Table
      of Contents


**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 September 30, 2007****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




As
      of the
      close of business on November 1, 2007, the Company had 12,520,480 common shares
      and 12,350,000 common stock purchase warrants outstanding.












**ETRIALS
      WORLDWIDE, INC.**


**QUARTERLY
      REPORT ON FORM 10-QSB**


**FOR
      THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007**




**Tableof
      Contents**




**Page****Part
                I – FINANCIAL INFORMATION**Item
                1.
            
            Financial
                StatementsConsolidated
                Balance Sheets as of September 30, 2007
                (unaudited) and December 31, 2006
            
            3Consolidated
                Statements of Operations  for the three
                and nine months ended September 30, 2007 and 2006
                (unaudited)
            
            4Consolidated
                Statement of Stockholders’ Equity for the nine
                months ended September 30, 2007 (unaudited)
            
            5Consolidated
                Statements of Cash Flows for the nine
                months ended September 30, 2007 and 2006 (unaudited)
            
            6Notes
                to Consolidated Financial Statements
                (unaudited)
            
            7Item
                2.
            
            Management's
                Discussion and Analysis
            
            19Item
                3.
            
            Controls
                and Procedures
            
            30**Part
                II – OTHER INFORMATION**Item
                1.
            
            Legal
                Proceedings
            
            31Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            
            31Item
                3.
            
            Defaults
                Upon Senior Securities
            
            31Item
                4.
            
            Submission
                of Matters to a Vote of Security
                Holders
            
            31Item
                5.
            
            Other
                Information
            
            31Item
                6.
            
            Exhibits
            
            31Signatures
            
            32Exhibit
                Index
            
            33





2


Part
      I -
FINANCIALINFORMATION




**Item
                  1.  FinancialStatements****etrials
                  Worldwide, Inc.****Consolidated
                  BalanceSheets****September
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006****(unaudited)****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              15,335,683
              
              
              $
              11,828,667Short-term
                  investments
              
              
              2,800,000
              
              
              
              8,160,293Accounts
                    receivable, net of allowance for doubtful accounts of $12,500
                    and $22,000,
                    respectively
              
              
              5,812,347
              
              
              
              4,980,350Inventory
              
              
              596,954
              
              
              
              -Prepaid
                  expenses and other current assets
              
              
              389,086
              
              
              
              408,786Total
                  current assets
              
              
              24,934,070
              
              
              
              25,378,096Property
                    and equipment, net of accumulated depreciation of $3,772,595
                    and
                    $2,895,543, respectively
              
              
              2,268,186
              
              
              
              1,856,949Goodwill
              
              
              8,011,037
              
              
              
              8,011,037Developed
                    technology, net of accumulated amortization of $1,673,690 and
                    $1,658,491,
                    respectively
              
              
              -
              
              
              
              15,199Other
                  assets
              
              
              119,538
              
              
              
              117,021Total
                  assets
              
              $
              35,332,831
              
              
              $
              35,378,302**Liabilities
                  and Stockholders' Equity**Current
                  liabilities:Accounts
                  payable
              
              $
              843,097
              
              
              $
              804,471Accrued
                  expenses
              
              
              1,959,619
              
              
              
              1,976,226Deferred
                  revenue
              
              
              2,056,785
              
              
              
              2,013,533Bank
                  line of credit and other short-term borrowings
              
              
              2,052,935
              
              
              
              646,000Current
                  portion of capital lease obligations
              
              
              419,673
              
              
              
              74,796Total
                  current liabilities
              
              
              7,332,109
              
              
              
              5,515,026Capital
                  lease obligations, net of current portion
              
              
              135,265
              
              
              
              46,846Long-term
                  borrowings, net of current portion
              
              
              288,721
              
              
              
              20,000Total
                  liabilities
              
              
              7,756,095
              
              
              
              5,581,872Commitments
                  and contingenciesStockholders'
                  equity:Common
                  stock; $0.0001 par value; 50,000,000 shares authorized at September
                  30,
                  2007 and December 31, 2006; and 12,497,743 and 12,278,804 issued
                  and
                  outstanding at September 30, 2007 and December 31, 2006,
                  respectively
              
              
              1,250
              
              
              
              1,228Additional
                  paid-in capital
              
              
              54,911,467
              
              
              
              53,629,085Deferred
                  compensation
              
              
              (26,208
              )
              
              
              (108,102
              )Accumulated
                  deficit
              
              
              (27,309,773
              )
              
              
              (23,725,781
              )Total
                  stockholders' equity
              
              
              27,576,736
              
              
              
              29,796,430Total
                  liabilities and stockholders' equity
              
              $
              35,332,831
              
              
              $
              35,378,302*See
                  accompanying notes.*




3


**etrials
                  Worldwide,
                  Inc.****ConsolidatedStatements
                  of
                  Operations****(unaudited)****Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30**
              
              
              **September
                  30****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Net
                  service revenues
              
              $
              4,136,040
              
              
              $
              4,445,492
              
              
              $
              13,417,556
              
              
              $
              11,305,916Reimbursable
                  out-of-pocket revenues
              
              
              1,074,690
              
              
              
              330,716
              
              
              
              3,490,716
              
              
              
              2,324,353Total
                  revenues
              
              
              5,210,730
              
              
              
              4,776,208
              
              
              
              16,908,272
              
              
              
              13,630,269Costs
                  and expenses:Costs
                  of revenues
              
              
              2,370,806
              
              
              
              1,628,854
              
              
              
              6,704,394
              
              
              
              4,899,766Reimbursable
                  out-of-pocket expenses
              
              
              1,074,690
              
              
              
              330,716
              
              
              
              3,490,716
              
              
              
              2,324,353Sales
                  and marketing
              
              
              969,608
              
              
              
              792,610
              
              
              
              3,634,983
              
              
              
              2,558,754General
                  and administrative
              
              
              1,673,748
              
              
              
              1,374,903
              
              
              
              5,655,144
              
              
              
              3,560,550Amortization
                  of intangible assets
              
              
              -
              
              
              
              11,397
              
              
              
              15,199
              
              
              
              77,018Research
                  and development
              
              
              609,184
              
              
              
              459,397
              
              
              
              1,609,898
              
              
              
              1,379,275Total
                  costs and expenses
              
              
              6,698,036
              
              
              
              4,597,877
              
              
              
              21,110,334
              
              
              
              14,799,716Operating
                  (loss) income
              
              
              (1,487,306
              )
              
              
              178,331
              
              
              
              (4,202,062
              )
              
              
              (1,169,447
              )Other
                  income (expenses):Interest
                  expense
              
              
              (52,370
              )
              
              
              (32,125
              )
              
              
              (93,401
              )
              
              
              (73,226
              )Interest
                  income
              
              
              229,194
              
              
              
              274,613
              
              
              
              725,216
              
              
              
              634,522Other
                  income, net
              
              
              (1,985
              )
              
              
              (29,332
              )
              
              
              (13,745
              )
              
              
              13,235Total
                  other income, net
              
              
              174,839
              
              
              
              213,156
              
              
              
              618,070
              
              
              
              574,531Net
                  (loss) income
              
              
              (1,312,467
              )
              
              
              391,487
              
              
              
              (3,583,992
              )
              
              
              (594,916
              )Dividends
                  and accretion of preferred stock
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (95,969
              )Induced
                  converison of common stock warrants
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,030,000
              )Net
                  (loss) income attributable to common stockholders
              
              $
              (1,312,467
              )
              
              $
              391,487
              
              
              $
              (3,583,992
              )
              
              $
              (1,720,885
              )Net
                  (loss) earnings per share attributable to common
                  stockholders:Basic
              
              $
              (0.12
              )
              
              $
              0.04
              
              
              $
              (0.33
              )
              
