UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Mark One

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

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

Commission file number: 000-52981

RESEARCH PHARMACEUTICAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		20-4322769 (IRS Employer Identification Number)
520 Virginia Drive
Fort Washington, PA (Address of principal executive offices)		19034 (Zip code)

(215) 540—0700
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, par value $0.0001 per share
(Title of class)

Warrants to purchase Common Stock
(Title of class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act (the “Exchange Act”) of 1934. Yes o No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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 to this Form 10-K. þ

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of June 30, 2009, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $8,502,560 based on the closing price as reported on the Alternative Investment Market of the London Stock Exchange.

The number of shares outstanding of each of the issuer’ classes of common stock as of the latest practicable date,

Class		Outstanding at March 22, 2010
Common Stock, par value $0.0001 per share		37,278,352

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement for its 2010 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the Registrant’s fiscal year ended December 31, 2009.

 

 

FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009

TABLE OF CONTENTS

		Page
PART I
Item 1. BUSINESS			4
Item 1A. RISK FACTORS			9
Item 1B. UNRESOLVED STAFF COMMENTS			15
Item 2. PROPERTIES			16
Item 3. LEGAL PROCEEDINGS			16
Item 4. RESERVED			16
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			17
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA			18
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			19
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			25
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			27
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			51
Item 9A(T). CONTROLS AND PROCEDURES			51
Item 9B. OTHER INFORMATION			52
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			52
Item 11. EXECUTIVE COMPENSATION			52
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER ITEMS			52
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			52
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES			52
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			53
LIST OF SUBSIDIARIES
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CEO CERTIFICATION PURSUANT TO SECTION 302
CFO CERTIFICATION PURSUANT TO SECTION 302
CEO CERTIFICATION PURSUANT TO SECTION 906
CFO CERTIFICATION PURSUANT TO SECTION 906

CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Annual Report on Form 10-K contains “forward-looking statements” that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and that involve risks and uncertainties, many of which are beyond our control. Our actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in this Annual Report. Important factors that may cause actual results to differ from projections include, but are not limited to:

•

adverse economic conditions;

•

inability to raise sufficient additional capital to operate our business;

•

unexpected costs, lower than expected sales and revenues, and operating deficits;

•

adverse results of any legal proceedings;

•

changes in laws, rules and regulations affecting our business

•

inability to attract or retain qualified personnel, including sales and marketing, and scientific personnel; and

•

other specific risks that may be referred to in this Annual Report, including those set forth in the “Risk Factors” section contained in Part I, Item 1A of this Annual Report.

All statements, other than statements of historical facts, included in this Annual Report regarding our strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects, current expectations, forecasts, and plans and objectives of management are forward-looking statements. When used in this Annual Report, the words “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “should,” “project,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this Annual Report. We do not undertake any obligation to update any forward-looking statements or other information contained in this Annual Report, except as required by federal securities laws. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this Annual Report are reasonable, we cannot assure you that these plans, intentions or expectations will be achieved. We have disclosed important factors that could cause our actual results to differ materially from our expectations under the “Risk Factors” section contained in Part I, Item 1A of this Annual Report and elsewhere in this Annual Report. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

Information regarding market and industry statistics contained in this Annual Report are included based on information available to us that we believe is accurate. We have not reviewed or included data from all sources, and we cannot assure you of the accuracy or completeness of this data included in this Annual Report. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. We undertake no obligation to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. See the “Risk Factors” section contained in Part I, Item 1A of this Annual Report for a more detailed discussion of uncertainties and risks that may have an impact on our future results.

PART I

Item 1. Business

We provide a broad range of integrated clinical development solutions and services to our bio-pharmaceutical industry clients including clinical trial project management, site management and study monitoring, patient enrollment, data collection and management, statistical analysis and report writing, quality assurance, and regulatory and medical affairs services. These services support the design, initiation and management of our clients’ clinical trial programs that are required as part of the regulatory approval process for bio-pharmaceutical products. We perform services in connection with trials in many therapeutic areas, including cardiovascular, oncology, infectious diseases, neurology, allergy/immunology, endocrinology/metabolism, gastroenterology, obstetrics/gynecology, orthopedics, pediatrics and psychiatry. We have derived substantially all of our revenue from the research, development and marketing expenditures of the pharmaceutical, biotechnology and medical device industries.

Background

ReSearch Pharmaceutical Services, Inc. (“RPS”) was incorporated in Delaware on January 30, 2006 as Cross Shore Acquisition Corporation (“Cross Shore”), a blank check company formed to serve as a vehicle for the acquisition of a then unidentified operating business engaged in the delivery of business services to consumers and companies in the United States. On April 24, 2006, Cross Shore consummated an initial public offering on the Alternative Investment Market (“AIM”) of the London Stock Exchange, and on April 26, 2007, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ReSearch Pharmaceutical Services, Inc., a Pennsylvania corporation (“Old RPS”). Upon the completion of the merger with Old RPS on August 30, 2007, the combined company changed its name to ReSearch Pharmaceutical Services, Inc. Prior to the merger with Old RPS, Cross Shore had no operating business other than searching for an acquisition target.

Old RPS was originally incorporated under the name ReSearch Pharmaceutical Search, Inc. in Pennsylvania on November 21, 1994. Old RPS changed its name to ReSearch Pharmaceutical Services, Inc. on March 10, 2003. Longxia Acquisition, Inc., a wholly owned subsidiary of Cross Shore, merged with and into Old RPS with Old RPS being the surviving corporation. Old RPS subsequently merged with and into a wholly-owned subsidiary of Cross Shore on August 30, 2007. As a result of this merger, Old RPS became ReSearch Pharmaceutical Services, LLC a limited liability company organized under the laws of Delaware, and Cross Shore changed its name to ReSearch Pharmaceutical Services, Inc. RPS is now a holding company for, and conducts all of its operations through its wholly-owned subsidiary, ReSearch Pharmaceutical Services, LLC. On September 4, 2009, RPS delisted its common stock from AIM following approval of the delisting by the requisite number of shareholders. Trading in RPS’ warrants to purchase common stock, also listed on AIM, was suspended following delisting of the common stock, and the warrants were delisted on October 5, 2009. RPS common stock and warrants are no longer traded on AIM, but remain transferable as described in the proxy statement which was mailed to shareholders and warrant holders on July 24, 2009, and subject to applicable securities laws. The business of ReSearch Pharmaceutical Services, LLC is now the sole business of RPS. As used herein, unless the context otherwise requires or specifies, RPS, the registrant, its wholly-owned direct and indirect subsidiaries, and together with Old RPS, are referred to in this Annual Report as “we,” “us,” “our,” and the “Company.”

Our operations are based primarily in the Americas, Europe and Asia with wholly owned subsidiaries in over 40 countries around the world. We continue to evaluate expanding our operations into other markets across the world.

In December 2008, the Company completed the acquisitions of three European companies (the “European Acquisitions”) located in Spain, France and Germany. In July 2009, the Company completed the acquisition of Paramax International which is located in China (the “Paramax Acquisition”). The acquisitions of the four companies, which are active in the same areas as RPS, provide the Company with opportunities in the European and Asian markets and complement its current operations in the Americas. In addition, the acquisitions provide RPS with greater scale to meet the growing needs of its clients in the rapidly expanding market for globally integrated clinical research services.

Our senior management team is composed of highly experienced veterans of the clinical research organization (“CRO”), pharmaceutical and outsourcing industries. Daniel M. Perlman, our chief executive officer, has over 19 years of experience in outsourcing services to the pharmaceutical industry, and Dr. Harris Koffer, our president and chief operating officer, has over 27 years of experience in clinical drug development.

Business Overview

RPS employs a next generation CRO business model, serving biotechnology and pharmaceutical companies, which we collectively refer to as the bio-pharmaceutical industry. Our innovative business model combines the expertise of a traditional CRO with the ability to provide flexible outsourcing solutions that are fully integrated within our clients’ clinical development infrastructure. The development of our next generation CRO concept began in 1999, when we initiated a plan to build the industry’s largest personnel resourcing engines that, coupled with our specialized clinical infrastructure, would meet the varied needs of small, medium and large bio-pharmaceutical companies.

We focus our solutions primarily on our clients’ Phase II through Phase IV clinical development programs (which encompass trials on new drug compounds through late-stage post-marketing trials). Unlike a traditional CRO, which solely targets the outsourced portion of this market, we integrate our clinical trial professionals into various levels of our clients’ operations, allowing us to target both the outsourced and in-house components of our clients’ Phase II through Phase IV clinical trial needs.

We differentiate ourselves through our ability to deliver client-specific flexibility, offering both solutions that are fully integrated with our clients’ infrastructure and those that encompass more traditional outsourcing programs. Our fully integrated solutions allow our clients to outsource those portions of the clinical development process for which the greatest efficiencies and savings can be realized, while maintaining control over key medical and regulatory functions. This close collaboration means that our solutions are not limited to just one client project or protocol, but can cover the entire breadth of our clients’ drug development pipeline. By embedding ourselves within our clients’ infrastructure, we create a strategic and inter-dependent relationship which allows us to anticipate our clients’ clinical trial demands and efficiently deploy our skilled clinical professionals to meet our clients’ needs.

Some of our clients, particularly smaller bio-pharmaceutical companies that lack substantial clinical infrastructure, prefer our more traditional outsourcing solutions, rather than the integrated programs that appeal to our larger clients. For mid-sized clients, we offer the flexibility of a hybrid approach — combining elements of integration and traditional outsourcing within a single engagement. We believe our ability to provide the complete spectrum of clinical trial services, from fully integrated to fully outsourced, uniquely positions us to target the entire range of bio-pharmaceutical clinical development activity.

Business Model

The RPS business model is a new approach to outsourcing in the bio-pharmaceutical industry, by targeting both the outsourced and in-house portions of Phase II through Phase IV research and development needs of our clients. Our model enhances traditional outsourcing to meet the changing needs of our clients.

Our business model has evolved over time. In 2004, while continuing to provide services under our next generation CRO model, including clinical development solutions, project-based CRO services, and other outsourcing services, we continued the evolution of our model with the introduction of the Clinical Master Service Provider (“CMSP”) solutions. CMSP solutions are long-term, strategic relationships developed with the senior management of a client’s clinical, financial and procurement departments that generally involve a partial or full ‘carve-out’ of functional areas of the client’s development effort. CMSP solutions currently represent our fastest growing service area. CMSP revenues grew 24.7% to $123.6 million for the year ended December 31, 2009 and 56.3% to $99.1 million for the year ended December 31, 2008 over the comparable prior periods. Payroll related and other direct costs to provide CMSP services grew consistently with the growth in revenues, increasing 16.1% to $85.6 million for the year ended December 31, 2009 and 57.8% to $73.7 million for the year ended December 31, 2008 over the comparable prior periods. Our CMSP solutions provide fully integrated resource, implementation and management services to bio-pharmaceutical clients, within and across functions in support of their full pipeline of research and development for Phase II through Phase IV drug trials. The CMSP solution embeds our employees into the operations of the client - working in partnership with the management and employees of our bio-pharmaceutical clients.

Our first CMSP contract was signed in 2005, with significant build-out and expansion commencing in both North America and Latin America throughout 2006. From 2006 through 2009, we added a number of new CMSP clients, including several large and mid-sized bio-pharmaceutical companies. In December 2008 we completed the European Acquisitions, and in July 2009 we completed the Paramax Acquisition, which provide the Company with opportunities in the European and Asian markets and complement its current operations in the Americas.

We view our operations, manage our business, and report our financial information as one operating segment, as that term is defined under generally accepted accounting principles. As such, we report our financial information, including revenues, net income or loss, and total assets, as it pertains to our entire business of clinical development services to our bio-pharmaceutical industry clients including clinical trial project management, site management and study monitoring, patient enrollment, data collection and management, statistical analysis and report writing, quality assurance, and regulatory and medical affairs services. Our financial information and financial statements are set forth in this Annual Report under the headings entitled “Selected Consolidated Financial Data” contained in Part II, Item 6 and “Financial Statements and Supplementary Data” contained in Part II, Item 8.

Proprietary Technology

Although we have developed a number of processes that enable us to deliver services efficiently, our business is not dependent on any particular patents or other intellectual property. We have developed a proprietary database used to recruit employees for our clients. We are organized into six “niche” specialty recruiting teams: clinical research; biometrics; regulatory affairs, safety and medical writing; physicians; scientific and analytical chemistry; and health outcomes and pharmacoeconomics. Each team is staffed by a marketing recruiter, a project leader, senior recruiters, recruiters and researchers. We refer to each team as an “engine,” whose niche expertise and experience provides the ability to identify, develop and process candidates. Over the years, we have developed a database of over 160,000 clinical trial professionals. This database contains not only general contact information for candidates, but also includes specific candidate job requirements such as travel preferences and salary requirements, work history, current clinical trials experience, specialty and sub-specialty information. To ensure security of the data, our database system has both physical and application security restrictions, as well as role-based access restrictions. We are not aware of another provider of outsourcing services to the bio-pharmaceutical industry with a database comprising the depth or breadth of our staffing engines for functions tied to the drug development process.

