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 June 30, 2007****or**o
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
  **Commission
        File Number: 000-50531**
  
 **ETRIALS
        WORLDWIDE, INC.**
 (Exact
        name of small business issuer as specified in its charter)
  **Delaware**
                (State
                  or other jurisdiction of
                incorporation
                  or organization)
              
              **20-0308891**
                (I.R.S.
                  Employer
                Identification
                  No.)**4000
                  Aerial Center Parkway**
                **Morrisville,
                  North Carolina 27560**
                (Address
                  of principal executive offices)**(919) 653-3400**
                (Issuer’s
                  telephone number)Securities
                  registered pursuant to Section 12(b) of the Act:
                **None**
  Check
        whether the issuer (1) has filed all reports required to be filed by
        Section 13 or 15(d) of the Securities Exchange Act during the past
        12 months (or for such shorter period that the registrant was required to
        file such reports), and (2) has been subject to such filing requirements
        for the past 90 days. ý Yes o No
   Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). o Yes ý No
  
  
   **ETRIALS
        WORLDWIDE, INC.**
 **QUARTERLY
        REPORT ON FORM 10-QSB**
 **FOR
        THE QUARTERLY PERIOD ENDED JUNE 30, 2007**
  **Tableof
        Contents**
  **Page********Part
                  I - FINANCIAL INFORMATION**Item
                  1.
              
              Financial
                  StatementsConsolidated
                  Balance Sheets as of June 30, 2007
                  (unaudited) and December 31, 2006
              
              3Consolidated
                  Statements of Operations (unaudited) for
                  the three and six months ended June 30, 2007 and 2006
              
              4Consolidated
                  Statement of Stockholders’ Equity (unaudited)
                  for the six months ended June 30, 2007
              
              5Consolidated
                  Statements of Cash Flows (unaudited) for
                  the six months ended June 30, 2007 and 2006
              
              6Notes
                  to Consolidated Financial Statements
                  (unaudited)
              
              7Item
                  2.
              
              Management's
                  Discussion and Analysis
              
              19Item
                  3.
              
              Controls
                  and Procedures
              
              30**Part
                  II - OTHER INFORMATION**Item
                  1.
              
              Legal
                  Proceedings
              
              31Item
                  2.
              
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              
              31Item
                  3.
              
              Defaults
                  Upon Senior Securities
              
              31Item
                  4.
              
              Submission
                  of Matters to a Vote of Security
                  Holders
              
              31Item
                  5.
              
              Other
                  Information
              
              31Item
                  6.
              
              Exhibits
              
              31Signatures
              
              32Exhibit
                  Index
              
              33
 
    2
   **Item
                    1. FinancialStatements****etrials
                    Worldwide, Inc.****Consolidated
                    BalanceSheets****June
                    30,**
                
                **December
                    31,****2007**
                
                **2006****(unaudited)****Assets**Current
                    assets:Cash
                    and cash equivalents
                
                $
                14,458,084
                
                $
                11,828,667Short-term
                    investments
                
                
                4,025,000
                
                
                8,160,293Accounts
                    receivable, net of allowance for doubtful accountsof
                    $21,000 and $22,000, respectively
                
                
                6,024,259
                
                
                4,980,350Inventory
                
                
                1,037,587
                
                
                -Prepaid
                    expenses and other current assets
                
                
                484,603
                
                
                408,786Total
                    current assets
                
                
                26,029,533
                
                
                25,378,096Property
                    and equipment, net of accumulated depreciation of$3,460,686
                    and $2,895,543, respectively
                
                
                2,379,320
                
                
                1,856,949Goodwill
                
                
                8,011,037
                
                
                8,011,037Developed
                    technology, net of accumulated amortization of$1,673,690
                    and $1,658,491, respectively
                
                
                -
                
                
                15,199Other
                    assets
                
                
                119,538
                
                
                117,021Total
                    assets
                
                $
                36,539,428
                
                $
                35,378,302**Liabilities
                    and Stockholders' Equity**Current
                    liabilities:Accounts
                    payable
                
                $
                1,744,919
                
                $
                804,471Accrued
                    expenses
                
                
                1,912,827
                
                
                1,976,226Deferred
                    revenue
                
                
                1,996,989
                
                
                2,013,533Bank
                    line of credit and other short-term borrowings
                
                
                1,301,829
                
                
                646,000Current
                    portion of capital lease obligations
                
                
                461,573
                
                
                74,796Total
                    current liabilities
                
                
                7,418,137
                
                
                5,515,026Capital
                    lease obligations, net of current portion
                
                
                243,137
                
                
                46,846Long-term
                    borrowings, net of current portion
                
                
                319,444
                
                
                20,000Total
                    liabilities
                
                
                7,980,718
                
                
                5,581,872Commitments
                    and contingenciesStockholders'
                    equity:Common
                    stock; $0.0001 par value; 50,000,000 shares authorized at June
                    30, 2007
                    and December 31, 2006; and 12,373,490 and 12,278,804 issued and
                    outstanding at June 30, 2007 and December 31, 2006,
                    respectively
                
                
                1,237
                
                
                1,228Additional
                    paid-in capital
                
                
                54,585,852
                
                
                53,629,085Deferred
                    compensation
                
                
                (31,073
                )
                
                (108,102
                )Accumulated
                    deficit
                
                
                (25,997,306
                )
                
                (23,725,781
                )Total
                    stockholders' equity
                
                
                28,558,710
                
                
                29,796,430Total
                    liabilities and stockholders' equity
                
                $
                36,539,428
                
                $
                35,378,302*See
                    accompanying notes.*
   3
   **etrials
                    Worldwide, Inc.****ConsolidatedStatements
                    of
                    Operations****(unaudited)****Three
                    Months Ended June 30**
                
                **Six
                    Months Ended June 30****2007**
                
                **2006**
                
                **2007**
                
                **2006**Net
                    service revenues
                
                $
                5,204,508
                
                $
                4,154,787
                
                $
                9,281,516
                
                $
                6,860,424Reimbursable
                    out-of-pocket revenues
                
                
                1,771,180
                
                
                1,939,611
                
                
                2,416,026
                
                
                1,993,637Total
                    revenues
                
                
                6,975,688
                
                
                6,094,398
                
                
                11,697,542
                
                
                8,854,061Costs
                    and expenses:Costs
                    of revenues
                
                
                2,157,285
                
                
                1,644,528
                
                
                4,333,588
                
                
                3,270,912Reimbursable
                    out-of-pocket expenses
                
                
                1,771,180
                
                
                1,939,611
                
                
                2,416,026
                
                
                1,993,637Sales
                    and marketing
                
                
                1,493,491
                
                
                945,490
                
                
                2,665,375
                
                
                1,766,144General
                    and administrative
                
                
                2,508,920
                
                
                1,264,979
                
                
                3,981,396
                
                
                2,185,647Amortization
                    of intangible assets
                
                
                3,801
                
                
                11,398
                
                
                15,199
                
                
                65,621Research
                    and development
                
                
                582,535
                
                
                473,776
                
                
                1,000,714
                
                
                919,878Total
                    cost and expenses
                
                
                8,517,212
                
                
                6,279,782
                
                
                14,412,298
                
                
                10,201,839Operating
                    loss
                
                
                (1,541,524
                )
                