              $
              (0.18
              )Diluted
              
              $
              (0.12
              )
              
              $
              0.03
              
              
              $
              (0.33
              )
              
              $
              (0.18
              )Weighted
                  average common shares outstanding:Basic
              
              
              10,826,486
              
              
              
              10,833,313
              
              
              
              10,768,961
              
              
              
              9,744,833Diluted
              
              
              10,826,486
              
              
              
              11,459,533
              
              
              
              10,768,961
              
              
              
              9,744,833*See
                  accompanying notes.*





4






**etrials
                  Worldwide, Inc.****ConsolidatedStatements
                  of Stockholders'
                  Equity****(unaudited)****Additional****Common
                  Stock**
              
              
              **Paid-In**
              
              
              **Deferred**
              
              
              **Accumulated**
              
              
              **Stockholders’****Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              
              **Compensation**
              
              
              **Deficit**
              
              
              **Equity**Balance
                  at December 31, 2006
              
              
              12,278,804
              
              
              $
              1,228
              
              
              $
              53,629,085
              
              
              $
              (108,102
              )
              
              $
              (23,725,781
              )
              
              $
              29,796,430Stock-based
                  compensation recorded in accordance with SFAS 123R
              
              
              -
              
              
              
              -
              
              
              
              1,116,371
              
              
              
              -
              
              
              
              -
              
              
              
              1,116,371Amortization
                  of deferred stock-based compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              29,885
              
              
              
              -
              
              
              
              29,885Reversal
                  of employee stock compensation expense due to terminations
              
              
              -
              
              
              
              -
              
              
              
              (69,682
              )
              
              
              52,009
              
              
              
              -
              
              
              
              (17,673
              )Issuance
                  of restricted common stock
              
              
              50,000
              
              
              
              5
              
              
              
              21,729
              
              
              
              -
              
              
              
              -
              
              
              
              21,734Issuance
                  of common stock to consultant
              
              
              10,727
              
              
              
              1
              
              
              
              50,416
              
              
              
              -
              
              
              
              -
              
              
              
              50,417Exercise
                  of employee stock options
              
              
              158,212
              
              
              
              16
              
              
              
              163,548
              
              
              
              -
              
              
              
              -
              
              
              
              163,564Net
                  loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,583,992
              )
              
              
              (3,583,992
              )Balance
                  at September 30, 2007
              
              
              12,497,743
              
              
              $
              1,250
              
              
              $
              54,911,467
              
              
              $
              (26,208
              )
              
              $
              (27,309,773
              )
              
              $
              27,576,736*See
                  accompanying notes.*





5


**etrials
                  Worldwide,
                  Inc.****ConsolidatedStatements
                  of Cash
                  Flows****(unaudited)****Nine
                  Months Ended****September
                  30****2007**
              
              
              **2006****Operating
                  activities**Net
                  loss
              
              $
              (3,583,992
              )
              
              $
              (594,916
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              896,701
              
              
              
              564,543Accretion
                  of discount on investments held-to-maturity
              
              
              (4,743
              )
              
              
              -Amortization
                  of prepaid software application-hosting discount
              
              
              -
              
              
              
              334,339Non-cash
                  compensation expense
              
              
              1,200,734
              
              
              
              553,266Provision
                  for allowance for doubtful accounts
              
              
              (9,500
              )
              
              
              (4,000
              )Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (822,497
              )
              
              
              (1,647,558
              )Prepaid
                  expenses and other assets
              
              
              17,183
              
              
              
              (101,890
              )Inventory
              
              
              (596,954
              )
              
              
              -Accounts
                  payable and accrued expenses
              
              
              22,019
              
              
              
              181,119Deferred
                  revenue
              
              
              43,252
              
              
              
              66,019Net
                  cash used in operating activities
              
              
              (2,837,797
              )
              
              
              (649,078
              )**Investing
                  activities**Purchase
                  of property and equipment
              
              
              (385,123
              )
              
              
              (335,286
              )Capitalized
                  internal software development costs
              
              
              (265,486
              )
              
              
              (316,716
              )Sales
                  (purchases) of short-term investments, net
              
              
              5,365,036
              
              
              
              (7,873,704
              )Net
                  cash provided by (used in) investing activities
              
              
              4,714,427
              
              
              
              (8,525,706
              )**Financing
                  activities**Net
                  proceeds from bank line of credit
              
              
              1,288,000
              
              
              
              97,000Borrowings
                  from bank equipment and other loans
              
              
              608,800
              
              
              
              -Payments
                  on bank equipment and other loans
              
              
              (221,144
              )
              
              
              (90,000
              )Principal
                  payments on capital leases
              
              
              (208,834
              )
              
              
              (91,023
              )Proceeds
                  from issuance of stock options and warrants
              
              
              163,564
              
              
              
              203,177Proceeds
                    from issuance of common stock in reverse acquisition of CEA,
                    net of
                    issuance costs
              
              
              -
              
              
              
              20,428,005Net
                  cash provided by financing activities
              
              
              1,630,386
              
              
              
              20,547,159Effect
                  of exchange rate changes on cash
              
              
              -
              
              
              
              2,578Net
                  increase in cash and cash equivalents
              
              
              3,507,016
              
              
              
              11,374,953Cash
                  and cash equivalents at beginning of year
              
              
              11,828,667
              
              
              
              1,650,323Cash
                  and cash equivalents at end of year
              
              $
              15,335,683
              
              
              $
              13,025,276**Supplemental
                  cash flow information**Capital
                  lease additions
              
              $
              642,130
              
              
              $
              -Cash
                  paid for interest
              
              $
              78,866
              
              
              $
              73,557*See
                  accompanying notes.*






6




**etrials
      Worldwide, Inc.**


**Notesto
      Consolidated Financial Statements
      (unaudited)**





**1.
      Organization and Capitalization**





***etrials
      Worldwide, Inc.***




etrials
      Worldwide, Inc. (“etrials” or the “Company”) is a provider of eClinical software
      technology and services to pharmaceutical, biotechnology, medical device, and
      contract research organizations. The Company offers insight into the clinical
      trial process, maximizing its customers’ return on investment and accelerating
      their time to market. The Company’s primary focus is on the costly and
      time-consuming clinical trial phase of drug development.




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.





***Merger
      and Accounting Treatment***




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.




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 700,000 warrants underlying the
      underwriter’s purchase option are subject to the same terms and conditions as
      the outstanding warrants of the Company described in Footnote 8 “Stockholders’
Equity”.  The unit purchase options expire on February 11,
      2009.




On
      February 9, 2006 etrials Acquisition, Inc., a Delaware corporation and wholly
      owned subsidiary of CEA, consummated a merger with etrials Worldwide, Inc.,
      in
      which etrials Worldwide, Inc. changed its name to etrials, Inc. and became
      CEA’s
      wholly owned subsidiary.  At that time CEA changed its name to etrials
      Worldwide, Inc.





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.





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. In connection
      with the merger, etrials stockholders also received warrants to purchase
      4,250,000 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 $19.6 million. 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.


7





***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 for
      the
      nine months ended September 30, 2006.





***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 a 20
      consecutive trading day period (i) the volume weighted average price of etrials
      common stock is $7.00 or more, and (ii) the average daily trading volume is
      at
      least 25,000 shares.  The Trigger shares will be cancelled if these
      conditions are not met by February 19, 2008.





***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 Redeemable Convertible 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 of dividends related to its redeemable convertible preferred
      stock for the nine months ended September 30, 2006.