Clients

We provide development services to, among others, the bio-pharmaceutical industry. Our current clients range from the world’s largest pharmaceutical companies and biotechnology companies to small and start-up organizations.

Many of our contracts with our clients are based on fixed hourly, monthly, or yearly fees per professional, plus reimbursable expenses. Some of our contracts are for a flat fee, subject to fixed inflation increases. Some of our fees are contractually capped. In some cases, our contracts contain provisions providing for increased discounts as the fees increase. In cases where the contracts are set at a fixed price, we generally bear the cost of overruns, but we benefit if the costs are lower than we anticipated. Contracts may range in duration from a few months to several years or longer depending on the nature of the work performed. In some cases, a portion of the contract fee is paid at the time the study or trial is started with the balance of the contract fee payable over the course of the study.

Many of our contracts may be terminated by the client either immediately or upon short notice. These contracts typically require payment to us of expenses to wind down a program and payment of our fees earned to date.

Our revenues depend on the outsourcing trends and the research and development expenditures of the bio-pharmaceutical industry. The majority of our revenues and accounts receivable are derived from pharmaceutical companies located in the United States. Our dependence on certain clients for a percentage of our revenue and our net revenue backlog are discussed in this Annual Report under the sections entitled “Risk Factors” contained in Part I, Item 1A and “Financial Statements and Supplementary Data” contained in Part II, Item 8. As discussed in more detail in those sections, a significant portion of our service revenues are represented by relatively few of our clients. The loss of these clients or the loss or reduction in scope of a single material contract or several smaller contracts with these clients could materially adversely affect our results of operations, revenues, or cash flow. Our largest client, Pfizer, including its wholly owned subsidiary Wyeth, accounted for approximately 17% of service revenues during the year ended December 31, 2009, and Wyeth accounted for approximately 20% and 23% of service revenues during years ended December 31, 2008, and 2007, respectively. Pfizer, including its wholly owned subsidiary Wyeth, represented approximately 16% of accounts receivable balance at December 31, 2009, and Wyeth represented approximately 13% of the accounts receivable balance at December 31, 2008. Our second largest client, Merck, along with its wholly owned subsidiary Schering Plough, accounted for approximately 16% of service revenues during the year ended December 31, 2009, and Schering Plough accounted for approximately 12% of service revenues during the year ended December 31, 2008. Merck, along with its wholly owned subsidiary Schering Plough, represented approximately 17% of the accounts receivable balance at December 31, 2009, and Schering Plough represented approximately 8% of the accounts receivable balance at December 31, 2008. Additionally, AstraZeneca, accounted for approximately 12% of service revenues during the year ended December 31, 2008. AstraZeneca represented approximately 14% of the accounts receivable balance at December 31, 2008. We provide Pfizer, Wyeth, Schering Plough, Merck and AstraZeneca with our CMSP solutions.

Competition

The CRO industry has many participants ranging from hundreds of small, limited-service providers to a limited number of full service contract research organizations with global capabilities. We primarily compete against in-house clinical development departments of pharmaceutical companies, full-service and limited service CRO’s and, to a lesser extent, selected universities and teaching hospitals.

Our significant competitors include, among others, Covance Inc., PPD, Inc., Quintiles Transnational Corp., Parexel International Corporation, Kendle International Inc., Icon PLC., eResearch Technology, Inc., PRA International, i3 Research, and Pharmanet Development Group Inc.

There is competition for clients on the basis of many factors, including the following: reputation for on-time quality performance; expertise and experience in specific areas; scope of service offerings; strengths in various geographic markets; price; technological expertise and efficient drug development processes; ability to acquire, process, analyze and report data in a rapid and accurate manner; historic experience and ability to manage large-scale clinical trials both domestically and internationally; quality of facilities; and size.

Government Regulation

In the United States, the FDA governs the conduct of clinical trials of drug products in human subjects, the form and content of regulatory applications, including, but not limited to, investigational new drug applications (“IND”) for human clinical testing and the development, approval, manufacture, safety, labeling, storage, record keeping, and marketing of drug products. The FDA has similar authority and similar requirements with respect to the clinical testing of biological products. Outside the United States, the European Agency for the Evaluation of Medicinal Products (EMEA) and other regulatory agencies require that test results submitted to such authorities be based on studies conducted in accordance with the FDA’s good clinical practice (“GCP”) regulations.

Governmental regulation directly affects our business. Increased regulation leads to more complex clinical trials and an increase in our potential business. Conversely, a relaxation in the scope of regulatory requirements, such as the introduction of simplified marketing applications for pharmaceutical and biological products, could decrease the business opportunities available to us. Changing levels of business opportunities and government regulation will result in a corresponding change in our direct and indirect costs incurred in providing services. For example, additional legislation or regulation governing the possession, use and dissemination of medical record information and other personal health information might require us to implement new security measures that require substantial expenditures or limit our ability to offer some of our services and products. These regulations might also increase costs by creating new privacy procedures and requirements.

In the United States, we must perform our clinical drug and biologic services in compliance with applicable laws, rules and regulations, including GCP regulations, which govern, among other things, the design, conduct, performance, monitoring, auditing, recording, analysis, and reporting of clinical trials. Before a human clinical trial may begin, the manufacturer or sponsor of the clinical product candidate must file an IND with the FDA, which contains, among other things, the results of preclinical tests, manufacturer information, and other analytical data. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development. Each clinical trial must be conducted pursuant to, and in accordance with, an effective IND.

In addition, under the GCP regulations, each human clinical trial we support is subject to the oversight of an institutional review board, which is an independent committee that has the authority to review, approve, monitor, and suspend a clinical trial for which the institutional review board has responsibility. The FDA, an institutional review board, or our client may suspend or terminate a clinical trial at any time on various grounds, including a finding that the study subjects are being exposed to an unacceptable health risk.

In order to comply with the GCP and other regulations, either we and/or our clients must, among other things:

•		comply with specific requirements governing the selection of qualified investigators;
•		obtain specific written commitments from the investigators;
•		obtain institutional review board approval of the clinical trial;

•

verify that appropriate patient informed consent is obtained before the patient participates in a clinical trial;

•		ensure adverse drug reactions resulting from the administration of a drug or use of a device during a clinical trial are medically evaluated and reported in a timely manner;
•		monitor the validity and accuracy of data;
•		verify drug or device accountability;
•		instruct investigators and study staff to maintain records and reports; and
•		permit appropriate governmental authorities access to data for review.

We must also maintain reports and other related information and documents in compliance with applicable regulatory requirements for each study. These reports, other information and documents may be audited by our client, the FDA, or similar regulatory authorities.

A failure to comply with applicable regulations relating to the conduct of clinical trials or the preparation of marketing applications could lead to a variety of sanctions. For example, violations of the GCP regulations could result, depending on the nature of the violation and the type of product involved, in the issuance of a warning letter, suspension or termination of a clinical study, refusal by the FDA to approve clinical trial or marketing applications or withdrawal of such applications, injunction, seizure of investigational products, civil penalties, criminal prosecutions, or debarment from assisting in the submission of new drug applications.

We monitor our clinical trials to test for compliance with applicable laws and regulations in the United States and the foreign jurisdictions in which we operate. We have adopted standard operating procedures that are designed to satisfy regulatory requirements and serve as a mechanism for controlling and enhancing the quality of the clinical trials we manage for our clients. In the United States, our procedures were developed to ensure compliance with the GCP regulations and associated guidelines.

The Standards for Privacy of Individually Identifiable Health Information (“Privacy Rule”), issued under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, restrict the use and disclosure of certain protected health information. Under the Privacy Rule, certain entities may not use or disclose protected health information without the authorization of the individual whose information is protected, unless the use or disclosure of the information is specifically permitted by regulation or law.

RPS is not a covered entity under the HIPAA Privacy Rule. However, in connection with our clinical development activities, we do receive protected health information from covered entities subject to HIPAA. In order for those covered entities to disclose protected health information to us, the covered entity must obtain an authorization meeting Privacy Rule requirements from the research subject, or make a disclosure under an exception to the Privacy Rule’s authorization requirement. As part of our research activities, we require covered entities that perform research activities on our behalf to comply with HIPAA, including the Privacy Rule’s authorization requirement.

Employees

As of December 31, 2009, we had approximately 2,100 staff located throughout North America, Latin America, Europe and the Asia-Pacific region.

Item 1A. Risk Factors

We depend on the bio-pharmaceutical industry for substantially all of our revenue. Factors or trends affecting that industry could adversely affect our business.

We provide services and solutions to the bio-pharmaceutical industry and our revenues depend on the outsourcing trends and research and development expenditures of the bio-pharmaceutical industry. Economic factors and industry trends that affect companies in the bio-pharmaceutical industry affect our business. In the past, mergers, product withdrawals, liability lawsuits, product failures, governmental regulations, and other factors in the bio-pharmaceutical industry appear to have slowed decision-making by bio-pharmaceutical companies and delayed drug development projects. The continuation of or increases in these trends could have an adverse effect on our business.

Bio-pharmaceutical industry consolidation may adversely affect our business.

A number of large bio-pharmaceutical companies have recently completed mergers or other acquisitions that have consolidated the research and development expenditures and outsourcing trends of the bio-pharmaceutical industry into fewer companies. For example, our clients, Wyeth (now a wholly-owned subsidiary of Pfizer) and Schering Plough (now a wholly-owned subsidiary of Merck), which represented 17% and 16% of our service revenues during the fiscal year ended December 31, 2009, respectively, have recently been acquired by other large bio-pharmaceutical companies. As the integration of these acquisitions continues, the surviving bio-pharmaceutical companies may decide to use other CROs, keep clinical research services in-house, or otherwise diminish the use of our services. We cannot predict the potential impact of these or similar acquisitions and subsequent integration, but any resulting decisions related to outsourcing clinical trial services could have an adverse effect on our business.

We compete with existing in-house personnel employed by our clients, and use of these personnel could reduce our revenues.

The use of in-house personnel by current or potential clients to perform the functions that we perform for these clients could have an adverse effect on our business. The increased use of in-house personnel would decrease the likelihood that we would obtain additional new contracts or extensions of existing contracts to participate in our clients’ drug development process, which could eliminate or substantially reduce our revenues.

Our contracts may be delayed, terminated or reduced in scope with little or no notice, which could adversely impact our profitability.

Many of our contracts with our clients may be terminated or reduced in scope with little or no notice. Cancellations may occur for a variety of reasons, including the failure of the client’s product to satisfy safety and/or efficacy requirements, unexpected results of the client’s product or the client’s decision to reduce its research and development activities. In addition, if we are unable to provide the sufficient number of staff required for a project, the contract may be delayed, terminated, or reduced in scope.

A substantial percentage of our revenue is attributable to a relatively small number of clients. The loss of, or reduction in services provided to, these clients could adversely impact our revenues.

For the year ended December 31, 2009, our top five clients represented approximately 54% of service revenues and our twenty top clients comprised approximately 82% of service revenues. For the year ended December 31, 2009, our two largest clients, Pfizer, including its wholly-owned subsidiary Wyeth, and Merck, including its wholly-owned subsidiary Schering Plough, were each responsible for approximately 17% and 16% of our service revenues, respectively. The loss of either or both of our largest clients, or the loss or reduction in scope of one or more material contracts or several smaller contracts of any of our top five clients, could materially adversely affect our results of operations, revenues or cash flow. No assurance can be given that we will be able to realize the service revenues included in backlog and accordingly, our aggregate backlog is not a necessarily meaningful indicator of future results. Our total backlog as of December 31, 2009 was $231.6 million, of which approximately $43.1 million is not expected to be realized in 2010.

If we are unable to reassign billable personnel from one project to another as projects are completed, it will be difficult for us to achieve our financial and operational goals.

Our success depends to a significant extent upon our senior management team and its ability to minimize the number of unassigned billable personnel by reassigning billable personnel from one project to another as projects are completed. The number of billable personnel who are unassigned could have an impact on our ability to meet our financial and operational goals.

The fixed price nature of some of our contracts could result in financial losses.

Some of our contracts are structured as fixed price contracts. If we underbid our fixed price contracts or overrun the initial cost estimates, such under-bidding or significant cost overruns could have a material adverse effect on our business, results of operations, financial condition and cash flow.

Outsourcing to the bio-pharmaceutical industry is highly competitive, and our failure to compete could harm our business.

We compete with a wide range of providers of outsourcing services to the bio-pharmaceutical industry, including small, niche providers and full-service global contract research organizations. Outsourcing service providers compete based on a variety of factors, including reputation for quality, performance, price, scope of service offerings and geographic presence. A number of our competitors possess substantially greater resources than we do, which may adversely affect our competitive position within the industry. Additionally, many of our current and potential clients have in-house capabilities to perform services that we also provide and may elect to perform such services themselves, which would increase competitive pressure on us, and may have a material adverse effect on our business, results of operations, financial condition and cash flows.

If we fail to hire, retain and integrate qualified personnel, it will be difficult to achieve our goals.

