**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
                1934****For
                the quarterly period ended March 31, 2006****or**o**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













**ETRIALS
      WORLDWIDE, INC.**


**QUARTERLY
      REPORT ON FORM 10-QSB**


**FOR
      THE QUARTERLY PERIOD ENDED MARCH 31, 2006**




**Table
      of Contents**




**Page****Part
                I - FINANCIAL INFORMATION**Item
                1.
            
            Financial
                StatementsConsolidated
                Balance Sheets as of March 31, 2006 (unaudited) and December 31,
                2005
            
            3Consolidated
                Statements of Operations (unaudited) for the three months ended March
                31,
                2006 and 2005
            
            5Consolidated
                Statements of Stockholders (Deficit) Equity for the three months
                ended
                March 31, 2006 (unaudited)
            
            6Consolidated
                Statements of Cash Flows (unaudited) for the three months ended March
                31,
                2006 and 2005
            
            7Notes
                to Consolidated Financial Statements (unaudited)
            
            8Item
                2.
            
            Management's
                Discussion and Analysis
            
            17Item
                3.
            
            Controls
                and Procedures
            
            28**Part
                II - OTHER INFORMATION**Item
                1.
            
            Legal
                Proceedings
            
            28Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            28Item
                3.
            
            Defaults
                Upon Senior Securities
            
            28Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            29Item
                5.
            
            Other
                Information
            
            29Item
                6.
            
            Exhibits
            
            29Signatures
            
            30Exhibit
                Index
            
            31









2







**PART
      I - Financial Information**






**Item
      1.    Financial Statements**


**etrials
      Worldwide, Inc.**


**Consolidated
      Balance Sheets**




**March
                  31**
              
              **December
                  31****2006**
              
              **2005****(unaudited)****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              20,833,201
              
              $
              1,650,323Accounts
                  receivable, net of allowance for doubtful accounts of $41,000 and
                  $45,000,
                  respectively
              
              
              3,058,310
              
              
              2,510,279Prepaid
                  expenses and other current assets
              
              
              507,912
              
              
              355,031Total
                  current assets
              
              
              24,399,423
              
              
              4,515,633Property
                  and equipment, net of accumulated depreciation of $2,415,912 and
                  $2,251,765, respectively
              
              
              1,416,299
              
              
              1,397,407Goodwill
              
              
              8,011,037
              
              
              8,011,037Developed
                  technology, net of accumulated amortization of $1,624,296 and $1,570,073,
                  respectively
              
              
              49,394
              
              
              103,617Deferred
                  acquisition costs
              
              
              —
              
              
              793,056Other
                  assets
              
              
              88,841
              
              
              87,871Total
                  assets
              
              $
              33,964,994
              
              $
              14,908,621




*See
      accompanying notes.*







3








**etrials
      Worldwide, Inc.**


**Consolidated
      Balance Sheets**


**(continued)**




**March
                  31**
              
              **December
                  31****2006**
              
              **2005****(unaudited)****Liabilities,
                  Redeemable Convertible Preferred Stock and Stockholders’ Equity
                  (Deficit)**Current
                  liabilities:Accounts
                  payable
              
              $
              569,030
              
              $
              635,287Accrued
                  expenses
              
              
              879,227
              
              
              1,142,861Deferred
                  revenue
              
              
              2,349,581
              
              
              2,011,921Bank
                  line of credit and other short-term borrowings
              
              
              833,029
              
              
              820,000Current
                  portion of capital lease obligations
              
              
              120,858
              
              
              117,869Total
                  current liabilities
              
              
              4,751,725
              
              
              4,727,938Capital
                  lease obligations, net of current portion
              
              
              92,869
              
              
              121,329Long-term
                  borrowings, net of current portion
              
              
              110,000
              
              
              140,000Total
                  liabilities
              
              
              4,954,594
              
              
              4,989,267Commitments
                  and contingenciesSeries
                  A redeemable convertible preferred stock; $0.0001 par value; 3,760,200
                  shares authorized, 2,752,616 shares issued and outstanding at
                  December 31, 2005, (aggregate liquidation value of $12,667,837 at
                  December 31, 2005)
              
              
              —
              
              
              11,714,413Series
                  B redeemable convertible preferred stock; $0.0001 par value; 877,380
                  shares authorized, 257,668 shares issued and outstanding at
                  December 31, 2005, (aggregate liquidation value of $2,237,136 at
                  December 31, 2005)
              
              
              —
              
              
              1,932,860Stockholders’
                  equity (deficit):Common
                  stock; $0.0001 par value; 50,000,000 and 10,027,200 shares authorized
                  at
                  March 31, 2006 and December 31, 2005, respectively, 12,347,738
                  and
                  3,471,792 shares issued and outstanding at March 31, 2006 and
                  December 31, 2005, respectively
              
              
              1,235
              
              
              335Additional
                  paid-in capital
              
              
              53,316,621
              
              
              19,705,689Deferred
                  compensation
              
              
              (182,551
              )
              
              (207,046
              )Prepaid
                  software application-hosting discount
              
              
              —
              
              
              (140,000
              )Accumulated
                  other comprehensive income
              
              
              7,291
              
              
              (1,850
              )Accumulated
                  deficit
              
              
              (24,132,196
              )
              
              (23,085,047
              )Total
                  stockholders’ equity (deficit)
              
              
              29,010,400
              
              
              (3,727,919
              )Total
                  liabilities, redeemable convertible preferred stock and stockholders’
                  equity (deficit)
              
              $
              33,964,994
              
              $
              14,908,621







4





**etrials
      Worldwide, Inc.**


**Consolidated
      Statements of Operations**


**(unaudited)**





**Three
                  Months Ended March 31****2006**
              
              **2005**Revenues
              
              $
              2,759,663
              
              $
              3,697,870Costs
                  and expenses:Costs
                  of revenues
              
              
              1,696,301
              
              
              1,523,089Sales
                  and marketing
              
              
              820,654
              
              
              726,600General
                  and administrative
              
              
              920,668
              
              
              884,718Amortization
                  of intangible assets
              
              
              54,223
              
              
              139,872Research
                  and development
              
              
              430,211
              
              
              333,982Total
                  cost and expenses
              
              
              3,922,057
              
              
              3,608,261Operating
                  (loss) income
              
              
              (1,162,394
              )
              
              89,609Other
                  income (expenses):Interest
                  expense
              
              
              (18,426
              )
              
              (18,242
              )Interest
                  income
              
              
              102,451
              
              
              1,899Other
                  income, net
              
              
              31,220
              
              
              10,130Total
                  other income (expenses), net
              
              
              115,245
              
              
              (6,213
              )Net
                  (loss) income
              
              
              (1,047,149
              )
              
              83,396Dividends
                  and accretion of preferred stock
              
              
              (95,969
              )
              
              (288,207
              )Induced
                  conversion of common stock warrants
              
              
              (1,030,000
              )
              
              —Net
                  loss attributable to common stockholders
              
              $
              (2,173,118
              )
              $
              (204,811
              )Loss
                  per common share:Basic
                  and diluted loss per share attributable to common
                  stockholders
              
              $
              (0.29
              )
              $
              (0.07
              )Basic
                  and diluted weighted average common shares outstanding
              
              
              7,569,572
              
              
              3,092,858




*See
      accompanying notes.*







5





**etrials
      Worldwide, Inc.**


**Consolidated
      Statements of Stockholders (Deficit) Equity**


**Three
      Months Ended March 31, 2006**


**(unaudited)**





PrepaidSoftware
            
            Accumulated
            
            
            
            TotalAdditional
            
            
            
            Application-
            
            Other
            
            
            
            Shareholders’Common
                Stock
            
            Paid-In
            
            Deferred
            
            Hosting
            
            Comprehensive
            
            Accumulated
            
            (Deficit)Shares
            
            Amount
            
            Capital
            
            Compensation
            
            Discount
            
            Income
                (Loss)
            
            Deficit
            
            EquityBalances
                at December 31, 2005
            
            
            3,471,792
            
            $
            335
            
            $
            19,705,689
            
            $
            (207,046
            )
            $
            (140,000
            )
            $
            (1,850
            )
            $
            (23,085,047
            )
            $
            (3,727,919
            )Amendment
                to prepaid software application-hosting discount
            
            
            (81,792
            )
            
            4
            
            
            194,335
            
            
            
            
            
            140,000
            
            
            
            
            
            
            
            
            334,339Dividends
                and accretion of preferred stock
            
            
            -
            
            
            -
            
            
            (95,969
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (95,969
            )Conversion
                of redeemable preferred stock into Common Stock
            
            
            3,395,369
            
            
            340
            
            
            13,742,904
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            13,743,244Issuance
                of common stock to warrant holders for induced conversion
            
            
            157,512
            
            
            16
            
            
            (16
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercise
                of employee stock options
            
            
            13,708
            
            
            1
            
            
            54,370
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            54,371Exercise
                of common stock warrants
            
            
            491,149
            
            
            49
            
            
            64,313
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            64,362Issuance
                of common stock in connection with reverse acquisition of CEA, net
                of
                acquistion costs
            
            
            4,900,000
            
            
            490
            
            
            19,660,995
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            19,661,485Amortization
                of deferred stock-based compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            15,953
            
            
            
            
            
            
            
            
            
            
            
            15,953Reversal
                of employee stock compensation expense
            
            
            -
            
            
            -
            
            
            (10,000
            )
            
            8,542
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,458
            )Change
                in cumulative translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            9,141
            
            
            -
            
            
            9,141Net
                income (loss)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,047,149
            )
            
            (1,047,149
            )Comprehensive
                income (loss)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,038,008
            )Balances
                at March 31, 2006
            
            
            12,347,738
            
            $
            1,235
            
            $
            53,316,621
            
            $
            (182,551
            )
            $
            -
            
            $
            7,291
            
            $
            (24,132,196
            )
            $
            29,010,400




See
      Accompanying notes.





