UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-QSB




ý  
      QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended June  30, 2008oro  
      TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




Commission
File Number: 000-50531









ETRIALS
WORLDWIDE, INC.


(Exact
name of small business issuer as specified in its charter)




Delaware
              (State
      or other jurisdiction of
              incorporation
      or organization)
            
            20-0308891
              (I.R.S.
      Employer
              Identification
      No.)4000
      Aerial Center Parkway
              Morrisville,
      North Carolina 27560
              (Address
      of principal executive offices)(919) 653-3400
              (Issuer’s
      telephone number)Securities
      registered pursuant to Section 12(b) of the Act:
              None




Check
whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past
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. ý Yes    o No




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




As of
June 30th, 2008 11,017,879 shares of our common stock were
outstanding.




Transitional
Small Business Disclosure Format (Check One):   o Yes    ý No












ETRIALS
WORLDWIDE, INC.


QUARTERLY
REPORT ON FORM 10-QSB


FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 2008






Table
of Contents




PagePart
      I – FINANCIAL INFORMATIONItem
      1.
            
            Financial
      StatementsConsolidated
      Balance Sheets as of June 30, 2008 (unaudited) and December 31,
      2007
            
            3Consolidated
      Statements of Operations (unaudited) for the three and six
      month  ended June 30, 2008 and 2007
            
            4Consolidated
      Statement of Stockholders’ Equity (unaudited) for the six months ended
      June 30, 2008
            
            5Consolidated
      Statements of Cash Flows (unaudited) for the six months ended June 30,
      2008 and 2007
            
            6Notes
      to Consolidated Financial Statements (unaudited)
            
            7Item
      2.
            
            Management's
      Discussion and Analysis
            
            16Item
      3.
            
            Controls
      and Procedures
            
            27Part
      II – OTHER INFORMATIONItem
      1.
            
            Legal
      Proceedings
            
            27Item
      2.
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            27Item
      3.
            
            Defaults
      Upon Senior Securities
            
            27Item
      4.
            
            Submission
      of Matters to a Vote of Security Holders
            
            27Item
      5.
            
            Other
      Information
            
            28Item
      6.
            
            Exhibits
            
            28Signatures
            
            29Exhibit
      Index
            
            30




2
  PART I – Financial Information




Item
      1.  Financial Statementsetrials
      Worldwide, Inc.Consolidated
      Balance SheetsJune
      30,
              
              
              December
      31,2008
              
              
              2007(unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              13,906,206
              
              
              $
              13,792,508Short-term
      investments
              
              
              -
              
              
              
              1,448,526Accounts
      receivable, net of allowances
                  of
      $282,891 and $156,500, respectively
              
              
              4,077,572
              
              
              
              5,310,648Inventory
              
              
              460,016
              
              
              
              554,430Prepaid
      expenses and other current assets
              
              
              479,401
              
              
              
              330,082Total
      current assets
              
              
              18,923,195
              
              
              
              21,436,194Property
      and equipment, net of accumulated depreciation of
                  $4,657,476
      and $4,046,551, respectively
              
              
              1,849,621
              
              
              
              2,015,762Goodwill
              
              
              8,011,037
              
              
              
              8,011,037Other
      assets
              
              
              119,538
              
              
              
              119,538Total
      assets
              
              $
              28,903,391
              
              
              $
              31,582,531Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts
      payable
              
              $
              603,239
              
              
              $
              720,243Accrued
      expenses
              
              
              2,142,112
              
              
              
              1,747,257Deferred
      revenue
              
              
              2,406,540
              
              
              
              1,705,544Bank
      line of credit and other short-term borrowings
              
              
              1,515,667
              
              
              
              1,312,667Current
      portion of capital lease obligations
              
              
              233,999
              
              
              
              429,789Total
      current liabilities
              
              
              6,901,557
              
              
              
              5,915,500Capital
      lease obligations, net of current portion
              
              
              9,981
              
              
              
              23,956Long-term
      borrowings, net of current portion
              
              
              327,004
              
              
              
              250,337Total
      liabilities
              
              
              7,238,542
              
              
              
              6,189,793Commitments
      and contingenciesStockholders'
      equity:Common
      stock; $0.0001 par value; 50,000,000 shares authorized at
                      June
      30, 2008 and December 31, 2007; and 11,017,879 and
                      12,579,701
      issued and outstanding at June 30, 2008 and
                      December
      31, 2007, respectively
              
              
              1,101
              
              
              
              1,258Additional
      paid-in capital
              
              
              55,829,078
              
              
              
              55,301,138Deferred
      compensation
              
              
              (7,406
              )
              
              
              (18,927
              )Accumulated
      deficit
              
              
              (34,157,924
              )
              
              
              (29,890,731
              )Total
      stockholders' equity
              
              
              21,664,849
              
              
              
              25,392,738Total
      liabilities and stockholders' equity
              
              $
              28,903,391
              
              
              $
              31,582,531




See
accompanying notes.


3


etrials
      Worldwide, Inc.Consolidated
      Statements of Operations(unaudited)Three
      Months Ended June 30,
              
              
              Six
      Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      service revenues
              
              $
              3,967,121
              
              
              $
              5,204,508
              
              
              $
              7,675,330
              
              
              $
              9,281,516Reimbursable
      out-of-pocket revenues
              
              
              342,111
              
              
              
              1,771,180
              
              
              
              929,743
              
              
              
              2,416,026Total
      revenues
              
              
              4,309,232
              
              
              
              6,975,688
              
              
              
              8,605,073
              
              
              
              11,697,542Costs
      and expenses:Costs
      of revenues
              
              
              2,506,432
              
              
              
              2,157,285
              
              
              
              5,088,085
              
              
              
              4,333,588Reimbursable
      out-of-pocket expenses
              
              
              342,111
              
              
              
              1,771,180
              
              
              
              929,743
              
              
              
              2,416,026Sales
      and marketing
              
              
              1,444,402
              
              
              
              1,493,491
              
              
              
              2,590,828
              
              
              
              2,665,375General
      and administrative
              
              
              1,734,387
              
              
              
              2,508,920
              
              
              
              3,185,435
              
              
              
              3,981,396Research
      and development
              
              
              540,817
              
              
              
              582,535
              
              
              
              1,186,720
              
              
              
              1,000,714Amortization
      of intangible assets
              
              
              -
              
              
              
              3,801
              
              
              
              -
              
              
              
              15,199Total
      costs and expenses
              
              
              6,568,149
              
              
              
              8,517,212
              
              
              
              12,980,811
              
              
              
              14,412,298Operating
      loss
              
              
              (2,258,917
              )
              
              
              (1,541,524
              )
              
              
              (4,375,738
              )
              
              
              (2,714,756
              )Other
      income (expense):Interest
      expense
              
              
              (32,502
              )
              
              
              (21,700
              )
              
              
              (78,768
              )
              
              
              (41,031
              )Interest
      income
              
              
              87,032
              
              
              
              242,127
              
              
              
              224,040
              
              
              
              496,022Other
      expense, net
              
              
              (25,322
              )
              
              
              (10,271
              )
              
              
              (36,727
              )
              
              
              (11,760
              )Total
      other income, net
              
              
              29,208
              
              
              
              210,156
              
              
              
              108,545
              
              
              
              443,231Net
      loss
              
              $
              (2,229,709
              )
              
              $
              (1,331,368
              )
              
              $
              (4,267,193
              )
              
              $
              (2,271,525
              )Net
      loss per share:Basic
      and diluted
              
              $
              (0.20
              )
              
              $
              (0.12
              )
              
              $
              (0.39
              )
              
              $
              (0.21
              )Weighted
      average common shares outstanding:Basic
      and diluted
              
              
              10,957,753
              
              
              
              10,749,450
              
              
              
              10,965,664
              
              
              
              10,739,721See
      accompanying notes.
   4
  etrials
      Worldwide, Inc.Consolidated
      Statements of Stockholders' Equity(unaudited)AdditionalCommon
      Stock
              
              
              Paid-In
              
              
              Deferred
              
              
              Accumulated
              
              
              Stockholders’Shares
              
              
              Amount
              
              
              Capital
              
              
              Compensation
              
              
              Deficit
              
              
              EquityBalance
      at December 31, 2007
              
              
              12,579,701
              
              
              $
              1,258
              
              
              $
              55,301,138
              
              
              $
              (18,927
              )
              
              $
              (29,890,731
              )
              
              $
              25,392,738Stock-based
      compensation recorded in accordance with SFAS 123R
              
              
              -
              
              
              
              -
              
              
              
              683,221
              
              
              
              -
              
              
              
              -
              
              
              
              683,221Amortization
      of deferred stock-based compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              11,521
              
              
              
              -
              
              
              
              11,521Cancellation
      of trigger shares
              
              
              (1,566,250
              )
              
              
              (157
              )
              
              
              157
              
              
              
              -
              
              
              
              -
              
              
              
              -Issuance
      of restricted common stock
              
              
              100,000
              
              
              
              10
              
              
              
              48,446
              
              
              
              -
              
              
              
              -
              
              
              
              48,456Exercise
      of employee stock options
              
              
              2,756
              
              
              
              -
              
              
              
              5,319
              
              
              
              -
              
              
              
              -
              
              
              
              5,319Purchase
      of outstanding common stock
              
              
              (98,328
              )
              
              
              (10
              )
              
              
              (209,203
              )
              
              
              -
              
              
              
              -
              
              
              
              (209,213
              )Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (4,267,193
              )
              
              
              (4,267,193
              )Balance
      at June 30, 2008
              
              
              11,017,879
              
              
              $
              1,101
              
              
              $
              55,829,078
              
              
              $
              (7,406
              )
              
              $
              (34,157,924
              )
              
              $
              21,664,849See
      accompanying notes.


























