse effect on the Company's business.

Animal rights extremists have targeted, and may continue to target, the US
financial community that trades LSR Voting Common Stock, which has caused and
may continue to cause illiquidity and a lower market price of the Voting Common
Stock.

The animal rights extremists have in the past harassed the financial community
that trades in LSR shares, including market makers, stockbrokers, investors and
trading platforms. The liquidity and market price of the shares of LSR Voting
Common Stock could be adversely affected in the future by such actions.


<PAGE>

ITEM 1B.  UNRESOLVED STAFF COMMENTS

N/A


ITEM 2.  PROPERTIES

The Company's head office is situated within the Princeton Research Center in
New Jersey.

The Company believes that its facilities, described below, are adequate for its
operations and that suitable additional space will be available if and when
needed.

The following table shows the location of the facilities of the Company,
approximate size, based on occupancy, and the principal activities conducted at
such facilities.
<TABLE>
<CAPTION>

                                    Laboratories
Location                            and Offices       Size         Principal Activities
--------                            -----------       ----         --------------------
<S>                                 <C>               <C>          <C>
Princeton Research Center, East     150,000 sq.ft.    53.5 acres   Laboratories, animal accommodation and
Millstone, NJ, US                                                  offices
Huntingdon Research Center,         559,000 sq.ft.    80 acres     Laboratories, animal accommodation and
Huntingdon, England                                                offices
Eye Research Center, Eye, England   257,000 sq.ft.    28 acres     Laboratories, animal accommodation and
                                                                   offices
</TABLE>

On June 14, 2005 the Company entered into and consummated the Sale/Leaseback
Transaction with Alconbury, a newly formed company wholly owned by LSR's
Chairman and CEO, Andrew Baker.

As part of the Sale/Leaseback Transaction, the Company (through subsidiaries)
entered into thirty-year leases with Alconbury for each facility, with two
five-year renewal options. Base aggregate annual rent for the facilities was
$4.9 million (approximately $1.8 million in the US and approximately $3.1
million in the UK) which increases by 3% each year for the UK facilities and by
an amount equal to the annual US consumer price index for the US facility. Under
the terms of the leases, no security deposit was initially required, but a
three-month security deposit was required to be paid at the time that Alconbury
refinanced its financing arrangements on June 30, 2006. Additionally, because
the leases are "triple net" leases, LSR will also pay for all of the costs
associated with the operation of the facilities, including costs such as
insurance, taxes and maintenance.

The proceeds from the Sale/Leaseback Transaction (plus additional cash in hand)
were used by the Company to pay in full its (pound)22.6 million non-bank debt
($41.1 million based on exchange rates at the time).


ITEM 3.  LEGAL PROCEEDINGS

The Company is party to certain legal actions arising out of the normal course
of its business. In management's opinion, none of these actions will have a
material effect on the Company's operations, financial condition or liquidity.
No form of proceedings has been brought, instigated or is known to be
contemplated against the Company by any governmental agency.


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

No matter was submitted during the fourth quarter of the fiscal year ended
December 31, 2006, to a vote of the stock holders.


<PAGE>


                                     PART II

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

LSR's Voting Common Stock trades on the NYSE Arca under the symbol "LSR". The
closing market price of the Voting Common Stock on March 7, 2007 was $13.75 per
share.

Until January 24, 2002 Huntingdon's Ordinary Shares were listed on the London
Stock Exchange Ltd., under the Stock Exchange Automated Quotation symbol "HTD".
The company completed its re-domiciling from the UK to the US on March 26, 2002
with a conversion ratio of 50:1 for the HTD common shares to LSR common shares
(or a ratio of 2 HTD ADRs per 1 LSR common share). LSR common stock commenced
trading on the Over the Counter Bulletin Board (OTCBB) Market on April 8, 2002.

The Company's common stock traded on the OTCBB up until February 6, 2006 and
then traded on the Other OTC Market up until December 21, 2006. From December
22, 2006 the Company's common stock has traded on NYSE Arca. The high and low
quarterly sales price of LSR's common stock for the two years to December 31,
2006 were as follows:

                                   HIGH SALES               LOW SALES
QUARTER ENDED                        PRICE                   PRICE
-------------
                               ------------------       -----------------
                                       $                       $
March 31, 2005                        13.25                  10.50
June 30, 2005                         13.25                  11.00
September 30, 2005                    18.30                  11.75
December 31, 2005                     15.60                   8.00
March 31, 2006                        12.00                   8.95
June 30, 2006                         12.00                   8.50
September 30, 2006                    11.90                   8.00
December 31, 2006                     14.50                   7.50

On August 22, 2005, the Company announced that its listing application had been
accepted by the New York Stock Exchange ("NYSE") and that trading of the
Company's common stock on the NYSE was expected to begin on September 7. On
September 7, 2005, the NYSE postponed commencement of trading of the Company's
stock on the NYSE. On April 4, 2006, the Company's legal counsel sent a letter
to the NYSE enclosing a draft complaint alleging breach of agreements between
the Company and the NYSE, including to list LSR stock, and seeking specific
performance, damages and other relief. The letter expressed the Company's
interest in resolving the matter without litigation. On December 22, 2006, LSR
Voting Common Stock commenced trading on NYSE Arca, the first US open
all-electronic stock exchange, which provides customers with fast electronic
execution and open, direct and anonymous market access. In connection with the
Company's listing and trading on NYSE Arca, the Company and NYSE Group, Inc.
entered into a settlement agreement and release under which the Company released
the NYSE from all claims relating to the September 2005 postponement by the NYSE
of the Company's trading on the NYSE.

The Company has not paid any cash dividends in the two most recent fiscal years
and does not expect to declare or pay cash dividends on the Company's Voting
Common Stock in the near future. The Board of Directors will determine the
extent to which legally available funds will be used to pay dividends. In making
decisions regarding dividends, the Board will exercise its business judgment and
will take into account such matters as results of operations and financial
condition and any then-existing or proposed commitments for the use of available
funds.

Life Sciences Research Limited, the UK holding company for the two main
operating companies Huntingdon Life Sciences Limited and Huntingdon Life
Sciences Inc. has a deficit on shareholders equity of (pound)35.0 million. Until
this deficit is cleared, under UK company law it is not permitted to pay
dividends to its parent company, LSR. This may effect the payment of dividends
by LSR.

As of March 7, 2007 LSR had 2,107 holders on record of Voting Common Stock.

On March 28, 2002, LSR closed the sale in a private placement of an aggregate of
5,085,334 shares of voting Common Stock at a price of $1.50 per share. Of the
aggregate proceeds of approximately $7.6 million, $4.4 million was in cash, $2.4
million represented conversion into equity of debt owed to Mr. Baker ($2.1
million) and Focused Healthcare Partners ("FHP") ($0.3 million) and $825,000 was
paid with promissory notes. A net $128,000 of such promissory notes have been
repaid through December 31, 2006.

Share purchase loan

Brian Cass, President and Managing Director of LSR, acquired 400,000 shares of
LSR Common Stock in the Private Placement. Mr. Cass acquired such shares through
the delivery of two promissory notes. Both such promissory notes, each in the
amount of (pound)211,679 ($414,000), were due on March 28, 2007; bearing
interest at the rate of 5% per annum; and were secured by the 200,000 shares of
LSR Common Stock purchased with the proceeds of each such loan. Repayment of one
of the promissory notes was made by automatic deduction of (pound)44,000
($86,000) per year from the (pound)66,000 ($129,000) per year pension
contribution made by the Company to a pension plan established by Mr. Cass. The
other note was further collateralized by the (pound)214,500 ($420,000) accrued
in such pension account. In addition, one-third of any yearly bonus received by
Mr. Cass was used to reduce the principal of the promissory notes. Both
promissory notes were repaid in full in 2006.

Repurchase of equity securities

The Company did not repurchase any equity securities during 2006.


<PAGE>


Stock performance graphs

The following graphs compare (i) the cumulative total shareholder return on
LSR's common stock from April 8, 2002 to December 31, 2006 with the cumulative
total return for the same period of the Nasdaq Composite Stock Market (US)
Index, the Nasdaq Biotechnology index and the RDG Microcap Biotechnology Index
and (ii) the cumulative total shareholder return on Huntingdon's American
Depositary Shares from December 31, 2001 through January 10, 2002 with the
cumulative total return for the same period for the Nasdaq Composite index and
the Nasdaq Biotechnology index. The graphs assume that at the beginning of the
period indicated $100 was invested in LSR's common stock or Huntingdon's
American Depositary Shares, as applicable, and the stock of the companies
comprising the various indexes, and that all dividends were reinvested.

[GRAPHIC OMITTED]
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------
                                     4/02     12/02    12/03        12/04       12/05        12/06
---------------------------------------------------------------------------------------------------
<S>                                <C>       <C>      <C>        <C>         <C>          <C>
Life Sciences Research Inc         100.00    215.00   248.00     1,130.00    1,070.00     1,450.00
NASDAQ Composite                   100.00     74.54   111.01       121.26      124.81       141.92
NASDAQ Biotechnology               100.00     71.38   103.80       113.93      128.56       126.55
RDG MicroCap Biotechnology         100.00     48.31    70.75        59.46       39.23        32.22

<FN>
</FN>
</TABLE>

The stock price performance included in this graph is not necessarily indicative
of future stock price performance.

[GRAPHIC OMITTED]


---------------------------------------------------------------------
                                                      12/01     1/02
---------------------------------------------------------------------

Huntington Life Sciences                             100.00    12.00
NASDAQ Composite                                     100.00    99.85
NASDAQ Biotechnology                                 100.00    88.91


The stock price performance included in this graph is not necessarily indicative
of future stock price performance.


<PAGE>


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below as of and for each of
the years ended December 31, 2006, 2005, 2004, 2003 and 2002 has been derived
from LSR's audited consolidated financial statements on Form 10-K.

The selected consolidated financial data should be read in conjunction with
LSR's audited consolidated statements and accompanying notes included elsewhere
in this Annual Report. See also "Management's Discussion and Analysis of
Financial Conditions and Results of Operations". Historical consolidated
financial data may not be indicative of the Company's future performance.

<TABLE>
<CAPTION>

                                                                         As of and for the year ended December 31

                                            ------------- --------------- -------------- ------------- --------------
                                                    2006            2005           2004          2003           2002
                                            ------------- --------------- -------------- ------------- --------------
                                                                 ($000, except per share data)
<S>                                            <C>             <C>            <C>           <C>             <C>
Statement of Operations Data
Revenues                                        $192,217        $172,013       $157,551      $132,434       $115,742
Cost of revenues                               (142,701)       (124,820)      (117,061)     (104,798)       (93,403)
                                            ------------- --------------- -------------- ------------- --------------
                                            ------------- --------------- -------------- ------------- --------------
Gross profit                                      49,516          47,193         40,490        27,636         22,339
Selling, general and administrative             (29,447)        (26,174)       (24,666)      (20,867)       (18,075)
                                            ------------- --------------- -------------- ------------- --------------
                                            ------------- --------------- -------------- ------------- --------------
Operating income before
   other operating expense                        20,069          21,019         15,824         6,769          4,264
Other operating expense                         (10,497)               -              -       (3,522)              -
                                            ------------- --------------- -------------- ------------- --------------
                                            ------------- --------------- -------------- ------------- --------------
Operating income                                   9,572          21,019         15,824         3,247          4,264
Interest expense (net)                          (12,567)         (7,993)        (6,521)       (5,990)        (6,238)
Other income/(expense)
  Foreign exchange gain/(loss) on
  Convertible Capital Bonds/3rd
     Party Loan                                    6,210         (5,144)          3,345         4,760          4,977
  Foreign exchange gain/(loss) on
      Intercompany balances                          692             518              -             -              -
  Gain on repurchase of
      Convertible Capital Bonds
  Capital Bonds                                        -               -              -           602          1,191
  Cost of currency hedge contract                      -               -          (455)             -              -
  Merger/Offer costs                                   -               -              -             -        (1,246)
  Refinancing costs                              (4,979)         (2,780)              -             -              -
                                            ------------- --------------- -------------- ------------- --------------
                                            ------------- --------------- -------------- ------------- --------------
(Loss)/income before income taxes                (1,072)           5,620         12,193         2,619          2,948
Income tax benefit/(expense)                       6,856         (4,129)          5,401         1,109          (251)
                                            ------------- --------------- -------------- ------------- --------------
                                            ------------- --------------- -------------- ------------- --------------
Income before loss on deconsolidation              5,784           1,491         17,594         3,728          2,697
of variable interest entity
Loss on deconsolidation of variable
interest entity (net of income tax
benefit of $22,218)                             (20,656)               -              -             -              -
                                            ------------- --------------- -------------- ------------- --------------
Net (loss)/income                               (14,872)           1,491         17,594         3,728          2,697
                                            ------------- --------------- -------------- ------------- --------------
                                            ------------- --------------- -------------- ------------- --------------
(Loss)/income per share
     -  basic                                    $(1.18)           $0.12          $1.45         $0.31          $0.25
     -  diluted                                  $(1.02)           $0.10          $1.29         $0.29          $0.24
Weighted average number of
Common stock (000)
     -  basic                                     12,644          12,518         12,153        11,958         10,679
     -  diluted                                   14,517          14,533         13,607        12,700         11,083

Balance Sheet Data
Working capital*                                 $22,764       $(51,860)         $1,800      $(3,911)         $(844)
Total assets                                     230,579         184,369        200,075       156,273        148,410
Long term debt and related party loans            89,151          30,430         89,685        87,560         84,075
Total shareholders deficit                       (5,092)        (14,568)        (2,064)       (8,446)        (7,804)
Common stock and paid in capital                  95,889          75,974         75,796        75,221         75,217
Book value per share                             ($0.40)         ($1.16)        ($0.17)       ($0.71)        ($0.73)


Other Financial Data
Depreciation and amortization                     $9,514          $9,581         $9,530        $9,049         $8,108
Capital expenditure                               13,093          15,973         11,096         8,716          4,177
Cash generated/(used) in the year                 28,668        (17,921)         16,070         2,627         12,404
Net days sales outstanding (DSO)                      21              16              4             8              9
Gross profit %                                     25.8%           27.4%          25.7%         20.9%          19.3%
Operating income before
  other operating income/(expense)%                10.4%           12.2%          10.0%          5.1%           3.7%
Operating income %                                  5.0%           12.2%          10.0%          2.5%           3.7%
Net (loss)/income %                               (7.7)%            9.0%          11.2%          2.8%           2.3%
Other operating income/(expense) is comprised of:
NYSE listing related expenses                   $(1,046)              $-             $-            $-             $-
NYSE listing warrant costs                       (7,661)               -              -             -              -
Restructuring costs                                    -               -              -       (3,551)              -
Animal Rights litigation and costs               (1,790)               -              -         (575)              -
Recovery/bad debt relating to
  bankruptcy of an exchange broker                     -               -              -           396              -
Share of associate company income                      -               -              -           208              -
                                            ------------- --------------- -------------- ------------- --------------
                                            ------------- --------------- -------------- ------------- --------------
                                                (10,497)               -              -       (3,522)              -
                                            ------------- --------------- -------------- ------------- --------------
<FN>
</FN>

*Working capital is defined as current assets less current liabilities.

</TABLE>


<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                 RESULTS OF OPERATIONS

GENERAL

The following should be read in conjunction with the consolidated financial
statements of LSR as presented in "Item 8, Financial Statements and
Supplementary Data".

The Company is a global provider of pre-clinical and non-clinical safety testing
services to the pharmaceutical, agrochemical and industrial chemical industries.
The Company provides those services under contracts, which may range from one
day to three years. Income from these contracts is recognized as services are
rendered towards the preparation of the final report. Contracts are generally
terminable upon notice by the client with the client being responsible for
reimbursing the Company for the value of work performed through the date of
cancellation plus the value of work required to wind down a study on an orderly
basis.

The Company's business is characterized by high fixed costs, in particular staff
and facility related costs. Such a high proportion creates favorable conditions
for the Company as excess capacity is utilized, such as has been the case during
the last three years. However, during periods of declining revenue, careful
planning is required to reduce costs without impairing revenue-generating
activities.

CRITICAL ACCOUNTING POLICIES

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with US GAAP. The Company considers the following
accounting policies to be critical accounting policies.

Revenue recognition

The majority of the Company's net revenues have been earned under contracts,
which generally range in duration from a few months to three years. Revenue from
these contracts is generally recognized over the term of the contracts as
services are rendered. Contracts may contain provisions for re-negotiation in
the event of cost overruns due to changes in the level of work scope.
Renegotiated amounts are included in net revenue when earned and realization is
assured. Provisions for losses to be incurred on contracts are recognized in
full in the period in which it is determined that a loss will result from
performance of the contractual arrangement. Most service contracts may be
terminated for a variety of reasons by the Company's customers, either
immediately or upon notice of a future date. The contracts generally require
payments to the Company to recover costs incurred, including costs to wind down
the study, and payment of fees earned to date, and in some cases to provide the
Company with a portion of the fees or income that would have been earned under
the contract had the contract not been terminated early.

Unbilled receivables are recorded for revenue recognized to date that is
currently not billable to the customer pursuant to contractual terms. In
general, amounts become billable upon the achievement of certain aspects of the
contract or in accordance with predetermined payment schedules. Unbilled
receivables are billable to customers within one year from the respective
balance sheet date. Fees in advance are recorded for amounts billed to customers
for which, revenue has not been recognized at the balance sheet date (such as
upfront payments upon contract authorization, but prior to the actual
commencement of the study).

If the Company does not accurately estimate the resources required or the scope
of work to be performed, or does not manage its projects properly within the
planned periods of time or satisfy its obligations under the contracts, then
future margins may be significantly and negatively affected or losses on
existing contracts may need to be recognized. While such issues have not
historically been significant, any such resulting reductions in margins or
contract losses could be material to the Company's results of operations.

Use of estimates

The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the dates of the financial statements and the results of operations during the
reporting periods. These also include management estimates in the calculation of
pension liabilities covering discount rates, return on plan assets and other
actuarial assumptions. Although these estimates are based upon management's best
knowledge of current events and actions, actual results could differ from those
estimates.

Taxation

The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting For Income Taxes"
("SFAS 109"). SFAS 109 requires recognition of deferred tax assets and
liabilities for the estimated future tax consequences of events attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured using enacted
rates in effect for the year in which the differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of
changes in tax rates is recognized in the statement of operations in the period
in which the enactment rate changes. Deferred tax assets and liabilities are
reduced through the establishment of a valuation allowance at such time as,
based on available evidence, it is more likely than not that the deferred tax
assets will not be realized. While the Company has considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the
need for the valuation allowance, in the event that the Company were to
determine that it would not be able to realize all or part of its net deferred
tax assets in the future, an adjustment to the deferred tax assets would be
charged to income in the period such determination was made. Likewise, should
the Company determine that it would be able to realize its deferred tax assets
in the future in excess of its net recorded amount, an adjustment to the
deferred tax assets would increase income in the period such determination was
made.

Consolidation of Alconbury

On June 14, 2005, the Company entered into and consummated purchase and sale
agreements with Alconbury Estates Inc. and subsidiaries (collectively
"Alconbury") for the sale and leaseback of the Company's three operating
facilities in Huntingdon and Eye, England and East Millstone, New Jersey (the
"Sale/Leaseback Transaction"). Alconbury was a newly formed in June 2005 and
controlled by LSR's Chairman and CEO, Andrew Baker. The total consideration paid
by Alconbury for the three properties was $40 million, consisting of $30 million
in cash and a five year, $10 million variable rate subordinated promissory note,
which Alconbury paid in full on June 30, 2006, together with accrued interest of
$0.6 million.

In accordance with the provisions of FASB Interpretation No. 46R (FIN 46R), the
Company has reflected the consolidation of Alconbury from June 14, 2005 through
June 29, 2006, the period in which the Company was considered the "primary
beneficiary" of Alconbury's variable interests. Effective June 30, 2006, the
requirement under FIN46R to include Alconbury in the Condensed Consolidated
Financial Statements no longer applied and the Company has therefore reflected
the "deconsolidation" of this entity in the financial statements. This
deconsolidation required the Company to record the gain and loss associated with
the sale of the properties, and recognize the associated changes in
depreciation, interest, and rent expenses. In 2006, the Company has recognized a
non-cash loss of $48.9 million for the sale of the UK properties, and recorded a
deferred gain of $9.6 million, amortized over the term of the lease, for the US
property. Please refer to Note 3 for additional detail of the impact of this
deconsolidation.


RESULTS OF OPERATIONS

Year ended December 31, 2006 compared with year ended December 31, 2005

Revenues in the year ended December 31, 2006 were $192.2 million, an increase of
11.7% on revenues of $172.0 million for the year ended December 31, 2005. The
underlying increase, after adjusting for the impact of the movement in exchange
rates was 10.6%; with the UK showing a 10.4% increase and the US a 11.3%
increase. The growth in revenues reflects the increase in orders and,
consequently, backlog over the year, principally from the pharmaceutical
industry. Orders for the year ended December 31, 2006, of $233.4 million at
constant exchange rates were 26% above the previous year. At December 31, 2006
backlog (booked-on work) amounted to approximately $175 million, an increase of
43% above the level at December 31, 2005 (32% net of foreign currency effect).

Cost of sales in the year ended December 31, 2006 were $142.7 million (74.2% of
revenue), an increase of 14.3% on cost of sales of $124.8 million (72.6% of
revenue) for the year ended December 31, 2005. The underlying increase after
adjusting for the impact of the movement in exchange rates was 13.1%. The
increase in cost of sales as a % of revenues was due to an increase in both
direct study costs as a % of revenues and overhead as a % of revenues. These
contributed 260 basis points and 30 basis points respectively to the increase in
cost of sales as a % of revenues. The increase in direct study costs was due to
a change in the mix of business while the increase in overhead was due to an
increase in power costs of 120 basis points offset by the improved use of
capacity. Labor costs as a % of revenues improved by 130 basis points due to
improved use of capacity.

Selling, general and administrative expenses rose by 12.5% to $29.4 million for
the year ended December 31, 2006 (15.3% of revenue) from $26.2 million (15.2% of
revenue) in the year ended December 31, 2005. The underlying increase after
adjusting for the impact of the movement in exchange rates was 12.3%. The
increase in selling, general and administrative expenses was due to increase in
labor costs, including the cost of stock issues under Executive incentive
programs.

Other operating expenses of $10.5 million for the year end December 31, 2006
comprised $7.7 million for warrant costs and $1.0 million flotation expenses
associated with the listing of the Company's shares on the NYSE Arca and $1.8
million litigation and other expenses associated with the Animal Rights campaign
against the Company.

Net interest expense increased by 57.2% to $12.6 million for the year ended
December 31, 2006 from $8.0 million in the year ended December 31, 2005. This
increase was due to the additional principal being borrowed and the higher rates
of interest associated with the New Financing.

Other income of $1.9 million for the year ended December 31, 2006 comprised $6.2
million from the non-cash foreign exchange remeasurement gain on the New
Financing and the Convertible Capital Bonds denominated in US dollars (the
functional currency of the financing subsidiary that holds the bonds is UK
sterling), other exchange gains of $0.7 million, offset by finance arrangement
fees of $5.0 million. In the year ended December 31, 2005 there was other
expense of $7.4 million comprised $5.1 million from the non-cash foreign
exchange remeasurement loss on the Convertible Capital Bonds denominated in US
dollars (the functional currency of the financing subsidiary that held the bond
was UK sterling), finance arrangement fees of $2.8 million, offset by other
exchange gains of $0.5 million.

Taxation benefit on losses for the year ended December 31, 2006 was $6.9 million
representing a benefit at 640% compared to a taxation expense of $4.1 million
representing an expense at 73% for the year ended December 31, 2005. A
reconciliation between the US statutory tax rate and the effective rate of
income tax benefit on losses before income taxes for the year ended December 31,
2006 and December 31, 2005 is shown below:

                                                 % of income before
                                                    income taxes
                                               2006               2005
                                                 %                  %
US statutory rate                              (35)                35
Foreign rate differential                      (23)                24
UK R & D credit and non-deductible items       (468)              (45)
State taxes                                    (74)                 8
Change in estimate                             (40)                51
                                           ---------------    --------------
Effective tax rate                             (640)               73
                                           ---------------    --------------

The main reason for the change in estimate in 2006 relates to the US leaseback
gain that arose from the sale of the US property as part of the Sale/Leaseback
Transaction. Under FIN46R the gain was originally recognized in 2005 and charged
to income taxes. This charge reversed in 2006 as the deferred gain was
recognized due to the deconsolidation of the variable interest entity. The gain
on the sale of the UK assets was offset against brought forward capital losses
in 2005. A revision to the treatment of the losses on the UK buildings sold as
part of the Sale/Leaseback Transaction in 2005 also caused a change in estimate
in 2006.

The losses before tax of the British Virgin Islands represents the Alconbury
balances which have been consolidated in accordance with the provisions of FASB
Interpretation No. 46R.

The overall net income before loss on deconsolidation of variable interest
entity, for the year ended December 31, 2006 was $5.8 million compared to a net
income of $1.5 million in the year ended December 31, 2005. The diluted loss per
share for the year ended December 31, 2006 was $1.02 compared to income of $0.10
for the year ended December 31, 2005.


RESULTS OF OPERATIONS

Year ended December 31, 2005 compared with year ended December 31, 2004

Revenues in the year ended December 31, 2005 were $172.0 million, an increase of
9.2% on revenues of $157.6 million for the year ended December 31, 2004. The
underlying increase, after adjusting for the impact of the movement in exchange
rates was 9.7%; with the UK showing a 6.9% increase and the US a 21.6% increase.
The growth in revenues reflects the increase in orders and, consequently,
backlog over the last 18 months, principally from the pharmaceutical industry.
Orders for the year ended December 31, 2005, of $182.7 million at constant
exchange rates were 3% above the previous year. At December 31, 2005 backlog
(booked-on work) amounted to approximately $122 million, an increase of 3% above
the level at December 31, 2004 (7% net of foreign currency effect). The growth
in revenues in the UK was lower than that in the US, in part because the UK
includes a higher proportion of non-pharmaceutical business, a market that is
not growing.

Cost of sales in the year ended December 31, 2005 were $124.8 million (72.6% of
revenue), an increase of 6.6% on cost of sales of $117.1 million (74.3% of
revenue) for the year ended December 31, 2004. The underlying increase after
adjusting for the impact of the movement in exchange rates was 7.3%. The
reduction in cost of sales as a % of revenues was due to a reduction in both
labor as a % of revenues and overhead as a % of revenues. These contributed 50
basis points and 100 basis points respectively to the reduction in cost of sales
as a % of revenues. Both were due to the improved use of capacity as revenues
increased, though increased pension costs reduced the impact of labor
efficiencies by 60 basis points. A reduction in direct study costs arising from
a change in the mix of business contributed a further 20 basis points to the
reduction in cost of sales as a % of revenues.

Selling, general and administrative expenses rose by 6.1% to $26.2 million for
the year ended December 31, 2005 (15.2% of revenue) from $24.7 million (15.7% of
revenue) in the year ended December 31, 2004. The underlying increase after
adjusting for the impact of the movement in exchange rates was 2.9%.

Net interest expense increased by 22.6% to $8.0 million for the year ended
December 31, 2005 from $6.5 million in the year ended December 31, 2004.
Approximately $1.1 million of this increase was due to higher rates of interest
as a result of the Sale/Leaseback transaction and a further $0.2 million
represented additional expense associated with the warrants.

Other expense of $7.4 million for the year ended December 31, 2005 comprised
$5.1 million from the non-cash foreign exchange remeasurement loss on the
Convertible Capital Bonds denominated in US dollars (the functional currency of
the financing subsidiary that holds the bonds is UK sterling), finance
arrangement fees of $2.8 million, offset by other exchange gains $0.5 million.
In the year ended December 31, 2004 there was other income of $2.9 million which
was comprised of a non-cash foreign exchange remeasurement gain on the Capital
Bonds of $3.3 million offset by $0.4 million relating to the cost of a currency
hedge contract.

Taxation expense on income for the year ended December 31, 2005 was $4.1 million
representing an expense at 73% compared to a taxation benefit of $5.4 million
representing a benefit at 44% for the year ended December 31, 2004. A
reconciliation between the US statutory tax rate and the effective rate of
income tax expense on income before income taxes for the year ended December 31,
2005 and December 31, 2004 is shown below:

                                                  % of income before
                                                     income taxes
                                                2005               2004
                                                  %                  %
US statutory rate                                35                 35
Foreign rate differential                        24                 (6)
US property sale gain                            59                  -
UK R & D credit and non-deductible items        (45)               (36)
State taxes                                       8                  1
Change in estimate                               (8)               (38)
                                            ---------------    --------------
Effective tax rate                               73                (44)
                                            ---------------    --------------

The US leaseback gain has arisen from the sale of the US property as part of the
sale and leaseback deal. The gain on the sale of the UK assets has been offset
against brought forward capital losses resulting in a deferred tax movement.