6





**etrials
      Worldwide, Inc.**


**Consolidated
        Statements of Cash Flows**
 **(unaudited)**


**Three
                  Months Ended March 31****2006**
              
              **2005****Operating
                  activities**Net
                  (loss) income
              
              $
              (1,047,149
              )
              $
              83,396Adjustments
                  to reconcile net (loss) income to net cash (used in) provided by
                  operating
                  activities:Depreciation
                  and amortization
              
              
              213,101
              
              
              265,422Amortization
                  of prepaid software application-hosting discount
              
              
              334,339
              
              
              —Non-cash
                  compensation expense
              
              
              14,495
              
              
              771Provision
                  for allowance for doubtful accounts
              
              
              (4,000
              )
              
              5,000Loss
                  on sale of assets
              
              
              —
              
              
              941Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (542,219
              )
              
              (477,604
              )Prepaid
                  expenses and other assets
              
              
              754,422
              
              
              (18,704
              )Accounts
                  payable and accrued expenses
              
              
              (332,744
              )
              
              71,682Deferred
                  revenue
              
              
              336,334
              
              
              332,988Net
                  cash (used in) provided by operating activities
              
              
              (273,421
              )
              
              263,892**Investing
                  activities**Purchase
                  of property and equipment
              
              
              (68,919
              )
              
              (87,927
              )Capitalized
                  internal software development costs
              
              
              (102,108
              )
              
              (58,800
              )Net
                  cash used in investing activities
              
              
              (171,027
              )
              
              (146,727
              )**Financing
                  activities**Net
                  payments on borrowings from stockholder
              
              
              —
              
              
              (727,990
              )Net
                  (payments) proceeds from bank line of credit
              
              
              (100,000
              )
              
              581,689Payments
                  on bank equipment loan
              
              
              (30,000
              )
              
              —Borrowings
                  from capital leases
              
              
              48,972
              
              
              —Principal
                  payments on capital leases
              
              
              (74,442
              )
              
              (28,639
              )Proceeds
                  from issuance of stock options and warrants
              
              
              118,733
              
              
              —Proceeds
                  from issuance of common stock in merger, net of issuance
                  costs
              
              
              19,661,485
              
              
              —Net
                  cash provided by (used in) financing activities
              
              
              19,624,748
              
              
              (174,940
              )Effect
                  of exchange rate changes on cash
              
              
              2,578
              
              
              (19,357
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              19,182,878
              
              
              (77,132
              )Cash
                  and cash equivalents at beginning of year
              
              
              1,650,323
              
              
              1,706,649Cash
                  and cash equivalents at end of year
              
              $
              20,833,201
              
              $
              1,629,517**Supplemental
                  cash flow information**Cash
                  paid for interest
              
              $
              18,321
              
              $
              34,377




See
      Accompanying notes.


7








**etrials
      Worldwide, Inc.**




**Notes
      to Consolidated Financial Statements (unaudited)**





**1.
      Organization and Capitalization**





***etrials
      Worldwide, Inc.***





etrials
      Worldwide, Inc. (the “Company”) offers a broad range of Web-based electronic
      data capture, handheld device, and interactive voice recognition software and
      services uniquely designed to speed the process of clinical trials performed
      for
      drug development. The Company’s primary focus is on the costly and
      time-consuming clinical trial phase of drug development. The Company provides
      pharmaceutical and biotechnology companies with integrated software tools and
      services designed to significantly reduce the time spent collecting clinical
      trials data and manage clinical trials performance while providing an automated
      and easy-to-use mechanism to collect data directly from patients.





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.





***CEA
      Acquisition Corporation***





CEA
      Acquisition Corporation (“CEA”) was incorporated in Delaware on October 14, 2003
      as a blank check company, the objective of which was to effect a merger, capital
      stock exchange, asset acquisition or other similar business combination in
      the
      entertainment, media and communications industry. On February 19, 2004, CEA
      consummated an Initial Public Offering (the “Offering”) and raised net proceeds
      of $21,390,100. Of the net proceeds from the Offering, $20,527,250 was placed
      in
      trust and invested in government securities. The remaining proceeds were
      available for business, legal, and accounting due diligence on prospective
      acquisitions and continuing general and administration expenses.





***Merger
      and Accounting Treatment***





On
      August
      22, 2005, CEA entered into an Agreement and Plan of Merger, as amended (“Merger
      Agreement”), with etrials, Inc., formerly etrials Worldwide, Inc. (“etrials”),
      a
      privately-held Delaware corporation, and certain stockholders of etrials. On
      February 9, 2006, the shareholders of CEA voted to approve the Merger Agreement.
      On February 9, 2006 etrials Acquisition , Inc. a privately-held Delaware
      corporation and wholly owned subsidiary of CEA, consummated a merger with
      etrials in which etrials became CEA’s wholly owned subsidiary. CEA then
      changed its name to etrials Worldwide, Inc.





The
      shares of common stock held by etrials stockholders were converted into a total
      of 7,446,360 shares of CEA’s common stock, or approximately 60.3% of the
      subsequently outstanding common stock of the combined company. None of the
      shares of CEA common stock issued in the merger will be tradable on the public
      market until August 2006, after which shares will become tradable in
      installments, subject to indemnification and other conditions. In connection
      with the merger, etrials stockholders also received warrants to purchase
      4,300,000 shares of CEA common stock with an exercise price of $5.00 per share.
      The warrants issued in the merger are immediately tradable.





Upon
      consummation of the merger, $21.4 million was released from trust to be used
      by
      the combined company. After payments totaling approximately $1.1 million for
      professional fees and other costs related to the merger, the net proceeds
      amounted to $19.7 million. In connection with the merger, the Company incurred
      approximately $0.8 million of acquisition costs as of December 31, 2005, which
      was recorded within deferred acquisition costs in the accompanying consolidated
      balance sheet. The total direct and incremental costs of $1.1 million, incurred
      by the Company in connection with the merger was reflected as a reduction to
      additional paid-in capital as of the effective date of the merger.





8








The
      merger was accounted for under the purchase method of accounting as a reverse
      acquisition in accordance with U.S. generally accepted accounting principles
      for
      accounting and financial reporting purposes. Under this method of accounting,
      CEA was treated as the “acquired” company for financial reporting purposes. In
      accordance with guidance applicable to these circumstances, this merger was
      considered to be a capital transaction in substance. Accordingly, for accounting
      purposes, the merger was treated as the equivalent of etrials issuing stock
      for
      the net monetary assets of CEA, accompanied by a recapitalization. All
      historical share and per share amounts have been retroactively adjusted to
      give
      effect to the reverse acquisition of CEA and related
      recapitalization.




**Induced
      Conversion of Common Stock
      Warrants**





In
      order
      to induce certain pre-merger common stock warrant holders to exercise their
      warrants concurrent with the reverse acquisition, the Company issued such
      warrant holders 157,512 shares of common stock and 73,073 warrants to purchase
      common stock with an aggregate fair value of $1,030,000. The Company accounted
      for the consideration allocated to these warrant holders as an induced
      conversion feature. Accordingly, the fair value of this consideration has been
      reflected as an increase to net loss in the computation of loss per common
      share
      in the accompanying consolidating statement of operations.





**Shares
      Held in Escrow**





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”) and will not be released unless and until, over 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.





**Unit
      Purchase Option**





In
      connection with CEA’s initial
      public offering in February 2004, CEA issued to representatives
      of its underwriter options to purchase 350,000 units at an exercise price
      of $9.90 per unit. Each unit consists of one share of common stock and two
      warrants to purchase one common share each at an exercise price of $6.40 per
      share. The unit purchase options expire on February 11, 2009.