5


etrials
      Worldwide, Inc.Consolidated
      Statements of Cash Flows(unaudited)Six
      Months Ended June 302008
              
              
              2007Operating
      activitiesNet
      loss
              
              $
              (4,267,193
              )
              
              $
              (2,271,525
              )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
      and amortization
              
              
              610,925
              
              
              
              584,792Accretion
      of discount on investments
              
              
              -
              
              
              
              (4,707
              )Stock-based
      compensation expense
              
              
              743,198
              
              
              
              942,180Provision
      for allowance for doubtful accounts
              
              
              126,391
              
              
              
              (1,000
              )Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              1,106,685
              
              
              
              (1,042,909
              )Prepaid
      expenses and other assets
              
              
              (149,319
              )
              
              
              (78,334
              )Inventory
              
              
              94,414
              
              
              
              (1,037,587
              )Accounts
      payable and accrued expenses
              
              
              277,851
              
              
              
              877,049Deferred
      revenue
              
              
              700,996
              
              
              
              (16,544
              )Net
      cash used in operating activities
              
              
              (756,050
              )
              
              
              (2,048,585
              )Investing
      activitiesPurchase
      of property and equipment
              
              
              (383,968
              )
              
              
              (207,040
              )Capitalized
      internal software development costs
              
              
              (60,818
              )
              
              
              (242,794
              )Sales
      of short-term investments, net
              
              
              1,448,526
              
              
              
              4,140,000Net
      cash provided by investing activities
              
              
              1,003,740
              
              
              
              3,690,166Financing
      activitiesNet
      proceeds from bank line of credit
              
              
              240,000
              
              
              
              474,000Proceeds
      from bank equipment and other loans
              
              
              143,000
              
              
              
              608,800Payments
      on bank equipment loan
              
              
              (103,333
              )
              
              
              (127,527
              )Principal
      payments on capital leases
              
              
              (209,765
              )
              
              
              (59,062
              )Purchase
      of outstanding common stock
              
              
              (209,213
              )
              
              
              -Proceeds
      from issuance of stock options
              
              
              5,319
              
              
              
              91,625Net
      cash (used in) provided by financing activities
              
              
              (133,991
              )
              
              
              987,836Net
      increase in cash and cash equivalents
              
              
              113,698
              
              
              
              2,629,417Cash
      and cash equivalents at beginning of year
              
              
              13,792,508
              
              
              
              11,828,667Cash
      and cash equivalents at end of period
              
              $
              13,906,206
              
              
              $
              14,458,084Supplemental
      cash flow information:Cash
      paid for interest
              
              $
              67,762
              
              
              $
              34,223Supplemental
      non-cash investing and financing information:Purchase
      of inventory under capital lease
              
              $
              -
              
              
              $
              642,130See
      accompanying notes.














6





etrials
Worldwide, Inc.


Notes
to Consolidated Financial Statements (unaudited)





1.
Organization and Capitalization





etrials
Worldwide, Inc.




etrials
Worldwide, Inc. (“etrials” or the “Company”) is a leading eClinical solutions
provider of a suite of software applications, hosting and professional services
to pharmaceutical, biotechnology, medical device, and contract research
organizations. The Company’s end-to-end, Web-based eClinical applications work
together to coordinate data capture, logistics, patient interaction and trial
management through an integrated and comprehensive suite of products, services
and hosted solutions.




The
Company’s flexible eClinical offerings address the costly and time-consuming
clinical trial process of drug development through easy-to-use, adaptable
applications that enable more real-time visibility into the state and progress
of the clinical trial process. This results in earlier and more dynamic
decision-making and ultimately lower cost and shorter
time-to-market.




The
Company’s operations are subject to certain risks and uncertainties, including
among others, rapid technological change, increased competition from existing
competitors and new entrants, lack of operating history, and dependence upon key
members of the management team. The operating results are also affected by
general economic conditions impacting the pharmaceutical industry.





Unaudited
Interim Financial Statements




The
accompanying consolidated balance sheet as of June 30, 2008, consolidated
statements of operations for the three and six months ended June 30, 2008 and
2007, consolidated statements of cash flows for the six months ended June 30,
2008 and 2007 and consolidated statement of stockholders’ equity for
the  six months ended June 30, 2008 are unaudited. The unaudited
financial statements include all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of such financial statements. The information disclosed in the
notes to the financial statements for these periods is unaudited. The results of
operations for the three and six months ended June 30, 2008 are not necessarily
indicative of the results to be expected for the entire fiscal year or for any
future period.





Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted.  It is
suggested that these financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 2007.





2.
Summary of Significant Accounting Policies




Principles
of Consolidation




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




Use
of Estimates




The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results will differ from those estimates and may differ
materially.





7


Revenue
Recognition




The
Company derives its revenues from providing software application-hosting which
includes: services, software subscription and usage fees, hosting fees, and
other fees. Revenues resulting from software application-hosting are recognized
in accordance with Emerging Issues Task Force (EITF) Issue No. 00-03, Application of AICPA Statement of
Position 97-2 to Arrangements that include the Right to Use Software Stored on
Another Entity’s Hardwareand Securities and Exchange Commission’s (SEC)
Staff Accounting Bulletin (SAB) Nos. 101 and No. 104, Revenue Recognition.The
Company recognizes revenue when all of the following conditions are satisfied:
(1) there is persuasive evidence of an arrangement; (2) the service
has been provided to the customer; (3) the collection of fees is probable;
and (4) the amount of fees to be paid by the customer is fixed or
determinable.




The
Company derives revenues from providing software application-hosting and related
services to customers on clinical trial projects. The Company offers its
eClinical solutions through an application service provider model. Revenues
resulting from our professional services and software application-hosting, which
include hosting fees and software usage fees, are generated in three stages of
drug development for each clinical trial. The first stage (development and
deployment) includes trial and application setup, including design of electronic
case report forms and edit checks, investigator site training, and
implementation of the system and server configuration. The second stage (study
conduct) consists of project management services, application hosting and
related professional and support services. The third stage (close out) consists
of services required to close out, or lock, the database for the clinical trial
and deliver final data sets to the client.





Services
provided during the three phases of clinical trials are typically earned under
fixed-price contracts. Although etrials enters into master agreements with each
customer, these master agreements do not contain any minimum revenue commitment
by customers and contain general terms and conditions.  All services
and revenues are covered by separately negotiated addendums called task
orders.  Revenues generated from each task order, including; services,
software subscription and usage fees, and hosting fees are generally recognized
using the proportional performance method, measured principally by the total
labor hours incurred as a percentage of estimated total labor hours for each
contract. This method is used because management considers total labor hours
incurred to be the best available measure of progress on these
contracts.




Customers
generally have the ability to terminate contracts upon 30 days notice to
the Company. However, these contracts typically require payment to etrials for
fees earned from all services provided through the termination date. In the
event that a customer cancels a clinical trial and its related task order, all
deferred revenue is recognized and certain termination related fees may be
charged.





The
estimated total labor hours of contracts are reviewed and revised periodically
throughout the duration of the contracts with an adjustment to revenues from
such revisions being recorded on a cumulative basis in the period in which the
revisions are made. When estimates indicate a loss, such loss is recognized in
the current period in its entirety. Because of the inherent uncertainties in
estimating total labor hours, it is reasonably possible that the estimates will
change in the near term and could result in a material change. The Company
records a loss for its contracts at the point it is determined that the total
estimated contract costs will exceed management’s estimates of contract
revenues. As of June 30, 2008, the Company has not experienced any material
losses on uncompleted contracts.





The
following summarizes the components of the revenues recognized:





Three
      Months Ended June 30
              
              
              Six
      Months Ended June 302008
              
              
              2007
              
              
              2008
              
              
              2007Services
              
              $
              3,027,528
              
              
              $
              3,816,242
              
              
              $
              5,798,780
              
              
              $
              6,846,443Software
      subscriptions and usage fees
              
              
              596,760
              
              
              
              917,379
              
              
              
              1,230,402
              
              
              
              1,601,509Hosting
      fees
              
              
              342,833
              
              
              
              470,887
              
              
              
              646,148
              
              
              
              833,564Net
      service revenues
              
              
              3,967,121
              
              
              
              5,204,508
              
              
              
              7,675,330
              
              
              
              9,281,516Reimbursable
      out-of-pocket revenues
              
              
              342,111
              
              
              
              1,771,180
              
              
              
              929,743
              
              
              
              2,416,026Total
              
              $
              4,309,232
              
              
              $
              6,975,688
              
              
              $
              8,605,073
              
              
              $
              11,697,542





8


The
Company accounts for pass-through expenses in accordance with EITF Issue
No. 01-14, Income
Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred (EITF No. 01-14). EITF No. 01-14 requires reimbursable
out-of-pocket expenses incurred to be characterized as revenues in the statement
of operations.




Unbilled
services are recorded for revenue recognized to date that has not yet been
billed to the customers. In general, amounts become billable upon the
achievement of milestones or in accordance with predetermined payment schedules.
Unbilled services are billable to customers within one year from the respective
balance sheet date. Deferred revenue represents amounts billed or cash received
in advance of revenue recognition.





Cash,
Cash Equivalents and Short-term Investments




The
Company accounts for its investments in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments
in Debt and Equity Securities. The Company considers all highly liquid
investments with original maturities of 90 days or less at the time of
purchase to be cash equivalents. The Company invests in high quality investments
rated at least A2 by Moody’s Investors Service or A by Standard &
Poors.  In accordance with SFAS No. 95, Statement of Cash Flows,the
Company classifies available-for-sale securities that are available to meet the
Company’s current operational needs, as short-term.





Foreign
Currency




The
financial Statements of the Company’s foreign subsidiary in the United Kingdom
are remeasured in accordance with SFAS No. 52, Foreign Currency Translation.
The Company determined that the functional currency of its United Kingdom
operations is the U.S. dollar.  Assets and liabilities denominated in
foreign currencies are remeasured into U.S. dollars at current exchange
rates.  Operating results are remeasured into U.S. dollars using the
average rates of exchange prevailing during the period.  Remeasurement
adjustments for non-functional currency monetary assets and liabilities are
included in other income, net in the accompanying consolidated statements of
operations.