                (185,384
                )
                
                (2,714,756
                )
                
                (1,347,778
                )Other
                    income (expenses):Interest
                    expense
                
                
                (21,700
                )
                
                (22,675
                )
                
                (41,031
                )
                
                (41,101
                )Interest
                    income
                
                
                242,127
                
                
                257,458
                
                
                496,022
                
                
                359,909Other
                    income, net
                
                
                (10,271
                )
                
                11,347
                
                
                (11,760
                )
                
                42,567Total
                    other income, net
                
                
                210,156
                
                
                246,130
                
                
                443,231
                
                
                361,375Net
                    (loss) income
                
                
                (1,331,368
                )
                
                60,746
                
                
                (2,271,525
                )
                
                (986,403
                )Dividends
                    and accretion of preferred stock
                
                
                -
                
                
                -
                
                
                -
                
                
                (95,969
                )Induced
                    converison of common stock warrants
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,030,000
                )Net
                    (loss) income attributable to common stockholders
                
                $
                (1,331,368
                )
                $
                60,746
                
                $
                (2,271,525
                )
                $
                (2,112,372
                )Net
                    (loss) income per share attributable to common
                    stockholders:Basic
                    and diluted
                
                $
                (0.12
                )
                $
                0.01
                
                $
                (0.21
                )
                $
                (0.23
                )Weighted
                    average common shares outstanding:Basic
                
                
                10,749,450
                
                
                10,795,750
                
                
                10,739,721
                
                
                9,191,573Diluted
                
                
                10,749,450
                
                
                11,606,432
                
                
                10,739,721
                
                
                9,191,573*See
                    accompanying notes.*
  
 
 
  4
  
 **etrials
                      Worldwide, Inc.****ConsolidatedStatements
                      of Stockholders'
                      Equity****(unaudited)****Additional****Common
                      Stock**
                  
                  **Paid-In**
                  
                  **Deferred**
                  
                  **Accumulated**
                  
                  **Stockholders’****Shares**
                  
                  **Amount**
                  
                  **Capital**
                  
                  **Compensation**
                  
                  **Deficit**
                  
                  **Equity**Balance
                      at December 31, 2006
                  
                  
                  12,278,804
                  
                  $
                  1,228
                  
                  $
                  53,629,085
                  
                  $
                  (108,102
                  )
                  $
                  (23,725,781
                  )
                  $
                  29,796,430Stock-based
                      compensation recorded in accordance with SFAS 123R
                  
                  
                  -
                  
                  
                  -
                  
                  
                  876,490
                  
                  
                  -
                  
                  
                  -
                  
                  
                  876,490Amortization
                      of deferred stock-based compensation
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  25,791
                  
                  
                  -
                  
                  
                  25,791Reversal
                      of employee stock compensation expense due to terminations
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (68,682
                  )
                  
                  51,238
                  
                  
                  -
                  
                  
                  (17,444
                  )Issuance
                      of restricted common stock
                  
                  
                  50,000
                  
                  
                  5
                  
                  
                  6,921
                  
                  
                  -
                  
                  
                  -
                  
                  
                  6,926Issuance
                      of common stock to consultant
                  
                  
                  10,727
                  
                  
                  1
                  
                  
                  50,416
                  
                  
                  -
                  
                  
                  -
                  
                  
                  50,417Exercise
                      of employee stock options
                  
                  
                  33,959
                  
                  
                  3
                  
                  
                  91,622
                  
                  
                  -
                  
                  
                  -
                  
                  
                  91,625Net
                      loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (2,271,525
                  )
                  
                  (2,271,525
                  )Balance
                      at June 30, 2007
                  
                  
                  12,373,490
                  
                  $
                  1,237
                  
                  $
                  54,585,852
                  
                  $
                  (31,073
                  )
                  $
                  (25,997,306
                  )
                  $
                  28,558,710*See
                      accompanying notes.*
  
  5
  **etrials
                    Worldwide, Inc.****ConsolidatedStatements
                    of Cash Flows****(unaudited)****Six
                    Months Ended June 30****2007**
                
                **2006****Operating
                    activities**Net
                    loss
                
                $
                (2,271,525
                )
                $
                (986,403
                )Adjustments
                    to reconcile net loss to net cash used in operating activities:Depreciation
                    and amortization
                
                
                584,792
                
                
                369,084Accretion
                    of discount on investments held-to-maturity
                
                
                (4,707
                )
                
                -Amortization
                    of prepaid software application-hosting discount
                
                
                -
                
                
                334,339Non-cash
                    compensation expense
                
                
                942,180
                
                
                283,715Provision
                    for allowance for doubtful accounts
                
                
                (1,000
                )
                
                17,000Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                (1,042,909
                )
                
                (3,085,476
                )Prepaid
                    expenses and other assets
                
                
                (78,334
                )
                
                (71,087
                )Inventory
                
                
                (1,037,587
                )
                
                -Accounts
                    payable and accrued expenses
                
                
                877,049
                
                
                1,240,933Deferred
                    revenue
                
                
                (16,544
                )
                
                (3,335
                )Net
                    cash used in operating activities
                
                
                (2,048,585
                )
                
                (1,901,230
                )**Investing
                    activities**Purchase
                    of property and equipment
                
                
                (207,040
                )
                
                (224,991
                )Capitalized
                    internal software development costs
                
                
                (242,794
                )
                
                (212,652
                )Sales
                    (purchases) of short-term investments, net
                
                
                4,140,000
                
                
                (1,551,228
                )Net
                    cash provided by (used in) investing activities
                
                
                3,690,166
                
                
                (1,988,871
                )**Financing
                    activities**Net
                    proceeds from bank line of credit
                
                
                474,000
                
                
                579,415Borrowings
                    from bank equipment and other loans
                
                
                608,800
                
                
                -Payments
                    on bank equipment and other loans
                
                
                (127,527
                )
                
                (60,000
                )Principal
                    payments on capital leases
                
                
                (59,062
                )
                
                (60,358
                )Proceeds
                    from issuance of stock options and warrants
                
                
                91,625
                
                
                196,633Proceeds
                    from issuance of common stock in reverseacquisition
                    of CEA, net of issuance costs
                
                
                -
                
                
                20,428,005Net
                    cash provided by financing activities
                
                
                987,836
                
                
                21,083,695Effect
                    of exchange rate changes on cash
                
                
                -
                
                
                2,578Net
                    increase in cash and cash equivalents
                
                
                2,629,417
                
                
                17,196,172Cash
                    and cash equivalents at beginning of year
                
                
                11,828,667
                
                
                1,650,323Cash
                    and cash equivalents at end of year
                
                $
                14,458,084
                
                $
                18,846,495**Supplemental
                    cash flow information**Capital
                    lease additions
                
                $
                642,130
                
                $
                -Cash
                    paid for interest
                
                $
                34,223
                
                $
                40,243*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 six months
        ended June 30, 2006.
 