The losses before tax of the British Virgin Islands represents the Alconbury
balances which have been consolidated in accordance with the provisions of FASB
Interpretation No. 46R.

The main reason for the change in estimate in 2004 relates to the Huntingdon
2003 tax provisions. The UK government from April 1, 2002 introduced a new tax
allowance, `Research and Development (R & D) Tax Credit', for large companies.
At the end of 2002, it was not certain how this would apply to Huntingdon. When
submitting Huntingdon's 2002 corporation tax computation, and following
discussions with the UK Inland Revenue, Huntingdon made a claim for the R & D
Tax Credit, which has now been accepted. The 2003 provision has been included in
the 2004 change in estimate. The 2004 and 2005 claims are part of the
non-deductible items above.

The overall net income for the year ended December 31, 2005 was $1.5 million
compared to $17.6 million in the year ended December 31, 2004. The diluted
income per share for the year ended December 31, 2005 was $0.10 compared to
$1.29 for the year ended December 31, 2004.


SEGMENT ANALYSIS

The analysis of the Company's revenues and operating loss between segments for
the three years ended December 31, 2006 is as follows:

The performance of each segment is measured by revenues and operating
income/(loss) before other operating expenses.

<TABLE>
<CAPTION>

Company                                                               2006                 2005                 2004
                                                                      $000                 $000                 $000
<S>                                                               <C>                  <C>                  <C>
Revenues
           UK                                                      151,079              135,054              127,148
           US                                                       41,138               36,959               30,403
           Corporate                                                     -                    -                    -
                                                            ---------------     ----------------     ----------------

                                                                  $192,217             $172,013             $157,551
                                                            ---------------     ----------------     ----------------
Operating income/(loss) before other operating expenses
           UK                                                       21,676               22,531               18,716
           US                                                        5,268                5,239                3,861
           Corporate                                               (6,875)              (6,751)              (6,753)
                                                            ---------------     ----------------     ----------------
                                                                   $20,069              $21,019              $15,824
                                                            ---------------     ----------------     ----------------
Other operating expense
           UK                                                            -                    -                    -
           US                                                            -                    -                    -
           Corporate                                              (10,497)                    -                    -
                                                            ---------------     ----------------     ----------------
                                                                 $(10,497)                   $-                   $-
                                                            ---------------     ----------------     ----------------
Operating income/(loss)
           UK                                                       21,676               22,531               18,716
           US                                                        5,268                5,239                3,861
           Corporate                                              (17,372)              (6,751)              (6,753)
                                                            ---------------     ----------------     ----------------
                                                                    $9,572              $21,019              $15,824
                                                            ---------------     ----------------     ----------------
</TABLE>

UK

2006 v 2005

Revenues increased by 11.9% in the year ended December 31, 2006 compared with
the year ended December 31, 2005. After allowing for the effect of exchange rate
movements the increase was 10.4%. The growth in revenues reflects the increase
in orders and, consequently, backlog over the last year, principally from the
pharmaceutical industry. Orders for the year ended December 31, 2006 at constant
exchange rates were 26.1% above the previous year.

Costs increased 14.4% in the year ended December 31, 2006 compared with the year
ended December 31, 2005. After allowing for the effect of exchange rate
movements, the increase was 12.5%. The main increases were in labor and direct
study costs, and reflected the increase in revenues. Power costs also increased
due to the increased price of oil, gas and electricity.

The operating income for the year ended December 31, 2006 was $21.7 million
compared with $22.5 million in the previous year.

2005 v 2004

Revenues increased by 6.2% in the year ended December 31, 2005 compared with the
year ended December 31, 2004. After allowing for the effect of exchange rate
movements the increase was 6.9%. The growth in revenues reflects the increase in
orders and, consequently, backlog over the last eighteen months, principally
from the pharmaceutical industry. Orders for the year ended December 31, 2005 at
constant exchange rates were 2.2% above the previous year.

Costs increased 6.5% in the year ended December 31, 2005 compared with the year
ended December 31, 2004. After allowing for the effect of exchange rate
movements, the increase was 6.5%. The main increases were in labor and direct
material costs, and reflected the increase in revenues.

The operating income for the year ended December 31, 2005 was $22.5 million
compared with $18.7 million in the previous year.


US

2006 v 2005

Revenues increased by 11.3% in the year ended December 31, 2006 as compared to
the year ended December 31, 2005. The growth in revenues reflects the increase
in orders and consequently, backlog, over the last year, principally from the
pharmaceutical industry. Orders for the year ended December 31, 2006 were 44.5%
above the previous year .

Costs increased by 15.1% in the year ended December 31, 2006 as compared with
the year ended December 31, 2005. This cost increase was mainly due to higher
labor, direct study, subcontract and equipment rental costs, and reflected the
increase in revenues.

The operating income for the year ended December 31, 2006 was $5.3 million
compared with an operating income of $5.2 million in the previous year.

2005 v 2004

Revenues increased by 21.6% in the year ended December 31, 2005 as compared to
the year ended December 31, 2004. The growth in revenues reflects the increase
in orders and consequently, backlog, over the last 18 months, principally from
the pharmaceutical industry. Orders for the year ended December 31, 2005 were
0.7% above the previous year .

Costs increased by 16.8% in the year ended December 31, 2005 as compared with
the year ended December 31, 2004. This cost increase was mainly due to higher
labor and direct materials, and reflected the increase in revenues.

The operating income for the year ended December 31, 2005 was $5.2 million
compared with an operating income of $3.9 million in the previous year.


Corporate

2006 v 2005

Corporate costs for the year ended December 31, 2006 were $17.4 million, an
increase of 157.3% on corporate costs for the year ended December 31, 2005 of
$6.8 million. The majority of the increase was due to the other operating
expenses associated with the listing of the Company's shares on the NYSE Arca
and costs associated with the Animal Rights campaign against the Company (see
Note 9 for further details).

The operating loss for the year ended December 31, 2006 was $17.4 million
compared with an operating loss for the year ended December 31, 2005 of $6.8
million.

2005 v 2004

Corporate costs for the year ended December 31, 2005 were $6.8 million, an
increase of 0% on corporate costs for the year ended December 31, 2004 of $6.8
million. Increases in labor and general expenses were offset by lower bonuses
accrued for senior employees.

The operating loss for the year ended December 31, 2005 was $6.8 million
compared with an operating loss for the year ended December 31, 2004 of $6.8
million.

LIQUIDITY AND CAPITAL RESOURCES

Bank Loan and Non-Bank Loans

On January 20, 2001, the Company's net non-bank loan of (pound)22.6 million
(approximately $43.4 million based on exchange rates at the time), was
refinanced by Stephens' Group Inc. and other parties. The loan was transferred
from Stephens Group Inc., to an unrelated third party effective February 11,
2002. It was repayable on June 30, 2006 and interest was payable quarterly at
LIBOR plus 1.75%. At the same time the Company was required to take all
reasonable steps to sell off such of its real estate assets through
sale/leaseback transactions and/or obtaining mortgage financing secured by the
Company's real estate assets to discharge this loan. The loan was held by LSR
Ltd., and was secured by the guarantees of wholly owned subsidiaries of the
Company including, LSR Ltd, Huntingdon Life Sciences Ltd, and Huntingdon Life
Sciences Inc., and collateralized by all the assets of these companies. On June
14, 2005 this non-bank loan was fully repaid using the proceeds from the
Sale/Leaseback Transaction and cash on hand.

On October 9, 2001, on behalf of Huntingdon, LSR issued to Stephens Group Inc.
warrants to purchase 704,425 shares of LSR Voting Common Stock at a purchase
price of $1.50 per share. The warrants were subsequently transferred to an
unrelated third party. The LSR warrants are exercisable at any time and will
expire on October 9, 2011. These warrants arose out of negotiations regarding
the refinancing of the bank loan by the Stephens Group Inc. in January 2001. In
accordance with APB Opinion No. 14, Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants ("APB 14"), the warrants were recorded at
their pro rata fair values in relation to the proceeds received on the date of
issuance. As a result, the value of the warrants was $430,000. 154,425 of such
warrants were exercised in 2004. No additional exercises have been made to date.

On June 14, 2005, the Company entered into and consummated the Sale/Leaseback
Transaction with Alconbury. Alconbury was newly formed in June 2005 and
controlled by LSR's Chairman and CEO, Andrew Baker. The total consideration paid
by Alconbury for the three properties was $40 million, consisting of $30 million
cash and a five year, $10 million variable rate subordinated promissory note,
which Alconbury paid in full on June 30, 2006 together with accrued interest of
$0.6 million. The Company agreed to pay the expenses incurred by Alconbury in
the Sale/Leaseback Transaction of $4.6 million, subject to Alconbury's
obligation to reimburse those expenses in the future. Such reimbursement shall
be made in equal installments in each year of the five-year period beginning on
June 14, 2008, the third anniversary of the closing date of the Sale/Leaseback
Transaction. Interest has been imputed on this loan at 15% and a discount
(expense) of $2.4 million was recorded by the Company on June 14, 2005. This
$2.4 million is being ratably recorded as interest income over the seven year
term of the loan.

As part of the Sale/Leaseback Transaction, the Company (through subsidiaries)
entered into thirty-year leases with Alconbury for each facility, with two
five-year renewal options. The initial base aggregate annual rent for the
facilities was $4.9 million (approximately $1.8 million in the US and
approximately $3.1 million in the UK) which increases by 3% each year for the UK
facilities and by an amount equal to the annual US consumer price index for the
US facility. Under the terms of the leases, no security deposit was initially
required, but a three-month security deposit was required to be paid at the time
that Alconbury refinanced its current financing arrangements. Additionally,
because the leases are "triple net" leases, LSR also pays for all of the costs
associated with the operation of the facilities, including costs such as
insurance, taxes and maintenance.

Since the Sale/Leaseback Transaction was with a related party (Mr. Baker, LSR's
Chairman and CEO and the controlling owner of Alconbury), an Independent
Committee of LSR's Board of Directors (the "Committee") was formed to analyze
and consider the proposed Sale/Leaseback Transaction. The Committee was
comprised of the three independent directors of LSR: Gabor Balthazar, Afonso
Junqueiras and Yaya Sesay. The Committee retained independent legal and
financial advisors to assist in its analysis. The Committee and LSR's senior
management (other than Mr. Baker) negotiated the key terms and provisions of the
Sale/Leaseback Transaction with Alconbury. In evaluating the total consideration
negotiated for this transaction, the committee took into consideration an
assessment and review of the levels of consideration that were proposed to be
paid by independent third party bidders over the prior several years for
sale/leaseback transactions of the Company's operating facilities in
transactions that were proposed and negotiated but not ultimately consummated.
The Committee also obtained appraisals of the facilities from independent real
estate appraisal firms and a fairness opinion from an independent investment
banking firm.

The proceeds from the Sale/Leaseback Transaction (plus additional cash on hand)
were used by the Company to pay in full its (pound)22.6 million non-bank debt
($41.1 million based on exchange rates at the time).

In accordance with the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 46R (FIN 46R), the Company has reflected the consolidation of
Alconbury from June 14, 2005 through June 29, 2006, the period in which the
Company was considered the "primary beneficiary" of Alconbury's variable
interests. Effective June 30, 2006, the requirement under FIN46R to include
Alconbury in the Consolidated Financial Statements no longer applied and the
Company has therefore reflected the "deconsolidation" of this entity in the
financial statements. This deconsolidation required the Company to record the
gain and loss associated with the sale of the properties, and recognize the
associated changes in depreciation, interest, and rent expenses. In 2006 the
Company recognized a non-cash loss of $48.9 million for the sale of the UK
properties, and recorded a deferred gain of $9.6 million for the US property,
which is being amortized over the term of the lease. Please refer to Note 3 for
additional detail of the impact of this deconsolidation.

Due to the consolidation resulting from the Company's adoption of FIN 46R, for
the period of June 14, 2005 through June 29, 2006, the Company's financial
statements reflected a loan payable to an unrelated third party in the aggregate
principal amount of $30 million. This loan had a maturity date of June 14, 2006,
with the right to extend the term one additional year. The loan, carried an
annual interest rate of 15%, was secured by first priority lien on all the
assets, including the facilities, of Alconbury, and was also personally
guaranteed by the owner of Alconbury. This loan was payable in twelve monthly
installments of interest only, with a balloon payment of $30 million due on June
14, 2006. Alconbury refinanced this debt on a long-term basis on June 13, 2006
with an interest rate of 12%. However, due to the June 30, 2006 deconsolidation
of Alconbury (see Note 3), the Company did not reflect this new loan on the
Condensed Consolidated Balance Sheet as at June 30, 2006.

On March 2, 2006, the Company entered into a $70 million loan (the "New
Financing") under the terms of a Financing Agreement dated March 1, 2006 with a
third party lender. The borrower under the Financing Agreement is Huntingdon
Life Sciences Limited and LSR and substantially all of LSR's other subsidiaries
guarantee all of the borrower's obligations thereunder. The loan matures on
March 1, 2011 and has an interest rate of 8.25% over LIBOR (which may be reduced
to 8.00% over LIBOR upon the Company meeting certain financial tests). The
Financing Agreement contains standard financial and business covenants,
including, without limitation, reporting requirements, limitations on the
incurrence of additional indebtedness, events of default, limitations on
dividends and other payment restrictions and various financial ratio
requirements. The loan is secured by substantially all of the assets of the
Company and the Company has in connection therewith entered into a customary
Security Agreement and a customary Pledge and Security Agreement.

As partial consideration for the loan, LSR has issued to the lender 10 year
warrants to acquire 500,000 shares of LSR's common stock at an exercise price of
$12.00 per share (such exercise price was determined by a premium formula based
on LSR's closing market prices on the date of issuance). These warrants were
fully vested on the closing date of the loan, March 2, 2006. In addition, as
partial consideration for providing financial advisory services to assist the
Company in obtaining the loan, LSR issued to its independent third party
financial advisor 10 year warrants to acquire 300,000 shares of LSR common stock
at an exercise price of $10.46 per share (the closing market price on the date
the Company engaged the financial advisor). These 300,000 warrants became fully
vested on the closing date of the loan, March 2, 2006. Certain customary
registration rights were granted in connection with these warrants. The warrants
are subject to customary anti-dilution provisions.

Net proceeds from the loan were approximately $63 million and a portion of these
proceeds were used to redeem the $46.2 million outstanding principal amount of
the Company's 7.5% Convertible Capital Bonds, which were due to mature in
September 2006. The balance of the proceeds was held for general corporate
purposes.

Related Party Loans

On June 11, 2002 LSR issued to FHP warrants to purchase up to 410,914 shares of
LSR Voting Common Stock at a purchase price of $1.50 per share. These LSR
warrants are exercisable at any time and will expire on June 11, 2012. These
warrants arose out of negotiations regarding the provision of the $2.9 million
loan facility made available to the Company on September 25, 2000 by Mr. Baker,
who controls FHP. In accordance with APB 14 the loan and warrants were recorded
at their pro rata fair values in relation to the proceeds received. As a result,
the value of the warrants was $250,000.

Common Shares

On March 28, 2002, LSR closed the sale in a private placement of an aggregate of
5,085,334 shares of Voting Common Stock at a price of $1.50 per share. Of the
aggregate proceeds of approximately $7.6 million, $4.4 million was in cash, $2.4
million represented conversion into equity of debt owed to Mr. Baker ($2.1
million) and FHP ($0.3 million) and $825,000 was paid with promissory notes. A
net $128,000 of such promissory notes have been repaid through December 31,
2006.


<PAGE>


Cash flows

During the year ended December 31, 2006 funds generated were $28.7 million,
increasing cash on hand and on short-term deposit from $15.4 million at December
31, 2005 to $44.1 million at December 31, 2006. The cash used by operating,
investing and financing activities was as follows (in millions):

<TABLE>
<CAPTION>

                                                                   2006            2005           2004
                                                                   ----            ----           ----
<S>                                                              <C>             <C>            <C>
Operating income before other operating expense                   $20.1           $21.0          $15.8
Depreciation and loss on disposal of fixed assets                   9.5             9.6            9.5
Working capital movement                                           17.1           (5.5)           10.1
Interest                                                         (10.6)           (8.0)          (5.9)
Capital expenditure                                              (13.1)          (16.0)         (11.1)
Other (expense)/income                                           (10.5)               -          (2.6)
Loan net funding/(repayments) net of shares issued                 21.2           (9.9)          (0.1)
Effect of exchange rate changes on cash                           (5.0)           (9.1)            0.3
                                                           -------------    ------------   ------------
                                                                  $28.7         $(17.9)          $16.0
                                                           -------------    ------------   ------------
</TABLE>

The majority of the increase in cash was due to the $70 million New Financing
which generated net proceeds of approximately $63 million, of which $46.2
million were used to redeem the outstanding principal amount of the Convertible
Capital Bonds. A further $10.6 million was generated from the repayment of the
Alconbury subordinated promissory note.

The movement in working capital for the year ended December 31, 2006 was caused
by the pay down of the Alconbury loan note along with an increase in trade
creditors, an increase in local tax accruals and an increase in commissions,
offset by an increase in net days sales outstanding (DSOs).

Net days sales outstanding (DSOs) at December 31, 2006 were 21 days, an increase
from the 16 days at December 31, 2005. DSO is calculated as a sum of accounts
receivable, unbilled receivables and fees in advance over total revenue. The
impact on liquidity from a one-day change in DSO is approximately $551,000.

At December 31, 2006, the Company had a working capital surplus of $22.8 million
and the Company believes that projected cash flow from operations will satisfy
its other contemplated cash requirements for at least the next 12 months.

Commitment and Contingencies

Commitments

The Company leases certain equipment under various non-cancelable operating and
capital leases. The Company is also obligated under purchase agreements,
including long term power contracts. Finally Life Sciences Research Limited is
obliged to make contributions to its defined pension plan of (pound)2.7 million
($5.3 million) per year, plus expenses estimated at (pound)0.3 million ($0.6
million) a year for the next 9 years. These commitments are set out in the table
below:
<TABLE>
<CAPTION>

                                                               Year ended December 31
                                      Total        2007        2008         2009        2010       2011        2012+
                                       $000        $000        $000         $000        $000       $000         $000
<S>                               <C>          <C>         <C>           <C>        <C>         <C>         <C>
Capital lease obligations            $1,790      $1,011        $683          $96           -          -            -
Alconbury lease obligations         243,292       5,474       5,637        5,807       5,981      6,161      214,232
Operating leases                      2,653       1,437         726          388          78         24            -
Purchase obligations                  8,236       8,236           -            -           -          -            -
Pension plan contributions           52,848       5,872       5,872        5,872       5,872      5,872       23,488
                                 ----------- ----------- ----------- ------------ ----------- ---------- ------------
                                   $308,819     $22,030     $12,918      $12,163     $11,931    $12,057     $237,720
                                 ----------- ----------- ----------- ------------ ----------- ---------- ------------

</TABLE>


<PAGE>


Contingencies

The Company is party to certain legal actions arising in the normal course of
its business. In management's opinion, none of these actions will have a
material effect on the Company's operations, financial condition or liquidity.
No form of proceedings has been brought, instigated or is known to be
contemplated against the Company by any government agency.


ORDERS

New business signings totaled $233 million for the year ended December 31, 2006,
an increase of 26% exclusive of the impact of movements in exchange rates from
the prior year. The Company saw a rapid growth in business from the
Pharmaceutical industry in 2004, with maintenance of this growth through 2005.
2006 again saw aggressive growth of 28% in business from the Pharmaceutical
industry, particularly in our toxicology and pharmaceutical chemistries business
units as companies continued to invest in their early stage pipelines. There was
a 16% growth in business in 2006 from our non-pharmaceutical business segment.
Agrochemicals remained flat overall as the end of work under 94/414/EEC was
offset by work on new chemical entities, whilst Chemical business grew very
strongly year over year on the back of solid notification work and the
beginnings of work feeding through from the new REACH and Pharmaceuticals in the
Environment legislation.


EXCHANGE RATE FLUCTUATIONS AND EXCHANGE CONTROLS

The Company operates on a worldwide basis and generally invoices its clients in
the currency of the country in which the Company operates. Thus, for the most
part, exposure to exchange rate fluctuations is limited as sales are denominated
in the same currency as costs. Trading exposures to currency fluctuations do
occur as a result of certain sales contracts, performed in the UK for US
clients, which are denominated in US dollars and contribute approximately 6% of
total revenues. Management has decided not to hedge against this exposure.

Also, exchange rate fluctuations may have an impact on the relative price
competitiveness of the Company vis a vis competitors who trade in currencies
other than sterling or dollars.

The Company has debt denominated in US dollars, whereas the Company's functional
currency is the UK pound sterling, which results in the Company recording other
income/loss associated with US dollars debt as a function of relative changes in
foreign exchange rates. To manage the volatility relating to these exposures,
from time to time, the Company might enter into certain derivative transactions.
The Company holds and issues derivative financial instruments for economic
hedging purposes only. There were no derivative financial instruments in place
at December 31, 2006.

Finally, the consolidated financial statements of LSR are denominated in US
dollars. Changes in exchange rates between the UK pound sterling and the US
dollar will affect the translation of the UK subsidiary's financial results into
US dollars for the purposes of reporting the consolidated financial results. The
process by which each foreign subsidiary's financial results are translated into
US dollars is as follows: income statement accounts are translated at average
exchange rates for the period; balance sheet asset and liability accounts are
translated at end of period exchange rates; and equity accounts are translated
at historical exchange rates. Translation of the balance sheet in this manner
affects the stockholders' equity account referred to as the accumulated other
comprehensive loss account. Management has decided not to hedge against the
impact of exposures giving rise to these translation adjustments as such hedges
may impact upon the Company's cash flow compared to the translation adjustments
which do not affect cash flow in the medium term.

Exchange rates for translating sterling into US dollars were as follows:

                            At December 31              Average rate (1)
         2003                   1.7857                       1.6354
         2004                   1.9199                       1.8321
         2005                   1.7168                       1.8195
         2006                   1.9572                       1.8432

(1)  Based on the average of the exchange rates on each day during the period.

On March 7, 2007 the noon buying rate for sterling was (pound)1.00 = $1.9315.

The Company has not experienced difficulty in transferring funds to and
receiving funds remitted from those countries outside the US or UK in which it
operates and management expects this situation to continue.

While the UK has not at this time entered the European Monetary Union, the
Company has ascertained that its financial systems are capable of dealing with
Euro denominated transactions.

The following table summarizes the financial instruments denominated in
currencies other than the US dollar held by LSR and its subsidiaries as of
December 31, 2006:

<TABLE>
<CAPTION>
                                                            Expected Maturity Date
                                      2006    2007     2008    2009    2010  Thereafter    Total  Fair
                                                                                                      Value
(In US Dollars, amounts in thousands)
<S>               <C>               <C>       <C>      <C>      <C>              <C>      <C>        <C>
Cash              - Pound Sterling  16,884       -        -       -       -          -    16,884     16,884
                  - Euro               490       -        -       -       -          -       490        490
                  - Japanese Yen     1,953       -        -       -       -          -     1,953      1,953
Accounts
receivable        - Pound Sterling  28,433       -        -       -       -          -    28,433     28,433
                  - Euro             1,679       -        -       -       -          -     1,679      1,679
                  - Japanese Yen     1,206       -        -       -       -          -     1,206      1,206

Capital leases    - Pound Sterling       -     701      525      54       -      8,201     9,481      9,481

</TABLE>

INFLATION

While most of the Company's net revenues are earned under fixed price contracts,
the effects of inflation do not generally have a material adverse effect on its
operations or financial condition as only a minority of the contracts have
duration in excess of one year.


RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) an
interpretation of FASB Statement No. 109, Accounting for Income Taxes, which
clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. The Interpretation requires that the Company recognize in the
financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position. FIN 48 also provides guidance on de-recognition of a previously
recognized tax position, classification, interest and penalties, accounting in
interim periods and disclosures. The provisions of FIN 48 are effective
beginning January 1, 2007 with the cumulative effect of the change in accounting
principle recorded as an adjustment to the opening balance of retained earnings.
The Company will adopt FIN48 on January 1, 2007 and does not believe its
adoption will result in a material cumulative effect adjustment.

In September 2006, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132(R), ("SFAS 158"). SFAS 158 requires an
employer to recognize the over-funded or under-funded status of a defined
benefit postretirement plan -- measured as the difference between the fair value
of plan assets and the projected benefit obligation -- as an asset or liability,
respectively, in its balance sheet and to recognize changes in the funded status
of the plan in the year in which such changes occur through other comprehensive
income. The financial statement recognition and disclosure provisions of SFAS
158 are effective for fiscal years ending after December 15, 2006, which will
result in The Company recording the over-funded or under-funded status of its
plans as a liability or asset, respectively, with a corresponding decrease or
increase, net of tax, in the accumulated other comprehensive income equity
account on its balance sheet at December 31, 2006 and recognizing future changes
in the funded status of its plans in other comprehensive income beginning with
the year ending December 31, 2007. SFAS 158 also requires, effective for fiscal
years ending after December 15, 2008, that the measurement of the over-funded or
under-funded status of the plan be made as of the employer's fiscal year end and
not as of an earlier measurement date. SFAS 158 has not had an impact on the
Company's consolidated results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, ("SFAS
157"). SFAS 157, which applies whenever other standards require (or permit) fair
value measurement, defines fair value and provides guidance for using fair value
to measure assets and liabilities. SFAS 157 also requires expanded disclosures
about the extent to which companies measure assets and liabilities at fair
value, the information used in those measurements and the effect of fair value
measurements on earnings. The Company will be required to adopt SFAS 157, which
is effective for fiscal years beginning after November 15, 2007, no later than
the quarter beginning January 1, 2008. The Company is currently in the process
of evaluating SFAS 157, and has not yet determined the impact, if any, SFAS 157
will have on its consolidated results of operations or financial position.

In September 2006, the SEC ("SEC") issued SAB No. 108 "Considering the Effects
of Prior Year Misstatements When Quantifying Misstatements in Current Year
Financial Statements", which provides interpretive guidance on how registrants
should quantify financial statement misstatements. Under SAB 108 registrants are
required to consider both a "rollover" method, which focuses primarily on the
income statement impact of misstatements, and the "iron curtain" method, which
focuses primarily on the balance sheet impact of misstatements. The effects of
prior year uncorrected errors include the potential accumulation of improper
amounts that may result in a material misstatement on the balance sheet or the
reversal of prior period errors in the current period that result in a material
misstatement of the current period income statement amounts. Adjustments to
current or prior period financial statements would be required in the event that
after application of various approaches for assessing materiality of a
misstatement in current period financial statements and consideration of all
relevant quantitative and qualitative factors, a misstatement is determined to
be material. We adopted the provisions of SAB 108 as of December 31, 2006. The
adoption of SAB 108 did not have an effect on our results of financial
operations or financial position.


FORWARD LOOKING STATEMENTS

Statements in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, as well as in certain other parts of this Annual
Report on Form 10-K (as well as information included in oral statements or other
written statements made or to be made by the Company) that look forward in time,
are forward looking statements made pursuant to the safe harbor provisions of
the Private Litigation Reform Act of 1995. Forward looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance, expectations, predictions, and assumptions and other statements
which are other than statements of historical facts. Although the Company
believes such forward-looking statements are reasonable, it can give no
assurance that any forward-looking statements will prove to be correct. Such
forward-looking statements are subject to, and are qualified by, known and
unknown risks, uncertainties and other factors that could cause actual results,
performance or achievements to differ materially from those expressed or implied
by those statements. These risks, uncertainties and other factors include, but
are not limited to the Company's ability to estimate the impact of competition
and of industry consolidation and risks, uncertainties and other factors set
forth in the Company's filings with the Securities and Exchange Commission,
including without limitation this Annual Report on Form 10-K.


<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

LSR is subject to market risks arising from changes in interest rates and
foreign currency exchange rates.

The Company has debt denominated in US dollars, whereas the Company's functional
currency is the UK pound sterling, which results in the Company recording other
income/loss associated with US dollars debt as a function of relative changes in
foreign exchange rates. The Company is unable to predict whether it will
experience future gains or future losses from such exchange-related risks on the
debt. To manage the volatility relating to these exposures, from time to time,
the Company might enter into certain derivative transactions. The Company holds
and issues derivative financial instruments for economic hedging purposes only.
There were no derivative financial instruments in place at December 31, 2006.

LIBOR

For the year ended December 31, 2006, a 1% change in LIBOR would have resulted
in a fluctuation in interest expense of $699,000.

