**UNITED
        STATES**
 **SECURITIES
          AND EXCHANGE COMMISSION**
 **Washington,
          D.C. 20549**
  
  **FORM
        10-QSB**
  **x**
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934****For
                  the quarterly period ended September 30, 2006****or****o**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
  **Commission
        File Number: 000-50531**
  
  **ETRIALS
        WORLDWIDE, INC.**
 (Exact
        name of small business issuer as specified in its charter)
  **Delaware**
                (State
                  or other jurisdiction of
                incorporation
                  or organization)
              
              **20-0308891**
                (I.R.S.
                  Employer
                Identification
                  No.)**4000
                  Aerial Center Parkway**
                **Morrisville,
                  North Carolina 27560**
                (Address
                  of principal executive offices)**(919) 653-3400**
                (Issuer’s
                  telephone number)Securities
                  registered pursuant to Section 12(b) of the Act:
                **None**
  Check
        whether the issuer (1) has filed all reports required to be filed by
        Section 13 or 15(d) of the Securities Exchange Act during the past
        12 months (or for such shorter period that the registrant was required to
        file such reports), and (2) has been subject to such filing requirements
        for the past 90 days.  **x** Yes    o No
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).  o Yes    x No
  
  **ETRIALS
        WORLDWIDE, INC.**
 **QUARTERLY
        REPORT ON FORM 10-QSB**
 **FOR
        THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006**
  **Table
        of Contents**
  **Page****Part
                  I - FINANCIAL INFORMATION**Item
                  1.
              
              Financial
                  StatementsConsolidated
                  Balance Sheets as of September 30, 2006
                  (unaudited) and December 31, 2005
              
              3Consolidated
                  Statements of Operations (unaudited) for the
                  three and nine months ended September 30, 2006 and 2005
              
              5Consolidated
                  Statements of Stockholders (Deficit) Equity
                  (unaudited) for the nine months ended September 30, 2006
              
              6Consolidated
                  Statements of Cash Flows (unaudited) for the
                  nine months ended September 30, 2006 and 2005
              
              7Notes
                  to Consolidated Financial Statements
                  (unaudited)
              
              8Item
                  2.
              
              Management’s
                    Discussion and
                    Analysis
              
              20Item
                  3.
              
              Controls
                  and Procedures
              
              31**Part
                  II - OTHER INFORMATION**Item
                  1.
              
              Legal
                  Proceedings
              
              31Item
                  2.
              
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              
              32Item
                  3.
              
              Defaults
                  Upon Senior Securities
              
              32Item
                  4.
              
              Submission
                  of Matters to a Vote of Security
                  Holders
              
              32Item
                  5.
              
              Other
                  Information
              
              32Item
                  6.
              
              Exhibits
              
              32Signatures
              
              33Exhibit
                  Index
              
              34
  2


**PART
      I – Financial
      Information**




**Item
      1.    Financial Statements**




**etrialsWorldwide,
      Inc.**


**Consolidated
      Balance Sheets**





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005****(unaudited)****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            13,025,276
            
            $
            1,650,323Short-term
                investments
            
            
            7,873,704
            
            
            —Accounts
                receivable, net of allowance for doubtful accounts of $41,000 and
                $45,000,
                respectively
            
            
            4,161,837
            
            
            2,510,279Prepaid
                expenses and other current assets
            
            
            465,489
            
            
            355,031Total
                current assets
            
            
            25,526,306
            
            
            4,515,633Property
                and equipment, net of accumulated depreciation of $2,855,479 and
                $2,251,765, respectively
            
            
            1,565,789
            
            
            1,397,407Goodwill
            
            
            8,011,037
            
            
            8,011,037Developed
                technology, net of accumulated amortization of $1,647,092 and $1,570,073,
                respectively
            
            
            26,598
            
            
            103,617Deferred
                acquisition costs
            
            
            —
            
            
            793,056Other
                assets
            
            
            95,622
            
            
            87,871Total
                assets
            
            $
            35,225,352
            
            $
            14,908,621





*See
      accompanying notes.*





3




**etrials
      Worldwide, Inc.**


**Consolidated
      Balance Sheets**


**(continued)**





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005****(unaudited)****Liabilities,
                Redeemable Convertible Preferred Stock****and
                Stockholders’ Equity (Deficit)**Current
                liabilities:Accounts
                payable
            
            $
            841,486
            
            $
            635,287Accrued
                expenses
            
            
            1,117,781
            
            
            1,142,861Deferred
                revenue
            
            
            2,077,940
            
            
            2,011,921Bank
                line of credit and other short-term borrowings
            
            
            933,319
            
            
            820,000Current
                portion of capital lease obligations
            
            
            99,019
            
            
            117,869Total
                current liabilities
            
            
            5,069,545
            
            
            4,727,938Capital
                lease obligations, net of current portion
            
            
            53,787
            
            
            121,329Long-term
                borrowings, net of current portion
            
            
            50,000
            
            
            140,000Total
                liabilities
            
            
            5,173,332
            
            
            4,989,267Commitments
                and contingenciesSeries
                A redeemable convertible preferred stock;$0.0001
                par value; 3,760,200 shares authorized at December 31, 2005, 2,752,616
                issued and outstanding at December 31, 2005, (aggregate liquidation
                value
                of $12,667,837 at December 31, 2005)
            
            
            —
            
            
            11,714,413Series
                B redeemable convertible preferred stock;$0.0001
                par value; 877,380 shares authorized at December 31, 2005, 257,668
                shares
                issued and outstanding at December 31, 2005, (aggregate liquidation
                value
                of $2,237,136 at December 31, 2005)
            
            
            —
            
            
            1,932,860Stockholders’
                equity (deficit)Common
                stock; $0.0001 par value; 50,000,000 and 10,027,200 shares authorized
                at
                September 30, 2006 and December 31, 2005, respectively, 12,401,125
                and
                3,471,792 shares issued and outstanding at September 30, 2006 and
                December
                31, 2005, respectively
            
            
            1,240
            
            
            335Additional
                paid-in capital
            
            
            53,848,618
            
            
            19,703,839Deferred
                compensation
            
            
            (117,875
            )
            
            (207,046
            )Prepaid
                software application-hosting discount
            
            
            —
            
            
            (140,000
            )Accumulated
                deficit
            
            
            (23,679,963
            )
            
            (23,085,047
            )Total
                stockholders’ equity (deficit)
            
            
            30,052,020
            
            
            (3,727,919
            )Total
                liabilities, redeemable convertible preferred stockand
                stockholders’ equity (deficit)
            
            $
            35,225,352
            
            $
            14,908,621





*See
      accompanying notes.*




4




**etrials
      Worldwide, Inc.**


**Consolidated
      Statements of Operations**


**(unaudited)**





**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                service revenues
            
            $
            4,445,492
            
            $
            3,175,190
            
            $
            11,305,916
            
            $
            10,436,973Reimbursable
                out-of-pocket revenues
            
            
            330,716
            
            
            90,038
            
            
            2,324,353
            
            
            379,555Total
                revenues
            
            
            4,776,208
            
            
            3,265,228
            
            
            13,630,269
            
            
            10,816,528Costs
                and expenses:Costs
                of revenues
            
            
            1,589,826
            
            
            1,440,515
            
            
            4,870,004
            
            
            4,516,054Reimbursable
                out-of-pocket expenses
            
            
            330,716
            
            
            90,038
            
            
            2,324,353
            
            
            379,555Sales
                and marketing
            
            
            792,610
            
            
            651,014
            
            
            2,558,754
            
            
            2,160,629General
                and administrative
            
            
            1,374,903
            
            
            662,169
            
            
            3,560,550
            
            
            2,372,980Amortization
                of intangible assets
            
            
            11,397
            
            
            139,873
            
            
            77,018
            
            
            419,617Research
                and development
            
            
            498,425
            
            
            430,237
            
            
            1,409,037
            
            
            1,129,990Total
                cost and expenses
            
            
            4,597,877
            
            
            3,413,846
            
            
            14,799,716
            
            
            10,978,825Operating
                income (loss)
            
            
            178,331
            
            
            (148,618
            )
            
            (1,169,447
            )
            
            (162,297
            )Other
                income (expenses):Interest
                expense
            
            
            (32,125
            )
            
            (8,664
            )
            
            (73,226
            )
            