 ***Shares
        Held in Escrow***
 
 A
        total
        of 1,400,000 shares of common stock of the Company issued to etrials
        stockholders in the merger with CEA and 166,250 shares of common stock of
        former
        CEA shareholders (including all CEA officers and directors) were placed in
        escrow (“Trigger shares”) and will not be released unless and until, over a 20
        consecutive trading day period (i) the volume weighted average price of etrials
        common stock is $7.00 or more, and (ii) the average daily trading volume
        is at
        least 25,000 shares. The Trigger shares will be cancelled if these conditions
        are not met by February 19, 2008.
 
 ***Series
        A and Series B Redeemable Convertible Preferred Stock***
  In
        connection with the reverse acquisition of CEA in February 2006, all of the
        outstanding shares of Series A and Series B Redeemable Convertible Preferred
        Stock of etrials plus accrued dividends were converted into 3,395,369 shares
        of
        common stock and 1,945,741 warrants of the Company. The Company accreted
        an
        aggregate $95,969 of dividends related to its redeemable convertible preferred
        stock for the six months ended June 30, 2006.
 
 ***Unaudited
        Interim Financial Statements***
  The
        accompanying consolidated balance sheet as of June 30, 2007, consolidated
        statements of operations for the three and six months ended June 30, 2007
        and
        2006, consolidated statements of cash flows for the six months ended June
        30,
        2007 and 2006 and consolidated statement of stockholders’ equity for the six
        months ended June 30, 2007 are unaudited. The unaudited financial statements
        include all adjustments (consisting of normal recurring adjustments) which
        are,
        in the opinion of management, necessary for a fair presentation of such
        financial statements. The information disclosed in the notes to the financials
        statements for these periods is unaudited. The results of operations for
        the
        three and six months ended June 30, 2007 are not necessarily indicative of
        the
        results to be expected for the entire fiscal year or for any future period.
 
 **2.
        Summary of Significant Accounting Policies**
  ***Principles
        of Consolidation***
  The
        consolidated financial statements include the accounts of the Company and
        its
        wholly owned subsidiaries, etrials, Inc. and etrials Worldwide LTD. All
        significant intercompany accounts and transactions have been eliminated in
        consolidation.
 
 ***Reclassifications***
  Certain
        prior year balances have been reclassified to conform to the presentation
        of the
        current year. Such reclassifications had no effect on previously reported
        net
        loss or stockholders' equity.
   ***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 June 30, 2007, the Company has not experienced any material
        losses on uncompleted contracts.
 
 The
        following summarizes the components of the revenues recognized:
 **Three
                    Months Ended June 30**
                
                **Six
                    Months Ended June 30****2007**
                
                **2006**
                
                **2007**
                
                **2006**Services
                
                $
                3,816,242
                
                $
                2,963,993
                
                $
                6,846,443
                
                $
                4,704,878Software
                    subscriptions and usage fees
                
                
                917,379
                
                
                844,078
                
                
                1,601,509
                
                
                1,472,134Hosting
                    fees
                
                
                470,887
                
                
                346,716
                
                
                833,564
                
                
                683,412Net
                    service revenues
                
                
                5,204,508
                
                
                4,154,787
                
                
                9,281,516
                
                
                6,860,424Reimbursable
                    out-of-pocket revenues
                
                
                1,771,180
                
                
                1,939,611
                
                
                2,416,026
                
                
                1,993,637Total
                
                $
                6,975,688
                
                $
                6,094,398
                
                $
                11,697,542
                
                $
                8,854,061
 
  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 $242,794 and $212,652 of internal software development
        costs during the six months ended June 30, 2007 and 2006, respectively.
  ***Warranties
        and Indemnification***
  The
        Company’s hosting service is typically warranted to perform in a manner
        consistent with general industry standards that are reasonably applicable
        and
        substantially in accordance with the Company’s online help documentation under
        normal use and circumstances. The Company’s arrangements also include certain
        provisions for indemnifying customers against liabilities if its products
        or
        services infringe on a third party’s intellectual property rights. The Company
        has not previously incurred costs to settle claims or pay awards under these
        indemnification obligations. The Company accounts for these indemnity
        obligations in accordance with Statement of Financial Accounting Standard
        (SFAS)
        No. 5, *Accounting
        for Contingencies,* and
        records a liability for these obligations when a loss is probable and reasonably
        estimable. The Company has not recorded any liabilities for these agreements
        as
        of June 30, 2007.
  10
  
  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.
 
 ***Inventory***
 
 The
        Company accounts for electronic patient diaries purchased for future clinical
        trials which will be billed to its clients as reimbursable out-of-pocket
        revenues and expenses, as inventory. Inventory is valued at the lower of
        cost or
        market value and is allocated on a first in - first out method.
 
 ***Intangible
        Assets***
  During
        April 2004, the Company entered into an Asset Purchase Agreement (the Purchase
        Agreement) with Authentrics, Inc. (Authentrics) whereby the Company
        acquired an interactive voice recognition system technology (Acquired
        Technology) and certain other assets in exchange for 24,538 shares of common
        stock. The total cost of Acquired Technology of $132,000 is being amortized
        on a
        straight-line basis over its estimated useful life of three years. The Company
        recorded amortization expense of $15,199 and $65,621 for the six months ended
        June 30, 2007 and 2006, respectively, related to these assets.
 
 ***Long-Lived
        Assets***
  In
        accordance with SFAS No. 144, *Accounting
        for the Impairment or Disposal of Long-Lived Assets* ,
        the
        Company reviews its long-lived assets including property and equipment and
        its
        developed technology, whenever events or changes in circumstances indicate
        that
        the carrying amount of the assets may not be fully recoverable. To determine
        the
        recoverability of its long-lived assets, the Company evaluates the probability
        that future estimated undiscounted net cash flows will be less than the carrying
        amount of the assets. If such estimated cash flows are less than the carrying
        amount of the long-lived assets, then such assets are written down to their
        fair
        value. The Company’s estimates of anticipated cash flows and the remaining
        estimated useful lives of long-lived assets could be reduced in the future,
        resulting in a reduction to the carrying amount of long-lived assets.
  ***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 June 30, 2007 and December 31, 2006, based
        on
        their short-term nature or underlying variable interest rate.
 
 ***Foreign
        Currency***
  The
        reporting currency for the Company is the U.S. dollar. Effective April 1,
        2006,
        following a restructuring of the Company’s foreign subsidiary in the United
        Kingdom, the Company determined that the functional currency of its United
        Kingdom operations is the U.S. dollar. Prior to April 1, 2006 the functional
        currency of its United Kingdom operations was the local currency.
 