Goodwill




The
Company accounts for its goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. The Company concluded it has one reporting unit for purposes of
performing the goodwill impairment analysis. Under the non-amortization
approach, goodwill and certain intangibles are not amortized into results of
operations, but instead are reviewed for impairment at least annually and
written down and charged to operations only in the periods in which the recorded
value of goodwill exceeds its fair value. An interim goodwill impairment test
would be performed if an event occurs or circumstances change between annual
tests that would more likely than not reduce the fair value of a reporting unit
below its carrying amount.  In the event of a sustained decline in the
Company’s market capitalization below its book value, a goodwill impairment
analysis would be performed on an interim basis.





Net
Loss Per Common Share




Basic and
diluted loss per common share was determined by dividing net loss by the
weighted average common shares outstanding during the period in accordance with
SFAS No. 128, Earnings
Per Share(SFAS 128). Dilutive net income per share includes the effects
of all dilutive, potentially issuable common shares.




The following common shares and common
share equivalents have been excluded from the computation of diluted weighted
average shares outstanding as the effect would have been
anti-dilutive:


9


Three
      Months Ended
              
              
              Six
      Months EndedJune
      30
              
              
              June
      302008
              
              
              2007
              
              
              2008
              
              
              2007Unvested
      restricted common stock
              
              
              131,250
              
              
              
              50,000
              
              
              
              131,250
              
              
              
              50,000Unit
      purchase options
              
              
              350,000
              
              
              
              1,050,000
              
              
              
              350,000
              
              
              
              1,050,000Stock
      options outstanding
              
              
              1,797,315
              
              
              
              2,834,675
              
              
              
              1,797,315
              
              
              
              2,834,675Warrants
      outstanding
              
              
              -
              
              
              
              12,350,000
              
              
              
              -
              
              
              
              12,350,000




In
addition, the 1,566,250 shares of common stock held in escrow as of June 30,
2007 in connection with the reverse acquisition of CEA have been excluded from
the computation of basic and diluted loss per share in accordance with SFAS
128.  These shares were cancelled on February 11, 2008.







3. Cash, Cash Equivalents and
Short-term Investments





Cash, cash equivalents and short-term
investments were as follows:





June
      30
              
              
              December
      312008
              
              
              2007Cash
              
              $
              1,267,755
              
              
              $
              371,581Money
      market
              
              
              8,256,529
              
              
              
              10,534,730U.S.
      agency notes
              
              
              2,033,573
              
              
              
              689,598Corporate
      bonds
              
              
              2,348,349
              
              
              
              2,196,599Total
      cash and cash equivalents
              
              $
              13,906,206
              
              
              $
              13,792,508U.S.
      agency notes
              
              $
              -
              
              
              $
              399,407Corporate
      bonds
              
              
              -
              
              
              
              1,049,119Total
      short-term investments
              
              $
              -
              
              
              $
              1,448,526





4.
Accounts Receivable




Accounts
receivable consists of the following:





June
      30
              
              
              December
      312008
              
              
              2007Billed
      accounts receivable
              
              $
              2,460,393
              
              
              $
              3,344,477Unbilled
      accounts receivable
              
              
              1,900,070
              
              
              
              2,122,671Total
      accounts receivable
              
              
              4,360,463
              
              
              
              5,467,148Allowance
      for doubtful accounts
              
              
              (282,891
              )
              
              
              (156,500
              )$
              4,077,572
              
              
              $
              5,310,648








10


5.
Accrued Expenses




Accrued
expenses consist of the following:




June 30
              
              
              December
      312008
              
              
              2007Accrued
      professional fees
              
              $
              73,857
              
              
              $
              171,941Accrued
      client reimbursable expenses
              
              
              410,627
              
              
              
              451,614Accrued
      other expenses
              
              
              686,505
              
              
              
              528,420Accrued
      compensation
              
              
              659,168
              
              
              
              312,619Accrued
      vacation
              
              
              311,955
              
              
              
              282,663$
              2,142,112
              
              
              $
              1,747,257





Accrued
compensation as of June 30, 2008 included $195,025 of expense in connection with
the resignation of the prior Chief Financial Officer.  This accrued
separation expense is expected to be paid over the next 12 months.





The
Company approved an executive bonus plan that provides for qualified
compensation to certain executives if certain performance measures are
met.  The consideration earned will be paid 50% in cash and 50% in the
form of restricted stock.  As of June 30, 2008 the Company has accrued
approximately $226,000 under this bonus plan, which is recorded in accrued
expenses.








6.
Debt




Debt
consists of the following:




June 30
              
              
              December 312008
              
              
              2007Borrowings:Bank
      line of credit, with an interest rate of 5.25% and 7.5% at June 30, 2008
      and December 31, 2007, respectively
              
              $
              1,269,000
              
              
              $
              1,126,000Bank
      equipment loan, with an interest rate of 6.00% and 8.25% at June 30, 2008
      and December 31, 2007, respectively
              
              
              -
              
              
              
              20,000Bank
      equipment loan, with an interest rate of 5.75% and 8.0% at June 30, 2008
      and December 31, 2007, respectively
              
              
              333,671
              
              
              
              417,004Bank
      equipment loan, with an interest rate of 5.75% at June 30,
      2008
              
              
              240,000
              
              
              
              -Total
      borrowings
              
              
              1,842,671
              
              
              
              1,563,004Bank
      line of credit and other short-term borrowings
              
              
              1,515,667
              
              
              
              1,312,667Long-term
      borrowings, less current portion
              
              $
              327,004
              
              
              $
              250,337June 302008Aggregate
      future maturities of debt (excluding bank line of credit):2008
      (remaining six  months)
              
              $
              123,3332009
              
              
              246,6682010
              
              
              163,6702011
              
              
              40,000Thereafter
              
              
              -Total
              
              $
              573,671


11











On
February 1, 2005, the Company entered into two loan agreements with RBC
Centura Bank. These loan agreements were modified on May 31, 2006 when a third
loan agreement was added and on May 31, 2007 when a fourth loan agreement was
added.  The first agreement is a $2,500,000 revolving accounts
receivable line of credit which provides for borrowings up to 80% of current
accounts receivable balance at the prime rate of interest plus
0.25%.  This line of credit has $1,269,000 outstanding as of June 30,
2008 and these borrowings are secured primarily by accounts receivable and other
corporate assets.  The second agreement is a $300,000 equipment line
of credit which was repaid during the three months ended March 31,
2008.  This loan funded equipment purchases and provides for interest
at the bank’s prime rate of interest plus 1.0%. Borrowings under the equipment
line of credit were paid over a period of thirty months. The third agreement is
a $500,000 equipment loan which has $333,671 outstanding as of June 30, 2008.
Borrowings under this equipment loan are being paid over a period of thirty-six
months at the bank’s prime rate of interest plus 0.75%. The fourth agreement is
a $240,000 equipment line of credit which had the entire $240,000 outstanding as
of June 30, 2008. This loan will be available to fund equipment purchases and
provides for interest at the bank’s prime rate of interest plus 0.75%.
Borrowings under the equipment line of credit will be paid over a period of
thirty-six months. The capital equipment borrowings are secured primarily by the
fixed assets that were acquired.   In addition to the loans
listed above, the Company has an additional amount of $500,000 available to
borrow through the draw down period which expires June 10, 2009, but as of June
30, 2008 has not exercised this option.





7.
Contingencies and Guarantees




From time
to time, the Company may become involved in various legal actions,
administrative proceedings and claims in the ordinary course of its business.
Although it is not possible to predict with certainty the outcome of such legal
actions or the range of possible loss or recovery, based upon current
information, management believes such legal actions will not have a material
effect on the financial position or results of operations of the
Company.




From time
to time, the Company enters into certain types of contracts that contingently
require it to indemnify parties against third party claims. These obligations
relate to certain agreements with the Company’s officers, directors and
employees, under which the Company may be required to indemnify such persons for
liabilities arising out of their employment relationship. Other obligations
relate to certain commercial agreements with its customers, under which the
Company may be required to indemnify such parties against liabilities and
damages arising out of claims of patent, copyright, trademark or trade secret
infringement by its software. The terms of such obligations vary. Generally, a
maximum obligation is not explicitly stated. Because the obligated amounts of
these types of agreements often are not explicitly stated, the overall maximum
amount of the obligations cannot be reasonably estimated. Historically, the
Company has not had to make any payments for these obligations, and no
liabilities have been recorded for these obligations on the Company’s condensed
consolidated balance sheets as of June 30, 2008 and December 31,
2007.





8.
Stockholders’ Equity




A total
of 1,400,000 shares of common stock of the Company issued to etrials
stockholders in the merger with CEA and 166,250 shares of common stock of former
CEA shareholders (including all CEA officers and directors) were placed in
escrow (“Trigger shares”) under an agreement that provided the shares would not
be released unless and until, over a 20 consecutive trading day period (i) the
volume weighted average price of etrials common stock is $7.00 or more, and (ii)
the average daily trading volume is at least 25,000 shares.  The
Trigger shares were cancelled since these conditions were not met on February
19, 2008.




The
Company’s 12,350,000 outstanding warrants were issued in two transactions. CEA
sold 4,025,000 units (the Units) in its initial public offering in 2004. Each
Unit consists of one share of the Company’s common stock, $.0001 par value, and
two warrants. In connection with this initial public offering, CEA issued an
option for $100 to the representative of the underwriters to purchase 350,000
Units at an exercise price of $9.90 per Unit. In connection with the CEA merger,
the Company also issued to shareholders of etrials warrants to purchase
4,300,000 warrants as part of the merger consideration. Each warrant entitles
the holder to purchase from the Company one share of common stock at an exercise
price of $5.00 per share on the terms and conditions set forth in the warrants
and the warrant agreement governing the warrants.  The warrants
expired on February 11, 2008.




12




In
addition, 700,000 warrants underlying an underwriters’ purchase option are
subject to the same terms and conditions as the outstanding warrants of the
Company described above, except that the exercise price is $6.40 per share.
These warrants also expired on February 11, 2008.