**Series
      A and Series B Redeemable Convertible Preferred Stock**




In
      connection with the reverse acquisition of CEA in February 2006 all of the
      outstanding shares of Series A and Series B Preferred Stock of etrials plus
      accrued dividends, were converted into 3,395,369 shares of common stock and
      1,945,741 warrants of the Company. The Company accreted an aggregate
      $95,969 and $288,207 for the three months ended March 31, 2006 and 2005,
      respectively, of dividends related to its redeemable convertible preferred
      stock.





**Unaudited
      Interim Financial Statements**




The
      accompanying consolidated balance sheet as of March 31, 2006, consolidated
      statements of operations and cash flows for the three months ended March 31,
      2006 and 2005 and consolidated statements of stockholders’ equity (deficit) for
      the three months ended March 31, 2006 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
      financials statements for these periods is unaudited. The results of operations
      for the three months ended March 31, 2006 are not necessarily indicative of
      the
      results to be expected for the entire fiscal year or for any future period.





9








**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.




**Reclassifications**




Certain
      prior year balances have been reclassified to conform to the presentation of
      the
      current year.




**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.




**Revenue
      Recognition**




The
      Company derives its revenues from providing software application-hosting which
      includes: services, software subscriptions 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 Hardware* ,
      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 offers its eClinical software products through an application service
      provider model. Revenues are generated 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, 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.




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. No such losses have been incurred to date.





10







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
      following summarizes the components of the revenues recognized:




**Three
                  Months Ended March 31****2006**
              
              **2005**Services
              
              $
              2,077,766
              
              $
              2,677,588Software
                  subscriptions and usage fees
              
              
              628,056
              
              
              604,389Hosting
                  fees
              
              
              336,696
              
              
              205,984Other
                  fees
              
              
              (282,855
              )
              
              209,909Total
              
              $
              2,759,663
              
              $
              3,697,870




The
      debit
      balance in other fees for the three months ended March 31, 2006 is the result
      of
      the discount to revenues recorded in conjunction with an application-hosting
      agreement as described below.





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. The Company included $54,026 and $163,913 of out-of-pocket expenses
      in revenues and costs of revenues for the three months ended March 31, 2006
      and 2005, respectively.




In
      connection with a software application-hosting agreement entered into on
      April 1, 2005, the Company issued a customer 220,840 shares of the
      Company’s common stock with an estimated fair value of $1.26 million. Of the
      220,840 shares issued, 98,151 were vested immediately and the remaining 122,689
      shares of common stock were placed in escrow. In the event the customer
      terminated certain agreements during a three year period, all or part of the
      shares held in escrow would be forfeited. EITF 01-9, *Accounting
      for Consideration Given by a Vendor to a Customer (Including a Reseller of
      the
      Vendor’s Products),* requires
      that the value of the common stock be treated as a reduction to revenue. The
      fair value of the 98,151 shares of non-forfeitable common stock was recorded
      to
      common stock and additional paid-in capital and to prepaid software
      application-hosting discount, a contra-equity account. The prepaid software
      application-hosting discount was originally reduced on a straight-line basis
      over the three year term of the agreement, offsetting revenue generated under
      the agreement. In accordance with EITF Topic D-90, *Grantor
      Balance Sheet Presentation of Unvested, Forfeitable Equity Instruments Granted
      to a Non-employee,* the fair
      value of the 122,689 shares of forfeitable common stock held in escrow was
      treated as unissued for accounting purposes until the future services are
      provided and the shares are vested. Accordingly, the fair value of the 122,689
      shares of forfeitable common stock were originally recorded to additional
      paid-in-capital as the reduction to revenue is recorded on a straight-line
      basis
      over the three year term of the agreement. In accordance with EITF 96-18, *Accounting
      for Equity Instruments That Are Issued to Other than Employees for Acquiring,
      or
      in Conjunction with Selling Goods or Services,* the
      fair
      value of the common stock was remeasured at each interim reporting date during
      the three-year performance period with changes in fair value reflected as a
      cumulative adjustment. Effective February 8, 2006, etrials amended the software
      application-hosting agreement previously entered into with a customer on April
      1, 2005. Under the terms of the amendment,  etrials released from escrow
      40,897 shares and terminated 81,792 shares of common stock, which were
      previously held in escrow, resulting in a total of 139,048 shares issued to
      this
      customer. As a result of this amendment, there are no longer any shares held
      in
      escrow and the shares issued are no longer subject to forfeiture should the
      customer terminate certain agreements. In conjunction with this amended
      software-application hosting agreement, the Company recorded a reduction to
      revenues of $334,339 during the three months ended March 31, 2006, which
      reflects the fair value of the total shares of common stock issued to the
      customer as of February 8, 2006 less the discounts previously recorded.





11







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.





**Internal
      Use Software and Website Development Costs**




The
      Company follows the guidance of EITF Issue No. 00-2, *Accounting
      for Web Site Development Costs,* which
      sets forth the accounting for website development costs based on the website
      development activity. The Company follows the guidance set forth in SOP
      No. 98-1, *Accounting
      for the Cost of Computer Software Developed or Obtained for Internal
      Use* (SOP
      No. 98-1), in accounting for the development of internal use software. SOP
      No. 98-1 requires companies to capitalize qualifying computer software
      costs, which are incurred during the application development stage and amortize
      them over the software’s estimated useful life of one to three years. The
      Company has capitalized $102,108 and $58,800 of internal software development
      costs during the three months ended March 31, 2006 and 2005, respectively.




**Warranties
      and Indemnification**




The
      Company’s hosting service is typically warranted to perform in a manner
      consistent with general industry standards that are reasonably applicable and
      substantially in accordance with the Company’s online help documentation under
      normal use and circumstances. The Company’s arrangements also include certain
      provisions for indemnifying customers against liabilities if its products or
      services infringe on a third party’s intellectual property rights. The Company
      has not previously incurred costs to settle claims or pay awards under these
      indemnification obligations. The Company accounts for these indemnity
      obligations in accordance with Statement of Financial Accounting Standard (SFAS)
      No. 5, *Accounting
      for Contingencies,* and
      records a liability for these obligations when a loss is probable and reasonably
      estimable. The Company has not recorded any liabilities for these agreements
      as
      of March 31, 2006 or December 31, 2005.




The
      Company has entered into service level agreements with its hosted application
      customers warranting certain levels of uptime reliability and permitting those
      customers to receive credits against monthly hosting fees or terminate their
      agreements in the event that the Company fails to meet those levels. To date,
      the Company has not incurred any material costs as a result of such
      indemnifications and has not accrued any liabilities related to such obligations
      in the accompanying consolidated financial statements.





**Cash
      and Cash Equivalents**




The
      Company considers all highly liquid investments with an original maturity of
      three months or less at the date of purchase to be cash equivalents.





**Intangible
      Assets**




In
      connection with the acquisition of Araccel Corporation in January 2003, the
      Company allocated $1,541,690 of the total purchase consideration to the acquired
      developed technology, which is being amortized on a straight-line basis over
      its
      estimated useful life of three years. This intangible asset was fully amortized
      as of January 2006.





During
      April 2004, the Company entered into an Asset Purchase Agreement (the Purchase
      Agreement) with Authentrics, Inc. (Authentrics) whereby the Company
      acquired an interactive voice recognition system technology (Acquired
      Technology) and certain other assets in exchange for 24,538 shares of common
      stock with an estimated fair value of $60,000. In connection with the Purchase
      Agreement, the Company also entered into a services agreement with Authentrics.
      Pursuant to the terms of the services agreement, Authentrics agreed to provide
      certain consulting services related to the use, implementation, and deployment
      of the Acquired Technology in exchange for $360,000 of cash consideration.
      The
      portion of these services related to the installation and integration of the
      Acquired Technology into etrials technology platform totaled $72,000 and was
      capitalized as part of the Acquired Technology. The total cost of Acquired
      Technology of $132,000 is being amortized on a straight-line basis over its
      estimated useful life of three years. The Company recorded amortization expense
      of $54,223 and $139,872 for the three months ended March 31, 2006 and 2005,
      respectively, related to its intangible assets.





12











**Long-Lived
      Assets**




In
      accordance with SFAS No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,
      the
      Company reviews its long-lived assets including property and equipment and
      its
      developed technology, whenever events or changes in circumstances indicate
      that
      the carrying amount of the assets may not be fully recoverable. To determine
      the
      recoverability of its long-lived assets, the Company evaluates the probability
      that future estimated undiscounted net cash flows will be less than the carrying
      amount of the assets. If such estimated cash flows are less than the carrying
      amount of the long-lived assets, then such assets are written down to their
      fair
      value. The Company’s estimates of anticipated cash flows and the remaining
      estimated useful lives of long-lived assets could be reduced in the future,
      resulting in a reduction to the carrying amount of long-lived assets.




