UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549









Amendment
No. 1 to


FORM
10-Q/A




ý
      QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended March  31, 2008oro
      TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




Commission
File Number: 000-50531







ETRIALS
WORLDWIDE, INC.


(Exact
name of registrant 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
              ( Registrant’s
      telephone number, including area
code )








Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past
90 days.    Yes  x    No   ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
  Large accelerated filer
              
               ̈
              
              Accelerated filer
              
               ̈Non-accelerated
      filer
              
               ̈  (Do
      not check if a smaller reporting company)
              
              Smaller reporting company
              
              x
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).    Yes   ̈    No  x
  The
number of shares outstanding of the Registrant’s common stock as of
November 12 , 2008 was approximately
10,892,853.












ETRIALS
WORLDWIDE, INC.


QUARTERLY
REPORT ON FORM 10-Q/A


FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2008




EXPLANATORY
NOTE
 
  This
Quarterly Report on Form 10-Q/Ais filed as Amendment 1 to the Quarterly Report on Form 10-QSB for the
quarter ended March 31,2008 filed by etrials Worldwide, Inc. on May 13, 2008
(the "Quarterly Report"). The sole purpose of this amendment is to file as a
Form 10-Q and to comply with the requirements in Release No. 33-8876: "Smaller
Reporting Company Regulatory Relief and Simplification." etrials Worldwide, Inc.
is qualified to file as a Smaller Reporting Company.
 
 This
amendment does not change any previously reported financial statements and
related footnotes in the previously filed Quarterly Report or reflect any events
occurring after the date of filing of the Quarterly
Report.




Table
of Contents




PagePart
      I – FINANCIAL INFORMATIONItem
      1.
            
            Financial
      StatementsConsolidated
      Balance Sheets as of March 31, 2008 (unaudited) and December 31,
      2007
            
            3Consolidated
      Statements of Operations (unaudited) for the three months ended March 31,
      2008 and 2007
            
            4Consolidated
      Statements of Stockholders’ Equity (unaudited) for the three months ended
      March 31, 2008
            
            5Consolidated
      Statements of Cash Flows (unaudited) for the three months ended March 31,
      2008 and 2007
            
            6Notes
      to Consolidated Financial Statements (unaudited)
            
            7Item
      2.
            
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            15Item
      3.
            
            Quantitative
      and Qualitative Disclosure about Market Risk
            
            23Item
      4 .
            
            Controls
      and Procedures
            
            23Part
      II – OTHER INFORMATIONItem
      1.
            
            Legal
      Proceedings
            
            24Item
      1A.
            
            Risk
      FactorsItem
      2.
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            24Item
      3.
            
            Defaults
      Upon Senior Securities
            
            24Item
      4.
            
            Submission
      of Matters to a Vote of Security Holders
            
            24Item
      5.
            
            Other
      Information
            
            24Item
      6.
            
            Exhibits
            
            24Signatures
            
            25Exhibit
      Index
            
            26






2




PART
I – Financial  Information




Item
      1.  Financial Statementsetrials
      Worldwide, Inc.Consolidated
      Balance SheetsMarch
      31,
              
              
              December
      31,2008
              
              
              2007(unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              13,741,468
              
              
              $
              13,792,508Short-term
      investments
              
              
              750,217
              
              
              
              1,448,526Accounts
      receivable, net of allowancesof
      $282,891 and $156,500, respectively
              
              
              5,888,856
              
              
              
              5,310,648Inventory
              
              
              460,819
              
              
              
              554,430Prepaid
      expenses and other current assets
              
              
              516,957
              
              
              
              330,082Total
      current assets
              
              
              21,358,317
              
              
              
              21,436,194Property
      and equipment, net of accumulated depreciation of$4,379,602
      and $4,046,551, respectively
              
              
              2,069,539
              
              
              
              2,015,762Goodwill
              
              
              8,011,037
              
              
              
              8,011,037Other
      assets
              
              
              119,538
              
              
              
              119,538Total
      assets
              
              $
              31,558,431
              
              
              $
              31,582,531Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts
      payable
              
              $
              1,150,292
              
              
              $
              720,243Accrued
      expenses
              
              
              1,685,530
              
              
              