            (38,216
            )Interest
                income
            
            
            274,613
            
            
            659
            
            
            634,522
            
            
            8,448Other
                (expense) income, net
            
            
            (29,332
            )
            
            23,896
            
            
            13,235
            
            
            41,108Total
                other income, net
            
            
            213,156
            
            
            15,891
            
            
            574,531
            
            
            11,340Net
                income (loss)
            
            
            391,487
            
            
            (132,727
            )
            
            (594,916
            )
            
            (150,957
            )Dividends
                and accretion of preferred stock
            
            
            —
            
            
            (288,207
            )
            
            (95,969
            )
            
            (864,621
            )Induced
                conversion of common stock warrants
            
            
            —
            
            
            —
            
            
            (1,030,000
            )
            
            —Net
                income (loss) attributable to common stockholders
            
            $
            391,487
            
            $
            (420,934
            )
            $
            (1,720,885
            )
            $
            (1,015,578
            )Net
                income (loss) per share attributable to common
                stockholders:Basic
            
            $
            0.04
            
            $
            (0.13
            )
            $
            (0.18
            )
            $
            (0.32
            )Diluted
            
            $
            0.03
            
            $
            (0.13
            )
            $
            (0.18
            )
            $
            (0.32
            )Weighted
                average common shares outstanding:Basic
            
            
            10,833,313
            
            
            3,211,279
            
            
            9,744,833
            
            
            3,165,482Diluted
            
            
            11,459,533
            
            
            3,211,279
            
            
            9,744,833
            
            
            3,165,482




5




**etrials
      Worldwide, Inc.**


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


**Nine
      Months Ended September 30, 2006**


**(unaudited)**





**Common
                  Stock****Shares**
              
              **Amount**
              
              **Additional
                  Paid-In**
                **Capital**
              
              **Deferred
                  Compensation**
              
              **Prepaid
                  Software Application Hosting**
                **Discount**
              
              **Accumulated
                  & Other Comprehensive**
                **Income
                  (Loss)**
              
              **Accumulated
                  Deficit**
              
              **Total**
                **Shareholders’**
                **(Deficit)**
                **Equity**Balance
                  at December 31, 2005
              
              
              3,471,792
              
              $
              335
              
              $
              19,705,689
              
              $
              (207,046
              )
              $
              (140,000
              )
              $
              (1,850
              )
              $
              (23,085,047
              )
              $
              (3,727,919
              )Amendment
                  to prepaid software application-hosting discount
              
              
              (81,793
              )
              
              4
              
              
              194,335
              
              
              -
              
              
              140,000
              
              
              -
              
              
              -
              
              
              334,339Dividends
                  and accretion of preferred stock
              
              
              -
              
              
              -
              
              
              (95,969
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (95,969
              )Conversion
                  of redeemable convertible preferred stock into common
                  stock
              
              
              3,395,369
              
              
              340
              
              
              13,742,904
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              13,743,244Issuance
                  of common stock to warrant holders for inducement
                  conversion
              
              
              157,512
              
              
              16
              
              
              (16
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercise
                  of employee stock options
              
              
              67,096
              
              
              6
              
              
              138,808
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              138,814Exercise
                  of common stock warrants
              
              
              491,149
              
              
              49
              
              
              64,313
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              64,362Issuance
                  of common stock in connection with reverse acquisition of CEA,
                  net of
                  acquisition costs
              
              
              4,900,000
              
              
              490
              
              
              19,634,459
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              19,634,949Amortization
                  of deferred compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              44,129
              
              
              -
              
              
              -
              
              
              -
              
              
              44,129Reversal
                  of employee stock compensation expense due to terminations
              
              
              -
              
              
              -
              
              
              (56,000
              )
              
              45,042
              
              
              -
              
              
              -
              
              
              -
              
              
              (10,958
              )Stock-based
                  compensation recorded in accordance with FAS 123R
              
              
              -
              
              
              -
              
              
              520,095
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              520,095Net
                  income (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (594,916
              )
              
              (594,916
              )Change
                  in cumulative translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,850
              
              
              -
              
              
              1,850Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (593,066
              )Balance
                  at September 30, 2006
              
              
              12,401,125
              
              $
              1,240
              
              $
              53,848,618
              
              $
              (117,875
              )
              $
              -
              
              $
              -
              
              $
              (23,679,963
              )
              $
              30,052,020




*See
      accompanying notes.*




6





**etrials
      Worldwide, Inc.**


**Consolidated
      Statements of Cash Flows**


**(unaudited)**




**Nine
                Months Ended September 30,****2006**
            
            **2005****Operating
                activities**Net
                loss
            
            $
            (594,916
            )
            $
            (150,957
            )Adjustments
                to reconcile net loss to net cash (used in) provided by operating
                activities:Depreciation
                and amortization
            
            
            564,543
            
            
            811,600Amortization
                of prepaid software application-hosting discount
            
            
            334,339
            
            
            396,666Non-cash
                stock-based compensation expense
            
            
            553,266
            
            
            12,208Provision
                for allowance for doubtful accounts
            
            
            (4,000
            )
            
            5,000Loss
                on sale of assets
            
            
            —
            
            
            941Unrealized
                gain on investments
            
            
            (17,131
            )
            
            —Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (1,647,558
            )
            
            (697,598
            )Prepaid
                expenses and other assets
            
            
            (101,890
            )
            
            (224,544
            )Accounts
                payable and accrued expenses
            
            
            181,119
            
            
            (38,846
            )Deferred
                revenue
            
            
            66,019
            
            
            260,176Net
                cash (used in) provided by operating activities
            
            
            (666,209
            )
            
            374,646**Investing
                activities**Purchase
                of property and equipment
            
            
            (335,286
            )
            
            (285,973
            )Capitalized
                internal software development costs
            
            
            (316,716
            )
            
            (135,864
            )Purchases
                of investments, net
            
            
            (7,856,573
            )
            
            —Net
                cash used in investing activities
            
            
            (8,508,575
            )
            
            (421,837
            )**Financing
                activities**Net
                payments on borrowings from stockholder
            
            
            —
            
            
            (727,990
            )Net
                proceeds from bank line of credit
            
            
            97,000
            
            
            516,000Proceeds
                from bank equipment loan
            
            
            —
            
            
            300,000Payments
                on bank equipment loan
            
            
            (90,000
            )
            
            (10,000
            )Principal
                payments on capital leases
            
            
            (91,023
            )
            
            (71,091
            )Payments
                of deferred merger costs
            
            
            —
            
            
            (199,415
            )Proceeds
                from issuance of stock options and warrants
            
            
            203,177
            
            
            2,000Proceeds
                from issuance of common stock in reverse acquisition of CEA, net
                of
                issuance costs
            
            
            20,428,005
            
            
            —Net
                cash provided by (used in) financing activities
            
            
            20,547,159
            
            
            (190,496
            )Effect
                of exchange rate changes on cash
            
            
            2,578
            
            
            (28,468
            )Net
                increase in cash and cash equivalents
            
            
            11,374,953
            
            
            (266,155
            )Cash
                and cash equivalents at beginning of year
            
            
            1,650,323
            
            
            1,706,649Cash
                and cash equivalents at end of year
            
            $
            13,025,276
            
            $
            1,440,494**Supplemental
                cash flow information**Cash
                paid for interest
            
            $
            73,557
            
            $
            61,147





*See
      accompanying notes.*




7


**etrials
      Worldwide, Inc.**


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





**1.
      Organization and Capitalization**





***etrials
      Worldwide, Inc.***





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





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





***CEA
      Acquisition Corporation***





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





***Merger
      and Accounting Treatment***





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





The
      shares of common stock held by etrials stockholders were converted into a total
      of 7,446,360 shares of CEA’s common stock, or approximately 60.3% of the
      subsequently outstanding common stock of the combined company. None of the
      shares of CEA common stock issued in the merger were tradable on the public
      market until August 9, 2006, after which shares became tradable in installments,
      subject to indemnification and other conditions. In connection with the merger,
      etrials stockholders also received warrants to purchase 4,300,000 shares of
      CEA
      common stock with an exercise price of $5.00 per share. The warrants issued
      in
      the merger are immediately tradable.