As of
June 30, 2008, the Company had reserved a total of 3,390,203 of its authorized
50,000,000 shares of common stock for future issuance as follows:




June
      30
              
              
              December
      312008
              
              
              2007Unit
      purchase options
              
              
              350,000
              
              
              
              1,050,000Stock
      options outstanding
              
              
              1,797,315
              
              
              
              2,754,703Reserved
      for future stock option grants
              
              
              1,242,888
              
              
              
              388,255Common
      stock warrants outstanding
              
              
              -
              
              
              
              12,350,000Total
      shares reserved for future issuance
              
              
              3,390,203
              
              
              
              16,542,958





9.
Stock Based Compensation





Effective
with the adoption of SFAS No. 123R, Share Based Payments,and the
Company has elected to use the Black-Scholes-Merton option pricing model to
determine the weighted average fair value of options granted.  The
Company has a limited trading history for its common stock as it began trading
on the NASDAQ National Market on February 10, 2006.  Accordingly, the
Company has determined the volatility for options granted in 2007 based on an
analysis of reported data for a peer group of companies that have issued stock
options with substantially similar terms. The expected life of options granted
by the Company has been determined based upon the “simplified” method as allowed
under the provisions of the Securities and Exchange Commission’s Staff
Accounting Bulletin No. 107 (“SAB 107”) and represents the period of time that
options granted are expected to be outstanding.  The risk-free
interest rate is based on a treasury instrument whose term is consistent with
the expected life of the stock options. The Company has not paid and does not
anticipate paying cash dividends on its shares of common stock; therefore, the
expected dividend yield is assumed to be zero. In addition, SFAS
No. 123R requires companies to utilize an estimated forfeiture rate
when calculating the expense for the period, whereas, SFAS No. 123
permitted companies to record forfeitures based on actual
forfeitures.  The weighted-average assumptions utilized to determine
the above values are indicated in the following table:




Six
      Months Ended June 30,2008Expected
      dividend yield
            0%Expected
      volatility
            100%Risk-free
      interest rate
            2.52%Expected
      life (in years)
            4







During
the six months ended June 30, 2008, the Company recorded $743,198 of stock-based
compensation expense, of which $403,993 was related to options issued subsequent
to the adoption of SFAS No. 123R.  Another $279,228 was the
result of the cancellation of 350,000 shares associated with the former CFO’s
resignation on May 31, 2008.  The remaining stock based compensation
expense is due to the amortization of previously recorded deferred compensation,
for stock options that have continued to be accounted for under APB Opinion No.
25 in accordance with the prospective transition method of SFAS
123R.  As of June 30, 2008, there was $1,355,436 of unrecognized
compensation expense related to non-vested share awards issued under SFAS No.
123R that is expected to be recognized over a weighted-average period of 1.52
years.




13


The
following summarizes the activity of the Plan for the three months ended June
30, 2008:




WeightedAverageWeighted
              
              
              Aggregate
              
              
              RemainingNumber
      of
              
              
              Average
              
              
              Intrinsic
              
              
              ContractualShares
              
              
              Exercise
      Price
              
              
              Value
              
              
              Term
      (years)Outstanding
      at December 31, 2007
              
              
              2,754,703
              
              
              $
              3.92Granted
              
              
              130,000
              
              
              
              2.44Exercised
              
              
              (2,756
              )
              
              
              1.93Canceled
              
              
              (1,084,632
              )
              
              
              4.48Outstanding
      at June 30, 2008
              
              
              1,797,315
              
              
              $
              3.48
              
              
              $
              7,400
              
              
              
              4.34Exercisable
      at June 30, 2008
              
              
              1,125,199
              
              
              $
              3.15
              
              
              $
              7,400
              
              
              
              4.51




The total
intrinsic value of options exercised during the six months ended June 30, 2008
and 2007 were $4 and $98,170, respectively.




10.  Income
Taxes




The
Company adopted the provisions of FIN 48, an interpretation of the SFAS 109,
Accounting for Income Taxes,on January 1, 2007.  As a result of the implementation of FIN
48, the Company recognized no material adjustment in the liability for
unrecognized income tax benefits.  At the adoption date of January 1,
2007 the Company had no unrecognized tax benefits which would affect the
Company’s effective tax rate.  At June 30, 2008, the Company had no
unrecognized tax benefits.





The Company recognizes interest and
penalties related to uncertain tax positions in the provision for income
taxes.  As of the date of adoption, January 1, 2007 and as of June 30,
2008, the Company had no accrued interest related to uncertain tax
positions.





The
Company has its tax years of 2003 – 2007 open to examination by federal tax and
2001 – 2007 for state tax jurisdictions.  The Company’s only foreign
subsidiary is in the United Kingdom and it has its tax years of 2005 – 2007 open
to examination.  The Company has not been informed by any tax
authorities for any jurisdiction that any of its tax years are under examination
as of June 30, 2008.





The
estimated tax rate for etrials Worldwide, Inc. for the quarter ended June 30,
2008 is 34% and 4.51% for federal and state tax purposes,
respectively.  It is expected that when the Company is able to utilize
its deferred tax assets that the taxable income for the Company will be between
$335,000 and $10,000,000.  The federal tax rate used reflects this tax
bracket.  The state tax rate is based on the appropriate rates for the
states that the Company is currently filing in, net of the federal tax benefit
of the state tax deduction.





The
Company has a loss through the second quarter and is forecasting additional
losses in the third through fourth quarters, resulting in an estimated net loss
for financial statement purposes for the year ended December 31,
2008.  Even with the anticipated additions to income for tax purposes,
the result will still be a tax loss for the year; therefore, no federal or state
income taxes are expected and have not been recorded.





Due to
the Company's history of losses from 1995 through 2007, there is not enough
evidence at this time to support that the Company will generate future income of
a sufficient amount and nature to utilize the benefits of its net deferred tax
assets.  Accordingly, the deferred tax assets have been reduced by a
valuation allowance, since it has been determined that it is more likely than
not that all of the deferred tax assets will not be realized.





At
December 31, 2006, the Company no longer qualified to use the cash method of
accounting for tax purposes under the Small Business Taxpayer
Exemption.  An adjustment was made under IRC Section 481 to convert
the Company to the accrual method for tax purposes and since this adjustment was
negative, it is included in the 2007 tax return and no deferred tax asset or
liability exists for accrual to cash conversion at December 31,
2006.


14





Under the
Tax Reform Act of 1986, the amounts of and benefits from net operating losses
carried forward may be impaired or limited in certain circumstances. Events
which might cause limitations in the amount of net operating losses that the
Company may utilize in any one year include, but are not limited to, a
cumulative change in ownership of more than 50% over a three-year
period.




11.  Recently
Issued Accounting Pronouncements




In September 2006, the FASB issued SFAS
No. 157, “Fair Value
Measurements”(SFAS 157), which defines fair value, establishes a
framework for measuring fair value under generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS
No. 157 applies to other accounting pronouncements that require or permit
fair value measurements. The new guidance is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and for interim
periods within those fiscal years. The adoption of SFAS No. 157 did not
have a material impact on the Company’s consolidated financial position and
results of operations.




In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (SFAS 159). SFAS 159 permits entities
to choose to measure many financial assets and financial liabilities at fair
value. Unrealized gains and losses on items for which the fair value option has
been elected are reported in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company did not choose to measure
any financial assets or liabilities at fair value pursuant to SFAS
159.




In
December 2007, the FASB issued FASB Statements No. 141 (revised 2007),
“Business Combinations”
(SFAS 141R) and No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (SFAS 160). Effective for fiscal years
beginning after December 15, 2008, the standards will improve, simplify,
and converge internationally the accounting for business combinations and the
reporting of noncontrolling interests in consolidated financial statements. SFAS
141R requires the acquiring entity in a business combination to recognize all
the assets acquired and liabilities assumed in the transaction; establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; and requires the acquirer to disclose to investors and
other users all of the information they need to evaluate and understand the
nature and financial effect of the business combination. SFAS 160 provides
guidance for accounting and reporting of noncontrolling interests in
consolidated financial statements. The Company is currently assessing the impact
of SFAS 141R and SFAS 160 on its consolidated financial statements and future
operations.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (SFAS
No. 161), an amendment of FASB Statement No. 133. SFAS No. 161
requires enhanced disclosures about an entity’s derivative and hedging
activities and thereby improves the transparency of financial reporting. This
Statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. This Statement encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. The Company believes that
the adoption of SFAS No. 161 will not have a material effect on its
financial position or results of operations.




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (SFAS 162) which provides a framework for selecting
accounting principals to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principals for
nongovernmental entities.  The Company does not expect the adoption of
SFAS 162 to have any impact on the Company’s consolidated financial
statements.  SFAS 162 will be effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.




12. Subsequent Events




The
Company's Chief Executive Officer, Eugene "Chip" Jennings resigned on July 8,
2008 as both an officer and director of the Company.  The Company's
Vice President of Technology, Chuck Piccirillo, is serving as Interim Chief
Executive Officer.




15




Under a
Resignation Agreement negotiated with Mr. Jennings, the Company agreed to pay
Mr. Jennings one year’s worth of his base salary, plus payment for any unused
vacation time.  The Company also agreed to continue to provide normal
benefits for Mr. Jennings during the same twelve month period.  The
Company will be evaluating any possible stock related expenses associated with
the agreement and accounting for them accordingly during the third
quarter.  The Resignation Agreement also provides for liability
releases by the Company and Mr. Jennings.




Item 2.
Management’s Discussion and Analysis




The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited consolidated
financial statements and related notes that appear elsewhere in this Quarterly
Report on Form 10-QSB. In addition to historical consolidated financial
information, the following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to these differences include those discussed below and
elsewhere in this Quarterly Report on Form 10-QSB, as well as in our Form
10-KSB filed on March 10, 2008.