              1,747,257Deferred
      revenue
              
              
              2,541,928
              
              
              
              1,705,544Bank
      line of credit and other short-term borrowings
              
              
              1,946,667
              
              
              
              1,312,667Current
      portion of capital lease obligations
              
              
              333,075
              
              
              
              429,789Total
      current liabilities
              
              
              7,657,492
              
              
              
              5,915,500Capital
      lease obligations, net of current portion
              
              
              17,041
              
              
              
              23,956Long-term
      borrowings, net of current portion
              
              
              208,670
              
              
              
              250,337Total
      liabilities
              
              
              7,883,203
              
              
              
              6,189,793Commitments
      and contingenciesStockholders'
      equity:Common
      stock; $0.0001 par value; 50,000,000 shares authorized atMarch
      31, 2008 and December 31, 2007; and 11,322,252 and12,579,701
      issued and outstanding at March 31, 2008 andDecember
      31, 2007, respectively
              
              
              1,132
              
              
              
              1,258Additional
      paid-in capital
              
              
              55,617,769
              
              
              
              55,301,138Deferred
      compensation
              
              
              (15,458
              )
              
              
              (18,927
              )Accumulated
      deficit
              
              
              (31,928,215
              )
              
              
              (29,890,731
              )Total
      stockholders' equity
              
              
              23,675,228
              
              
              
              25,392,738Total
      liabilities and stockholders' equity
              
              $
              31,558,431
              
              
              $
              31,582,531See
      accompanying notes.


3




etrials
      Worldwide, Inc.Consolidated
      Statements of Operations(unaudited)Three
      Months Ended March 31,2008
              
              
              2007Net
      service revenues
              
              $
              3,708,209
              
              
              $
              4,077,008Reimbursable
      out-of-pocket revenues
              
              
              587,632
              
              
              
              644,847Total
      revenues
              
              
              4,295,841
              
              
              
              4,721,855Costs
      and expenses:Costs
      of revenues
              
              
              2,581,653
              
              
              
              2,176,303Reimbursable
      out-of-pocket expenses
              
              
              587,632
              
              
              
              644,847Sales
      and marketing
              
              
              1,146,426
              
              
              
              1,171,885General
      and administrative
              
              
              1,451,048
              
              
              
              1,472,475Research
      and development
              
              
              645,903
              
              
              
              418,179Amortization
      of intangible assets
              
              
              -
              
              
              
              11,398Total
      costs and expenses
              
              
              6,412,662
              
              
              
              5,895,087Operating
      loss
              
              
              (2,116,821
              )
              
              
              (1,173,232
              )Other
      income (expenses):Interest
      expense
              
              
              (46,266
              )
              
              
              (19,330
              )Interest
      income
              
              
              137,008
              
              
              
              253,895Other
      expense, net
              
              
              (11,405
              )
              
              
              (1,489
              )Total
      other income, net
              
              
              79,337
              
              
              
              233,075Net
      loss
              
              $
              (2,037,484
              )
              
              $
              (940,157
              )Net
      loss per share attributable to common stockholders:Basic
      and diluted
              
              $
              (0.19
              )
              
              $
              (0.09
              )Weighted
      average common shares outstanding:Basic
      and diluted
              
              
              10,973,575
              
              
              
              10,729,884See
      accompanying notes.








4


etrials
      Worldwide, Inc.Consolidated
      Statements of Stockholders' Equity(unaudited)AdditionalCommon
      Stock
              
              
              Paid-In
              
              
              Deferred
              
              
              Accumulated
              
              
              Stockholders’Shares
              
              
              Amount
              
              
              Capital
              
              
              Compensation
              
              
              Deficit
              
              
              EquityBalance
      at December 31, 2007
              
              
              12,579,701
              
              
              $
              1,258
              
              
              $
              55,301,138
              
              
              $
              (18,927
              )
              
              $
              (29,890,731
              )
              
              $
              25,392,738Stock-based
      compensation recorded in accordance with SFAS 123R
              
              
              -
              
              
              
              -
              
              
              
              267,041
              
              
              
              -
              
              
              
              -
              
              
              
              267,041Amortization
      of deferred stock-based compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,469
              
              
              
              -
              
              
              
              3,469Cancellation
      of trigger shares
              
              
              (1,566,250
              )
              