Upon
      consummation of the merger, $21.4 million was released from trust to be used
      by
      the combined company. After payments totaling approximately $1.1 million for
      professional fees and other costs related to the merger, the net proceeds
      amounted to $19.6 million. In connection with the merger, the Company incurred
      approximately $0.8 million of acquisition costs as of December 31, 2005, which
      was recorded within deferred acquisition costs in the accompanying consolidated
      balance sheet. The total direct and incremental costs of $1.1 million, incurred
      by the Company in connection with the merger was reflected as a reduction to
      additional paid-in capital as of the effective date of the merger.





8




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





***Induced
      Conversion of Common Stock Warrants***





In
      order
      to induce certain pre-merger common stock warrant holders to exercise their
      warrants concurrent with the reverse acquisition, the Company issued such
      warrant holders 157,512 shares of common stock and 73,073 warrants to purchase
      common stock with an aggregate fair value of $1,030,000. The Company accounted
      for the consideration allocated to these warrant holders as an induced
      conversion feature. Accordingly, the fair value of this consideration has been
      reflected as an increase to net loss in the computation of loss per common
      share
      in the accompanying consolidating statement of operations for the nine months
      ended September 30, 2006.





***Shares
      Held in Escrow***





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





***Unit
      Purchase Option***





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





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




In
      connection with the reverse acquisition of CEA in February 2006, all of the
      outstanding shares of Series A and Series B Redeemable Convertible Preferred
      Stock of etrials plus accrued dividends were converted into 3,395,369 shares
      of
      common stock and 1,945,741 warrants of the Company. The Company accreted an
      aggregate $95,969 and $864,621 for the nine months ended September 30, 2006
      and
      2005, respectively, of dividends related to its redeemable convertible preferred
      stock.





***Unaudited
      Interim Financial Statements***




The
      accompanying consolidated balance sheet as of September 30, 2006, consolidated
      statements of operations for the three and nine months ended September 30,
      2006
      and 2005, consolidated statements of cash flows for the nine months ended
      September 30, 2006 and 2005 and consolidated statement of stockholders’ equity
      (deficit) for the nine months ended September 30, 2006 are unaudited. The
      unaudited financial statements include all adjustments (consisting of normal
      recurring adjustments) which are, in the opinion of management, necessary for
      a
      fair presentation of such financial statements. The information disclosed in
      the
      notes to the financials statements for these periods is unaudited. The results
      of operations for the three and nine months ended September 30, 2006 are not
      necessarily indicative of the results to be expected for the entire fiscal
      year
      or for any future period.





9




**2.
      Summary of Significant Accounting Policies**




***Principles
      of Consolidation***




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





***Reclassifications***




Certain
      prior year balances have been reclassified to conform to the presentation of
      the
      current year. Such reclassifications had no effect on previously reported net
      loss or stockholders’ equity
      (deficit).




***Use
      of Estimates***




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




***Revenue
      Recognition***




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




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





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




The
      estimated total labor hours of contracts are reviewed and revised periodically
      throughout the duration of the contracts with an adjustment to revenues from
      such revisions being recorded on a cumulative basis in the period in which
      the
      revisions are made. When estimates indicate a loss, such loss is recognized
      in
      the current period in its entirety. Because of the inherent uncertainties in
      estimating total labor hours, it is reasonably possible that the estimates
      will
      change in the near term and could result in a material change. The Company
      records a loss for its contracts at the point it is determined that the total
      estimated contract costs will exceed management’s estimates of contract
      revenues. No such losses have been incurred to date.




10




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




The
      following summarizes the components of the revenues recognized:





**Three
                Months Ended September 30**
            
            **Nine
                Months Ended September 30****2006**
            
            **2005**
            
            **2006**
            
            **2005**Services
            
            $
            3,150,430
            
            $
            2,342,203
            
            $
            7,855,308
            
            $
            7,852,411Software
                  subscriptions and usage fees
            
            
            913,639
            
            
            585,980
            
            
            2,385,773
            
            
            1,833,623Hosting
                fees
            
            
            381,423
            
            
            247,007
            
            
            1,064,835
            
            
            750,939Net
                service revenues
            
            
            4,445,492
            
            
            3,175,190
            
            
            11,305,916
            
            
            10,436,973Reimbursable
                  out-of-pocket
                  revenues
            
            
            330,716
            
            
            90,038
            
            
            2,324,353
            
            
            379,555Total
            
            $
            4,776,208
            
            $
            3,265,228
            
            $
            13,630,269
            
            $
            10,816,528





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.




In
      connection with a software application-hosting agreement entered into on
      April 1, 2005, the Company issued to a customer 220,840 shares of the
      Company’s common stock with an estimated fair value of $1.26 million. Of the
      220,840 shares issued, 98,151 were vested immediately and the remaining 122,689
      shares of common stock were placed in escrow. In the event the customer
      terminated certain agreements during a three year period, all or part of the
      shares held in escrow would be forfeited. EITF 01-9, *Accounting
      for Consideration Given by a Vendor to a Customer (Including a Reseller of
      the
      Vendor’s Products),* requires
      that the value of the common stock be treated as a reduction to revenue. The
      fair value of the 98,151 shares of non-forfeitable common stock was recorded
      to
      common stock and additional paid-in capital and to prepaid software
      application-hosting discount, a contra-equity account. The prepaid software
      application-hosting discount was originally reduced on a straight-line basis
      over the three year term of the agreement, offsetting revenue generated under
      the agreement. In accordance with EITF Topic D-90, *Grantor
      Balance Sheet Presentation of Unvested, Forfeitable Equity Instruments Granted
      to a Non-employee,* the fair
      value of the 122,689 shares of forfeitable common stock held in escrow was
      treated as unissued for accounting purposes until the future services are
      provided and the shares are vested. Accordingly, the fair value of the 122,689
      shares of forfeitable common stock were originally recorded to additional
      paid-in-capital as the reduction to revenue is recorded on a straight-line
      basis
      over the three year term of the agreement. In accordance with EITF 96-18, *Accounting
      for Equity Instruments That Are Issued to Other than Employees for Acquiring,
      or
      in Conjunction with Selling Goods or Services,* the
      fair
      value of the common stock was remeasured at each interim reporting date during
      the three-year performance period with changes in fair value reflected as a
      cumulative adjustment. Effective February 8, 2006, etrials amended the software
      application-hosting agreement previously entered into with a customer on April
      1, 2005. Under the terms of the amendment, etrials released from escrow 40,897
      shares and terminated 81,792 shares of common stock, which were previously
      held
      in escrow, resulting in a total of 139,048 shares issued to this customer.
      As a
      result of this amendment, there are no longer any shares held in escrow and
      the
      shares issued are no longer subject to forfeiture should the customer terminate
      certain agreements. In conjunction with this application-hosting agreement
      the
      Company recorded as a discount to revenue $198,333 and $396,666 for the three
      and nine months ended September 30, 2005, respectively.  In conjunction
      with this amended software-application hosting agreement, the Company recorded
      a
      final reduction to revenues of $334,339 during the three months ended March
      31,
      2006, which reflects the fair value of the total shares of common stock issued
      to the customer as of February 8, 2006 less the discounts previously recorded.




11




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





***Internal
      Use Software and Website Development Costs***




The
      Company follows the guidance of EITF Issue No. 00-2, *Accounting
      for Web Site Development Costs,* which
      sets forth the accounting for website development costs based on the website
      development activity. The Company follows the guidance set forth in SOP
      No. 98-1, *Accounting
      for the Cost of Computer Software Developed or Obtained for Internal
      Use* (SOP
      No. 98-1), in accounting for the development of internal use software. SOP
      No. 98-1 requires companies to capitalize qualifying computer software
      costs, which are incurred during the application development stage and amortize
      them over the software’s estimated useful life of one to three years. The
      Company has capitalized $316,716 and $135,864 of internal software development
      costs during the nine months ended September 30, 2006 and 2005, respectively.




***Warranties
      and Indemnification***




The
      Company’s hosting service is typically warranted to perform in a manner
      consistent with general industry standards that are reasonably applicable and
      substantially in accordance with the Company’s online help documentation under
      normal use and circumstances. The Company’s arrangements also include certain
      provisions for indemnifying customers against liabilities if its products or
      services infringe on a third party’s intellectual property rights. The Company
      has not previously incurred costs to settle claims or pay awards under these
      indemnification obligations. The Company accounts for these indemnity
      obligations in accordance with Statement of Financial Accounting Standard (SFAS)
      No. 5, *Accounting
      for Contingencies,* and
      records a liability for these obligations when a loss is probable and reasonably
      estimable. The Company has not recorded any liabilities for these agreements
      as
      of September 30, 2006 or December 31, 2005.