 The
        financial statements of the Company’s foreign subsidiary in the United Kingdom
        are translated in accordance with SFAS No. 52, *Foreign
        Currency Translation* .
        Prior
        to April 1, 2006 assets and liabilities denominated in foreign currencies
        were
        translated into U.S. dollars at current exchange rates. Operating results
        were
        translated into U.S. dollars using the average rates of exchange prevailing
        during the period. Gains or losses resulting from the translation of assets
        and
        liabilities were included as a component of accumulated other comprehensive
        income in stockholders’ (deficit) equity. Effective April 1, 2006 remeasurement
        adjustments for non-functional currency monetary assets and liabilities are
        included in other income (net) in the accompanying consolidated statements
        of
        operations.
  ***Net
        Loss 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**
                
                **Six
                    Months Ended****June
                    30**
                
                **June
                    30****2007**
                
                **2006**
                
                **2007**
                
                **2006**Unvested
                    restricted common stock
                
                
                50,000
                
                
                -
                
                
                50,000
                
                
                -Unit
                    purchase options
                
                
                1,050,000
                
                
                1,050,000
                
                
                1,050,000
                
                
                1,050,000Stock
                    options outstanding
                
                
                2,834,675
                
                
                1,209,253
                
                
                2,834,675
                
                
                2,716,630Warrants
                    outstanding
                
                
                12,350,000
                
                
                12,350,000
                
                
                12,350,000
                
                
                12,350,000
  In
        addition, the 1,566,250 shares of common stock held in escrow as of June
        30,
        2007 in connection with the reverse acquisition of CEA have been excluded
        from
        the computation of basic and diluted loss per share in accordance with SFAS
        128.
 
 ***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, 214,494 shares are available for future stock
        option grants as of June 30, 2007. On May 18, 2007 the Board of Directors
        approved an increase in the number of options issuable pursuant to the Plan
        to
        3,500,000, subject to approval by the shareholders at the next Annual Meeting.
  The
        Board
        has the authority to administer the Plan and determine, among other things,
        the
        interpretation of any provisions of the Plan, the number of options that
        an
        individual may be granted, vesting schedules and option exercise prices.
        With
        few exceptions, stock options granted under the Plan have vesting periods
        of
        three to five years, have a contractual life not to exceed five or ten years,
        and have exercise prices equal to the estimated fair market value of the
        Company’s common stock on the grant date.
  **3.
        Cash, Cash Equivalents and Short-term Investments**
 
 Cash,
        cash equivalents and short-term investments were as follows:
 **June
                    30**
                
                **December
                    31****2007**
                
                **2006**Cash
                
                $
                2,221,003
                
                $
                3,115,362Money
                    market
                
                
                10,499,876
                
                
                6,024,155U.S.
                    agency notes
                
                
                1,737,205
                
                
                2,689,150Total
                    cash and cash equivalents
                
                $
                14,458,084
                
                $
                11,828,667Auction
                    rate securities
                
                $
                4,025,000
                
                $
                6,600,000Corporate
                    bonds
                
                
                -
                
                
                1,560,293Total
                    short-term investments
                
                $
                4,025,000
                
                $
                8,160,293
  **4.
        Accounts Receivable**
  Accounts
        receivable consists of the following:
 
 **June
                    30**
                
                **December
                    31****2007**
                
                **2006**Billed
                    accounts receivable
                
                $
                3,238,262
                
                $
                3,394,583Unbilled
                    accounts receivable
                
                
                2,806,997
                
                
                1,607,767Total
                    accounts receivable
                
                
                6,045,259
                
                
                5,002,350Allowance
                    for doubtful accounts
                
                
                (21,000
                )
                
                (22,000
                )$
                6,024,259
                
                $
                4,980,350
 
  13
  **5.
        Accrued Expenses**
  Accrued
        expenses consist of the following:
 **June
                    30**
                
                **December
                    31****2007**
                
                **2006**Accrued
                    professional fees
                
                $
                159,157
                
                $
                97,881Accrued
                    client reimbursable expenses
                
                
                -
                
                
                866,032Accrued
                    other expenses
                
                
                894,167
                
                
                545,194Accrued
                    compensation
                
                
                501,708
                
                
                206,106Accrued
                    vacation
                
                
                357,795
                
                
                261,013$
                1,912,827
                
                $
                1,976,226
 
  **6.
        Debt**
  Debt
        consists of the following:
 **June
                    30**
                
                **December 31****2007**
                
                **2006**Borrowings:Bank
                    line of credit, with an interest rate of 8.5% at June 30,
                    2007
                
                $
                1,000,000
                
                $
                526,000Bank
                    equipment loan, with an interest rate of 9.25% at June 30,
                    2007
                
                
                80,000
                
                
                140,000Bank
                    equipment loan, with an interest rate of 9.0% at June 30,
                    2007
                
                
                486,110
                
                
                -Note
                    payable, with an interest rate of 7.15%
                
                
                55,163
                
                
                -Total
                    borrowings
                
                
                1,621,273
                
                
                666,000Bank
                    line of credit and other short-term borrowings
                
                
                1,301,829
                
                
                646,000Long-term
                    borrowings, less current portion
                
                $
                319,444
                
                $
                20,000
  **Bank
        Line of Credit**
  On
        February 1, 2005, the Company entered into two loan agreements with RBC
        Centura Bank. These loan agreements were modified on May 31, 2006 when a
        third
        loan agreement was added and on May 31, 2007 when a fourth loan agreement
        was
        added. The first agreement is a $2,000,000 revolving accounts receivable
        line of
        credit which provides for borrowings up to 80% of current accounts receivable
        balance at the prime rate of interest plus 0.25%. This line of credit has
        $1,000,000 outstanding as of June 30, 2007, and these borrowings are secured
        primarily by accounts receivable. The second agreement is a $300,000 equipment
        line of credit which has $80,000 outstanding as of June 30, 2007. This loan
        funds equipment purchases and provides for interest at the bank’s prime rate of
        interest plus 1.0%. Borrowings under the equipment line of credit are being
        paid
        over a period of thirty months. The third agreement is a $500,000 equipment
        loan
        which has $486,111 outstanding as of June 30, 2007. Borrowings under this
        equipment loan are being paid over a period of thirty-six months at the bank’s
        prime rate of interest plus 0.75%. The fourth agreement is a $500,000 equipment
        line of credit. This loan will be available to fund equipment purchases and
        provides for interest at the bank’s prime rate of interest plus 0.75%.
        Borrowings under the equipment line of credit, if any, will be paid over
        a
        period of thirty-six months. The Company has not had any borrowings under
        this
        equipment loan as of June 30, 2007. The capital equipment borrowings are
        secured
        by the fixed assets that were acquired.
 