**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. 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 and certain intangibles exceeds its fair value.
      The Company has elected to perform its annual impairment test as of
      November 1 of each calendar year. 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. For purposes of performing the goodwill impairment test,
      the Company has historically identified two reporting units, its United States
      operating segment and its United Kingdom operating segment, based on criteria
      specified in SFAS No. 142. Goodwill was allocated to these reporting units
      in proportion to the carrying values of the segments’ assets as of the date of
      acquisition. During the fourth quarter of 2005, the Company restructured the
      accounting and reporting structure for its international operations. As a result
      of this restructuring, the Company concluded that it now has one reporting
      unit
      for purposes of performing the goodwill impairment analysis as of November
      2005
      and subsequent thereto. During November 2005, the Company completed the required
      annual test, which indicated there was no impairment.




**Fair
      Value of Financial Instruments**




The
      Company’s financial instruments consist of cash and cash equivalents, accounts
      receivable, accounts payable and outstanding indebtedness. In management’s
      opinion, the carrying amount of these financial instruments approximates their
      fair values at March 31, 2006 and December 31, 2005, based on their short-term
      nature.





**Foreign
      Currency Translation**




The
      financial statements of the Company’s foreign subsidiary in the United Kingdom
      are translated in accordance with SFAS No. 52, *Foreign
      Currency Translation* .
      The
      reporting currency for the Company is the U.S. dollar.




The
      Company has determined that the functional currency of its United Kingdom
      operations is the local currency. Assets and liabilities denominated in foreign
      currencies are translated into U.S. dollars at current exchange rates. Operating
      results are translated into U.S. dollars using the average rates of exchange
      prevailing during the period. Gains or losses resulting from the translation
      of
      assets and liabilities are included as a component of accumulated other
      comprehensive income in stockholders’ equity (deficit).





13










**Loss
      Per Common Share**




Basic
      and
      diluted loss per common share was determined by dividing net loss attributable
      to common stockholders by the weighted average common shares outstanding during
      the period in accordance with SFAS No. 128, *Earnings
      Per Share* .
      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:





**Three
                    Months Ended March 31****2006**
                
                **2005**Series
                    A Preferred Stock
                
                
                -
                
                
                2,752,616Series
                    B Preferred Stock
                
                
                -
                
                
                257,668Unit
                    Purchase Options
                
                
                1,050,000
                
                
                -Stock
                    Options outstanding
                
                
                1,734,121
                
                
                1,631,552Warrants
                    outstanding
                
                
                12,350,000
                
                
                1,185,518




In
      addition, the 1,566,250 shares of common stock held in escrow as of March 31,
      2006 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,
*“Earnings Per Share.”*





**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,
      2006 for the Company). The adoption of SFAS 123R did not have an impact on
      the
      Company’s
      results of operations or overall financial position during the first quarter
      of
      2006 since the Company is required to adopt this standard using the prospective
      method and there were no stock awards granted subsequent to
      adoption.  However ,
      the
      adoption of the SFAS 123R fair value method will have a material impact
      on the Company’s  results
      of
      operations in future periods, although it will have no impact on the
      Company’s overall
      financial position. The impact of adoption of SFAS 123R cannot be predicted
      at this time because it 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. SFAS 123R
      permits public companies to adopt its requirements using one of two methods:




•
            A
                “modified prospective” method in which compensation cost is recognized
                beginning with the effective date (a) based on the requirements of
                SFAS 123R for all share-based payments granted after the effective
                date and (b) based on the requirements of SFAS 123 for all
                awards granted to employees and directors prior to that effective
                date of
                SFAS 123R that remain unvested on the effective date.




•
            A
                “modified retrospective” method which includes the requirements of the
                modified prospective method described above, but also permits entities
                to
                restate based on the amounts previously recognized under SFAS 123 for
                purposes of pro forma disclosures either (a) all prior periods
                presented or (b) prior interim periods of the year of adoption.





However,
      since 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 will be 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
      should be accounted for using the measurement, recognition, and attribution
      provisions of SFAS 123R.





14











There
      were no stock awards granted by the Company during the three months ended March
      31, 2006 subsequent to the adoption of SFAS 123R. Accordingly, 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. In addition,
      SFAS 123R specifically prohibits nonpublic entities that previously measured
      compensation cost of employee stock options using the minimum value method
      from
      continuing to provide the pro forma disclosures for those awards. Accordingly,
      the Company has not provided the SFAS 123 pro forma disclosures but will apply
      the provisions of SFAS 123R to awards granted, modified, or settled after the
      date of adoption.




**3.
      Cash and Cash Equivalents**





The
      Company accounts for its investments in accordance with 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.




Cash
      and
      cash equivalents were as follows:




**March
                31,**
            
            **December
                31,****2006**
            
            **2005**Cash
                and cash equivalent
            
            $
            265,095
            
            $
            87,849Commercial
                paper
            
            
            8,706,968
            
            
            -Money
                market
            
            
            7,359,756
            
            
            1,462,474Auction
                rate securities
            
            
            4,501,382
            
            
            -Total
            
            $
            20,833,201
            
            $
            1,650,323





**4.
      Accounts Receivable**




Accounts
      receivable consists of the following:




**March
                  31**
              
              **December
                  31****2006**
              
              **2005**Billed
                  accounts receivable
              
              $
              1,970,200
              
              $
              1,219,164Unbilled
                  accounts receivable
              
              
              1,129,110
              
              
              1,336,115Total
                  accounts receivable
              
              
              3,099,310
              
              
              2,555,279Allowance
                  for doubtful accounts
              
              
              (41,000
              )
              
              (45,000
              )$
              3,058,310
              
              $
              2,510,279







15





**5.
      Accrued Expenses**




Accrued
      expenses consist of the following:




**March 31**
              
              **December
                  31****2006**
              
              **2005**Accrued
                  professional fees
              
              $
              220,485
              
              $
              172,717Accrued
                  other expenses
              
              
              284,806
              
              
              439,357Accrued
                  compensation
              
              
              107,887
              
              
              310,422Accrued
                  vacation
              
              
              264,302
              
              
              218,723Accrued
                  interest
              
              
              1,747
              
              
              642$
              879,227
              
              $
              1,142,861





**6.
      Debt**




Debt
      consists of the following:




**March 31**
              
              **December 31****2006**
              
              **2005**Borrowings:Bank
                  line of credit, with an interest rate of 8.25% at March 31,
                  2006
              
              $
              600,000
              
              $
              700,000Bank
                  equipment loan, with an interest rate of 8.75% at March 31,
                  2006
              
              
              230,000
              
              
              260,000Note
                  payable, with an interest rate of 6.00%
              
              
              113,029
              
              
              —Total
                  borrowings
              
              
              943,029
              
              
              960,000Bank
                  line of credit and other short-term borrowings
              
              
              833,029
              
              
              820,000Long-term
                  borrowings, less current portion
              
              $
              110,000
              
              $
              140,000







**Bank
      Line of Credit**




On
      February 1, 2005, the Company entered into two loan agreements with RBC
      Centura Bank, which includes a $1,000,000 revolving accounts receivable funding
      line of credit and a $300,000 equipment line of credit. The $1,000,000 revolving
      accounts receivable line of credit provides for borrowings up to 75% of current
      accounts receivable balance at the prime rate of interest plus 0.5%. Working
      capital borrowings are secured primarily by accounts receivable while capital
      equipment borrowings are secured by the fixed assets that were acquired. The
      proceeds from the accounts receivable funding line of credit were used to pay
      down the remaining balance of the stockholder line of credit. The $300,000
      equipment loan funds equipment purchases and provides for interest at the bank’s
      prime rate of interest plus 1.0%. Borrowings under the equipment line of credit
      will be payable over a period of thirty months. As of March 31, 2006, the
      Company had $230,000 outstanding under the equipment loan. Accounts receivable
      borrowings are secured primarily by accounts receivable while capital equipment
      borrowings are secured by the fixed assets that were acquired. The revolving
      line of credit expired in February, 2006 and has been extended until May 31,
      2006 at which time all advances will be immediately due and payable unless
      the
      line is renewed.





**Note
      Payable**




On
      February 9, 2006, the Company entered into a note payable with First
      Insurance Funding Corp. The note bears interest at an annual rate of 6.0% and
      principle and interest payments are due in nine monthly installments from the
      date of issue through November 9, 2006.





16










**7.
      Contingencies**




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.





**8.
      Stockholders’ Equity**




A
      summary
      of the Company’s outstanding and exercisable warrants as of March 31, 2006 is as
      follows:




**Exercise
                  Price**
              
              **Warrants Outstanding**$5.00
              
              12,350,000




All
      of
      the outstanding warrants are fully vested and expire on February 12, 2008 and
      are exercisable at the option of the holder. The warrants are redeemable by
      the
      Company for $0.01 per warrant if the price of the common stock equals or exceeds
      $8.50 per share for any of 20 trading days within a 30 trading day period ending
      on the third business day prior to the notice of redemption to warrant
      holders.