Recent
Events – Personnel Changes and Repurchase Program





Chuck
Piccirillo, our Vice President of Technology, became our Interim Chief Executive
Officer in July 2008 and Jay Trepanier, our Vice President of Finance, became
our Interim Chief Financial Officer at the end of May 2008.





The
Company’s Board of Directors approved a new stock repurchase program in the
amount of $1 million to fund stock repurchases through June 30, 2009. The
Company will determine when and if the re-purchases are in the long-term
interests of our stockholders.  This new program replaces the prior stock
repurchase program that expired on June 30, 2008.  Repurchases will be made
in compliance with the limitations of securities laws, which limit the timing,
volume, price and manner of stock repurchases.




Overview




etrials
Worldwide, Inc. is a leading ‘eClinical’ solutions provider of a suite of
software applications, hosting and professional services to pharmaceutical,
biotechnology, medical device, and contract research organizations. The
Company’s end-to-end, Web-based eClinical applications work together to
coordinate data capture, logistics, patient interaction and trial management
through an integrated and comprehensive suite of products, services and hosted
solutions.




The
Company’s flexible eClinical offerings address the costly and time-consuming
clinical trial process of drug development through easy-to-use, adaptable
applications that enable more real-time visibility into the state and progress
of the clinical trial process. This results in earlier and more dynamic
decision-making and ultimately lower cost and shorter time-to-market. Offered as
individual solutions or combined with each other as part of an integrated suite,
the Company’s solutions are designed to significantly reduce the time spent
collecting and managing clinical trials data, managing clinical trials
performance by providing an automated and easy-to-use mechanism to collect and
analyze data directly from clinical investigators and patients, turning that
data into actionable intelligence. The Company believes that its automated data
collection software enables customers to reduce overall clinical trial research
costs, enhance existing data quality and greatly reduce the time needed to close
a study database.




Industry
analysts and commentators predict that global use and adoption of eClinical
technologies will continue to see significant growth over the coming years. A
2007 report released by Health Industry Insights (an IDC Company) cites that by
the end of 2007, nearly 45% of all new Phase I-III studies were using EDC
technology. That same report estimates that the total addressable market for EDC
and other eClnical services is expected to grow from a current total of
approximately $600M to $1.8B by 2010. Given this high growth opportunity, we are
keenly aware of our market potential relative to our comprehensive and
integrated application suite and their perfect alignment with the needs of our
target customers.


16





The
Company’s focus for 2008 continues to be on transforming the organization
through comprehensive re-engineering efforts, which include rebuilding the sales
organization, expanding the technologies to automate and improve service
delivery capabilities, and repositioning the Company’s solutions to increase
penetration in the mid-tier market. The Company’s enhanced sales organization
has increased capacity and reach, sustaining and growing the qualified pipeline,
and properly positioning the Company’s integrated solution suite to capture an
increasing share of its growing demand. The Company’s R&D organization
remains focused on developing enabling technologies to enhance service delivery,
as well as innovative functional product capabilities. In addition, establishing
excellence in service delivery remains a priority. The Company continues to
invest in improving our operational effectiveness by strengthening our expertise
in project management, software implementation, and clinical knowledge, while
applying state-of-the-art implementation practices.





Sources
of Revenues




The
Company derives revenues from providing software application-hosting and related
services to our customers on clinical trial projects. The Company offers its
eClinical solutions through an application service provider model. Revenues
resulting from the Company’s professional services and software
application-hosting, which include hosting fees and software usage fees, are
generated in three stages of drug development for each clinical trial. The first
stage (development and deployment) includes trial and application setup,
including design of electronic case report forms and edit checks, investigator
site training, and implementation of the system and server configuration. The
second stage (study conduct) consists of project management services,
application hosting and related professional and support services. The third
stage (close out) consists of services required to close out, or lock, the
database for the clinical trial and deliver final data sets to the
client.





Services
provided during the three phases of clinical trials are typically earned under
fixed-price contracts. Although the Company enters into master agreements with
each customer, the master agreements do not contain any minimum commitment by
customers and contain general terms and conditions.  All services and
revenues are covered by separately negotiated addendums called task
orders.  Revenues generated from each task order are generally
recognized using the proportional performance method, measured principally by
the total labor hours incurred as a percentage of estimated total labor hours
for each contract. This method is used because management considers total labor
hours incurred to be the best available measure of progress on these
contracts.





Software subscriptions and usage
fees and hosting fees revenues - We derive our software subscriptions and
usage fees and hosting fees revenues from our eClinical solution suite, which
includes primarily our electronic data capture, electronic patient diaries,
interactive voice response and post marketing solutions.




Services revenue - We provide
our customers a full range of professional services in support of our eClinical
software solutions. These services are delivered during all three stages of the
clinical trial as further described below.




•
            
            First stage—trial and
      application setup, including design of electronic case report forms and
      edit checks, installation and server configuration of the
      system;




•
            
            Second stage—consists
      of project management services, application hosting and related
      professional and support services;
and




•
            
            Third stage—services
      required to close out, or lock, the database for the clinical
      trial.




Services
provided for all three stages are generally on a fixed fee basis as per the
budget assumptions specified in the contract. If budget assumptions change,
etrials and the client generally agree to a change in scope amendment to the
contract. Revenues from services are recognized utilizing the proportional
performance method, measured principally by the total labor hours incurred as a
percentage of estimated total labor hours for each contract. This method is used
because management considers total labor hours incurred to be the best available
measure of progress on these contracts. The company records a loss for its
contracts at the point it is determined that the total estimated contract costs
will exceed management’s estimates of contract revenues. As of June 30, 2008,
the Company has not experienced any material losses on uncompleted
contracts.




17





Billing
for eClinical services will occur over the life of the contract. Although the
billing increments are negotiated in each contract individually, the total value
of the agreement is generally invoiced in the following increments:




Stage
            
            
            
            % of Contract ValueContract
      execution
            
            
            
            25%System
      deployment
            
            
            
            25%Study
      conduct
            
            
            
            40%Project
      close out
            
            
            
            10%Total
      Contract Value
            
            
            
            100%




Customers
generally have the ability to terminate contracts upon 30 days notice to
us.  In the event that a customer cancels a clinical trial and its
related task order, all deferred revenue is recognized and certain termination
related fees may be charged.





The
Company’s backlog policy is to include in our backlog those customer studies for
which we have received written confirmation (including emails) from the customer
that includes confirmation of the primary economic terms and in which the
customer indicates that our work on the study will begin within six
months.  Awarded contracts that are not set to begin work within that
six month period are not recorded or recognized as backlog, but may be added to
backlog after the award date if either the customer changes the work
commencement date or time passes so that the work commencement date falls within
the six month window.  Agreement on the principal economic terms and
the projected start date is not a contract.  This means that our
backlog includes some projects for which we do not have contracts or project
work orders signed by customers. The amount of backlog is the total amount of
the project budget agreed upon by the client and the Company, less revenue
previously recognized by us on each project.  If after an award, the
client increases or decreases the dollar amount of projected work, the amount of
backlog attributed to that award is adjusted.  Customer delays in
conducting clinical trials and the ability of customers to cancel projects
without penalty means that our backlog is not a guarantee as to the amount or
timing of future revenue.





Cost
of Revenues and Operating Expenses




We
allocate overhead expenses such as rent, occupancy charges, certain office
administrative costs, depreciation and employee benefit costs to all departments
based on headcount. As such, general overhead expenses are reflected in the
costs of revenues, sales and marketing, research and development, and general
and administrative expense categories. Overhead costs that can be specifically
identifiable back to the applicable functional area are charged to the
functional area that it belongs to.




Costs of Revenues - Costs of
revenues consists primarily of compensation and related fringe benefits for
project-related personnel, department management and all other dedicated project
related costs and indirect costs including facilities, information systems,
hosting facility fees, server depreciation, amortization of capitalized internal
software development costs, software license and royalty costs and other
costs.  Costs can fluctuate and impact our expenses based upon
employee utilization levels associated with specific projects.





Reimbursable Out-of-pocket
Revenues – Reimbursable out-of-pocket revenues and corresponding expenses
consist of client pass-through costs which can fluctuate quarterly based upon
contract activity.




Sales and Marketing - Sales
and marketing expenses consist primarily of employee-related expenses, including
travel, marketing programs (which include product marketing expenses such as
trade shows, workshops and seminars, corporate communications, other brand
building and advertising), allocated overhead and commissions. We expect that
sales and marketing expenses will increase proportionately as the business grows
and as we expand and further penetrate our customer base, expand our domestic
and international selling and marketing activities associated with existing and
new product and service offerings, build brand awareness and sponsor additional
marketing events.




Research and Development -
Research and development expenses consist primarily of employee-related
expenses, allocated overhead, outside contractors and other outsourcing. We have
historically focused our research and development efforts on increasing the
functionality, performance and integration of our software products. We expect
that in the future, research and development expenses will increase
proportionately as the business grows and as we introduce additional integrated
software solutions to our product suite. We capitalize certain internal software
development costs for new software products and releases, which are incurred
during the application development stage and amortize them over the software’s
estimated useful life of one to three years. The amortization of such
capitalized costs is included in costs of revenues.




18





General and Administrative -
General and administrative expenses consist primarily of employee-related
expenses, professional fees, primarily consisting of expenses for accounting,
compliance with the Sarbanes-Oxley Act of 2002, and legal services, including
litigation, information technology and other corporate expenses and allocated
overhead. We expect that in the future our general and administrative expenses
will increase in absolute dollars as we add personnel and incur personnel and
incur additional costs related to the growth of our business and
operations.




Amortization of Intangible
Assets - Our amortization costs of intangible assets represents the
amortization on a straight-line basis of acquired technologies over their
estimated useful lives, which is typically three years.




Stock-Based Compensation
Expenses - Our operating expenses include stock-based compensation
expenses related to the fair value of options issued to non-employees and option
grants to employees in situations where the exercise price is determined to be
less than the deemed fair value of our common stock at the date of
grant.  Operating expenses also include stock-based compensation
expense in accordance with SFAS 123R.