 **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.
  14
  
 
 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 June 30, 2007, the Company had outstanding 12,350,000
        warrants to purchase common stock. Each warrant entitles the holder to purchase
        from the Company one share of common stock at an exercise price of $5.00
        per
        share on the terms and conditions set forth in the warrants and the warrant
        agreement governing the warrants. The warrants expire on February 12, 2008,
        unless redeemed before that time. The warrants are redeemable at the option
        of
        the Company at a price of $.01 per warrant upon 30 days notice by the
        Company after the warrants become exercisable, only in the event that the
        last
        sale price of the common stock of the Company is at least $8.50 per share
        for
        any 20 trading days within a 30 trading day period ending on the third day
        prior
        to the date on which notice of redemption is given.
  In
        addition, 700,000 warrants underlying an underwriters’ purchase option are
        subject to the same terms and conditions as the outstanding warrants of the
        Company described above, except that the exercise price is $6.40 per share.
        The
        exercise price and number of units issuable upon exercise of the underwriters’
purchase option may be adjusted in certain circumstances, including issuances
        of
        a stock dividend, recapitalization, reorganization, merger or consolidation.
        However, the option will not be adjusted for issuances at a price below its
        exercise price. The holders of the underwriters’ purchase option have
        demand and piggy-back registration rights under the Securities Act for periods
        of five and seven years, respectively, from the date of the initial public
        offering of the Company with respect to registration of the securities directly
        and indirectly issuable upon exercise of the underwriters’ purchase option.
  As
        of
        June 30, 2007, the Company had reserved a total of 16,449,169 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
                
                
                2,834,675Reserved
                    for future stock option grants
                
                
                214,494Common
                    stock warrants outstanding
                
                
                12,350,000Total
                    shares reserved for future issuance
                
                
                16,449,169
 
 
  15
  **9.
        Stock Based Compensation**
 
 Effective
        with the adoption of SFAS No. 123R, the Company has elected to use the
        Black-Scholes-Merton option pricing model to determine the weighted average
        fair
        value of options granted. The Company has a limited trading history for its
        common stock as it began trading on the NASDAQ National Market on February
        10,
        2006. Accordingly, the Company has determined the volatility for options
        granted
        in 2006 based on an analysis of reported data for a peer group of companies
        that
        have issued stock options with substantially similar terms. The expected
        life of
        options granted by the Company has been determined based upon the “simplified”
method as allowed under the provisions of the Securities and Exchange
        Commission’s Staff Accounting Bulletin No. 107 (“SAB 107”) and represents the
        period of time that options granted are expected to be outstanding. The
        risk-free interest rate is based on a treasury instrument whose term is
        consistent with the expected life of the stock options. The Company has not
        paid
        and does not anticipate paying cash dividends on its shares of common stock;
        therefore, the expected dividend yield is assumed to be zero. In addition,
        SFAS
        No. 123R requires companies to utilize an estimated forfeiture rate
        when calculating the expense for the period, whereas, SFAS No. 123
        permitted companies to record forfeitures based on actual forfeitures. As
        a
        result, using historical data among other factors, the Company has applied
        an
        estimated forfeiture rate of 5.93% in determining the expense recorded in
        the
        Company’s consolidated statement of operations.
  During
        the three months ending June 30, 2007, the Company granted 50,000 shares
        of
        restricted stock to a new member of senior management. The shares vest ratably
        on a quarterly basis over four years. The Company measured the fair value
        of
        these awards at $4.70 based on the closing price of its common stock at the
        date
        of grant, which is being amortized to compensation expense ratable over the
        four
        year service period. The Company recorded approximately $6,921 of compensation
        expense during the three months ended June 30, 2007 in connection with the
        issuance of this restricted stock award.
  In
        addition, the Company granted 10,727 common shares to a consultant in connection
        with the recruiting of a new member of senior management during the three
        months
        ended June 30, 2007. The Company measured the fair value of this award at
        $4.70
        based on the closing price of its common stock at the date of grant. The
        Company
        recorded approximately $50,417 to general and administrative expense during
        the
        three months ended June 30, 2007 in connection with this common stock award..
  The
        weighted average exercise price of options granted during the six months
        ended
        June 30, 2007 was $4.61. There were 476,202 options granted during the six
        months ended June 30, 2007. The weighted-average assumptions utilized to
        determine the above values are indicated in the following table:
  **Six
                  Months Ended June 30,****2007**Expected
                  dividend yield
              0%Expected
                  volatility
              100%Risk-free
                  interest rate
              4.72%Expected
                  life (in years)
              4.00
 
  During
        the six months ended June 30, 2007, the Company recorded $884,837 of stock-based
        compensation expense, of which $876,490 was related to options issued subsequent
        to the adoption of SFAS No. 123R. The compensation expense recorded during
        the six months ended June 30, 2007 reduced both basic and diluted earnings
        per
        share by $0.08. As of June 30, 2007, there was $3,238,017 of unrecognized
        compensation expense related to non-vested share awards issued under SFAS
        No.
        123R that is expected to be recognized over a weighted-average period of
        3.12
        years. Net cash provided by operating and financing activities was unchanged
        for
        the period ended June 30, 2007, since there were no excess tax benefits from
        stock-based compensation plans. The remaining stock-based compensation expense
        is due to the amortization of previously recorded deferred compensation,
        for
        stock options that have continued to be accounted for under APB Opinion No.
        25
        in accordance with the prospective transition method of SFAS 123R. As of
        June
        30, 2007, there was $31,073 of unamortized deferred compensation recorded
        related to such options.
   16
  
  The
        following summarizes the activity of the Plan for the six months ended June
        30,
        2007:
 **Weighted****Average****Weighted**
                
                **Aggregate**
                
                **Remaining****Number
                    of**
                
                **Average**
                
                **Intrinsic**
                
                **Contractual****Shares**
                
                **Exercise
                    Price**
                
                **Value**
                
                **Term
                    (years)**Outstanding
                    at December 31, 2006
                
                
                2,775,914
                
                $
                3.82Granted
                
                
                476,202
                
                
                4.61Exercised
                
                
                (33,959
                )
                
                2.70Canceled
                
                
                (383,482
                )
                
                5.09Outstanding
                    at June 30, 2007
                
                
                2,834,675
                
                $
                3.80
                
                $
                3,727,353
                
                
                4.13Exercisable
                    at June 30, 2007
                
                
                1,552,096
                
                $
                2.95
                
                $
                3,238,017
                
                
                3.95Vested
                    or expected to vest at June 30, 2007
                
                
                
                
                
                
                
                $
                3,238,017
  The
        total
        intrinsic value of options exercised during the six months ended June 30,
        2007
        and 2006 were $98,170 and $168,334, respectively.
 