***Unaudited
      Interim Financial Statements***




The
      accompanying consolidated balance sheet as of September 30, 2007, consolidated
      statements of operations for the three and nine months ended September 30,
      2007
      and 2006, consolidated statements of cash flows for the nine months ended
      September 30, 2007 and 2006 and consolidated statement of stockholders’ equity
      for the nine months ended September 30, 2007 are unaudited. The unaudited
      financial statements include all adjustments (consisting of normal recurring
      adjustments) which are, in the opinion of management, necessary for a fair
      presentation of such financial statements. The information disclosed in the
      notes to the financial statements for these periods is unaudited. The results
      of
      operations for the three and nine months ended September 30, 2007 are not
      necessarily indicative of the results to be expected for the entire fiscal
      year
      or for any future period.





**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.  Such reclassifications had no effect on previously
      reported net loss or stockholders' equity.




8




***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 subscription and usage fees, hosting fees, and
      other fees. Revenues resulting from software application-hosting are recognized
      in accordance with Emerging Issues Task Force (EITF) Issue No. 00-03,
*Application of AICPA Statement of Position 97-2 to Arrangements that include
      the Right to Use Software Stored on Another Entity’s Hardware*and
      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.




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





The
      estimated total labor hours of contracts are reviewed and revised periodically
      throughout the duration of the contracts with an adjustment to revenues from
      such revisions being recorded on a cumulative basis in the period in which
      the
      revisions are made. When estimates indicate a loss, such loss is recognized
      in
      the current period in its entirety. Because of the inherent uncertainties in
      estimating total labor hours, it is reasonably possible that the estimates
      will
      change in the near term and could result in a material change. The Company
      records a loss for its contracts at the point it is determined that the total
      estimated contract costs will exceed management’s estimates of contract
      revenues. As of September 30, 2007, the Company has not experienced any material
      losses on uncompleted contracts.





9





The
      following summarizes the components of the revenues recognized:





**Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30**
              
              **September
                  30****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Services
              
              $
              3,117,906
              
              
              $
              3,150,430
              
              
              $
              9,964,349
              
              
              $
              7,855,308Software
                  subscriptions and usage fees
              
              
              670,203
              
              
              
              913,639
              
              
              
              2,271,712
              
              
              
              2,385,773Hosting
                  fees
              
              
              347,931
              
              
              
              381,423
              
              
              
              1,181,495
              
              
              
              1,064,835Net
                  service revenues
              
              
              4,136,040
              
              
              
              4,445,492
              
              
              
              13,417,556
              
              
              
              11,305,916Reimbursable
                  out-of-pocket revenues
              
              
              1,074,690
              
              
              
              330,716
              
              
              
              3,490,716
              
              
              
              2,324,353Total
              
              $
              5,210,730
              
              
              $
              4,776,208
              
              
              $
              16,908,272
              
              
              $
              13,630,269





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




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





In
      connection with a software application-hosting agreement entered into on
      April 1, 2005, the Company issued to 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 the application-hosting
      agreement the company recorded as a discount to revenue $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.





10


***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 $265,486 and $316,716 of internal software development
      costs during the nine months ended September 30, 2007 and 2006, 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 September 30, 2007.




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,
      Cash Equivalents and Short-term Investments***




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.  In accordance with
      Statement of Financial Accounting Standards No. 95, *Statement of Cash
      Flows,*the Company classifies available-for-sale securities, including its
      investments in auction rate securities that are available to meet the Company’s
      current operational needs, as short-term.





***Inventory***





The
      Company accounts for electronic patient diaries purchased for future clinical
      trials which will be billed to its clients as reimbursable out-of-pocket
      revenues and expenses, as inventory.  Inventory is valued at the lower
      of cost or market value and is allocated on a first in – first out
      method.





***Intangible
      Assets***




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. 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 $15,199 and $77,018 for the nine months ended
      September 30, 2007 and 2006, respectively, related to these assets.





***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.


11




***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. During
      November 2007 and 2006, 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, short-term
      investments, accounts receivable, accounts payable and outstanding indebtedness.
      In management’s opinion, the carrying amount of these financial instruments
      approximates their fair values at September 30, 2007 and December 31, 2006,
      based on their short-term nature or underlying variable interest
      rate.





***Foreign
      Currency***




The
      reporting currency for the Company is the U.S. dollar.  Effective
      April 1, 2006, following a restructuring of the Company’s foreign subsidiary in
      the United Kingdom, the Company determined that the functional currency of
      its
      United Kingdom operations is the U.S. dollar.  Prior to April 1, 2006
      the functional currency of its United Kingdom operations was the local
      currency.





The
      financial statements of the Company’s foreign subsidiary in the United Kingdom
      are translated in accordance with SFAS No. 52, *Foreign Currency
      Translation*. Prior to April 1, 2006 assets and liabilities denominated in
      foreign currencies were translated into U.S. dollars at current exchange rates.
      Operating results were 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 were included as a component of
      accumulated other comprehensive income in stockholders’ (deficit)
      equity.  Effective April 1, 2006 remeasurement adjustments for
      non-functional currency monetary assets and liabilities are included in other
      income (net) in the accompanying consolidated statements of
      operations.




***Net
      (Loss) Earnings Per Common Share***




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




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




**Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30**
              
              
              **September
                  30****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Unvested
                  restricted common stock
              
              
              46,875
              
              
              
              -
              
              
              
              46,875
              
              
              
              -Unit
                  purchase options
              
              
              1,050,000
              
              
              
              1,050,000
              
              
              
              1,050,000
              
              
              
              1,050,000Stock
                  options outstanding
              
              
              2,636,403
              
              
              
              2,784,166
              
              
              
              2,636,403
              
              
              
              2,784,166Warrants
                  outstanding
              
              
              12,350,000
              
              
              
              12,350,000
              
              
              
              12,350,000
              
              
              
              12,350,000




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


12





***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). SFAS 123R
      requires the benefits of tax deductions in excess of recognized compensation
      cost to be reported as a financing cash flow, rather than as an operating cash
      flow. The Company will recognize excess tax benefits when those benefits reduce
      current income taxes payable.  The Company recognizes compensation
      cost for awards with pro rata vesting using the straight line prorated
      method.




The
      Company used the minimum-value method as a non-public company to estimate the
      fair value of stock awards under SFAS 123 for pro forma footnote disclosure
      purposes, the Company was required to adopt SFAS 123R using the
“prospective-transition” method upon the effective date. Under the prospective
      transition 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 have been accounted for using the measurement, recognition, and
      attribution provisions of SFAS 123R.  The Company has continued to
      recognize compensation expense for awards issued prior to the adoption of SFAS
      123R in accordance with the provisions of APB 25.







***Stock
      Option Plan***




The
      Company maintains an Equity Compensation Plan (the “Plan”) to provide incentives
      to eligible employees, officers, directors and consultants in the form of
      non-qualified stock options and, as permissible, incentive stock options. The
      Company has reserved a total of 3,200,000 shares of common stock for issuance
      under the Plan.  Of this amount, 288,514 shares are available for
      future stock option grants as of September 30, 2007.  On May 18, 2007
      the Board of Directors approved an increase in the number of options issuable
      pursuant to the Plan to 3,500,000, subject to approval by the shareholders
      at
      the next Annual Meeting.




The
      Board
      has the authority to administer the Plan and determine, among other things,
      the
      interpretation of any provisions of the Plan, the number of options that an
      individual may be granted, vesting schedules and option exercise prices. With
      few exceptions, stock options granted under the Plan have vesting periods of
      three to five years, have a contractual life not to exceed five or ten years,
      and have exercise prices equal to the estimated fair market value of the
      Company’s common stock on the grant date.