As
      of
      March 31, 2006, the Company had reserved a total of 15,500,000 of its authorized
      50,000,000 shares of common stock for future issuance as follows:




Unit
                  purchase options (see Note 1)
              
              
              1,050,000Stock
                  options outstanding
              
              
              1,734,121Reserved
                  for future stock option grants
              
              
              365,879Common
                  stock warrants outstanding
              
              
              12,350,000Total
                  shares reserved for future issuance
              
              
              15,500,000









**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 condensed
      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 8-K/A filed on March 31, 2006, which
      contained substantially the same information that would be included in an Annual
      Report on Form 10-KSB.






**Overview**




We
      offer
      a broad range of Web-based electronic data capture, handheld device, and
      interactive voice recognition software and services uniquely designed to speed
      the process of clinical trials performed for drug development. Our primary
      focus
      is on the costly and time-consuming clinical trial phase of drug development.
      We
      provide pharmaceutical and biotechnology companies with integrated software
      tools and services
      designed to significantly reduce the time spent collecting clinical trials
      data,
      managing clinical trials performance, and which provides an automated and
      easy-to-use mechanism to collect data directly from clinical investigators
      and
      patients. We believe that our automated data collection software enables our
      customers to reduce overall clinical trial research costs, enhance existing
      data
      quality and time to close a study database.







17







Our
      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 affecting the pharmaceutical industry.




The
      use
      of eClinical technologies in clinical trials has grown to approximately 17%
      of
      all clinical trials in 2004 according to Forrester research. Industry analysts
      and commentators have estimated that the growth in the use of eClinical
      technologies will continue to accelerate over the next five years. etrials
      will
      have to continue to expand its customer base and technologies in order to
      maintain and grow its market share. Since 2002 the number of active eClinical
      trials being performed by etrials has grown from twenty-four to one hundred
      nineteen because of the increased adoption of eClinical technologies by the
      pharmaceutical and biotechnology industries.





**Sources
      of Revenues**




We
      derive
      revenues from providing software application-hosting and related services to
      our
      customers on clinical trial projects. We offer our 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, 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
      usage and hosting fee revenues* - We
      derive our software usage and hosting fee 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.







18








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. No such losses have
      been incurred to date.




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 Value**Contract
                    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.





Our
      contracts with customers allow us to maintain a contract backlog that provides
      multi-year visibility in revenue. We record contract backlog based upon written
      confirmation received from our clients that a contract is awarded to etrials.
      The amount of contract backlog is the total amount of the contract budget agreed
      upon by the client and us less revenue previously recognized by us on each
      contract. As our backlog continues to grow, we believe that the predictability
      of our future revenues will increase; although delays in conducting clinical
      trials and the ability of customers to cancel our contracts means that our
      backlog is not a guaranty as to this 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 of services also include client pass-thru costs which can fluctuate
      quarterly based upon contract activity. Costs can fluctuate and impact our
      expenses based upon employee utilization levels associated with specific
      projects.




*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 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.





19







*Research
      and Development* -
      Research and development expenses consist primarily of employee-related
      expenses, allocated overhead and outside contractors. 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 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.




*General
      and Administrative* -
      General and administrative expenses consist primarily of employee-related
      expenses, professional fees, other corporate expenses and allocated overhead.
      We
      expect that in the future, general and administrative expenses will increase
      as
      we add personnel and incur additional professional fees and insurance costs
      related to being a publicly held company.




*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
      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.





**Foreign
      Currency Translation**




We
      have
      one wholly-owned subsidiary operating in the United Kingdom, so changes in
      the
      British pound sterling, will affect our results. Revenues and related costs
      for
      this entity are reported in British pound sterling and then converted into
      US
      dollars for consolidation purposes. In periods when the U.S. dollar declines
      in
      value as compared to the foreign currencies in which we conduct business, our
      foreign currency-based revenues and expenses increase in value when translated
      into U.S. dollars. Assets and liabilities denominated in foreign currencies
      are
      translated into U.S. dollars each reporting period at current exchange rates.
      Operating results are translated into U.S. dollars using the average rates
      of
      exchange prevailing during the period. Gains or losses resulting from the
      translation of assets and liabilities are included as a component of accumulated
      other comprehensive income in stockholders’ deficit.





**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 8-K/A on March
      31, 2006, and the following summaries should be read in conjunction with the
      unaudited consolidated financial statements and the related notes included
      in
      this 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.





20










**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* ,
      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.




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 etrials 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 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. To date, we have 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 balance, the current economic environment
      and
      its industry experience and establishes an allowance on accounts receivable
      based on these reviews.





21








The
      following summarizes the components of our revenues:




**Three
                  Months Ended March 31****2006**
              
              **2005**Services
              
              $
              2,077,766
              
              $
              2,677,588Software
                  subscriptions and usage fees
              
              
              628,056
              
              
              604,389Hosting
                  fees
              
              
              336,696
              
              
              205,984Other
                  fees
              
              
              (282,855
              )
              
              209,909Total
              
              $
              2,759,663
              
              $
              3,697,870




The
      negative balance in other fees for the three months ended March 31, 2006 is
      the
      result of a discount to revenues record in conjunction with an
      application-hosting agreement as described below.




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.
      We included $54,026 and $163,913 for the three months ended March 31, 2006
      and
      2005, respectively.





In
      connection with a software application-hosting agreement entered into on
      April 1, 2005, etrials issued a customer 220,840 shares of etrials’ common
      stock with an estimated fair value of $1.26 million. Of the 220,840 shares
      issued, 98,151 were issued immediately and the remaining 122,689 shares of
      common stock were placed in escrow. In the event the customer terminated certain
      agreements during a three year period, all or part of the shares held in escrow
      would be forfeited. EITF 01-9, *Accounting
      for Consideration Given by a Vendor to a Customer (Including a Reseller of
      the
      Vendor’s Products)* ,
      requires that the value of the common stock be treated as a reduction in
      revenue. The fair value of the 98,151 shares of non-forfeitable common stock
      was
      recorded to common stock and additional paid-in capital and to prepaid software
      application-hosting discount, a contra-equity account. The prepaid software
      application-hosting discount was originally reduced on a straight-line basis
      over the three year term of the agreement, offsetting revenue generated under
      the agreement. In accordance with EITF Topic D-90, *Grantor
      Balance Sheet Presentation of Unvested, Forfeitable Equity Instruments Granted
      to a Non-employee,* the fair
      value of the 122,689 shares of forfeitable common stock held in escrow were
      treated as unissued for accounting purposes until the future services are
      provided and the shares are vested. Accordingly, the fair value of the 122,689
      shares of forfeitable common stock were originally recorded to additional
      paid-in capital as the reduction to revenue was recorded on a straight-line
      basis over the three year term of the agreement. In accordance with EITF 96-18, *Accounting
      for Equity Instruments That Are Issued to Other than Employees for Acquiring,
      or
      in Conjunction with Selling Goods or Services,* the fair
      value of the common stock was remeasured at each interim reporting date during
      the three-year performance period with changes in fair value reflected as a
      cumulative adjustment. Effective February 8, 2006, etrials amended the software
      application-hosting agreement previously entered into with a customer on April
      1, 2005. Under the terms of the amendment etrials released from escrow 40,897
      shares and terminated 81,792 shares of common stock, which were previously
      held
      in escrow, resulting in a total of 139,048 shares issued to this customer.
      As a
      result of this amendment, there are no longer any shares held in escrow and
      the
      shares issued are no longer subject to forfeiture should the customer terminate
      certain agreements. In conjunction with this amended software-application
      hosting agreement, the Company recorded a reduction to revenues of $334,339
      during the three months ended March 31, 2006, which reflects the fair value
      of
      the total shares of common stock issued to the customer as of February
      8, 2006 less the discounts previously recorded.





22










**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,
      2006 for the Company). The
      adoption of SFAS 123R did not have an impact on the Company’s results
      of
      operations or overall financial position during the first quarter of 2006 since
      the Company is required to adopt this standard using the prospective method
      and
      there were no stock awards granted subsequent to adoption. However, the
      adoption of the SFAS 123R fair value method will have a material impact
      on the Company’s results
      of
      operations in future periods, although it will have no impact on the
      Company’s overall
      financial position. The impact of adoption of SFAS 123R cannot be predicted
      at this time because it 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. SFAS 123R
      permits public companies to adopt its requirements using one of two methods:




•
            A
                “modified prospective” method in which compensation cost is recognized
                beginning with the effective date (a) based on the requirements of
                SFAS 123R for all share-based payments granted after the effective
                date and (b) based on the requirements of SFAS 123 for all
                awards granted to employees and directors prior to that effective
                date of
                SFAS 123R that remain unvested on the effective date.