 Selected
        information regarding stock options as of June 30, 2007 is as
        follows:
 **Options
                    Outstanding**
                
                **Options
                    Exercisable****Weighted****Average**
                
                **Weighted**
                
                
                
                **Weighted****Remaining**
                
                **Average**
                
                
                
                **Average****Number
                    of**
                
                **Life**
                
                **Exercise**
                
                **Number
                    of**
                
                **Exercise****Exercise
                    Price**
                
                **Shares**
                
                **(in
                    Years)**
                
                **Price**
                
                **Shares**
                
                **Price**$0.57
                -
                $1.14
                
                55,120
                
                0.89
                
                0.91
                
                55,120
                
                0.91$1.14
                -
                $1.71
                
                157,788
                
                2.29
                
                1.63
                
                157,788
                
                1.63$1.71
                -
                $2.28
                
                1,011,428
                
                4.91
                
                2.01
                
                883,836
                
                1.99$3.43
                -
                $4.00
                
                38,000
                
                4.57
                
                3.69
                
                -
                
                -$4.00
                -
                $4.57
                
                215,018
                
                5.47
                
                4.35
                
                66,596
                
                4.37$4.57
                -
                $5.14
                
                420,958
                
                4.91
                
                4.74
                
                689
                
                5.08$5.14
                -
                $5.71
                
                936,363
                
                3.10
                
                5.71
                
                388,067
                
                5.712,834,675
                
                4.13
                
                $
                    3.80
                
                1,552,096
                
                $
                    2.95
 
  **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 June 30, 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 June 30, 2007, the Company had no accrued interest related to uncertain
        tax positions.
  The
        Company has its tax years of 2003 - 2006 open to examination by federal tax
        and
        2001 - 2006 for state tax jurisdictions. The Company’s only foreign subsidiary
        is in the United Kingdom and it has its tax years of 2005 - 2006 open to
        examination. The Company has not been informed by any tax authorities for
        any
        jurisdiction that any of its tax years are under examination as of June 30,
        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
   **Item2.
        Management’s Discussion and Analysis**
  The
        following discussion and analysis of our financial condition and results
        of
        operations should be read in conjunction with our unaudited condensed
        consolidated financial statements and related notes that appear elsewhere
        in
        this Quarterly Report on Form 10-QSB. In addition to historical
        consolidated financial information, the following discussion contains
        forward-looking statements that reflect our plans, estimates and beliefs.
        Our
        actual results could differ materially from those discussed in the
        forward-looking statements. Factors that could cause or contribute to these
        differences include those discussed below and elsewhere in this Quarterly
        Report
        on Form 10-QSB, as well as in our Form 10-KSB filed on March 30,
        2007.
   ***Overview*** **
  We
        offer
        a broad range of Web-based electronic data capture, handheld device, and
        interactive voice recognition software and services uniquely designed to
        speed
        the process of clinical trials performed for drug development. Our primary
        focus
        is on the costly and time-consuming clinical trial phase of drug development.
        We
        provide pharmaceutical and biotechnology companies with integrated software
        tools and services designed to significantly reduce the time spent collecting
        clinical trials data, managing clinical trials performance, and which provides
        an automated and easy-to-use mechanism to collect data directly from clinical
        investigators and patients. We believe that our automated data collection
        software enables our customers to reduce overall clinical trial research
        costs,
        enhance existing data quality and time to close a study database.
  Our
        operations are subject to certain risks and uncertainties, including among
        others, rapid technological change, increased competition from existing
        competitors and new entrants, lack of operating history, and dependence upon
        key
        members of the management team. The operating results are also affected by
        general economic conditions affecting the pharmaceutical and biotechnology
        industry.
  Industry
        analysts and commentators have estimated that the growth in the use of eClinical
        technologies will continue to accelerate. We will have to continue to expand
        our
        customer base and technologies in order to maintain and grow our market share.
        Since 2002 the number of active eClinical trials being performed by us has
        grown
        from approximately 24 to 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 written confirmations from clients
        that they have decided to award us contracts or work orders for specific
        projects, which means that our backlog includes projects for which we do
        not
        have contracts or project work orders signed by customers. The amount of
        backlog
        is the total amount of the project budget agreed upon by the client and us
        less
        revenue previously recognized by us on each project. Customer delays in
        conducting clinical trials and the ability of customers to cancel projects
        without penalty means that our backlog is not a guaranty as to the amount
        or
        timing of future revenue.
 
 ***Cost
        of Revenues and Operating Expenses***
  We
        allocate overhead expenses such as rent, occupancy charges, certain office
        administrative costs, depreciation and employee benefit costs to all departments
        based on headcount. As such, general overhead expenses are reflected in the
        costs of revenues, sales and marketing, research and development, and general
        and administrative expense categories. Overhead costs that can be specifically
        identifiable back to the applicable functional area are charged to that
        functional area.
  *Costs
        of Revenues* - Costs
        of revenues consists primarily of compensation and related fringe benefits
        for
        project-related personnel, department management and all other dedicated
        project
        related costs and indirect costs including facilities, information systems,
        hosting facility fees, server depreciation, amortization of capitalized internal
        software development costs, software license and royalty costs and other
        costs.
        Costs can fluctuate and impact our expenses based upon employee utilization
        levels associated with specific projects.
  20
  
 
 *Reimbursable
        Out-of-pocket Revenues* -
        Reimbursable out-of-pocket revenues and corresponding expenses consist of
        client
        pass-through costs which can fluctuate quarterly based upon contract activity.
  *Sales
        and Marketing* - Sales
        and marketing expenses consist primarily of employee-related expenses, including
        travel, marketing programs (which include product marketing expenses such
        as
        trade shows, workshops and seminars, corporate communications, other brand
        building and advertising), allocated overhead and commissions. We expect
        that
        sales and marketing expenses will increase as we expand and further penetrate
        our customer base, expand our domestic and international selling and marketing
        activities associated with existing and new product and service offerings,
        build
        brand awareness and sponsor additional marketing events.
  *Research
        and Development* -
        Research and development expenses consist primarily of employee-related
        expenses, allocated overhead and outside contractors. We have historically
        focused our research and development efforts on increasing the functionality,
        performance and integration of our software products. We expect that in the
        future, research and development expenses will increase as we introduce
        additional integrated software solutions to our product suite. We capitalize
        certain internal software development costs for new software products and
        releases, which are incurred during the application development stage and
        amortize them over the software’s estimated useful life of one to three years.
        The amortization of such capitalized costs is included in costs of revenues.
  *General
        and Administrative* -
        General and administrative expenses consist primarily of employee-related
        expenses, professional fees, other corporate expenses and allocated overhead.
        We
        expect that in the future, general and administrative expenses will increase
        as
        we add personnel and incur additional professional fees and insurance costs
        related to being a publicly held company. We also expect to incur significant
        legal costs to defend the patent related lawsuit recently commenced against
        us,
        which will adversely impact general and administrative expenses in future
        periods.
  *Amortization
        of Intangible Assets* - Our
        amortization costs of intangible assets represents the amortization on a
        straight-line basis of acquired technologies over their estimated useful
        lives,
        which is typically three years.
  *Stock-Based
        Compensation Expenses* - Our
        operating expenses include stock-based compensation expenses related to the
        fair
        value of options issued to non-employees and option grants to employees in
        situations where the exercise price is determined to be less than the deemed
        fair value of our common stock at the date of grant. Operating expenses also
        include stock-based compensation expense in accordance with SFAS
        123R.
 
 ***Foreign
        Currency***
  The
        reporting currency for the Company is the U.S. dollar. Effective April 1,
        2006,
        following a restructuring of the Company’s foreign subsidiary in the United
        Kingdom, the Company has determined that the functional currency of its United
        Kingdom operations is the U.S. dollar. Prior to April 1, 2006 the functional
        currency of its United Kingdom operations was the local currency.
 
