Table
      of Contents


**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-QSB**




ý
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the quarterly period ended March 31, 2007****or**o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**Commission
      File Number: 000-50531**




---



**ETRIALS
      WORLDWIDE, INC.**


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




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




Check
      whether the issuer (1) has filed all reports required to be filed by
      Section 13 or 15(d) of the Securities Exchange Act during the past
      12 months (or for such shorter period that the registrant was required to
      file such reports), and (2) has been subject to such filing requirements
      for the past 90 days. ý Yes o No




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












**ETRIALS
      WORLDWIDE, INC.**


**QUARTERLY
      REPORT ON FORM 10-QSB**


**FOR
      THE QUARTERLY PERIOD ENDED MARCH 31, 2007**






**Tableof
      Contents**




**Page********Part
                I - FINANCIAL INFORMATION**Item
                1.
            
            Financial
                StatementsConsolidated
                Balance Sheets as of March 31, 2007
                (unaudited) and December 31, 2006
            
            3Consolidated
                Statements of Operations (unaudited) for the
                three months ended March 31, 2007 and 2006
            
            4Consolidated
                Statements of Stockholders’ Equity (unaudited)
                for the three months ended March 31, 2007
            
            5Consolidated
                Statements of Cash Flows (unaudited) for
                the three months ended March 31, 2007 and 2006
            
            6Notes
                to Consolidated Financial Statements
                (unaudited)
            
            7Item
                2.
            
            Management's
                Discussion and Analysis
            
            19Item
                3.
            
            Controls
                and Procedures
            
            28**Part
                II - OTHER INFORMATION**Item
                1.
            
            Legal
                Proceedings
            
            29Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            
            29Item
                3.
            
            Defaults
                Upon Senior Securities
            
            22Item
                4.
            
            Submission
                of Matters to a Vote of Security
                Holders
            
            29Item
                5.
            
            Other
                Information
            
            29Item
                6.
            
            Exhibits
            
            29Signatures
            
            30Exhibit
                Index
            
            31




2


**PART
      I - FinancialInformation**


**Item
                  1. FinancialStatements****etrials
                  Worldwide, Inc.****ConsolidatedBalance
                  Sheets**
  **March
                  31,**
              
              **December
                  31,****2007**
              
              **2006****(unaudited)****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              13,809,657
              
              $
              11,828,667Short-term
                  investments
              
              
              5,875,000
              
              
              8,160,293Accounts
                  receivable, net of allowance for doubtful accountsof
                  $29,000 and $22,000, respectively
              
              
              5,206,936
              
              
              4,980,350Inventory
              
              
              641,604
              
              
              -Prepaid
                  expenses and other current assets
              
              
              629,335
              
              
              408,786Total
                  current assets
              
              
              26,162,532
              
              
              25,378,096Property
                  and equipment, net of accumulated depreciation of$3,184,717
                  and $2,895,543, respectively
              
              
              2,439,962
              
              
              1,856,949Goodwill
              
              
              8,011,037
              
              
              8,011,037Developed
                  technology, net of accumulated amortization of$1,669,889
                  and $1,658,491, respectively
              
              
              3,801
              
              
              15,199Other
                  assets
              
              
              117,021
              
              
              117,021Total
                  assets
              
              $
              36,734,353
              
              $
              35,378,302**Liabilities
                  and Stockholders' Equity**Current
                  liabilities:Accounts
                  payable
              
              $
              1,394,200
              
              $
              804,471Accrued
                  expenses
              
              
              2,322,178
              
              
              1,976,226Deferred
                  revenue
              
              
              2,427,758
              
              
              2,013,533Bank
                  line of credit and other short-term borrowings
              
              
              1,337,526
              
              
              646,000Current
                  portion of capital lease obligations
              
              
              50,195
              
              
              74,796Total
                  current liabilities
              
              
              7,531,857
              
              
              5,515,026Capital
                  lease obligations, net of current portion
              
              
              43,867
              
              
              46,846Long-term
                  borrowings, net of current portion
              
              
              -
              
              
              20,000Total
                  liabilities
              
              
              7,575,724
              
              
              5,581,872Commitments
                  and contingenciesStockholders'
                  equityCommon
                  stock; $0.0001 par value; 50,000,000 shares authorized at March
                  31,
                2007
                  and December 31, 2006; and 12,303,015 and 12,278,804 issued and
                  outstanding
                at
                  March 31, 2007 and December 31, 2006, respectively
              
              
              1,230
              
              
              1,228Additional
                  paid-in capital
              
              
              53,916,007
              
              
              53,629,085Deferred
                  compensation
              
              
              (92,670
              )
              
              (108,102
              )Accumulated
                  deficit
              
              
              (24,665,938
              )
              
              (23,725,781
              )Total
                  stockholders' equity
              
              
              29,158,629
              
              
              29,796,430Total
                  liabilities and stockholders' equity
              
              $
              36,734,353
              
              $
              35,378,302*See
                  accompanying notes.*


3




**etrials
                  Worldwide, Inc.****ConsolidatedStatements
                  of
                  Operations****(unaudited)**
  **Three
                  Months Ended March 31,****2007**
              
              **2006**Net
                  service revenues
              
              $
              4,077,008
              
              $
              2,705,637Reimbursable
                  out-of-pocket revenues
              
              
              644,847
              
              
              54,026Total
                  revenues
              
              
              4,721,855
              
              
              2,759,663Costs
                  and expenses:Costs
                  of revenues
              
              
              2,176,303
              
              
              1,642,275Reimbursable
                  out-of-pocket expenses
              
              
              644,847
              
              
              54,026Sales
                  and marketing
              
              
              1,171,885
              
              
              820,654General
                  and administrative
              
              
              1,472,475
              
              
              920,668Amortization
                  of intangible assets
              
              
              11,398
              
              
              54,223Research
                  and development
              
              
              418,179
              
              
              430,211Total
                  costs and expenses
              
              
              5,895,087
              
              
              3,922,057Operating
                  loss
              
              
              (1,173,232
              )
              
              (1,162,394
              )Other
                  income (expenses):Interest
                  expense
              