Our success depends to a significant extent upon the efforts of our senior management team and its ability to hire qualified personnel in the regions in which we operate. There is substantial competition within the bio-pharmaceutical industry for qualified personnel, and difficulty in recruiting or retaining qualified personnel will impact our ability to meet our financial and operational goals.

Our business depends on our senior management team and other key personnel, and the loss of any member of the team could harm our business.

We believe that our success will depend on the continued employment of our senior management team, which has significant experience in the administration of bio-pharmaceutical services businesses. Our future business and financial results could be adversely affected if the services of members of our senior management or other key managers cease to be available. If one or more members of our senior management team were unable or unwilling to continue in their present positions, those persons could be difficult to replace and our business could be harmed. If any of our key employees were to join a competitor or form a competing company, some of our clients might choose to use the services of that competitor or new company instead of our services. In addition, we cannot assure you that a court would enforce the non-competition provisions in our employment agreements with our senior management. Further, if non-competition provisions were enforced, they are limited in time and scope and we cannot assure you that the provisions would adequately protect our business.

We may not be able to expand through acquisitions successfully.

We evaluate from time to time acquisition opportunities globally and in the United States in order to increase market share and presence in servicing the bio-pharmaceutical industry. Our ability to grow successfully through acquisitions could be affected by, among other things, the following:

•

Identification of acquisition targets. We may have difficulty identifying suitable acquisition opportunities and successfully consummating proposed transactions.

•

Competition for acquisitions. Competition in the acquisition market could limit our ability to grow through acquisitions or could raise the prices of acquisitions and make them less accretive or possibly non-accretive.

•

Financing of acquisitions. We may not be able to obtain necessary financing or may need to incur significant cash expenditures to consummate desirable strategic acquisitions.

•

Expense of acquisitions. The costs and expenses of acquisitions, including integration expenses and exposure to unforeseen liabilities, could have a material adverse effect on our financial condition and results of operations and the overall effectiveness of our acquisitions.

•

Integration of acquisitions. We may experience difficulty integrating completed acquisitions. The process of integrating acquired businesses may involve unforeseen difficulties and may require significant financial and other resources and a disproportionate amount of management’s attention. We may not be able to successfully manage and integrate new businesses or technologies into our existing operations or successfully maintain the market share attributable to any acquired businesses.

To the extent that we are unable to successfully execute our acquisition strategy, or our recent acquisitions do not prove to be accretive, it may have an adverse effect on our ability to expand domestically and internationally and may ultimately have a negative impact on our business and financial condition.

Our international operations are subject to numerous risks.

We have international operations in Canada, South America, Latin America, Europe and the Asia-Pacific region, and we intend to develop our operations globally through acquisitions and subsequent organic growth based on client demand. Our current foreign operations and our future foreign operations are subject to risks inherent in operating in foreign countries, including government regulations, currency restrictions and fluctuations, other restraints, burdensome taxes and political and civil instability and unrest. Our ability to manage these issues could be affected by applicable U.S. laws and the need to protect our assets in those locations. Although we intend to take steps to mitigate these risks where possible, political, economic or social instability or other developments could make less developed countries less suitable for our expansion plans and may have a material adverse effect on our ability to operate in and contract with persons in such countries.

Further, our financial statements are denominated in U.S. dollars. As a result, factors associated with current and future international operations, including changes in foreign currency exchange rates, could significantly affect our results of operations and financial condition. For the fiscal year ended December 31, 2009, we generated approximately 17% of our revenue from our foreign operations. Exchange rate fluctuations between local currencies and the U.S. dollar create risk in several ways, including foreign currency translation risk related to our revenue and expenses of foreign operations being generally denominated in local currencies, and foreign currency transaction risk related to our foreign contracts that may be denominated in a currency other than the currency in which we incur expenses related to such contracts. In addition, as a result of the European Acquisitions and Paramax Acquisition, we have increased our number of paid personnel in foreign countries significantly, and fluctuations in foreign currency exchange rates could increase our employee compensation expenses in those foreign countries accordingly. In the future, we may seek to limit these risks through exchange rate fluctuation provisions in our contracts, or by hedging our transaction risk with foreign currency exchange contracts or options. Despite these efforts, we may still experience fluctuations in financial results from our operations outside the United States, and we cannot assure that we will be able to favorably reduce our currency transaction risk associated with our contracts.

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

The bio-pharmaceutical industry generally, and drug discovery and development more specifically, are subject to increasingly rapid technological changes, such as in the field of genomics and proteomics. Our competitors or others might develop technologies, services or products that are more effective or more commercially attractive than our current or future technologies, services or products, or which render our technologies, services or products less competitive or obsolete. If competitors introduce superior technologies, services or products and we cannot make enhancements to remain competitive, our competitive position, and in turn our business, revenues and financial condition, would be materially and adversely affected.

Proposed and future legislation or regulations may increase the cost of our business or limit our service or product offerings.

Federal, state, or local authorities might adopt healthcare legislation or regulations that are more burdensome than existing regulations. For example, recent product safety concerns and the creation by the FDA of the Drug Safety Oversight Board could change the regulatory environment for drug products including the process for FDA product approval and post-approval safety surveillance. These and other future changes in regulation could increase our expenses or limit our ability to offer some of our services or products. For example, additional legislation or regulation governing the possession, use and dissemination of medical record information and other personal health information might require us to implement new security measures that require substantial expenditures or limit our ability to offer some of our services and products. These regulations might also increase costs by creating new privacy procedures and requirements.

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

Numerous governments have undertaken efforts to control growing healthcare costs through legislation, regulation and voluntary agreements with healthcare providers and drug companies, including the current healthcare reform legislation pending in the U.S. Congress. Healthcare reform could reduce demand for our services and products, and, as a result, reduce our revenue. In the last several years, the U.S. Congress has reviewed several comprehensive healthcare reform proposals. The proposals are intended to expand healthcare coverage for the uninsured and reduce the growth of total healthcare expenditures. The U.S. Congress has also considered and may adopt legislation that could have the effect of putting downward pressure on the prices that bio-pharmaceutical companies can charge for prescription drugs. Any such legislation could cause our discovery and development clients to spend less on research and development. Similarly, pending or future healthcare reform proposals outside the U.S. could negatively impact our revenues from our international operations.

Our business and the businesses of our clients are subject to extensive regulation, and the results of operations could be harmed if regulatory standards change significantly or if we fail to maintain compliance with evolving, complex regulations.

Laws and regulations regarding the development and approval of drug and biological products have become increasingly stringent in both the U.S. and foreign jurisdictions, resulting in a need for more complex and often larger clinical studies. Human pharmaceutical products, biological products, and medical devices are subject to rigorous regulation by the U.S. government — principally the FDA, but also the Federal Trade Commission, and other agencies — and by foreign governments if products are tested or marketed abroad. Additional legislation or regulation governing the possession, use and dissemination of medical record information and other personal health information might require us to implement new security measures that require substantial expenditures or limit our ability to offer certain services and products. Further, a relaxation of the scope of regulatory requirements, such as the introduction of simplified marketing applications for pharmaceuticals and biologics, such as those made by generic drug manufacturers, could decrease the business opportunities available to us.

In addition, because we offer services relating to the conduct of clinical trials and the preparation of marketing applications, we are required to comply with applicable regulatory requirements governing, among other things, the design, conduct, performance, monitoring, auditing, recording, analysis, and reporting of these trials. In the United States, the FDA governs these activities pursuant to the agency’s GCP regulations. A failure to maintain compliance with the GCP or other applicable regulations could lead to a variety of sanctions, including, among other things, and depending on the nature of the violation and the type of product involved, the suspension or termination of a clinical study, civil penalties, criminal prosecutions, or debarment from assisting in the submission of new drug applications, or NDAs. In addition, we could be required to pay monetary damages to our client in the event of such failures. While we monitor clinical trials to test for compliance with applicable laws and regulations in the U.S. and foreign jurisdictions in which we operate, and have adopted standard operating procedures that are designed to satisfy regulatory requirements, our business spans multiple regulatory jurisdictions with varying, complex regulatory frameworks, and therefore we cannot assure that our systems will ensure compliance in every instance in the future. If we are forced to incur significant costs in complying with new regulations, or if we incur fines or damage to our reputation as a result of our failure to comply with such regulations, our business, results of operations and financial condition may be adversely affected.

Unfavorable general economic conditions could negatively impact our operating results and financial condition.

Unstable global economic conditions, including the recent recession in the United States and the continuing financial crisis in the banking system and financial markets, could negatively affect our business. While it is difficult for us to predict the impact of general economic conditions on our business, these conditions could reduce client demand for some of our services or the ability of third parties to provide services critical to our business, which could cause our revenue to decline. Also, our clients, particularly smaller bio-pharmaceutical companies which are especially reliant on the credit and capital markets, may not be able to obtain adequate access to credit or equity funding, which could affect their ability to make timely payments to us. If that were to occur, we could be required to increase our allowance for doubtful accounts, and the number of days outstanding for our accounts receivable could increase. For these reasons, among others, if economic conditions persist or decline, our operating results and financial condition could be adversely affected.

Our clinical research services create a risk of liability and, if we were required to pay damages or to bear the costs of defending any claim not covered by contractual indemnity, it could cause material harm to our business.

Clinical research services by bio-pharmaceutical companies involve the testing of new drugs, biologics, and devices on human volunteers, and, if marketing approval is received for any of their drug, biologic and device candidates, their use by patients. This testing by bio-pharmaceutical companies creates risks of liability for personal injury, sickness or death of patients resulting from their participation in the study. These risks include, amongst other things, unforeseen adverse side effects, improper application or administration of a new drug or device, and the professional malpractice of medical care providers. Many volunteer patients are already seriously ill and are at heightened risk of future illness or death. In connection with providing contract research services, we contract, together with our clients, with physicians to serve as investigators in conducting clinical trials on human volunteers. Although we do not believe we are legally accountable for the medical care rendered by third party investigators, it is possible that, in the event of the personal injury or death of persons participating in clinical trials, we could be held liable for the claims and expenses arising from any professional malpractice of the investigators with whom we or our client contract. We also could be held liable for errors or omissions in connection with the services we perform. While we believe our current insurance coverage is adequate, our business could be materially harmed if we were required to pay damages or bear the costs of defending any claim outside the scope of, or in excess of, the contractual indemnification provided by our agreements with our clients that is beyond the level or scope of insurance coverage in effect, or if an indemnifying party does not fulfill its indemnification obligations, or if indemnification agreements are not enforced in accordance with their terms.

Our business could be harmed if we are unable to manage growth effectively.

We have experienced growth and believe that sustained growth places a strain on operational, human, and financial resources. To manage our growth, we must continue to improve operating and administrative systems and services and attract and retain qualified management, professional, scientific, and technical operating personnel. We believe that maintaining and enhancing both our systems and personnel at reasonable costs are instrumental to our success. We cannot give any assurances that we will be able to attract and retain qualified personnel. We cannot give any assurance that we will be able to enhance our current technology or obtain new technology that will enable systems to keep pace with developments and the sophisticated needs of our clients. The nature and pace of our growth introduces risks associated with quality control and client dissatisfaction due to delays in performance or other problems. In addition, foreign operations involve the additional risks of assimilating differences in foreign business practices, hiring and retaining qualified personnel, and overcoming language and cultural barriers. It is also possible that with any future acquisitions, we will assume the liabilities and problems of the acquired entity. We anticipate additional growth in the future and may face integration and related issues. Failure to manage growth effectively could have an adverse effect on us.

Our business depends significantly on the continued effectiveness of our information technology infrastructure, and failures of such technology could harm operations.

To remain competitive, we must employ information technologies that capture, manage, and analyze the large streams of data generated during clinical trials in compliance with applicable regulatory requirements. In addition, because we provide services on a global basis, we rely extensively on technology to allow the concurrent conduct of studies and work sharing around the world. As with all information technology, our system is vulnerable to potential damage or interruptions from fires, blackouts, telecommunications failures, computer related hardware and software failures and disruptions and other unexpected events, as well as to break-ins, sabotage, or intentional acts of vandalism. Given the extensive reliance of our business on this technology, any substantial disruption or resulting loss of data that is not avoided or corrected by backup measures could harm our business and operations.

Our ability to provide personnel depends significantly on our proprietary database, and loss or damage to this database would harm our business.

Our database of clinical trial professionals and pharmaceutical company profiles is a key element in our ability to compete with other providers of outsourcing services to the bio-pharmaceutical industry. The loss, damage, or misappropriation of our database could result in our inability to meet our contractual obligations with our clients, a loss of a competitive edge with other outsourcing service providers, a loss of potential growth opportunities, and may have a material adverse effect on our business, results of operations, financial conditions, and cash flow.

Our operations may be affected by the occurrence of a natural disaster, communications technology disruption, or other catastrophic event.

Natural disasters or other catastrophic events, including terrorist attacks, pandemic flu, hurricanes, floods and ice storms, could disrupt our operations or those of our clients, partners or suppliers which could also affect us. Loss of communication services, such as telephone, e-mail, or internet service could disrupt our ability to communicate with our clients and recruit clinical trial professionals. A malfunction or an attack on our website or internet infrastructure could disrupt our internet communications abilities. While we carry business interruption insurance policies that we believe to be adequate, we might suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies or for which the policies do not provide coverage. Any natural disaster or catastrophic event affecting us, our clients, partners, or suppliers could have a significant negative impact on our operations and financial performance.