Revenue

For the year ended December 31, 2006, approximately 72% of the Company's net
revenues were from outside the US.


See Management's  Discussion and Analysis of Financial  Condition and Results of
Operations.



<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                Page

Managements' Report on Consolidated Financial Statements
and Internal Control                                                       41

Internal Control Report of Auditors                                        42

Independent Auditors' Report - December 31, 2006 and 2005                  43

Consolidated Statements of Operations-
Years ended December 31, 2006, 2005 and 2004                               44

Consolidated Balance Sheets - December 31, 2006 and 2005                   45

Consolidated Statements of Shareholders' (Deficit)/Equity and
Comprehensive Income/(Loss) - Years ended December 31, 2006,
2005 and 2004                                                              47

Consolidated Statements of Cash Flows - Years ended December 31, 2006,
2005 and 2004                                                              49

Notes to Consolidated Financial Statements                                 50


<PAGE>


Managements' Report on Consolidated Financial Statements and Internal Control

The management of Life Sciences Research, Inc. (the "Company") has prepared, and
is responsible for, the Company's  consolidated financial statements and related
footnotes.  These  consolidated  financial  statements  have  been  prepared  in
conformity with U.S. generally accepted accounting principles.

The Company's management is responsible for establishing and maintaining
effective internal control over financial reporting and for assessing the
effectiveness of internal control over financial reporting. The purpose of this
system of internal accounting controls over financial reporting is to provide
reasonable assurance that assets are safeguarded, that transactions are executed
in accordance with management's authorization and are properly recorded, and
that accounting records may be relied upon for the preparation of accurate and
complete consolidated financial statements. The design, monitoring and revision
of internal accounting control systems involve, among other things, management's
judgment with respect to the relative cost and expected benefits of specific
control measures. The Company also maintains an internal audit function that
evaluates and reports on the adequacy and effectiveness of internal controls,
policies and procedures.

The Company's management concluded that its internal control over financial
reporting as of December 31, 2006 was effective and adequate to accomplish the
objectives described above. Management's assessment was based upon the criteria
in Internal Control -- Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's consolidated
financial statements and the effectiveness of control over financial reporting
have been audited by an independent registered public accounting firm, Hugh
Scott, P.C., as stated in their reports which are included elsewhere herein.



/ s /    Andrew Baker
Chairman and Chief Executive Officer - Principal Executive Officer


/ S /    Richard Michaelson
Chief Financial Officer   - Principal Financial and Accounting Officer


East Millstone, New Jersey

March 12, 2007


<PAGE>


Report of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting

The Board of Directors and Shareholders of Life Sciences Research, Inc.

We have audited management's assessment, included in Managements' Report on
Consolidated Financial Statements and Internal Control, that Life Sciences
Research, Inc. maintained effective internal control over financial reporting as
of December 31, 2006, based on criteria established in Internal Control --
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Life Sciences Research, Inc.'s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the company's
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, management's assessment that Life Sciences Research, Inc.
maintained effective internal control over financial reporting as of December
31, 2006, is fairly stated, in all material respects, based on the COSO
criteria. Also, in our opinion, Life Sciences Research, Inc. maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Life Sciences Research, Inc. as of December 31, 2006 and 2005, and the related
consolidated statements of operations, shareholders equity (deficit) and
comprehensive income (loss), and cash flows for each of the three years in the
period ended December 31, 2006 and our report dated March 12, 2007 expressed an
unqualified opinion thereon.


/s/ Hugh Scott, P.C.

Lakewood, New Jersey
March 12, 2007


<PAGE>


Report of Independent Registered Public Accounting Firm on financial statements

The Board of Directors and Shareholders of Life Sciences Research, Inc.

We have audited the accompanying consolidated balance sheets of Life Sciences
Research, Inc. and subsidiaries ("the Company") as of December 31, 2006 and
2005, and the related consolidated statements of operations, shareholders equity
(deficit) and comprehensive income (loss), and cash flows for each of the three
years in the period ended December 31, 2006. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Life
Sciences Research, Inc. and subsidiaries at December 31, 2006 and 2005, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2006, in conformity with U.S. generally
accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of December 31, 2006, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated March 12, 2007 expressed an unqualified opinion thereon.




/s/ Hugh Scott, P.C.

Lakewood, New Jersey
March 12, 2007


<PAGE>
<TABLE>

Life Sciences Research Inc. and Subsidiaries
Consolidated Statements of Operations
Dollars in (000's), except per share amounts
<CAPTION>

                                                                            Year Ended December 31,
                                                                  2006                  2005                2004
<S>                                                          <C>                   <C>                 <C>
Revenues                                                      $192,217              $172,013            $157,551
Cost of sales                                                (142,701)             (124,820)           (117,061)
                                                    -------------------     -----------------     ---------------
Gross profit                                                    49,516                47,193              40,490
Selling, general and administrative expenses                  (29,447)              (26,174)            (24,666)
Other operating expense                                       (10,497)                     -                   -
                                                    -------------------     -----------------     ---------------
Operating income                                                 9,572                21,019              15,824
Interest income                                                  1,511                    79                 114
Interest expense                                              (14,078)               (8,072)             (6,635)
Other net income/(expense)                                       1,923               (7,406)               2,890
                                                    -------------------     -----------------     ---------------
(Loss)/income before income taxes                              (1,072)                 5,620              12,193
Income tax benefit/(expense)                                     6,856               (4,129)               5,401
                                                    -------------------     -----------------     ---------------
Income before loss on deconsolidation of variable                5,784                 1,491              17,594
interest entity
Loss on deconsolidation of variable interest
entity (net of income tax benefit of $22,218)                 (20,656)                     -                   -
                                                    -------------------     -----------------     ---------------
Net (loss)/income                                            $(14,872)                $1,491             $17,594
                                                    -------------------     -----------------     ---------------

Basic income/(loss) per share
Income before loss on deconsolidation of variable
interest entity                                                  $0.46                 $0.12               $1.45
Loss on deconsolidation of variable interest entity             (1.64)                     -                   -
                                                    -------------------     -----------------     ---------------
Basic income/(loss) per share                                  $(1.18)                 $0.12               $1.45
                                                    -------------------     -----------------     ---------------

Diluted income/(loss) per share
Income before loss on deconsolidation of variable
interest entity                                                  $0.40                 $0.10               $1.29
Loss on deconsolidation of variable interest entity             (1.42)                     -                   -
                                                    -------------------     -----------------     ---------------
Diluted income/(loss) per share                                $(1.02)                 $0.10               $1.29
                                                    -------------------     -----------------     ---------------

Weighted average number of common stock outstanding
 -basic                                                     12,643,590            12,517,636          12,153,105
 -diluted                                                   14,516,625            14,533,377          13,607,308

<FN>

The accompanying notes are an integral part of these consolidated financial
statements.

</FN>
</TABLE>

<PAGE>
<TABLE>

Life Sciences Research Inc. & Subsidiaries
Consolidated Balance Sheets
Dollars in (000's), except per share amounts
<CAPTION>

                                                                                              December 31,
ASSETS                                                                                    2006             2005
<S>                                                                                   <C>              <C>
Current assets:
Cash and cash equivalents                                                              $44,088          $15,420
Accounts receivable, net of allowance of $691 and
$618 in 2006 and 2005, respectively                                                     38,677           26,810
Unbilled receivables                                                                    17,459           11,981
Inventories                                                                              1,962            1,992
Prepaid expenses and other current assets                                               10,339            7,062
                                                                                  -------------   --------------
                                                                                  -------------   --------------
Total current assets                                                                  $112,525          $63,265
                                                                                  -------------   --------------
                                                                                  -------------   --------------
Property and equipment, net                                                             63,630          105,605
Goodwill                                                                                 1,520            1,195
Other assets                                                                            10,341              971
Deferred income taxes                                                                   42,563           13,333
                                                                                  -------------   --------------
                                                                                  -------------   --------------
Total assets                                                                          $230,579         $184,369
                                                                                  -------------   --------------
                                                                                  -------------   --------------
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current liabilities:
Accounts payable                                                                       $16,973          $15,742
Accrued payroll and other benefits                                                       9,743            3,655
Accrued expenses and other liabilities                                                  17,721           15,862
Short-term debt                                                                            889           46,946
Fees invoiced in advance                                                                44,435           32,920
                                                                                  -------------   --------------
                                                                                  -------------   --------------
Total current liabilities                                                              $89,761         $115,125
                                                                                  -------------   --------------
                                                                                  -------------   --------------
Long-term debt                                                                          89,151           30,430
Deferred gain on disposal of US property                                                 9,107                -
Pension liabilities, less short-term portion                                            47,652           53,382
                                                                                  -------------   --------------
                                                                                  -------------   --------------
Total liabilities                                                                     $235,671         $198,937
                                                                                  -------------   --------------
                                                                                  -------------   --------------
Commitments and contingencies                                                                  -              -
Shareholders' equity/(deficit)
Preferred Stock, $0.01 par value.  Authorized: 5,000,000
Issued and outstanding: None                                                                   -              -
Non-Voting Common Stock, $0.01 par value.  Authorized: 5,000,000
Issued and outstanding: None                                                                   -              -
Voting Common Stock, $0.01 par value.  Authorized: 50,000,000
Issued and outstanding at December 31, 2006: 12,775,120
(December 31, 2005: 12,553,251)                                                              127            126
Paid in capital                                                                           95,762         75,848
Less: Promissory notes for issuance of common stocks                                           -          (205)
Accumulated other comprehensive loss                                                    (45,161)       (49,389)
Accumulated deficit                                                                     (55,820)       (40,948)
                                                                                  --------------- --------------
                                                                                  --------------- --------------
Total shareholders' (deficit)                                                           $(5,092)      $(14,568)
                                                                                  --------------- --------------
                                                                                  --------------- --------------
Total liabilities and shareholders' equity/(deficit)                                    $230,579       $184,369
                                                                                  --------------- --------------

<FN>

The accompanying notes are an integral part of the consolidated financial
statements.

</FN>
</TABLE>


<PAGE>


<TABLE>

Life Sciences Research Inc. and Subsidiaries
Consolidated Statements of Shareholders' (Deficit)/Equity and
   Comprehensive Income/(Loss)
Dollars in (000's), except per share amounts
<CAPTION>

                                  Common    Common     Promissory     Additional   Accum-ulatedAccumulated       Total
                                  Stock      Stock     Notes for        Paid in      Deficit   Other
                                            at Par    Issuance of       Capital                Compre-hensive
                                                      Common Stock                             Loss
<S>                                <C>         <C>      <C>              <C>         <C>            <C>        <C>
Balance, December 31, 2003          12,035      $120     $(661)            $75,101   $(60,033)       $(22,973)  $(8,446)
Issue of shares                        406         5          -                570           -               -       575
Increase in value net of
Repayment of Promissory notes            -         -       (36)                  -           -               -      (36)
Comprehensive loss:
    Net income for the year              -         -          -                  -      17,594               -         -
    Minimum pension liability,
    net of $4,385 deferred tax
    - Deficiency on UK defined
    benefit pension plan                 -         -          -                  -           -        (10,233)         -

    Translation adjustments,
    net of $232 tax                      -         -          -                  -           -         (1,518)         -
    Total comprehensive income
                                         -         -          -                  -           -               -     5,843
                                -----------------------------------------------------------------------------------------
                                -----------------------------------------------------------------------------------------

Balance, December 31, 2004          12,441      $125     $(697)            $75,671   $(42,439)       $(34,724)  $(2,064)

Issue of shares                        112         1          -                177           -               -       178
Increase in value net of
repayment of Promissory notes
                                         -         -        492                  -           -               -       492
Comprehensive loss:
    Net income for the year              -         -          -                  -       1,491               -         -
    Minimum pension liability,
    net of $6,186 deferred tax
    - Deficiency on UK defined
    benefit pension plan                 -         -          -                  -           -        (14,435)         -

    Translation adjustments,
    net of $32 tax                       -         -          -                  -           -           (230)         -
    Total comprehensive income
                                         -         -          -                  -           -               -  (13,174)
                                -----------------------------------------------------------------------------------------
                                -----------------------------------------------------------------------------------------

Balance, December 31, 2005          12,533      $126     $(205)            $75,848   $(40,948)       $(49,389) $(14,568)


</TABLE>


(Continued)


<PAGE>
<TABLE>


Life Sciences Research Inc. and Subsidiaries
Consolidated Statements of Shareholders' (Deficit)/Equity and
   Comprehensive Income/(Loss)
Dollars in (000's), except per share amounts

<CAPTION>

                                  Common    Common     Promissory     Additional   Accum-ulatedAccumulated       Total
                                  Stock      Stock     Notes for        Paid in      Deficit   Other
                                            at Par    Issuance of       Capital                Compre-hensive
                                                      Common Stock                             Loss
<S>                                <C>         <C>              <C>       <C>       <C>             <C>       <C>
Balance, December 31, 2005          12,553      $126         $(205)        $75,848   $(40,948)       $(49,389) $(14,568)
Issue of shares                        191         1              -          1,764           -               -     1,765
Exercise of stock options               31         -              -             62           -               -        62
Share based compensation
expense                                  -         -              -         18,088           -               -    18,088
Increase in value net of
repayment of Promissory notes
                                         -         -            205              -           -               -       205
Comprehensive loss:
    Net loss for the year                -         -              -              -    (14,872)               -         -
    Minimum pension liability,
    net of $2,650 deferred tax
    - Deficiency on UK defined
    benefit pension plan
                                         -         -              -              -           -           6,183         -

    Translation adjustments,
    net of $205 tax                      -         -              -              -           -         (1,955)         -

    Total comprehensive loss             -         -              -              -           -               -  (10,644)
                                -----------------------------------------------------------------------------------------
                                -----------------------------------------------------------------------------------------

Balance, December 31, 2006          12,775      $127             $-        $95,762   $(55,820)       $(45,161)  $(5,092)
                                -----------------------------------------------------------------------------------------

<FN>


The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>


<PAGE>

<TABLE>

Life Sciences Research Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Dollars in (000's) except per share amounts
<CAPTION>

                                                                                     Year Ended December 31,
                                                                                    2006          2005          2004
Cash flows from operating activities:
<S>                                                                            <C>              <C>          <C>
Net income/(loss)                                                              $(14,872)        $1,491       $17,594
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization                                                      9,514         9,581         9,530
Amortization of gain on disposal of US property                                    (161)             -             -
Non-cash compensation expense associated with employee stock compensation
plans                                                                              2,441             -             -
Loss on deconsolidation of variable interest entity                               42,874             -             -
Foreign exchange loss/(gain) on Capital Bonds and New Financing                  (6,210)         5,145       (3,345)
Foreign exchange gain on intercompany balances                                     (692)         (518)             -
Deferred income tax expense/(benefit)                                           (29,074)         4,128       (5,512)
Provision for losses on accounts receivable                                           73           363         (302)
Amortization of Capital Bonds issue costs                                             70           184           179
Amortization of Financing Costs                                                    3,879         2,780             -
Amortization of warrants                                                          10,126           347           179
Changes in operating assets and liabilities:
Accounts receivable, unbilled receivables and prepaid expenses                   (3,540)      (11,475)       (8,974)
Inventories                                                                          301         (181)             -
Accounts payable, accrued expenses and other liabilities                           5,692         6,072         4,841
Fees invoiced in advance                                                           7,028         (859)        12,776
                                                                              -----------  ------------  ------------
                                                                              -----------  ------------  ------------
Net cash provided by operating activities                                        $27,449       $17,058       $26,966
                                                                              -----------  ------------  ------------
                                                                              -----------  ------------  ------------

Cash flows from investing activities:
Purchase of property, plant and equipment                                       (13,093)      (15,973)      (11,096)
Sale of property, plant and equipment                                                  6             -             -
                                                                              -----------  ------------  ------------
                                                                              -----------  ------------  ------------
Net cash used in investing activities                                          $(13,087)     $(15,973)     $(11,096)
                                                                              -----------  ------------  ------------
                                                                              -----------  ------------  ------------

Cash flows from financing activities:
Proceeds from issue of Voting Common Stock                                           648           670           539
Proceeds from long-term borrowings                                                70,000        30,000             -
Increase in deferred finance/other assets                                        (8,145)             -             -
Repayments of long-term borrowings                                                  (71)      (41,106)             -
Repayments of short term borrowings                                             (46,871)           500         (651)
                                                                              -----------  ------------  ------------
                                                                              -----------  ------------  ------------
Net cash used in financing activities                                            $15,561      $(9,936)        $(112)
                                                                              -----------  ------------  ------------
                                                                              -----------  ------------  ------------

Effect of exchange rate changes on cash and cash equivalents                     (1,255)       (9,070)           312
                                                                              -----------  ------------  ------------
                                                                              -----------  ------------  ------------
(Decrease)/increase in cash and cash equivalents                                  28,668      (17,921)        16,070
Cash and cash equivalents at beginning of year                                    15,420        33,341        17,271
                                                                              -----------  ------------  ------------
                                                                              -----------  ------------  ------------
Cash and cash equivalents at end of year                                         $44,088       $15,420       $33,341
                                                                              -----------  ------------  ------------
                                                                              -----------  ------------  ------------
Supplementary Disclosures:
Interest paid                                                                    $10,572        $7,913        $5,928
Taxes paid:  Japan                                                                   $39           $18          $139
              US                                                                    $103          $298          $195

Supplementary disclosures of non-cash financing activity:
Issuance of warrants to lender                                                    $5,281             -             -
Issuance of warrants to financial advisor                                         $3,278             -             -
<FN>


The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

1.            THE COMPANY AND ITS OPERATIONS

Life Sciences Research Inc. ("LSR") and subsidiaries (collectively, the
"Company") is a global contract research organization, offering worldwide
pre-clinical and non-clinical testing for biological safety evaluation research
services to pharmaceutical, biotechnology, agrochemical and industrial chemical
companies. The Company serves the rapidly evolving regulatory and commercial
requirements to perform safety evaluations on new pharmaceutical compounds and
chemical compounds contained within the products that humans use, eat, and are
otherwise exposed to. In addition, it tests the effect of such compounds on the
environment and also performs work on assessing the safety and efficacy of
veterinary products.

2.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies, is set out below:

Basis of Presentation and Principles of Consolidation

The consolidated financial statements incorporate the accounts of LSR and each
of its subsidiaries. All inter-company balances have been eliminated upon
consolidation.

On June 14, 2005, the Company entered into and consummated purchase and sale
agreements with Alconbury Estates Inc. and subsidiaries (collectively
"Alconbury") for the sale and leaseback of the Company's three operating
facilities in Huntingdon and Eye, England and East Millstone, New Jersey (the
"Sale/Leaseback Transaction"). Alconbury was newly formed in June 2005 and
controlled by LSR's Chairman and CEO, Andrew Baker. The total consideration paid
by Alconbury for the three properties was $40 million, consisting of $30 million
in cash and a five year, $10 million variable rate subordinated promissory note,
which Alconbury paid in full on June 30, 2006, together with accrued interest of
$0.6 million

In accordance with the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 46R (FIN 46R), the Company has reflected the consolidation of
Alconbury from June 14, 2005 through June 29, 2006, the period in which the
Company was considered the "primary beneficiary" of Alconbury's variable
interests. Effective June 30, 2006, the requirement under FIN46R to include
Alconbury in the Consolidated Financial Statements no longer applied and the
Company has therefore reflected the "deconsolidation" of this entity in the
financial statements. This deconsolidation required the Company to record the
gain and loss associated with the sale of the properties, and recognize the
associated changes in depreciation, interest, and rent expenses. In 2006 the
Company recognized a non-cash loss of $48.9 million for the sale of the UK
properties, and recorded a deferred gain of $9.6 million for the US property,
which is being amortized over the term of the lease. Please refer to Note 3 for
additional detail of the impact of this deconsolidation.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with an original
maturity date of three months or less at the date of purchase.

Allowance for Uncollectible Accounts

The Company establishes an allowance for uncollectible accounts which it
believes is adequate to cover anticipated losses on the collection of all
outstanding trade receivable balances. The adequacy of the uncollectible account
allowance is based on historical information, a review of customer accounts and
related receivable balances, and management's assessment of current economic
conditions. The Company reassesses the allowance for uncollectible accounts
annually.

Inventories

Inventories are valued on a FIFO (first-in, first out) method at the lower of
cost, or market value. They comprise materials and supplies.

Property, Plant and Equipment

Property, plant and equipment, stated at cost, is depreciated over the estimated
useful lives of the assets on a straight-line basis. Estimated useful lives are
as follows:

         Leasehold land and buildings      over the remaining lease term
         Leasehold improvements            15 years - the remaining lease term
         Plant and equipment               4 - 25 years
         Vehicles                          5 years
         Computers and software            3 - 5 years

Repair and maintenance expenses on these assets arising from the normal course
of business are expensed in the period incurred.

Concentration of Credit Risk

The Company maintains cash and cash equivalents in US financial institutions,
which, at times, may exceed federally insured limits. Based on the nature of the
financial instruments and/or historical realization of these instruments, the
Company believes they bear minimal risk.

Income Taxes

The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting For Income Taxes" ("SFAS 109"). SFAS 109 requires recognition of
deferred tax assets and liabilities for the estimated future tax consequences of
events attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted rates in effect for the year in which the
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of changes in tax rates is recognized in the statement of
operations in the period in which the enactment rate changes. Deferred tax
assets and liabilities are reduced through the establishment of a valuation
allowance at such time as, based on available evidence, it is more likely than
not that the deferred tax assets will not be realized.

Revenue Recognition

The majority of the Company's net revenues have been earned under contracts,
which generally range in duration from a few months to three years. Revenue from
these contracts is recognized over the term of the contracts as services are
rendered. Contracts may contain provisions for renegotiation in the event of
cost overruns due to changes in the level of work scope. Renegotiated amounts
are included in net revenue when earned and realization is assured. Provisions
for losses to be incurred on contracts are recognized in full in the period in
which it is determined that a loss will result from performance of the
contractual arrangement. Most service contracts may be terminated for a variety
of reasons by the Company's customers either immediately or upon notice at a
future date. The contracts generally require payments to the Company to recover
costs incurred, including costs to wind down the study, and payment of fees
earned to date, and in some cases to provide the Company with a portion of the
fees or profits that would have been earned under the contract had the contract
not been terminated early. In general, amounts become billable upon the
achievement of certain aspects of the contract or in accordance with
predetermined payment schedules. Unbilled receivables are billable to customers
within one year from the respective balance sheet date. Fees in advance are
recorded for amounts billed to customers for which revenue has not been
recognized at the balance sheet date (such as upfront payments upon contract
authorization, but prior to the actual commencement of the study).

Foreign Currencies

Transactions in currencies other than the functional currency of the entity are
recorded at the rates of exchange at the date of the transaction. Monetary
assets and liabilities in currencies other than the functional currency are
translated at the rates of exchange at the balance sheet date and the related
transaction gains and losses are reported in the statements of operations.
Exchange gains and losses on foreign currency transactions are recorded as other
income or expense. Certain intercompany loans are determined to be of a
long-term investment nature. The Company records gains and losses from
re-measuring such loans as a component of other comprehensive income.

Upon consolidation, the results of operations of subsidiaries and associates
whose functional currency is other than the US dollar are translated into US
dollars at the average exchange rate and assets and liabilities are translated
at year-end exchange rates and capital accounts are translated at historical
exchange rates, and retained earnings are translated at the weighted average of
historical rates. Translation adjustments are presented as a separate component
of other accumulated comprehensive loss in the financial statements.

Goodwill and Other Intangible Assets

Effective 2003, the Company adopted SFAS No. 142, "Goodwill and Other Intangible
Assets," which establishes financial accounting and reporting standards for
acquired goodwill and other intangible assets (Note 5). In accordance with SFAS
No. 142, goodwill and indefinite-lived intangible assets are no longer amortized
but are reviewed at least annually for impairment. Separate intangible assets
that have finite useful lives continue to be amortized over their estimated
useful lives.

SFAS No. 142 requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential impairment. The
second step of the impairment test measures the amount of the impairment loss.
The Company, after completing the first step of the process, concluded there was
no impairment of goodwill at December 31, 2006 or 2005.

Impairment of Long-Lived Assets

The Company adopted the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets". The Company evaluates long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An impairment loss would be
recognized when estimated undiscounted future cash flows expected to result from
the use of the asset and its eventual disposal are less than its carrying
amount. In such instances, the carrying value of long-lived assets is reduced to
the estimated fair value, as determined using an appraisal or discounted cash
flows, as appropriate.

Restructuring Costs

The Company recognizes obligations associated with restructuring activities in
accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities." The Company adopted the provisions of SFAS No. 146 as of
the beginning of fiscal 2003, which generally requires a liability for costs
associated with an exit or disposal activity be recognized and measured
initially at its fair value in the period in which the liability is incurred.
The overall purpose of the Company's restructuring actions is to lower overall
operating costs and improve profitability by reducing excess capacities.
Restructuring costs are typically recorded in other operating expenses in the
period in which the plan is approved by the Company's senior management and,
where material, the Company's Board of Directors, and when the liability is
incurred.

Leased Assets

Assets held under the terms of capital leases are included in property and
equipment and are depreciated on a straight-line basis over the lesser of the
useful life of the asset or the term of the lease. Obligations for future lease
payments, less attributable finance charges are shown within liabilities and are
analyzed between amounts falling due within and after one year. Operating lease
rentals are expensed.

Pension Costs

During the year the Company had two defined contribution plans. One of the
defined contribution pension plans covers all employees in the US; the other,
employees in the UK. Prior to December 31, 2002, a defined benefit pension plan
provided benefits to employees in the UK based on their final pensionable
salary. As of December 31, 2002, the defined benefit pension plan was curtailed.
The gain on curtailment was recognized in the Statement of Operations according
to SFAS No. 88, "Employees' Accounting for Settlements and Curtailments of
Deferred Benefit Pension Plan and for Termination Benefits". The pension cost of
the plan is accounted for in accordance with SFAS No. 87, "Employers' Accounting
for Pensions". Pension information is presented in accordance with the currently
required provisions of SFAS No. 132, "Employers' Disclosures about Pensions and
Other Post Retirement Benefits" and FAS158, "Employers' Accounting for Defined
Benefit Pension and Other Post Retirement Plans". The net asset at transition,
prior service cost and net (loss)/gain subject to amortization, outside the
corridor, are being amortized on a straight-line basis over periods of 15 years,
10 years and 10 years respectively. The Company recognized all actuarial gains
and losses immediately for the purposes of its minimum pension liability.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the dates of the financial
statements and the results of operations during the reporting periods. Although
these estimates are based upon management's best knowledge of current events and
actions, actual results could differ from those estimates.

Income Per Share

Income per share is computed in accordance with SFAS No. 128, "Earnings Per
Share". Basic income per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
during the year. The computation of diluted income per share is similar to the
computation of basic income per share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued. Diluted
income per share reflects the potential dilution that could occur if dilutive
securities and other contracts to issue common stock were exercised or converted
into common shares or resulted in the issuance of common shares that then shared
in the income of the Company.

Segment Analysis

In accordance with the Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS
131), the Company discloses financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available and regularly
evaluated by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.

Loans and Warrants

In accordance with Accounting Principles Board ("APB") Opinion No. 14
"Accounting for Convertible Debt and Debt issued with Share Purchase Warrants",
loans and warrants are recorded at their pro-rata fair values in relation to the
proceeds received with the portion allowable to the warrants accounted for as
paid-in-capital. The costs of raising long-term financing are capitalized as an
asset and are amortized, using the effective interest method, over the term of
the debt.

Stock-Based Compensation

Effective  January 1, 2006, the Company adopted Financial  Accounting  Standards
(FAS) No. 123R,  "Share-Based  Payment,"  utilizing the  "modified  prospective"
method as described in FAS No. 123R.  FAS No. 123R is a revision of FAS No. 123,
"Accounting for Stock Based Compensation".

In the "modified prospective" method, compensation cost is recognized for all
stock option and stock-based arrangements granted after the effective date and
for all unvested awards granted prior to the effective date. In accordance with
FAS No. 123R, prior period amounts were not restated. FAS No. 123R also requires
the tax benefits associated with these share-based payments to be classified as
financing activities in the Consolidated Statements of Cash Flows, rather than
as operating cash flows as required under previous regulations.

At December 31, 2006, the Company had two stock-based compensation plans with
total unvested stock-based compensation expense of $4.2 million and a total
weighted average remaining term of 8.90 years. Total stock-based compensation
expense, recognized in Cost of Sales and Selling, General and Administrative
expenses, aggregated $0.7 million for the year ended December 31, 2006. The
Company has not recorded any tax benefit relating to this expense as the
majority of the compensation will be paid to employees that are located outside
of the United States and the deduction is disallowed in that taxing
jurisdiction. Accordingly, no tax benefit will be realized by the Company.