              
              (19,330
              )
              
              (18,426
              )Interest
                  income
              
              
              253,895
              
              
              102,451Other
                  (expense) income, net
              
              
              (1,489
              )
              
              31,220Total
                  other income, net
              
              
              233,075
              
              
              115,245Net
                  loss
              
              
              (940,157
              )
              
              (1,047,149
              )Dividends
                  and accretion of preferred stock
              
              
              -
              
              
              (95,969
              )Induced
                  conversion of common stock warrants
              
              
              -
              
              
              (1,030,000
              )Net
                  loss attributable to common stockholders
              
              $
              (940,157
              )
              $
              (2,173,118
              )Net
                  loss per share attributable to common stockholders:Basic
                  and diluted
              
              $
              (0.09
              )
              $
              (0.29
              )Weighted
                  average common shares outstanding:Basic
                  and diluted
              
              
              10,729,884
              
              
              7,569,572*See
                  accompanying notes.*













4


**etrials
                  Worldwide, Inc.****ConsolidatedStatements
                  of Stockholders'
                  Equity****(unaudited)**
  **Additional****Common
                  Stock**
              
              **Paid-In**
              
              **Deferred**
              
              **Accumulated**
              
              **Stockholders’****Shares**
              
              **Amount**
              
              **Capital**
              
              **Compensation**
              
              **Deficit**
              
              **Equity**Balance
                  at December 31, 2006
              
              
              12,278,803
              
              $
              1,228
              
              $
              53,629,085
              
              $
              (108,102
              )
              $
              (23,725,781
              )
              $
              29,796,430Stock-based
                  compensation recorded in accordance with SFAS 123R
              
              
              -
              
              
              -
              
              
              245,470
              
              
              -
              
              
              -
              
              
              245,470Amortization
                  of deferred stock-based compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              12,932
              
              
              -
              
              
              12,932Reversal
                  of employee stock compensation expense due to terminations
              
              
              -
              
              
              -
              
              
              (4,000
              )
              
              2,500
              
              
              -
              
              
              (1,500
              )Exercise
                  of employee stock options
              
              
              24,212
              
              
              2
              
              
              45,452
              
              
              -
              
              
              -
              
              
              45,454Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (940,157
              )
              
              (940,157
              )Balance
                  at March 31, 2007
              
              
              12,303,015
              
              $
              1,230
              
              $
              53,916,007
              
              $
              (92,670
              )
              $
              (24,665,938
              )
              $
              29,158,629*See
                  accompanying notes.*








5


**etrials
                  Worldwide, Inc.****ConsolidatedStatements
                  of Cash Flows****(unaudited)**
  **Three
                  Months Ended March 31,****2007**
              
              **2006****Operating
                  activities**Net
                  loss
              
              $
              (940,157
              )
              $
              (1,047,149
              )Adjustments
                  to reconcile net loss to net cash used inoperating
                  activities:Depreciation
                  and amortization
              
              
              299,789
              
              
              213,101Accretion
                  of discount on investments held-to-maturity
              
              
              (4,707
              )
              
              -Amortization
                  of prepaid software application-hosting discount
              
              
              -
              
              
              334,339Non-cash
                  stock-based compensation expense
              
              
              256,902
              
              
              14,495Provision
                  for allowance for doubtful accounts
              
              
              7,000
              
              
              (4,000
              )Foreign
                  currency remeasurement losses
              
              
              (1,069
              )
              
              -Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (233,586
              )
              
              (542,219
              )Prepaid

                  expenses and other assets
              
              
              (220,549
              )
              
              754,422Inventory
              
              
              (641,604
              )
              
              -Accounts
                  payable and accrued expenses
              
              
              935,681
              
              
              (332,744
              )Deferred
                  revenue
              
              
              414,225
              
              
              336,334Net
                  cash used in operating activities
              
              
              (128,075
              )
              
              (273,421
              )**Investing
                  activities**Purchase
                  of property and equipment
              
              
              (696,493
              )
              
              (68,919
              )Capitalized
                  internal software development costs
              
              
              (173,842
              )
              
              (102,108
              )Sales
                  of short-term investments, net
              
              
              2,290,000
              
              
              -Net
                  cash provided by (used in) investing activities
              
              
              1,419,665
              
              
              (171,027
              )**Financing
                  activities**Net
                  proceeds (payments) from bank line of credit
              
              
              701,526
              
              
              (100,000
              )Payments
                  on bank equipment loan
              
              
              (30,000
              )
              
              (30,000
              )Borrowings
                  from capital leases
              
              
              -
              
              
              48,972Principal
                  payments on capital leases
              
              
              (27,580
              )
              
              (74,442
              )Proceeds
                  from issuance of stock options and warrants
              
              
              45,454
              
              
              118,733Proceeds
                  from issuance of common stock in merger,net
                  of issuance costs
              
              
              -
              
              
              19,661,485Net
                  cash provided by financing activities
              
              
              689,400
              
              
              19,624,748Effect
                  of exchange rate changes on cash
              
              
              -
              
              
              2,578Net
                  increase in cash and cash equivalents
              
              
              1,980,990
              
              
              19,182,878Cash
                  and cash equivalents at beginning of year
              
              
              11,828,667
              
              
              1,650,323Cash
                  and cash equivalents at end of period
              
              $
              13,809,657
              
              $
              20,833,201**Supplemental
                  cash flow information**Cash
                  paid for interest
              
              $
              17,236
              
              $
              18,321*See
                  accompanying notes.*







6


**etrials
      Worldwide, Inc.**


**Notesto
      Consolidated Financial Statements
      (unaudited)**





**1.
      Organization and Capitalization**





***etrials
      Worldwide, Inc.***




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




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





***Merger
      and Accounting Treatment***




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




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




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





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





The
      shares of common stock held by etrials stockholders were converted into a total
      of 7,446,360 shares of CEA’s common stock, or approximately 60.3% of the
      subsequently outstanding common stock of the combined company. In connection
      with the merger, etrials stockholders also received warrants to purchase
      4,250,000 shares of CEA common stock with an exercise price of $5.00 per share.
      The warrants issued in the merger are immediately tradable.