We may face significant employment liability risk.

We employ and place people in the workplaces of our clients. An inherent risk of such activity includes possible claims of errors and omissions, misuse or misappropriation of client proprietary information, misappropriation of funds, discrimination and harassment, failure to comply with applicable immigration laws and regulation, theft of client property, other criminal activity, torts or other claims. We have policies and guidelines in place to reduce exposure to such risks. However, failure of any employee or personnel to follow these policies and guidelines may result in negative publicity, loss of client relationships and business, injunctive relief, payment of monetary damages or fines or other material adverse effects upon our business. Moreover, we could be held responsible for the actions at a workplace of persons not under our immediate control. To reduce exposure, we maintain insurance covering general liability, workers compensation claims, errors and omissions, and employee theft. Due to the nature of our assignments, in particular, access to client information systems and confidential information, and the potential liability with respect thereto, we may not be able to obtain insurance coverage in amounts adequate to cover any such liability on acceptable terms. In addition, we face various employment-related risks not covered by insurance, such as wage and hour laws and employment and withholding tax responsibilities.

Significant increases in payroll-related costs could adversely affect our business.

We are required to pay a number of federal, state, and local payroll and related costs, including unemployment taxes, workers compensation and insurance, FICA, and Medicare, among others, for our U.S. based employees. Significant increases in the effective rates of any payroll-related costs, or the imposition of additional or new payroll related costs, likely would have a material adverse effect upon profitability. Costs could also increase as a result of health care reforms or the possible imposition of additional requirements and restrictions related to the placement of personnel. Recent federal and state legislative proposals have included provisions extending health insurance benefits to personnel who currently do not receive such benefits. We may not be able to increase the fees charged to our clients in a timely manner and in a sufficient amount to cover increased costs, if any such proposals are adopted.

We are a holding company and derive substantially all of our cash flow from our subsidiaries.

We rely upon revenues and distributions from our subsidiaries to generate the funds necessary to meet our obligations. Our subsidiaries are separate and independent legal entities and have no obligation, contingent or otherwise, to make funds available to us, whether in the form of loans, dividends or otherwise. The ability of our subsidiaries to pay dividends to us is also subject to, among other things, the availability of sufficient funds in such subsidiaries and applicable state laws. Claims of creditors of our subsidiaries will generally have priority as to the assets of such subsidiaries over our claims and claims of our creditors and shareholders. In addition, we have pledged the ownership interests in ReSearch Pharmaceutical Services, LLC to a bank as security for our line of credit, and therefore, if we are in default of any of the provisions of our agreement for the line of credit, our bank could foreclose on the pledged ownership interests of ReSearch Pharmaceutical Services, LLC. If the bank were to foreclose on the pledged ownership interests, we would no longer be entitled to receive revenues or distributions from our U.S. operating subsidiaries, which would have a material adverse effect on our business, results of operations, financial conditions, and cash flow.

There is no trading market for our common stock and warrants, and our stockholders may not be able to resell their securities.

There is currently no public market for shares of our common stock or warrants. Our common stock and warrants were listed on AIM until, at a special meeting of our stockholders and warrant holders on August 26, 2009, we received approval from the requisite percentage of our stockholders to delist our common stock from AIM. The warrant holders did not approve our proposal to delist our warrants from AIM. On September 4, 2009, our common stock was delisted from AIM and our nominated advisor resigned from its position and trading of our warrants on AIM was suspended. We did not appoint another nominated advisor within one month of the suspension of trading of our warrants and the listing of our warrants was cancelled on October 5, 2009. We cannot predict when or whether our common stock or warrants may be listed on a securities exchange in the future. Accordingly, stockholders and warrant holders may run the risk of illiquidity in their stock and warrant ownership and be unable to sell their stock and warrants.

Our securities are volatile.

Investors should be aware that the value of our stock may be influenced by many factors, some of which may be specific to us and some of which may affect companies generally, including the depth and liquidity of the market, if any, in which our stock is traded, our performance, a large or small volume of trading in the stock, legislative changes and general economic, political or regulatory conditions, and that the prices may be volatile and subject to extensive fluctuations. The value of an investment in our company may increase or decrease; therefore investors may realize less than, or lose all of, their investment.

The exercise of the our outstanding warrants and options may have an adverse effect of the market price of our stock.

Approximately 1.4 million warrants and approximately 2.9 million options for our stock are currently outstanding. In addition, we cannot assure investors that the holders of our stock subject to lock-up restrictions will not sell substantial amounts of their stock upon any waiver, expiration or termination of the restrictions. The sale or even the possibility of sale of such stock or the stock underlying the warrants and options could have an adverse effect on the price for our securities or on our ability to obtain a future public financing. If and to the extent that warrants and/or options are exercised, stockholders could be diluted.

Our stockholders have approved a proposal to effect a reverse stock split, which may impact our ability to attract institutional investors, decrease our market capitalization, and cause stockholders to own “odd lots” of shares.

At our 2008 Annual Meeting of Stockholders, our stockholders approved a proposal that gives our Board of Directors the authority to effect a reverse stock split at a ratio of one-for-two to one-for-four, to be determined by our Board of Directors. Our stock is not currently listed on any market or quotation system, so the market price of the stock would not be affected by such a reverse stock split. However, the book value of our stock would be affected, and if the reverse stock split is implemented, the resulting per-share price may not attract institutional investors or investment funds and may not satisfy the investing guidelines of these investors.

The reverse stock split may also result in some stockholders owning “odd lots” of less than 100 shares of our common stock on a post-split basis. Odd lots may be more difficult to sell, or require greater transaction costs per share to sell, than shares in “round lots” of even multiples of 100 shares.

Further, the reverse stock split will result in an increase in the number of our authorized but unissued shares. If a one-for-two reverse stock split is implemented, we will have at least 131,361,096 authorized but unissued shares, and will have even more unauthorized but unissued shares if the reverse stock split is implemented at a ratio of one-for-three or one-for-four. We may issue these shares without the approval of our stockholders, and any such issuance will have a dilutive effect on the ownership interests of our current stockholders or any stockholders that own our shares prior to effectiveness of the reverse stock split.

Being a reporting company under the Exchange Act may affect our profitability.

The cost of continued compliance with the provisions of the Exchange Act, the “blue sky” laws of various states, and other U.S. or foreign securities laws may have an adverse effect on our results of operations.

The stock and warrants will continue to be represented by definitive certificates in the near term, which could reduce their liquidity.

Due to U.S. securities law requirements, the stock and warrants will be represented by definitive certificates. The lack of a fully electronic trading mechanism may reduce the liquidity of the securities due to consequential delays in the settlement of sales.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our headquarters are located in Fort Washington, Pennsylvania in approximately 56,454 square feet of leased space. This facility accommodates our executive offices, recruiting and management operations. The term of the lease commenced on April 1, 2007 with an initial term of 123 months. The initial annual base rent is approximately $1,016,000. The base rent is increased by $0.50 per square foot annually effective on the anniversary of the lease commencement date.

In addition to our headquarters, we lease additional office space in Fort Washington, Pennsylvania, as well as office space in Buenos Aires, Argentina, Bogota, Colombia, Mexico City, Mexico, Sao Paolo, Brazil, Barcelona and Madrid, Spain, Nuremburg, Germany, Boulogne, France and Beijing, China.

Item 3. Legal Proceedings

We are party to lawsuits and administrative proceedings incidental to the normal course of our business. We do not believe that any liabilities related to such lawsuits or proceedings will have a material effect on our financial condition, results of operations or cash flows.

Item 4. Reserved

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Our common stock and warrants were traded on AIM (symbol: RPSE for our common stock and RPSW for our warrants) until September 5, 2009 and October 4, 2009, respectively. At a special meeting of stockholders and warrant holders on August 26, 2009, we received approval from the requisite percentage of our stockholders to delist our common stock from AIM. The warrant holders did not approve our proposal to delist our warrants from trading on AIM. Upon the date of delisting of our common stock from AIM, our nominated advisor resigned from its position and trading of our warrants on AIM was suspended. We did not appoint another nominated advisor within one month after the suspension of our warrants from trading on AIM and the listing of our warrants on AIM was cancelled on October 4, 2009. Due to the limited quotations of our common stock and warrants on AIM while listed, AIM is not considered an “established public trading market” as that term is defined in Regulation S-K, Item 201(a)(1)(i). Our common stock and warrants are not currently traded on any established public trading market.

As of March 24, 2010, there were approximately 101 record holders of our common stock and 14 holders of our warrants. Because some of our shares of common stock may be held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial holders represented by these record holders.

We have not paid any cash dividends on our common stock or warrants in our history of operation. Declaration and payment of cash dividends constitutes an event of default in accordance with the covenants in our credit agreement, as amended, with PNC Bank, N.A. We do not currently intend to pay cash dividends on our common stock or warrants in the foreseeable future, but rather, currently intend to reinvest earnings in our business.

Equity Compensation Plan Information

Number of securities

Number of securities

remaining available for

to be issued upon

Weighted-average exercise

future issuance under

exercise of

price of outstanding

equity compensation plans

outstanding options

options, warrants and

(excluding securities

Plan Category

warrants and rights

rights

reflected in column (a))

Equity compensation plans approved by security holders

2,595,485

$

1.79

4,196,786

(1)

Equity compensation plans not approved by security holders (2)

—

—

—

Total

2,595,485

$

1.79

4,196,786

Item 6. Selected Consolidated Financial Data

The following selected consolidated financial data should be read together with our consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report. The selected financial data in this section is not intended to replace our consolidated financial statements and the accompanying notes. Our historical results are not necessarily indicative of our future results.

		Year Ended December 31,
		2009				2008				2007				2006				2005
		(in thousands except earnings per share data)
Statements of Operations Data:
Service revenue		$	200,472			$	156,967			$	120,459			$	84,418			$	62,799
Reimbursement revenue			23,696				18,086				13,924				10,273				8,074
Total revenue			224,168				175,052				134,383				94,691				70,873
Costs and expenses
Direct costs			145,209				117,707				87,650				61,365				45,744
Reimbursable out-of-pocket costs			23,696				18,086				13,924				10,273				8,074
Selling, general and administrative expenses			44,798				31,290				26,787				19,070				16,747
Depreciation and amortization			3,723				1,750				1,143				901				864
Income (loss) from operations			6,742				6,219				4,879				3,082				(556	)
Interest and other (income) expense, net			562				(42	)			5,786				1,245				1,127
Net income (loss) before provision  for income taxes			6,180				6,261				(907	)			1,837				(1,683	)
Provision for income taxes			3,560				2,518				1,508				45				—
Net income (loss)			2,620				3,743				(2,415	)			1,792				(1,683	)
Accretion of preferred stock			—				—				(321	)			(485	)			(485	)
Net income (loss) applicable to common shares		$	2,620			$	3,743			$	(2,736	)		$	1,307			$	(2,168	)
Basic earnings per share		$	0.07			$	0.11			$	(0.19	)		$	0.24			$	(0.39	)
Diluted earnings per share		$	0.07			$	0.11			$	(0.19	)		$	0.12			$	(0.39	)
Weighted average number of shares outstanding
Basic			37,003				32,617				14,573				5,502				5,506
Diluted			38,071				34,103				14,573				15,484				5,506

		As of December 31,
		2009				2008				2007				2006				2005
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	3,468			$	6,565			$	11,060			$	197			$	540
Working capital			21,601				24,608				31,355				6,603				4,351
Total assets			96,261				87,089				50,419				26,124				17,983
Capital leases			804				1,555				950				21				73
Long term debt			1,339				1,142				—				4,165				3,980
Redeemable convertible preferred stock			—				—				—				8,002				7,517
Stockholders’ equity (deficit)			46,306				42,282				30,429				(4,350	)			(5,788	)

In December 2008, the Company completed the European Acquisitions. The preliminary total net assets acquired inclusive of identified intangibles of $3.9 million and goodwill of $14.9 million, are included in the consolidated Balance Sheet data as of December 31, 2008. Two of the entities were acquired on December 22, 2008, and the third was acquired on December 23, 2008, and therefore, the impact of the European Acquisitions on the consolidated statement of operations data for the year ended December 31, 2008 was immaterial, as the operations of such entities are included in our consolidated operations only from the date of acquisition to December 31, 2008. In July 2009, the Company completed the Paramax Acquisition. The preliminary total identified intangible assets of $0.1 million and goodwill of $1.5 million, is included in the consolidated Balance Sheet data as of December 31, 2009.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

RPS has been providing services to the bio-pharmaceutical industry since it was founded in 1994. The Company has built an outsourcing organization that combines clinical drug development expertise and infrastructure with staffing and recruiting capabilities.