The recognition of total stock-based compensation expense impacted Basic Net
Income Per Common Share and Diluted Net Income Per Common Share by $0.05 and
$0.05, respectively, during the year ended December 31, 2006.

Prior to the effective date, the stock-based compensation plans were accounted
for under Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Pro-forma information
regarding the impact of total stock-based compensation on net income and income
per share for prior periods is required by FAS No. 123R.

Such pro-forma information, determined as if the Company had accounted for its
employee stock options under the fair value method during the years ended
December 31, 2004 and 2005, is illustrated in the following table:
<PAGE>

<TABLE>
<CAPTION>

                                                                 Year ended               Year ended
                                                              December 31, 2005       December 31, 2004
                                                          ----------------------- ---------------------------
                                                                    $000                     $000
<S>                                        <C>                 <C>                     <C>
Net income                                  As reported            $1,491                 $17,594
Less: Pro forma expense as if stock
options were charged against
net income, net of tax                                               (320)                   (195)
                                                          ----------------------- ---------------------------
                                            Pro forma              $1,172                 $17,399
Basic and Diluted EPS:                      As Reported        $0.12 and $0.10         $1.45 and $1.29

                                            Pro forma          $0.09 and $0.08         $1.43 and $1.28
</TABLE>


The per share weighted average exercise price of the stock options granted
during 2006, 2005 and 2004 was $9.90, $11.15 and $3.54 respectively. The fair
values of the Company's employee stock options were estimated at the date of
grant of each issuance using a Black-Scholes option-pricing model, with the
following weighted average assumptions for all options expensed/proforma
calculated during the years ended December 31, 2006, 2005 and 2004:

<TABLE>
<CAPTION>

                                                FAS No. 123R         FAS No. 123          FAS No. 123
                                                     Expense           Pro Forma            Pro Forma
                                                        2006                2005                 2004
<S>                                           <C>                 <C>                  <C>
Expected dividend yield of stock                          0%                  0%                   0%
Expected volatility of stock, range           49.4% - 146.4%       47.1% - 55.9%        47.1% - 49.4%
Risk-free interest rate, range                 3.71% - 4.98%       3.90% - 4.71%        4.09% - 4.71%

Expected term of options                        5 - 10 years            10 years             10 years

</TABLE>



<PAGE>


Recently Issued Accounting Standards

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) an
interpretation of FASB Statement No. 109, Accounting for Income Taxes, which
clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. The Interpretation requires that the Company recognize in the
financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position. FIN 48 also provides guidance on de-recognition of a previously
recognized tax position, classification, interest and penalties, accounting in
interim periods and disclosures. The provisions of FIN 48 are effective
beginning January 1, 2007 with the cumulative effect of the change in accounting
principle recorded as an adjustment to the opening balance of retained earnings.
The Company will adopt FIN48 on January 1, 2007 and does not believe its
adoption will result in a material cumulative effect adjustment.

In September 2006, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132(R), ("SFAS 158"). SFAS 158 requires an
employer to recognize the over-funded or under-funded status of a defined
benefit postretirement plan -- measured as the difference between the fair value
of plan assets and the projected benefit obligation -- as an asset or liability,
respectively, in its balance sheet and to recognize changes in the funded status
of the plan in the year in which such changes occur through other comprehensive
income. The financial statement recognition and disclosure provisions of SFAS
158 are effective for fiscal years ending after December 15, 2006, which will
result in The Company recording the over-funded or under-funded status of its
plans as a liability or asset, respectively, with a corresponding decrease or
increase, net of tax, in the accumulated other comprehensive income equity
account on its balance sheet at December 31, 2006 and recognizing future changes
in the funded status of its plans in other comprehensive income beginning with
the year ending December 31, 2007. SFAS 158 also requires, effective for fiscal
years ending after December 15, 2008, that the measurement of the over-funded or
under-funded status of the plan be made as of the employer's fiscal year end and
not as of an earlier measurement date. SFAS 158 has not had an impact on the
Company's consolidated results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, ("SFAS
157"). SFAS 157, which applies whenever other standards require (or permit) fair
value measurement, defines fair value and provides guidance for using fair value
to measure assets and liabilities. SFAS 157 also requires expanded disclosures
about the extent to which companies measure assets and liabilities at fair
value, the information used in those measurements and the effect of fair value
measurements on earnings. The Company will be required to adopt SFAS 157, which
is effective for fiscal years beginning after November 15, 2007, no later than
the quarter beginning January 1, 2008. The Company is currently in the process
of evaluating SFAS 157, and has not yet determined the impact if any, SFAS 157
will have on its consolidated results of operations or financial position.

In September 2006, the SEC ("SEC") issued SAB No. 108 "Considering the Effects
of Prior Year Misstatements When Quantifying Misstatements in Current Year
Financial Statements", which provides interpretive guidance on how registrants
should quantify financial statement misstatements. Under SAB 108 registrants are
required to consider both a "rollover" method, which focuses primarily on the
income statement impact of misstatements, and the "iron curtain" method, which
focuses primarily on the balance sheet impact of misstatements. The effects of
prior year uncorrected errors include the potential accumulation of improper
amounts that may result in a material misstatement on the balance sheet or the
reversal of prior period errors in the current period that result in a material
misstatement of the current period income statement amounts. Adjustments to
current or prior period financial statements would be required in the event that
after application of various approaches for assessing materiality of a
misstatement in current period financial statements and consideration of all
relevant quantitative and qualitative factors, a misstatement is determined to
be material. We adopted the provisions of SAB 108 as of December 31, 2006. The
adoption of SAB 108 did not have an effect on our results of financial
operations or financial position.

3.   LOSS ON DECONSOLIDATION OF VARIABLE INTEREST ENTITY

As described in Note 2, and in compliance with FIN 46R, the Company has included
Alconbury in its Condensed Consolidated Financial Statements for the period of
June 14, 2005 through June 29, 2006. Effective June 30, 2006, the Company
determined that it was no longer the Primary Beneficiary of Alconbury, and
therefore, was no longer required to include Alconbury in its consolidations
from June 30, 2006 forward. In addition to excluding Alconbury from its
consolidations, the Company was required to effectively remove or
"deconsolidate" the June 14, 2005 through June 29, 2006 activity of Alconbury on
June 30, 2006. This deconsolidation of activity is referred to as the "Loss on
deconsolidation of variable interest entity" in these Consolidated Financial
Statements.

The "Loss on deconsolidation of variable interest entity" is presented in both
the Consolidated Statement of Operations and Consolidated Statement of Cash
Flows at December 31, 2006 and is comprised of the following components:
<TABLE>
<CAPTION>

Reversal of Alconbury activity:
(Dollars in thousands)
<S>                                                                            <C>
Income:
Rental income                                                                   $(5,128)
Discount on intercompany note                                                    (2,376)
Interest income                                                                     (23)
                                                                             ------------
                                                                                 (7,527)
                                                                             ------------
Expense:
Interest expense on third party loan                                               4,806
Interest expense on intercompany loan                                                628
Interest expense - amortization of discount on intercompany note                     360
Amortization of loan closing costs                                                 4,624
General and administrative expenses (bank charges fees etc.)                         134
                                                                             ------------
                                                                                  10,552
                                                                             ------------
Net reversal of Alconbury activity                                                $3,025
                                                                             ------------

Impact on remaining Consolidated Statement of Operations (Previously
eliminated in consolidation):
(Dollars in thousands)

Income:
Amortization of gain on sale of assets to Alconbury (US)                            $336
Reversal of depreciation recorded on assets sold to Alconbury                      3,418
                                                                             ------------
                                                                                   3,754
                                                                             ------------
Expense:
Loss on sale of assets to Alconbury (UK)                                        (48,869)
Depreciation on capitalized assets                                                 (784)
                                                                             ------------
                                                                                (49,653)
                                                                             ------------
Net impact on remaining Consolidated Statement of Operations                   $(45,899)
                                                                             ------------

Loss on deconsolidation of variable interest entity - before income taxes       (42,874)

Income tax benefit (deferred tax on sale of assets to Alconbury (UK))             22,218
                                                                             ------------
Loss on deconsolidation of variable interest entity                            $(20,656)
                                                                             ============
</TABLE>


<PAGE>

Effect on Consolidated Balance Sheet:

The balance sheet impact of the deconsolidation and related sale leaseback
transaction on the following categories have been included in the closing
balances of:
<TABLE>
<CAPTION>


                                                                              $000s
                                                                            -----------
<S>                                                                           <C>
Rents paid to landlord                                                         (6,298)
Alconbury loan interest payments                                                 4,039
Alconbury management fees expenses                                                 846
Alconbury interest received                                                       (23)
                                                                            -----------
Cash and cash equivalents decrease                                             (1,436)
                                                                            -----------

Loan note and interest receivable from Alconbury                                10,628
Lease rental prepayment                                                          1,056
Alconbury Financing cost debtor gross                                            4,624
Write down of Alconbury cost debtor balance less interest to date              (1,968)
Alconbury prepayments                                                            (713)
                                                                            -----------
Prepaid expenses and other current assets increase                              13,627
                                                                            -----------

Disposal of buildings                                                         (80,515)
Addition of leased buildings                                                    22,750
Accumulative depreciation of disposed buildings                                  3,517
Accumulative depreciation of leased buildings                                    (792)
                                                                            -----------
Property and equipment net decrease                                           (55,040)
                                                                            -----------

Alconbury loan interest accrual                                                    767
                                                                            -----------
Accrued expenses and other liabilities decrease                                    767
                                                                            -----------

Capital lease liability on leased buildings                                   (22,750)
Deferred gain on US asset sale less amortization                               (9,267)
Alconbury Loan Finance                                                          30,000
                                                                            -----------
Long-term debt increase                                                        (2,017)
                                                                            -----------

Cumulative translation adjustment                                                1,225
                                                                            -----------
Accumulated comprehensive loss increase                                          1,225
                                                                            -----------

Loss on deconsolidation of variable interest entity                             42,874
                                                                            -----------
Accumulative deficit increase                                                  $42,874
                                                                            -----------
</TABLE>

Cash and Cash Equivalents

The decrease in cash of $1.4 million results from the inclusion of the rents
paid by LSR to Alconbury of $6.3 million and the elimination of bank interest
received by Alconbury. This decrease was offset by Alconbury third party loan
interest of $4.0 million and miscellaneous management fees paid by Alconbury of
$0.9 million.

Prepaid Expenses and Other Current Assets

The increase in prepaid expenses and other current assets of $13.6 million was
caused by the inclusion of the loan note with accrued interest due from
Alconbury of $10.6 million along with the debt due to the Company related to
Alconbury's financing costs of $4.6 million paid by LSR on their behalf. The
lease rental prepayment to Alconbury by the Company of $1.1 million was also
recognized on the deconsolidation. These increases were offset by the discounted
write down of the interest-free advance to Alconbury for the financing costs in
accordance with APB21, reduced by the implied interest received to date on the
balance, amounting to $2.0 million. An additional offset of $0.7 million
occurred with the deconsolidation of Alconbury's own prepayments.

Property and Equipment

The $55.0 million decrease in fixed assets arose from the disposal of the land
and buildings of $80.5 million offset by the addition of the capitalized leased
assets of $22.8 million following the sale and leaseback. This was offset by the
additional depreciation on the disposed assets recognized under FIN46R of $3.5
million less the depreciation of the capitalized leased assets of $0.8 million
which was excluded under FIN46R.

Accrued Expenses and Other Liabilities

The decrease in accrued expenses and other liabilities of $0.8 million was due
to the Alconbury third party loan interest accrual no longer being included in
the closing balance.

Long Term Debt

The increase in long-term debt of $2.0 million was due to the recognition of the
new sale and leaseback capital lease liability of $22.8 million, the recognition
of the liability for the deferred gain arising from the disposal of the US
assets of $9.2 million, offset by the Alconbury third party debt of $30.0
million which was no longer included in the Company balance sheet.

Accumulated Comprehensive Loss

The increase in accumulated comprehensive loss of $1.2 million was due to the
elimination of the cumulative translation adjustments that arose during the
application of FIN46R, These cumulative translation adjustments required
elimination from the balance sheet when the loss on deconsolidation of the
variable interest entity was included in the accumulated deficit.

Accumulative Deficit

The increase in accumulative deficit of $42.9 million was caused by the
recognition of the loss on deconsolidation of variable interest entity arising
from the deconsolidation.

4.    PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of December 31 consisted of the following:
<TABLE>
<CAPTION>

                                                                      2006            2005
                                                                      $000            $000
Property, plant and equipment at cost:
<S>                                                               <C>           <C>
Building and facilities                                                 $-        $122,723
Leasehold buildings and improvements                                34,336               -
Plant, equipment, vehicles, computers and software                 121,269         108,108
Assets in the course of construction                                   319             316
                                                             -------------- ---------------
                                                                   155,924         231,147
Less: Accumulated depreciation                                    (92,294)       (125,542)
                                                             -------------- ---------------
Property and equipment, net                                        $63,630        $105,605
                                                             -------------- ---------------
</TABLE>

Depreciation expense aggregated $9,514,000, $9,581,000 and $9,530,000 for 2006,
2005 and 2004 respectively.

The net book value of assets held under capital leases (excluding property
leased from Alconbury) and included above is as follows:

                                                             Net book
                                   Cost       Depreciation     Value
                                   $000          $000          $000
At December 31, 2006              $2,684         $505         $2,179
At December 31, 2005              $1,995         $246         $1,749

The net book value of assets held under capital leases related to property
leased from Alconbury and included above is as follows:

                                                            Net book
                                  Cost       Depreciation     Value
                                  $000          $000          $000
At December 31, 2006             $23,201       $1,204        $21,997


Depreciation on these capital leases and included above, amounted to $1,017,000
(of which $683,000 related to Alconbury capital leases), $140,000, and $192,000
for the years ended at December 31, 2006, 2005 and 2004, respectively.


<PAGE>

5.            GOODWILL AND OTHER ASSETS

In June 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations", which eliminates the pooling of interests method
of accounting for business combinations and addresses the initial recognition
and measurement of goodwill and other intangible assets acquired in a business
combination. In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets", or SFAS No. 142. The
Company adopted SFAS No. 142 as of January 1, 2003. SFAS No. 142 addresses the
financial accounting and reporting standards for the acquisition of intangible
assets outside of a business combination, and for goodwill and other intangible
assets subsequent to their acquisition. This statement requires that goodwill be
separately disclosed from other intangible assets in the statement of financial
position, and no longer be amortized but tested for impairment on a periodic
basis.

On July 1, 2003, the remaining 50% of the shares in HLS KK, not previously owned
by Huntingdon, was purchased, resulting in HLS KK becoming a wholly owned
subsidiary of Huntingdon. The purchase price was payable over a three year
period, and was equal to the greater of (a) $1 million or (b) the commission
which would have been paid if the purchase had not happened. Payments during
that three year period were made at the rate which had been in effect for
commissions prior to the acquisition, and was payable semi-annually. At December
31, 2006 and 2005, goodwill on purchase was Japanese Yen 161,400,000 and
146,300,000 ($1,354,000 and $1,240,000 at year end rates) respectively.

Prior to this date, the shares owned by Huntingdon in HLS KK were held as an
investment, as the day to day control of HLS KK was not exercised by the
Company.

Other assets represent finance costs associated with the sale/leaseback
transaction of $1,174,000 and finance costs associated with the New Financing of
$5,642,000 ($11,043,000 at year end rate), net of amortization of $1,876,000.
These costs are being amortized over the period of the lease and the New
Financing, respectively.


<PAGE>


6.            INCOME TAXES

The components of income before taxes and the related benefit/(expense) for tax
for the years ended December 31 are as follows:
<TABLE>
<CAPTION>

Income/(loss) before taxes                                       2006             2005              2004
                                                                 $000             $000              $000
<S>                                                          <C>              <C>               <C>
United Kingdom                                                 16,173           10,823            13,761
United States                                                (15,285)              207           (1,669)
Japan                                                           (319)               96               101
British Virgin Islands                                        (1,641)          (5,506)                 -
                                                         -------------    -------------     -------------
                                                             $(1,072)           $5,620           $12,193
                                                         -------------    -------------     -------------

The benefit/(expense) for income taxes by location               2006              2005             2004
of the taxing jurisdiction for the years ended                   $000              $000             $000
December 31, consisted of the following:
Current Taxation:
-             State Taxes - US                                      -             (452)             (72)
-             Corporate Tax - US                                    -             (200)                -
-             Corporate Tax - Japan                                 -              (55)             (44)
Deferred taxation:
-             United Kingdom                                  (3,327)             (326)            4,864
-             Corporate Tax - US                                9,267           (3,123)              651
              State Tax - US                                      793                 -                -
-             Japan                                               123                27                -
                                                         -------------     -------------    -------------
                                                               $6,856          $(4,129)           $5,401
                                                         -------------     -------------    -------------
</TABLE>

Reconciliation between the US statutory rate and the effective rate is as
follows:

                                           % of income/(loss) before income
                                                       taxes
                                                  2006       2005        2004
                                                    %           %           %
US statutory rate                                (35)          35          35
Foreign rate differential                        (23)          24         (6)
UK R & D credit and non-deductible items        (468)        (45)        (36)
State taxes                                      (74)           8           1
Change in estimate                               (40)          51        (38)
                                          ------------  ----------  ----------
Effective tax rate                              (640)          73        (44)
                                          ------------  ----------  ----------

The 2006 effective tax percentages are exaggerated due to the low value of the
loss before income taxes.

The UK government introduced a new tax allowance, `Research and Development Tax
Credit (UK R & D credit), for large companies in 2002. This UK R & D credit
allows the UK companies to recover an additional 25% of their research and
development expenses in addition to the 100% normally allowed. Since its
introduction the Company has been able to claim a consistent proportion of its
UK operating costs. The 2006, 2005 and 2004 claims are part of the
non-deductible items above.

The main reason for the change in estimate in 2006 relates to the US leaseback
gain that arose from the sale of the US property as part of the Sale/Leaseback
Transaction. Under FIN46R the gain was originally recognized in 2005 and charged
to income taxes. This charge reversed in 2006 as the deferred gain was
recognized due to the deconsolidation of the variable interest entity. The gain
on the sale of the UK assets was offset against brought forward capital losses
in 2005. A revision to the treatment of the losses on the UK buildings sold as
part of the Sale/Leaseback Transaction in 2005 also caused a change in estimate
in 2006. The 2004 change in estimate was due to the introduction of the UK R & D
credit in 2002 and the subsequent acceptance of the 2002 and 2003 claims by the
UK tax authorities.

The losses before tax of the British Virgin Islands represents the Alconbury
balances which have been consolidated in accordance with the provisions of FASB
Interpretation No. 46R.

The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>

                                                                    2006            2005
                                                                    $000            $000

Non-current deferred tax assets:
<S>                                                             <C>             <C>
Net operating losses - US                                         $4,817          $2,285
Net operating losses - UK                                         22,346          18,376
Net operating losses - Japan                                         179              46
Deferred gain on Sale/Leaseback Transaction                        3,643               -
Unexercised warrant amortization                                   4,079               -
Net pension plan minimum liability adjustment - UK                14,295          16,001
Capital losses - UK                                               12,317          10,739
Valuation allowance - UK                                        (12,317)        (10,739)
                                                               ----------     -----------
Net non-current deferred tax assets                              $49,359         $36,708
                                                               ----------     -----------
Non-current deferred tax liabilities:
Property and equipment -  US                                        $966            $773
                       -  UK                                       5,830          22,602
                                                               ----------     -----------
Total                                                             $6,796         $23,375
                                                               ----------     -----------

Net non-current deferred tax assets                              $42,563         $13,333

</TABLE>

In  accordance  with SFAS No. 109, the Company nets all current and  non-current
assets and liabilities by tax jurisdiction.

The gross amount of net operating losses in the US is $11,962,000, of which
$754,000 expires in 2018, $523,000 expires in 2019, $1,087,000 expires in 2021,
$414,000 expires in 2022, $1,784,000 expires in 2024, $2,179,000 expires in
2025, and $5,221,000 expires in 2026. The gross amount of net operating losses
in the UK of $74,484,000 have no expiration date. The Company has not provided a
valuation allowance on the net operating loss carry forwards because it believes
that it is more likely than not that those amounts will be realized through
taxable income from future operations. A full valuation allowance has been
recorded for the total benefit of capital losses incurred in prior years, as the
Company does not anticipate that the benefit will be realized in the foreseeable
future through the recognition of capital gains.

The Company's historical policy has been to leave its unremitted foreign
earnings invested indefinitely outside the United States. The Company intends to
continue to leave its unremitted foreign earnings invested indefinitely outside
the United States. As a result, United States income taxes have not been
provided on any accumulated foreign unremitted earnings as of December 31, 2006.

7.  LONG-TERM DEBT AND RELATED PARTY LOANS

                                                      2006                2005
                                                      $000                $000
New Financing                                      $69,936                  $-
Alconbury loan with third party                          -              30,000
Warrants                                           (4,693)               (389)
Capital leases, net of current                         707                 819
portion
Alconbury leases                                    23,201                   -
                                          -----------------     ---------------
                                                   $89,151             $30,430
                                          -----------------     ---------------

<TABLE>
<CAPTION>

Repayment Schedule                     Total          2008          2009         2010         2011      Thereafter
                                       $000           $000          $000         $000         $000         $000
<S>                                   <C>          <C>           <C>           <C>        <C>          <C>
New Financing                          69,936            -             -             -      69,936           -
Warrants                               (4,693)      (2,231)       (1,115)       (1,115)       (232)          -
Capital leases                            707          620            87             -           -           -
Alconbury leases                       23,201            -             -             -           -      23,201
                                   -------------- ------------- ------------- ----------- ----------- ---------------
                                      $89,151      $(1,611)      $(1,028)      $(1,115)    $69,704     $23,201
                                   -------------- ------------- ------------- ----------- ----------- ---------------
</TABLE>

Bank Loans and Non-Bank Loans

On January 20, 2001, the Company's non-bank loan of (pound)22.6 million ($43.4
million approximately based on exchange rates at the time), was refinanced by
Stephens Group Inc. and other parties. The loan was transferred from Stephens
Group Inc. to an unrelated third party effective February 11, 2002. It was
repayable on June 30, 2006 and interest was payable quarterly at LIBOR plus
1.75%. At the same time the Company was required to take all reasonable steps to
sell off such of its real estate assets through sale/leaseback transactions
and/or obtaining mortgage financing secured by the Company's real estate assets
to discharge this loan. The loan was held by LSR Ltd and was secured by the
guarantees of the wholly owned subsidiaries of the Company including LSR Ltd.,
Huntingdon Life Sciences Ltd and Huntingdon Life Sciences Inc., and
collateralized by all the assets of these companies. On June 14, 2005 this non
bank loan was fully repaid using the proceeds from the Sale/Leaseback
Transaction and cash on hand.

On October 9, 2001, on behalf of Huntingdon, LSR issued to Stephens Group Inc.
warrants to purchase up to 704,425 shares of LSR Voting Common Stock at a
purchase price of $1.50 per share. These warrants were subsequently transferred
to an unrelated third party. The LSR warrants are exercisable at any time and
will expire on October 9, 2011. These warrants arose out of negotiations
regarding the refinancing of the bank loan by the Stephens Group Inc., in
January 2001. In accordance with APB Opinion No. 14, Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants ("APB 14") the warrants were
recorded at their pro rata fair values in relation to the proceeds received on
the date of issuance and treated as a debt discount. The value of the warrants
was $430,000. 154,425 of such warrants were exercised in 2004. No additional
exercises were made to date.

On June 14, 2005, the Company entered into and consummated the Sale/Leaseback
Transaction with Alconbury. Alconbury was newly formed in June 2005 and
controlled by LSR's Chairman and CEO, Andrew Baker. The total consideration paid
by Alconbury for the three properties was $40 million, consisting of $30 million
cash and a five year, $10 million variable rate subordinated promissory note,
which Alconbury paid in full on June 30, 2006, together with accrued interest of
$0.6 million. The Company agreed to pay the expenses incurred by Alconbury in
the Sale/Leaseback Transaction of $4.6 million, subject to Alconbury's
obligation to reimburse those expenses in the future. Such reimbursement shall
be made in equal installments in each year of the five-year period beginning on
June 14, 2008, the third anniversary of the closing date of the Sale/Leaseback
Transaction. Interest has been imputed on this loan at 15% and a discount
(expense) of $2.4 million was recorded by the Company on June 14, 2005. This
$2.4 million is being ratably recorded as interest income over the seven year
term of the loan.

As part of the Sale/Leaseback Transaction, the Company (through subsidiaries)
entered into thirty-year leases with Alconbury for each facility, with two
five-year renewal options. The initial base aggregate annual rent for the
facilities was $4.9 million (approximately $1.8 million in the US and
approximately $3.1 million in the UK) which increases by 3% each subsequent year
for the UK facilities and by an amount equal to the annual US consumer price
index for the US facility. Under the terms of the leases, no security deposit
was initially required, but a three-month security deposit was paid at the time
that Alconbury refinanced its financing arrangements. Additionally, because the
leases are "triple net" leases, LSR also pays for all of the costs associated
with the operation of the facilities, including costs such as insurance, taxes
and maintenance.

Since the Sale/Leaseback Transaction was with a related party (Mr. Baker, LSR's
Chairman and CEO and the controlling owner of Alconbury), an Independent
Committee of LSR's Board of Directors (the "Committee") was formed to analyze
and consider the proposed Sale/Leaseback Transaction. The Committee was
comprised of the three independent directors of LSR: Gabor Balthazar, Afonso
Junqueiras and Yaya Sesay. The Committee retained independent legal and
financial advisors to assist in its analysis. The Committee and LSR's senior
management (other than Mr. Baker) negotiated the key terms and provisions of the
Sale/Leaseback Transaction with Alconbury. In evaluating the total consideration
negotiated for this transaction, the committee took into consideration an
assessment and review of the levels of consideration that were proposed to be
paid by independent third party bidders over the prior several years for
sale/leaseback transactions of the Company's operating facilities in
transactions that were proposed and negotiated but not ultimately consummated.
The Committee also obtained appraisals of the facilities from independent real
estate appraisal firms and a fairness opinion from an independent investment
banking firm.

The proceeds from the Sale/Leaseback Transaction (plus additional cash on hand)
were used by the Company to pay in full its (pound)22.6 million non-bank debt
($41.1 million based on exchange rates at the time).

In accordance with the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 46R (FIN 46R), the Company has reflected the consolidation of
Alconbury from June 14, 2005 through June 29, 2006, the period in which the
Company was considered the "primary beneficiary" of Alconbury's variable
interests. Effective June 30, 2006, the requirement under FIN46R to include
Alconbury in the Consolidated Financial Statements no longer applied and the
Company has therefore reflected the "deconsolidation" of this entity in the
financial statements. This deconsolidation required the Company to record the
gain and loss associated with the sale of the properties, and recognize the
associated changes in depreciation, interest, and rent expenses. In 2006 the
Company recognized a non-cash loss of $48.9 million for the sale of the UK
properties, and recorded a deferred gain of $9.6 million for the US property,
which is being amortized over the term of the lease. Please refer to Note 3 for
additional detail of the impact of this deconsolidation.

Due to the consolidation resulting from the Company's adoption of FIN 46R, for
the period of June 14, 2005 through June 29, 2006, the Company's financial
statements reflected a loan payable to an unrelated third party in the aggregate
principal amount of $30 million. This loan had a maturity date of June 14, 2006,
with the right to extend the term one additional year. The loan, carried an
annual interest rate of 15%, was secured by first priority lien on all the
assets, including the facilities, of Alconbury, and was also personally
guaranteed by the owner of Alconbury. This loan was payable in twelve monthly
installments of interest only, with a balloon payment of $30 million due on June
14, 2006. Alconbury refinanced this debt on a long-term basis on June 13, 2006
with an interest rate of 12%. However, due to the June 30, 2006 deconsolidation
of Alconbury (see Note 3), the Company did not reflect this new loan on the
Condensed Consolidated Balance Sheet as at June 30, 2006.

On March 2, 2006, the Company entered into the $70 million New Financing under
the terms of a Financing Agreement dated March 1, 2006 with a third party
lender. The borrower under the Financing Agreement is Huntingdon Life Sciences
Limited and LSR and substantially all of LSR's other subsidiaries guarantee all
of the borrower's obligations thereunder. The loan matures on March 1, 2011 and
has an interest rate of 8.25% over LIBOR (which may be reduced to 8.00% over
LIBOR upon the Company meeting certain financial tests). The Financing Agreement
contains standard financial and business covenants, including, without
limitation, reporting requirements, limitations on the incurrence of additional
indebtedness, events of default, limitations on dividends and other payment
restrictions and various financial ratio requirements. The loan is secured by
substantially all of the assets of the Company and the Company has in connection
therewith entered into a customary Security Agreement and a customary Pledge and
Security Agreement.