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





***Cash
      and Cash Equivalents***




The
      Company accounts for its investments in accordance with SFAS No. 115, *Accounting
      for Certain Investments in Debt and Equity Securities* .
      The
      Company considers all highly liquid investments with original maturities of
      90 days or less at the time of purchase to be cash equivalents. The Company
      invests in high quality investments rated at least A2 by Moody’s Investors
      Service or A by Standard & Poors.





***Intangible
      Assets***




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





12




During
      April 2004, the Company entered into an Asset Purchase Agreement (the Purchase
      Agreement) with Authentrics, Inc. (Authentrics) whereby the Company
      acquired an interactive voice recognition system technology (Acquired
      Technology) and certain other assets in exchange for 24,538 shares of common
      stock with an estimated fair value of $60,000. In connection with the Purchase
      Agreement, the Company also entered into a services agreement with Authentrics.
      Pursuant to the terms of the services agreement, Authentrics agreed to provide
      certain consulting services related to the use, implementation, and deployment
      of the Acquired Technology in exchange for $360,000 of cash consideration.
      The
      portion of these services related to the installation and integration of the
      Acquired Technology into etrials technology platform totaled $72,000 and was
      capitalized as part of the Acquired Technology. The total cost of Acquired
      Technology of $132,000 is being amortized on a straight-line basis over its
      estimated useful life of three years. The Company recorded amortization expense
      of $77,018 and $419,617 for the nine months ended September 30, 2006 and 2005,
      respectively, related to its intangible assets.





***Long-Lived
      Assets***




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




***Goodwill***




The
      Company accounts for its goodwill in accordance with SFAS No. 142, *Goodwill
      and Other Intangible Assets* (SFAS
      No. 142). SFAS No. 142 requires the use of a non-amortization approach
      to account for purchased goodwill and certain intangibles. Under the
      non-amortization approach, goodwill and certain intangibles are not amortized
      into results of operations, but instead are reviewed for impairment at least
      annually and written down and charged to operations only in the periods in
      which
      the recorded value of goodwill and certain intangibles exceeds its fair value.
      The Company has elected to perform its annual impairment test as of
      November 1 of each calendar year. An interim goodwill impairment test would
      be performed if an event occurs or circumstances change between annual tests
      that would more likely than not reduce the fair value of a reporting unit below
      its carrying amount. For purposes of performing the goodwill impairment test,
      the Company has historically identified two reporting units, its United States
      operating segment and its United Kingdom operating segment, based on criteria
      specified in SFAS No. 142. Goodwill was allocated to these reporting units
      in proportion to the carrying values of the segments’ assets as of the date of
      acquisition. During the fourth quarter of 2005, the Company restructured the
      accounting and reporting structure for its international operations. As a result
      of this restructuring, the Company concluded that it now has one reporting
      unit
      for purposes of performing the goodwill impairment analysis as of November
      2005
      and subsequent thereto. During November 2005, the Company completed the required
      annual test, which indicated there was no impairment.




***Fair
      Value of Financial Instruments***




The
      Company’s financial instruments consist of cash and cash equivalents, accounts
      receivable, accounts payable and outstanding indebtedness. In management’s
      opinion, the carrying amount of these financial instruments approximates their
      fair values at September 30, 2006 and December 31, 2005, due to their short-term
      nature.





13




***Foreign
      Currency Translation***




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





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




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




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




**Three
                Months Ended**
              **September
                30**
            
            **Nine
                Months Ended**
              **September
                30****2006**
            
            **2005**
            
            **2006**
            
            **2005**Basic
                weighted average common shares outstanding
            
            
            10,833,313
            
            
            3,211,279
            
            
            9,744,833
            
            
            3,165,482Weighted
                average common equivalent shares
            
            
            626,220
            
            
            —
            
            
            —
            
            
            —Diluted
                weighted average common shares outstanding
            
            
            11,459,533
            
            
            3,211,279
            
            
            9,744,833
            
            
            3,165,482





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





**Three
                Months Ended****September 30**
            
            **Nine
                Months Ended**
              **September
                30****2006**
            
            **2005**
            
            **2006**
            
            **2005**Series
                A Preferred Stock
            
            
            —
            
            
            2,752,616
            
            
            —
            
            
            2,752,616Series
                B Preferred Stock
            
            
            —
            
            
            257,668
            
            
            —
            
            
            257,668Unit
                Purchase Options
            
            
            1,050,000
            
            
            —
            
            
            1,050,000
            
            
            —Stock
                Options outstanding
            
            
            1,500,307
            
            
            1,790,573
            
            
            2,784,166
            
            
            1,790,573Warrants
                outstanding
            
            
            12,350,000
            
            
            1,136,442
            
            
            12,350,000
            
            
            1,136,442




In
      addition, the 1,566,250 shares of common stock held in escrow as of September
      30, 2006 in connection with the reverse acquisition of CEA have been excluded
      from the computation of basic and diluted loss per share in accordance with
      SFAS
      128, *“Earnings
      Per Share.”*





14




***Stock
        Based Compensation***




In
      December 2004, the FASB issued SFAS No. 123 (revised 2004), *Share
      Based Payment* (SFAS 123R).
      SFAS 123R replaces SFAS 123 and supersedes APB 25 *.* SFAS 123R requires that the cost resulting from all share-based payment
      transactions be recognized in the financial statements using the fair value
      method. The provisions of SFAS 123R are effective for public entities that
      do not file as small business issuers as of the beginning of the first interim
      or annual reporting period that begins after June 15, 2005 (January 1,
      2006 for the Company). SFAS 123R requires the benefits of tax deductions in
      excess of recognized compensation cost to be reported as a financing cash flow,
      rather than as an operating cash flow. The Company will recognize excess tax
      benefits when those benefits reduce current income taxes payable. The Company
      recognizes compensation cost for awards with pro rata vesting using the straight
      line prorated method.




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





***Stock
      Option Plan***




The
      Company maintains an Equity Compensation Plan (the “Plan”) to provide incentives
      to eligible employees, officers, directors and consultants in the form of
      non-qualified stock options and, as permissible, incentive stock options. The
      Company has reserved a total of 3,200,000 shares of common stock for issuance
      under the Plan. Of this amount, 346,770 shares are available for future stock
      option grants as of September 30, 2006.




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




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





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





**September
                  30****2006**
            
            **December
                  31****2005**Cash
            
            $
            397,036
            
            $
            187,849Money
                market
            
            
            9,997,110
            
            
            1,462,474U.S.
                agency notes
            
            
            2,631,130
            
            
            —Total
                cash and cash equivalent
            
            $
            13,025,276
            
            $
            1,650,323Auction
                rate securities
            
            $
            6,325,000
            
            
            —Corporate
                bonds
            
            
            1,548,704
            
            
            —Total
                short-term investments
            
            $
            7,873,704
            
            $
            —




15




**4.
      Accounts Receivable**




Accounts
      receivable consists of the following:





****
            **September
                  30****2006**
            ****
            **December
                  31****2005**Billed
                accounts receivable
            
            $
            2,828,962
            
            $
            1,219,164Unbilled
                accounts receivable
            
            
            1,373,875
            
            
            1,336,115Total
                accounts receivable
            
            
            4,202,837
            
            
            2,555,279Allowance
                for doubtful accounts
            
            
            (41,000
            )
            
            (45,000
            )$
            4,161,837
            
            $
            2,510,279





**5.
      Accrued Expenses**




Accrued
      expenses consist of the following:




****
            **September 30****2006**
            ****
            **December
                  31**
                **2005**Accrued
                professional fees
            
            $
            60,793
            
            $
            172,717Accrued
                other expenses
            
            
            626,767
            
            
            440,999Accrued
                compensation
            
            
            137,623
            
            
            310,422Accrued
                vacation
            
            
            292,598
            
            
            218,723$
            1,117,781
            
            $
            1,142,861





**6.
      Debt**




Debt
      consists of the following:




****
            **September 30****2006**
            ****
            **December 31****2005**Borrowings:Bank
                line of credit, with an interest rate of 8.5% at September 30,
                2006
            
            $
            797,000
            
            $
            700,000Bank
                equipment loan, with an interest rate of 9.25% at September 30,
                2006
            
            
            170,000
            
            
            260,000Note
                payable, with an interest rate of 6.00%
            
            
            16,319
            
            
            —Total
                borrowings
            
            
            983,319
            
            
            960,000Bank
                line of credit and other short-term borrowings
            
            
            (933,319
            )
            
            (820,000
            )Long-term
                borrowings, less current portion
            
            $
            50,000
            
            $
            140,000





**Bank
      Line of Credit**




On
      February 1, 2005, the Company entered into two loan agreements with RBC
      Centura Bank, these loan agreements were modified on May 31, 2006 and a third
      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%. These
      borrowings are secured primarily by accounts receivable. The second agreement
      is
      a $300,000 equipment line of credit. This loan funds equipment purchases and
      provides for interest at the bank’s prime rate of interest plus 1.0%. Borrowings
      under the equipment line of credit are being paid over a period of thirty
      months. The third agreement is a $500,000 equipment line of credit. This loan
      funds 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-five months. The Company has not had any
      borrowings under this equipment loan. The capital equipment borrowings are
      secured by the fixed assets that were acquired.