Foreign
Currency





The
financial statements of the Company’s foreign subsidiary in the United Kingdom
are remeasured in accordance with SFAS No. 52, Foreign Currency Translation.
The Company determined that the functional currency of its United Kingdom
operations is the U.S. dollar.  Assets and liabilities denominated in
foreign currencies are remeasured into U.S. dollars at current exchange
rates.  Operating results are remeasured into U.S. dollars using the
average rates of exchange prevailing during the period.  Remeasurement
adjustments for non-functional currency monetary assets and liabilities are
included in other income, net in the accompanying consolidated statements of
operations.





Critical
Accounting Policies and Estimates




The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. These items are regularly monitored and analyzed by management
for changes in facts and circumstances, and material changes in these estimates
could occur in the future. These estimates include, among others, our revenue
recognition policies related to the proportional performance methodology of
revenue recognition of contracts and assessing our goodwill for impairment
annually. Changes in estimates are recorded in the period in which they become
known. We base our estimates on historical experience and various other
assumptions that we believe are reasonable under the circumstances. Actual
results will differ and may differ materially from the estimates if past
experience or other assumptions do not turn out to be substantially
accurate.




Our
significant accounting policies are presented within Note 2 to our
consolidated financial statements as filed with the SEC on Form 10-KSB on March
10, 2008, and the following summaries should be read in conjunction with the
unaudited consolidated financial statements and the related notes included in
this Quarterly Report. While all accounting policies impact the financial
statements, certain policies may be viewed as critical. Critical accounting
policies are those that are both most important to the portrayal of financial
condition and results of operations and that require management’s most
subjective or complex judgments and estimates. Our management believes the
policies that fall within this category are the policies on revenue recognition,
accounting for stock-based compensation, goodwill and income taxes.




Revenue
Recognition




We derive
our revenues from providing software application-hosting and related services.
Revenues resulting from application hosting services are recognized in
accordance with Emerging Issues Task Force (EITF) Issue No. 00-03, Application of AICPA Statement of
Position 97-2 to Arrangements that include the Right to Use Software Stored on
Another Entity’s Hardware and Securities and Exchange Commission’s (SEC)
Staff Accounting Bulletin (SAB) Nos. 101 and No. 104, Revenue Recognition.We
recognize revenue when all of the following conditions are satisfied:
(1) there is persuasive evidence of an arrangement; (2) the service
has been provided to the customer; (3) the collection of fees is probable;
and (4) the amount of fees to be paid by the customer is fixed or
determinable.




19





We offer
our eClinical software products through an application service provider model.
The revenues generated from services, software subscriptions and usage fees,
hosting fees and other fees, in three stages for each clinical trial. The first
stage (development and deployment) includes trial and application setup;
including design of electronic case report forms and edit checks, investigator
site training, implementation of the system and server configuration. The second
stage (study conduct) consists of project management services, application
hosting and related professional and support services. The third stage (close
out) consists of services required to close out, or lock, the database for the
clinical trial and deliver final data sets to the client.




Services
provided during the three phases of clinical trials are typically earned under
fixed-price contracts. Although we enter into master agreements with each
customer, the master agreements do not contain any minimum commitment by
customers and contain general terms and conditions.  All services and
revenues are covered by separately negotiated addendums called task
orders.  Revenues generated from each project or task order are
generally recognized using the proportional performance method, measured
principally by the total labor hours incurred as a percentage of estimated total
labor hours for each contract. This method is used because management considers
total labor hours incurred to be the best available measure of progress on these
contracts. The estimated total labor hours of contracts are reviewed and revised
periodically throughout the duration of the contracts with adjustment to
revenues from such revisions being recorded on a cumulative basis in the period
in with the revisions are made. When estimates indicate a loss, such loss is
recognized in the current period in its entirety. Because of the inherent
uncertainties in estimating total labor hours, it is reasonably possible that
the estimates will change in the near term and could result in a material
change.




Customers
generally have the ability to terminate contracts upon 30 days written
notice. In the event that a customer cancels a clinical trial and its related
task order, deferred revenue is recognized for the work performed prior to
termination and certain termination related fees may be charged. Consequently,
termination of a contact may result in us recognizing more revenue during the
period in which the termination occurs.




Deferred
revenue represents amounts billed or cash received in advance of revenue
recognition. Included in accounts receivable are unbilled accounts receivable,
which represent revenue recognized in excess of amounts billed.




Provisions
for estimated losses on uncompleted contracts are made on a contract-by-contract
basis and are recognized in the period in which such losses become probable and
can be reasonably estimated. As of June 30, 2008, the Company has not
experienced any material losses on uncompleted contracts.





The
Company generally does not require collateral as a substantial amount of the
revenues are generated from recurring customers. Management performs periodic
reviews of the aging of customer balances, the current economic environment and
the Company’s industry experience and establishes an allowance on accounts
receivable based on these reviews.





20


The
following summarizes the components of our revenues:





Three
      Months Ended June 30
              
              
              Six
      Months Ended June 302008
              
              
              2007
              
              
              2008
              
              
              2007Services
              
              $
              3,027,528
              
              
              $
              3,816,242
              
              
              $
              5,798,780
              
              
              $
              6,846,443Software
      subscriptions and usage fees
              
              
              596,760
              
              
              
              917,379
              
              
              
              1,230,402
              
              
              
              1,601,509Hosting
      fees
              
              
              342,833
              
              
              
              470,887
              
              
              
              646,148
              
              
              
              833,564Net
      service revenues
              
              
              3,967,121
              
              
              
              5,204,508
              
              
              
              7,675,330
              
              
              
              9,281,516Reimbursable
      out-of-pocket revenues
              
              
              342,111
              
              
              
              1,771,180
              
              
              
              929,743
              
              
              
              2,416,026Total
              
              $
              4,309,232
              
              
              $
              6,975,688
              
              
              $
              8,605,073
              
              
              $
              11,697,542





We
account for pass-through expenses in accordance with EITF Issue No. 01-14,
Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred (EITF No. 01-14). EITF No. 01-14 requires reimbursable
out-of-pocket expenses incurred to be characterized as revenue in the statement
of operations.





Accounting
for Stock-Based Compensation




In
December 2004, the FASB issued SFAS No. 123 (revised 2004), Share Based Payment(SFAS 123R). SFAS 123R replaces SFAS 123 and supersedes
APB 25.
SFAS 123R requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements using the fair value
method. The provisions of SFAS 123R are effective for public entities that
do not file as small business issuers as of the beginning of the first interim
or annual reporting period that begins after June 15, 2005 (January 1,
2007 for the Company). The impact of adoption of SFAS 123R will depend on
levels of share-based payments granted in the future. SFAS 123R also
requires the benefits of tax deductions in excess of recognized compensation
cost to be reported as a financing cash flow, rather than as an operating cash
flow. The Company will recognize excess tax benefits when those benefits reduce
current income taxes payable.




The
Company used the minimum-value method as a non-public company to estimate the
fair value of stock awards under SFAS 123 for pro forma footnote disclosure
purposes. The Company was required to adopt SFAS 123R using the
“prospective-transition” method upon the effective date. Under the prospective
method, nonpublic entities that previously applied SFAS 123 using the
minimum-value method whether for financial statement recognition or pro forma
disclosure purposes will continue to account for non-vested equity awards
outstanding at the date of adoption of SFAS 123R in the same manner as they had
been accounted for prior to adoption (APB 25 intrinsic value method for the
Company).  All awards granted, modified, or settled after the date of
adoption are accounted for using the measurement, recognition, and attribution
provisions of SFAS 123R.  The Company has continued to recognize
compensation expense for awards issued prior to the adoption of SFAS 123R in
accordance with the provisions of APB 25.





Goodwill




The
Company accounts for its goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. The Company concluded it has one reporting unit for purposes of
performing the goodwill impairment analysis. Under the non-amortization
approach, goodwill and certain intangibles are not amortized into results of
operations, but instead are reviewed for impairment at least annually and
written down and charged to operations only in the periods in which the recorded
value of goodwill exceeds its fair value. An interim goodwill impairment test
would be performed if an event occurs or circumstances change between annual
tests that would more likely than not reduce the fair value of a reporting unit
below its carrying amount.  In the event of a sustained decline in the
Company’s market capitalization below its book value, a goodwill impairment
analysis would be performed on an interim basis.




Accounting
for Income Taxes




In
connection with preparing our financial statements, we are required to estimate
our income taxes in each of the jurisdictions in which we operate. This process
involves the assessment of our net operating loss carryforwards and credits, as
well as estimating the actual current tax liability together with assessing
temporary differences resulting from differing treatment of items, such as
reserves and accrued liabilities, for tax and accounting purposes. We then
assess the likelihood that deferred tax assets will be recovered from future
taxable income, and to the extent we believe that recovery is not likely, we
must establish a valuation allowance. Based on historical results, we believe
that it is more likely than not that we will not realize the value of our
deferred tax assets and therefore have provided a full valuation allowance
against our net deferred tax assets as of June 30, 2008.





21


The
Company adopted the provisions of FIN 48, an interpretation of the SFAS 109,
Accounting for Income Taxes,on January 1, 2007.  As a result of the implementation of FIN
48, the Company recognized no material adjustment in the liability for
unrecognized income tax benefits.  At the adoption date of January 1,
2007 the Company had no unrecognized tax benefits which would affect the
Company’s effective tax rate.  At June 30, 2008, the Company had no
unrecognized tax benefits.




Results
of Operations




Three
Months Ended June 30, 2008 Compared to Three Months Ended June 30,
2007




Net
service revenues decreased 23.8% to $3,967,121 for the three months ended June
30, 2008 as compared to $5,204,508 for the three months ended June 30,
2007.  The decrease in revenues is primarily the result of the timing
and delay in the start of new studies, as well as the ramp up time associated
with newly hired billable operations personnel.   The majority of
customer studies included in our backlog usually start within 3-6 months after
the award.  Since approximately 40% of a contract’s value is earned
during the start-up deployment phase of the clinical trial, the timing of new
project starts has a material impact on quarterly revenues.