As partial consideration for the new loan obtained on March 2, 2006, LSR has
issued to the lender 10 year warrants to acquire 500,000 shares of LSR's common
stock at an exercise price of $12.00 per share (such exercise price was
determined by a premium formula based on LSR's recent closing market prices).
These warrants were fully vested on the closing date of the loan, March 2, 2006.
Accordingly, the fair value of these warrants ($2,528,000) has been recorded as
a deferred debt premium and is being amortized to interest expense over the term
of the loan. For financial statement presentation purposes, the unamortized
amount of these warrants has been netted against the loan in long-term debt.

In addition, as partial consideration for providing financial advisory services
to assist the Company in obtaining the loan, LSR issued to its independent third
party financial advisor 10 year warrants to acquire 300,000 shares of LSR common
stock at an exercise price of $10.46 per share (the closing market price on the
date the Company engaged the financial advisor). These warrants became fully
vested on March 2, 2006, the closing date of the loan. The fair value of these
warrants ($3,113,000) has been recorded as deferred financing costs and is being
amortized to other expense over the term of the loan. For financial statement
presentation purposes, the unamortized amount of these warrants has been
classified as other assets (non-current). Certain customary registration rights
were granted in connection with these warrants. The warrants are subject to
customary anti-dilution provisions.

Net proceeds from the loan were approximately $63 million and a portion of these
proceeds were used to redeem the $46.2 million outstanding principal amount of
the Company's 7.5% Convertible Capital Bonds, which were due to mature in
September 2006. The balance of the proceeds was held for general corporate
purposes.

Convertible Capital Bonds

The remainder of the Company's long term financing until March 2, 2006 was
provided by Convertible Capital Bonds repayable in September 2006. At the time
of the issue in 1991, these bonds were for $50 million par and at December 31,
2005 and 2004 $46.2 million was outstanding. They carried interest at a rate of
7.5% per annum, payable biannually in March and September. During 2002, the
Company repurchased and cancelled $2,410,000 principal amount of such bonds
resulting in a $1.2 million gain recorded in other income/expense. In 2003 the
Company further repurchased and cancelled $1,345,000 principal amount of such
bonds resulting in a gain of $0.6 million recorded in other income/expense.
These bonds were redeemed with the proceeds from the New Financing.

Related Party Transactions

On June 11, 2002 LSR issued to Focused Healthcare Partners ("FHP"), an entity
controlled by Andrew Baker, the Company's Chairman and CEO, warrants to purchase
up to 410,914 shares of LSR Voting Common Stock at a purchase price of $1.50 per
share. The LSR warrants are exercisable at any time and will expire on June 11,
2012. These warrants arose out of negotiations regarding the provision of a $2.9
million loan facility made available to the Company on September 25, 2000 by Mr.
Baker. This loan was paid in full in 2002. In accordance with APB 14 the loan
and warrants were recorded at their pro rata fair values in relation to the
proceeds received. As a result, the value of the warrants was $250,000.

On June 14, 2005, the Company entered into and consummated the Sale/Leaseback
Transaction with Alconbury. Alconbury was newly formed in June 2005 and
controlled by LSR's Chairman and CEO, Andrew Baker. The total consideration paid
by Alconbury for the three properties was $40 million, consisting of $30 million
cash and a five year, $10 million variable rate subordinated promissory note,
which Alconbury paid in full on June 30, 2006, together with accrued interest of
$0.6 million. The Company agreed to pay the expenses incurred by Alconbury in
the Sale/Leaseback Transaction of $4.6 million, subject to Alconbury's
obligation to reimburse those expenses in the future. Such reimbursement shall
be made in equal installments in each year of the five-year period beginning on
June 14, 2008, the third anniversary of the closing date of the Sale/Leaseback
Transaction. Interest has been imputed on this loan at 15% and a discount
(expense) of $2.4 million was recorded by the Company on June 14, 2005. This
$2.4 million is being ratably recorded as interest income over the seven year
term of the loan.

As part of the Sale/Leaseback Transaction, the Company (through subsidiaries)
entered into thirty-year leases with Alconbury for each facility, with two
five-year renewal options. The initial base aggregate annual rent for the
facilities was $4.9 million (approximately $1.8 million in the US and
approximately $3.1 million in the UK) which increases by 3% each subsequent year
for the UK facilities and by an amount equal to the annual US consumer price
index for the US facility. Under the terms of the leases, no security deposit
was initially required, but a three-month security deposit was paid at the time
that Alconbury refinanced its financing arrangements. Additionally, because the
leases are "triple net" leases, LSR also pays for all of the costs associated
with the operation of the facilities, including costs such as insurance, taxes
and maintenance.

Since the Sale/Leaseback Transaction was with a related party (Mr. Baker, LSR's
Chairman and CEO and the controlling owner of Alconbury), an Independent
Committee of LSR's Board of Directors (the "Committee") was formed to analyze
and consider the proposed Sale/Leaseback Transaction. The Committee was
comprised of the three independent directors of LSR: Gabor Balthazar, Afonso
Junqueiras and Yaya Sesay. The Committee retained independent legal and
financial advisors to assist in its analysis. The Committee and LSR's senior
management (other than Mr. Baker) negotiated the key terms and provisions of the
Sale/Leaseback Transaction with Alconbury. In evaluating the total consideration
negotiated for this transaction, the committee took into consideration an
assessment and review of the levels of consideration that were proposed to be
paid by independent third party bidders over the prior several years for
sale/leaseback transactions of the Company's operating facilities in
transactions that were proposed and negotiated but not ultimately consummated.
The Committee also obtained appraisals of the facilities from independent real
estate appraisal firms and a fairness opinion from an independent investment
banking firm.

As at December 31, 2005, whilst being consolidated under FIN46R, Alconbury
received an interest free loan of $250,000 from Andrew Baker, LSR's Chairman and
CEO, which was included in the Company's accrued expenses and other liabilities.

Brian Cass, President and Managing Director of LSR, acquired 400,000 shares of
LSR Common Stock in the Private Placement. Mr. Cass acquired such shares through
the delivery of two promissory notes. Both such promissory notes, each in the
amount of (pound)211,679 ($414,000), were due on March 28, 2007; bearing
interest at the rate of 5% per annum; and were secured by the 200,000 shares of
LSR Common Stock purchased with the proceeds of each such loan. Repayment of one
of the promissory notes was made by automatic deduction of (pound)44,000
($86,000) per year from the (pound)66,000 ($129,000) per year pension
contribution made by the Company to a pension plan established by Mr. Cass. The
other note was further collateralized by the (pound)214,500 ($420,000) accrued
in such pension account. In addition, one-third of any yearly bonus received by
Mr. Cass was used to reduce the principal of the promissory notes. Both
promissory notes were repaid in full in 2006.


8.    FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, accounts receivable, short and long-term debt approximate
their fair value.


9.    OTHER OPERATING EXPENSE
<TABLE>
<CAPTION>

                                                            2006           2005           2004
                                                            $000           $000           $000
<S>                                                      <C>                <C>            <C>
Litigation and other expenses associated with the
Animal Rights campaign against the company                 1,790              -              -
NYSE listing flotation expenses                            1,046              -              -
NYSE listing warrant costs                                 7,661              -              -
                                                   --------------    -----------    -----------
                                                         $10,497             $-             $-
                                                   --------------    -----------    -----------
</TABLE>


10.    OTHER INCOME/(EXPENSE)
<TABLE>
<CAPTION>

                                                           2006           2005           2004
                                                           $000           $000           $000
<S>                                                     <C>          <C>              <C>
 Exchange (loss)/gain on Capital Bonds                   $6,210       $(5,144)         $3,345
 Other exchange gains - intercompany balances               692            518              -
 Amortization of financing costs                        (4,979)        (2,780)              -
 Cost of currency hedge contract                              -              -          (455)
                                                 ---------------    -----------    -----------
                                                         $1,923       $(7,406)         $2,890
                                                 ---------------    -----------    -----------
</TABLE>

11.           COMMITMENTS AND CONTINGENCIES

Commitments

The Company leases certain equipment under various non-cancelable operating and
capital leases. The Company is also obligated under purchase agreements,
including long term power contracts. These commitments are set out in the table
below:
<TABLE>
<CAPTION>

                                                               Year ended December 31
                                      Total        2007        2008         2009        2010       2011        2012+
                                       $000        $000        $000         $000        $000       $000         $000
<S>                                <C>          <C>         <C>          <C>        <C>         <C>
Capital lease obligations            $1,790      $1,011        $683          $96           -          -            -
Alconbury lease obligations         243,292       5,474       5,637        5,807       5,981      6,161      214,232
Operating leases                      2,653       1,437         726          388          78         24            -
Purchase obligations                  8,236       8,236           -            -           -          -            -
Pension plan contributions           52,848       5,872       5,872        5,872       5,872      5,872       23,488
                                 ----------- ----------- ----------- ------------ ----------- ---------- ------------
                                   $308,819     $22,030     $12,918      $12,163     $11,931    $12,057     $237,720
                                 ----------- ----------- ----------- ------------ ----------- ---------- ------------
</TABLE>

Capital lease payments are as follows:
<TABLE>
<CAPTION>
                                                         Capital leases   Alconbury        Total
                                                                           leases
                                                         $000             $000             $000
<S>                                                     <C>              <C>              <C>
Total payments due                                       $1,790           $243,292         $245,082
Less amounts representing interest                       (194)            (243,292)        (243,486)
                                                         ---------------- ---------------- ---------------
                                                         ---------------- ---------------- ---------------
Present value of net minimum lease payments              1,596            -                1,596
Less current portion of capital lease obligations        (889)            -                (889)
                                                         ---------------- ---------------- ---------------
                                                         ---------------- ---------------- ---------------
Non-current portion of capital lease obligations         $707             $-               $707
                                                         ---------------- ---------------- ---------------
</TABLE>

Depreciation on these capital leases amounted to $1,077,000, (of which $683,000
related to the Alconbury capitalized leased assets) for the year ended December
31, 2006.

Operating lease expenses were as follows:
                                                    2006       2005        2004
                                                    $000       $000        $000
Plant and equipment                                1,403        441         291
Other operating leases                               209        418         405

Contingencies

The Company is party to certain legal actions arising out of the normal course
of its business. In management's opinion, none of these actions will have a
material effect on the Company's operations, financial condition or liquidity.
No form of proceedings has been brought, instigated or is known to be
contemplated against the Company by any government agency.

12.   SHAREHOLDERS' EQUITY

Common Stock

As of December 31, 2006 and 2005 LSR had outstanding 12,775,120 and 12,553,251
shares of Voting Common Stock of par value of $0.01 each respectively.

Share option plans

LSR 2001 Equity Incentive Plan (the "LSR 2001 Equity Incentive Plan")

The LSR Board has adopted the LSR 2001 Equity Incentive Plan. Adoption of the
LSR 2001 Equity Incentive Plan enables LSR to use stock options (and other
stock-based awards) as a means to attract, retain and motivate key personnel.
This stock option plan was approved by the shareholders of LSR, prior to the
acquisition of Huntingdon.

Awards under the LSR 2001 Equity Incentive Plan (which has designated the
Compensation Committee for such purpose) may be granted by a committee
designated by the LSR Board pursuant to the terms of the LSR 2001 Equity
Incentive Plan and may include: (i) options to purchase shares of LSR Voting
Common Stock, including incentive stock options ("ISOs"), non-qualified stock
options or both; (ii) stock appreciation rights ("SARs"), whether in conjunction
with the grant of stock options or independent of such grant, or stock
appreciation rights that are only exercisable in the event of a change in
control or upon other events; (iii) restricted stock consisting of shares that
are subject to forfeiture based on the failure to satisfy employment-related
restrictions; (iv) deferred stock, representing the right to receive shares of
stock in the future; (v) bonus stock and awards in lieu of cash compensation;
(vi) dividend equivalents, consisting of a right to receive cash, other awards,
or other property equal in value to dividends paid with respect to a specified
number of shares of LSR Voting Common Stock or other periodic payments; or (vii)
other awards not otherwise provided for, the value of which are based in whole
or in part upon the value of the LSR Voting Common Stock. Awards granted under
the LSR 2001 Equity Incentive Plan are generally not assignable or transferable
except pursuant to a will and by operation of law.

The flexible terms of the LSR 2001 Equity Incentive Plan are intended to, among
other things, permit the Compensation Committee to impose performance conditions
with respect to any award, thereby requiring forfeiture of all or part of any
award if performance objectives are not met or linking the time of
exercisability or settlement of an award to the attainment of performance
conditions. For awards intended to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the United States Internal Revenue Code
such performance objectives shall be based solely on (i) annual return on
capital; (ii) annual earnings or earnings per share; (iii) annual cash flow
provided by operations; (iv) changes in annual revenues; (v) stock price; and/or
(vi) strategic business criteria, consisting of one or more objectives based on
meeting specified revenue, market penetration, geographic business expansion
goals, cost targets, and goals relating to acquisitions or divestitures.

LSR's Compensation Committee, which administers the 2001 LSR Equity Incentive
Plan, has the authority, among other things, to: (i) select the directors,
officers and other employees and independent contractors entitled to receive
awards under the 2001 LSR Equity Incentive Plan; (ii) determine the form of
awards, or combinations of awards, and whether such awards are to operate on a
tandem basis or in conjunction with other awards; (iii) determine the number of
shares of LSR Voting Common Stock or units or rights covered by an award; and
(iv) determine the terms and conditions of any awards granted under the 2001 LSR
Equity Incentive Plan, including any restrictions or limitations on transfer,
any vesting schedules or the acceleration of vesting schedules, any forfeiture
provision or waiver of the same and including any terms and conditions necessary
or desirable to ensure the optimal tax result for participating personnel and
the Company including by way of example to ensure that there is no tax on the
grant of the rights and that such tax only arises on the exercise of rights or
otherwise when the LSR Voting Common Stock unconditionally vests and is at the
disposal of such participating personnel. The exercise price at which shares of
LSR Voting Common Stock may be purchased pursuant to the grant of stock options
under the 2001 LSR Equity Incentive Plan is to be determined by the option
committee at the time of grant in its discretion, which discretion includes the
ability to set an exercise price that is below the fair market value of the
shares of LSR Voting Common Stock covered by such grant at the time of grant.

The number of shares of LSR Voting Common Stock that may be subject to
outstanding awards granted under the 2001 LSR Equity Incentive Plan (determined
immediately after the grant of any award) may not exceed 20 percent of the
aggregate number of shares of LSR Voting Common Stock then outstanding.

The 2001 LSR Equity Incentive Plan may be amended, altered, suspended,
discontinued, or terminated by the LSR Board without LSR Voting Common
Stockholder approval unless such approval is required by law or regulation or
under the rules of any stock exchange or automated quotation system on which LSR
Voting Common Stock is then listed or quoted. Thus, LSR Voting Common
Stockholder approval will not necessarily be required for amendments, which
might increase the cost of the plan or broaden eligibility. LSR Voting Common
Stockholder approval will not be deemed to be required under laws or regulations
that condition favorable tax treatment on such approval, although the LSR Board
may, in its discretion, seek LSR Voting Common Stockholder approval in any
circumstances in which it deems such approval advisable.

The LSR Board has designated the Compensation Committee of the Board to serve as
the stock option committee. LSR made grants under the LSR 2001 Equity Incentive
Plan on March 1, 2002 to certain directors and key employees at the time.

Grants to Directors
Name                                         Number Granted
----                                         --------------
Gabor Balthazar                                  20,000
John Caldwell                                    20,000
Kirby Cramer                                     40,000

Grants to Named Executive Officers
Name                                         Number Granted
----                                         --------------
Andrew Baker                                    200,000
Mark Bibi                                        50,000
Brian Cass                                      200,000
Julian Griffiths                                 60,000
Richard Michaelson                               90,000

All such options have ten-year terms; 50% of the shares subject to grant are
immediately exercisable with the remaining 50% exercisable one year after the
grant date (meaning all such options fully vested as of March 1, 2003); and all
have an exercise price of $1.50 per share, the price at which the Company sold
shares of Common Stock in the Private Placement. Options to purchase an
aggregate of 1,188,000 shares of LSR Common Stock (including those specified
above) were granted during the two years 2002 and 2003 to employees and
directors, on the terms set forth above, are listed below.

Date of Grant                 Numbers Granted            Exercise Price
-------------                 ---------------            --------------
March 1, 2002                    1,142,000                   $1.50
September 3, 2002                    20,000                  $2.40
October 21, 2002                     15,000                  $2.03
February 14, 2003                    11,000                  $1.80

In 2004, in addition to the options granted under the 2004 LTIP referred to
below, options to purchase an aggregate of 67,100 shares of LSR Common Stock
were issued, all at exercise prices equal to the market price at the date of
grant, on the terms set forth in the previous paragraph, are listed below.

Date of Grant                    Numbers Granted           Exercise Price
-------------                    ---------------           --------------
April 12, 2004                        37,100                   $1.85
October 28, 2004                      17,400                   $7.70
December 15, 2004                     12,600                   $9.52

<PAGE>


In 2005, options to purchase an aggregate of 23,600 shares of LSR Common Stock
were issued, all at exercise prices equal to the market price at the date of
grant, on the terms set forth above, are listed below:

Date of Grant                     Numbers Granted          Exercise Price
-------------                     ---------------          --------------
May 23, 2005                            3,600                  $12.00
June 27, 2005                          20,000                  $11.00

In May 2006, options to purchase an aggregate of 48,900 shares LSR Common Stock
were issued, all at exercise prices equal to the market price at the date of
grant, with ten-year terms; 50% of the shares exercisable one year after grant
date and with the remaining 50% exercisable two years after the grant date
(meaning all such options fully vested as of May 16, 2008), listed below:

Date of Grant                      Numbers Granted         Exercise Price
-------------                      ---------------         --------------
May 16, 2006                            48,900                 $9.25

In June 2006, options to purchase an aggregate of 7,500 shares of LSR Common
Stock were issued, all at exercise prices equal to the market price at the date
of grant, on the terms set forth above, which are listed below:

Date of Grant                      Numbers Granted        Exercise Price
-------------                      ---------------        --------------
June 8 2006                             7,500                 $10.75

In December 2006, options to purchase an aggregate of 480,000 shares LSR Common
Stock were issued, all at exercise prices equal to the average daily high for
the five trading days leading up to the date of grant, with ten-year terms; 50%
of the shares exercisable on December 31, 2008 and with the remaining 50%
exercisable on December 31, 2009 (meaning all such options fully vested as of
December 31, 2009), listed below:

Date of Grant                    Numbers Granted            Exercise Price
-------------                    ---------------            --------------
December 6, 2006                     480,000                    $9.95


2004 Long Term Incentive Plan

Effective June 1, 2004 the Company adopted the 2004 Long Term Incentive Plan
("2004 LTIP"), pursuant to the terms of the 2001 Equity Incentive Plan. The 2004
LTIP has two components: a grant of stock options, with a vesting date of March
31, 2007, and a cash bonus to be awarded in 2007 based on 2006 Company financial
performance.

Options to purchase an aggregate of 362,663 shares of common stock were granted
to 32 key employees of the Company as of June 1, 2004 under the 2004 LTIP;
55,500 of such options were granted to Andrew Baker, the Company's Chairman and
CEO, 55,500 of such options were granted to Brian Cass, the Company's Managing
Director and President, 30,303 of such options were granted to Richard
Michaelson, the Company's CFO, 27,750 of such options were granted to Julian
Griffiths, the Company's Vice President of Operations and 20,455 were granted to
Mark Bibi, the Company's General Counsel and Secretary. The exercise price of
all such options is $3.30, the market price of LSR common stock on June 1, 2004.
All such options have ten-year terms and are exercisable in full on March 31,
2007. At December 31, 2006, 356,419 shares under the 2004 LTIP option plan were
outstanding and none were exercisable.


<PAGE>

The following table summarizes stock option activity under the Company's option
plans.
<TABLE>
<CAPTION>

                                                   Shares           Wtd Avg. Ex         Number of securities remaining
                                                   (000)               Price            available for future issuance
<S>                                               <C>                  <C>                       <C>
Outstanding - December 31, 2005                    1,284                $2.35
Granted                                             536                 $9.90
Lapsed                                               -                     -
Exercised                                           (31)                $2.01
                                                 -----------    ------------------     ---------------------------------
Outstanding - December 31, 2006                    1,789                $4.62                      490,000
                                                 -----------    ------------------     ---------------------------------
Exercisable at end of year                          900
Weighted average fair value per
option granted in 2006 was                          $8.29
</TABLE>


Warrants

On October 9, 2001, on behalf of Huntingdon, LSR issued to Stephens Group Inc.
warrants to purchase up to 704,425 shares of LSR Voting Common Stock at a
purchase price of $1.50 per share. Stephens Group Inc. subsequently sold the
warrants to independent third parties. The LSR warrants are exercisable at any
time and will expire on October 9, 2011. These warrants arose out of
negotiations regarding the refinancing of the bank loan by the Stephens Group
Inc., (Stephens' Loan) in January 2001. In accordance with APB Opinion No. 14,
Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants
("APB 14") the warrants were recorded at their pro rata fair values in relation
to the proceeds received on the date of issuance. As a result the value of the
warrants was $430,000. 154,425 of such warrants were exercised in 2004. No
additional exercises have been made to date.

On June 11, 2002 LSR issued to FHP warrants to purchase up to 410,914 shares of
LSR Voting Common Stock at a purchase price of $1.50 per share. The LSR warrants
are exercisable at any time and will expire on June 11, 2012. These warrants
arose out of negotiations regarding the provision of the $2.9 million loan
facility made available to the Company on September 25, 2000 by Mr. Baker, who
controls FHP. In accordance with APB 14 the loan and warrants were recorded at
their pro rata fair values in relation to the proceeds received. As a result,
the value of the warrants was $250,000. None of these warrants have been
exercised as of December 31, 2006.

On October 24, 2003, 100,000 warrants were issued at the market price on the day
of $2.05. On January 4, 2005 100,000 warrants were issued at the market price on
the day of $10.70. 50,000 were exercisable from January 4, 2007 but later
accelerated to August 8, 2005, and 50,000 from January 4, 2008. In all cases,
these warrants were issued to independent consultants in connection with
financial and strategic advice.

On November 9, 2005 625,000 warrants were issued to a third party
advisory/lobbying firm at the closing market price on the day of $10.46. These
warrants fully vested on December 26, 2006 following the successful completion
of the specific goal outlined in the engagement letter with such firm, namely
the listing of the Company's common stock on the NYSE. Accordingly, the fair
value of these warrants ($7,661,000) has been recorded in other operating
expense.

On November 9, 2005 300,000 warrants were issued to an independent third party
financial advisor as partial consideration for providing financial advisory
services to the Company in obtaining financing. These were issued at an exercise
price of $10.46 per share, the closing market price on the date the Company
engaged the financial advisor. These warrants became fully vested on March 2,
2006, the closing date of the loan. The fair value of these warrants
($3,113,000) has been recorded as deferred financing costs and is being
amortized to other expense over the term of the loan. For financial statement
presentation purposes, the unamortized amount of these warrants has been
classified as other assets (non-current). Certain customary registration rights
were granted in connection with these warrants. The warrants are subject to
customary anti-dilution provisions.

As partial consideration for the new loan obtained on March 2, 2006, LSR has
issued to the lender 10 year warrants to acquire 500,000 shares of LSR's common
stock at an exercise price of $12.00 per share (such exercise price was
determined by a premium formula based on LSR's recent closing market prices).
These warrants were fully vested on the closing date of the loan, March 2, 2006.
Accordingly, the fair value of these warrants ($4,994,000) has been recorded as
a deferred debt premium and is being amortized to interest expense over the term
of the loan. For financial statement presentation purposes, the unamortized
amount of these warrants has been netted against the loan in long-term debt.

A summary of warrants outstanding at December 31, 2006 is as follows:

Date of Issue          Warrants      Exercise Price     Expiration Date
-------------          --------      --------------     ---------------
October 9, 2001         550,000           $1.50          October 9, 2011
June 11, 2002           410,914           $1.50          June 11, 2012
October 24, 2003        100,000           $2.05          October 24, 2013
January 4, 2005         100,000          $10.70          January 4, 2015
November 9, 2005        625,000          $10.46          November 9, 2010
November 9, 2005        300,000          $10.46          November 9, 2015
March 2, 2006           500,000          $12.00          March 2, 2016

13.     EMPLOYEE BENEFITS

The Company operated the Huntingdon Life Sciences Pension and Life Assurance
Scheme, subsequently renamed "LSR Pension and Life Assurance Scheme" (the Plan)
through to December 31, 2002. The Plan had been closed to new entrants from
April 5, 1997 and as of December 31, 2002, the accumulation of plan benefits of
employees in the scheme was permanently suspended, and therefore, the Plan was
curtailed.

The components of the net periodic benefit cost of the Plan for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>

                                                              2006                2005                 2004
                                                              $000                $000                 $000
<S>                                                       <C>                  <C>                  <C>
Interest cost on projected benefit obligation               $8,565              $7,960               $7,294
Expected return on plan assets                            (10,042)             (8,836)              (8,298)
Amortization of transition asset                                 -                   -                (145)
Amortization of actuarial loss                               2,899               1,627                  854
                                                       -------------       ------------       --------------
Net periodic cost/(benefit)                                  $1,422               $751               $(295)
                                                       -------------       ------------       --------------
</TABLE>

The major assumptions used in calculating the pension expense were:

                                                 2006          2005       2004
Discount rate                                    5.0%          5.5%       5.5%
Rate of increase of future compensation           N/A           N/A        N/A
Long-term rate of return on plan assets          8.0%          8.0%       8.0%

The overall expected return on plan assets for 2006 was the average of 5.5% per
annum expected for debt securities and 9.0% per annum for equity securities and
other assets held. The expected returns were based on market yields at the
measurement date. Expected returns on the equity and `other' assets allowed for
expected economic growth.

<PAGE>

A reconciliation of the projected benefit obligation for the Plan to the accrued
pension expense recorded as of December 31 is as follows:
<TABLE>
<CAPTION>

                                                                      2006                2005                 2004
                                                                      $000                $000                 $000

<S>                                                             <C>                 <C>                  <C>
Projected benefit obligation                                    $(196,403)          $(169,640)           $(154,613)
Plan assets at market value                                        148,750             116,305              118,054
                                                               ------------       -------------       --------------

Funded status                                                    $(47,653)           $(53,335)            $(36,559)
Unrecognized net actuarial loss                                     56,684              57,472               41,211
Adjustment for minimum liability - pretax                         (56,684)            (57,472)             (41,211)
Unrecognized net asset at transition                                     -                   -                    -
                                                               ------------       -------------       --------------
Accrued pension expense                                          $(47,653)           $(53,335)            $(36,559)
                                                               ------------       -------------       --------------

Change in plan assets
Fair value of assets, beginning of year                           $116,305            $118,054             $102,483
Foreign currency changes                                            16,286            (12,489)                7,702
Actual gain on plan assets                                          15,552              15,039               11,308
Employer contributions                                               5,827                 687                  768
Benefit payments                                                   (5,220)             (4,986)              (4,207)
                                                               ------------        ------------       --------------
Fair value of assets, end of year                                 $148,750            $116,305             $118,054
                                                               ------------        ------------       --------------

Change in projected benefit obligations
Projected benefit obligation, beginning of year                   $169,640            $154,613             $123,892
Foreign currency changes                                            23,755            (16,356)                9,311
Interest cost                                                        9,095               7,511                7,643
Actuarial (gains)/losses                                             (867)              28,858               17,974
Benefit payments                                                   (5,220)             (4,986)              (4,207)
                                                               ------------        ------------       --------------
Projected benefit obligation, end of year                         $196,403            $169,640             $154,613
                                                               ------------        ------------       --------------
</TABLE>

All plan assets and projected benefit obligations have been converted from
pounds sterling to US dollar using year end exchange rates.

The major assumptions used in calculating the pension obligations were:
<TABLE>
<CAPTION>

                                                                      2006                 2005                 2004
<S>                                                                   <C>                <C>
Discount rate                                                           5%                4.75%                 5.5%
Rate of compensation increase                                          N/A                  N/A                  N/A
</TABLE>

The accumulated benefit obligation is the same as the projected benefit
obligation as the pension plan has been curtailed.

The Trustees of the pension plan aim to invest with a broad split of 65/35
between their two fund managers. The first manager invests in unit funds that
hold portfolios of shares (77%), hedge funds (11%) and property funds (12%). The
second manager invests in funds holding predominantly index-linked bonds, gilts
and corporate bonds (79% in total) and in a fund of UK equities designed to
track the FTSE All-Share Index (21%). These percentages are approximate and kept
under review.