 The
        financial statements of the Company’s foreign subsidiary in the United Kingdom
        are translated in accordance with SFAS No. 52, *Foreign
        Currency Translation* .
        Prior
        to April 1, 2006 assets and liabilities denominated in foreign currencies
        were
        translated into U.S. dollars at current exchange rates. Operating results
        were
        translated into U.S. dollars using the average rates of exchange prevailing
        during the period. Gains or losses resulting from the translation of assets
        and
        liabilities are included as a component of accumulated other comprehensive
        income in stockholders’ equity (deficit). Effective April 1, 2006 remeasurement
        adjustments for non-functional currency monetary assets and liabilities are
        included in other income (net) in the accompanying consolidated statements
        of
        operations.
 
 ***Critical
        Accounting Policies and Estimates***
  The
        discussion and analysis of our financial condition and results of operations
        are
        based upon our consolidated financial statements, which have been prepared
        in
        accordance with accounting principles generally accepted in the United States
        of
        America. The preparation of these financial statements requires us to make
        significant estimates and judgments that affect the reported amounts of assets,
        liabilities, revenues and expenses, and related disclosure of contingent
        assets
        and liabilities. These items are regularly monitored and analyzed by management
        for changes in facts and circumstances, and material changes in
  21
  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 edits checks, investigator
        site training, and implementation of the system and server configuration.
        The
        second stage (study conduct) consists of project management services,
        application hosting and related professional and support services. The third
        stage (close out) consists of services required to close out, or lock, the
        database for the clinical trial and deliver final data sets to the client.
  Services
        provided during the three phases of clinical trials are typically earned
        under
        fixed-price contracts. Although we enter into master agreements with each
        customer, the master agreements do not contain any minimum commitment by
        customers and contain general terms and conditions. All services and revenues
        are covered by separately negotiated addendums called task orders. Revenues
        generated from each project or task order are generally recognized using
        the
        proportional performance method, measured principally by the total labor
        hours
        incurred as a percentage of estimated total labor hours for each contract.
        This
        method is used because management considers total labor hours incurred to
        be the
        best available measure of progress on these contracts. The estimated total
        labor
        hours of contracts are reviewed and revised periodically throughout the duration
        of the contracts with adjustment to revenues from such revisions being recorded
        on a cumulative basis in the period in with the revisions are made. When
        estimates indicate a loss, such loss is recognized in the current period
        in its
        entirety. Because of the inherent uncertainties in estimating total labor
        hours,
        it is reasonably possible that the estimates will change in the near term
        and
        could result in a material change.
  Customers
        generally have the ability to terminate contracts upon 30 days written
        notice. In the event that a customer cancels a clinical trial and its related
        task order, deferred revenue is recognized for the work performed prior to
        termination and certain termination related fees may be charged. Consequently,
        termination of a contact may result in us recognizing more revenue during
        the
        period in which the termination occurs.
  Deferred
        revenue represents amounts billed or cash received in advance of revenue
        recognition. Included in accounts receivable are unbilled accounts receivable,
        which represent revenue recognized in excess of amounts billed.
   22
  
 Provisions
        for estimated losses on uncompleted contracts are made on a contract-by-contract
        basis and are recognized in the period in which such losses become probable
        and
        can be reasonably estimated. To date, we have not experienced any material
        losses on uncompleted contracts.
  The
        Company generally does not require collateral as a substantial amount of
        the
        revenues are generated from recurring customers. Management performs periodic
        reviews of the aging of customer balance, the current economic environment
        and
        its industry experience and establishes an allowance on accounts receivable
        based on these reviews.
 
 The
        following summarizes the components of our revenues:
 
 **Three
                    Months Ended June 30**
                
                **Six
                    Months Ended June 30****2007**
                
                **2006**
                
                **2007**
                
                **2006**Services
                
                $
                3,816,242
                
                $
                2,963,993
                
                $
                6,846,443
                
                $
                4,704,878Software
                    subscriptions and usage fees
                
                
                917,379
                
                
                844,078
                
                
                1,601,509
                
                
                1,472,134Hosting
                    fees
                
                
                470,887
                
                
                346,716
                
                
                833,564
                
                
                683,412Net
                    service revenues
                
                
                5,204,508
                
                
                4,154,787
                
                
                9,281,516
                
                
                6,860,424Reimbursable
                    out-of-pocket revenues
                
                
                1,771,180
                
                
                1,939,611
                
                
                2,416,026
                
                
                1,993,637Total
                
                $
                6,975,688
                
                $
                6,094,398
                
                $
                11,697,542
                
                $
                8,854,061
  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 June 30, 2006, which reflects the fair value
        of
        the total shares of common stock issued to the customer as of February 8,
        2006
        less the discounts previously recorded.
  23
  
 
 ** ***Accounting
        for Stock-Based Compensation***
  In
        December 2004, the FASB issued SFAS No. 123 (revised 2004), *Share
        Based Payment* (SFAS 123R).
        SFAS 123R replaces SFAS 123 and supersedes APB 25 *.* SFAS 123R requires that the cost resulting from all share-based payment
        transactions be recognized in the financial statements using the fair value
        method. The provisions of SFAS 123R are effective for public entities that
        do not file as small business issuers as of the beginning of the first interim
        or annual reporting period that begins after June 15, 2005 (January 1,
        2006 for the Company). The impact of adoption of SFAS 123R will depend on
        levels of share-based payments granted in the future. SFAS 123R also
        requires the benefits of tax deductions in excess of recognized compensation
        cost to be reported as a financing cash flow, rather than as an operating
        cash
        flow. The Company will recognize excess tax benefits when those benefits
        reduce
        current income taxes payable.
  The
        Company used the minimum-value method as a non-public company to estimate
        the
        fair value of stock awards under SFAS 123 for pro forma footnote disclosure
        purposes, the Company was required to adopt SFAS 123R using the
“prospective-transition” method upon the effective date. Under the prospective
        method, nonpublic entities that previously applied SFAS 123 using the
        minimum-value method whether for financial statement recognition or pro forma
        disclosure purposes will continue to account for non-vested equity awards
        outstanding at the date of adoption of SFAS 123R in the same manner as they
        had
        been accounted for prior to adoption (APB 25 intrinsic value method for the
        Company). All awards granted, modified, or settled after the date of adoption
        are accounted for using the measurement, recognition, and attribution provisions
        of SFAS 123R. The Company has continued to recognize compensation expense
        for
        awards issued prior to the adoption of SFAS 123R in accordance with the
        provisions of APB 25.
 