              
              (157
              )
              
              
              157
              
              
              
              -
              
              
              
              -
              
              
              
              -Issuance
      of restricted common stock
              
              
              306,045
              
              
              
              31
              
              
              
              44,114
              
              
              
              -
              
              
              
              -
              
              
              
              44,145Exercise
      of employee stock options
              
              
              2,756
              
              
              
              0
              
              
              
              5,319
              
              
              
              -
              
              
              
              -
              
              
              
              5,319Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,037,484
              )
              
              
              (2,037,484
              )Balance
      at March 31, 2008
              
              
              11,322,252
              
              
              $
              1,132
              
              
              $
              55,617,769
              
              
              $
              (15,458
              )
              
              $
              (31,928,215
              )
              
              $
              23,675,228See
      accompanying notes.











5







etrials
      Worldwide, Inc.Consolidated
      Statements of Cash Flows(unaudited)Three
      Months Ended March 31,2008
              
              
              2007Operating
      activitiesNet
      loss
              
              $
              (2,037,484
              )
              
              $
              (940,157
              )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
      and amortization
              
              
              333,051
              
              
              
              299,789Accretion
      of discount on investments held-to-maturity
              
              
              -
              
              
              
              (4,707
              )Non-cash
      stock-based compensation expense
              
              
              314,655
              
              
              
              256,902Provision
      for allowance for doubtful accounts
              
              
              159,891
              
              
              
              7,000Foreign
      currency remeasurement losses
              
              
              -
              
              
              
              (1,069
              )Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (738,099
              )
              
              
              (233,586
              )Prepaid
      expenses and other assets
              
              
              (186,875
              )
              
              
              (220,549
              )Inventory
              
              
              93,611
              
              
              
              (641,604
              )Accounts
      payable and accrued expenses
              
              
              368,322
              
              
              
              935,681Deferred
      revenue
              
              
              836,384
              
              
              
              414,225Net
      cash used in operating activities
              
              
              (856,544
              )
              
              
              (128,075
              )Investing
      activitiesPurchase
      of property and equipment
              
              
              (386,829
              )
              
              
              (696,493
              )Capitalized
      internal software development costs
              
              
              -
              
              
              
              (173,842
              )Sales
      of short-term investments, net
              
              
              698,309
              
              
              
              2,290,000Net
      cash provided by investing activities
              
              
              311,480
              
              
              
              1,419,665Financing
      activitiesNet
      proceeds from bank line of credit
              
              
              654,000
              
              
              
              701,526Payments
      on bank equipment loan
              
              
              (61,666
              )
              
              
              (30,000
              )Principal
      payments on capital leases
              
              
              (103,629
              )
              
              
              (27,580
              )Proceeds
      from issuance of stock options
              
              
              5,319
              
              
              
              45,454Net
      cash provided by financing activities
              
              
              494,024
              
              
              
              689,400Net
      (decrease) increase in cash and cash equivalents
              
              
              (51,040
              )
              
              
              1,980,990Cash
      and cash equivalents at beginning of year
              
              
              13,792,508
              
              
              
              11,828,667Cash
      and cash equivalents at end of period
              
              $
              13,741,468
              
              
              $
              13,809,657See
      accompanying notes.


6





etrials
Worldwide, Inc.


Notes
to Consolidated Financial Statements (unaudited)





1.
Organization and Capitalization





etrials
Worldwide, Inc.




etrials
Worldwide, Inc. (“etrials” or the “Company”) is a 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.





Unaudited
Interim Financial Statements




The
accompanying consolidated balance sheet as of March 31, 2008, consolidated
statements of operations for the three months ended March 31, 2008 and 2007,
consolidated statements of cash flows for the three months ended March 31, 2008
and 2007 and consolidated statement of stockholders’ equity for the three months
ended March 31, 2008 are unaudited. The unaudited financial statements include
all adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of such financial
statements. The information disclosed in the notes to the financials statements
for these periods is unaudited. The results of operations for the three months
ended March 31, 2008 are not necessarily indicative of the results to be
expected for the entire fiscal year or for any future period.





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





2.
Summary of Significant Accounting Policies




Principles
of Consolidation




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





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.