**3.
      Cash, Cash Equivalents and Short-term Investments**





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





**September
                  30**
              
              
              **December
                  31****2007**
              
              
              **2006**Cash
              
              $
              8,976,814
              
              
              $
              3,115,362Money
                  market
              
              
              4,011,675
              
              
              
              6,024,155U.S.
                  agency notes
              
              
              2,347,193
              
              
              
              2,689,150Total
                  cash and cash equivalents
              
              $
              15,335,683
              
              
              $
              11,828,667Auction
                  rate securities
              
              $
              2,800,000
              
              
              $
              6,600,000Corporate
                  bonds
              
              
              -
              
              
              
              1,560,293Total
                  short-term investments
              
              $
              2,800,000
              
              
              $
              8,160,293


13





**4.
      Accounts Receivable**




Accounts
      receivable consists of the following:




**September
                  30**
              
              
              **December
                  31****2007**
              
              
              **2006**Billed
                  accounts receivable
              
              $
              3,352,020
              
              
              $
              3,394,583Unbilled
                  accounts receivable
              
              
              2,472,827
              
              
              
              1,607,767Total
                  accounts receivable
              
              
              5,824,847
              
              
              
              5,002,350Allowance
                  for doubtful accounts
              
              
              (12,500
              )
              
              
              (22,000
              )$
              5,812,347
              
              
              $
              4,980,350





**5.
      Accrued Expenses**




Accrued
      expenses consist of the following:




**September
                  30**
              
              
              **December
                  31****2007**
              
              
              **2006**Accrued
                  professional fees
              
              $
              204,313
              
              
              $
              97,881Accrued
                  client reimbursable expenses
              
              
              346,726
              
              
              
              866,032Accrued
                  other expenses
              
              
              731,508
              
              
              
              545,194Accrued
                  compensation
              
              
              391,329
              
              
              
              206,106Accrued
                  vacation
              
              
              285,743
              
              
              
              261,013$
              1,959,619
              
              
              $
              1,976,226





**6.
      Debt**




Debt
      consists of the following:




**September
                  30**
              
              
              **December 31****2007**
              
              
              **2006**Borrowings:Bank
                  line of credit, with an interest rate of 8.0% at September 30,
                  2007
              
              $
              1,814,000
              
              
              $
              526,000Bank
                  equipment loan, with an interest rate of 8.75% at September 30,
                  2007
              
              
              50,000
              
              
              
              140,000Bank
                  equipment loan, with an interest rate of 8.5% at September 30,
                  2007
              
              
              455,388
              
              
              
              -Note
                  payable, with an interest rate of 7.15%
              
              
              22,268
              
              
              
              -Total
                  borrowings
              
              
              2,341,656
              
              
              
              666,000Bank
                  line of credit and other short-term borrowings
              
              
              2,052,935
              
              
              
              646,000Long-term
                  borrowings, less current portion
              
              $
              288,721
              
              
              $
              20,000




**Bank
      Line of Credit**




On
      February 1, 2005, the Company
      entered into two loan agreements with RBC Centura Bank. These loan agreements
      were modified on May 31, 2006 when a third loan agreement was added and on
      May
      31, 2007 when a fourth loan agreement was added.    The
      first agreement is a $2,000,000 revolving accounts receivable line of credit
      which provides for borrowings up to 80% of current accounts receivable balance
      at the prime rate of interest plus 0.25%.  This line of credit has
      $1,814,000 outstanding as of September 30, 2007 and these borrowings are secured
      primarily by accounts receivable.  The second agreement is a $300,000
      equipment line of credit which has $50,000 outstanding as of September 30,
      2007.  This 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 are being paid over a period of thirty months. The third
      agreement is a $500,000 equipment loan which has $455,388 outstanding as of
      September 30, 2007. Borrowings under this equipment loan are being paid over
      a
      period of thirty-nine months at the bank’s prime rate of interest plus 0.75%.
      The fourth agreement is a $500,000 equipment line of credit. This loan will
      be
      available to fund equipment purchases and provides for interest at the bank’s
      prime rate of interest plus 0.75%. Borrowings under the equipment line of
      credit, if any, will be paid over a period of thirty-nine months. The Company
      has not had any borrowings under this equipment loan as of September 30,
      2007.  The capital equipment borrowings are secured by the fixed
      assets that were acquired.


14





**Note
      Payable**




On
      February 9, 2007, the Company
      entered into a note payable for $108,800 with First Insurance Funding
      Corp.  The note bears interest at an annual rate of 7.15% and
      principle and interest payments are due in ten monthly installments from the
      date of issue through December 9, 2007.




**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.





On
      July
      17, 2006 the Company was informed that an action was filed by a company alleging
      that the Company had infringed on its patent.  The plaintiff alleging
      infringement has not specified damages so management is unable to estimate
      a
      potential range of loss, if any.  Management intends to vigorously
      contest the action.  No assurance can be given as to the outcome of
      this litigation.





**8.
      Stockholders’ Equity**




**Outstanding
      Warrants**




The
      Company’s outstanding warrants were
      issued in two transactions. CEA sold 4,025,000 units (the Units) in its initial
      public offering in 2004. Each Unit consists of one share of the Company’s common
      stock, $.0001 par value, and two warrants. In connection with this initial
      public offering, the CEA issued an option for $100 to the representative of
      the
      underwriters to purchase 350,000 Units at an exercise price of $9.90 per Unit.
      In connection with the CEA merger, the Company also issued to shareholders
      of
      etrials warrants to purchase 4,300,000 common shares as part of the merger
      consideration.




At
      December 31, 2006 and September 30,
      2007, the Company had outstanding 12,350,000 warrants to purchase common stock.
      Each warrant entitles the holder to purchase from the Company one share of
      common stock at an exercise price of $5.00 per share on the terms and conditions
      set forth in the warrants and the warrant agreement governing the
      warrants.  The warrants expire on February 12, 2008, unless redeemed
      before that time.  The warrants are redeemable at the option of the
      Company at a price of $.01 per warrant upon 30 days notice by the Company
      after the warrants become exercisable, only in the event that the last sale
      price of the common stock of the Company is at least $8.50 per share for any
      20
      trading days within a 30 trading day period ending on the third day prior to
      the
      date on which notice of redemption is given.




In
      addition, 700,000 warrants
      underlying an underwriters’ purchase option are subject to the same terms and
      conditions as the outstanding warrants of the Company described above, except
      that the exercise price is $6.40 per share. The exercise price and number of
      units issuable upon exercise of the underwriters’ purchase option may be
      adjusted in certain circumstances, including issuances of a stock dividend,
      recapitalization, reorganization, merger or consolidation. However, the option
      will not be adjusted for issuances at a price below its exercise price. The
      holders of the underwriters’ purchase option have demand and piggy-back
      registration rights under the Securities Act for periods of five and seven
      years, respectively, from the date of the initial public offering of the Company
      with respect to registration of the securities directly and indirectly issuable
      upon exercise of the underwriters’ purchase option.




15


As
      of
      September 30, 2007, the Company had reserved a total of 16,324,917 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
              
              
              2,636,403Reserved
                  for future stock option grants
              
              
              288,514Common
                  stock warrants outstanding
              
              
              12,350,000Total
                  shares reserved for future issuance
              
              
              16,324,917





**9.
      Stock Based Compensation**





Effective
      with the adoption of SFAS No. 123R, the Company has elected to use the
      Black-Scholes-Merton option pricing model to determine the weighted average
      fair
      value of options granted.  The Company has a limited trading history
      for its common stock as it began trading on the NASDAQ National Market on
      February 10, 2006.  Accordingly, the Company has determined the
      volatility for options granted in 2006 based on an analysis of reported data
      for
      a peer group of companies that have issued stock options with substantially
      similar terms. The expected life of options granted by the Company has been
      determined based upon the “simplified” method as allowed under the provisions of
      the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 (SAB
      107) and represents the period of time that options granted are expected to
      be
      outstanding.  The risk-free interest rate is based on a treasury
      instrument whose term is consistent with the expected life of the stock options.
      The Company has not paid and does not anticipate paying cash dividends on its
      shares of common stock; therefore, the expected dividend yield is assumed to
      be
      zero. In addition, SFAS No. 123R requires companies to utilize an
      estimated forfeiture rate when calculating the expense for the period, whereas,
      SFAS No. 123 permitted companies to record forfeitures based on actual
      forfeitures. As a result, using historical data among other factors, the Company
      has applied an estimated forfeiture rate of 5.93% in determining the expense
      recorded in the Company’s consolidated statement of operations.