•
            A
                “modified retrospective” method which includes the requirements of the
                modified prospective method described above, but also permits entities
                to
                restate based on the amounts previously recognized under SFAS 123 for
                purposes of pro forma disclosures either (a) all prior periods
                presented or (b) prior interim periods of the year of adoption.





However,
      since 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 will be 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
      should be accounted for using the measurement, recognition, and attribution
      provisions of SFAS 123R.





There
      were no stock awards granted by the Company during the three months ended March
      31, 2006 subsequent to the adoption of SFAS 123R. Accordingly, 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. In addition,
      SFAS 123R specifically prohibits nonpublic entities that previously measured
      compensation cost of employee stock options using the minimum value method
      from
      continuing to provide the pro forma disclosures for those awards. Accordingly,
      the Company has not provided the SFAS 123 pro forma disclosures but will apply
      the provisions of SFAS 123R to awards granted, modified, or settled after the
      date of adoption.





**Goodwill**




We
      account for 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. 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 and certain intangibles exceeds its fair value.
      We have elected to perform our annual impairment test in November of each
      calendar year. An interim goodwill impairment test would be performed if an





23





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. For
      purposes of performing the goodwill impairment test, we concluded there
      is one reporting unit. During November 2005, we completed the required
      annual test, which indicated there was no impairment.




**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.




**Results
      of Operations**




*Three
      Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005*




Our
      contract backlog grew to $24.8 million at March 31, 2006 as compared to $19.3
      million at March 31, 2005, representing an increase of 28.5%. Total revenues
      decreased 25.4% to $2,759,663 for the three months ended March 31, 2006, as
      compared to $3,697,870 for the three months ended March 31, 2005. Despite an
      increase in the number of new and active contracts in our contract backlog
      to
      119 contracts from 101 contracts as of March 31, 2006 and 2005, respectively,
      our revenues declined due to the delay of new contract starts during the first
      quarter of 2006 and the $334,339 reduction to revenues from the software
      application-hosting discount as discussed in *Critical Accounting Policies
      and Estimates*. We believe the growth in our contract backlog and new
      contracts reflects increasing user acceptance among our customers and the
      industry as a whole.




Costs
      of
      revenues increased 11.4% to $1,696,301 from $1,523,089 for the three months
      ended March 31, 2006 and 2005, respectively. This increase was primarily the
      result of the personnel and related costs attributable to the 19.6% growth
      in
      our services staff to 55 from 46 as of March 31, 2006 and 2005,
      respectively. The
      increase in personnel was necessary to fulfill new contracts added to backlog
      during the past several quarters.  But due to the delay in new project
      starts, the new staff lowered the overall billable utilization of the operations
      group which lowered gross margins. As
      a
      percentage of revenues, costs of revenues increased to 61.5% from 41.2% for
      the
      three months ended March 31, 2006 and 2005, respectively, primarily
      due to the decline in revenue during the first quarter of 2006 .




Sales
      and
      marketing costs increased 12.9% to $820,654 from $726,600 for the three months
      ended March 31, 2006 and 2005, respectively. This increase was primarily the
      result of the personnel and related costs attributable to the 42.9% growth
      in
      our sales and marketing staff to 20 from 14 as of March 31, 2006 and 2005,
      respectively. As a percentage of revenues, sales and marketing costs were 29.7%
      and 19.6% for the three months ended March 31, 2006 and 2005, respectively,
      primarily due to the decline in revenue during the first quarter of 2006.




General
      and administrative costs increased by 4.1% to $920,668 from $884,718 for the
      three months ended March 31, 2006 and 2005, respectively. This increase was
      primarily the result of costs associated with being a public company. Included
      in general and administrative expenses during the three months ended March
      31,
      2005 were approximately $211,000 in legal costs for the patent litigation
      lawsuit which was settled on August 22, 2005, as compared to zero legal costs
      for this lawsuit during the three months ended March 31, 2006. We expect general
      and administrative costs to increase as we incur additional costs of increased
      legal, accounting and other costs associated with being a public reporting
      company. As a percentage of revenues, general and administrative expenses were
      33.4% and 23.9% for the three months ended March 31, 2006 and 2005,
      respectively, primarily due to the decline in revenue during the first quarter
      of 2006.





24







Amortization
      of intangible assets consists of amortization of acquired software technologies
      over their estimated useful life of three years. These costs were $54,223 and
      $139,872 for the three months ended March 31, 2006 and 2005, respectively.




Research
      and development costs increased by 28.8% to $430,211 from $333,982 for the
      three
      months ended March 31, 2006 and 2005, respectively. This increase was primarily
      the result of the personnel and related costs attributable to the 21.4% growth
      in our research and development staff to 17 from 14 as of March 31, 2006 and
      2005, respectively. The Company has capitalized $102,108 and $58,800 of internal
      software development costs during the three months ended March 31, 2006 and
      2005, respectively. As a percentage of revenues, research and development
      expenses were 15.6% and 9.0% for the three months ended March 31, 2006 and
      2005,
      respectively, primarily due to the decline in revenue during the first quarter
      of 2006.





Other income for
      the three months ended March 31, 2006 was $115,245 as compared with $6,213
      of net other expense for the three months ended March 31, 2005. The change
      is primarily the result of interest income on the cash received in the CEA
      merger.




We
      experienced net loss of $1,047,149 compared with net income of $83,396 for
      the
      three months ended March 31, 2006 and 2005, respectively. The net loss for
      the
      three months ended March 31, 2006 was negatively impacted by the decline in
      revenue caused primarily by the timing of new clinical projects starts for
      contracts added to backlog during the past several quarters and the $334,339
      reduction to revenues from the software application-hosting discount as
      discussed in *Critical Accounting Policies and Estimates*.





**Liquidity
      and Capital Resources**




Our
      principal sources of cash have been from revenues from 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
      March
      31, 2006 we had cash and cash equivalents of $20,833,201. Our cash and cash
      equivalents increased by $19,182,878 during the three months ended March 31,
      2006 primarily due to the net cash received of approximately $19.7 million
      in
      the merger with CEA in February 2006.





In
      the
      three months ended March 31, 2006 operating activities used approximately
      $273,000 and in the three months ended March 31, 2005 provided approximately
      $264,000 of net cash, respectively. The decrease in net cash from operating
      activities was primarily due to an increased net loss, and changes in accounts
      receivable, accounts payable and accrued expenses partially offset by an
      increase in non-cash and prepaid expenses and other assets.





In
      the
      three months ended March 31, 2006 and 2005, we used approximately $171,000
      and
      $147,000 of net cash in investing activities, respectively, primarily for
      computer equipment.




In
      the
      three months ended March 31, 2006 approximately $19.6 million of net cash
      was provided by financing activities as compared to $175,000 of net
      cash used in the three months ended March 31, 2005. The increase was
      primarily the result of the net cash received in connection with the CEA
      merger.




We
      intend
      to continue to fund the enhancement and expansion of the etrials eClinical
      software technologies through both internal development and acquiring additional
      complementary technologies in the future. We believe our existing cash, cash
      equivalents 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. Our future capital requirements will depend on
      many factors, including our rate of revenue growth, the expansion of our
      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 our future activities, including potential
      acquisitions of complementary eClinical technology companies, we may need to
      raise additional funds through public or private equity or debt financing.
      Additional funds may not be available on terms favorable to us or at all.





25








**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.




We
      generally do not enter into binding purchase commitments. Our principal
      commitments are primarily for leases for office space and equipment and a
      capital lease for the purchase of third party software. At March 31, 2006,
      the
      future minimum payments under these commitments were as follows:


**Periods
                  Ending December 31,**
              
              **Capital Leases**
              
              **Operating Leases**2006
                  (last nine months)
              
              $
              101,049
              
              $
              382,2372007
              
              
              83,204
              
              
              592,4512008
              
              
              31,676
              
              
              583,7392009
              
              
              25,571
              
              
              591,7222010
              
              
              —
              
              
              578,8092011
                  and thereafter
              
              
              —
              
              
              906,130Total
                  required lease payments
              
              
              241,500
              
              $
              3,635,089Less
                  interest included
              
              
              (27,773
              )Total
                  minimum payments
              
              
              213,727Current
                  portion of capital lease
              
              
              120,858Long-term
                  portion of capital lease
              
              $
              92,869







As
      of
      February 1, 2005, we entered into a revolving accounts receivable line of
      credit with RBC Centura Bank under which we can borrow up to $1,000,000. In
      addition we also have a capital equipment line with the same bank under which
      we
      can borrow up to $300,000. Interest accrues and is paid monthly at the prime
      rate of interest plus 0.5% for the accounts receivable revolving line of credit
      and at the prime rate plus 1.0% for the fixed asset line of credit. Borrowings
      under the equipment line of credit are payable in monthly principle and interest
      payments over a 30 month period. The revolving line of credit expires on May
      31,
      2006 at which time all advances will be immediately due and payable unless
      the
      line is renewed. We anticipate seeking a renewal of this revolving line of
      credit. As of March 31, 2006, we had $600,000 outstanding under the accounts
      receivable line of credit and $230,000 outstanding under the capital equipment
      line. As of March 31, 2006 a balance of $400,000 remained available to be
      borrowed, if sufficient collateral exists, to support future needs.