Upon
      consummation of the merger, $21.4 million was released from trust to be used
      by
      the combined company. After payments totaling approximately $1.1 million for
      professional fees and other costs related to the merger, the net proceeds
      amounted to $19.6 million. The total direct and incremental costs of $1.1
      million, incurred by the Company in connection with the merger was reflected
      as
      a reduction to additional paid-in capital as of the effective date of the
      merger.


7





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





In
      order
      to induce certain pre-merger common stock warrant holders to exercise their
      warrants concurrent with the reverse acquisition, the Company issued such
      warrant holders 157,512 shares of common stock and 73,073 warrants to purchase
      common stock with an aggregate fair value of $1,030,000. The Company accounted
      for the consideration allocated to these warrant holders as an induced
      conversion feature. Accordingly, the fair value of this consideration has been
      reflected as an increase to net loss in the computation of loss per common
      share
      in the accompanying consolidating statement of operations for the three months
      ended March 31, 2006.





***Shares
      Held in Escrow***





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





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




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





***Unaudited
      Interim Financial Statements***




The
      accompanying consolidated balance sheet as of March 31, 2007, consolidated
      statements of operations for the three months ended March 31, 2007 and 2006,
      consolidated statements of cash flows for the three months ended March 31,
      2007
      and 2006 and consolidated statement of stockholders’ equity (deficit) for the
      three months ended March 31, 2007 are unaudited. The unaudited financial
      statements include all adjustments (consisting of normal recurring adjustments)
      which are, in the opinion of management, necessary for a fair presentation
      of
      such financial statements. The information disclosed in the notes to the
      financials statements for these periods is unaudited. The results of operations
      for the three months ended March 31, 2007 are not necessarily indicative of
      the
      results to be expected for the entire fiscal year or for any future period.





**2.
      Summary of Significant Accounting Policies**




***Principles
      of Consolidation***




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





***Reclassifications***




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




***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.


8





***Revenue
      Recognition***




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




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





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




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





The
      estimated total labor hours of contracts are reviewed and revised periodically
      throughout the duration of the contracts with an adjustment to revenues from
      such revisions being recorded on a cumulative basis in the period in which
      the
      revisions are made. When estimates indicate a loss, such loss is recognized
      in
      the current period in its entirety. Because of the inherent uncertainties in
      estimating total labor hours, it is reasonably possible that the estimates
      will
      change in the near term and could result in a material change. The Company
      records a loss for its contracts at the point it is determined that the total
      estimated contract costs will exceed management’s estimates of contract
      revenues. As of March 31, 2007, the Company has not experienced any material
      losses on uncompleted contracts.





The
      following summarizes the components of the revenues recognized:


**Three
                  Months Ended March 31****2007**
              
              **2006**Services
              
              $
              3,030,201
              
              $
              1,740,885Software
                  subscriptions and usage fees
              
              
              684,130
              
              
              628,056Hosting
                  fees
              
              
              362,677
              
              
              336,696Net
                  service revenues
              
              
              4,077,008
              
              
              2,705,637Reimbursable
                  out-of-pocket revenues
              
              
              644,847
              
              
              54,026Total
              
              $
              4,721,855
              
              $
              2,759,663


9





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




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





In
      connection with a software application-hosting agreement entered into on
      April 1, 2005, the Company issued to a customer 220,840 shares of the
      Company’s common stock with an estimated fair value of $1.26 million. Of the
      220,840 shares issued, 98,151 were vested immediately and the remaining 122,689
      shares of common stock were placed in escrow. In the event the customer
      terminated certain agreements during a three year period, all or part of the
      shares held in escrow would be forfeited. EITF 01-9, *Accounting
      for Consideration Given by a Vendor to a Customer (Including a Reseller of
      the
      Vendor’s Products),* requires
      that the value of the common stock be treated as a reduction to revenue. The
      fair value of the 98,151 shares of non-forfeitable common stock was recorded
      to
      common stock and additional paid-in capital and to prepaid software
      application-hosting discount, a contra-equity account. The prepaid software
      application-hosting discount was originally reduced on a straight-line basis
      over the three year term of the agreement, offsetting revenue generated under
      the agreement. In accordance with EITF Topic D-90, *Grantor
      Balance Sheet Presentation of Unvested, Forfeitable Equity Instruments Granted
      to a Non-employee,* the fair
      value of the 122,689 shares of forfeitable common stock held in escrow was
      treated as unissued for accounting purposes until the future services are
      provided and the shares are vested. Accordingly, the fair value of the 122,689
      shares of forfeitable common stock were originally recorded to additional
      paid-in-capital as the reduction to revenue is recorded on a straight-line
      basis
      over the three year term of the agreement. In accordance with EITF 96-18, *Accounting
      for Equity Instruments That Are Issued to Other than Employees for Acquiring,
      or
      in Conjunction with Selling Goods or Services,* the
      fair
      value of the common stock was remeasured at each interim reporting date during
      the three-year performance period with changes in fair value reflected as a
      cumulative adjustment.





Effective
      February 8, 2006, etrials amended the software application-hosting agreement
      previously entered into with a customer on April 1, 2005. Under the terms of
      the
      amendment, etrials released from escrow 40,897 shares and terminated 81,792
      shares of common stock, which were previously held in escrow, resulting in
      a
      total of 139,048 shares issued to this customer. As a result of this amendment,
      there are no longer any shares held in escrow and the shares issued are no
      longer subject to forfeiture should the customer terminate certain agreements.
      In conjunction with the application-hosting agreement the company recorded
      as a
      discount to revenue $334,339 during the three months ended March 31, 2006,
      which
      reflects the fair value of the total shares of common stock issued to the
      customer as of February 8, 2006 less the discounts previously recorded.





***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 $173,842 and $102,108 of internal software development
      costs during the three months ended March 31, 2007 and 2006, respectively.