Use
of Estimates




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





7


Revenue
Recognition




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




The
Company 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 March 31, 2008, the Company has not experienced any material
losses on uncompleted contracts.





The
following summarizes the components of the revenues recognized:





Three
      Months Ended March 312008
              
              
              2007Services
              
              $
              2,771,251
              
              
              $
              3,030,201Software
      subscriptions and usage fees
              
              
              633,642
              
              
              
              684,130Hosting
      fees
              
              
              303,316
              
              
              
              362,677Net
      service revenues
              
              
              3,708,209
              
              
              
              4,077,008Reimbursable
      out-of-pocket revenues
              
              
              587,632
              
              
              
              644,847Total
              
              $
              4,295,841
              
              
              $
              4,721,855




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.





8


Cash,
Cash Equivalents and Short-term Investments




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





Foreign
Currency




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




Goodwill




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





Net
Loss Per Common Share




Basic and
diluted loss per common share was determined by dividing net loss 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:




March
      312008
              
              
              2007Unvested
      restricted common stock
              
              
              346,670
              
              
              
              -Unit
      purchase options
              
              
              350,000
              
              
              
              1,050,000Stock
      options outstanding
              
              
              2,815,314
              
              
              
              2,794,744Warrants
      outstanding
              
              
              -
              
              
              
              12,350,000





In
addition, the 1,566,250 shares of common stock held in escrow as of March 31,
2007 in connection with the reverse acquisition of CEA have been excluded from
the computation of basic and diluted loss per share in accordance with SFAS
128.  These shares were cancelled on February 11, 2008.







9


3. Cash, Cash Equivalents and
Short-term Investments





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




March
      31
              
              
              December
      312008
              
              
              2007Cash
              
              $
              475,330
              
              
              $
              371,581Money
      market
              
              
              10,077,098
              
              
              
              10,534,730U.S.
      agency notes
              
              
              968,496
              
              
              
              689,598Corporate
      bonds
              
              
              2,220,544
              
              
              
              2,196,599Total
      cash and cash equivalents
              
              $
              13,741,468
              
              
              $
              13,792,508U.S.
      agency notes
              
              $
              250,235
              
              
              $
              399,407Corporate
      bonds
              
              
              499,982
              
              
              
              1,049,119Total
      short-term investments
              
              $
              750,217
              
              
              $
              1,448,526




4.
Accounts Receivable




Accounts
receivable consists of the following:





March
      31
              
              
              December
      312008
              
              
              2007Billed
      accounts receivable
              
              $
              4,115,660
              
              
              $
              3,344,477Unbilled
      accounts receivable
              
              
              2,056,087
              
              
              
              2,122,671Total
      accounts receivable
              
              
              6,171,747
              
              
              
              5,467,148Allowance
      for doubtful accounts
              
              
              (282,891
              )
              
              
              (156,500
              )$
              5,888,856
              
              
              $
              5,310,648




The
reserve for doubtful accounts consists of the following:





March
      31
                
                
                December
      312008
                
                
                2007Reserve
      at beginning of period
                
                $
                156,500
                
                
                $
                22,000Additions
      charged to expense
                
                
                126,391
                
                
                
                134,500Reserve
      at end of period
                
                $
                282,891
                
                
                $
                156,500




5.
Accrued Expenses




Accrued
expenses consist of the following:




March 31
            
            
            December
      312008
            
            
            2007Accrued
      professional fees
            
            $
            26,408
            
            
            $
            171,941Accrued
      client reimbursable expenses
            
            
            445,899
            
            
            
            451,614Accrued
      other expenses
            
            
            690,094
            
            
            
            528,420Accrued
      compensation
            
            
            188,119
            
            
            
            312,619Accrued
      vacation
            
            
            335,010
            
            
            
            282,663$
            1,685,530
            
            
            $
            1,747,257


10


6.
Debt




Debt
consists of the following:




March 31
              
              
              December 312008
              
              
              2007Borrowings:Bank
      line of credit, with an interest rate of 5.5% and 7.5% at March 31, 2008
      and December 31, 2007, respectively
              
              $
              1,780,000
              
              
              $
              1,126,000Bank
      equipment loan, with an interest rate of 6.00% and 8.25% at March 31, 2008
      and December 31, 2007, respectively
              