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.





26








**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 Current Report on Form
      8-K/A filed on March 31, 2006, which could materially affect our business,
      financial condition or future results. The risks described in that Form 8-K/A
      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.




We
      have
      been contacted recently by another company seeking to license patent rights
      to
      us. If we agree to a license, this could increase our operating expenses. If
      we
      are unable to agree on reasonable license terms, we may incur substantial
      litigation costs or we may need to change the products and services we offer.
      Many patents have been issued in our industry, some of which have been asserted
      in litigation. We expect intellectual property disputes will be an ongoing
      risk
      to us. The risks that are most likely to cause unexpected adverse quarterly
      operating performance affects include delays in work orders or cancellations
      by
      customers due to changes in the clinical trials being conducted by our
      customers, over which we have no control and which can be made by our customers
      without financial penalties under our customer contracts. Such changes by
      customers represent an ongoing risk each quarter.





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:





27











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.




**Item
      3.*****Controls
      and Procedures***






We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our Securities Exchange Act reports
      is
      recorded, processed, summarized and reported within the time periods specified
      in the Securities and Exchange Commission rules and forms, and that such
      information is accumulated and communicated to our management, including our
      Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
      timely decisions regarding required disclosure. In designing and evaluating
      the
      disclosure controls and procedures, management recognized that any controls
      and
      procedures, no matter how well designed and operated, can provide only
      reasonable assurance of achieving the desired control objectives, as ours are
      designed to do, and management necessarily was required to apply its judgment
      in
      evaluating the cost-benefit relationship of possible controls and procedures.






As
      of March 31, 2006, we carried out an evaluation, under the supervision and
      with
      the participation of our management, including our Chief Executive Officer
      and
      Chief Financial Officer, of the effectiveness of the design and operation of
      our
      disclosure controls and procedures, as defined in Rules 13a-15(e) and
      15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation,
      our Chief Executive Officer and Chief Financial Officer concluded that our
      disclosure controls and procedures are effective in enabling us to record,
      process, summarize and report information required to be included in our
      periodic Securities and Exchange Commission filings within the required time
      period.






There
      have been no changes in our internal control over financial reporting that
      occurred during the period covered by this report that have materially affected,
      or are reasonably likely to materially affect, our internal control over
      financial reporting.




**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





The
      Company is not a party to any pending legal proceeding other than routine
      litigation that is incidental to our business.





**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.








28





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





No
      matters were submitted to a vote of our stockholders during the quarter ended
      March 31, 2006, except at the Special Meeting of Shareholders held on February
      9, 2006. At that meeting, the stockholders approved:





(i)
            an
                amendment to our Certificate of Incorporation to change the name
                from CEA
                Acquisition Corporation to etrials Worldwide, Inc., for which voting
                at
                the meeting was as follows: 4,777,291 votes cast FOR; 119,970 votes
                cast
                against or withheld; 2,739 shares abstaining;





(ii)
            an
                amendment to our Certificate of Incorporation to increase the number
                of
                authorized shares of common stock from 20,000,000 to 50,000,000,
                for which
                voting at the meeting was as follows: 4,746,616 votes cast FOR; 2,146,645
                votes cast against or withheld; 6,739 shares abstaining;





(iii)
            an
                amendment to the Certificate of Incorporation to remove the preamble
                and
                Sections A through D, inclusive, of Article Sixth from the Certificate
                of
                Incorporation from and after the closing of the merger, and to designate
                Section E of Article Sixth as Article Sixth, for which voting at
                the
                meeting was as follows: 3,043,730 votes cast FOR; 1,798,295 votes
                cast
                against or withheld; 27,975 shares
                abstaining;





(iv)
            our
                2005 Performance Equity Plan, which reserves a total of 2,100,000
                shares
                of common stock for issuance in accordance with the plan’s terms, for
                which voting at the meeting was as follows: 2,957,970 votes cast
                FOR;
                1,913,370 votes cast against or withheld; 28,660 shares abstaining;
                and,





(v)
            a
                merger with etrials Worldwide, Inc., a Delaware corporation (“etrials”),
                in which etrials became our wholly owned subsidiary, pursuant to
                the
                Agreement and Plan of Merger dated August 22, 2005, as amended,
                (“Merger Agreement”) among us, etrials Acquisition, Inc., a Delaware
                corporation (“Merger Sub”) and wholly our owned subsidiary, etrials and
                certain stockholders of etrials, for which voting at the meeting
                was as
                follows: 3,068,708 votes cast FOR; 1,828,292 votes cast against or
                withheld; 3,000 shares abstaining.





**Item
      5. Other Information.**





(a)  In
      April
      2006 the revolving loan agreement and note with RBC Centura Bank was extended
      until May 31, 2006. At March 31, 2006, $600,000 was outstanding under the line
      of credit. A copy of the Fourth Modification Agreement dated as of April 21,
      2006 is included as Exhibit 10.36 to this Report and is incorporated by
      reference herein.





(b)  None.





**Item
      6. Exhibits**





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








29







**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.May
                15, 2006
            
            By:
            /s/
                JOHN K. CLINE
              
              John
                K. Cline
              President,
                Chief Executive Officer and Director (Principal Executive
                Officer)May
                15, 2006
            
            By:
            */s/
                JAMES W. CLARK, JR.*
              
              James
                W. Clark, Jr.
              Chief
                Financial Officer (Principal Accounting and Financial
                Officer)

































30





**EXHIBIT
      INDEX**


**Exhibit**
            **Description**2.1
            Agreement
                and Plan of Merger dated August 22, 2005 by and among the Registrant,
                etrials Acquisition, Inc., etrials Worldwide, Inc. and certain
                stockholders of etrials Worldwide, Inc. (Included in Annex A of the
                proxy
                statement/prospectus included in the Form S-4 (No. 333-129314), effective
                January 18, 2006 and incorporated by reference herein).2.2
            Amendment
                No. 1 to Plan of Merger dated October 31, 2005 by and among the
                Registrant, etrials Acquisition, Inc., etrials Worldwide, Inc. and
                certain
                stockholders of etrials Worldwide, Inc. (Included in Annex A of the
                proxy
                statement/prospectus included in the Form S-4 (No. 333-129314), effective
                January 18, 2006 and incorporated by reference herein).2.3
            Amendment
                No. 2 to Plan of Merger dated December 5, 2005 by and among the
                Registrant, etrials Acquisition, Inc., etrials Worldwide, Inc. and
                certain
                stockholders of etrials Worldwide, Inc. (Included in Annex A of the
                proxy
                statement/prospectus included in the Form S-4 (No. 333-129314), effective
                January 18, 2006 and incorporated by reference herein).3.1
            Certificate
                of Incorporation of the Registrant. (Incorporated by reference from
                Registration Statement No. 333-110365 on Form S-1 filed November
                10,
                2003).3.1.1
            Amended
                and Restated Certificate of Incorporation of the Registrant. (Incorporated
                by reference from Registration Statement No. 333-110365 on Form S-4
                filed
                October 28, 2005).3.2
            Bylaws
                of the Registrant (Incorporated by reference from Registration Statement
                No. 333-110365 on Form S-1 filed November 10, 2003).4.1
            Specimen
                Unit Certificate of Registrant (Incorporated by reference from
                Registration Statement No. 333-110365 on Form S-1 filed November
                10,
                2003).4.2
            Specimen
                Common Stock Certificate of Registrant (Incorporated by reference
                from
                Registration Statement No. 333-110365 on Form S-1 filed November
                10,
                2003).4.3
            Specimen
                Warrant Certificate of Registrant (Incorporated by reference from
                Registration Statement No. 333-110365 on Form S-1 filed November
                10,
                2003).4.4
            Form
                of Unit Purchase Option. (Incorporated by reference from Registration
                Statement No. 333-110365 on Form S-1 filed November 10,
                2003).4.5
            Form
                of Warrant Agreement between Continental Stock Transfer & Trust
                Company and the Registrant (Incorporated by reference from Registration
                Statement No. 333-110365 on Form S-1 filed November 10,
                2003).10.1
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and J. Patrick
                Michaels, Jr. (without schedules). (Incorporated by reference from
                Amendment No. 1 to Registration Statement No. 333-110365 on Form
                S-1 filed
                December 24, 2003).10.2
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and Robert
                Moreyra
                (without schedules). (Incorporated by reference from Amendment No.
                1 to
                Registration Statement No. 333-110365 on Form S-1 filed December
                24,
                2003).10.3
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and Donald
                Russell
                (without schedules) (Incorporated by reference from Amendment No.
                1 to
                Registration Statement No. 333-110365 on Form S-1 filed December
                24,
                2003).10.4
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and Brad Gordon
                (without schedules). (Incorporated by reference from Amendment No.
                1 to
                Registration Statement No. 333-110365 on Form S-1 filed December
                24,
                2003).