10





***Warranties
      and Indemnification***




The
      Company’s hosting service is typically warranted to perform in a manner
      consistent with general industry standards that are reasonably applicable and
      substantially in accordance with the Company’s online help documentation under
      normal use and circumstances. The Company’s arrangements also include certain
      provisions for indemnifying customers against liabilities if its products or
      services infringe on a third party’s intellectual property rights. The Company
      has not previously incurred costs to settle claims or pay awards under these
      indemnification obligations. The Company accounts for these indemnity
      obligations in accordance with Statement of Financial Accounting Standard (SFAS)
      No. 5, *Accounting
      for Contingencies,* and
      records a liability for these obligations when a loss is probable and reasonably
      estimable. The Company has not recorded any liabilities for these agreements
      as
      of March 31, 2007.




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





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




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




***Inventory***




The
      Company accounts for electronic patient diaries
      purchased for future clinical trials which will be billed to its clients as
      reimbursable out-of-pocket revenues and expenses, as inventory.





***Intangible
      Assets***




During
      April 2004, the Company entered into an Asset Purchase Agreement (the Purchase
      Agreement) with Authentrics, Inc. (Authentrics) whereby the Company
      acquired an interactive voice recognition system technology (Acquired
      Technology) and certain other assets in exchange for 24,538 shares of common
      stock. The total cost of Acquired Technology of $132,000 is being amortized
      on a
      straight-line basis over its estimated useful life of three years. The Company
      recorded amortization expense of $11,398 and $54,223 for the three months ended
      March 31, 2007 and 2006, respectively, related to these assets.





***Long-Lived
      Assets***




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




***Goodwill***




The
      Company accounts for its goodwill in accordance with SFAS No. 142, *Goodwill
      and Other Intangible Assets* (SFAS
      No. 142). SFAS No. 142 requires the use of a non-amortization approach
      to account for purchased goodwill and certain intangibles. Under the
      non-amortization approach, goodwill and certain intangibles are not amortized
      into results of operations, but instead are reviewed for impairment at least
      annually and written down and charged to operations only in the periods in
      which
      the recorded value of goodwill and certain intangibles exceeds its fair value.
      The Company has elected to perform its annual impairment test as of
      November 1 of each calendar year. An interim goodwill impairment test would
      be performed if an event occurs or circumstances change between annual tests
      that would more likely than not reduce the fair value of a reporting unit below
      its carrying amount. During November 2006, the Company completed the required
      annual test, which indicated there was no impairment.


11




***Fair
      Value of Financial Instruments***




The
      Company’s financial instruments consist of cash and cash equivalents, short-term
      investments, accounts receivable, accounts payable and outstanding indebtedness.
      In management’s opinion, the carrying amount of these financial instruments
      approximates their fair values at March 31, 2007 and December 31, 2006, based
      on
      their short-term nature or underlying variable interest rate.





***Foreign
      Currency***




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





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




***Net
      Loss Per Common Share***




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




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


**Three
                  Months Ended**
                **March
                  31****2007**
              
              **2006**Unit
                  Purchase Options
              
              
              1,050,000
              
              
              1,050,000Stock
                  Options outstanding
              
              
              2,794,744
              
              
              1,734,121Warrants
                  outstanding
              
              
              12,350,000
              
              
              12,350,000








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





***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.


12




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, 324,900 shares are available for future stock
      option grants as of March 31, 2007.




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:


**March
                  31**
              
              **December
                  31****2007**
              
              **2006**Cash
              
              $
              716,119
              
              $
              3,115,362Money
                  market
              
              
              10,353,797
              
              
              6,024,155U.S.
                  agency notes
              
              
              2,739,741
              
              
              2,689,150Total
                  cash and cash equivalent
              
              $
              13,809,657
              
              $
              11,828,667Auction
                  rate securities
              
              $
              5,875,000
              
              $
              6,600,000Corporate
                  bonds
              
              
              -
              
              
              1,560,293Total
                  short-term investments
              
              $
              5,875,000
              
              $
              8,160,293


13





**4.
      Accounts Receivable**




Accounts
      receivable consists of the following:





**March
                  31**
              
              **December
                  31****2007**
              
              **2006**Billed
                  accounts receivable
              
              $
              3,646,751
              
              $
              3,394,583Unbilled
                  accounts receivable
              
              
              1,589,185
              
              
              1,607,767Total
                  accounts receivable
              
              
              5,235,936
              
              
              5,002,350Allowance
                  for doubtful accounts
              
              
              (29,000
              )
              
              (22,000
              )$
              5,206,936
              
              $
              4,980,350




**5.
      Accrued Expenses**




Accrued
      expenses consist of the following:




**March 31**
              
              **December
                  31****2007**
              
              **2006**Accrued
                  professional fees
              
              $
              165,658
              
              $
              97,881Accrued
                  client reimbursable expenses
              
              
              314,229
              
              
              866,032Accrued
                  diary inventory liability
              
              
              641,604
              
              
              -Accrued
                  other expenses
              
              
              687,077
              
              
              545,194Accrued
                  compensation
              
              
              205,975
              
              
              206,106Accrued
                  vacation
              
              
              307,635
              
              
              261,013$
              2,322,178
              
              $
              1,976,226




**6.
      Debt**




Debt
      consists of the following:




**March 31**
              
              **December 31****2007**
              
              **2006**Borrowings:Bank
                  line of credit, with an interest rate of 8.50% at March 31,
                  2007
              
              $
              1,140,000
              
              $
              526,000Bank
                  equipment loan, with an interest rate of 9.25% at March 31,
                  2007
              
              
              110,000
              
              
              140,000Note
                  payable, with an interest rate of 7.15%
              
              
              87,526
              
              
              -Total
                  borrowings
              
              
              1,337,526
              
              
              666,000Bank
                  line of credit and other short-term borrowings
              
              
              1,337,526
              
              
              646,000Long-term
                  borrowings, less current portion
              
              $
              -
              
              $
              20,000




**Bank
      Line of Credit**




On
      February 1, 2005, the Company entered into two loan agreements with RBC
      Centura Bank. These loan agreements were modified on May 31, 2006 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 as of March 31, 2007. The capital equipment
      borrowings are secured by the fixed assets that were acquired.