The pension plan target split of investment types is as follows:

Equity Securities                                    59%
Debt Securities                                      27%
Real Estate                                           5%
Other                                                 9%
                                              -----------
Total                                               100%
                                              ===========

The asset allocation is weighted towards equity investment while the liability
profile contains a greater proportion of monetary liabilities. The investment
stance has been undertaken in expectation of higher long-term returns, but is
kept under review by the Trustees. Over the year the Trustees have continued to
reduce their exposure to equities investing in commercial property and `absolute
return' products, so as to increase the range of investments used by the scheme.
In principle, this wider range of assets should help maintain the overall
portfolio return, whilst reducing variability (and hence reduce the risk to the
scheme).

The pension plan weighted average asset allocations at December 31, 2006 and
2005, by asset category are as follows:

                                             2006               2005
Equity Securities                            58%                59%
Debt Securities                              26%                29%
Real Estate                                   8%                 4%
Other                                         8%                 8%
                                         -------------      -------------
Total                                       100%               100%
                                         =============      =============


The company expects to contribute $5,285,000 ((pound)2,700,000) plus expenses to
its pension plan in 2007. The following benefit payments are expected to be paid
in each of the next five years, and in aggregate for the following five years
thereafter.
                                                        Pension Benefits
                                                             $000's
                                          2007                4,355
                                          2008                4,525
                                          2009                4,682
                                          2010                4,844
                                          2011                5,071
                                       2012 - 2016           30,804


On April 6, 1997 the Company established a defined contribution plan, the Group
Personal Pension Plan, for Company employees in the UK. Additionally, a defined
contribution plan (401-K plan) is also available for employees in the US. The
retirement benefit expense for these plans for the year ended December 31, 2006,
2005 and 2003 were $2.7 million, $3.3 million and $2.5 million respectively.

<PAGE>


14.  GEOGRAPHICAL ANALYSIS

During each of the years ended December 31, 2006, 2005 and 2004, the Company
operated from within two segments based on geographical markets, the United
Kingdom and the United States. The Company had one continuing activity, Contract
Research, throughout these periods.

The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. Transactions
between segments, which are immaterial, are carried out on an arms-length basis.
Interest income, interest expense and income taxes are also not reported on an
operating segment basis because they are not considered in the performance
evaluation by the Company's chief operating decision-maker.

Geographical segment information is as follows:
<TABLE>
<CAPTION>

                                                                 US             UK          Corporate        Total
                                                                $000           $000            $000          $000

<C>       <C>                                                <C>             <C>              <C>          <C>
2006       Revenues                                           $41,138         $151,079             $-       $192,217
           Operating   income   before  other   operating
           income/(expense)                                     5,268           21,676         (6,875)        20,069
           Operating income                                     5,268           21,676        (17,372)         9,572
           Long-lived assets (A)                               37,827          141,216          7,448        186,491
           Property and equipment, net                         21,082           42,535             13         63,630
           Depreciation and amortization                        1,700            7,798             16          9,514
           Capital expenditure                                  2,025           11,068              -         13,093
           Total assets                                        39,781          183,312          7,486        230,579

2005       Revenues                                           $36,959         $135,054             $-       $172,013
           Operating income before other operating
           expense                                              5,239           22,531         (6,751)        21,019
           Operating income                                     5,239           22,531         (6,751)        21,019
           Long-lived assets (A)                               21,569          134,436         12,874        168,879
           Property and equipment, net                         11,139           94,448             18        105,605
           Depreciation & amortization                          1,598            7,971             12          9,581
           Capital expenditure                                  2,795           13,178              -         15,973
           Total assets                                        25,771          143,881         14,717        184,369

2004       Revenues                                           $30,403         $127,148             $-       $157,551
           Operating income before other expense/income
                                                                3,861           18,716         (6,753)        15,824
           Operating income                                     3,861           18,716         (6,753)        15,824
           Long-lived assets (A)                               19,567          143,143          3,753        166,463
           Property and equipment, net                          9,941          100,035             23        109,999
           Depreciation & amortization                          1,307            8,213             10          9,530
           Capital expenditure                                  2,066            9,023              7         11,096
           Total assets                                        25,521          169,939          4,615        200,075
<FN>


(A)  Long-lived  assets exclude cash and cash equivalents and unamortized  costs
     of raising long-term debt.

</FN>
</TABLE>

<PAGE>

Revenues from customers (based on location of customers)

                                         2006            2005             2004
                                         $000            $000             $000
United States                         $53,215         $46,758          $44,530
Europe                                109,668          87,520           78,277
Rest of World                          29,334          37,735           34,744
                                --------------   -------------     ------------
                                     $192,217        $172,013         $157,551
                                --------------   -------------     ------------

15.     ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
<TABLE>
<CAPTION>

                                           Balance as of      Exchange       Charged to     Accounts     Balance as
                                           beginning of      Adjustment      operations    written off    of end of
                                              period                                                       period
                                               $000             $000            $000          $000          $000
<S>                                            <C>              <C>             <C>           <C>           <C>
Allowance for uncollectible accounts
deducted from trade debtors
December 31, 2006                               618              78             133           (138)          691
December 31, 2005                               255             (18)            125            256           618
December 31, 2004                               561              15             (94)          (227)          255
</TABLE>


16.    UNAUDITED QUARTERLY FINANCIAL INFORMATION

The following is a summary of unaudited quarterly financial information for the
12 months ended December 31, 2006 and December 31, 2005.

<TABLE>
<CAPTION>

Year ended December 31, 2006                                        Quarter Ended
                                              March 31            June 30       September 30        December 31
                                                  $000               $000               $000               $000

<S>                                           <C>                <C>                <C>                <C>
Revenues                                       $42,455            $47,851            $49,460            $52,451
Cost of sales                                 (31,758)           (35,125)           (36,388)           (39,430)
                                      --------------------------------------------------------------------------
Gross profit                                    10,697             12,726             13,072             13,021
Selling and administrative expense             (6,671)            (7,881)            (7,334)            (7,561)
Other operating (expense)/income                     -                  -                  -           (10,497)
                                      --------------------------------------------------------------------------
Operating income/(loss)                          4,026              4,845              5,738            (5,037)
Interest income                                    258                273                437                543
Interest expense                               (2,963)            (3,932)            (3,162)            (4,021)
Other (expense)/income                           (971)              2,234              (913)              1,573
                                      --------------------------------------------------------------------------
Income/(loss) before taxes                         350              3,420              2,100            (6,942)
Income tax benefit/(expense)                       120            (2,283)                579              8,440
                                      --------------------------------------------------------------------------
Income before loss on
deconsolidation of variable interest
entity                                            $470             $1,137             $2,679             $1,498
Loss on deconsolidation of variable
interest entity (net of income tax
benefit of $22,218)                                  -           (20,656)                  -                  -
                                      --------------------------------------------------------------------------
Net income/(loss)                                  470           (19,519)              2,679              1,498
                                      --------------------------------------------------------------------------

Earnings/(loss) per share                        $0.04            $(1.54)              $0.21              $0.12
</TABLE>

<TABLE>
<CAPTION>

                                                                    Quarter Ended
Year ended December 31, 2005                  March 31            June 30       September 30        December 31
                                                  $000               $000               $000               $000

<S>                                           <C>                <C>                <C>                <C>
Revenues                                       $43,294            $44,941            $43,758            $40,020
Cost of sales                                 (31,082)           (32,459)           (31,673)           (29,606)
                                      --------------------------------------------------------------------------
Gross profit                                    12,212             12,482             12,085             10,414
Selling and administrative costs               (7,012)            (7,074)            (6,410)            (5,678)
Other operating(expense)/income                      -                  -                  -                  -
                                      --------------------------------------------------------------------------
Operating income                                 5,200              5,408              5,675              4,736
Interest income                                     23                 22                 21                 13
Interest expense                               (1,783)            (1,934)            (2,138)            (2,217)
Other income/(expense)                           (732)            (2,703)            (1,760)            (2,211)
                                      --------------------------------------------------------------------------
Income before taxes                              2,708                793              1,798                321
Income tax benefit/(expense)                     (184)            (2,455)              (649)              (841)
                                      --------------------------------------------------------------------------
Net income                                      $2,524           $(1,662)             $1,149             $(520)
                                      --------------------------------------------------------------------------

Earnings per share                               $0.20            $(0.13)              $0.09            $(0.04)
</TABLE>

17.           SUBSEQUENT EVENTS

None.


ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURES

None.


ITEM 9A.  CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. The Company's Principal
Executive Officer (the CEO) and Principal Financial Officer (the CFO) have
reviewed and evaluated the effectiveness of the Company's disclosure controls
and procedures as of the end of the period covered in this report. Based on that
evaluation, the Principal Executive Officer and the Principal Financial Officer
have concluded that the Company's current disclosure controls and procedures are
effective. There have been no significant changes in the Company's internal
controls or in the other factors that significantly affect those controls.

Internal control over financial reporting. Please refer to pages 41-42 of this
Form 10-K for Management's Report on Consolidated Financial Statements and
Internal Control, and the Internal Control Reports of the Company's Auditors.


ITEM 9B. OTHER INFORMATION

None.

<PAGE>

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The table below sets forth certain information with respect to the current
directors and executive officers of LSR.

Name                       Age           Office Held

Andrew Baker               58            Director, Chairman of the Board and
                                            Chief Executive Officer
Gabor Balthazar            65            Director
Mark Bibi                  48            General Counsel and Secretary
Brian Cass                 59            Director, Managing Director/President
Julian Griffiths           54            Vice President of Operations
Afonso Junqueiras          50            Director
Richard Michaelson         55            Chief Financial Officer
Yaya Sesay                 64            Director

(a)  Identification of Directors and Executive Officers

Andrew Baker became a director and Chairman and Chief Executive Officer of LSR
on January 10, 2002. He was appointed to the Board of Huntingdon as Executive
Chairman in September 1998. He is a chartered accountant and has operating
experience in companies involved in the delivery of healthcare ancillary
services. He spent 18 years until 1992 with Corning Incorporated ("Corning") and
held the posts of President and CEO of MetPath Inc., Corning's clinical
laboratory subsidiary, from 1985 to 1989. He became President of Corning
Laboratory Services Inc. in 1989, which at the time controlled MetPath Inc. (now
trading as part of Quest Diagnostics Inc.), and Hazleton Corporation,
G.H.Besselaar Associates and SciCor Inc., all three now trading as part of
Covance Inc. Since leaving Corning in 1992, Mr. Baker has focused on investing
in and developing companies in the healthcare sector including Unilab
Corporation, a clinical laboratory services provider in California, and Medical
Diagnostics Management, a US based provider of radiology and clinical laboratory
services to health care payers. In 1997, he formed Focused Healthcare Partners
("FHP"), an investment partnership that acts as general partner for healthcare
startup and development companies.

Gabor Balthazar became a director of LSR on January 10, 2002. He was appointed
to the Board of Huntingdon as the Senior Independent Non-Executive Director in
March 2000. He has been active in international marketing and management
consulting for almost 30 years. He was a founding Board member of Unilab
Corporation, serving as President from 1989 to 1992, and continuing to sit on
Unilab's Board until November 1999. From 1985 to 1997, Mr. Balthazar served as a
consultant to Frankfurt Consult, the merger/acquisition subsidiary of BHF-Bank,
Frankfurt, Germany and to Unilabs Holdings SA, a Swiss clinical laboratory
testing holding company, from 1987 to 1992. He is a graduate of the Columbia Law
School and the Columbia Business School in New York City.

Mark Bibi became Secretary and General Counsel of LSR effective July 28, 2005.
Prior thereto he served as General Counsel of LSR and Huntingdon Life Sciences
Inc. from April 1, 2002. He served as Executive Vice President, Secretary and
General Counsel of Unilab Corporation, a clinical laboratory testing company
based in Los Angeles, California from May 1998 to November 1999 and as Vice
President, Secretary and General Counsel of Unilab from June 1993 to May 1998.
Prior thereto, Mr. Bibi was affiliated with the New York City law firms, Schulte
Roth & Zabel and Sullivan & Cromwell.

Brian Cass, FCMA, CBE, became a director and Managing Director/President of LSR
on January 10, 2002. He was appointed to the Board of Huntingdon as Managing
Director/Chief Operating Officer in September 1998. Prior to joining Huntingdon
he was a Vice President of Covance Inc. and Managing Director of Covance
Laboratories Ltd., (previously Hazleton Europe Ltd) for nearly 12 years, having
joined the company in 1979 as Controller. Brian Cass worked at Huntingdon
Research Center between 1972 and 1974 and has previous experience with other
companies in the electronics and heavy plant industries. He has also held
directorships with North Yorkshire Training & Enterprise Council Ltd and
Business Link North Yorkshire Ltd. In June 2002, Mr. Cass was also appointed as
a Commander in the Most Excellent Order of the British Empire (CBE).

Julian Griffiths MA, FCA, has served as Vice President of Operations of LSR
since July 28, 2005. Prior thereto he was Director of Operations of Huntingdon
from April 2003. He was appointed to the Huntingdon Board as Finance Director in
April 1999 and Secretary in February 2000. He served as a director of LSR from
January 10, 2002 to June 11, 2002. Prior to joining Huntingdon he was most
recently Vice President of Analytical Services in the European pre-clinical
division of Covance Inc., having spent nine years as Vice President of Finance
in the same organization. Prior to that he held various positions with KPMG.

Afonso Junqueiras became a director of LSR on January 15, 2003. He is a civil
engineer and has been President and a director of a South American private civil
engineering firm since 1997.

Richard Michaelson became Chief Financial Officer and Secretary of LSR effective
January 10, 2002 and has been Chief Financial Officer since July 28, 2005. Mr.
Michaelson was Director of Strategic Finance of Huntingdon from September 1998
to December 2001. He served as Senior Vice President of Unilab Corporation, a
clinical laboratory testing company based in Los Angeles, California, from
September 1997 to December 1997, Senior Vice President-Finance, Treasurer and
Chief Financial Officer of Unilab from February 1994 to September 1997, and Vice
President-Finance, Treasurer and Chief Financial Officer of Unilab from November
1993 to February 1994. Mr. Michaelson also served as Vice President of Unilab
beginning in October 1990. Mr. Michaelson joined MetPath, Inc., the clinical
laboratory subsidiary of Corning Incorporated, in 1980 and served as Vice
President of MetPath from 1983 and Treasurer of Corning Lab Services, Inc. from
1990 through, in each case, September 1992. He currently serves as a director of
Huntsman Corporation.

Yaya Sesay, served as a senior government official of an African nation for
approximately 25 years, culminating in his service as Financial Secretary of the
Ministry of Finance for three years. For the past five years, Mr. Sesay has been
an international businessman with an interest in the development of
pharmaceutical products.

The Articles of Amendment and Restatement of LSR provide that the directors
shall be not less than one in number and there shall be no maximum number of
directors. Any director appointed by the board of directors holds office only
until the next following annual meeting, at which time he shall be eligible for
re-election by the stockholders. Directors may be removed from office only for
cause.

No director or executive officer has a family relationship with any other
director or executive officer.


             SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based upon a review of Forms 3, 4, and 5 filed with the Commission by the
Company's directors and officers in 2006 the Company believes that all such
required forms were filed on a timely basis.

Code of Ethics

The Company has adopted a Code of Business Conduct and Ethics that is applicable
to the Company's employees and establishes special obligations for senior
officers (including the Principal Executive Officer, Principal Financial
Officer, Controller, directors and employees with financial reporting
responsibilities). The Code of Business Conduct and Ethics was last reviewed and
adopted in December 2006 and is posted on the Company's website on
www.lsrinc.net, under the "Corporate Governance" icon.

Audit Committee

The Audit Committee of the Board of Directors of LSR is authorized to retain and
evaluate the Company's independent accountants; to review and approve any major
changes in accounting policy; to review the arrangements for, scope and results
of the independent audit; to review and approve the scope of non-audit services
to be performed by independent accountants and to consider the possible effect
on the independence of the accountants; to review the effectiveness of internal
auditing procedures and personnel; to review LSR's policies and procedures for
compliance with disclosure requirements with respect to conflicts of interest
and for prevention of unethical, questionable or illegal payments; and to take
other such actions as the Board shall from time to time so authorize. Messrs.
Balthazar, Junqueiras and Sesay comprise the Audit Committee. Mr. Balthazar
serves as Chairman. The Board of Directors has determined that Mr. Balthazar
meets the definition of "audit committee financial expert" as such term is
defined under the SEC rules. Each member of the Audit Committee is considered to
be an independent director.

The Audit Committee operates under a written charter adopted by the Board of
Directors that is posted on the Company's web site on www.lsrinc.net, under the
"Corporate Governance" icon.


<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Philosophy and Objectives

LSR's executive compensation programs are designed to attract, motivate and
retain executives critical to the Company's long-term success and the creation
of stockholder value. The Company's fundamental compensation philosophy is to
closely link executive officers' total compensation with the achievement of
annual and long-term performance goals. Management and the Compensation
Committee believe that compensation decisions are complex and best made after a
careful review of individual and Company performance; Contract Research
Organization ("CRO") industry "peer group" compensation levels, including
consideration of the relative size and complexity of each of these peer
companies; and salary and total compensation levels of executives in other
health care companies, high growth companies, and comparably sized companies.
The Committee awards compensation to the Company's executive officers that is
based upon Company and individual performance and that is designed to motivate
them to achieve strategic objectives and to continue to perform at the highest
levels in the future.

The Compensation Committee has developed an overall compensation program and
specific compensation plans which are designed to enhance corporate performance,
and thus stockholder value, by aligning the financial interests of executives
with those of its stockholders. In pursuit of these overall objectives, the
structure and scope of the Company's compensation program are designed to
attract key executives to the Company and retain the best possible executive
talent; to reinforce and link executive and stockholder interests through
equity-based plans and encouragement of significant equity holdings in the
Company; and to provide a compensation package that recognizes individual
performance in conjunction with overall performance.

Based on the objectives described above, LSR strives to set a total compensation
opportunity within range of the median of the total direct compensation paid to
similarly situated executives at comparable companies against whom the Company
competes in the CRO industry marketplace, and in the broader market for
executive talent. Actual compensation may be above or below the median based on
the actual performance of LSR and the individual. This approach is intended to
ensure that a significant portion of executive compensation is based on LSR's
financial and strategic performance.

Roles and Responsibilities

Both the Compensation Committee and senior management are involved in the
development, review and evaluation, and approval of the Company's executive
compensation programs. In general, the roles are discussed below; additional
details regarding the roles of each are addressed in the discussion of the
"Annual Review of Executive Compensation."

Compensation Committee

In consultation with senior management, the Compensation Committee establishes
the Company's general compensation philosophy, and oversees the development and
implementation of executive compensation programs and policies with respect to
the engagement of independent contractors of the Company. The Committee reviews
on a periodic basis the Company's executive compensation programs and makes any
modifications that the Committee may deem necessary or advisable, in its sole
discretion.

The Committee annually reviews and approves the Company's goals and objectives
relevant to the compensation of the Chief Executive Officer and evaluates the
performance of the Chief Executive Officer in light of those goals and
objectives, including assessing the Company's success in addressing the
complexities and challenges that have been faced during that period. Based on
such evaluation, the Committee has the sole authority to set the compensation
(including base salary, incentive compensation and equity-based awards) of the
Chief Executive Officer. In determining incentive compensation, the Committee
considers, among other factors it deems appropriate from time to time, the
Company's performance and relative shareholder return, the value of similar
incentive awards to chief executive officers at comparable companies, and the
awards given to management in prior years.

The Committee also reviews and approves the compensation (including base salary,
incentive compensation and equity-based awards) of executive officers of the
Company. The Committee reviews the terms of the Company's incentive compensation
plans, equity-based plans, pension plans, and welfare benefit plans. Unless
otherwise delegated, the Committee administers such plans, including determining
any incentive or equity-based awards to be granted to members of senior
management under any such plan.

The Compensation Committee is comprised of Messrs. Gabor Balthazar, Afonso
Junqueiras and Yaya Sesay. Mr. Balthazar serves as Chairman. Each is considered
to be an independent director. In addition, the Compensation Committee addresses
issues required or recommended to be addressed by independent directors,
including administration of the Company's 2001 Equity Incentive Plan. The
Compensation Committee of LSR held four (4) meetings during 2006 and held 1
meeting from January 1, 2007 through the date of this Form 10-K.

There were no Compensation Committee interlocks during 2006.

The Committee operates pursuant to a charter, which is available on the
Company's website at www.lsrinc.netunder the "Corporate Governance" icon. That
charter was most recently reviewed and amended in March 2007. Under its charter,
the stated purposes of the Compensation Committee are:

o    To establish the Company's general compensation  philosophy and oversee the
     development  and  implementation  of  executive  compensation  programs and
     policies;

o    To annually review and approve the Company's goals and objectives  relative
     to CEO compensation  and to set the CEO  compensation  based on those goals
     and objectives;

o    To review and approve the compensation of other executive officers;

o    To review the terms of incentive  compensation  plans,  equity-based plans,
     retirement plans and welfare benefit plans;

o    To  review   policies  with  respect  to  post-service   arrangements   and
     perquisites;

o    To produce with the  assistance of management an annual report on executive
     compensation  and a  compensation  discussion and analysis for inclusion in
     the Company's annual report on Form 10-K or annual proxy statement;

o    To evaluate its own performance on an annual basis;

o    To retain  consultants and professional  advisors as it deems  appropriate;
     and

o    To carry out such other  duties as may be delegated to it by the Board from
     time to time.

Senior Management

The Company's senior management, under the leadership and direction of the Chief
Executive Officer, sets the strategic direction for the Company and strives to
design and develop compensation programs that motivate executives' behaviors
consistent with strategic objectives. In collaboration with the Compensation
Committee, senior management coordinates the annual review of the compensation
programs for the executive officers. This includes an evaluation of individual
and Company performance, factors that have influenced the Company during the
year, competitive practices and trends, and various compensation issues. Based
on the outcomes of this review, the CEO makes recommendations to the
Compensation Committee regarding the compensation of each of the executive
officers (other than the Chief Executive Officer, whose compensation is
determined by the Compensation Committee).

Annual Review of Executive Compensation

LSR senior management and the Compensation Committee strive to maintain an
executive compensation program that is structured to provide executive officers
with a total compensation package that, at expected levels of performance, is
competitive with those provided to other executives holding comparable positions
or having similar qualifications in other similarly situated organizations in
the CRO and healthcare industries. This is achieved by the preparation of an
annual review of executive officer compensation.

In the preparation of the annual review, management, under the direction of the
CFO, reviews proxy statements filed by LSR's CRO industry peer companies to
obtain data about the compensation of the named executive officers. (Additional
information regarding this peer group of companies is provided below). Based on
competitive market data gathered from peer company proxy statements, management
prepares a report to the Compensation Committee. The report may also include
similar compensation information for selected small cap healthcare companies
outside the CRO industry. This report also provides LSR executive officers'
total compensation and equity holdings. Based on this report, discussion of
compensation levels and packages offered to executives in other healthcare
companies, and assessment of individual executive officer performance over the
prior year, the CEO makes recommendations regarding the appropriate compensation
for each of the executive officers (other than the Chief Executive Officer).
After reviewing these materials, the Compensation Committee evaluates the
executive's performance through reports from other senior management and, in
some cases, personal observation. The Compensation Committee takes into account
this evaluation and other appropriate considerations to arrive at individual
compensation decisions.

In making its decisions on each executive officer's compensation, the
Compensation Committee considers the nature and scope of all elements of the
executive's total compensation package, the executive's responsibilities,
factors pertaining to the executive's home country, and his or her effectiveness
in supporting LSR's key strategic, operational and financial goals. The
Compensation Committee also considers recommendations from the Chief Executive
Officer regarding total compensation for those executive officers.

Although the Compensation Committee receives information and recommendations
regarding the design and level of compensation of the Company's executive
officers from Company management, the Compensation Committee makes the final
decisions as to the plan design and compensation levels for these executives.

Compensation Peer Group

In determining the appropriate amount for each element of the total direct
compensation (base salary, annual incentives, and long-term incentives), the
Compensation Committee considers, among other things, the compensation paid for
similar positions at other corporations within a peer group of companies prior
to determining the executive officers' compensation. The peer group is comprised
of companies against which LSR competes in the CRO industry. There have
historically been only two other publicly traded companies that have conducted
substantial amounts of pre-clinical CRO safety testing, which is the Company's
primary business: Charles River Laboratories, Inc. and Covance, Inc. Thus, these
two companies comprise the compensation peer group.

Management and the Compensation Committee acknowledge that both Charles River
and Covance are substantially larger than the Company in terms of revenues and
profits and take that fact into consideration when making compensation
decisions. The total compensation of the Company's executive officers
historically has been, and remains, below that of the total compensation paid at
these peer companies. In addition to size differences, the Compensation
Committee also takes into account differences in complexity and challenges faced
by each of the Company and its peer group (some of which are unique to LSR) in
determining the proper range of executive officer compensation.

Mix of Compensation

LSR's executive compensation program is composed of three key elements - base
salary, an annual incentive bonus, and long term compensation - which represent
an executive officer's total direct compensation (excluding benefits and
perquisites). The Compensation Committee strives to align the relative
proportion of each element of total direct compensation with the competitive
market and LSR's objectives, as well as preserve the flexibility to respond to
the challenges (some of which are unique to LSR) which the Company faces. The
Compensation Committee's goal is to strike the appropriate balance between
annual and long-term incentives, and it may adjust the allocation of pay to best
support the Company's objectives. Historically, the majority of pay at LSR has
been in the form of base salary. Annual bonuses have been paid only when Company
financial performance has in the opinion of the Compensation Committee and
Senior Management merited it; thus, in the last five years, despite the stock
having increased by 1,400% and the operating margin increasing by over 1,000
basis points, the Compensation Committee has determined to award annual bonuses
in only three of those five years. Equity compensation has been awarded only in
two of those five years. For 2006, which was an unusual mix of compensation due
to the issuance of equity compensation awards, the mix of these three elements
for each of the named executive officers is illustrated in the following chart,
and discussed in greater detail on page 88 "Annual Incentive Awards":


Percent of Total Direct Compensation
<TABLE>
<CAPTION>

                                          Base            Annual Incentive           Long-Term
       Officer                           Salary                Award            Incentive Awards(1)
     <S>                                 <C>                    <C>                    <C>

       Andrew Baker                       38%                    10%                    52%
       Richard Michaelson                 38%                    62%                     0%
       Brian Cass                         38%                    10%                    52%
       Julian Griffiths                   40%                     5%                    55%
       Mark Bibi                          18%                    31%                    51%
<FN>

(1)  Based on the FAS 123(R)  grant  date fair value of stock and stock  options
     granted in 2006.
</FN>
</TABLE>

The mixture of pay elements noted above represents the belief that executive
officers should have elements of their compensation tied to both short and long
term objectives. This pay mixture is the result of historical Company pay
practices, management recommendations, and Compensation Committee
determinations. Historically base salary has comprised a higher percentage of
total compensation than was the case in 2006. During 2006 the Compensation
Committee approved more incentive awards than they had in the past in
recognition of certain singular achievements during 2006, such as the successful
refinancing resulting in the New Financing and the successful passage of the
legislation in the US known as the `Animal Enterprise Terrorism Act'.

Elements of Executive Compensation

The key elements of direct compensation for the executive officers are base
salary, an annual incentive bonus, and equity-based compensation, typically
delivered through stock options and stock grants. Executive officers also are
eligible for other elements of indirect compensation, comprised of health and
welfare benefits, pension, insurance, and savings plans, and certain
perquisites. The Compensation Committee considers each of these elements when
evaluating the overall compensation program design.

Annual Base Salary

Base salaries for executives are determined by evaluating the responsibilities
of the position held and the experience of the individual, with reference to the
competitive marketplace for executive talent, including a comparison to base
salaries for positions having comparable responsibilities at other companies in
the CRO industry. In addition to comparing base salary compensation of other
companies, consideration is given to the relative overall corporate performance
of the Company in relation to its competitors in the industry, with the
objective of achieving standards and setting base executive salaries in the
Company consistent with the market rate paid for comparable positions in the CRO
industry, taking into account both size and complexity differences.

An executive officer's base salary generally reflects the officer's
responsibilities, tenure, job performance, and direct competition for the
executive's services. The Compensation Committee reviews the base salaries of
each executive officer, including the Chief Executive Officer, on an annual
basis. In addition to these annual reviews, the Committee may at any time review
the salary of an executive who has received a significant promotion, whose
responsibilities have been increased significantly, who has achieved exceptional
performance, or who is the object of competitive pressure. Any adjustments are
based on the results of the annual review of market salary data, job performance
of the executive officer over time, and the expansion of duties and
responsibilities, if any. No pre-determined weight or emphasis is placed on any
one of these factors.