The bio-pharmaceutical industry continues to increase its spending on clinical drug development as it looks for the rapid introduction of new, innovative drugs. Further economic pressures including the rising costs of developing a new drug as a result of the increasing complexity, size and duration of trials and recruiting patients have made it more difficult for bio-pharmaceutical companies to generate significant revenues to exceed the development costs of their drugs.

In light of the economic pressures seen by its bio-pharmaceutical clients, the Company believes that its unique model of providing integrated outsourcing solutions is an attractive alternative to traditional outsourcing to CROs as well as to research activities performed in-house.

The Company has invested in building an infrastructure to support the demand for its services. In 2005 the Company began its investment in global expansion with the opening of offices across Latin America. In December 2008, the Company completed the European Acquisitions, and in July 2009 the Company completed the Paramax Acquisition. The Company believes that the European Acquisitions and the Paramax Acquisition, which involved companies that are active in the same fields as RPS, provide the Company with opportunities in the European and Asian markets and complement its current operations in the Americas. In addition, RPS believes the European Acquisitions and the Paramax Acquisition provide it with greater scale to meet the growing needs of its customers in the rapidly expanding market for globally integrated clinical research services.

Critical Accounting Policies

RPS’ consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which require management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. The significant accounting policies of the Company are discussed in Note 2 to the audited financial statements for the year ended December 31, 2009, included elsewhere in this report. The following discussion highlights what the Company believes to be the critical accounting policies and judgments made in the preparation of these consolidated financial statements.

• Revenue and Cost Recognition

The majority of the Company’s service revenues are derived from fee-for-service contracts, some of which are fixed price contracts. Revenues and the related costs of fee-for-service contracts are recognized in the period in which services are performed. Fixed price contract revenue is calculated on a proportional performance basis based on the rate that costs incurred to date bear to estimated total costs at completion. The Company also recognizes revenue under units-based contracts by multiplying units completed by the applicable contract per-unit price. Revenue related to contract modifications is recognized when realization is assured and the amounts are reasonably determinable. Adjustments to contract estimates are made in the periods in which the facts that require the revisions become known. When the revised estimate indicates a loss, such loss is provided for in the financial statements during that period. Deferred revenue represents amounts billed to customers in excess of revenues recognized.

The Company accounts for expense reimbursement in accordance with FASB guidance, which requires reimbursable out-of-pocket expenses to be characterized as revenue in the statements of operations.

The Company excludes investigator fees from its out-of-pocket expenses because these fees are funded from the customer’s restricted cash and are recorded on a “pass-through basis” without risk or reward to the Company.

• Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. This approach also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or the entire deferred tax asset will not be realized. The Company evaluates if its deferred tax assets are realizable on an ongoing basis by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization is the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income might affect the ultimate realization of the net deferred tax assets.

Effective January 1, 2007, the Company adopted the FASB guidance related to accounting for uncertainty in income taxes. This authoritative interpretation clarified and standardized the manner by which companies are required to account for uncertain income tax positions. Under this guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position. The amount of the accrual for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that the Company believes is more likely than not to be realized upon ultimate settlement of the position.

The Company’s annual provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of management judgment. Management’s judgments, assumptions and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. The Company operates within federal, state and international taxing jurisdictions and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve.

• Stock Based Compensation

FASB guidance requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value. This guidance requires that an entity measure the cost of equity-based service awards based on the grant-date fair value of the award and recognize the cost of such award over the period during which the employee is required to provide service in exchange for the award (vesting period).

The per-share weighted average fair value of the options granted during the years ended December 31, 2009, 2008 and 2007 was estimated at $0.87, $1.96 and $1.70 on the date of grant, respectively, using the Black-Scholes option-pricing model with the following weighted average assumptions which are based upon the Company’s history or industry comparative information:

		December 31,
		2009				2008				2007
Expected dividend yield			0.00	%			0.00	%			0.00	%
Expected volatility			50	%			50	%			52	%
Risk-free interest rate			2.19	%			3.01	%			3.34	%
Expected life		6 years				6 years				6 years

Prior to August 30, 2007, the Company’s common stock was not publicly traded, and the expected volatility was calculated for each date of grant based on an alternative method (defined as “calculated value”). Subsequent to August 30, 2007, as a public company on the AIM, the Company continued to utilize the calculated value for expected volatility as a sufficient level of history was not available as a publicly traded company. In September and October 2009, the Company delisted its common stock and warrants from AIM, respectively, and its common stock and warrants are no longer publicly traded. As such, the Company will continue to use the calculated value. The Company identified similar public entities for which share price information is available and has considered the historical volatility of these entities’ share prices in determining its estimated expected volatility. The Company used the average volatility of these guideline companies over a six-year period, consistent with the expected term calculated pursuant to FASB guidance. From August 30, 2007 through the September 2009 AIM delisting date, the Company utilized the quoted stock price on the AIM as a determinant of fair value of the Company’s common stock. Subsequent to the AIM delisting date, the Company estimates the fair value of its common stock using the market and income valuation approaches, with the assistance of a valuation consultant. As of December 31, 2009, the aggregate amount of unrecognized stock-based compensation was $506,000, net of estimated forfeitures, which is expected to be recognized over the weighted average period of 2.2 years. Under the true-up provisions of the stock based compensation guidance, the Company will record additional expense if the actual forfeiture rate is lower than it has initially estimated, and the Company will record a recovery of prior expense if the actual forfeiture rate is higher than it estimated.

• Valuation of Long-lived Assets

Intangible assets consist primarily of non-compete agreements, customer contracts and lists, brand names, and goodwill. The majority of the intangible asset balances consist of intangible assets acquired from the European Acquisitions and the acquisition of Paramax. Finite–lived intangible assets are amortized on a straight line basis over the following periods: Customer lists – three to five years, brand names – two years, and non-compete agreements – three to six years. Goodwill represents the excess of the cost over the fair value of net assets acquired in a business combination. If the Company determines that the carrying value of definite lived long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, the Company performs an undiscounted cash flow analysis to determine if impairment exists. If impairment exists, the Company measures the impairment based on the difference between the asset’s carrying amount and its fair value. Goodwill is tested for impairment on an annual basis (as of October 1 of each year) and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company below its carrying value. If the fair value of the Company is less than the carrying value, goodwill may be impaired, and will be written down to its estimated fair market value, if necessary.

Results of Operations

Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008:

Revenues. Service revenues increased 27.7% to $200.5 million for 2009 from $157.0 million for 2008 as we generated additional business from existing and new customers. The $43.5 million increase in revenue is related to significant new contracts and the continued growth of existing contracts, including growth in the revenue attributable to our CMSP programs of $22.1 million or 50.8% of the increase in service revenues, and $21.4 million, or 49.2% of the increase in service revenues, from the European Acquisitions and the Paramax Acquisition. CMSP revenue for the year ended December 31, 2009 grew 24.7% over the comparable prior period, and accounted for $123.6 million or 61.6% of our total service revenue for the year ended December 31, 2009, as compared to CMSP growth of 16.1% for the period ended December 31, 2008 over the comparable prior period, which accounted for $99.1 million or 63.2% of total service revenue for the year ended December 31, 2008. (see Item 1: Business – “Business Overview” and “Business Model” for further information on our CMSP solutions).

Reimbursement revenues and offsetting reimbursable out-of-pocket costs fluctuate from period to period due primarily to the level of pass-through expenses in a particular period. Reimbursement revenues and reimbursable out-of-pocket costs increased 31.0% to $23.7 million in 2009 from $18.1 million in 2008. The increase is due primarily to an increase in the number of programs for which we provide our various services.

Direct Costs. Direct costs increased 23.4% to $145.2 million or 72.4% of service revenues for 2009 as compared to $117.7 million or 75.0% of service revenues for 2008. The increase in direct costs is directly correlated with the increase in revenues as described above. The primary costs included in direct costs are operational staff payroll and related taxes and benefits.

Selling, general and administrative expenses. Selling, general and administrative expenses (“SG&A”) increased 43.2% to $44.8 million for 2009 from $31.3 million for 2008 to support the increase in revenues. Growth in SG&A expenditures outpaced revenue growth primarily in relation to the investment in infrastructure related to the European Acquisitions and the Paramax Acquisition, and an increase in the number of corporate personnel, which resulted in increases in employee-related costs such as new salaries, health benefits and payroll taxes to $25.9 million for the year ended December 31, 2009 as compared to $18.8 million for the year ended December 31, 2008. Additionally, due to our increasing global footprint we saw an increase in rent and travel expense to $5.4 million for the year ended December 31, 2009 as compared to $3.5 million for the year ended December 31, 2008.

Depreciation and amortization expense. Depreciation and amortization expense increased to $3.7 million for 2009 as compared to $1.8 million for 2008 due primarily to an increase in amortization of intangibles related to the European Acquisitions and the Paramax Acquisition.

Income from operations. Income from operations increased to $6.7 million for 2009 as compared to income from operations of $6.2 million for 2008. The increase is attributable to growth in revenues in excess of the corresponding growth in direct costs and SG&A costs as described above.

Interest expense. Interest expense for 2009 increased to $0.6 million from interest expense of $0.3 million for 2008. The increase is due to the interest expense incurred on the outstanding balance on our line of credit.

Interest income. Interest income increased to $0.5 million during the year ended December 31, 2009 from interest income of $0.3 million for 2008 due to an increase in the level of investable cash on hand throughout the period.

Other expense. We incurred other expense of $0.5 million during the year ended December 31, 2009 due to adverse foreign currency fluctuations impacting our Latin American operations in Brazil and Colombia.

Provision for income taxes. The provision for income taxes for 2009 increased to $3.6 million from $2.5 million for 2008. The increase in the provision is due to both an increase in taxable income in the United States during the period, as well as an increase in the overall effective tax rate. The effective tax rate increased as we are not recording a tax benefit for net operating losses generated in certain foreign subsidiaries as we may not realize the tax benefit of these operating losses.

Net income. As a result of the factors discussed above, net income for 2009 decreased to $2.6 million or $0.07 per share, basic and diluted, from net income for 2008 of $3.7 million or $0.11 per share, basic and diluted.

Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007:

Revenues. Service revenues increased 30.3% to $157.0 million for 2008 from $120.5 million for 2007 as we generated additional business from existing and new customers. The majority of the increase was related to significant new contracts and the continued growth of existing contracts with several pharmaceutical companies in our CMSP programs. CMSP revenue for the year ended December 31, 2008 grew 56.3% over the comparable prior period, and accounted for $99.1 million or 63.2% of our total service revenue for the year ended December 31, 2008, as compared to CMSP growth of 181.1% for the period ended December 31, 2007 over the comparable prior period, which accounted for $63.4 million or 53.2% of total service revenue for the year ended December 31, 2007. (see Item 1: Business – “Business Overview” and “Business Model” for further information on our CMSP solutions).

Reimbursement revenues and offsetting reimbursable out-of-pocket costs fluctuated from period to period due primarily to the level of pass-through expenses in a particular period. Reimbursement revenues and reimbursable out-of-pocket costs increased 29.9% to $18.1 million in 2008 from $13.9 million in 2007. The increase was due primarily to an increase in the number of programs for which we provided our various services.

Direct Costs. Direct costs increased 34.3% to $117.7 million or 75.0% of service revenues for 2008 as compared to $87.7 million or 72.8% of service revenues for 2007. The increase in direct costs was directly correlated with the increase in revenues as described above. The primary costs included in direct costs are operational staff payroll and related taxes and benefits.

Selling, general and administrative expenses. SG&A increased 16.8% to $31.3 million for 2008 from $26.8 million for 2007 to support the increase in revenues. The primary reason for the increase in SG&A costs was an increase in the number of corporate personnel, which resulted in increases in employee-related costs such as new salaries, as well as increases in salaries for existing employees, bonuses, commissions, health benefits and payroll taxes to $18.8 million for the year ended December 31, 2008 as compared to $16.2 million for the year ended December 31, 2007. Additionally, due to our increasing global footprint we saw an increase in rent and travel expense to $3.5 million for the year ended December 31, 2008 as compared to $2.6 million for the year ended December 31, 2007. Although our public company filing status in the U.S. and on the AIM resulted in significant expenditures for our insurance premiums, licenses and professional fees, we saw these amounts decrease to $3.1 million for the year ended December 31, 2008 as compared to $3.4 million for the year ended December 31, 2007. Although the total increased during the periods, as a percentage of service revenues, SG&A expenses decreased to 19.9% of service revenues for 2008 as compared to 22.2% of service revenues for 2007. The decrease was attributable to the Company’s ability to leverage fixed infrastructure costs and contain semi-variable overhead costs at a slower rate of growth than revenues.

Depreciation and amortization expense. Depreciation and amortization expense increased to $1.8 million for 2008 as compared to $1.1 million for 2007 due primarily to an increase in the depreciable asset base.

Income from operations. Income from operations increased to $6.2 million for 2008 as compared to income from operations of $4.9 million for 2007. The increase was attributable to growth in revenues in excess of the corresponding growth in direct costs and SG&A costs as described above.

Interest expense. Interest expense for 2008 decreased to $0.3 million from interest expense of $6.0 million for 2007. The majority of the change in interest expense related to a non-cash charge of $4.7 million recorded during the year ended December 31, 2007, to mark the Company’s put warrant liability to its market value during the period. The put warrants were exchanged for a combination of common stock and cash on August 30, 2007 in connection with the merger with Cross Shore.