              
              -
              
              
              
              20,000Bank
      equipment loan, with an interest rate of 6.00% and 8.0% at March 31, 2008
      and December 31, 2007, respectively
              
              
              375,337
              
              
              
              417,004Total
      borrowings
              
              
              2,155,337
              
              
              
              1,563,004Bank
      line of credit and other short-term borrowings
              
              
              1,946,667
              
              
              
              1,312,667Long-term
      borrowings, less current portion
              
              $
              208,670
              
              
              $
              250,337March 31
              
              
              December 312008
              
              
              2007Aggregate
      future maturities of long-term debt:2008
      (remaining nine months)
              
              $
              125,000
              
              
              $
              166,6672009
              
              
              83,670
              
              
              
              83,670Total
              
              $
              208,670
              
              
              $
              250,337




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 $1,780,000 outstanding as of March 31,
2008 and these borrowings are secured primarily by accounts receivable and other
corporate assets.  The second agreement is a $300,000 equipment line
of credit which was repaid during the three months ended March 31,
2008.  This loan funded equipment purchases and provides for interest
at the bank’s prime rate of interest plus 1.0%. Borrowings under the equipment
line of credit were paid over a period of thirty months. The third agreement is
a $500,000 equipment loan which has $375,337 outstanding as of March 31, 2008.
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 March 31, 2008.  The
capital equipment borrowings are secured primarily by the fixed assets that were
acquired.





7.
Contingencies and Guarantees




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







11




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





8.
Stockholders’ Equity




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




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




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




As of
March 31, 2008, the Company had reserved a total of 3,184,157 of its authorized
50,000,000 shares of common stock for future issuance as follows:




March
      31
              
              
              December
      312008
              
              
              2007Unit
      purchase options
              
              
              350,000
              
              
              
              1,050,000Stock
      options outstanding
              
              
              2,815,314
              
              
              
              2,754,703Reserved
      for future stock option grants
              
              
              18,843
              
              
              
              388,255Common
      stock warrants outstanding
              
              
              -
              
              
              
              12,350,000Total
      shares reserved for future issuance
              
              
              3,184,157
              
              
              
              16,542,958





9.
Stock Based Compensation





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




12


The
weighted-average assumptions utilized to determine the above values are
indicated in the following table:




Three
      Months Ended March 31,2008Expected
      dividend yield
            0%Expected
      volatility
            100%Risk-free
      interest rate
            2.5%Expected
      life (in years)
            4.00







During
the three months ended March 31, 2008, the Company recorded $314,655 of
stock-based compensation expense, of which $267,042 was related to options
issued subsequent to the adoption of SFAS No. 123R.  As of March
31, 2008, there was $2,239,316 of unrecognized compensation expense related to
non-vested share awards issued under SFAS No. 123R that is expected to be
recognized over a weighted-average period of 1.46 years.  Net cash
provided by operating and financing activities was unchanged for the period
ended March 31, 2008, 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
March 31, 2008, there was $15,458 of deferred compensation recorded related to
such options.




The
following summarizes the activity of the Plan for the three months ended March
31, 2008:





AverageWeighted
              
              
              Aggregate
              
              
              RemainingNumber
      of
              
              
              Average
              
              
              Intrinsic
              
              
              ContractualShares
              
              
              Exercise
      Price
              
              
              Value
              
              
              Term
      (years)Outstanding
      at December 31, 2007
              
              
              2,754,703
              
              
              $
              3.92Granted
              
              
              130,000
              
              
              
              2.44Exercised
              
              
              (2,756
              )
              
              
              1.93Canceled
              
              
              (66,633
              )
              
              
              3.31Outstanding
      at March 31, 2008
              
              
              2,815,314
              
              
              $
              3.87
              
              
              $
              5,794,433
              
              
              
              3.65Exercisable
      at March 31, 2008
              
              
              1,624,608
              
              
              $
              3.58
              
              
              $
              2,873,818
              
              
              
              3.25




The total
intrinsic value of options exercised during the three months ended March 31,
2008 and 2007 were $1,406 and $43,114, respectively.