In general, the Committee targets the base salary levels of the Chief Executive
Officer and other executive officers under the range of the 50th percentile of
base salaries for comparable executive positions at key competitors. Adjustment
of an individual executive officer's actual base salary above the range of the
50th percentile of this reference group would generally be based upon:

o    Achieving or exceeding key business objectives;

o    Highly developed individual skills critical to the Company;

o    Demonstrating an ability to positively impact stockholder value;

o    Consistently superior levels of performance;

o    Experience and level of responsibility; and

o    Availability of skills in the market place

During 2006, the Committee did not approve any increases to the base salaries of
the named executive officers.

Annual Incentive Awards

The Company's executive officers and other key persons are considered for an
annual cash and/or stock bonus. Eligible executives may receive bonus awards
based upon certain percentages of base salary at threshold and maximum levels
appropriate to the nature of their position in the Company. Whether any bonus is
awarded, and, if so, the amount thereof depends upon actual performance against
predetermined individual and corporate objectives established by the CEO or the
Compensation Committee.

The potential payments available under the annual incentive program for the
named executive officers depend on the attainment of performance goals
recommended by management and approved by the Compensation Committee at the
beginning of each year. In addition to these awards, the Compensation Committee
may approve additional bonuses following a subjective evaluation of an executive
officer's performance and success in areas deemed to be significant to LSR.
Individual awards reflect both group performance and individual contributions to
the Company's success.

In March 2006, the named executive officers received annual bonus awards based
on the Company meeting predetermined financial goals established for fiscal year
2005 by the Compensation Committee. Specifically, the Compensation Committee had
established for fiscal year 2005 two threshold levels of operating margin
percentage on which to base the awarding of annual bonuses. The Company's 2005
financial performance met the first performance threshold.

The following table summarizes the bonus payments and ranges for each of the
Company's named executive officers.

                            Bonus Paid as        Possible Award Payout Range
  Officer                 (% of Base Salary)          (% of Base Salary)
  Andrew Baker                   50%                       50%-100%
  Richard Michaelson             25%                       25%-50%
  Brian Cass                     50%                       50%-100%
  Julian Griffiths               25%                       25%-50%
  Mark Bibi                      25%                       25%-50%

Each executive officer was offered the opportunity to be paid all or a portion
of this bonus in shares of LSR common stock. Messrs. Baker, Cass, Michaelson and
Bibi elected to receive the bonus completely in LSR shares and Mr. Griffiths
elected to receive a portion of the bonus in LSR shares (the bonuses paid were
disclosed and included in the 2005 Executive Compensation Table contained in the
Company's proxy statement, dated April 17, 2006, for its annual meeting of
stockholders).

Operating margin percentage was selected as the performance measure for use in
the annual incentive (as well as in the long term incentive plans discussed
below) because the Compensation Committee, as well as management, believes that
it most accurately reflects the true financial and operating performance of the
Company, and is the metric most directly impacted by the actions and efforts of
management. Operating margin percentage is a measure of performance that is not
affected by non-operational items, such as the non-cash accounting treatment
associated with the Company's functional currency being the British Pound.
Moreover, operating margin is a metric that can be compared to peer companies as
a useful measure of performance. Finally, operating margin percentage is easily
leveraged into an impact on stock price, which thus has the effect of aligning
the interests of management with those of stockholders.

The Compensation Committee also determined that an important business goal for
2006 was refinancing the Company's $46 million outstanding principal amount of
Convertible Capital Bonds (the "Bonds") that were coming due in September 2006.
The Company was able to successfully refinance these bonds in March 2006 through
obtaining a $70 million principal amount five-year term loan and using a portion
of the proceeds therefrom to redeem the Bonds. The Compensation Committee
approved a special cash bonus to executive officers upon completion of the
refinancing, as follows:

          Officer                         Percentage of Base Salary
          Andrew Baker                              25.0%
          Richard Michaelson                        12.5%
          Brian Cass                                25.0%
          Julian Griffiths                          12.5%
          Mark Bibi                                 12.5%

For additional information regarding the metrics applicable to our Chief
Executive Officer, see "Compensation of the Chief Executive Officer" below.

The bonuses for 2006 for the Chief Executive Officer and other named executive
officers are disclosed in the "Bonus" column of the Summary Compensation Table.

Long-Term Compensation

LSR provides executives with long-term compensation through the LSR 2001 Equity
Incentive Plan (the "EIP"), which was approved by the Company's shareholders in
2001. The EIP is intended to encourage employees, consultants, and directors to
acquire or increase their equity interest in the Company and to provide a means
whereby they may develop a sense of proprietorship and personal involvement in
the development and financial success of the Company. The EIP also encourages
this group to remain with and devote their best efforts to the business of the
Company, thereby advancing the interests of the Company and its stockholders.
The EIP also enhances the Company's and its subsidiaries' ability to attract and
retain the services of individuals who are essential for the growth and
profitability of the Company, and the enhancement of shareholder value.

2004 Long Term Incentive Plan

The EIP permits the grant of a variety of stock and stock-based awards. The
Compensation Committee adopted as of June 1, 2004 the 2004 Long Term Incentive
Plan ("2004 LTIP"). The 2004 LTIP was designed to retain and motivate management
to improve the Company's financial performance, specifically as evidenced by
operating margin percentage, over the three year period through December 31,
2006. The LTIP involved two aspects: a) the grant of stock options to management
that would not vest until March 31, 2007 (the date by which final 2006 financial
performance would be finalized, audited and publicly reported) and b) a cash
award calculated as a percentage of the employee's base salary as of June 1,
2004 that would be payable at three different threshold levels of operating
margin percentage performance achieved at December 31, 2006. The Compensation
Committee determined to set aggressive thresholds for these bonus payments,
believing that would serve as the best motivational tool.

The stock options granted in connection with the 2004 LTIP were granted with an
exercise price of $3.30 per share, equal to the closing market price of LSR
common stock on the June 1, 2004 grant date. The named executive officers
received these options with an exercise date of March 31, 2007 as a motivation
to retain such officers in the Company's employ through the 3-year performance
period specified in the 2004 LTIP. The named executive officers received the
following number of stock options:

                  Andrew Baker                     55,500
                  Richard Michaelson               30,303
                  Brian Cass                       55,500
                  Julian Griffiths                 27,750
                  Mark Bibi                        20,455


<PAGE>

The potential cash bonus to be received by the named executive officers based
upon fiscal year 2006 financial performance had the following ranges of
percentages of base salary as of June 1, 2004:

                  Andrew Baker                    50% - 200%
                  Richard Michaelson              40% - 160%
                  Brian Cass                      50% - 200%
                  Julian Griffiths                40% - 160%
                  Mark Bibi                       30% - 120%

The Company's operating margin percentage for fiscal year 2006 did not meet the
minimum threshold established under the 2004 LTIP. Accordingly, no cash bonuses
were paid under that plan.

2007 Annual and Long Term Incentive Plan

In December 2006 the Compensation Committee adopted both an annual 2007
incentive plan (the "2007 Annual Bonus Plan") and a long term retention program,
including a new long-term incentive plan to replace the 2004 LTIP (the "2007
LTIP"). Awards under both the Company's annual bonus plan and the long-term
retention program, including the long-term incentive plan ("LTIP"), are issued
under the EIP.

A.   2007 Annual Bonus Plan

     At its meeting on December 6, 2006, the Committee determined amounts
     that may be paid to executive officers and certain additional senior
     management members of the Company based on the achievement of varying
     levels of operating performance during fiscal year 2007. The Committee
     established three specific levels of operating margin percentage as the
     thresholds for payment, each above current levels of operating
     performance. The awards would be paid in cash following completion of
     the 2007 audited financial statements showing the level of operating
     performance achieved, if the minimum threshold level or a higher
     performance level is achieved, taking into account the payment of such
     bonuses.

     The aggregate amount payable to all participants if the minimum
     threshold performance level is achieved is approximately $1.5 million;
     if the middle threshold performance level is achieved is approximately
     $3.0 million; and if the maximum threshold level is achieved is
     approximately $4.6 million. The potential ranges of payment under this
     plan for each of the executive officers is as follows:

     Andrew Baker, Chairman and CEO*                      $304,128 - $912,384
     Richard Michaelson, CFO                               $75,000 - $225,000
     Brian Cass, President and Managing Director*         $304,128 - $912,384
     Julian Griffiths, Vice President of Operations*       $76,032 - $228,096
     Mark Bibi, Secretary and General Counsel              $75,000 - $225,000

         *    Payments to Messrs. Baker, Cass and Griffiths are made in UK
              pounds sterling. For purposes of estimating these payments in US
              dollars, an exchange rate of (pound)1.00 = $1.8432 has been used.

B.       Long-Term Retention Program

         In order to encourage valuable members of the management team to remain
         with the Company over the next three years, the Committee has adopted a
         long-term retention program that contains two elements: the 2007 LTIP
         and the grant of equity.

         1.       2007 LTIP

         At its meeting on December 6, 2006, the Committee determined amounts
         that may be paid to executive officers and certain senior management
         members of the Company in respect of LTIP awards for the three-year
         2007-2009 performance period. The Committee established a specified
         level of operating margin percentage to be achieved over any four
         consecutive quarters during such performance period that would trigger
         the payment of the awards. This threshold level of operating margin
         percentage is higher than the maximum level of operating margin
         percentage under the 2007 Bonus Plan. As they did with the 2004 LTIP,
         the Committee determined to establish aggressive targets, but targets
         that they believe are achievable within that time period. The awards
         would be paid in cash following confirmation by the Company's
         independent auditor that the threshold performance level had been
         achieved, taking into account the payment of such bonuses.

         The aggregate amount payable to all participants (which includes the
         five executive officers and other key members of management) under the
         2007 LTIP if the threshold performance level is achieved is
         approximately $5 million. The potential payments under this plan for
         each of the executive officers is as follows:

         Andrew Baker, Chairman and CEO*                       $1,216,512
         Richard Michaelson, CFO                                 $480,000
         Brian Cass, President and Managing Director*          $1,216,512
         Julian Griffiths, Director of Operations*               $486,605
         Mark Bibi, Secretary and General Counsel                $360,000

          *    Payments  to Messrs.  Baker,  Cass and  Griffiths  are made in UK
               pounds sterling.  For purposes of estimating these payments in US
               dollars, an exchange rate of (pound)1.00 = $1.8432 has been used.

         2.    Senior Management Stock Options/Stock Grants

         At its meeting on December 6, 2006, the Committee (a) authorized the
         reservation of an additional 750,000 shares of common stock for
         issuance under the EIP (both at that meeting and in the future) and (b)
         approved the grant under the EIP to members of senior management of LSR
         of stock options to acquire an aggregate of 480,000 shares of Common
         Stock, including the following grants to executive officers: options to
         acquire 100,000 shares to Andrew Baker, Chairman and CEO; options to
         acquire 100,000 shares to Brian Cass, President and Managing Director;
         options to acquire 50,000 shares to Julian Griffiths, Director of
         Operations; and options to acquire 100,000 shares to Mark Bibi, General
         Counsel and Secretary of LSR. The exercise price of such options was
         $9.95 per share, the average daily high price for the five trading days
         ending on the date of the December 6 Compensation Committee meeting.
         Such options vest one half on December 31, 2008 and one half on
         December 31, 2009. The Committee also approved at that meeting the
         grant of 50,000 shares of Common Stock to each of Richard Michaelson,
         CFO and Mark Bibi, General Counsel and Secretary.

Health and Welfare Benefits

The Company provides its executive officers with benefits that are intended to
be a part of a competitive total compensation package that provides health and
welfare and retirement programs comparable to those provided to employees and
executives at other companies in the CRO industry. Except as specifically noted
below, executive officers participate in the Company's health, life insurance
and welfare programs on the same relative basis as other LSR employees.

Pension, Insurance and Savings Plans

The Company provides its executive officers with benefits that are intended to
be a part of a competitive total compensation package that provides retirement
and savings programs comparable to those provided to employees and executives at
other companies in the CRO industry and the general market. The benefit plan
descriptions below and accompanying tables provided in the "Summary Compensation
Table", and "Pension Benefits Table" provides an explanation of the major
features of the Company's employee benefit plans.

Pension Plans - Andrew Baker and Brian Cass each receives pursuant to his
employment agreement an annual contribution to his private pension arrangements
equivalent to 33% of his base annual salary. Julian Griffiths receives an annual
contribution to his private pension arrangements equivalent to 20% of this base
annual salary. LSR does not offer any pension plans to US employees, so neither
Richard Michaelson nor Mark Bibi has any pension plan.

Insurance Plans - Richard Michaelson receives pursuant to his employment
agreement reimbursement for $1 million of term life insurance, and supplemental
long term care insurance coverage. Andrew Baker receives pursuant to his
employment agreement reimbursement for his life insurance premiums.

Medical Plans - Andrew Baker receives pursuant of his employment agreement
reimbursement for his private medical insurance.

Savings Plans - The Company provides executive officers in the U.S. the
opportunity to participate along with all other U.S. employees in the Huntingdon
Life Sciences Savings and Investment (the "401(k) Plan") a tax-qualified
broad-based employee savings plan. Employee contributions up to 15% of pre-tax
annual compensation are permitted up to dollar limits established annually by
the Internal Revenue Service ("IRS"). The Company contributes 75% of employee
contributions up to a maximum of 6%.

Perquisites

Relocation Allowance - The Company provides Andrew Baker and Brian Cass each a
relocation allowance of (pound)2,000 per month.

Car Allowance - The Company provides executive officers with the following car
allowances: (pound)1,000 per month to Messrs. Baker and Cass, (pound)750 per
month to Mr. Griffiths, and $1,000 per month to Messrs. Michaelson and Bibi.

Tax Preparation Fees - The Company paid tax preparation fees in 2006 for Messrs.
Michaelson and Bibi in the amount of $1,362 for Mr. Michaelson and $1,356 for
Mr. Bibi.

Club Fees - The Company paid $1,342 for membership fees for a luncheon club that
provides Manhattan meeting space for the use of Richard Michaelson.

Gasoline expenses - The Company paid the gasoline expenses for Messrs. Cass and
Griffiths in the amount of $9,111 for Mr. Cass and $3,287 for Mr. Griffiths.

Employment Agreements

Andrew Baker

The services of Mr. Baker are provided for not less than 100 days per year
through a management services contract between Huntingdon and Focused Healthcare
Partners ("FHP"), an investment firm controlled by Mr. Baker. Under the
contract, FHP agrees to provide the services of Mr. Baker as Chairman and CEO of
the Company. The management services contract will continue until terminated on
12 months' written notice from either party.

Under the management services contract FHP was paid during 2006 an annual fee of
(pound)330,000. Mr. Baker receives health and medical insurance benefits from
the Company. Mr. Baker receives contributions to his private pension
arrangements, equivalent to 33 percent of this basic annual fee. He is also
entitled to a non-pensionable car allowance of (pound)1,000 per month and
(pound)2,000 per month as a relocation allowance. The management services
contract may be terminated if either FHP or Mr. Baker is guilty of serious
misconduct or is in material breach of the terms of the contract, among other
reasons. In the event of termination without "cause" following a "change in
control", as defined, FHP would receive a payment equal to 2.99 times this
annualized fee plus an amount equal to 2.99 times all incentive compensation
earned or received by FHP or Mr. Baker during the 12 months prior to
termination.

Both FHP and Mr. Baker are bound by confidentiality restrictions and a
restriction preventing Mr. Baker from holding any interests conflicting with
those of the Company, without the Company's consent. Mr. Baker has undertaken to
the Company that, during the continuance of the management services contract, he
will not without the prior consent of the Company, be concerned or interested in
any business, which competes or conflicts with the business of the Company.


Richard Michaelson

The services of Mr. Michaelson are provided through a service agreement between
him and Huntingdon Life Sciences Inc. (a wholly owned subsidiary of the
Company). The service agreement appoints Mr. Michaelson as Chief Financial
Officer of the Company. Mr. Michaelson's service agreement will continue until
terminated by Mr. Michaelson on thirty days' written notice or by Huntingdon
Life Sciences Inc. on 12 months' written notice. In the event of termination
without "cause" following a "change in control", as defined, Mr. Michaelson
would receive a payment equal to 2.99 times his annual salary plus an amount
equal to 2.99 times all incentive compensation earned or received by Mr.
Michaelson during the 12 months prior to termination.

Mr. Michaelson received during 2006 an annual salary of $300,000 gross, and is
entitled to health insurance, life insurance, personal accident insurance,
medical expenses insurance, long term care insurance, and participation in the
401(k) Plan of Huntingdon Life Sciences Inc. Mr. Michaelson's service agreement
also provides for the payment of a bonus to Mr. Michaelson in the absolute
discretion of the Company's Board. In addition, Mr. Michaelson is entitled to a
car allowance of $1,000 gross per month.

The agreement may be terminated if Mr. Michaelson is guilty of serious
misconduct or is in material breach of the terms of the service agreement,
amongst other reasons.

Mr. Michaelson is bound by confidentiality restrictions and a restriction
preventing him from being engaged, concerned or interested in any business
conflicting with the business of the Company or any subsidiary unless the Board
otherwise consents or the interest is limited to a holding or other interest of
no more than 5 percent of the total amount of shares or securities of any
company quoted on a recognized investment exchange.


Brian Cass

The services of Mr. Cass are provided through a service agreement between
Huntingdon Life Sciences Limited (a wholly owned subsidiary of the Company) and
Mr. Cass, which appoints Mr. Cass as President/Managing Director of the Company.
Mr. Cass' service agreement can be terminated on two years' written notice from
either party.

Mr. Cass received during 2006 a gross salary of (pound)330,000 per annum. Under
the service agreement, Mr. Cass is also entitled to health insurance, life
insurance, personal accident insurance and medical expenses insurance. Mr. Cass
receives contributions to his private pension arrangements, equivalent to 33
percent of his basic annual salary. He is also entitled to a non-pensionable car
allowance of (pound)1,000 gross per month and (pound)2,000 per month as
relocation allowance. Mr. Cass' service agreement also provides for payment to
Mr. Cass of a bonus, in the absolute discretion of the Company's Board. In the
event of termination without "cause" following a "change in control", as
defined, Mr. Cass would receive a payment equal to 2.99 times his annual salary
plus an amount equal to 2.99 times all incentive compensation earned or received
by Mr. Cass during the 12 months prior to termination.

Mr. Cass' service agreement may be terminated if Mr. Cass is guilty of serious
misconduct or is in material breach of the terms of the service agreement or is
in breach of the model code for securities transactions by directors of listed
companies, among other reasons.

Mr. Cass is bound by confidentiality restrictions and a restriction preventing
him from being engaged, concerned or interested in any business that conflicts
with the business of the Company or any subsidiary unless either the Company's
Board otherwise consents or the interest is limited to a holding or other
interest of no more than 5 percent of the total amount of shares or securities
of any company quoted on a recognized investment exchange.


Julian Griffiths

The services of Mr. Griffiths are provided through a service agreement between
him and Huntingdon Life Sciences Limited (a wholly owned subsidiary of the
Company). The service agreement appointed Mr. Griffiths as Finance Director of
Huntingdon and he now holds the position of Vice President of Operations. Mr.
Griffiths' service agreement will continue until terminated by Mr. Griffiths on
six months' written notice or by Huntingdon Life Sciences Limited on 12 months'
written notice. In the event of termination without "cause" following a "change
in control", as defined, Mr. Griffiths would receive a payment equal to 2.99
times is annual salary plus an amount equal to 2.99 times all incentive
compensation earned or received by Mr. Griffiths during the 12 months prior to
termination.

Mr. Griffiths received during 2006 an annual salary of (pound)165,000 gross and
is entitled to permanent health insurance, life insurance, personal accident
insurance, medical expenses insurance and pension benefits. Mr. Griffiths
receives contributions to his private pension arrangements, equivalent to 20
percent of his basic annual salary. Mr. Griffiths' service agreement also
provides for the payment of a bonus to Mr. Griffiths in the absolute discretion
of the Company's Board.

In addition,  Mr.  Griffiths is entitled to a  non-pensionable  car allowance of
(pound)750 gross per month.

The agreement may be terminated if Mr. Griffiths is guilty of serious misconduct
or is in material breach of the terms of the service agreement, amongst other
reasons.

Mr. Griffiths is bound by confidentiality restrictions and a restriction
preventing him from being engaged, concerned or interested in any business
conflicting with the business of the Company or any subsidiary unless either the
Company's Board otherwise consents or the interest is limited to a holding or
other interest of no more than 5 percent of the total amount of shares or
securities of any company quoted on a recognized investment exchange.


Mark Bibi

The services of Mr. Bibi are provided through a service agreement between him
and Huntingdon Life Sciences Inc. (a wholly owned subsidiary of the Company).
The service agreement appointed Mr. Bibi as General Counsel and Secretary of
Huntingdon Life Sciences Inc. and he now also serves as the Company's General
Counsel and Secretary. Mr. Bibi's service agreement will continue until
terminated by Mr. Bibi on thirty days' written notice or by Huntingdon Life
Sciences Inc. on 12 months' written notice. In the event of termination without
"cause" following a "change in control", as defined, Mr. Bibi would receive a
payment equal to 2.99 times his annual salary plus an amount equal to 2.99 times
all incentive compensation earned or received by Mr. Bibi during the 12 months
prior to termination.

Mr. Bibi received an annual salary in 2006 of $300,000 gross and is entitled to
health insurance, life insurance, personal accident insurance, medical expenses
insurance and participation in the 401(k) Plan of Huntingdon Life Sciences Inc.

Mr. Bibi's service agreement also provides for the payment of a bonus to Mr.
Bibi in the absolute discretion of the Company's Board.

In addition, Mr. Bibi is entitled to a car allowance of $1,000 gross per month.

The agreement may be terminated if Mr. Bibi is guilty of serious misconduct or
is in material breach of the terms of the service agreement, amongst other
reasons.

Mr. Bibi is bound by confidentiality restrictions and a restriction preventing
him from being engaged, concerned or interested in any business conflicting with
the business of the Company or any subsidiary unless the Board otherwise
consents or the interest is limited to a holding or other interest of no more
than 5 percent of the total amount of shares or securities of any company quoted
on a recognized investment exchange.

Compensation of the Chief Executive Officer

In connection with the review of the Chief Executive Officer's annual salary for
2006, the Compensation Committee reviewed, among other things, the report that
compared Mr. Baker's total compensation to that of peer company CEOs. The
Committee also considered certain key goals for 2006, including refinancing the
Bonds and certain unique challenges faced by the Company (most notably the
animal rights extremist campaign against the Company) that makes Mr. Baker's
successful performance all the more notable.

For 2006, Mr. Baker's base salary was (pound)330,000. In March 2006 he received
an annual bonus for achievement of 2005 financial goals of (pound)165,000, which
he was paid in 31,493 shares of LSR common stock. He also received in March 2006
a special bonus of (pound)82,500 in consideration for his role in the successful
refinancing of the Bonds. In December 2006 the Compensation Committee awarded
Mr. Baker 100,000 stock options at an exercise price of $9.95 per share (equal
to the average of the highest daily stock price of LSR common stock for the five
trading days ending on the grant date), which options vest 50% on December 31,
2008 and 50% on December 31, 2009. When viewed in combination, his 2006 base
salary plus actual annual incentive compensation was $1,644,470.

Accounting and Tax Treatments of the Elements of Compensation

The Company accounts for stock-based awards, including stock options and stock
awards, as provided in FAS123(R).

The Compensation Committee considers the potential impact of IRC Section 162(m)
on compensation decisions. Section 162(m) disallows a tax deduction by the
Company for individual executive compensation exceeding $1 million in any
taxable year for the Chief Executive Officer and the other four highest
compensated senior executive officers, other than compensation that is
performance-based under a plan that is approved by the stockholders of the
Company and that meets certain other technical requirements. The Committee's
approach with respect to qualifying compensation paid to executive officers for
tax deductibility purposes is that executive compensation plans will generally
be designed considering a number of factors, including tax deductibility.
However, non-deductible compensation may still be paid to executive officers
when necessary for competitive reasons, to attract or retain a key executive, to
enable the company to retain flexibility in maximizing its pay for performance
philosophy, or where achieving maximum tax deductibility would not be in the
best interest of the Company.

Post-Employment Compensation

Each of the Company's named executive officers is party to an employment
agreement that specifies the payment of certain post-employment compensation. In
the event their employment terminates other than for cause (and not in
connection with a change of control of the Company), Messrs. Baker, Michaelson,
Griffiths and Bibi would continue to receive their base compensation for a
period of 12 months, and Mr. Cass for a period of 24 months. If their employment
is terminated without cause following a change in control, each of Messrs.
Baker, Cass, Michaelson, Griffiths and Bibi would receive a payment equal to
2.99 times base compensation plus an amount equal to 2.99 times all incentive
compensation earned during the 12 months prior to termination.

Set forth below are the total amounts payable in the event of termination
without a change in control and with a change in control:
<TABLE>
<CAPTION>

                                   Without a change in control                  With a change in control

                               Base          Incentive                        Base           Incentive
                           compensation    compensation       Total       compensation     compensation       Total
                               ($)              ($)            ($)             ($)              ($)            ($)
<S>                         <C>                             <C>             <C>              <C>          <C>
Andrew Baker                   608,256           -            608,256       1,818,685          454,671      2,273,356
Richard Michaelson             300,000           -            300,000         897,000        1,487,525      2,384,525
Brian Cass                  1,216,512            -          1,216,512       1,818,685          454,671      2,273,356
Julian Griffiths               304,128           -            304,128         909,343          113,668      1,023,011
Mark Bibi                      300,000           -            300,000         897,000        1,487,525      2,384,525
</TABLE>

The above table values are calculated using the 2006 base compensation and the
2006 incentive compensation earned during 2006, converted at a rate of $1.8432
for Messrs. Baker, Cass and Griffiths, who are paid in UK Pounds Sterling.

Compensation tables follow on the subsequent pages.

<PAGE>


Summary Compensation Table
<TABLE>
<CAPTION>

                                                                                            Change in Pension
                                                                                                Value and
                                                                                  Non-Equity   Non-qualified
                                                                                  Incentive      Deferred
                                                          Stock       Option         Plan      Compensation   All Other
Name and Principal       Year     Salary      Bonus       Awards      Awards   Compensation      Earnings    Compensation    Total
Position
                                     ($)        ($)         ($)         ($)          ($)         ($)            ($)        ($)
<S>                      <C>      <C>         <C>         <C>         <C>                                    <C>         <C>
Andrew Baker              2006     608,256    152,064        -        831,970         -           -           296,173     1,888,463
Chairman and Chief
Executive Officer

Richard Michaelson        2006     300,000     37,500     460,000        -            -           -           45,082        842,582
Chief Financial Officer
and Secretary

Brian Cass                2006     608,256    152,064        -        831,970         -           -           287,506     1,879,796
President

Julian Griffiths          2006     304,128     38,016        -        415,985         -           -           85,059        843,188
Vice President of
Operations

Mark Bibi                 2006     300,000     37,500     460,000     831,970         -           -           23,076      1,652,546
General Counsel and
Secretary
<FN>

Salary and other  payments:  Messrs.  Baker,  Cass nd  Griffiths  are paid in UK
pounds sterling. These amounts have been converted at the rate of 2006: $1.8432.

Stock  awards:  The  value of stock  awards  represents  the  number  of  shares
multiplied by the closing price on the date of the award.

Options  price:  The options issued on December 6, 2006 had an exercise price of
$9.95 per share,  the average  daily high price for the five trading days ending
on December 6, 2006.

Options - fair  value:  The fair value of the  options  were  estimated  using a
Black-Scholes  option pricing model,  with the  assumptions;  expected  dividend
yield of stock at 0%; expected  volatility of stock 161.50%;  risk-free interest
rate 4.48% and the weighted average expected term on the options of 6.28 years.

All other compensation:
Andrew   Baker:   Included   within  `All  Other   Compensation'   were  pension
contributions  of  $200,724,  medical  insurance of $16,284,  life  insurance of
$12,810, a car allowance of $22,118 and a relocation allowance of $44,237.

Richard  Michaelson:  Included within `All Other Compensation' were insurance of
$26,810 and a car allowance of $12,000.

Brian Cass: Included within `All Other Compensation' were pension  contributions
of $200,724,  a car allowance of $22,118 and a relocation  allowance of $44,237.
Julian  Griffiths:   Included  within  `All  Other  Compensation'  were  pension
contributions of $60,826 and a car allowance of $16,589.