Interest income. Interest income increased to $0.3 million during the year ended December 31, 2008 from interest income of $0.2 million for 2007 due to an increase in the level of investable cash on hand subsequent to the Company’s August 30, 2007 merger with Cross Shore.

Provision for income taxes. The provision for income taxes for 2008 increased to $2.5 million from $1.5 million for 2007. The increased provision is reflective of the increased income before provision for income taxes as described above. The Company’s effective tax rate for 2007 is significant as the $4.7 million non-cash interest charge recorded related to the put warrant liability discussed above was non-deductible for income tax purposes.

Net income (loss). As a result of the factors discussed above, net income for 2008 increased to $3.7 million or $0.11 per share, basic and diluted, from a net loss for 2007 of $2.4 million or ($0.19) per share, basic and diluted.

Liquidity and Capital Resources

In the United States, the Company manages its cash function using collection and cash management accounts. Daily collections are swept into its operating account with excess funds invested in high quality money market funds of short duration. Disbursements presented for payment are funded daily out of the money market accounts. Outside of the United States, cash balances are maintained at levels necessary to support operating activities. As in the United States, cash balances for foreign subsidiaries are generally maintained in the functional currency of the applicable subsidiary.

The Company’s expected primary cash needs on both a short and long-term basis are for capital expenditures, expansion of services, possible future acquisitions, global expansion, working capital and other general corporate purposes.

The Company maintains a working capital line of credit with a bank, with a maximum potential borrowing capacity of $30.0 million. At December 31, 2009, the Company had borrowings totaling $9.4 million under this facility. Interest on outstanding borrowings under this facility is at the Federal Funds open rate, plus 2% (4.75% at December 31, 2009). The credit facility contains various financial and other covenants, including a prohibition on paying dividends or distributions (other than dividends or distributions payable in our stock). At December 31, 2009, the Company was in compliance with these covenants. The facility is secured by all of the assets of the Company. At December 31, 2009, the Company had available cash and cash equivalent balances of $3.5 million and working capital of $21.6 million, which the Company believes will provide sufficient liquidity for the next twelve months. In addition to our primary line of credit, we maintain various other local lines of credit for our operations based around the world. At December 31, 2009 there were $0.2 million in outstanding borrowings under these lines of credit.

During the year ended December 31, 2009, the Company’s operating activities used cash of $0.7 million, a decrease of $2.0 million from the corresponding amount of cash used for the year ended December 31, 2008. While net income in 2009 was lower than in 2008, net income in 2009 was adversely effected by the inclusion of $3.7 million of depreciation and amortization expense as compared to $1.8 million of depreciation and amortization expense in 2008. This increase in depreciation and amortization expense of $1.9 million is primarily related to the amortization of intangible assets associated with the European Acquisitions and the Paramax Acquisition. In addition, we experienced positive changes in operating liabilities of $4.1 million in accrued expenses and other liabilities, and $4.1 million in deferred revenue during 2009.

These positive changes in operating cash flows were offset by adverse changes of $2.1 million in customer deposits and $2.3 million in prepaid expenses and other assets. In addition to these adverse changes, accounts receivable, net of allowance for doubtful accounts increased $11.3 million, or 26.1%, to $54.5 million at December 31, 2009 from $43.2 million at December 31, 2008, primarily related to the increase in revenues during the period and due to the timing of cash collections.

Cash used in investing activities for the year ended December 31, 2009 totaled $3.6 million, consisting primarily of the cost of the European Acquisitions and the Paramax Acquisition, net of cash acquired of $3.0 million and purchases of property and equipment of $2.7 million. These changes were offset by $2.1 million in positive changes to restricted cash.

Cash provided by financing activities for the year ended December 31, 2009 totaled $1.3 million. This net cash provided by financing activities consisted primarily of net borrowings on our lines of credit of $2.1 million, offset by principal payments on capital lease obligations of $0.8 million.

During the year ended December 31, 2008, the Company’s operating activities used cash of $2.8 million, a decrease of $4.4 million from the corresponding amount for the year ended December 31, 2007. This decrease during the period can be attributed to adverse changes of $2.0 million in deferred revenue, $0.4 million in customer deposits, $0.3 million in accounts payable, $0.3 million in accrued expenses, $0.4 million in prepaid expenses and other current assets and $0.6 million in deferred tax benefits. In addition to these adverse changes, accounts receivable, net of allowance for doubtful accounts increased $4.9 million, or 15.3%, to $37.0 million at December 31, 2008 from $32.1 million at December 31, 2007, primarily related to the increase in revenues during the period and due to the timing of cash collections.

These adverse changes were offset by $3.7 million in net income, due primarily to increased service revenues, along with $0.6 million in non-cash stock based compensation and $1.8 million in depreciation and amortization expense.

Cash used in investing activities for the year ended December 31, 2008 totaled $8.7 million, consisting primarily of the cost of the European Acquisitions, net of cash acquired of $7.9 million and purchases of property and equipment of $1.3 million. These changes were offset by $0.4 million in positive changes to restricted cash.

Cash provided by financing activities for the year ended December 31, 2008 totaled $6.9 million. This net cash provided by financing activities consisted primarily of net borrowings on our line of credit of $7.5 million, offset by principal payments on capital lease obligations of $0.6 million.

Contractual Obligations

Set forth below is information concerning our known contractual obligations as of December 31, 2009.

		Payments Due by Period
																		More than
		Total				Less than 1 year				1–3 Years				3–5 Years				5 years
Contractual Obligations
Capital leases		$	861,875			$	601,683			$	260,192			$	—			$	—
Operating leases		$	17,422,366				3,634,646				6,168,276				4,782,630				2,836,814
Total		$	18,284,241			$	4,236,329			$	6,428,468			$	4,782,630			$	2,836,814

Off-Balance Sheet Arrangements

At December 31, 2009, RPS was not a party to any off-balance sheet arrangements as defined by Regulation S–K Item 303(a)(4)(i), promulgated under the Exchange Act.

Inflation

Certain of RPS’ revenues are earned under long-term contracts (having terms in excess of one year) and generally include an inflation or cost of living adjustment for the portion of services to be performed one year from the contract date. As a result, RPS believes that the effects of inflation generally do not have a material effect on its operations or financial condition.

Recently Issued Accounting Standards

The Company adopted new accounting guidance on fair value measurements effective January 1, 2008, for financial assets and liabilities. In addition, effective January 1, 2009, the Company adopted this guidance as it relates to nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on at least an annual basis. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability, referred to as the exit price, in an orderly transaction between market participants at the measurement date. The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value of financial assets, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets, called the market approach. As of December 31, 2009 and December 31, 2008, the fair value of all of the Company’s financial assets are based on level one observable inputs. The implementation of this guidance for nonfinancial assets and liabilities did not have an impact on the Company’s consolidated financial statements as of December 31, 2009. The provisions of this guidance will be applied at such time a fair value measurement of a nonfinancial asset or liability is required, which may result in a fair value that is materially different than would have been calculated prior to the adoption of this guidance.

In December 2007, the FASB issued new guidance related to business combinations. This guidance retains the fundamental requirements of existing guidance that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. This guidance defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date the acquirer achieves control. This guidance was effective for the Company beginning January 1, 2009 and the impact of the adoption of this guidance depends upon the nature and terms of business combinations that the Company consummates on or after January 1, 2009.

In June 2008, the FASB issued new guidance related to assessing whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock for the purposes of determining whether such equity-linked financial instrument (or embedded feature) is subject to derivative accounting The Company adopted this new guidance effective January 1, 2009. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In May 2009, the FASB issued new guidance on subsequent events. The standard provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature. The standard is effective prospectively for interim and annual periods ending after June 15, 2009 and the Company adopted this guidance commencing with our June 30, 2009 consolidated financial statements. The implementation of this standard did not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued a staff position requiring fair value disclosures in both interim as well as annual financial statements in order to provide more timely information about the effects of current market conditions on financial instruments. The guidance is effective for interim and annual periods ending after June 15, 2009, and the Company adopted this guidance commencing with our June 30, 2009 consolidated financial statements. The implementation of this standard did not have a material impact on our consolidated financial statements.

In June 2009, FASB Accounting Standards Codification (Codification) was issued, effective for financials statements issued for interim and annual periods ending after September 15, 2009. The Codification supersedes literature of the FASB, Emerging Issues Task Force and other sources. The Codification did not change U.S. generally accepted accounting principles. The implementation of this standard did not have a material impact on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Foreign currency risks. Since RPS operates in countries other than the United States, it is exposed to various foreign currency risks. The majority of client services are contracted in U.S. dollars. However, at times, a portion of the work performed under these contracts is performed by one of our subsidiaries under which costs are incurred in the local denomination of that subsidiary. In addition, services provided by our European and Asian subsidiaries are contracted for in the local currency. In these instances, where expenses are incurred in a denomination that is other than U.S. dollars, our net earnings can be affected by fluctuations in exchange rates. In addition, any fluctuation in the exchange rates of the net assets of our foreign subsidiaries denominated in local currency would be reflected in translation gains or losses, which are accounted for in other comprehensive income in our statements of changes redeemable convertible preferred stock and stockholder’ equity. We do not believe that a change of 10% in the foreign currency exchange rates would have a material impact on our financial position or results of operations (see Item 1A: “Risk Factors”).

For the year ended December 31, 2009, approximately 17% of our net revenues were derived from our operations outside of the United States. With the European Acquisitions in December 2008 and the Paramax Acquisition in July 2009, the Company expects the percentage of net revenues derived from operations outside of the United States to increase in 2010 and beyond. We currently do not engage in derivative or hedging activities related to our potential foreign exchange exposures. However, as we contemplate future anticipated foreign currency working capital requirements, capital asset acquisitions of our foreign operations, and our continued international expansion, we will consider maintaining a portion of our cash and cash equivalents denominated in foreign currencies sufficient to satisfy these possible future requirements. We will also evaluate the need and cost of financial instruments to hedge currency exposures on an ongoing basis and may hedge against exchange rate exposure in the future.

Interest rate risk. The primary objective of our investment activity is to preserve principal, provide liquidity and maximize income without increasing risk. Our investments have limited exposure to market risk. To minimize this risk, we maintain our portfolio of cash and cash equivalents in a variety of investments, consisting primarily of bank deposits and money market funds. The interest rates are variable and fluctuate with current market conditions. The risk associated with fluctuating interest rates is limited to this investment portfolio, and we do not believe that a 10% change in interest rates would have a material impact on our financial position or results of operations.

Index to Financial Statements

ReSearch Pharmaceutical Services, Inc. and Subsidiaries Report of Independent Registered Public Accounting Firm			27
Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008			28
Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007			29
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ equity (deficit) for the years ended December 31, 2009, 2008 and 2007			30
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007			31
Notes to Consolidated Financial Statements			32

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Research Pharmaceutical Services, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Research Pharmaceutical Services, Inc. and Subsidiaries as of December 31, 2009 and 2008 and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Research Pharmaceutical Services, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania
March 24, 2010

Research Pharmaceutical Services, Inc. and Subsidiaries

Consolidated Balance Sheets

		December 31,
		2009				2008
Assets
Current assets:
Cash and cash equivalents		$	3,468,104			$	6,565,003
Restricted cash			5,195,841				7,247,532
Accounts receivable, less allowance for doubtful accounts of $398,000 at December 31, 2009 and $654,000 at December 31, 2008, respectively			54,516,875				43,225,016
Current deferred tax asset			473,940				970,797
Prepaid expenses and other current assets			4,795,030				2,377,838
Total current assets		$	68,449,790			$	60,386,186
Property and equipment, net			6,404,747				5,993,387
Other assets			1,627,453				1,179,018
Intangible assets subject to amortization, net			2,792,481				3,880,000
Goodwill			16,742,614				15,145,585
Deferred tax asset			243,593				504,366
Total assets		$	96,260,678			$	87,088,542
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	3,526,931			$	3,496,309
Accrued expenses			14,551,527				12,069,957
Customer deposits			9,695,841				7,247,532
Deferred revenue			8,910,551				4,781,935
Line of credit			9,565,808				7,500,000
Current deferred tax liability			44,267				—
Current portion of capital lease obligations			553,689				682,695
Total current liabilities		$	46,848,614			$	35,778,428
Customer deposits			—				4,500,000
Deferred tax liability			345,121				1,331,955
Other liabilities			2,510,351				2,323,794
Capital lease obligations, less current portion			250,576				871,963
Total liabilities		$	49,954,662			$	44,806,140
Stockholders’ equity:
Common stock, $.0001 par value:
Authorized shares — 150,000,000; issued and outstanding shares — 37,277,808 and 36,746,291 at December 31, 2009 and December 31, 2008, respectively.			3,728				3,675
Additional paid-in capital			45,601,325				44,083,184
Accumulated other comprehensive income			40,507				155,535
Retained earnings (accumulated deficit)			660,456				(1,959,992	)
Total stockholders’ equity		$	46,306,016			$	42,282,402
Total liabilities and stockholders’ equity		$	96,260,678			$	87,088,542

See accompanying notes.