14





**Note
      Payable**




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




**7.
      Contingencies**




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





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





**8.
      Stockholders’ Equity**




**Outstanding
      Warrants**




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




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




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




15


As
      of
      March 31, 2007, the Company had reserved a total of 16,519,644 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
              
              
              2,794,744Reserved
                  for future stock option grants
              
              
              324,900Common
                  stock warrants outstanding
              
              
              12,350,000Total
                  shares reserved for future issuance
              
              
              16,519,644





**9.
      Stock Based Compensation**





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




The
      weighted average exercise price of options granted during the three months
      ended
      March 31, 2007 was $3.69. There were no options granted during the three months
      ended March 31, 2006. The weighted-average assumptions utilized to determine
      the
      above values are indicated in the following table:




**Three
                Months Ended March 31,****2007**Expected
                dividend yield
            0%Expected
                volatility
            100%Risk-free
                interest rate
            4.8%Expected
                life (in years)
            4.00







During
      the three months ended March 31, 2007, the Company recorded $256,902 of
      stock-based compensation expense, of which $245,470 was related to options
      issued subsequent to the adoption of SFAS No. 123R. The compensation
      expense recorded during the three months ended March 31, 2007 reduced both
      basic
      and diluted earnings per share by $0.02. As of March 31, 2007, there was
      $2,586,626 of unrecognized compensation expense related to non-vested share
      awards issued under SFAS No. 123R that is expected to be recognized over a
      weighted-average period of 2.81 years. Net cash provided by operating and
      financing activities was unchanged for the period ended March 31, 2007, since
      there were no excess tax benefits from stock-based compensation plans. The
      remaining stock-based compensation expense is due to the amortization of
      previously recorded deferred compensation, for stock options that have continued
      to be accounted for under APB Opinion No. 25 in accordance with the prospective
      transition method of SFAS 123R. As of March 31, 2007, there was $92,670 of
      deferred compensation recorded related to such options.




16


The
      following summarizes the activity of the Plan for the three months ended March
      31, 2007:


**Weighted****Average****Weighted**
              
              **Aggregate**
              
              **Remaining****Number
                  of**
              
              **Average**
              
              **Intrinsic**
              
              **Contractual****Shares**
              
              **Exercise
                  Price**
              
              **Value**
              
              **Term
                  (yrs)**Outstanding
                  at December 31, 2006
              
              
              2,775,914
              
              $
              2.37Granted
              
              
              58,000
              
              
              3.69Exercised
              
              
              (24,212
              )
              
              1.88Canceled
              
              
              (14,958
              )
              
              4.11Outstanding
                  at March 31, 2007
              
              
              2,794,744
              
              $
              3.84
              
              $
              3,938,722
              
              $
              5.24Exercisable
                  at March 31, 2007
              
              
              1,369,303
              
              $
              2.70
              
              $
              3,228,284
              
              $
              5.48Vested
                  or expected to vest at March 31, 2007
              
              
              
              
              
              
              
              $
              3,228,284




The
      total
      intrinsic value of options exercised during the three months ended March 31,
      2007 and 2006 were $43,114 and $1,675, respectively.





Selected
      information regarding stock options as of March 31, 2007 is as
      follows:


**Options
                  Outstanding**
              
              **Options
                  Exercisable****Weighted****Average**
              
              **Weighted**
              
              
              
              **Weighted****Remaining**
              
              **Average**
              
              
              
              **Average****Number
                  of**
              
              **Life**
              
              **Exercise**
              
              **Number
                  of**
              
              **Exercise****Exercise
                  Price**
              
              **Shares**
              
              **(in
                  Years)**
              
              **Price**
              
              **Shares**
              
              **Price**$0.57
              -
              $1.14
              
              55,120
              
              2.50
              
              $0.91
              
              55,120
              
              $0.91$1.14
              -
              $1.71
              
              158,201
              
              4.09
              
              1.63
              
              158,201
              
              1.63$1.71
              -
              $2.28
              
              1,038,196
              
              6.36
              
              2.02
              
              848,168
              
              1.99$3.43
              -
              $4.00
              
              58,000
              
              4.82
              
              3.69
              
              -
              
              -$4.00
              -
              $4.57
              
              251,318
              
              6.09
              
              4.34
              
              35,478
              
              4.35$4.57
              -
              $5.14
              
              58,909
              
              8.48
              
              5.08
              
              17,224
              
              5.08$5.14
              -
              $5.71
              
              1,175,000
              
              4.21
              
              5.71
              
              255,112
              
              5.712,794,744
              
              5.24
              
              $3.84
              
              1,369,303
              
              $2.70




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




**Weighted
                Average****Grant
                Date****Shares**
            
            **Fair
                Value**Unvested
                at December 31, 2006
            
            
            1,472,356
            
            $
            2.91Granted
            
            
            58,000
            
            
            2.63Vested
            
            
            (91,955
            )
            
            2.46Forfeited
            
            
            (12,960
            )
            
            2.94Unvested
                at March 31, 2007
            
            
            1,425,441
            
            $
            2.93




**10.
      Income Taxes**




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


17




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




The
      Company has its tax years of 2003 - 2006 open to examination by federal tax
      and
      2001 - 2006 for state tax jurisdictions. The Company’s only foreign subsidiary
      is in the United Kingdom and it has its tax years of 2005 - 2006 open to
      examination. The Company has not been informed by any tax authorities for any
      jurisdiction that any of its tax years are under examination as of March 31,
      2007.




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





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





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





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





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




**11.
      Recently Issued Accounting Pronouncement**




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





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


18




**Item 2.
      Management’sDiscussion and Analysis**




The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our unaudited condensed
      consolidated financial statements and related notes that appear elsewhere in
      this Quarterly Report on Form 10-QSB. In addition to historical
      consolidated financial information, the following discussion contains
      forward-looking statements that reflect our plans, estimates and beliefs. Our
      actual results could differ materially from those discussed in the
      forward-looking statements. Factors that could cause or contribute to these
      differences include those discussed below and elsewhere in this Quarterly Report
      on Form 10-QSB, as well as in our Form 10-KSB filed on March 30,
      2007.