10.  Income
      Taxes




The Company adopted the provisions of
FIN 48, an interpretation of the SFAS 109, Accounting for Income Taxes,on January 1, 2007.  As a result of the implementation of FIN
48, the Company recognized no material adjustment in the liability for
unrecognized income tax benefits.  At the adoption date of January 1,
2007 the Company had no unrecognized tax benefits which would affect the
Company’s effective tax rate.  At March 31, 2008, the Company had no
unrecognized tax benefits.




The Company recognizes interest and
penalties related to uncertain tax positions in the provision for income
taxes.  As of the date of adoption, January 1, 2007 and as of March
31, 2008, the Company had no accrued interest related to uncertain tax
positions.


13




The
Company has its tax years of 2003 – 2007 open to examination by federal tax and
2001 – 2007 for state tax jurisdictions.  The Company’s only foreign
subsidiary is in the United Kingdom and it has its tax years of 2005 – 2007 open
to examination.  The Company has not been informed by any tax
authorities for any jurisdiction that any of its tax years are under examination
as of March 31, 2008.




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 $31.0 million and $26.3 million at December 31, 2007 and
2006, respectively, expiring beginning in 2010. The Company has state net
operating losses of approximately $20.3 million and $15.6 million at
December 31, 2007 and 2006, 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 2007 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.




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 adoption of SFAS No. 157 did not have a material impact
on the Company’s consolidated financial position and results of
operations.




In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (SFAS 159). SFAS 159 permits entities
to choose to measure many financial assets and financial liabilities at fair
value. Unrealized gains and losses on items for which the fair value option has
been elected are reported in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company is currently assessing the
impact of SFAS 159 on its consolidated financial position and results of
operations.




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




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




14




Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations






The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited consolidated
financial statements and related notes that appear elsewhere in this Quarterly
Report on Form  10-Q . 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-Q ,
as well as in our Form 10-KSB filed on March 10, 2008.




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 124 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.





15


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




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




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




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




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




Services
provided for all three stages are generally on a fixed fee basis as per the
budget assumptions specified in the contract. If budget assumptions change,
etrials and the client generally agree to a change in scope amendment to the
contract. Revenues from services are recognized utilizing the proportional
performance method, measured principally by the total labor hours incurred as a
percentage of estimated total labor hours for each contract. This method is used
because management considers total labor hours incurred to be the best available
measure of progress on these contracts. The company records a loss for its
contracts at the point it is determined that the total estimated contract costs
will exceed management’s estimates of contract revenues. 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 ValueContract
      execution
            
            
            
            25%System
      deployment
            
            
            
            25%Study
      conduct
            
            
            
            40%Project
      close out
            
            
            
            10%Total
      Contract Value
            
            
            
            100%




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





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 the
functional area that it belongs to.




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





16


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, board fees, professional fees, other corporate expenses and allocated
overhead.




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




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





Foreign
Currency





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





Critical
Accounting Policies and Estimates




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




17


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




Revenue
Recognition




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




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




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




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




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




Provisions
for estimated losses on uncompleted contracts are made on a contract-by-contract
basis and are recognized in the period in which such losses become probable and
can be reasonably estimated. To date, we have not experienced any material
losses on uncompleted contracts.




18


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 March 312008
              
              
              2007Services
              
              $
              2,771,251
              
              
              $
              3,030,201Software
      subscriptions and usage fees
              
              
              633,642
              
              
              
              684,130Hosting
      fees
              
              
              303,316
              
              
              
              362,677Net
      service revenues
              
              
              3,708,209
              
              
              
              4,077,008Reimbursable
      out-of-pocket revenues
              
              
              587,632
              
              
              
              644,847Total
              
              $
              4,295,841
              
              
              $
              4,721,855





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





Accounting for Stock-Based
Compensation




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




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





Goodwill




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




19


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 March 31, 2008.





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 March 31, 2008, the Company had no
unrecognized tax benefits.




Results
of Operations




Three
Months Ended March 31, 2008 Compared to Three Months Ended March 31,
2007




Net
service revenues decreased 9.0% to $3,708,209 for the three months ended March
31, 2008 as compared to $4,077,008 for the three months ended March 31,
2007.  The decrease in revenues is primarily the result of the timing
and size of new clinical project deployments in process during the
period.  Since approximately 40% of a contract’s value is earned
during the start-up deployment phase of the clinical trial, the timing of new
project starts has a material impact on quarterly revenues.