Research Pharmaceutical Services, Inc. and Subsidiaries

Consolidated Statements of Operations

		Year Ended December 31,
		2009				2008				2007
Service revenue		$	200,471,816			$	156,966,558			$	120,459,459
Reimbursement revenue			23,696,162				18,085,514				13,923,784
Total revenue			224,167,978				175,052,072				134,383,243
Direct costs			145,208,645				117,707,287				87,650,346
Reimbursable out-of-pocket costs			23,696,162				18,085,514				13,923,784
Selling, general, and administrative expenses			44,797,903				31,289,566				26,786,748
Depreciation and amortization			3,722,907				1,750,252				1,143,734
Income from operations			6,742,361				6,219,453				4,878,631
Interest expense			(649,878	)			(226,911	)			(6,025,467	)
Interest income			539,424				293,056				238,178
Other income (expense)			(452,138	)			(24,435	)			1,404
Net income (loss) before provision for income taxes			6,179,769				6,261,163				(907,254	)
Provision for income taxes			3,559,321				2,518,379				1,508,087
Net income (loss)		$	2,620,448			$	3,742,784			$	(2,415,341	)
Accretion of preferred stock			—				—				(320,819	)
Net income (loss) applicable to common shares:		$	2,620,448			$	3,742,784			$	(2,736,160	)
Net income (loss) per common share:
Basic		$	0.07			$	0.11			$	(0.19	)
Diluted		$	0.07			$	0.11			$	(0.19	)
Weighted average number of common shares outstanding:
Basic			37,002,773				32,616,846				14,572,881
Diluted			38,071,113				34,103,258				14,572,881

See accompanying notes.

Research Pharmaceutical Services, Inc. and Subsidiaries

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

		Redeemable Convertible Preferred Stock																Stockholders’ equity
																																						Accumulated				Retained
																																						Other				Earnings/
		Series A								Series B								Common Stock								Treasury Shares								Additional				Comprehensive				(Accumulated
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Paid-In Capital				Income				Deficit)				Total
Balance at December 31, 2006			7,593,198			$	5,489,688				1,271,694			$	2,512,345				12,404,751			$	1,240			$	6,903,077			$	(1,187,650	)		$	117,388			$	6,297			$	(3,287,435	)		$	(4,350,160	)
Accretion of dividends on Series A and Series B Convertible Preferred Stock			—				214,747				—				106,072				—				—				—				—				(320,819	)			—				—				(320,819	)
Stock-based compensation			—				—				—				—				—				—				—				—				211,817				—				—				211,817
Exercise of common stock options			—				—				—				—				6,324				1				—				—				6,747				—				—				6,748
Repurchase of shares from stockholders			—				—				—				—				—				—				24,592				(172,909	)			—				—				—				(172,909	)
Payment of preferred stock dividends			—				(2,039,334	)			—				(588,000	)			—				—				—				—				—				—				—				—
Conversion of preferred stock and put warrants to common stock			(7,593,198	)			(3,665,101	)			(1,271,694	)			(2,030,417	)			10,287,698				1,029				—				—				10,906,580				—				—				10,907,609
Retirement of treasury shares			—				—				—				—				—				—				(6,927,669	)			1,360,559				(1,360,559	)			—				—				—
Issuance of common stock and proceeds received in connection with reverse acquisition of Cross Shore, net of distribution to stockholders and fees			—				—				—				—				10,250,450				1,025				—				—				30,154,871				—				—				30,155,896
Repurchase and retirement of shares from stockholder			—				—				—				—				(750,000	)			(75	)			—				—				(3,637,425	)			—				—				(3,637,500	)
Comprehensive loss:
Net loss			—				—				—				—				—				—				—				—				—				—				(2,415,341	)			(2,415,341	)
Other comprehensive income — foreign currency translation adjustment			—				—				—				—				—				—				—				—				—				44,008				—				44,008
Total comprehensive loss			—				—				—				—				—				—				—				—				—				—				—			$	(2,371,333	)
Balance at December 31, 2007			—			$	—				—			$	—				32,199,223			$	3,220			$	—			$	—			$	36,078,600			$	50,305			$	(5,702,776	)		$	30,429,349
Exercise of common stock options			—				—				—				—				12,183				—				—				—				8,952				—								8,952
Issuance of common stock and proceeds received in connection with reverse acquisition of Cross Shore, net of distribution to stockholders and fees			—				—				—				—				336,000				35				—				—				356,309				—				—				356,344
Issuance of common stock in connection with acquisitions of Imerem, Infociencia and Therapharm			—				—				—				—				4,198,885				420				—				—				7,070,502				—				—				7,070,922
Stock-based compensation			—				—				—				—				—				—				—				—				568,821				—				—				568,821
Comprehensive income:
Net income			—				—				—				—				—				—				—				—				—				—				3,742,784				3,742,784
Other comprehensive income — foreign currency translation adjustment			—				—				—				—				—				—				—				—				—				105,230				—				105,230
Total comprehensive income (loss)			—				—				—				—				—				—				—				—				—				—				—			$	3,848,014
Balance at December 31, 2008			—			$	—				—			$	—				36,746,291			$	3,675			$	—			$	—			$	44,083,184			$	155,535			$	(1,959,992	)		$	42,282,402
Exercise of common stock options			—				—				—				—				544				—				—				—				201				—				—				201
Issuance of common stock in connection with acquisition of Paramax			—				—				—				—				530,973				53				—				—				920,655				—				—				920,708
Stock-based compensation			—				—				—				—				—				—				—				—				597,285				—				—				597,285
Comprehensive income:
Net income			—				—				—				—				—				—				—				—				—				—				2,620,448				2,620,448
Other comprehensive loss — foreign currency translation adjustment			—				—				—				—				—				—				—				—				—				(115,028	)			—				(115,028	)
Total comprehensive income			—				—				—				—				—				—				—				—				—				—				—			$	2,505,420
Balance at December 31, 2009			—			$	—				—			$	—				37,277,808			$	3,728			$	—			$	—			$	45,601,325			$	40,507			$	660,456			$	46,306,016

See accompanying footnotes.

Research Pharmaceutical Services, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

		Year ended December 31,
		2009				2008				2007
Net income (loss)		$	2,620,448			$	3,742,784			$	(2,415,341	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization			3,722,907				1,750,252				1,478,337
Interest charge related to put warrant liability			—				—				4,723,451
Stock-based compensation			597,285				568,821				211,817
Deferred tax benefit			(441,982	)			(552,680	)			(409,460	)
Changes in operating assets and liabilities:
Accounts receivable			(10,946,527	)			(4,896,994	)			(10,004,080	)
Prepaid expenses and other assets			(2,340,453	)			(371,262	)			(686,109	)
Accounts payable			(12,838	)			(270,086	)			67,861
Accrued expenses and other liabilities			4,106,552				(315,104	)			2,303,212
Customer deposits			(2,109,179	)			(419,544	)			4,354,112
Deferred revenue			4,060,238				(2,001,238	)			1,988,877
Net cash (used in) provided by operating activities			(743,549	)			(2,765,051	)			1,612,677
Investing activities
Change in restricted cash			2,109,179				419,544				145,888
Business combinations, net of cash acquired			(3,044,244	)			(7,867,466	)			—
Purchase of property and equipment			(2,680,376	)			(1,269,245	)			(2,198,108	)
Net cash used in investing activities			(3,615,441	)			(8,717,167	)			(2,052,220	)
Financing activities
Net borrowings (repayments) on line of credit			2,060,834				7,500,000				(8,991,544	)
Principal payments on capital lease obligations			(750,393	)			(604,550	)			(194,355	)
Repurchase of shares from stockholders in connection with reverse acquisition of Cross Shore			—				—				(3,810,409	)
Cross Shore merger consideration, net of fees paid			—				(22,667	)			51,375,660
Distribution to stockholders			—				—				(20,000,000	)
Payment of preferred stock dividends			—				—				(2,627,334	)
Proceeds from exercise of options			201				8,952				6,748
Payment of note payable			—				—				(4,500,000	)
Net cash provided by financing activities			1,310,642				6,881,735				11,258,766
Effect of exchange rates on cash and cash equivalents			(48,551	)			105,231				44,008
Net change in cash and cash equivalents			(3,096,899	)			(4,495,252	)			10,863,231
Cash and cash equivalents, beginning of year			6,565,003				11,060,255				197,024
Cash and cash equivalents, end of year		$	3,468,104			$	6,565,003			$	11,060,255
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest		$	618,571			$	251,346			$	921,000
Income taxes		$	5,168,208			$	2,924,777			$	1,459,000
Supplemental disclosures of noncash financing activities
Issuance of shares in connection with business combinations		$	918,583			$	7,070,922			$	320,819
Accretion of preferred stock dividends		$	—			$	—			$	320,819
Acquisition of fixed assets under capital leases		$	—			$	1,388,843			$	1,123,097

See accompanying notes.

Research Pharmaceutical Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Business

ReSearch Pharmaceutical Services, Inc. and Subsidiaries (the “Company” or “RPS”) is a next generation CRO (clinical research organization) serving biotechnology and pharmaceutical companies, which the Company refers to collectively as the bio-pharmaceutical industry. The RPS business model combines the expertise of a traditional CRO with the ability to provide flexible outsourcing solutions that are fully integrated within the Company’s clients’ clinical infrastructure. The Company is able to leverage its clinical expertise, industry knowledge and specialization to reduce the expense and time frame of clinical development that meets the varied needs of small, medium and large bio-pharmaceutical companies. The Company’s revenues are generated principally from customers located in the United States.

The Company has wholly owned subsidiaries in over 40 countries around the world with its core operations located in North America, Latin America, Europe and Asia.

2. Significant Accounting Policies

2007 Merger and Accounting Treatment

Cross Shore Acquisition Corporation (“Cross Shore”) was incorporated in Delaware on January 30, 2006 as a blank check company, the objective of which was to acquire one or more operating companies engaged in the delivery of business services to companies and consumers in the United States. On April 28, 2006, Cross Shore completed an initial public offering (the “Offering”) on the Alternative Investment Market (“AIM”) of the London Stock Exchange and raised proceeds of $112 million before offering expenses. Of the net proceeds from the Offering, $102.7 million was placed in trust to be held until the earlier of (i) consummation of Cross Shore’s first business combination or (ii) liquidation of Cross Shore.

On August 30, 2007, RPS merged with and into a wholly-owned subsidiary of Cross Shore. As a result of the merger, RPS became a limited liability company organized under the laws of Delaware under the name ReSearch Pharmaceutical Services, LLC, and Cross Shore changed its name to RPS. RPS is now a holding company for, and conducts substantially all of its operations through its wholly-owned subsidiary, ReSearch Pharmaceutical Services, LLC. “Former RPS” represents the operating company prior to the August 30, 2007 merger with Cross Shore.

The merger was accounted for under the purchase method of accounting as a reverse acquisition in accordance with U.S. generally accepted accounting principles for accounting and financial reporting purposes. Under this method of accounting, Cross Shore was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the merger was treated as the equivalent of Former RPS issuing stock for the net assets of Cross Shore which amounted to $50.6 million and consisted of cash and investments of $51.3 million, other assets of $0.6 million and $1.3 million of accrued transaction fees. The purchase price was allocated to the assets acquired and liabilities assumed based on their fair value at the date of the merger. Stockholders’ equity has been retroactively adjusted for all periods prior to the merger to reflect the number of shares of common stock received by holders of common stock of Former RPS in connection with the merger based upon the exchange ratio of approximately 1.4 shares of Cross Shore common stock for each share of Former RPS common stock as per the merger agreement. Stockholders’ equity has not been retroactively adjusted for periods prior to the merger for the 10,250,499 shares of Cross Shore issued to Former RPS holders of preferred stock and common stock warrants.

The shares of preferred stock, common stock, and common stock warrants held by Former RPS stockholders prior to the merger were converted into a total of 15,758,497 shares of Cross Shore common stock, or 47.34% of the subsequently outstanding common stock of the combined company. Upon consummation of the merger, $49.9 million, net of $1.4 million of accrued transaction fees, was released from trust and became available to the combined Company. Of this amount, existing holders of shares of preferred stock, common stock and common stock warrants of Former RPS received a total cash distribution of $20 million as merger consideration pursuant to the terms of the merger agreement.

The remaining cash of $29.9 million is available for use by the Company to fund business operations. Total direct and incremental fees incurred by the Company in connection with the merger are reflected as a reduction of additional paid in capital. The senior management team of Former RPS prior to the merger continued as senior management of the Company after the merger, and Former RPS controlled the majority of the Board of Directors of the Company.