During
      the three months ending September 30, 2007, the Company did not grant any new
      stock options.  On May 18, 2007, the Company granted 50,000 shares of
      restricted stock to a new member of senior management. The shares vest ratably
      on a quarterly basis over four years.  The Company measured the fair
      value of these awards at $4.70 based on the closing price of its common stock
      at
      the date of grant, which is being amortized to compensation expense ratably
      over
      the four year service period.  The Company recorded approximately
      $14,808 and $21,729 of compensation expense during the three and nine months
      ended September 30, 2007 in connection with the issuance of this restricted
      stock award.




The
      weighted average exercise price of options granted during the nine months ended
      September 30, 2007 was $4.61. There were 476,202 options granted during the
      nine
      months ended September 30, 2007.  The weighted-average assumptions
      utilized to determine the above values are indicated in the following
      table:




**Nine
                Months Ended September 30,****2007**Expected
                dividend yield
            0%Expected
                volatility
            100%Risk-free
                interest rate
            4.72%Expected
                life (in years)
            4.00







During
      the nine months ended September 30, 2007, the Company recorded $1,200,734 of
      stock-based compensation expense, of which $1,116,371 was related to options
      issued subsequent to the adoption of SFAS No. 123R.  As of
      September 30, 2007, there was $2,437,938 of unrecognized compensation expense
      related to non-vested share awards issued under SFAS No. 123R that is expected
      to be recognized over a weighted-average period of 2.91 years.  Net
      cash provided by operating and financing activities was unchanged for the period
      ended September 30, 2007, since there were no excess tax benefits from
      stock-based compensation plans.  The remaining stock-based
      compensation expense is due to the amortization of previously recorded deferred
      compensation, for stock options that have continued to be accounted for under
      APB Opinion No. 25 in accordance with the prospective transition method of
      SFAS
      123R.  As of September 30, 2007, there was $26,208 of unamortized
      deferred compensation recorded related to such options.




16


The
      following summarizes the activity of the Plan for the nine months ended
      September 30, 2007:




**Weighted****Weighted**
              
              
              
              
              
              **Average****Average**
              
              
              **Aggregate**
              
              
              **Remaining****Number
                  of**
              
              
              **Exercise**
              
              
              **Intrinsic**
              
              
              **Contractual****Shares**
              
              
              **Price**
              
              
              **Value**
              
              
              **Term
                  (years)**Outstanding
                  at December 31, 2006
              
              
              2,775,914
              
              
              $
              3.82Granted
              
              
              476,202
              
              
              
              4.61Exercised
              
              
              (219,451
              )
              
              
              1.66Canceled
              
              
              (396,262
              )
              
              
              5.04Outstanding
                  at September 30, 2007
              
              
              2,636,403
              
              
              $
              3.96
              
              
              $
              2,150,392
              
              
              
              4.06Exercisable
                  at September 30, 2007
              
              
              1,618,433
              
              
              $
              3.40
              
              
              $
              2,008,225
              
              
              
              3.79Vested
                  or expected to vest at September 30, 2007
              
              
              
              
              
              
              
              
              
              $
              2,008,225




The
      total
      intrinsic value of options exercised during the nine months ended September
      30,
      2007 and 2006 were $406,165 and $175,438, respectively.





Selected
                information regarding stock options as of September 30, 2007 is as
                follows:




**Options
                  Outstanding**
              
              **Options
                  Exercisable****Weighted****Average**
              
              **Weighted**
              
              
              
              **Weighted****Remaining**
              
              **Average**
              
              
              
              **Average****Number
                  of**
              
              **Life**
              
              **Exercise**
              
              **Number
                  of**
              
              **Exercise****Exercise
                  Price**
              
              **Shares**
              
              **(in
                  Years)**
              
              **Price**
              
              **Shares**
              
              **Price**$1.14
              -
              $1.71
              
              56,670
              
              3.69
              
              1.63
              
              56,670
              
              1.63$1.71
              -
              $2.28
              
              977,766
              
              4.72
              
              2.01
              
              909,084
              
              2.00$3.43
              -
              $4.00
              
              35,000
              
              4.31
              
              3.69
              
              -
              
              -$4.00
              -
              $4.57
              
              209,646
              
              5.22
              
              4.35
              
              85,684
              
              4.35$4.57
              -
              $5.14
              
              420,958
              
              4.65
              
              4.74
              
              23,814
              
              4.71$5.14
              -
              $5.71
              
              936,363
              
              2.85
              
              5.71
              
              543,181
              
              5.712,636,403
              
              4.06
              
              $
              3.96
              
              1,618,433
              
              $
              3.40






**10.  Income
      Taxes**




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




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




The
      Company has its tax years of 2003 – 2006 open to examination by federal tax and
      2001 – 2006 for state tax jurisdictions.  The Company’s only foreign
      subsidiary is in the United Kingdom and it has its tax years of 2005 – 2006 open
      to examination.  The Company has not been informed by any tax
      authorities for any jurisdiction that any of its tax years are under examination
      as of September 30, 2007.




17


The
        Company has no current provision for income taxes. Due to the history of
        losses
        by the Company, management has determined that a valuation allowance is needed
        to reduce the net deferred tax assets to zero.





The
      Company has operating loss carryforwards for federal tax purposes of
      approximately $26.3 million and $25.4 million at December 31, 2006 and
      2005, respectively, expiring beginning in 2010. The Company has state net
      operating losses of approximately $15.6 million and $14.3 million at
      December 31, 2006 and 2005, respectively, available to offset future state
      taxable income, expiring beginning in 2010.





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





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





The
      American Jobs Creation Act of 2004 added section 409A to the Internal Revenue
      Code.  Section 409A provides that all amounts deferred under a
      nonqualified deferred compensation plan for all taxable years are currently
      includible in gross income to the extent not subject to a substantial risk
      of
      forfeiture and not previously included in gross income, unless certain
      requirements are met.  Generally, these new rules are effective for
      amounts deferred after December 31, 2004.  Management has reviewed
      these requirements and believes all requirements have been
      met.  Actual results could differ.




**11.  Recently
      Issued Accounting Pronouncements**




In
      September 2006, the FASB issued SFAS
      No. 157, *Fair Value Measurements*, which defines fair value,
      establishes a framework for measuring fair value under generally accepted
      accounting principles, and expands disclosures about fair value measurements.
      SFAS No. 157 applies to other accounting pronouncements that require or
      permit fair value measurements. The new guidance is effective for financial
      statements issued for fiscal years beginning after November 15, 2007, and
      for interim periods within those fiscal years. The Company is currently
      analyzing the effect, if any, SFAS No. 157 will have on the Company’s
      consolidated financial position and results of operations.





In
      February 2007, the FASB released SFAS No. 159, *The Fair Value Option for
      Financial Assets and Financial Liabilities*, and is effective for fiscal
      years beginning after November 15, 2007.  This Statement permits
      entities to choose to measure many financial instruments and certain other
      items
      at fair value.  The objective is to improve financial reporting by
      providing entities with the opportunity to mitigate volatility in reported
      earnings caused by measuring related assets and liabilities differently without
      having to apply complex hedge accounting provisions.  The Company is
      currently analyzing the effect, if any, SFAS No. 159 will have on the Company’s
      consolidated financial position and results of operations.