Reimbursable out-of-pocket revenues and
corresponding expenses decreased to $342,111 from $1,771,180 for the three
months ended June 30, 2008 and 2007, respectively.  This 80.7%
decrease is primarily the result of less diary hardware costs related to new
electronic patient diary trials commenced in the three months ended June 30,
2008.  The majority of the Company’s award commitments in the second
quarter of 2008 are new studies requiring our IVR and EDC
solutions.





Costs of
revenues increased 16.2% to $2,506,432 from $2,157,285 for the three months
ended June 30, 2008 and 2007, respectively.  This increase was
primarily driven by hiring more project-related and operations personnel, which
is aligned with our 2008 strategy of process re-engineering, quality initiatives
and corporate-wide focus on driving service delivery excellence and customer
satisfaction.  As a percentage of net service revenues, costs of
revenues increased to 63.2% from 41.5% for the three months ended June 30, 2008
and 2007, respectively.  This percentage increase is due to higher
costs and lower revenues during the period.




Sales and
marketing costs decreased 3.3% to $1,444,402 from $1,493,491 for the three
months ended June 30, 2008 and 2007, respectively.  This decrease was
primarily the result of reduced spending on marketing expenses offset partially
by increased spending on personnel and related costs, as well as sales travel
related to the Company’s strategy of rebuilding a more robust sales organization
dedicated to business development and client services groups and driving
contract bookings in 2008. As a percentage of net service revenues, sales and
marketing costs increased to 36.4% from 28.7% for the three months ended June
30, 2008 and 2007, respectively.





General
and administrative costs decreased by 30.9% to $1,734,387 from $2,508,920 for
the three months ended June 30, 2008 and 2007, respectively.  This
decrease was primarily the result of approximately $1,000,000 associated CEO
transition expenses in the second quarter of 2007, as well as patent
infringement litigation costs incurred in the second quarter of
2007.  General and administrative expenses for the second quarter of
2008 included approximately $500,000 of expenses resulting from the resignation
of the prior CFO, James Clark.  As a percentage of net service
revenues, general and administrative expenses decreased to 43.7% from 48.2% for
the three months ended June 30, 2008 and 2007, respectively.




Amortization
of intangible assets consists of amortization of acquired software technologies
over their estimated useful life of three years. These costs were zero and
$3,801 for the three months ended June 30, 2008 and 2007,
respectively.  These costs declined since certain intangible assets
were fully amortized in early 2007.




22


Research
and development costs decreased by 7.2% to $540,817 from $582,535 for the three
months ended June 30, 2008 and 2007, respectively.  The decrease was
primarily attributable to a reduction in employees and timing of software
development projects.  As a percentage of net service revenues,
research and development expenses increased to 13.6% from 11.2% for the three
months ended June 30, 2008 and 2007, respectively.





Other
income for the three months ended June 30, 2008 was $29,208 as compared with
$210,156 for the three months ended June 30, 2007. The decrease is primarily due
to lower interest rates, as well as reduced cash investments.




We
experienced a net loss of $2,229,709 compared with net loss of $1,331,368 for
the three months ended June 30, 2008 and 2007, respectively.  The net
loss for the three months ended June 30, 2008 was caused primarily by decreased
revenues and higher cost of services, as well as lower net other
income.





Six
Months Ended June 30, 2008 Compared to Six Months Ended June 30,
2007




Net service revenues decreased 17.3% to
$7,675,330 for the six months ended June 30, 2008, as compared to $9,281,516 for
the six months ended June 30, 2007.  The decrease in net service
revenues is primarily the result of timing and delay in the start of new
studies.





Reimbursable
out-of-pocket revenues and corresponding expenses decreased to $929,743 from
$2,416,026 for the six months ended June 30, 2008 and 2007,
respectively.  This decrease is primarily the result of less diary
hardware costs related to new electronic patient diary trials commenced during
the six months ended June 30, 2008.  The majority of these new studies
awarded during the second quarter are associated with IVR and EDC
projects.




Costs of
revenues increased 17.4% to $5,088,085 from $4,333,588 for the six months ended
June 30, 2008 and 2007, respectively.  This increase was primarily the
result of higher operational personnel costs to align with the Company’s 2008
strategy of re-engineering processes, operational effectiveness and overall
focus on delivering superior service delivery and driving high customer
satisfaction.  Another significant contributing factor to this
increase is cost to ramp up our operational capacity to prepare for delivering
on our growing backlog. These costs increased at a higher rate than net service
revenues.  As a percentage of net service revenues, costs of revenues
increased to 66.3 % from 46.7% for the six months ended June 30, 2008 and 2007,
respectively, primarily due to the timing of revenue from new contract
starts.




Sales and
marketing costs decreased 2.8% to $2,590,828 from $2,665,375 for the six months
ended June 30, 2008 and 2007, respectively.  This decrease was
primarily the result of reduced spending on marketing expenses offset partially
by increased spending on personnel and related costs, as well as sales travel
related to the Company’s goal of increasing the personnel we devote to direct
sales and new contract bookings during 2008.  As a percentage of net
service revenues, sales and marketing costs were 33.8% and 28.7% for the six
months ended June 30, 2008 and 2007, respectively.




General
and administrative costs decreased by 20.0% to $3,185,435 from $3,981,396 for
the six months ended June 30, 2008 and 2007, respectively.  During the
first six months of both 2007 and 2008, we incurred substantial transition costs
associated with senior executives. During the first six months of 2007, we
incurred approximately $1,000,000 in CEO transition costs ($630,000 of
stock-based compensation expense in accordance with SFAS 123R and $388,000
related to severance).  During the first six months of 2008, our
transition costs were lower than for the same period during 2007, but we
incurred approximately $500,000 of CFO transition costs ($279,000 of stock-based
compensation expense in accordance with SFAS 123R and $221,000 related to
severance).  As a percentage of net service revenues, general and
administrative expenses were 41.5 % and 42.9% for the six months ended June 30,
2008 and 2007, respectively.




Amortization
of intangible assets consists of amortization of acquired software technologies
over their estimated useful life of three years. These costs decreased as the
assets were fully amortized in 2007. Amortization expense for the six months
ended June 30, 2007 was $15,199.


23





Research
and development costs increased by 18.6% to $1,186,720 from $1,000,714 for the
six months ended June 30, 2008 and 2007.  The increase was primarily
attributable to the Company’s focus on concentrating research and development
resources on new automation tools to speed study development and higher costs of
contractors retained to accelerate the development of the automation tools. As a
percentage of net service revenues, research and development expenses were 15.5%
and 10.8% for the six months ended June 30, 2008 and 2007,
respectively.





Other
income for the six months ended June 30, 2008 was $108,545 as compared with
$443,231 for the six months ended June 30, 2007. The decrease is primarily due
to lower interest rates, as well as reduced cash investments.




The
Company experienced a net loss of $4,267,193 compared with a net loss of
$2,271,525 for the six months ended June 30, 2008 and 2007,
respectively.  In addition to the lower year over year revenue
shortfall, also contributing to this increase in Net Loss was approximately
$500,000 in expense associated with CFO transition costs, as well as other
overhead related expenses incurred in executing the Company’s 2008
re-engineering strategy.





Liquidity
and Capital Resources




The
Company’s principal sources of cash have been from revenues generated by the
Company’s software application hosting and related services, as well as from
proceeds from the issuance of various debt instruments and the sale of equity
securities.





At June
30, 2008, the Company had cash, cash equivalents and short-term investments of
approximately $13.9 million.  The Company’s cash, cash equivalents and
short-term investments decreased by approximately $1.3 million during the six
months ended June 30, 2008 primarily due to the operating loss.  The
Company’s total current assets decreased by approximately $2.5 million during
the same period.   In addition, the second quarter 2008 cash burn
decreased to approximately $550,000 compared to approximately $750,000 in the
first quarter of 2008.





In the
six months ended June 30, 2008 and 2007 operating activities used approximately
$756,000 and $2,049,000 of net cash, respectively.  The significant
decrease in net cash used in operating activities was primarily due
to stock based related expenses and better results in collecting
accounts receivable, which resulted in a reduction in $1.3 million in accounts
receivable during the first six months of 2008.





In the
six months ended June 30, 2008 and 2007, investing activities provided
approximately $1 million and $3.7 million of net cash,
respectively.  The decrease is primarily attributed to the reduction
of net sales of short-term investments offset by increased purchases of property
and equipment.




In the
six months ended June 30, 2008 financing activities used approximately $134,000
of net cash, whereas in the six months ended June 30, 2007 financing activities
provided approximately $988,000 of net cash.  The decrease was
primarily the result of a reduction in new borrowing for the six months ending
June 30, 2008 compared to June 30, 2007 of approximately $700,000 and
approximately $209,000 spent to repurchase 98,328 common shares during the six
months ended June 30, 2008.




The
Company intends to continue to fund the enhancement and expansion of the etrials
eClinical software technologies through both internal development and the
acquisition of additional complementary technologies in the future. The Company
believes its existing cash, cash equivalents, short-term investments, and cash
provided by operating activities and our debt facilities will be sufficient to
meet our working capital and capital expenditure needs over the next
twelve months. The Company’s future capital requirements will depend on
many factors, including the Company’s rate of revenue growth, the expansion of
the Company’s marketing and sales activities, the timing and extent of spending
to support product development efforts, the timing of introductions of new
services and enhancements to existing services, and the continuing market
acceptance of our services. To the extent that existing cash and securities and
cash from operations are insufficient to fund the Company’s future activities,
including potential acquisitions of complementary eClinical technology
companies, the Company may need to raise additional funds through public or
private equity or debt financing. Additional funds may not be available on terms
favorable to the Company or at all.