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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

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

Restricted Cash

The Company receives cash in advance from certain customers specifically for the payment of investigator fees relating to specific projects. Such amounts are recorded in restricted cash and short term customer deposits in the accompanying consolidated balance sheets.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to credit risk, consist principally of cash and accounts receivable. The Company performs periodic evaluations of the financial institutions in which its cash is invested. The majority of the Company’s revenues and accounts receivable are derived from pharmaceutical companies located in the United States. The Company’s two largest customers accounted for approximately 17% and 16%, respectively, of service revenues during the year ended December 31, 2009, and the Company’s three largest customers accounted for approximately 20%, 12% and 12%, respectively, of service revenues during the year ended December 31, 2008, and the Company’s largest customer represented approximately 23% of service revenues during the year ended December 30, 2007.

The two largest customers represented approximately 16% and 17%, respectively of the accounts receivable balance at December 31, 2009, while the three largest customers represented approximately 14%, 13% and 8%, respectively, of the accounts receivable balance at December 31, 2008. No other customers represented more than 10% of net service revenues or accounts receivable during those periods or at those times. The Company provides an allowance for doubtful accounts based on experience and specifically identified risks. Accounts receivable are carried at fair value and charged off against the allowance for doubtful accounts when management determines that recovery is unlikely and the Company ceases collection efforts.

The following table summarizes the changes in the Company’s allowance for doubtful accounts for the periods indicated.

		Year ended December 31,
		2009				2008				2008
Balance at the beginning of the period		$	654,000			$	547,000			$	200,000
Amounts charged to expense			213,000				107,000				347,000
Accounts written off			(469,000	)			—				—
Balance at the end of the period		$	398,000			$	654,000			$	547,000

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Fair Value of Financial Instruments

The carrying value of financial instruments including cash, accounts receivable, accounts payable, and lines of credit approximates their fair value based on the short-term nature of these instruments.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for repairs and maintenance which do not extend the useful life of the related assets are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 1 to 5 years.

Intangible Assets

Intangible assets consist primarily of noncompete agreements, customer contracts and lists, brand names, and goodwill mainly related to the European Acquisitions. Finite-lived intangible assets are amortized on a straight line basis over the following periods: Customer lists — three and five years, brand names — two years and non-compete agreements — three and six years. Goodwill represents the excess of the cost over the fair value of net assets acquired in a business combination.

The Company accounts for goodwill, noncompete agreements, brand names and customer lists in accordance with the FASB guidance for intangible assets. Goodwill is tested for impairment on an annual basis (as of October 1 of each year) and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company below its carrying value. If the fair value of the Company is less than the carrying value, goodwill may be impaired, and will be written down to its estimated fair market value, if necessary.

Revenue and Cost Recognition

The majority of the Company’s service revenues are derived from fee-for-service contracts, some of which are fixed price contracts. Revenues and the related costs of fee-for-service contracts are recognized in the period in which services are performed. Fixed price contract revenue is calculated on a proportional performance basis based on the ratio that costs incurred to date bear on the estimated total costs at completion. The Company also recognizes revenue under units-based contracts by multiplying units completed by the applicable contract per-unit price. Revenue related to contract modifications is recognized when realization is assured and the amounts are reasonably determinable. Adjustments to contract estimates are made in the periods in which the facts that require the revisions become known. When the revised estimate indicates a loss, such loss is provided for in the financial statements during that period. Deferred revenue represents amounts billed to customers in excess of revenues recognized.

FASB guidance requires reimbursable out-of-pocket expenses to be characterized as revenue in the statements of operations. Reimbursements for out-of-pocket expenses included in total revenue in the Company’s consolidated statements of operations were $23,696,162, $18,085,514 and $13,923,784 for the years ended December 31, 2009, 2008 and 2007 respectively.

The Company excludes investigator fees from its out-of-pocket expenses because these fees are funded from the customer’s restricted cash and are recorded on a “pass-through basis” without risk or reward to the Company. Investigator fees paid on behalf of clients for the years ended December 31, 2009, 2008 and 2007 were approximately $7,019,000, $4,708,000 and $6,666,000 respectively.

Income Taxes

The Company accounts for income taxes using an asset and liability approach which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts reportable for income tax purposes. On January 1, 2007 the Company adopted the FASB guidance related to accounting for uncertainty in income taxes. This guidance creates a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before it is recognized in the financial statements.

Foreign Currency Translation

The financial statements of the Company’s foreign subsidiaries have been translated into U.S. dollars in accordance with the FASB guidance on foreign currency translation. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet dates. Income statement amounts have been translated using average exchange rates in effect for the relevant periods. The gains and losses resulting from the changes in exchange rates during the year have been reported separately in other comprehensive income in the consolidated financial statements.

Stock-Based Compensation

FASB guidance requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. This guidance requires that an entity measure the cost of equity-based service awards based on the grant-date fair value of the award and recognize the cost of such award over the period during which the employee is required to provide service in exchange for the award (vesting period).

The per-share weighted average fair value of the options granted during the years ended December 31, 2009, 2008 and 2007 was estimated at $0.87, $1.96 and $1.70 on the date of grant, respectively, using the Black-Scholes option-pricing model with the following weighted average assumptions which are based upon the Company’s history or industry comparative information:

		December 31,
		2009				2008				2007
Expected dividend yield			0.00	%			0.00	%			0.00	%
Expected volatility			50	%			50	%			52	%
Risk-free interest rate			2.19	%			3.01	%			3.34	%
Expected life		6 years				6 years				6 years

Prior to August 30, 2007, the Company’s common stock was not publicly traded, and the expected volatility was calculated for each date of grant based on an alternative method (defined as “calculated value”). Subsequent to August 30, 2007, as a public company listed on AIM, the Company continued to utilize the calculated value for expected volatility as a sufficient level of history was not available as a publicly traded company. In September and October 2009, the Company delisted its common stock and warrants from AIM, respectively, and its common stock and warrants are no longer publicly traded. As such, the Company will continue to use the calculated value. The Company identified similar public entities for which share price information is available and has considered the historical volatility of these entities’ share prices in determining its estimated expected volatility. The Company used the average volatility of these guideline companies over a six-year period, consistent with the expected term of the options. From August 30, 2007 through the September 2009 AIM delisting date, the Company utilized the quoted stock price on the AIM as a determinant of fair value of the Company’s common stock. Subsequent to the AIM delisting date, the Company estimates the fair value of its common stock using the market and income valuation approaches. Stock based compensation expense for the years ended December 31, 2009, 2008 and 2007 related to share-based service awards was $597,000, $569,000 and $212,000, respectively and is included in selling, general, and administrative expenses in the accompanying consolidated statements of operations. The Company recognizes the compensation expense of such share-based service awards on a straight-line basis. Total compensation cost of options granted but not yet vested as of December 31, 2009 was $506,000 net of estimated forfeitures, which is expected to be recognized over the weighted average period of 2.2 years.

Segment Information

Operating segments are identified as components of an enterprise about which separate financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment.

The Company’s foreign operations accounted for approximately 17%, 6% and 5% of service revenues during the year ended December 31, 2009, 2008 and 2007 respectively. As a result of the European Acquisitions and the Paramax Acquisition the Company expects the percentage of service revenues resulting from foreign operations to increase going forward. In addition, approximately 35%, 34% and 3% of the Company’s consolidated tangible assets are located in foreign locations at December 31, 2009, 2008 and 2007, respectively.

Net revenues from external customers and long-lived assets for each significant geographic location for the years ended December 31, 2009, 2008 and 2007 are as follows:

		Americas				Europe				Asia-Pacific				Total
Net revenues from external customers (1)
2009			179,134,695				20,485,290				851,832				200,471,817
2008			156,966,558				—				—				156,966,558
2007			120,459,459				—				—				120,459,459
Long-lived assets (2)
2009			4,228,432				1,982,932				193,383				6,404,747
2008			4,251,207				1,742,179				—				5,993,386
2007			3,343,371				—				—				3,343,371

Recent Accounting Pronouncements

The Company adopted new accounting guidance on fair value measurements effective January 1, 2008, for financial assets and liabilities. In addition, effective January 1, 2009, the Company adopted this guidance as it relates to nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on at least an annual basis. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability, referred to as the exit price, in an orderly transaction between market participants at the measurement date. The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value of financial assets, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets, called the market approach. As of December 31, 2009 and December 31, 2008, the fair value of all of the Company’s financial assets are based on level one observable inputs. The implementation of this guidance for nonfinancial assets and liabilities did not have an impact on the Company’s consolidated financial statements as of December 31, 2009. The provisions of this guidance will be applied at such time a fair value measurement of a nonfinancial asset or liability is required, which may result in a fair value that is materially different than would have been calculated prior to the adoption of this guidance.

In December 2007, the FASB issued new guidance related to business combinations. This guidance retains the fundamental requirements of existing guidance that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. This guidance defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date the acquirer achieves control. This guidance was effective for the Company beginning January 1, 2009 and the impact of the adoption of this guidance depends upon the nature and terms of business combinations that the Company consummates on or after January 1, 2009.

In June 2008, the FASB issued new guidance related to assessing whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock for the purposes of determining whether such equity-linked financial instrument (or embedded feature) is subject to derivative accounting The Company adopted this new guidance effective January 1, 2009. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In May 2009, the FASB issued new guidance on subsequent events. The standard provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature. The standard is effective prospectively for interim and annual periods ending after June 15, 2009 and the Company adopted this guidance commencing with our June 30, 2009 consolidated financial statements. The implementation of this standard did not have a material impact on our consolidated financial position and results of operations.

In April 2009, the FASB issued a staff position requiring fair value disclosures in both interim as well as annual financial statements in order to provide more timely information about the effects of current market conditions on financial instruments. The guidance is effective for interim and annual periods ending after June 15, 2009, and the Company adopted this guidance commencing with our June 30, 2009 consolidated financial statements. The implementation of this standard did not have a material impact on our consolidated financial statements.

In June 2009, FASB Accounting Standards Codification (Codification) was issued, effective for financials statements issued for interim and annual periods ending after September 15, 2009. The Codification supersedes literature of the FASB, Emerging Issues Task Force and other sources. The Codification did not change U.S. generally accepted accounting principles. The implementation of this standard did not have a material impact on our consolidated financial statements.

Net Income (Loss) Attributable to Common Shares

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the periods presented. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the periods plus the dilution that would occur upon the exercise or conversion of stock options or common stock warrants.

The following table is a reconciliation of the numerator and denominator of the computation of basic and diluted net income (loss) per share.

		Fiscal Year ended December 31,
		2009				2008				2007
Net income (loss)		$	2,620,448			$	3,742,784			$	(2,736,160	)
Weighted average common shares outstanding — basic			37,002,773				32,616,846				14,572,881
Dilutive effect of stock options and warrants			1,068,340				1,486,412				—
Weighted average common shares outstanding — diluted			38,071,113				34,103,258				14,572,881

Options to purchase 968,911 and 967,304 shares, respectively of the Company’s common stock were excluded from the computation of diluted weighted average shares outstanding for the years ended December 31, 2009 and 2008 respectively because their effect would have been anti-dilutive. Since the Company reported a net loss applicable to common shares for the year ended December 31, 2007, all of the outstanding stock options, warrants and shares of preferred stock were excluded from the calculation of diluted weighted average shares outstanding as their effect would have been anti-dilutive. The outstanding stock options and warrants could potentially dilute earnings per share in the future.

Reclassification

Certain prior year amounts in the consolidated financial statements and notes thereto have been reclassified to conform to the current year’s presentation.

3. Acquisitions

2009 Acquisition

Paramax International Inc. (“Paramax”)

On July 7, 2009, RPS acquired the outstanding shares of Paramax for consideration of $1.0 million in cash and 530,973 shares of common stock (the “Paramax Shares”) issued to Paramax’s sole shareholder (the “Paramax Acquisition”). Paramax, which is active in the same fields as RPS, provides the Company with opportunities in the Asia-Pacific market and complements its current operations in the Americas and Europe. In addition, the acquisition will provide RPS with greater scale to meet the growing needs of its customers in the rapidly expanding market for globally integrated clinical research services. The Paramax Shares were valued by management utilizing the assistance of a valuation specialist at $1.73 per share, which resulted in total acquisition consideration of approximately $1.9 million. The shareholder of Paramax has entered into a share escrow agreement whereby all of the Paramax Shares are held in escrow, to be released in equal portions on October 7, 2009, July 7, 2010 and January 31, 2011, subject to there being no indemnity claims outstanding (as defined within the acquisition agreement). In addition, the shareholder of Paramax has agreed to a 24 month lock-up on all Paramax Shares commencing on the date of closing of the Paramax Acquisition. Paramax, founded in 2007, is located in Beijing, China. Paramax operates throughout China and the Asia-Pacific market, providing clinical research services to the bio-pharmaceutical industry.

The acquisition has been accounted for as a purchase. Accordingly, the results of operations of Paramax have been included in the consolidated financial statements commencing July 7, 2009. A preliminary allocation of the purchase price is outlined below:

Purchase Price:
Cash paid		$	1,000,000
Value of RPS Shares			918,583
Total purchase price		$	1,918,583
Allocation of Purchase Price:
Cash		$	163,692
Accounts receivable			87,367
Property and equipment			31,780
Other assets			9,130
Goodwill			1,504,355
Customer lists			18,000
Non-compete agreements			117,000
Current liabilities			(12,741	)
		$	1,918,583