18




**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 10-KSB filed on March 30,
      2007.




***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.




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 and biotechnology
      industry.




Industry
      analysts and commentators have estimated that the growth in the use of eClinical
      technologies will continue to accelerate. We will have to continue to expand
      our
      customer base and technologies in order to maintain and grow our market share.
      Since 2002 the number of active eClinical trials being performed by us has
      grown
      from approximately 24 to 110 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 we enter into master agreements with each
      customer, the master agreements do not contain any minimum commitment by
      customers and contain general terms and conditions.  All services and
      revenues are covered by separately negotiated addendums called task
      orders.  Revenues generated from each task order are generally
      recognized using the proportional performance method, measured principally
      by
      the total labor hours incurred as a percentage of estimated total labor hours
      for each contract. This method is used because management considers total labor
      hours incurred to be the best available measure of progress on these
      contracts.





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


19




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




•
            
            *First
                stage—*trial and application setup, including design of electronic
                case report forms and edit checks, installation and server configuration
                of the system;•
            
            *Second
                stage—*consists of project management services, application hosting
                and related professional and support services; and•
            
            *Third
                stage—*services required to close out, or lock, the database for the
                clinical trial.




Services
      provided for all three stages are generally on a fixed fee basis as per the
      budget assumptions specified in the contract. If budget assumptions change,
      etrials and the client generally agree to a change in scope amendment to the
      contract. Revenues from services are recognized utilizing the proportional
      performance method, measured principally by the total labor hours incurred
      as a
      percentage of estimated total labor hours for each contract. This method is
      used
      because management considers total labor hours incurred to be the best available
      measure of progress on these contracts. The company records a loss for its
      contracts at the point it is determined that the total estimated contract costs
      will exceed management’s estimates of contract revenues. 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.





We
      record
      new projects into backlog when we receive written confirmations from clients
      that they have decided to award us contracts or work orders for specific
      projects, which means that our backlog includes projects for which we do not
      have contracts or project work orders signed by customers. The amount of backlog
      is the total amount of the project budget agreed upon by the client and us
      less
      revenue previously recognized by us on each project.  Customer delays
      in conducting clinical trials and the ability of customers to cancel projects
      without penalty means that our backlog is not a guaranty as to the amount or
      timing of future revenue.





***Cost
      of Revenues and Operating Expenses***




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




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


20





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




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




*Research
      and Development* - Research and development expenses consist primarily of
      employee-related expenses, allocated overhead 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.  We
      also expect to incur significant legal costs to defend the patent related
      lawsuit recently commenced against us, which will adversely impact general
      and
      administrative expenses in future periods.




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




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





***Foreign
      Currency***




The
      reporting currency for the Company is the U.S. dollar.  Effective
      April 1, 2006, following a restructuring of the Company’s foreign subsidiary in
      the United Kingdom, the Company has determined that the functional currency
      of
      its United Kingdom operations is the U.S. dollar.  Prior to April 1,
      2006 the functional currency of its United Kingdom operations was the local
      currency.





The
      financial statements of the Company’s foreign subsidiary in the United Kingdom
      are translated in accordance with SFAS No. 52, *Foreign Currency
      Translation*. Prior to April 1, 2006 assets and liabilities denominated in
      foreign currencies were translated into U.S. dollars at current exchange rates.
      Operating results were 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).  Effective April 1, 2006 remeasurement adjustments for
      non-functional currency monetary assets and liabilities are included in other
      income, net in the accompanying consolidated statements of
      operations.





***Critical
      Accounting Policies and Estimates***




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


21




Our
      significant accounting policies are presented within Note 2 to our
      consolidated financial statements as filed with the SEC on Form 10-KSB on March
      30, 2007, and the following summaries should be read in conjunction with the
      unaudited consolidated financial statements and the related notes included
      in
      this Quarterly Report. While all accounting policies impact the financial
      statements, certain policies may be viewed as critical. Critical accounting
      policies are those that are both most important to the portrayal of financial
      condition and results of operations and that require management’s most
      subjective or complex judgments and estimates. Our management believes the
      policies that fall within this category are the policies on revenue recognition,
      accounting for stock-based compensation, goodwill and income taxes.




***Revenue
      Recognition***




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




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




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




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


22





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.





The
      following summarizes the components of our revenues:





**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30**
            
            **September
                30****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Services
            
            $
            3,117,906
            
            
            $
            3,150,430
            
            
            $
            9,964,349
            
            
            $
            7,855,308Software
                subscriptions and usage fees
            
            
            670,203
            
            
            
            913,639
            
            
            
            2,271,712
            
            
            
            2,385,773Hosting
                fees
            
            
            347,931
            
            
            
            381,423
            
            
            
            1,181,495
            
            
            
            1,064,835Net
                service revenues
            
            
            4,136,040
            
            
            
            4,445,492
            
            
            
            13,417,556
            
            
            
            11,305,916Reimbursable
                out-of-pocket revenues
            
            
            1,074,690
            
            
            
            330,716
            
            
            
            3,490,716
            
            
            
            2,324,353Total
            
            $
            5,210,730
            
            
            $
            4,776,208
            
            
            $
            16,908,272
            
            
            $
            13,630,269





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.





In
      connection with a software application-hosting agreement entered into on
      April 1, 2005, we issued to 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 September 30, 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.


23





***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 impact of
      adoption of SFAS 123R will depend on levels of share-based payments granted
      in the future. SFAS 123R also requires the benefits of tax deductions in
      excess of recognized compensation cost to be reported as a financing cash flow,
      rather than as an operating cash flow. The Company will recognize excess tax
      benefits when those benefits reduce current income taxes payable.




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





***Goodwill***




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 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 2006, 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 as of September 30, 2007.





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





24


***Results
      of Operations***




*Three
      Months Ended September 30, 2007 Compared to Three Months Ended September 30,
      2006*




Net
      service revenues decreased 7.0% to $4,136,040 for the three months ended
      September 30, 2007 as compared to $4,445,492 for the three months ended
      September 30, 2006.  The decrease in revenues is primarily the result
      of the timing and size of new clinical project deployments in process during
      the
      period.




Reimbursable
      out-of-pocket revenues and
      corresponding expenses increased to $1,074,690 from $330,716 for the three
      months ended September 30, 2007 and 2006, respectively.  This increase
      is primarily the result of increased diary hardware costs related to new
      electronic patient diary trials commenced in the three months ended September
      30, 2007.





Costs
      of
      revenues increased 45.6% to $2,370,806 from $1,628,854 for the three months
      ended September 30, 2007 and 2006, respectively.  This increase was
      primarily the result of operations personnel increasing approximately 16% to
      73
      from 63 as of September 30, 2007 and 2006, respectively.  As a
      percentage of net service revenues, costs of revenues increased to 57.3% from
      36.6% for the three months ended September 30, 2007 and 2006,
      respectively.  The increase in the costs of revenue percentage is due
      to lower revenues during the quarter as a result of the timing and size of
      new
      clinical project deployments in process during the period combined with costs
      increasing due to the personnel increases noted above.




Sales
      and
      marketing costs increased by 22.3% to $969,608 from $792,610 for the three
      months ended September 30, 2007 and 2006, respectively.  This increase
      was primarily the result of sales personnel increasing approximately 12% to
      19
      from 17 as of September 30, 2007 and 2006, respectively and increased marketing
      expenses and sales travel related to the Company’s goal of increasing new
      projects additions during 2007. As a percentage of net service revenues, sales
      and marketing costs increased to 23.4% from 17.8% for the three months ended
      September 30, 2007 and 2006, respectively.