31








**EXHIBIT
                INDEX**
              **(continued)**10.5
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and Harold
                Ewen
                (without schedules). (Incorporated by reference from Amendment No.
                1 to
                Registration Statement No. 333-110365 on Form S-1 filed December
                24,
                2003).10.6
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and CEA Group,
                LLC
                (without schedules). (Incorporated by reference from Registration
                Statement No. 333-110365 on Form S-1 filed November 10,
                2003).10.7
            Form
                of Investment Trust Management Trust Agreement between the Registrant,
                Continental Stock Transfer & Trust Company and the Initial
                Stockholders.   (Incorporated by reference from Amendment No. 2
                to Registration Statement No. 333-110365 on Form S-1 filed December
                24,
                2003).10.8
            Form
                of Stock Escrow Agreement between the Registrant, Continental Stock
                Transfer & Trust Company and the Initial Stockholders. (Incorporated
                by reference from Amendment No. 2 to Registration Statement No. 333-110365
                on Form S-1 filed December 24, 2003).10.9
            Form
                of Amendment to Stock Escrow Agreement between the Registrant, Continental
                Stock Transfer & Trust Company and the Initial Stockholders.
                (Incorporated by reference from Registration Statement No. 333-110365
                on
                Form S-4 filed December 13, 2005).10.10
            Form
                of Letter Agreement between CEA Group, LLC and Registrant regarding
                administrative support. (Incorporated by reference from Registration
                Statement No. 333-110365 on Form S-1 filed November 10,
                2003).10.11
            Form
                of Registration Rights Agreement among the Registrant and the Initial
                Stockholders (Incorporated by reference from Registration Statement
                No.
                333-110365 on Form S-1 filed November 10, 2003).10.12
            2005
                Performance Equity Plan of the Registrant (Incorporated by reference
                from
                Registration Statement No. 333-110365 on Form S-4 filed December
                13,
                2005).*10.13
            Letter
                Agreement dated as of August 10, 2005 between the Registrant,
                EarlyBirdCapital, Inc. and American Fund Advisors (Incorporated by
                reference from Registration Statement No. 333-110365 on Form S-4
                filed
                October 28, 2005).10.14
            Form
                of Escrow Agreement among the Registrant, James W. Clark, Jr., as
                the
                etrials Stockholders’ Representative and Continental Stock Transfer &
                Trust Company. (Incorporated by reference from Current Report on
                8-K filed
                August 25, 2005).10.15
            Form
                of Amendment to Escrow Agreement among the Registrant, James W. Clark,
                Jr., as the etrials Stockholders’ Representative and Continental Stock
                Transfer & Trust Company. (Incorporated by reference from Registration
                Statement No. 333-110365 on Form S-4 filed December 13,
                2005).10.16
            Employment
                Agreement dated August 22, 2005, among the Registrant, etrials Worldwide,
                Inc. and John Cline (Incorporated by reference from Current Report
                on Form
                8-K filed August 25, 2005).*10.17
            Employment
                Agreement dated August 22, 2005, among the Registrant, etrials Worldwide,
                Inc. and James W. Clark, Jr. (Incorporated by reference from Current
                Report on Form 8-K filed August 25,
                2005).*





32








**EXHIBIT
                INDEX**
              **(continued)**10.18
            Employment
                Agreement dated August 22, 2005, between etrials Worldwide, Inc.
                and
                Michael Harte.   (Incorporated by reference from Current Report
                on Form 8-K filed August 25, 2005).*10.19
            Lock-Up
                Agreement dated August 22, 2005 executed by certain of the security
                holders of etrials Worldwide, Inc. (Incorporated by reference from
                Current
                Report on Form 8-K filed August 25, 2005).10.20
            Lock-Up
                Agreement dated August 22, 2005 executed by Quintiles Transnational
                Corp.
                and Q Finance Inc. (Incorporated by reference from Current Report
                on Form
                8-K filed August 25, 2005).





10.21
            etrials
                Worldwide, Inc. 1999 Equity Compensation Plan. (Incorporated by reference
                from Registration Statement No. 333-110365 on Form S-4 filed October
                28,
                2005).10.22
            Amendment
                to etrials Worldwide, Inc. 1999 Equity Compensation Plan, dated March
                11,
                2003 (Incorporated by reference from Registration Statement No. 333-110365
                on Form S-4 filed October 28, 2005).10.23
            Employment
                Agreement between John Cline and etrials Worldwide, Inc., dated
                December 12, 2003. (Incorporated by reference from Registration
                Statement No. 333-110365 on Form S-4 filed October 28,
                2005).*10.24
            Employment
                Agreement between James Clark and etrials Worldwide, Inc., dated
                December
                12, 2003. (Incorporated by reference from Registration Statement
                No.
                333-110365 on Form S-4 filed October 28, 2005).*10.25
            Service
                Agreement between Rachel King and Minidoc Limited. (Incorporated
                by
                reference from Registration Statement No. 333-110365 on Form S-4
                filed
                October 28, 2005).10.26
            RBC
                Loan and Security Agreement by and between etrials Worldwide, Inc.
                and RBC
                Centura Bank, dated February 1, 2005. (Incorporated by reference
                from
                Registration Statement No. 333-110365 on Form S-4 filed October 28,
                2005).10.27
            Negative
                Pledge Agreement by and between etrials Worldwide, Inc. and RBC Centura
                Bank, dated February 1, 2005. (Incorporated by reference from Registration
                Statement No. 333-110365 on Form S-4 filed October 28,
                2005).10.28
            Investment
                Banking Fee Satisfaction Agreement between Fred Nazem and etrials
                Worldwide, Inc., dated April 4, 2003, terminated September 10, 2005.
                (Incorporated by reference from Registration Statement No. 333-110365
                on
                Form S-4 filed October 28, 2005).10.29
            Letter
                Agreement for Financial Advisory Services between Fred Nazem and
                etrials
                Worldwide, Inc. dated June 24, 2004 and terminated September 10,
                2005.
                (Incorporated by reference from Registration Statement No. 333-110365
                on
                Form S-4 filed October 28, 2005).10.30
            Advisory
                Agreement between Tryon Capital and etrials Worldwide, Inc., dated
                November 7, 2003 and terminated September 10, 2005. (Incorporated
                by
                reference from Registration Statement No. 333-110365 on Form S-4
                filed
                October 28, 2005).








33





**EXHIBIT
      INDEX**


**(continued)**





10.31
            Form
                of Voting Trust Agreement between etrials Worldwide, Inc. and certain
                shareholders of etrials Worldwide, Inc. (Incorporated by reference
                from
                Registration Statement No. 333-110365 on Form S-4 filed October 28,
                2005).10.32
            Form
                of Amendment to Voting Trust Agreement between etrials Worldwide,
                Inc. and
                certain shareholders of etrials Worldwide, Inc. (Incorporated by
                reference
                from Registration Statement No. 333-110365 on Form S-4 filed October
                28,
                2005).10.33
            Exclusive
                License Agreement by and between MiniDoc AB and etrials Worldwide,
                Inc.,
                dated August 10, 2005. (Incorporated by reference from Registration
                Statement No. 333-110365 on Form S-4 filed December 13,
                2005).10.34
            Unconditional
                Guaranty Agreement dated February 14, 2006 between etrials Worldwide,
                Inc.
                and RBC Centura Bank. (Incorporated by reference from Current Report
                on
                Form 8-K filed February 15, 2006).10.35
            Unconditional
                Guaranty Agreement dated March 17, 2006 between etrials Worldwide,
                Inc.
                and RBC Centura Bank.10.36
            Fourth
                Modification Agreement dated as of April 21, 2006 between etrials,
                Inc.,
                etrials Worldwide, Inc., etrials Worldwide Limited and RBC Centura
                Bank.**31.1
            Certification
                of Principal Executive Officer of Periodic Report Pursuant to Rule
                13a-14(a) or Rule 15d-14(a)**31.2
            Certification
                of Principal Financial Officer of Periodic Report Pursuant to Rule
                13a-14(a) or Rule 15d-14(a)**32.1
            Certification
                of Principal Executive Officer and Principal Financial Officer of
                Periodic
                Report Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C.
                Section
                1350**


*
      Management contract or compensatory plan or arrangement.


**Filed
      herewith.










34