Reimbursable out-of-pocket revenues and
corresponding expenses decreased to $587,632 from $644,847 for the three months
ended March 31, 2008 and 2007, respectively.  This decrease is
primarily the result of less diary hardware costs related to new electronic
patient diary trials commenced in the three months ended March 31,
2008.





Costs of
revenues increased 18.6% to $2,581,653 from $2,176,303 for the three months
ended March 31, 2008 and 2007, respectively.  This increase was
primarily the result of the number of operations personnel increasing by
approximately 5% to 78 from 74 as of March 31, 2008 and 2007,
respectively.  As a percentage of net service revenues, costs of
revenues increased to 69.6% from 53.4% for the three months ended March 31, 2008
and 2007, respectively.  This percentage increase is due to higher
costs and lower revenues during the period.




Sales and
marketing costs decreased 2.2% to $1,146,426 from $1,171,885 for the three
months ended March 31, 2008 and 2007, respectively.  This decrease was
primarily the result of reduced spending on marketing expenses offset partially
by increased spending on personnel and related costs as well as sales travel
related to the Company’s goal of increasing the personnel we devote to direct
sales and new contract bookings during 2008. As a percentage of net service
revenues, sales and marketing costs increased to 30.9% from 28.7% for the three
months ended March 31, 2008 and 2007, respectively.





General
and administrative costs decreased by 1.5% to $1,451,048 from $1,472,475 for the
three months ended March 31, 2008 and 2007, respectively.  This
decrease was primarily the result of eliminating patent infringement litigation
costs after settling litigation during November 2007.  As a percentage
of net service revenues, general and administrative expenses increased to 39.1%
from 36.1% for the three months ended March 31, 2008 and 2007,
respectively.




Amortization
of intangible assets consists of amortization of acquired software technologies
over their estimated useful life of three years. These costs were zero and
$11,398 for the three months ended March 31, 2008 and 2007,
respectively.  These costs declined since certain intangible assets
were fully amortized in early 2007.




Research
and development costs increased by 54.5% to $645,903 from $418,179 for the three
months ended March 31, 2008 and 2007, respectively.  The increase was
primarily attributable to the Company’s focus on concentrating research and
development resources on new automation tools to speed study development, which
resulted in no new capitalization of internal software development costs during
the quarter and higher costs of contractors retained to accelerate the
development of the automation tools.  As a percentage of net service
revenues, research and development expenses increased to 17.4% from 10.3% for
the three months ended March 31, 2008 and 2007, respectively.





20


Other
income for the three months ended March 31, 2008 was $79,337 as compared with
$233,075 for the three months ended March 31, 2007. The decrease is primarily
due to less interest income due to reduced cash investments and higher interest
expense due to increased utilization of the working capital line of
credit.




We
experienced a net loss of $2,037,484 compared with net loss of $940,157 for the
three months ended March 31, 2008 and 2007, respectively.  The net
loss for the three months ended March 31, 2008 was caused primarily by decreased
revenues, higher operating and research and development costs and lower net
other income.  These higher costs and lower net other income from the
first quarter of 2008 were partially offset by approximately $177,000 of legal
costs incurred during the three months ended March 31, 2007 related to a patent
infringement lawsuit, which was settled in November 2007.





Liquidity
and Capital Resources




Our
principal sources of cash have been from revenues from software
application-hosting and related services as well as from proceeds from the
issuance of various debt instruments and the sale of equity
securities.





At March
31, 2008 we had cash, cash equivalents and short-term investments of
approximately $14.5 million.  Our cash, cash equivalents and
short-term investments decreased by approximately $750,000 during the three
months ended March 31, 2008 primarily due to the operating loss.





In the
three months ended March 31, 2008 and 2007 operating activities used
approximately $857,000 and $128,000 of net cash, respectively.  The
increase in net cash used in operating activities was primarily due to the
increased net loss partially offset by an increase in non-cash items and net
operating assets and liabilities.