General
      and administrative costs increased by 21.7% to $1,673,748 from $1,374,903 for
      the three months ended September 30, 2007 and 2006,
      respectively.  This increase was primarily the result of an increase
      of approximately $81,000 in legal costs primarily related to patent infringement
      litigation costs, $44,000 in CEO transition costs, $50,000 in increase
      accounting and tax costs and $29,500 in Sarbanes Oxley consulting
      costs.  We expect patent litigation costs will continue to increase
      during the remainder of 2007. As a percentage of net service revenues, general
      and administrative expenses increased to 40.5% from 30.9% for the three months
      ended September 30, 2007 and 2006, respectively.




Amortization
      of intangible assets consists of amortization of acquired software technologies
      over their estimated useful life of three years. These costs were zero and
      $11,397 for the three months ended September 30, 2007 and 2006,
      respectively.  These costs declined since all intangible assets were
      fully amortized in April 2007.




Research
      and development costs increased by 32.6% to $609,184 from $459,397 for the
      three
      months ended September 30, 2007 and 2006, respectively.  The increase
      was primarily attributable to increased personnel costs related to contractors
      used to assist our research and development efforts for our new electronic
      data
      capture technology - EDC 2.0.  As a percentage of net service
      revenues, research and development expenses increased to 14.7% from 10.3% for
      the three months ended September 30, 2007 and 2006, respectively.





Other
      income for the three months ended September 30, 2007 was $174,839 as compared
      with $213,156 for the three months ended September 30, 2006. The change is
      primarily the result of a reduction in interest income of approximately $45,400,
      an increase in interest expense of approximately $20,200 offset by a reduction
      in the impact of foreign currency exchange losses by $27,300.




We
      experienced a net loss of $1,312,467 compared with net income of $391,487 for
      the three months ended September 30, 2007 and 2006, respectively.  The
      net loss for the three months ended September 30, 2007 was caused by decreased
      revenues of approximately $310,000, $950,000 of higher personnel and related
      costs associated with a 10% increase in personnel to 129 from 117, Sarbanes
      Oxley consulting costs of approximately $29,500, an increase of $81,000 in
      legal
      costs related to a patent infringement lawsuit (see Part II – Item 1), CEO
      transition costs of $44,000 and higher accounting and tax costs of
      $50,000.


25


*Nine
      Months Ended September 30, 2007 Compared to Nine Months Ended September 30,
      2006*




Net
      service revenues increased 18.7% to
      $13,417,556 for the nine months ended September 30, 2007, as compared to
      $11,305,916 for the nine months ended September 30, 2006.  The
      increase in net service revenues is primarily the result of timing and size
      of
      new clinical project deployments in process during the period.





Reimbursable
      out-of-pocket revenues and corresponding expenses increased to $3,490,716 from
      $2,324,353 for the nine months ended September 30, 2007 and 2006,
      respectively.  This increase is primarily the result of higher diary
      hardware costs related to new electronic patient diary trials that commenced
      during the nine months ended September 30, 2007.




Costs
      of
      revenues increased 36.8% to $6,704,394 from $4,899,766 for the nine months
      ended
      September 30, 2007 and 2006, respectively.  This increase was
      primarily the result of higher personnel costs, which increased at a higher
      rate
      than net service revenues.  As a percentage of net service revenues,
      costs of revenues increased to 50.0% from 43.3% for the nine months ended
      September 30, 2007 and 2006, respectively, primarily due to the timing and
      size
      of new clinical project deployments in process during the period and higher
      personnel costs.




Sales
      and
      marketing costs increased 42.1% to $3,634,983 from $2,558,754 for the nine
      months ended September 30, 2007 and 2006, respectively.  This increase
      was primarily the result of increased personnel, travel and marketing
      costs.  As a percentage of net service revenues, sales and marketing
      costs were 27.1% and 22.6% for the nine months ended September 30, 2007 and
      2006, respectively.




General
      and administrative costs increased by 58.8% to $5,655,144 from $3,560,550 for
      the nine months ended September 30, 2007 and 2006, respectively.  This
      increase was primarily the result of a $648,000 increase in non-cash stock-based
      compensation expense ($325,000 of which related to CEO transition costs related
      to severance), CEO transition costs of $505,000 for severance, recruiting fee
      and other costs, costs associated with being a public company including
      approximately $143,000 in Sarbanes Oxley consulting costs and approximately
      $468,000 in increased legal costs primarily related to a patent infringement
      lawsuit.  As a percentage of net service revenues, general and
      administrative expenses were 42.1% and 31.5% for the nine months ended September
      30, 2007 and 2006, respectively.




Amortization
      of intangible assets consists of amortization of acquired software technologies
      over their estimated useful life of three years. These costs were $15,199 and
      $77,018 for the nine months ended September 30, 2007 and 2006,
      respectively.




Research
      and development costs increased by 16.7% to $1,609,898 from $1,379,275 for
      the
      nine months ended September 30, 2007 and 2006, respectively due to increased
      development efforts. The increase was primarily attributable to increased
      personnel costs related to contractors used to assist research and development
      efforts for our new electronic data capture technology - EDC 2.0.  As
      a percentage of net service revenues, research and development expenses were
      12.0% and 12.2% for the nine months ended September 30, 2007 and 2006,
      respectively.





Other
      income for the nine months ended September 30, 2007 was $618,070 as compared
      with $574,531 for the nine months ended September 30, 2006. The change is
      primarily the result of an increase in interest income offset by higher interest
      costs and foreign currency exchange losses.




We
      experienced a net loss attributable to common stockholders’ of $3,583,992
      compared with a net loss of $1,720,885 for the nine months ended September
      30,
      2007 and 2006, respectively.  The net loss for the nine months ended
      September 30, 2007 was negatively impacted by higher personnel costs and related
      costs associated with a 10% increase in personnel to 129 from 117, an increase
      of $648,000 in non-cash stock-based compensation expense ($325,000 of which
      related to CEO transition costs related to severance), other CEO transition
      costs for severance, recruiting fee and other costs of $505,000, costs
      associated with being a public company including Sarbanes Oxley costs of
      $143,000, and approximately $468,000 of increased legal costs primarily related
      to a patent infringement lawsuit (see Part II – Item 1). We expect patent
      litigation costs will continue to increase during the remainder of
      2007.  The net loss attributable to the nine months ended September
      30, 2006 was impacted by $1.1 million in preferred stock dividends and an
      induced conversion of common stock warrants.





26


***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
      September 30, 2007 we had cash, cash equivalents and short-term investments
      of
      approximately $18.1 million.  Our cash, cash equivalents and
      short-term investments decreased by approximately $1.9 million during the nine
      months ended September 30, 2007 primarily due to the net loss incurred during
      the period.





In
      the
      nine months ended September 30, 2007 and 2006 operating activities used
      approximately $2.8 million and $0.7 million, respectively.  Non-cash
      items included in operating activities for the nine months ended September
      30,
      2007 and 2006 were $2.1 million and $1.4 million, respectively. The increase
      in
      net cash used in operating activities was primarily due to the increased net
      loss and an increase in accounts receivable, prepaid and non-cash expenses
      and
      inventory partially offset by an increase in accounts payable, deferred revenue
      and accrued expenses.





In
      the
      nine months ended September 30, 2007 and 2006, investing activities provided
      approximately $4.7 million and used approximately $8.5 million of net cash,
      respectively.  The increase is primarily attributable to the net sales
      of $5.4 million of short-term investment in 2007 as compared to $7.9 million
      of
      net purchases in the prior period.  The Company has capitalized
      $265,486 and $316,716 of internal software development costs during the nine
      months ended September 30, 2007 and 2006, respectively.