***Overview*** **




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




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




Industry
      analysts and commentators have estimated that the growth in the use of eClinical
      technologies will continue to accelerate. We will have to continue to expand
      our
      customer base and technologies in order to maintain and grow our market share.
      Since 2002 the number of active eClinical trials being performed by us has
      grown
      from approximately 24 to 100 because of the increased adoption of eClinical
      technologies by the pharmaceutical and biotechnology industries.





***Sources
      of Revenues***




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





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





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


19




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




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




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




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




Services
      provided for all three stages are generally on a fixed fee basis as per the
      budget assumptions specified in the contract. If budget assumptions change,
      etrials and the client generally agree to a change in scope amendment to the
      contract. Revenues from services are recognized utilizing the proportional
      performance method, measured principally by the total labor hours incurred
      as a
      percentage of estimated total labor hours for each contract. This method is
      used
      because management considers total labor hours incurred to be the best available
      measure of progress on these contracts. The company records a loss for its
      contracts at the point it is determined that the total estimated contract costs
      will exceed management’s estimates of contract revenues. No such losses have
      been incurred to date.




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




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




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





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





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




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




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


20





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




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




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




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




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




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





***Foreign
      Currency***




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





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





***Critical
      Accounting Policies and Estimates***




The
      discussion and analysis of our financial condition and results of operations
      are
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States
      of
      America. The preparation of these financial statements requires us to make
      significant estimates and judgments that affect the reported amounts of assets,
      liabilities, revenues and expenses, and related disclosure of contingent assets
      and liabilities. These items are regularly


21


monitored
      and analyzed by management for changes in facts and circumstances, and material
      changes in these estimates could occur in the future. These estimates include,
      among others, our revenue recognition policies related to the proportional
      performance methodology of revenue recognition of contracts and assessing our
      goodwill for impairment annually. Changes in estimates are recorded in the
      period in which they become known. We base our estimates on historical
      experience and various other assumptions that we believe are reasonable under
      the circumstances. Actual results will differ and may differ materially from
      the
      estimates if past experience or other assumptions do not turn out to be
      substantially accurate.




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




***Revenue
      Recognition***




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




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




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




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




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




22





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




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





The
      following summarizes the components of our revenues:




**Three
                Months Ended March 31****2007**
            
            **2006**Services
            
            $
            3,030,201
            
            $
            1,740,885Software
                subscriptions and usage fees
            
            
            684,130
            
            
            628,056Hosting
                fees
            
            
            362,677
            
            
            336,696Net
                service revenues
            
            
            4,077,008
            
            
            2,705,637Reimbursable
                out-of-pocket revenues
            
            
            644,847
            
            
            54,026Total
            
            $
            4,721,855
            
            $
            2,759,663




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





In
      connection with a software application-hosting agreement entered into on
      April 1, 2005, we issued to a customer 220,840 shares of etrials’ common
      stock with an estimated fair value of $1.26 million. Of the 220,840 shares
      issued, 98,151 were issued immediately and the remaining 122,689 shares of
      common stock were placed in escrow. In the event the customer terminated certain
      agreements during a three year period, all or part of the shares held in escrow
      would be forfeited. EITF 01-9, *Accounting
      for Consideration Given by a Vendor to a Customer (Including a Reseller of
      the
      Vendor’s Products)* ,
      requires that the value of the common stock be treated as a reduction in
      revenue. The fair value of the 98,151 shares of non-forfeitable common stock
      was
      recorded to common stock and additional paid-in capital and to prepaid software
      application-hosting discount, a contra-equity account. The prepaid software
      application-hosting discount was originally reduced on a straight-line basis
      over the three year term of the agreement, offsetting revenue generated under
      the agreement. In accordance with EITF Topic D-90, *Grantor
      Balance Sheet Presentation of Unvested, Forfeitable Equity Instruments Granted
      to a Non-employee,* the fair
      value of the 122,689 shares of forfeitable common stock held in escrow were
      treated as unissued for accounting purposes until the future services are
      provided and the shares are vested. Accordingly, the fair value of the 122,689
      shares of forfeitable common stock were originally recorded to additional
      paid-in capital as the reduction to revenue was recorded on a straight-line
      basis over the three year term of the agreement. In accordance with EITF 96-18, *Accounting
      for Equity Instruments That Are Issued to Other than Employees for Acquiring,
      or
      in Conjunction with Selling Goods or Services,* the fair
      value of the common stock was remeasured at each interim reporting date during
      the three-year performance period with changes in fair value reflected as a
      cumulative adjustment.





Effective
      February 8, 2006, etrials amended the software application-hosting agreement
      previously entered into with a customer on April 1, 2005. Under the terms of
      the
      amendment etrials released from escrow 40,897 shares and terminated 81,792
      shares of common stock, which were previously held in escrow, resulting in
      a
      total of 139,048 shares issued to this customer. As a result of this amendment,
      there are no longer any shares held in escrow and the shares issued are no
      longer subject to forfeiture should the customer terminate certain agreements.
      In conjunction with this 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.


23




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





***Goodwill***




We
      account for goodwill in accordance with SFAS No. 142, *“Goodwill
      and Other Intangible Assets”* (“SFAS
      No. 142”). SFAS No. 142 requires the use of a non-amortization
      approach to account for purchased goodwill and certain intangibles. Under the
      non-amortization approach, goodwill and certain intangibles are not amortized
      into results of operations, but instead are reviewed for impairment at least
      annually and written down and charged to operations only in the periods in
      which
      the recorded value of goodwill and certain intangibles exceeds its fair value.
      We have elected to perform our annual impairment test in November of each
      calendar year. An interim goodwill impairment test would be performed if an
      event occurs or circumstances change between annual tests that would more likely
      than not reduce the fair value of a reporting unit below its carrying amount.
      For purposes of performing the goodwill impairment test, we concluded there
      is
      one reporting unit. During November 2006, we completed the required annual
      test,
      which indicated there was no impairment.