In the
three months ended March 31, 2008 and 2007, investing activities provided
approximately $311,000 and $1.4 million of net cash,
respectively.  The decrease is primarily attributable to the reduction
of net sales of short-term investments offset by reduced purchases of property
and equipment.  The Company has capitalized zero and $173,842 of
internal software development costs during the three months ended March 31, 2008
and 2007, respectively.




In the
three months ended March 31, 2008 and 2007, financing activities provided
approximately $494,000 and $689,000 of net cash, respectively.  The
decrease was primarily the result of less net cash received from equity sales
and borrowing offset by higher loan and lease principal payments.




We intend
to continue to fund the enhancement and expansion of the etrials eClinical
software technologies through both internal development and the acquisition of
additional complementary technologies in the future.  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 $20.3 million at March 31, 2008 compared to $19.2
million at December 31, 2007 and $19.8 million at March 31, 2007. 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, 2007 is primarily the result of new project bookings during
the first quarter of 2008 of approximately $4.8 million (as compared to $6.6
million during the first quarter of 2007) offset by approximately $48,000 of
project cancellations (as compared to $380,000 of cancellations during the first
quarter of 2007) and by net service revenues recognized of approximately $3.7
million during the first quarter of 2008 (as compared to approximately $4.1
million of net service revenues during the first quarter of
2007).  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:


21





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


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


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


·
              Adverse
      and serious adverse reactions to the study
drug;


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


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





Contractual
Obligations




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




On
February 1, 2005, the Company entered into two loan agreements with RBC
Centura Bank. These loan agreements were modified on May 31, 2006 when a third
loan agreement was added and on May 31, 2007 when a fourth loan agreement was
added.  The first agreement is a $2,000,000 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 $1,780,000 outstanding as of March 31,
2008 and these borrowings are secured primarily by accounts receivable and other
corporate assets.  The second agreement is a $300,000 equipment line
of credit which was repaid during the three months ended March 31,
2008.  This loan funded equipment purchases and provides for interest
at the bank’s prime rate of interest plus 1.0%. Borrowings under the equipment
line of credit were paid over a period of thirty months. The third agreement is
a $500,000 equipment loan which has $375,337 outstanding as of March 31, 2008.
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 March 31, 2008.  The
capital equipment borrowings are secured primarily 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.




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.





22


Certain
Factors Which May Affect Future Results




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




Forward
Looking Statements and Risks




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





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





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




•
            
            discuss
      future expectations;




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




•
            
            state
      other “forward-looking”
information.





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





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





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




Item
3.    Quantitative and Qualitative Disclosures about Market
Risk
  There
have been no material changes in market risk from the information provided at
the end of Item 6. "Management's Discussion and Analysis - Quantitative and
Qualitative Disclosures About Market Risk" in the registrant's Form 10-KSB as of
December 31, 2007.




Item
4.     Controls and Procedures




We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in the Exchange Act Rules
13a-15(e) and 15d-15(e)). Based on the foregoing evaluation, our principal
executive officer and principal financial officer have concluded that we had for
the period then ended ineffective disclosure controls and procedures at March
31, 2008 because we filed our quarterly report for the period then ended
pursuant to section 13 and 15(d) of the Securities and Exchange Act of 1934 on
Form 10-QSB, rather than filing the report on Form 10-Q. By filing the correct
form for the quarters ending June 30, 2008 and March 31, 2008, we have
remediated this deficiency.  The quarterly report, as amended, does
not change any previously reported financial statements and related footnotes
for the interim period ended March 31, 2008.


23








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





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





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





PART
II – OTHER INFORMATION





Item
1.  Legal Proceedings.





None.




Item 1A.RiskFactors.




Not required for
smaller reporting company.




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





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





Item
3.  Defaults Upon Senior Securities.





None.





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





None.





Item
5.  Other Information.





None.





Item
6.  Exhibits





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





24




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 12,
      2008
            
            By:
            /s/ CHARLES J.
      PICCIRILLO
              Charles
      J. Piccirillo
              Chief
      Executive Officer and Director (Principal Executive
      Officer)November  12
      , 2008
            
            By:
            /s/
      JOSEPH (JAY) F. TREPANIER III
                Joseph
      (Jay) F. Trepanier III
              Chief
      Financial Officer (Principal Accounting and Financial
      Officer)






























25


EXHIBIT
INDEX





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





*Filed
herewith.




























26