Mark Bibi: Included within `All Other Compensation' was a $12,000 car allowance.
</FN>
</TABLE>

<TABLE>
Grants of Plan-Based Awards Table
<CAPTION>






                                                       Estimated Future Payouts Under          Estimated Future Payouts Under
                                                      Non-Equity Incentive Plan Awards          Equity Incentive Plan Awards

                                                     Minimum        Middle       Maximum
                                                    Threshold     Threshold     Threshold    Threshold    Target
            Name                  Grant Date           ($)           ($)           ($)          ($)          ($)     Maximum ($)

<S>                             <C>                <C>            <C>           <C>
Andrew Baker
2007 Annual Bonus Plan           December 6, 2006    304,128       608,256       912,384         -            -           -
2007 LTIP                        December 6, 2006   1,216,512     1,216,512     1,216,512        -            -           -
Options                          December 6, 2006       -             -             -            -            -           -

Richard Michaelson
2007 Annual Bonus Plan           December 6, 2006     75,000       150,000       225,000         -            -           -
2007 LTIP                        December 6, 2006    480,000       480,000       480,000         -            -           -
Management shares                December 6, 2006       -             -             -            -            -           -

Brian Cass
2007 Annual Bonus Plan           December 6, 2006    304,128       608,256       912,384         -            -           -
2007 LTIP                        December 6, 2006   1,216,512     1,216,512     1,216,512        -            -           -
Options                          December 6, 2006       -             -             -            -            -           -

Julian Griffiths
2007 Annual Bonus Plan           December 6, 2006     76,032       152,064       228,096         -            -           -
2007 LTIP                        December 6, 2006    486,605       486,605       486,605         -            -           -
Options                          December 6, 2006       -             -             -            -            -           -

Mark Bibi
2007 Annual Bonus Plan           December 6, 2006     75,000       150,000       225,000         -            -           -
2007 LTIP                        December 6, 2006    360,000       360,000       360,000         -            -           -
Options                          December 6, 2006       -             -             -            -            -           -
Management shares                December 6, 2006       -             -             -            -            -           -

</TABLE>

<TABLE>

Grants of Plan-Based Awards Table (Cont'd)
<CAPTION>
                                                       All Other      All Other                     Grant
                                                        Stock          Option                      Date Fair
                                                       Awards:         Awards:       Exercise      Value of
                                                      Number of      Number of       or Base        Stock
                                                      Securities    Securities      Price of         and
                                                      Underlying    Underlying       Option        Option
                                                       Options        Options        Awards        Awards
Name                            Grant Date                (#)           (#)          ($/Sh)         ($)
<S>                            <C>                    <C>            <C>              <C>         <C>
Andrew Baker
2007 Annual Bonus Plan          December 6, 2006          -             -               -            -
2007 LTIP                       December 6, 2006          -             -               -            -
Options                         December 6, 2006          -          100,000           8.32       831,970

Richard Michaelson
2007 Annual Bonus Plan          December 6, 2006          -             -               -            -
2007 LTIP                       December 6, 2006          -             -               -            -
Management shares               December 6, 2006       50,000           -              9.20       460,000

Brian Cass
2007 Annual Bonus Plan          December 6, 2006         -              -               -            -
2007 LTIP                       December 6, 2006         -              -               -            -
Options                         December 6, 2006         -            100,000          8.32       831.970

Julian Griffiths
2007 Annual Bonus Plan          December 6, 2006         -              -               -            -
2007 LTIP                       December 6, 2006         -              -               -            -
Options                         December 6, 2006         -             50,000          8.32       415,985

Mark Bibi
2007 Annual Bonus Plan          December 6, 2006         -              -               -            -
2007 LTIP                       December 6, 2006         -              -               -            -
Options                         December 6, 2006         -            100,000          8.32       831,970
Management shares               December 6, 2006        50,000          -              9.20       460,000

<FN>

The options issued on December 6, 2006 had an exercise price of $9.95 per share,
the average daily high price for the five trading days ending on December 6,
2006. The fair value of the options were estimated using a Black-Scholes option
pricing model, with the assumptions; expected dividend yield of stock at 0%;
expected volatility of stock 161.50%; risk-free interest rate 4.48% and the
weighted average expected term on the options of 6.28 years.
</FN>

</TABLE>

<PAGE>
<TABLE>

Outstanding Equity Awards at Fiscal Year-End Table
<CAPTION>


                                                             Option Awards

                                                             Equity Incentive
                            Number of         Number of        Plan Awards:
                           Securities        Securities          Number of
                           Underlying        Underlying         Securities
                           Unexercised       Unexercised        Underlying      Option
                             Options           Options          Unexercised     Exercise
                          (Exercisable)    (Unexercisable)   Unearned Options     Price      Option Expiration
         Name                  (#)               (#)                (#)            ($)             Date

<S>                         <C>               <C>                                <C>         <C>
Andrew Baker                 200,000                                 -            $1.50        March 1, 2012
                                               55,500                -            $3.30        June 1, 2014
                                               100,000               -            $9.95      December 6, 2016

Richard Michaelson           90,000                                  -            $1.50        March 1, 2012
                                               30,303                -            $3.30        June 1, 2014

Brian Cass                   200,000                                 -            $1.50        March 1, 2012
                                               55,500                -            $3.30        June 1, 2014
                                               100,000               -            $9.95      December 6, 2016

Julian Griffiths             60,000                                  -            $1.50        March 1, 2012
                                               27,750                -            $3.30        June 1, 2014
                                               50,000                -            $9.95      December 6, 2016

Mark Bibi                    50,000                                  -            $1.50        March 1, 2012
                                               20,455                -            $3.30        June 1, 2014
                                               100,000               -            $9.95      December 6, 2016

</TABLE>

<TABLE>
Outstanding Equity Awards at Fiscal Year-End Table (Cont'd)
<CAPTION>

                                                                        Stock Awards
                                                                                               Equity Incentive Plan
                                                                          Equity Incentive       Awards: Market or
                                                                          Plan Awards: Number    Payout Value of
                                                  Market Value of         of Unearned Shares,     Unearned Shares,
                           Number of Shares or    Shares or Units of       Units or Other         Units or Other
                           Units of Stock That    Stock That Have Not    Rights That Have Not   Rights That Have Not
                             Have Not Vested             Vested                 Vested                 Vested
Name                               (#)                    ($)                     (#)                    ($)

<S>                                <C>                    <C>                     <C>                   <C>
Andrew Baker                        -                      -                       -                      -
Richard Michaelson                  -                      -                       -                      -
Brian Cass                          -                      -                       -                      -
Julian Griffiths                    -                      -                       -                      -
Mark Bibi                           -                      -                       -                      -



</TABLE>


<PAGE>

<TABLE>

Option Exercises and Stock Vested Table
<CAPTION>

                                         Options Awards                         Stock Awards
                                   Number of
                                    Shares
                                  Acquired on    Value Realized      Number of Shares      Value Realized
             Name                  Exercise        on Exercise     Acquired on Vesting       on Vesting
                                      (#)              ($)                 (#)                  ($)

<S>                                                                      <C>                 <C>
Andrew Baker                           -                -                 31,493              289,736

Richard Michaelson                     -                -                 58,152              534,998

Brian Cass                             -                -                 31,493              289,736

Julian Griffiths                       -                -                 4,076                37,499

Mark Bibi                              -                -                 58,152              534,998
<FN>

The aggregate number of stock awards and option awards held by each director at
fiscal year-end
</FN>
</TABLE>


                           Option Awards            Share Awards
Andrew Baker                   355,500                 31,493
Brian Cass                     355,500                 31,493
Gabor Balthazar                22,500                  2,500
Yaya Sesay                      2,500                  2,500
Afonso Junqueiras               2,500                  2,500


<TABLE>

Summary Compensation Table for Non-Executive Directors
<CAPTION>

                                                                                     Change in
                                                                                   Pension Value
                                                                                        and
                              Fees                                                 Non-qualified
                              Earned or                            Non-Equity         Deferred
                              Paid in     Stock      Option      Incentive Plan     Compensation       All Other
Name and Principal               Cash      Awards      Awards     Compensation        Earnings        Compensation      Total
     Position         Year       ($)         ($)        ($)            ($)              ($)               ($)            ($)

<S>                   <C>      <C>         <C>         <C>                                                             <C>
Gabor Balthazar       2006      44,237     26,875      23,668           -                -                 -            94,780

Yaya Sesay            2006      27,500     26,875      23,668           -                -                 -            78,043

Afonso Junqueiras     2006      25,000     26,875      23,668           -                -                 -            75,543

</TABLE>

Audit Committee

The Audit Committee of the Board of Directors of LSR is authorized to retain and
evaluate the Company's independent accountants; to review and approve any major
changes in accounting policy; to review the arrangements for, scope and results
of the independent audit; to review and approve the scope of non-audit services
to be performed by independent accountants and to consider the possible effect
on the independence of the accountants; to review the effectiveness of internal
auditing procedures and personnel; to review LSR's policies and procedures for
compliance with disclosure requirements with respect to conflicts of interest
and for prevention of unethical, questionable or illegal payments; and to take
other such actions as the Board shall from time to time so authorize. Messrs.
Balthazar, Junqueiras and Sesay comprise the Audit Committee. Mr. Balthazar
serves as Chairman. The Board of Directors has determined that Mr. Balthazar
meets the definition of "audit committee financial expert" as such term is
defined under the SEC rules. Each member of the Audit Committee is considered to
be an independent director.

The Audit Committee operates under a written charter adopted by the Board of
Directors that is posted on the Company's web site.

Compensation Committee Interlocks and Insider Participation

The Company's Compensation Committee was comprised during 2006 of Gabor
Balthazar, Afonso Junqueiras and Yaya Sesay. Mr. Balthazar served as Chairman.
That composition remains the same currently. None of such persons was during
2006 or currently is or prior to 2006 was an officer or employee of the Company.
None of such persons had any relationship requiring disclosure under Item 404 of
Regulation S-K.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis ("CD&A") contained elsewhere in this Form 10-K with the
Company's management. Based on this review and discussion, the Compensation
Committee recommended to the Board of Directors that the CD&A be included in
this Form 10-K

                                                Gabor Balthazar
                                                Afonso Junqueiras
                                                Yaya Sesay




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

The following table summarizes our equity compensation plan information as of
December 31, 2006. Information is included for equity compensation plans
approved by LSR stockholders and equity compensation plans not approved by LSR
stockholders.
<TABLE>
<CAPTION>

                                                                                           Common shares available for
                                          Common shares to be        Weighted-average     future issuance under equity
                                        issued upon exercise of     exercise price of          compensation plans
                                          outstanding options,     outstanding options        (excluding securities
Plan Category                             warrants and rights      warrants and rights      reflected in column (a))
                                                  (a)                      (b)                         (c)

<S>                                           <C>                         <C>                       <C>
Equity  compensation plans approved by
LSR stockholders                               2,950,000                   3.72                      490,000

Equity    compensation    plans    not
approved by LSR stockholders                   1,425,000                  11.00                         -

Totals                                         4,375,000                   6.09                      490,000
</TABLE>

From time to time US depositary institutions hold shares on behalf of their
clients to enable a market to be made in the LSR's shares. No holdings of 5% or
more have been reported by those institutions at March 7, 2007.

The table on the following page sets forth, as of March 7, 2007, certain
information regarding the beneficial ownership of the shares of LSR common
stock, by (a) each person or entity who is known by LSR to own beneficially 5%
or more of its outstanding shares of Common Stock (none other than Mr. Baker,
who is a Director and Executive Officer of LSR); (b) each Director or Executive
Officer of LSR or principal subsidiary; and (c) all Directors and Executive
Officers as a group.


<PAGE>
<TABLE>
<CAPTION>

                                                   Amount of               Nature of Beneficial    Percentage
          Name of Beneficial Owner            Beneficial Ownership              Ownership           of Class


<S>                                                      <C>                <C>                      <C>
Andrew Baker                                             1,715,202                Direct             13.4%
Chairman and Chief Executive Officer                       200,000            Vested Options          1.5%
                                                           410,914           Vested Warrants          3.1%
                                              ---------------------
                                                         2,326,116  (1)                              17.4%

Gabor Balthazar                                              2,500                Direct               *
Director                                                    21,250            Vested Options           *
                                              ---------------------
                                                            23,750                                     *

Mark Bibi                                                  156,561                Direct              1.2%
General Counsel and Secretary                               50,000            Vested Options           *
                                              ---------------------
                                                           206,561                                    1.6%

Brian Cass                                                 455,893                Direct              3.6%
President                                                  200,000            Vested Options          1.5%
                                              ---------------------
                                                           655,893                                    5.1%

Julian Griffiths                                            54,076                Direct               *
Vice President of Operations                                60,000            Vested Options           *
                                              ---------------------
                                                           114,076                                     *

Afonso Junqueiras                                            2,500                Direct               *
Director                                                     1,250            Vested Options           *
                                              ---------------------
                                                             3,750                                     *

Richard Michaelson                                         293,242                Direct              2.3%
Chief Financial Officer and Secretary                       90,000            Vested Options           *
                                              ---------------------
                                                           383,242                                    3.0%

Yaya Sesay                                                   2,500                Direct               *
Director                                                     1,250            Vested Options           *
                                              ---------------------
                                                             3,750                                     *

All Directors and Executive Officers as a
group (8 persons)                                        3,717,138                                   26.9%
<FN>

* Signifies less than 1%. All percentages calculated on the basis of 12,781,077
  outstanding  shares of Voting  Common Stock  outstanding  at March 7, 2007.
  Shares subject to issuance upon presently  exercisable  options or warrants
  are  included  in  the  number  of  outstanding   shares  for  purposes  of
  calculating  that holder's  percentage  interest,  as well as the aggregate
  percentage interest of all Directors and Executive Officers as a group.

(1)  - 1,604,001  of such shares are  beneficially  owned by Focused  Healthcare
     Partners  Ltd,  a Bahamas  corporation  that is  controlled  by Mr.  Baker.
     490,914 of such shares  (including  the 410,914 shares subject to presently
     exercisable  warrants  noted  above)  are  beneficially  owned  by  Focused
     Healthcare  Partners LLC, a New Jersey  limited  liability  company that is
     controlled by Mr. Baker.
</FN>
</TABLE>


<PAGE>


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(1)      Brian Cass, President and Managing Director of LSR, acquired 400,000
         shares of LSR Common Stock in the Private Placement. Mr. Cass acquired
         such shares through the delivery of two promissory notes. Both such
         promissory notes, each in the amount of (pound)211,679 ($414,000), were
         due on March 28, 2007; bearing interest at the rate of 5% per annum;
         and were secured by the 200,000 shares of LSR Common Stock purchased
         with the proceeds of each such loan. Repayment of one of the promissory
         notes was made by automatic deduction of (pound)44,000 ($86,000) per
         year from the (pound)66,000 ($129,000) per year pension contribution
         made by the Company to a pension plan established by Mr. Cass. The
         other note was further collateralized by the (pound)214,500 ($420,000)
         accrued in such pension account. In addition, one-third of any yearly
         bonus received by Mr. Cass was used to reduce the principal of the
         promissory notes. Both promissory notes were repaid in full in 2006.

(2)      On June 14, 2005, the Company entered into and consummated purchase and
         sale agreements with Alconbury Estates Inc. and subsidiaries
         (collectively "Alconbury") for the sale and leaseback of the Company's
         three operating facilities in Huntingdon and Eye, England and East
         Millstone, New Jersey (the "Sale/Leaseback Transaction"). Alconbury is
         a newly formed company controlled by LSR's Chairman and CEO, Andrew
         Baker. The total consideration paid by Alconbury for the three
         properties was $40 million, consisting of $30 million in cash and a
         five year, $10 million variable rate subordinated promissory note,
         which Alconbury agreed to make a best effort to repay within twelve
         months.

(3)      In 2005, Alconbury received an interest free loan of $250,000, which
         was included in accrued expenses and other liabilities, from Andrew
         Baker, LSR's Chairman and CEO.

Corporate Governance

The Board considers each of Gabor Balthazar, Afonso Junqueiras and Yaya Sesay to
be independent under the Independence Standards of NYSE Arca, the national
securities exchange on which LSR Voting Common Stock is listed and traded. NYSE
Arca requires a majority of independent directors to serve on the audit and
compensation committees and the Company complies with that requirement; in fact,
the Company's audit, compensation and nominating and corporate governance
committees are comprised entirely of independent directors.



<PAGE>


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

Fees for audit services totaled approximately $592,000 in 2006 and $604,000 in
2005, including fees associated with the annual audit and the audit of internal
control over financial reporting and the reviews of the Company's quarterly
reports on Form 10-Q.

Audit-Related Fees

Fees for audit-related services totaled approximately $47,000 in 2006 and
$92,000 in 2005. Audit-related services principally include consultation on tax
and accounting issues related to a sale leaseback transaction, consultation on
other accounting and internal control matters, including Sarbanes-Oxley
requirements and other attest services.

Tax Fees

Fees for tax services, including tax compliance, tax advice and tax planning,
totaled approximately $47,000 in 2006 and $25,000 in 2005.

All Other Fees

Hugh Scott,  P.C. did not provide any services not  described  above in 2006 and
2005.

Audit  Committee  Pre-Approval of Audit and  Permissible  Non-Audit  Services of
Independent Auditors

The Audit Committee pre-approves all audit and permissible non-audit services
provided by the independent auditors. These services may include audit services,
audit-related services, tax services and other services. The Audit Committee has
adopted a policy for the pre-approval of services provided by the independent
auditors.


<PAGE>


                                     PART IV


ITEM 15.        EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1.  List of documents filed as part of this report

2.  Index to Financial Statements

          Life Sciences Research, Inc.

          Management Report on Consolidated Financial Statements and
          Internal Control

          Independent Auditors Report on Internal Control over Financial
          Reporting

     Independent Auditors' Report

     Consolidated Statements of Operations- Years ended
     December 31, 2006, 2005, and 2004

     Consolidated Balance Sheets - December 31, 2006 and 2005

     Consolidated Statements of Changes in Shareholders' (Deficit)/Equity
     and Comprehensive Income/(Loss) Years ended December 31, 2006, 2005,
     and 2004

     Consolidated Statements of Cash Flows - Years ended December 31, 2006,
     2005, and 2004

     Notes to Consolidated Financial Statements

3.   Financial Statement Schedules

     Schedules are omitted because they are not applicable or the required
     information is shown in the consolidated financial statements or notes
     thereto.

<PAGE>


List of Exhibits

Exhibit No.      Description of Exhibit

2.1  Letter of Intent,  dated August 27, 2001,  between the  Registrant and HLS.
     INCORPORATED  BY REFERENCE TO REGISTRANT'S  REGISTRATION  STATEMENT ON FORM
     S-4, REGISTRATION NUMBER 333-71408.

3.1  Articles of Amendment and Restatement of the Registrant adopted on November
     7, 2001.  INCORPORATED BY REFERENCE TO REGISTRANT'S  REGISTRATION STATEMENT
     ON FORM S-4, REGISTRATION NUMBER 333-71408.

3.2  Bylaws  of  the  Registrant.  INCORPORATED  BY  REFERENCE  TO  REGISTRANT'S
     REGISTRATION STATEMENT ON FORM S-4, REGISTRATION NUMBER 333-71408.

4.1  Subscription  Agreement  dated  August 1, 1991  among HIH  Capital  Limited
     ("HCL"),  HLS, Chase Manhattan Bank Luxembourg  S.A. (the  "Custodian"),  J
     Henry Schroder Wagg & Co. Limited and Others.  INCORPORATED BY REFERENCE TO
     HLS'  ANNUAL  REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED  SEPTEMBER  30,
     1991.

4.2  Trust  Deed,  dated  August 12, 1991 among HCL,  HLS and The Law  Debenture
     Trust  Corporation  plc  INCORPORATED BY REFERENCE TO HLS' ANNUAL REPORT ON
     FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1991.

4.3  Deed  Poll,  dated  August  12,  1991,  executed  by HLS.  INCORPORATED  BY
     REFERENCE  TO HLS'  ANNUAL  REPORT ON FORM 10-K FOR THE  FISCAL  YEAR ENDED
     SEPTEMBER 30, 1991.

4.4  Custodian  Agreement,  dated August 1, 1991 among the  Custodian,  HCL, and
     HLS.  INCORPORATED BY REFERENCE TO HLS'S ANNUAL REPORT ON FORM 10-K FOR THE
     FISCAL YEAR ENDED SEPTEMBER 30, 1991.

4.5  Deed Poll, dated October 16, 2001, executed by Registrant.  INCORPORATED BY
     REFERENCE TO REGISTRANT'S  REGISTRATION STATEMENT ON FORM S-4, REGISTRATION
     NO. 333-71408.

10.1 A  Management  Services  Agreement  dated  August 7, 1998  between  HLS and
     Focused  Healthcare  Partners.  INCORPORATED  BY  REFERENCE  TO HLS' ANNUAL
     REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.

10.2 A Deed  of  Undertaking  between  HLS and  Andrew  Baker.  INCORPORATED  BY
     REFERENCE  TO HLS'  ANNUAL  REPORT ON FORM 20-F FOR THE  FISCAL  YEAR ENDED
     DECEMBER 31, 1998.

10.3 Amendment dated January 26, 2000 to the Management Services Agreement dated
     August 7, 1999 between HLS and Focused Healthcare Partners. INCORPORATED BY
     REFERENCE  TO HLS'  ANNUAL  REPORT ON FORM 10-K FOR THE  FISCAL  YEAR ENDED
     DECEMBER 31, 1999.

10.4 Service Contract dated April 29, 1999 between  Huntingdon Life Sciences Ltd
     and Mr. B Cass INCORPORATED BY REFERENCE TO HLS' ANNUAL REPORT ON FORM 20-F
     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.

10.5 Service Contract dated April 29, 1999 between  Huntingdon Life Sciences Ltd
     and Mr. J Griffiths.  INCORPORATED  BY  REFERENCE TO HLS' ANNUAL  REPORT ON
     FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.

10.6 A  letter  of  appointment  dated  March  21,  2000  between  HLS and Mr. G
     Balthazar. INCORPORATED BY REFERENCE TO HLS' ANNUAL REPORT ON FORM 10-K FOR
     THE FISCAL YEAR ENDED DECEMBER 31, 1999.

10.7 Option  Deed  dated   September  2,  1998  between  HLS  and  Andrew  Baker
     INCORPORATED BY REFERENCE TO HLS' ANNUAL REPORT ON FORM 20-F FOR THE FISCAL
     YEAR ENDED DECEMBER 31, 1998.

10.8 Registrant's  2001 Equity  Incentive  Plan.  INCORPORATED  BY  REFERENCE TO
     REGISTRANT'S  REGISTRATION  STATEMENT  ON  FORM  S-4,  REGISTRATION  NUMBER
     333-71408.

10.9 Loan Facility  Letter,  dated  September  25, 2000,  between HLS and Andrew
     Baker. INCORPORATED BY REFERENCE TO HLS' ANNUAL REPORT ON FORM 10-K FOR THE
     FISCAL YEAR ENDED DECEMBER 31, 2000.

10.10 Amendment  No. 1 to Loan Facility  Letter,  dated as of February 22, 2001,
     between HLS and Andrew  Baker.  INCORPORATED  BY  REFERENCE  TO HLS' ANNUAL
     REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.

10.11 Amendment  No. 2 to Loan Facility  Letter,  dated as of March 20, 2001, by
     and among Andrew Baker, HLS and Focused Healthcare  Partners.  INCORPORATED
     BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
     ENDED DECEMBER 31, 2002.

10.12 Subscription and Investor Rights Agreement, dated October 9, 2001, between
     LSR  and  Walter   Stapfer.   INCORPORATED  BY  REFERENCE  TO  REGISTRANT'S
     REGISTRATION   STATEMENT  ON  FORM  S-4,   REGISTRATION   STATEMENT  NUMBER
     333-71408.

10.13 Subscription and Investor Rights Agreement, dated October 9, 2001, between
     LSR and the persons named therein as Investors.  INCORPORATED  BY REFERENCE
     TO REGISTRANT'S  REGISTRATION STATEMENT ON FORM S-4, REGISTRATION STATEMENT
     NUMBER 333-71408.

10.14 Warrant, dated October 9, 2001, issued by the Registrant.  INCORPORATED BY
     REFERENCE TO REGISTRANT'S  REGISTRATION STATEMENT ON FORM S-4, REGISTRATION
     STATEMENT NUMBER 333-71408.

10.15 Form of Director's Irrevocable  Undertaking.  INCORPORATED BY REFERENCE TO
     REGISTRANT'S  REGISTRATION  STATEMENT ON FORM S-4,  REGISTRATION  STATEMENT
     NUMBER 333-71408.

10.16 Inducement  Agreement,  dated October 9, 2001 between the  Registrant  and
     HLS.  INCORPORATED BY REFERENCE TO REGISTRANT'S  REGISTRATION  STATEMENT ON
     FORM S-4, REGISTRATION STATEMENT NUMBER 333-71408.

10.17 Warrant,  dated June 11, 2002,  issued by the Registrant.  INCORPORATED BY
     REFERENCE TO  REGISTRANT'S  PROXY  STATEMENT ON SCHEDULE 14A, DATED MAY 10,
     2002.

10.18 Service  Agreement,  dated as of April 1, 2000,  between  Huntingdon  Life
     Sciences,  Inc.  and  Richard  Michaelson.  INCORPORATED  BY  REFERENCE  TO
     REGISTRANT'S  ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
     31, 2002.

10.19 Service  Agreement,  dated as of April 1, 2000,  between  Huntingdon  Life
     Sciences,  Inc. and Mark Bibi  INCORPORATED  BY  REFERENCE TO  REGISTRANT'S
     ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002.

10.20 Amendment No. 1 to Service  Agreement  between  Huntingdon  Life Sciences,
     Inc. and Richard  Michaelson,  dated as of April 15, 2002.  INCORPORATED BY
     REFERENCE TO  REGISTRANT'S  ANNUAL  REPORT ON FORM 10-K FOR THE FISCAL YEAR
     ENDED DECEMBER 31, 2002.

10.21 Amendment  No. 1 to Service  Agreement  between  Huntingdon  Life Sciences
     Limited  and  Brian  Cass,  dated  as of April  15,  2002  INCORPORATED  BY
     REFERENCE TO  REGISTRANT'S  ANNUAL  REPORT ON FORM 10-K FOR THE FISCAL YEAR
     ENDED DECEMBER 31, 2002.

10.22 Amendment  No. 1 to Service  Agreement  between  Huntingdon  life Sciences
     Limited and Julian  Griffiths,  dated as of April 15, 2002  INCORPORATED BY
     REFERENCE TO  REGISTRANT'S  ANNUAL  REPORT ON FORM 10-K FOR THE FISCAL YEAR
     ENDED DECEMBER 31, 2002.

10.23 Amendment No. 2 to Management  Services  Agreement between Huntingdon Life
     Sciences Group plc and Focused Healthcare  Partners,  dated as of April 15,
     2002  INCORPORATED BY REFERENCE TO REGISTRANT'S  ANNUAL REPORT ON FORM 10-K
     FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002.

10.24 Financing  Agreement  between  Huntingdon  Life  Sciences  Limited and the
     Lenders  thereto,  dated as of March 1, 2006  INCORPORATED  BY REFERENCE TO
     REGISTRANT'S CURRENT REPORT ON FORM 8-K DATED MARCH 7, 2006.

21.1 Subsidiaries - FILED HEREWITH

31.1 Certification  of Chief  Executive  Officer  pursuant  to SEC Rule  13(a) -
     14(a). FILED HEREWITH

31.2 Certification  of Chief  Financial  Officer  pursuant  to SEC Rule  13(a) -
     14(a). FILED HEREWITH

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.Section 1350.
     FILED HEREWITH

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.Section 1350.
     FILED HEREWITH

99.1 Press Release dated March 9, 2007,  announcing fourth quarter and full year
     2006 results. FILED HEREWITH

<PAGE>


                                    SIGNATURE


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

                           Life Sciences Research Inc.
                                  (Registrant)



By:      /s/ Andrew Baker
Name:    Andrew Baker
Title:   Chairman and Chief Executive Officer and Director -
         Principal Executive Officer
Date:    March 14, 2007


By:      /s/ Richard Michaelson
Name:    Richard Michaelson
Title:   CFO - Principal Financial and Accounting Officer
Date:    March 14, 2007



<PAGE>


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

Signature                  Title                 Date

/s/ Gabor Balthazar        Director              March 14, 2007
Gabor Balthazar

/s/ Brian Cass             Director              March 14, 2007
Brian Cass

/s/ Afonso Junqueiras      Director              March 14, 2007
Afonso Junqueiras

/s/ Yaya Sesay             Director              March 14, 2007
Yaya Sesay