***Accounting
      for Income Taxes***




In
      connection with preparing our financial statements, we are required to estimate
      our income taxes in each of the jurisdictions in which we operate. This process
      involves the assessment of our net operating loss carryforwards and credits,
      as
      well as estimating the actual current tax liability together with assessing
      temporary differences resulting from differing treatment of items, such as
      reserves and accrued liabilities, for tax and accounting purposes. We then
      assess the likelihood that deferred tax assets will be recovered from future
      taxable income, and to the extent we believe that recovery is not likely, we
      must establish a valuation allowance. Based on historical results, we believe
      that it is more likely than not that we will not realize the value of our
      deferred tax assets and therefore have provided a full valuation allowance
      against our net deferred tax assets as of March 31, 2007.





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




***Results
      of Operations***




*Three
      Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006*




Net
      service revenues increased 50.7% to $4,077,008 for the three months ended March
      31, 2007 as compared to $2,705,637 for the three months ended March 31, 2006.
      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 $644,847 from
      $54,026 for the three months ended March 31, 2007 and 2006, respectively. This
      increase is primarily the result of diary hardware costs related to new
      electronic patient diary trials commenced in the three months ended March 31,
      2007.





Costs
      of
      revenues increased 32.5% to $2,176,303 from $1,642,275 for the three months
      ended March 31, 2007 and 2006, respectively. This increase was primarily the
      result of operations personnel increasing approximately 35% to 74 from 55 as
      of
      March 31, 2007 and 2006, respectively. As a percentage of net service revenues,
      costs of revenues decreased to 53.4% from 60.7% for the three months ended
      March
      31, 2007 and 2006, respectively.


24




Sales
      and
      marketing costs increased 42.8% to $1,171,885 from $820,654 for the three months
      ended March 31, 2007 and 2006, respectively. This increase was primarily the
      result of increased marketing expenses and sales travel related to the Company’s
      goal of increasing new projects additions during 2007. As a percentage of net
      service revenues, sales and marketing costs decreased to 28.7% from 30.3% for
      the three months ended March 31, 2007 and 2006, respectively.





General
      and administrative costs increased by 59.9% to $1,472,475 from $920,668 for
      the
      three months ended March 31, 2007 and 2006, respectively. This increase was
      primarily the result of $222,854 non-cash stock-based compensation expense
      in
      accordance with SFAS 123R, costs associated with being a public company, and
      approximately $177,000 in patent infringement litigation costs. We expect patent
      litigation costs will continue to increase during the remainder of 2007. As
      a
      percentage of net service revenues, general and administrative expenses
      increased to 36% from 34% for the three months ended March 31, 2007 and 2006,
      respectively.




Amortization
      of intangible assets consists of amortization of acquired software technologies
      over their estimated useful life of three years. These costs were $11,398 and
      $54,223 for the three months ended March 31, 2007 and 2006, respectively. These
      costs declined since certain intangible assets were fully amortized in early
      2006.




Research
      and development costs declined by 2.8% to $418,179 from $430,211 for the three
      months ended March 31, 2007 and 2006, respectively. The decrease was primarily
      attributable to the capitalization of internal software development costs during
      the quarter. As a percentage of net service revenues, research and development
      expenses decreased to 10.3% from 15.9% for the three months ended March 31,
      2007
      and 2006, respectively.





Other
      income for the three months ended March 31, 2007 was $233,075 as compared with
      $115,245 for the three months ended March 31, 2006. The change is primarily
      the
      result of interest income on the cash received in the CEA merger on February
      10,
      2006.




We
      experienced a net loss of $940,157 compared with net loss of $1,047,149 for
      the
      three months ended March 31, 2007 and 2006, respectively. The net loss for
      the
      three months ended March 31, 2007 was impacted primarily by increased revenues
      and interest income partially offset by non-cash stock-based compensation
      expense (approximately $257,000), costs associated with being a public company,
      and approximately $177,000 of legal costs related to a patent infringement
      lawsuit (see Part II - Item 1) .





Net
      loss
      attributable to common stockholders was $940,157 for the three months ended
      March 31, 2007 as compared with net loss attributable to common stockholders
      of
      $2,173,118 for the three months ended March 31, 2006. The three months ended
      March 31, 2006 included conversion of common stock warrants and accretion of
      preferred stock dividends of $1,125,969 for the three months ended March 31,
      2006.





***Liquidity
      and Capital Resources***




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





At
      March
      31, 2007 we had cash, cash equivalents and short-term investments of
      approximately $19.7 million. Our cash, cash equivalents and short-term
      investments decreased by approximately $304,000 during the three months ended
      March 31, 2007 primarily due to the purchase of property, equipment and
      inventory.





In
      the
      three months ended March 31, 2007 and 2006 operating activities used
      approximately $128,000 and $273,000 of net cash, respectively. The decrease
      in
      net cash used in operating activities was primarily due to a reduced net loss
      and an increase in accounts receivable, prepaid and non-cash expenses and
      inventory partially offset by an increase in accounts payable, and accrued
      expenses.


25





In
      the
      three months ended March 31, 2007 and 2006, investing activities provided
      approximately $1.4 million and used approximately $171,000 of net cash,
      respectively. The increase is primarily attributable to the net sales of
      $2,290,000 of short-term investment offset by approximately $696,000 in
      purchases of property and equipment. The Company has capitalized $173,842 and
      $102,108 of internal software development costs during the three months ended
      March 31, 2007 and 2006, respectively.




In
      the
      three months ended March 31, 2007 approximately $689,400 of net cash was
      provided by financing activities, as compared to approximately $19.6 in the
      three months ended March 31, 2006. The decrease was primarily the result of
      the
      net cash received in connection with the CEA merger in 2006.