16




**Note
      Payable**




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




**7.
      Contingencies**




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





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





**8.
      Stockholders’ Equity (Deficit)**




A
      summary
      of the Company’s outstanding and exercisable warrants as of September 30, 2006
      is as follows:




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




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




As
      of
      September 30, 2006, the Company had reserved a total of 16,530,936 of its
      authorized 50,000,000 shares of common stock for future issuance as follows:




Unit
                purchase options (See Note 1)
            
            
            1,050,000Stock
                options outstanding
            
            
            2,784,166Reserved
                for future stock option grants
            
            
            346,770Common
                stock warrants outstanding
            
            
            12,350,000Total
                shares reserved for future issuance
            
            
            16,530,936





17




**9.
      Stock Based Compensation**





Effective
      with the adoption of SFAS No. 123R, the Company has elected to use the
      Black-Scholes-Merton option pricing model to determine the weighted average
      fair
      value of options granted. The Company has a limited trading history for its
      common stock as it began trading on the NASDAQ National Market on February
      10,
      2006. Accordingly, the Company has determined the volatility for options granted
      in 2006 based on an analysis of reported data for a peer group of companies
      that
      have issued stock options with substantially similar terms. The expected life
      of
      options granted by the Company has been determined based upon the “simplified”
method as allowed under the provisions of the Securities and Exchange
      Commission’s Staff Accounting Bulletin No. 107 (“SAB 107”) and represents the
      period of time that options granted are expected to be outstanding. The
      risk-free interest rate is based on a treasury instrument whose term is
      consistent with the expected life of the stock options. The Company has not
      paid
      and does not anticipate paying cash dividends on its shares of common stock;
      therefore, the expected dividend yield is assumed to be zero. In addition,
      SFAS
      No. 123R requires companies to utilize an estimated forfeiture rate
      when calculating the expense for the period, whereas, SFAS No. 123
      permitted companies to record forfeitures based on actual forfeitures. As a
      result, using historical data among other factors, the Company has applied
      an
      estimated forfeiture rate of 5.18% in determining the expense recorded in the
      Company’s consolidated statement of operations.




The
      weighted average exercise price of options granted during the nine months ended
      September 30, 2006 and September 30, 2005, was $5.56 and $4.35, respectively.
      The weighted-average assumptions utilized to determine the above values are
      indicated in the following table:




**Nine
                Months Ended September 30****2006**
            
            **2005**Expected
                dividend yield
            
            
            0
            %
            
            0
            %Expected
                volatility
            
            
            100
            %
            
            0
            %Risk-free
                interest rate
            
            
            5.08
            %
            
            3.9
            %Expected
                life (in years)
            
            
            3.71
            
            
            7.00




During
      the nine months ended September 30, 2006, the Company recorded $553,356 of
      stock-based compensation expense, of which $520,095 was related to options
      issued subsequent to the adoption of SFAS No. 123R. The compensation
      expense recorded during the nine months ended September 30, 2006 reduced both
      basic and diluted earnings per share by $0.05. As of September 30, 2006, there
      was $2,967,170 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 3.71 years. Net cash provided by operating and
      financing activities was unchanged for the period ended September 30, 2006,
      since there were no excess tax benefits from stock-based compensation plans.
      The
      remaining stock-based compensation expense is due to the amortization of
      previously recorded deferred compensation, for stock options that have continued
      to be accounted for under APB Opinion No. 25 in accordance with the prospective
      transition method of SFAS 123R. As of September 30, 2006, there was $117,875
      of
      deferred compensation recorded related to such options.




The
      following summarizes the activity of the Plan for the nine months ended
      September 30, 2006:





****
            **Number
                  of****Shares**
            ****
            **Weighted**
                **Average**
                **Exercise
                  Price**
            ****
            **Aggregate****Intrinsic****Value**
            ****
            **Weighted****Average****Remaining**
                **Contractual**
                **Term
                  (yrs)**Outstanding
                at December 31, 2005
            
            
            1,756,376
            
            $
            2.37Granted
            
            
            1,315,415
            
            
            5.56Exercised
            
            
            (68,614
            )
            
            2.02Canceled
            
            
            (219,011
            )
            
            3.22Outstanding
                at September 30, 2006
            
            
            2,784,166
            
            $
            3.82
            
            $
            10,634,587
            
            
            5.77Exercisable
                at September 30, 2006
            
            
            1,214,304
            
            $
            2.38
            
            $
            2,887,259
            
            
            6.06Vested
                or expected to vest at September 30, 2006
            
            
            
            
            
            
            
            $
            3,105,296





18




The
      total
      intrinsic value of options exercised during the nine months ended September
      30,
      2006 was $175,438. There were no options exercised during the nine months ended
      September 30, 2005.





Selected
      information regarding stock options as of September 30, 2006 is as
      follows:




****
              **Options
                  Outstanding**
              ****
              **Options
                  Exercisable****Exercise
                  Price**
              ****
              **Number
                  of**
                **Shares**
              ****
              **Weighted**
                **Average**
                **Remaining**
                **Life**
                **(in
                  Years)**
              ****
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              ****
              **Number
                  of**
                **Shares**
              ****
              **Weighted**
                **Average**
                **Exercise**
                **Price**$
                  0.57 - $ 1.14
              
              
              56,498
              
              
              2.99
              
              $
              0.91
              
              
              56,498
              
              $
              0.91$
                  1.15 - $ 1.71
              
              
              159,441
              
              
              4.59
              
              
              1.63
              
              
              159,441
              
              
              1.63$
                  1.72 - $ 2.28
              
              
              1,067,920
              
              
              6.87
              
              
              2.02
              
              
              827,819
              
              
              1.99$
                  4.00 - $ 4.57
              
              
              263,297
              
              
              6.61
              
              
              4.35
              
              
              31,343
              
              
              4.35$
                  4.58 - $ 5.14
              
              
              62,010
              
              
              9.13
              
              
              5.08
              
              
              —
              
              
              —$
                  5.15 - $ 5.71
              
              
              1,175,000
              
              
              4.71
              
              
              5.71
              
              
              139,203
              
              
              5.712,784,166
              
              
              5.77
              
              $
              3.82
              
              
              1,214,304
              
              $
              2.38





A
      summary
      of the activity of the Company’s unvested stock options is as
      follows:




**Shares**
              
              
              **Weighted
                  Average**
                **Grant
                  Date**
                **Fair
                  Value**Unvested
                  at December 31, 2005
              
              
              766,297
              
              $
              2.70Granted
              
              
              1,315,415
              
              
              2.92Vested
              
              
              (292,839
              )
              
              2.80Forfeited
              
              
              (219,011
              )
              
              2.53Unvested
                  at September 30, 2006
              
              
              1,569,862
              
              $
              2.89


**10.
      Recently Issued Accounting Pronouncement**




In
      July
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48 (“FIN 48”), *Accounting
      for Uncertainty in Income Taxes* , which
      is an interpretation of SFAS No. 109 *,
      Accounting for Income Taxes* . FIN 48
      clarifies the accounting for income taxes by prescribing the minimum recognition
      threshold a tax position is required to meet before being recognized in the
      financial statements. FIN 48 also provides guidance on derecognition,
      measurement, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. In addition, FIN 48 clearly scopes out
      income taxes from FASB Statement No. 5, *Accounting
      for Contingencies* . FIN 48
      is effective for fiscal years beginning after December 15, 2006. The Company
      will implement this interpretation in the fiscal year starting January 1, 2007.
      The Company is currently analyzing the effect, if any, FIN 48 will have on
      the
      Company’s consolidated financial position and results of
      operations.