24





The Company’s backlog was approximately
$22.3 million at June 30, 2008 compared to $19.2 million at December 31, 2007
and $18.1 million at June 30, 2007. The Company’s backlog includes both projects
covered by contracts and projects for which customers have provided written
confirmation that they have decided to award contracts or work orders to the
Company for a specific project.  The increase in backlog since
December 31, 2007 is primarily the result of new project bookings during the
first two quarters of 2008 of approximately $11.5 million (as compared to $10.6
million during the first half of 2007) offset by approximately $180,000 of
project cancellations and a re-classification of approximately $557,007 from
backlog to pipeline (as compared to $969,246 of cancellations during the first 2
quarters of 2007) and by net service revenues recognized of approximately $7.7
million during the first 2 quarters of 2008 (as compared to approximately $9.3
million of net service revenues during the first half of 2007).  The
Company is including only confirmed written awards that are to start within 6
months or less into backlog.  All other confirmed written awards that
the Company does not have clear indication of starting within the next 6 months
are held out of the reported backlog numbers. The Company is reporting $11.5
million in YTD new project bookings that is included in backlog, although the
Company has another $3.3 million of written award confirmations.  In
total, the Company was awarded 35 new contracts for the period: 29 with 7
existing clients and 6 with 2 new clients.





Project
cancellations, which can be made by customers without penalty, are a normal part
of the clinical research services industry and occur for a variety of reasons
outside our control.  Some examples of reasons for cancellations are
noted below:





·
            The
      FDA can request changes in a clinical trial program – additional Phase II
      trials may be requested before Phase III trials may
  begin;


·
            Mergers
      and acquisitions – client companies can be acquired and the resulting
      review of clinical programs can result in project cancellations due to
      similar compounds in development by each
  company;


·
            Short
      project start timelines can result in client decisions to utilize paper
      instead of eClinical technologies which require longer start
      times;


·
            Adverse
      and serious adverse reactions to the study
drug;


·
            Poor
      results or lack of statistically significant performance of drug in active
      trials based upon interim analysis;


·
            Adjustments
      of future subscription license commitments based upon actual usage during
      prior contract year.





Contractual
Obligations




We do not
have any special purpose entities or any other off balance sheet financing
arrangements. We have operating leases for office space and office equipment and
a capital lease for the purchase of third party software, which are described
below.




On
February 1, 2005, the Company entered into two loan agreements with RBC
Centura Bank. These loan agreements were modified on May 31, 2006 when a third
loan agreement was added and on May 31, 2007 when a fourth loan agreement was
added.  The first agreement is a $2,500,000 revolving accounts
receivable line of credit which provides for borrowings up to 80% of current
accounts receivable balance at the prime rate of interest plus
0.25%.  This line of credit has $1,269,000 outstanding as of June 30,
2008 and these borrowings are secured primarily by accounts receivable and other
corporate assets.  The second agreement is a $300,000 equipment line
of credit which was repaid during the three months ended March 31,
2008.  This loan funded equipment purchases and provides for interest
at the bank’s prime rate of interest plus 1.0%. Borrowings under the equipment
line of credit were paid over a period of thirty months. The third agreement is
a $500,000 equipment loan which has $333,671 outstanding as of June 30, 2008.
Borrowings under this equipment loan are being paid over a period of thirty-six
months at the bank’s prime rate of interest plus 0.75%. The fourth agreement is
a $240,000 equipment line of credit which had the entire $240,000 outstanding as
of June 30, 2008.   This loan will be available to fund equipment
purchases and provides for interest at the bank’s prime rate of interest plus
0.75%. Borrowings under the equipment line of credit will be paid over a period
of thirty-six months.




Working
capital borrowings are secured primarily by our accounts receivable while
capital equipment borrowings are secured by the fixed assets that were acquired.
Under the terms of these credit lines, we are required to comply with certain
financial covenants.  To the extent we are unable to satisfy those
covenants in the future, we will need to obtain waivers to avoid being in
default of the terms of these credit lines. If an unwaived default occurs, the
bank may require that we repay all amounts then outstanding. We expect that we
will have sufficient resources to fund any amounts which may become due under
these credit lines as a result of a default by us or otherwise. However, any
amounts which we may be required to repay prior to a scheduled repayment date
would reduce funds that we could otherwise allocate to other opportunities that
we consider desirable.


25





Inflation




To date,
we believe that the effects of inflation have not had a material adverse effect
on our results of operations or financial condition.





Certain Factors Which May Affect Future Results




We
operate in a rapidly changing environment that involves a number of risks, some
of which are beyond our control. This discussion highlights some of the risks
which may affect future operating results. These are the risks and uncertainties
we believe are most important for you to consider. Additional risks and
uncertainties not presently known to us, which we currently deem immaterial or
which are similar to those faced by other companies in our industry or business
in general, may also impair our business operations. If any of the following
risks or uncertainties actually occurs, our business, financial condition and
operating results would likely suffer.




Forward
Looking Statements and Risks




We
believe that some of the information in this document constitutes
forward-looking statements within the definition of the Private Securities
Litigation Reform Act of 1995. Our actual results could differ materially from
those discussed in the forward-looking statements.  Factors that could
cause or contribute to these differences include those discussed in this
Report.





In
addition to the other information set forth in this Report, you should carefully
consider the factors discussed in “Risk Factors” in our Annual Report on Form
10-KSB filed on March 10, 2008, which could materially affect our business,
financial condition or future results. The risks described in that Form 10-KSB
are not the only risks facing our Company. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating
results.





You can
identify forward looking  statements by forward-looking words such as
“may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intends,”
and “continue” or similar words. You should read statements that contain these
words carefully because they:




•
            
            Discuss
      future expectations;




•
            
            Contain
      projections of future results of operations or financial condition;
      or




•
            
            State
      other “forward-looking”
information.





We
believe it is important to communicate our expectations to our stockholders.
However, there may be events in the future that we are not able to predict
accurately or over which we have no control. The risk factors and cautionary
language discussed in this Report provide examples of risks, uncertainties and
events that may cause actual results to differ materially from the expectations
described by us in our forward-looking statements:





You are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Report.





All
forward-looking statements included herein attributable to any of us, or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. Except to the
extent required by applicable laws and regulations, we undertake no obligations
to update these forward-looking statements to reflect events or circumstances
after the date of this document or to reflect the occurrence of unanticipated
events.


26




Item 3.    Controls and
Procedures




(a)           Disclosure
Controls and Procedures.





The
Company has established disclosure controls and procedures to ensure that
material information relating to etrials Worldwide, Inc. is made known to the
officers who certify the Company financial reports and to other members of
senior management and the Board of Directors. Based on their evaluation, the
Company’s principal executive and principal financial officers have concluded
that disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) were effective as of
June 30, 2008 to ensure that information required to be disclosed in the reports
that it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.





(b)           Changes
in Internal Control over Financial Reporting.





There was
no change in the Company’s internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, the Company’s
control over financial reporting.





The
evaluation of our disclosure controls included a review of whether there were
any significant deficiencies in the design or operation of such controls and
procedures, material weaknesses in such controls and procedures, any corrective
actions taken with regard to such deficiencies and weaknesses and any fraud
involving management or other employees with a significant role in such controls
and procedures.





Our
management does not expect that our disclosure controls and procedures and our
internal control over financial reporting will prevent all error and all
fraud.  A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
controls system are met.  The design of any system of controls is
based in part upon assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions.





PART
II – OTHER INFORMATION





Item
1.  Legal Proceedings.





None.





Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds.





No
unregistered sales of securities were made during the quarter that were not
previously reported on a Current Report on Form 8-K, except for stock option
grants in the normal course of the Company’s business.





Item
3.  Defaults Upon Senior Securities.





None.





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





At the Company’s Annual Meeting of
Stockholders held on May 29, 2008, Robert Brill and Kenneth Jennings were
re-elected as Directors for three year terms that end when their successors are
elected at the Annual Meeting of Stockholders to be held in 2011. The
stockholders also adopted, ratified and approved that Ernst & Young serve as
the independent registered public accountants, to examine the financial
statements of the Company for 2008.





11,322,253
shares of Common Stock were entitled to vote at the annual meeting. A total of
8,670,119 shares of Common Stock were represented at the annual meeting either
in person or by proxy. The results were as follows:


27





PROPOSAL
NO. 1. Election of Directors





Percent
      of Votes CastRobert
      Brill
            6,875,661
      votes were cast FOR
            79%1,794,458
      votes were WITHHELD
            21%Kenneth
      Jennings
            6,858,036
      votes were cast FOR
            79%1,812,083
      votes were WITHHELD
            21%PROPOSAL
      NO. 2. Ratification of Ernst & Young8,648,359
      votes were cast FOR
            99%20,670
      votes were cast AGAINST
            .5%16,509
      votes ABSTAINED
            .5%





Item
5.  Other Information.





None.





Item
6.  Exhibits





The Exhibit Index that follows the
signature page of the Report is hereby incorporated by reference.





28




SIGNATURES






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




ETRIALS
      WORLDWIDE, INC.August
      14, 2008
            
            By:
            /s/ CHARLES J.
      PICCIRILLO
              Charles
      J. Piccirillo
              Chief
      Executive Officer (Principal Executive Officer)August
      14, 2008
            
            By:
            /s/ JOSEPH (JAY) F.
      TREPANIER III
              Joseph
      (Jay) F. Trepanier III
              Chief
      Financial Officer (Principal Accounting and Financial
    Officer)






























29


EXHIBIT
INDEX









Exhibit
            Description3.1.1
            Amended
      and Restated Certificate of Incorporation.  (Incorporated by
      reference from Registration Statement No. 333-110365 on Form S-4 filed
      October 28, 2006).3.2
            Amended
      and Restated Bylaws, as amended through July 2,
      2007.  (Incorporated by reference from Annual Report on Form
      10-KSB filed March 10, 2008).4.1
            Specimen
      Common Stock Certificate of Registrant (Incorporated by reference from
      Registration Statement No. 333-110365 on Form S-1 filed November 10,
      2003).31.1
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.*31.2
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.*32.1
            Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002.**Filed
      herewith.