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





Our
      backlog was approximately $19.8 million at March 31, 2007 compared to $17.7
      million at December 31, 2006 and $24.8 million at March 31, 2006. Our backlog
      includes both projects covered by contracts and projects for which customers
      have provided written confirmation that they have decided to award contracts
      or
      work orders to us for a specific project. The increase in backlog since December
      31, 2006 is primarily the result of an increase in new project bookings during
      the quarter (approximately $6.6 million of new project bookings during the
      first
      quarter of 2007 compared to $2.8 million during the first quarter of 2006)
      and a
      decrease in project cancellations experienced in 2007 as compared to 2006
      (approximately $380,000 of cancellations during the first quarter of 2007
      compared to $3.6 million during the first quarter of 2006). Project
      cancellations, which can be made by customers without penalty, are a normal
      part
      of the clinical research services industry and occur for a variety of reasons
      outside our control.  Some examples of reasons for cancellations are noted
      below:





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


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


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


·
              Adverse
                  and serious adverse reactions to the study
                  drug;


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


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





***Contractual
      Obligations***




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




We
      generally do not enter into binding purchase commitments. Our principal
      commitments are primarily for leases for office space and equipment and a
      capital lease for the purchase of third party software. At March 31, 2007,
      the
      future minimum payments under these commitments were as follows:




26


**Periods
                  Ending December 31,**
              
              **Capital
                  Leases**
              
              **Operating
                  Leases**2007
              
              
              49,520
              
              
              448,4482008
              
              
              31,676
              
              
              607,0982009
              
              
              26,642
              
              
              615,0812010
              
              
              122
              
              
              602,1682011
              
              
              -
              
              
              419,1252012
                  and thereafter
              
              
              -
              
              
              490,898Total
                  required lease payments
              
              $
              107,960
              
              $
              3,182,818Less
                  interest included
              
              
              (13,899
              )
              
              -Total
                  minimum payments
              
              
              94,062
              
              $
              3,182,818Current
                  portion of capital lease
              
              
              50,195Long
                  term portion of capital lease
              
              $
              43,867




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 March 31, 2007, we had
      $1,140,000 outstanding under the accounts receivable line of credit and $110,000
      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.




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





A
      company
      brought a patent infringement action against us in July 2006. See Item 1 of
      Part
      II of this Report. We expect to incur substantial litigation costs during the
      remainder of 2007 as this case has moved into the discovery phase on May 1,
      2007. We intend to vigorously defend our rights in this case. Many patents
      have
      been issued in our industry, some of which have been asserted in litigation.
      We
      expect intellectual property disputes and related litigation costs will be
      an
      ongoing risk to us. The risks that are most likely to cause unexpected adverse
      quarterly operating performance affects include project delays or cancellations
      by customers due to changes in the clinical trials being conducted by our
      customers, over which we have no control and which can be made by our customers
      without financial penalties under our customer contracts. Such changes by
      customers represent an ongoing risk each quarter.


27





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




•
            
            discuss
                future expectations;




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




•
            
            state
                other “forward-looking” information.





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





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





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




**Item
      3.    Controlsand
      Procedures** ******




An
      evaluation of the effectiveness of both our disclosure controls and procedures
      and of our internal control over financial reporting as of March 31, 2007 was
      made under the supervision and with the participation of management,
      including our chief executive officer and chief financial officer. The
      evaluations of our disclosure controls and procedures and our internal control
      over financial reporting include a review of the objectives, design and
      operation of the controls and the effect of the controls on the information
      generated for use in this Annual Report.





Based
      on
      that evaluation, we concluded that our disclosure controls and procedures are
      effective as of the end of the period covered by this report to ensure that
      information required to be disclosed by us in reports that we file or submit
      under the Securities Exchange Act of 1934 is recorded, processed, summarized
      and
      reported within the time periods specified in Securities and Exchange Commission
      rules and forms. During our review of the quarter ended March 31, 2007 our
      management corrected a previously identified weakness at December 31, 2006
      in
      our internal control over financial reporting related to our internal
      controls over the financial statement close process, especially in the area
      of appropriate accounting management review of certain critical accounts and
      the
      recognition of transactions in the proper accounting periods.




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




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





28


**PARTII
      - OTHER INFORMATION**





**Item
      1. LegalProceedings.**





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





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





**Item
      2. UnregisteredSales of Equity Securities and
      Use of
      Proceeds.**





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





**Item
      3. DefaultsUpon Senior Securities.**





None.





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





None.





**Item
      5. OtherInformation.**





None.





**Item
      6. Exhibits**





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





29




**SIGNATURES**






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




ETRIALS
                WORLDWIDE, INC.May
                14, 2007
            
            By:
            /s/
                JOHN K. CLINE
              John
                K. Cline
              President,
                Chief Executive Officer and Director (Principal Executive
                Officer)May
                14, 2007
            
            By:
            /s/
                JAMES W. CLARK, JR.
              James
                W. Clark, Jr.
              Chief
                Financial Officer (Principal Accounting and Financial
                Officer)



























30


**EXHIBITINDEX**




**Exhibit**
            **Description**3.1
            Certificate
                of Incorporation of the Registrant. (Incorporated by reference from
                Registration Statement No. 333-110365 on Form S-1 filed November
                10,
                2003).3.1.1
            Amended
                and Restated Certificate of Incorporation of the Registrant. (Incorporated
                by reference from Registration Statement No. 333-110365 on Form S-4
                filed
                October 28, 2005).3.2
            Bylaws
                of the Registrant (Incorporated by reference from Registration Statement
                No. 333-110365 on Form S-1 filed November 10, 2003).4.1
            Specimen
                Unit Certificate of Registrant (Incorporated by reference from
                Registration Statement No. 333-110365 on Form S-1 filed November
                10,
                2003).4.2
            Specimen
                Common Stock Certificate of Registrant (Incorporated by reference
                from
                Registration Statement No. 333-110365 on Form S-1 filed November
                10,
                2003).4.3
            Specimen
                Warrant Certificate of Registrant (Incorporated by reference from
                Registration Statement No. 333-110365 on Form S-1 filed November
                10,
                2003).4.4
            Form
                of Unit Purchase Option. (Incorporated by reference from Registration
                Statement No. 333-110365 on Form S-1 filed November 10,
                2003).4.5
            Form
                of Warrant Agreement between Continental Stock Transfer & Trust
                Company and the Registrant (Incorporated by reference from Registration
                Statement No. 333-110365 on Form S-1 filed November 10,
                2003).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.








31