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




In
        September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
        Accounting Bulletin No. 108, *Considering
        the Effects of Prior Year Misstatements when Quantifying Misstatements in
        Current Year Financial Statements* (“SAB
        108”).  SAB 108 provides interpretive guidance on how the effects of the
        carryover or reversal of prior year misstatements should be considered in
        quantifying a current year misstatement. The SEC staff believes that registrants
        should quantify errors using both a balance sheet and an income statement
        approach and evaluate whether either approach results in a misstatement that,
        when all relevant quantitative and qualitative factors are considered, is
        material and therefore must be quantified.  SAB 108 is effective for years
        ending on or after November 15, 2006.




19




**Item 2.Management’s
      Discussion and Analysis**




The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our unaudited condensed
      consolidated financial statements and related notes that appear elsewhere in
      this Quarterly Report on Form 10-QSB. In addition to historical
      consolidated financial information, the following discussion contains
      forward-looking statements that reflect our plans, estimates and beliefs. Our
      actual results could differ materially from those discussed in the
      forward-looking statements. Factors that could cause or contribute to these
      differences include those discussed below and elsewhere in this Quarterly Report
      on Form 10-QSB, as well as in our Form 8-K/A filed on March 31, 2006, which
      contained substantially the same information that would be included in an Annual
      Report on Form 10-KSB.




***Overview*** **




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




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 24 to 106 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.





20





*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.





Our
      contracts with customers allow us to maintain a contract backlog that provides
      multi-year visibility in revenue. We record contract backlog based upon written
      confirmation received from our clients that a contract is awarded to etrials.
      The amount of contract backlog is the total amount of the contract budget agreed
      upon by the client and us less revenue previously recognized by us on each
      contract. As our backlog continues to grow, we believe that the predictability
      of our future revenues will increase; although delays in conducting clinical
      trials and the ability of customers to cancel our contracts means that our
      backlog is not a guaranty as to this amount or timing of future
      revenue.





21





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




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




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





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




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




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




*General
      and Administrative* -
      General and administrative expenses consist primarily of employee-related
      expenses, professional fees, other corporate expenses and allocated overhead.
      We
      expect that in the future, general and administrative expenses will increase
      as
      we add personnel and incur additional professional fees and insurance costs
      related to being a publicly held company. We also expect to incur significant
      legal costs to defend the patent related lawsuit recently commenced against
      us,
      which will adversely impact general and administrative expenses in future
      periods.




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




*Stock-Based
      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.




22





***Foreign
      Currency Translation***




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





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





***Critical
      Accounting Policies and Estimates***




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




Our
      significant accounting policies are presented within Note 2 to our
      consolidated financial statements as filed with the SEC on Form 8-K/A on March
      31, 2006, and the following summaries should be read in conjunction with the
      unaudited consolidated financial statements and the related notes included
      in
      this 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.




23





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.




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 September 30**
            
            **Nine
                Months Ended September 30****2006**
            
            **2005**
            
            **2006**
            
            **2005**Services
            
            $
            3,150,430
            
            $
            2,342,203
            
            $
            7,855,308
            
            $
            7,852,411Software
                subscriptions and usage fees
            
            
            913,639
            
            
            585,980
            
            
            2,385,773
            
            
            1,833,623Hosting
                fees
            
            
            381,423
            
            
            247,007
            
            
            1,064,835
            
            
            750,939Net
                service revenues
            
            
            4,445,492
            
            
            3,175,190
            
            
            11,305,916
            
            
            10,436,973Reimbursable
                out-of-pocket revenues
            
            
            330,716
            
            
            90,038
            
            
            2,324,353
            
            
            379,555Total
            
            $
            4,776,208
            
            $
            3,265,228
            
            $
            13,630,269
            
            $
            10,816,528





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.





24




In
      connection with a software application-hosting agreement entered into on
      April 1, 2005, we issued to a customer 220,840 shares of etrials’ common
      stock with an estimated fair value of $1.26 million. Of the 220,840 shares
      issued, 98,151 were issued immediately and the remaining 122,689 shares of
      common stock were placed in escrow. In the event the customer terminated certain
      agreements during a three year period, all or part of the shares held in escrow
      would be forfeited. EITF 01-9, *Accounting
      for Consideration Given by a Vendor to a Customer (Including a Reseller of
      the
      Vendor’s Products)* ,
      requires that the value of the common stock be treated as a reduction in
      revenue. The fair value of the 98,151 shares of non-forfeitable common stock
      was
      recorded to common stock and additional paid-in capital and to prepaid software
      application-hosting discount, a contra-equity account. The prepaid software
      application-hosting discount was originally reduced on a straight-line basis
      over the three year term of the agreement, offsetting revenue generated under
      the agreement. In accordance with EITF Topic D-90, *Grantor
      Balance Sheet Presentation of Unvested, Forfeitable Equity Instruments Granted
      to a Non-employee,* the fair
      value of the 122,689 shares of forfeitable common stock held in escrow were
      treated as unissued for accounting purposes until the future services are
      provided and the shares are vested. Accordingly, the fair value of the 122,689
      shares of forfeitable common stock were originally recorded to additional
      paid-in capital as the reduction to revenue was recorded on a straight-line
      basis over the three year term of the agreement. In accordance with EITF 96-18, *Accounting
      for Equity Instruments That Are Issued to Other than Employees for Acquiring,
      or
      in Conjunction with Selling Goods or Services,* the fair
      value of the common stock was remeasured at each interim reporting date during
      the three-year performance period with changes in fair value reflected as a
      cumulative adjustment. Effective February 8, 2006, etrials amended the software
      application-hosting agreement previously entered into with a customer on April
      1, 2005. Under the terms of the amendment etrials released from escrow 40,897
      shares and terminated 81,792 shares of common stock, which were previously
      held
      in escrow, resulting in a total of 139,048 shares issued to this customer.
      As a
      result of this amendment, there are no longer any shares held in escrow and
      the
      shares issued are no longer subject to forfeiture should the customer terminate
      certain agreements. In conjunction with this application-hosting agreement
      we
      recorded as a discount to revenue $198,333 and $396,666 for the three and nine
      months ended September 30, 2005, respectively.  In conjunction with this
      amended software-application hosting agreement, the Company recorded a reduction
      to revenues of $334,339 during the three months ended March 31, 2006, which
      reflects the fair value of the total shares of common stock issued to the
      customer as of February 8, 2006 less the discounts previously recorded.





** ***Accounting
      for Stock-Based Compensation***




In
      December 2004, the FASB issued SFAS No. 123 (revised 2004), *Share
      Based Payment* (SFAS 123R).
      SFAS 123R replaces SFAS 123 and supersedes APB 25 *.* SFAS 123R requires that the cost resulting from all share-based payment
      transactions be recognized in the financial statements using the fair value
      method. The provisions of SFAS 123R are effective for public entities that
      do not file as small business issuers as of the beginning of the first interim
      or annual reporting period that begins after June 15, 2005 (January 1,
      2006 for the Company). The impact of adoption of SFAS 123R will depend on
      levels of share-based payments granted in the future. SFAS 123R also
      requires the benefits of tax deductions in excess of recognized compensation
      cost to be reported as a financing cash flow, rather than as an operating cash
      flow. The Company will recognize excess tax benefits when those benefits reduce
      current income taxes payable.




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




25





***Goodwill***




We
      account for goodwill in accordance with SFAS No. 142, *“Goodwill
      and Other Intangible Assets”* (“SFAS
      No. 142”). SFAS No. 142 requires the use of a non-amortization
      approach to account for purchased goodwill and certain intangibles. Under the
      non-amortization approach, goodwill and certain intangibles are not amortized
      into results of operations, but instead are reviewed for impairment at least
      annually and written down and charged to operations only in the periods in
      which
      the recorded value of goodwill and certain intangibles exceeds its fair value.
      We have elected to perform our annual impairment test in November of each
      calendar year. An interim goodwill impairment test would be performed if an
      event occurs or circumstances change between annual tests that would more likely
      than not reduce the fair value of a reporting unit below its carrying amount.
      For purposes of performing the goodwill impairment test, we concluded there
      is
      one reporting unit. During November 2005, we completed the required annual
      test,
      which indicated there was no impairment.