In
      the
      nine months ended September 30, 2007 approximately $1.6 million of net cash
      was
      provided by financing activities, as compared to approximately $20.5 million
      in
      the nine months ended September 30, 2006.  The decrease was primarily
      the result of the net cash received in connection with the CEA merger in 2006
      offset by $1.5 million in net borrowings during the first nine months of
      2007.




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, short-term investments, and cash provided by operating
      activities and our debt facilities will be sufficient to meet our working
      capital and capital expenditure needs over the next twelve months. 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.





Our
      backlog was approximately $18.7 million at September 30, 2007 compared to $17.7
      million at December 31, 2006 and $20.7 million at September 30, 2006. Our
      backlog includes both projects covered by contracts and projects for which
      customers have provided written confirmation that they have decided to award
      contracts or work orders to us for a specific project.  The increase
      in backlog since December 31, 2006 is primarily the result of an increase in
      new
      project bookings during the period (approximately $15.5 million of new project
      bookings during the first nine months of 2007 compared to $13.0 million during
      the same period in 2006) and a decrease in project cancellations experienced
      in
      2007 as compared to 2006 (approximately $1.1 million of cancellations during
      the
      first nine months of 2007 compared to $9.4 million during the same period of
      2006) offset by higher revenues recognized during the period.  Project
      cancellations, which can be made by customers without penalty, are a normal
      part
      of the clinical research services industry and occur for a variety of reasons
      outside our control.  Some examples of reasons for cancellations are
      noted below:


27





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


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


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


·
            Adverse
                and serious adverse reactions to the study
                drug;


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


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





***Contractual
      Obligations***




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




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 September 30, 2007,
      the future minimum payments under these commitments were as
      follows:





**Periods
                  Ending December 31,**
              
              **Capital
                  Leases**
              
              
              **Operating
                  Leases**2007
                  (last three months)
              
              $
              114,991
              
              
              $
              223,2622008
              
              
              459,965
              
              
              
              855,3342009
              
              
              26,642
              
              
              
              626,3272010
              
              
              122
              
              
              
              613,4142011
              
              
              -
              
              
              
              422,2502012
              
              
              -
              
              
              
              391,2522013
                  and thereafter
              
              
              -
              
              
              
              99,646Total
                  required lease payments
              
              $
              601,720
              
              
              $
              3,231,485Less
                  interest included
              
              
              (46,782
              )
              
              
              -Total
                  minimum payments
              
              
              554,938
              
              
              $
              3,231,485Current
                  portion of capital lease
              
              
              419,673Long
                  term portion of capital lease
              
              $
              135,265





On
      February 1, 2005, the Company entered into two loan agreements with RBC
      Centura Bank. These loan agreements were modified on May 31, 2006 when a third
      loan agreement was added and on May 31, 2007 when a fourth loan agreement was
      added.    The first agreement is a $2,000,000 revolving
      accounts receivable line of credit which provides for borrowings up to 80%
      of
      current accounts receivable balance at the prime rate of interest plus
      0.25%.  This line of credit has $1,814,000 outstanding at September
      30, 2007 and these borrowings are secured primarily by accounts
      receivable.  The second agreement is a $300,000 equipment line of
      credit which has $50,000 outstanding as of September 30, 2007.  This
      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 are
      being paid over a period of thirty months. The third agreement is a $500,000
      equipment loan which has $455,388 outstanding as of September 30, 2007.
      Borrowings under this equipment loan are being paid over a period of thirty-nine
      months at the bank’s prime rate of interest plus 0.75%. The fourth agreement is
      a $500,000 equipment line of credit. This loan will be available to fund
      equipment purchases and provides for interest at the bank’s prime rate of
      interest plus 0.75%. Borrowings under the equipment line of credit, if any,
      will
      be paid over a period of thirty-nine months. The Company has not had any
      borrowings under this equipment loan as of September 30, 2007.  The
      capital equipment borrowings are secured by the fixed assets that were
      acquired.




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.


28





***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 Annual Report on
      Form 10-KSB filed on March 30, 2007, which could materially affect our business,
      financial condition or future results. The risks described in that Form 10-KSB
      are not the only risks facing our Company. Additional risks and uncertainties
      not currently known to us or that we currently deem to be immaterial also may
      materially adversely affect our business, financial condition and/or operating
      results.





A
      company
      brought a patent infringement action against us in July 2006.  See
      Item 1 of Part II of this Report.  We expect to incur substantial
      litigation costs during the remainder of 2007 as this case has moved into the
      discovery phase on May 1, 2007.  Although we have, and continue to,
      discuss resolution of the litigation, we intend to vigorously defend our rights
      in this case.  Many patents have been issued in our industry, some of
      which have been asserted in litigation. We expect intellectual property disputes
      and related litigation costs will be an ongoing risk to us.  The risks
      that are most likely to cause unexpected adverse quarterly operating performance
      affects include project delays 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:





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





29





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**




An
      evaluation of the effectiveness of both our disclosure controls and procedures
      and of our internal control over financial reporting as of September 30, 2007
      was made under the supervision and with the participation of management,
      including our chief executive officer and chief financial
      officer.  The evaluations of our disclosure controls and procedures
      and our internal control over financial reporting include a review of the
      objectives, design and operation of the controls and the effect of the controls
      on the information generated for use in this Annual Report.





Based
      on
      that evaluation, we concluded that our disclosure controls and procedures are
      effective as of the end of the period covered by this report to ensure that
      information required to be disclosed by us in reports that we file or submit
      under the Securities Exchange Act of 1934 is recorded, processed, summarized
      and
      reported within the time periods specified in Securities and Exchange Commission
      rules and forms.




During
      2007, we are continuing to enhance Company-wide policies and procedures intended
      to reasonably assure consistent and appropriate assessment and application
      of
      generally accepted accounting principles. We have also retained consultants
      and
      are recruiting additional experienced accounting personnel in order to
      strengthen our internal controls and enable the Company to implement Sarbanes
      Oxley compliance by the currently required management compliance date of
      December 31, 2007.




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





30


**PART
      II – OTHERINFORMATION**





**Item
      1.  LegalProceedings.**





The
      Company is not a party to any pending legal proceeding other than routine
      litigation that is incidental to our business, except as follows:





On
      July
      17, 2006, Datasci, LLC filed a complaint against us in the U.S. District Court
      for the Baltimore District of Maryland (Civil Action No.
      MJG06CV1818).  The complaint alleges infringement of United States
      Patent No. 6,496,827 entitled “Methods and Apparatus for the Centralized
      Collection and Validation of Geographically Distributed Clinical Study Data
      with
      Verification of Input Data to the Distributed System”.  The Company
      intends to vigorously defend its rights.  Discovery in the case began
      on May 1, 2007, and a trial date has not yet been scheduled.  There
      can be no assurance as to the outcome of this case.  The parties have
      been, and continue to, discuss possible resolution of the litigation and any
      potential settlement may be material to the Company's financial
      statements.  There can be no assurance these discussions will result
      in a settlement.





**Item
      2.  UnregisteredSales 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 and exercises in the normal course of the Company’s
      business.





**Item
      3.  DefaultsUpon Senior
      Securities.**





None.





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





None.





**Item
      5.  OtherInformation.**





None.





**Item
      6.  Exhibits**





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





31




**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.November
                13, 2007
            
            By:
            /s/
                EUGENE E. JENNINGS
              
              Eugene
                E. Jennings
              President,
                Chief Executive Officer and Director (Principal Executive
                Officer)November
                13, 2007
            
            By:
            /s/
                JAMES W. CLARK, JR.
              
              James
                W. Clark, Jr.
              Chief
                Financial Officer (Principal Accounting and Financial
                Officer)






























32


**EXHIBITINDEX**


**Exhibit**
            
            **Description**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).10.47
            
            2005
                Performance Equity Plan as Amended through September 7,
                2007*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*


*Filed
      herewith.












33