***Accounting
      for Income Taxes***




In
      connection with preparing our financial statements, we are required to estimate
      our income taxes in each of the jurisdictions in which we operate. This process
      involves the assessment of our net operating loss carryforwards and credits,
      as
      well as estimating the actual current tax liability together with assessing
      temporary differences resulting from differing treatment of items, such as
      reserves and accrued liabilities, for tax and accounting purposes. We then
      assess the likelihood that deferred tax assets will be recovered from future
      taxable income, and to the extent we believe that recovery is not likely, we
      must establish a valuation allowance. Based on historical results, we believe
      that it is more likely than not that we will not realize the value of our
      deferred tax assets and therefore have provided a full valuation allowance
      against our net deferred tax assets as of September 30, 2006.




***Results
      of Operations***




*Three
      Months Ended September 30, 2006 Compared to Three Months Ended September 30,
      2005*




Net
      service revenues increased 40.0% to $4,445,492 for the three months ended
      September 30, 2006, as compared to $3,175,190 for the three months ended
      September 30, 2005. The increase in revenues is primarily the result of the
      timing and size of new clinical project deployments in process during the
      period.




Reimbursable
      out-of-pocket revenues and corresponding expenses increased to $330,716 from
      $90,038 for the three months ended September 30, 2006 and 2005, respectively.
      This increase is primarily the result of diary hardware costs related to new
      electronic patient diary trials commenced in the three months ended September
      30, 2006.





Costs
      of
      revenues increased 10.4% to $1,589,826 from $1,440,515 for the three months
      ended September 30, 2006 and 2005, respectively. This increase was primarily
      the
      result of operations personnel increasing to 63 from 57 as of September 30,
      2006
      and 2005, respectively. As a percentage of net service revenues, costs of
      revenues decreased to 35.8% from 45.4% for the three months ended September
      30,
      2006 and 2005, respectively.




Sales
      and
      marketing costs increased 21.8% to $792,610 from $651,014 for the three months
      ended September 30, 2006 and 2005, respectively. This increase was primarily
      the
      result of adding four additional international sales personnel. As a percentage
      of net service revenues, sales and marketing costs decreased to 17.8% from
      20.5%
      for the three months ended September 30, 2006 and 2005, respectively.




General
      and administrative costs increased by 107.6% to $1,374,903 from $662,169 for
      the
      three months ended September 30, 2006 and 2005, respectively. This increase
      was
      primarily the result of $247,363 non-cash stock-based compensation expense
      in
      accordance with SFAS 123R and costs associated with being a public company.
      As a
      percentage of net service revenues, general and administrative expenses
      increased to 30.9% from 20.9% for the three months ended September 30, 2006
      and
      2005, respectively.




Amortization
      of intangible assets consists of amortization of acquired software technologies
      over their estimated useful life of three years. These costs were $11,397 and
      $139,873 for the three months ended September 30, 2006 and 2005, respectively.
      These costs declined since certain intangible assets were fully amortized in
      early 2006.




26





Research
      and development costs increased by 15.8% to $498,425 from $430,237 for the
      three
      months ended September 30, 2006 and 2005, respectively. This increase was
      primarily the result of R&D personnel increasing to 20 from 15 as of
      September 30, 2006 and 2005, respectively. As a percentage of net service
      revenues, research and development expenses decreased to 11.2% from 13.5% for
      the three months ended September 30, 2006 and 2005, respectively.




Other
      income for the three months ended September 30, 2006 was $213,156 as compared
      with $15,891 for the three months ended September 30, 2005. The change is
      primarily the result of interest income on the cash received in the CEA
      merger.




We
      experienced net income of $391,487 compared with net loss of $(132,727) for
      the
      three months ended September 30, 2006 and 2005, respectively. The net income
      for
      the three months ended September 30, 2006 was impacted primarily by increased
      revenues and interest income partially offset by non-cash stock-based
      compensation expense ($269,641) and costs associated with being a public
      company.




Net
        income attributable to common stockholders was $391,487 for the three months
        ended September 30, 2006 as compared with net loss attributable to common
        stockholders of $(420,934) for the three months ended September 30, 2005.
        The
        three months ended September 30, 2006 included no dividends and accretion
        of
        preferred stock compared with $288,207 for the three months ended September
        30,
        2005.


*Nine
      Months Ended September 30, 2006 Compared to Nine Months Ended September 30,
      2005*




Net
      service revenues increased 8.3% to $11,305,916 for the nine months ended
      September 30, 2006, as compared to $10,436,973 for the nine months ended
      September 30, 2005. The increase in revenues is primarily the result of the
      timing and size of new clinical project deployments in process during the
      period.





Reimbursable
      out-of-pocket revenues and corresponding expenses increased to $2,324,353 from
      $379,555 for the nine months ended September 30, 2006 and 2005, respectively.
      This increase is primarily the result of diary hardware costs related to new
      electronic patient diary trials commenced in the nine months ended September
      30,
      2006.




Costs
      of
      revenues increased 7.8% to $4,870,004 from $4,516,054 for the nine months ended
      September 30, 2006 and 2005, respectively. This increase was primarily the
      result of operations personnel increasing to 63 from 57 as of September 30,
      2006
      and 2005, respectively. As a percentage of net service revenues, costs of
      revenues were 43.1% and 43.3% for the nine months ended September 30, 2006
      and
      2005, respectively.




Sales
      and
      marketing costs increased 18.4% to $2,558,754 from $2,160,629 for the nine
      months ended September 30, 2006 and 2005, respectively. This increase was
      primarily the result of adding four international sales personnel. As a
      percentage of net service revenues, sales and marketing costs were 22.6% and
      20.7% for the nine months ended September 30, 2006 and 2005,
      respectively.




General
      and administrative costs increased 50.0% to $3,560,550 from $2,372,980 for
      the
      nine months ended September 30, 2006 and 2005, respectively. This increase
      was
      primarily the result of $503,130 non-cash stock-based compensation expense
      in
      accordance with SFAS 123R and costs associated with being a public company.
      As a
      percentage of net service revenues, general and administrative expenses were
      31.5% and 22.7% for the nine months ended September 30, 2006 and 2005,
      respectively.




Amortization
      of intangible assets consists of amortization of acquired software technologies
      over their estimated useful life of three years. These costs were $77,018 and
      $419,617 for the nine months ended September 30, 2006 and 2005, respectively.





Research
      and development costs increased by 24.7% to $1,409,037 from $1,129,990 for
      the
      nine months ended September 30, 2006 and 2005, respectively. This increase
      was
      primarily the result of R&D personnel increasing to 20 from 15 as of
      September 30, 2006 and 2005, respectively. As a percentage of net service
      revenues, research and development expenses were 12.5% and 10.8% for the nine
      months ended September 30, 2006 and 2005, respectively.




27





Other
      income for the nine months ended September 30, 2006 was $574,531 as compared
      with $11,340 for the nine months ended September 30, 2005. The change is
      primarily the result of interest income on the cash received in the CEA
      merger.




We
      experienced a net loss of $(594,916) compared with a net loss of $(150,957)
      for
      the nine months ended September 30, 2006 and 2005, respectively. The net loss
      for the nine months ended September 30, 2006 was negatively impacted by non-cash
      stock-based compensation expense ($553,356) and costs associated with being
      a
      public company.




Net
        loss
        attributable to common stockholders was $1,720,885 for the nine months ended
        September 30, 2006 as compared with net loss attributable to common stockholders
        of $(1,015,578) for the nine months ended September 30, 2005. The nine months
        ended September 30, 2006 included $95,969 dividends and accretion of preferred
        stock compared with $864,621 for the nine months ended September 30, 2005.
        The
        nine months ended September 30, 2006 included $1,030,000 of induced conversion
        of common stock warrants.





***Liquidity
      and Capital Resources***




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





At
      September 30, 2006 we had cash, cash equivalents and short-term investments
      of
      $20,898,980. Our cash, cash equivalents and short-term investments increased
      by
      $19,248,657 during the nine months ended September 30, 2006 primarily due to
      the
      net cash received of approximately $19.6 million in the merger with CEA in
      February 2006.





In
      the
      nine months ended September 30, 2006 operating activities used $666,209 and
      in
      the nine months ended September 30, 2005 provided approximately $374,646 of
      net
      cash, respectively. The decrease in net cash from operating activities was
      primarily due to an increased net loss and an increase in accounts receivable
      partially offset by an increase in accounts payable.





In
      the
      nine months ended September 30, 2006 and 2005, we used $8,508,575 and $421,837
      of net cash in investing activities, respectively.   The increase is
      primarily $7,856,573 for the purchase of investments.  The Company has
      capitalized $316,716 and $135,864 of internal software development costs during
      the nine months ended September 30, 2006 and 2005, respectively.




In
      the
      nine months ended September 30, 2006 $20,547,159 of net cash was provided by
      financing activities, as compared to $190,496 of net cash used in the nine
      months ended September 30, 2005. The increase was primarily the result of the
      net cash received in connection with the CEA merger.




The
      Company announced on October 3, 2006, that its Board of Directors has authorized
      the repurchase of up to $1,000,000 of the Company's common stock. To date,
      no
      common shares have been repurchased.





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




28





Our
      contract backlog was $20.7 million at September 30, 2006 as compared to $22.3
      million at September 30, 2005, representing a decrease of 7.4%. This decrease
      is
      primarily the result of an increase in the amount of contract backlog
      cancellations experienced in 2006 as compared to 2005 of approximately $7
      million. Contract cancellations are a normal part of the clinical research
      services industry and occur for a variety of reasons outside the control of
      the
      company, some examples of reasons contracts can be cancelled are noted
      below:




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


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


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


·
            Adverse
                and serious adverse reactions to the study
                drug;


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


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





***Contractual
      Obligations***




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




We
      generally do not enter into binding purchase commitments. Our principal
      commitments are primarily for leases for office space and equipment and a
      capital lease for the purchase of third party software. At September 30, 2006,
      the future minimum payments under these commitments were as follows:




**Periods
                Ending December 31,**
            
            **Capital Leases**
            
            **Operating Leases**2006
                (last six months)
            
            $
            33,683
            
            $
            124,5762007
            
            
            83,204
            
            
            592,4512008
            
            
            31,676
            
            
            583,7392009
            
            
            24,081
            
            
            591,7222010
            
            
            —
            
            
            578,8092011
                and thereafter
            
            
            —
            
            
            906,130Total
                required lease payments
            
            
            172,644
            
            $
            3,377,427Less
                interest included
            
            
            (19,838
            )Total
                minimum payments
            
            
            152,806Current
                portion of capital lease
            
            
            (99,019
            )Long-term
                portion of capital lease
            
            $
            53,787




As
      of
      February 1, 2005 and as amended on May 31, 2006, we entered into a
      revolving account receivable line of credit with RBC Centura Bank under which
      we
      can borrow up to $2,000,000. In addition we also have two capital equipment
      lines with the same bank under which we can borrow up to $300,000 and $500,000
      respectively. Interest accrues and is paid monthly at the prime rate of interest
      plus 0.25% for the accounts receivable revolving line of credit and at the
      prime
      rate plus 1.0% and 0.75% for the fixed asset lines of credit. Borrowings under
      the equipment line of credit are payable in monthly principle and interest
      payments over a 30 month and 35 month period, respectively. The revolving line
      of credit expires on May 31, 2007 at which time all advances will be immediately
      due and payable unless the line is renewed. As of September 30, 2006, we had
      $797,000 outstanding under the accounts receivable line of credit and $170,000
      outstanding under the capital equipment lines.




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.




29





***Inflation***




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





***Certain
      Factors Which May Affect Future Results***




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





***Forward
      Looking Statements and Risks***




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





In
      addition to the other information set forth in this Report, you should carefully
      consider the factors discussed in “Risk Factors” in our Current Report on Form
      8-K/A filed on March 31, 2006, which could materially affect our business,
      financial condition or future results. The risks described in that Form 8-K/A
      are not the only risks facing our Company. Additional risks and uncertainties
      not currently known to us or that we currently deem to be immaterial also may
      materially adversely affect our business, financial condition and/or operating
      results.





A
      company
      recently brought a patent infringement action against us. See Item 1 of Part
      II
      of this Report. We expect to incur substantial litigation costs or we may need
      to change the products and services we offer. Many patents have been issued
      in
      our industry, some of which have been asserted in litigation. We expect
      intellectual property disputes will be an ongoing risk to us. The risks that
      are
      most likely to cause unexpected adverse quarterly operating performance affects
      include delays in work orders or cancellations by customers due to changes
      in
      the clinical trials being conducted by our customers, over which we have no
      control and which can be made by our customers without financial penalties
      under
      our customer contracts. Such changes by customers represent an ongoing risk
      each
      quarter.





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




•
            discuss
                future expectations;




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




•
            state
                other “forward-looking” information.





30





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.    Controls and Procedures********




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




As
      of
      September 30, 2006, we carried out an evaluation, under the supervision and
      with
      the participation of our management, including our Chief Executive Officer
      and
      Chief Financial Officer, of the effectiveness of the design and operation of
      our
      disclosure controls and procedures, as defined in Rules 13a-15(e) and
      15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation,
      our Chief Executive Officer and Chief Financial Officer concluded that our
      disclosure controls and procedures are effective in enabling us to record,
      process, summarize and report information required to be included in our
      periodic Securities and Exchange Commission filings within the required time
      period.




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




**PART
      II – OTHER
      INFORMATION**





**Item
      1. Legal Proceedings.**





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





On
      July
      17, 2006, Datasci, LLC filed a complaint against us in the U.S. District Court
      for the Baltimore District of Maryland (Civil Action No. MJG06CV1818). The
      complaint alleges infringement of United States Patent No. 6,496,827 entitled
      “Methods and Apparatus for the Centralized Collection and Validation of
      Geographically Distributed Clinical Study Data with Verification of Input Data
      to the Distributed System”. The Company intends to vigorously defend its rights.
      There can be no assurance as to the outcome of this case.




31




**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.





32




**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
                14, 2006
            By:
            /s/
                JOHN K. CLINE
              John
                K. Cline
              President,
                Chief Executive Officer and Director
              (Principal
                Executive Officer)November
                14, 2006
            By:
            /s/
                JAMES W. CLARK, JR.
              James
                W. Clark, Jr.
              Chief
                Financial Officer (Principal Accounting
              and
                Financial Officer)


33


**EXHIBIT
      INDEX**




**Exhibit**
            **Description**3.1
            Certificate
                of Incorporation of the Registrant. (Incorporated by reference from
                Registration Statement No. 333-110365 on Form S-1 filed November
                10,
                2003).3.1.1
            Amended
                and Restated Certificate of Incorporation of the Registrant. (Incorporated
                by reference from Registration Statement No. 333-110365 on Form S-4
                filed
                October 28, 2005).3.2
            Bylaws
                of the Registrant (Incorporated by reference from Registration Statement
                No. 333-110365 on Form S-1 filed November 10, 2003).4.1
            Specimen
                Unit Certificate of Registrant (Incorporated by reference from
                Registration Statement No. 333-110365 on Form S-1 filed November
                10,
                2003).4.2
            Specimen
                Common Stock Certificate of Registrant (Incorporated by reference
                from
                Registration Statement No. 333-110365 on Form S-1 filed November
                10,
                2003).4.3
            Specimen
                Warrant Certificate of Registrant (Incorporated by reference from
                Registration Statement No. 333-110365 on Form S-1 filed November
                10,
                2003).4.4
            Form
                of Unit Purchase Option. (Incorporated by reference from Registration
                Statement No. 333-110365 on Form S-1 filed November 10,
                2003).4.5
            Form
                of Warrant Agreement between Continental Stock Transfer & Trust
                Company and the Registrant (Incorporated by reference from Registration
                Statement No. 333-110365 on Form S-1 filed November 10,
                2003).31.1
            Certification
                of Principal Executive Officer of Periodic Report Pursuant to Rule
                13a-14(a) or Rule 15d-14(a)*31.2
            Certification
                of Principal Financial Officer of Periodic Report Pursuant to Rule
                13a-14(a) or Rule 15d-14(a)*32.1
            Certification
                of Principal Executive Officer and Principal Financial Officer of
                Periodic
                Report Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C.
                Section
                1350*




*Filed
      herewith.








34