 ***Goodwill***
  We
        account for goodwill in accordance with SFAS No. 142, *“Goodwill
        and Other Intangible Assets”* (“SFAS
        No. 142”). SFAS No. 142 requires the use of a non-amortization
        approach to account for purchased goodwill and certain intangibles. Under
        the
        non-amortization approach, goodwill and certain intangibles are not amortized
        into results of operations, but instead are reviewed for impairment at least
        annually and written down and charged to operations only in the periods in
        which
        the recorded value of goodwill and certain intangibles exceeds its fair value.
        We have elected to perform our annual impairment test in November of each
        calendar year. An interim goodwill impairment test would be performed if
        an
        event occurs or circumstances change between annual tests that would more
        likely
        than not reduce the fair value of a reporting unit below its carrying amount.
        For purposes of performing the goodwill impairment test, we concluded there
        is
        one reporting unit. During November 2006, we completed the required annual
        test,
        which indicated there was no impairment.
  ***Accounting
        for Income Taxes***
  In
        connection with preparing our financial statements, we are required to estimate
        our income taxes in each of the jurisdictions in which we operate. This process
        involves the assessment of our net operating loss carryforwards and credits,
        as
        well as estimating the actual current tax liability together with assessing
        temporary differences resulting from differing treatment of items, such as
        reserves and accrued liabilities, for tax and accounting purposes. We then
        assess the likelihood that deferred tax assets will be recovered from future
        taxable income, and to the extent we believe that recovery is not likely,
        we
        must establish a valuation allowance. Based on historical results, we believe
        that it is more likely than not that we will not realize the value of our
        deferred tax assets and therefore have provided a full valuation allowance
        against our net deferred tax assets as of June 30, 2007.
 
 The
        Company adopted the provisions of FIN 48, an interpretation of the SFAS 109, *Accounting
        for Income Taxes,* on
        January 1, 2007. As a result of the implementation of FIN 48, the Company
        recognized no material adjustment in the liability for unrecognized income
        tax
        benefits. At the adoption date of January 1, 2007 the Company had no
        unrecognized tax benefits which would affect the Company’s effective tax rate.
        At June 30, 2007, the Company had no unrecognized tax benefits.
 
  24
  ***Results
        of Operations***
  *Three
        Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006*
  Net
        service revenues increased 25.3% to $5,204,508 for the three months ended
        June
        30, 2007 as compared to $4,154,787 for the three months ended June 30, 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 decreased to $1,771,180
        from
        $1,939,611 for the three months ended June 30, 2007 and 2006, respectively.
        This
        decrease is primarily the result of lower diary hardware costs related to
        new
        electronic patient diary trials commenced in the three months ended June
        30,
        2007.
 
 Costs
        of
        revenues increased 31.2% to $2,157,285 from $1,644,528 for the three months
        ended June 30, 2007 and 2006, respectively. This increase was primarily the
        result of operations personnel increasing approximately 29% to 75 from 58
        as of
        June 30, 2007 and 2006, respectively. As a percentage of net service revenues,
        costs of revenues increased to 41.5% from 39.6% for the three months ended
        June
        30, 2007 and 2006, respectively. The increase in the costs of revenue percentage
        is due to costs increasing at a greater rate than net service revenues due
        to
        the timing of revenue recognition.
  Sales
        and
        marketing costs increased 58.0% to $1,493,491 from $945,490 for the three
        months
        ended June 30, 2007 and 2006, respectively. This increase was primarily the
        result of sales personnel increasing approximately 44% to 23 from 16 as of
        June
        30, 2007 and 2006, respectively and increased marketing expenses and sales
        travel related to the Company’s goal of increasing new projects additions during
        2007. As a percentage of net service revenues, sales and marketing costs
        increased to 28.7% from 22.8% for the three months ended June 30, 2007 and
        2006,
        respectively.
 
 General
        and administrative costs increased by 98.3% to $2,508,920 from $1,264,979
        for
        the three months ended June 30, 2007 and 2006, respectively. This increase
        was
        primarily the result of an increase of administrative personnel to 20 from
        18 as
        of June 30, 2007 and 2006, respectively and $388,000 in non-cash stock-based
        compensation expense in accordance with SFAS 123R related to separation of
        the
        Company’s former CEO as well as other severance costs of an additional $310,000,
        new CEO recruiting costs of $152,000 and approximately $209,000 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 48.2% from 30.4%
        for
        the three months ended June 30, 2007 and 2006, respectively.
  Amortization
        of intangible assets consists of amortization of acquired software technologies
        over their estimated useful life of three years. These costs were $3,801
        and
        $11,398 for the three months ended June 30, 2007 and 2006, respectively.
        These
        costs declined since certain intangible assets were fully amortized in April
        2007.
  Research
        and development costs increased by 23.0% to $582,535 from $473,776 for the
        three
        months ended June 30, 2007 and 2006, respectively. The increase was primarily
        attributable to increased personnel costs related to contractors used to
        assist
        R&D development efforts for our new EDC 2.0 technology. As a percentage of
        net service revenues, research and development expenses increased to 11.2%
        from
        11.4% for the three months ended June 30, 2007 and 2006, respectively.
 
 Other
        income for the three months ended June 30, 2007 was $210,156 as compared
        with
        $246,130 for the three months ended June 30, 2006. The change is primarily
        the
        result of a reduction in interest income of approximately $15,000 and the
        impact
        of foreign currency exchange losses of $22,000.
  We
        experienced a net loss of $1,331,368 compared with net income of $60,746
        for the
        three months ended June 30, 2007 and 2006, respectively. The net loss for
        the
        three months ended June 30, 2007 despite increased revenues were offset by
        increased personnel costs associated with a 22% increase in personnel to
        137
        from 112, non-cash stock-based compensation expense of approximately $600,000
        ($325,000 of which related to the CEO transition), other CEO transition
        costs related to severance, recruiting fee and other costs of approximately
        $470,000, costs associated with being a public company, and approximately
        $209,000 of legal costs related to a patent infringement lawsuit (see Part
        II -
        Item 1) .
   25
  *Six
        Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006*
  Net
        service revenues increased 35.3% to $9,281,516 for the six months ended June
        30,
        2007, as compared to $6,860,424 for the six months ended June 30, 2006. The
        increase in net service revenues is primarily the result of timing and size
        of
        new clinical project deployments in process during the period.
 
 Reimbursable
        out-of-pocket revenues and corresponding expenses increased to $2,416,026
        from
        $1,993,637 for the six months ended June 30, 2007 and 2006, respectively.
        This
        increase is primarily the result of higher diary hardware costs related to
        new
        electronic patient diary trials commenced during the six months ended June
        30,
        2007.
  Costs
        of
        revenues increased 32.5% to $4,333,588 from $3,270,912 for the six months
        ended
        June 30, 2007 and 2006, respectively. This increase was primarily the result
        of
        higher personnel costs, which increased at a higher rate than net service
        revenues. As a percentage of net service revenues, costs of revenues increased
        to 46.7% from 47.7% for the six months ended June 30, 2007 and 2006,
        respectively, primarily due to the timing of revenue from new contract
        starts.
  Sales
        and
        marketing costs increased 50.9% to $2,665,375 from $1,766,144 for the six
        months
        ended June 30, 2007 and 2006, respectively. This increase was primarily the
        result of increased personnel, travel and marketing costs. As a percentage
        of
        net service revenues, sales and marketing costs were 28.7% and 25.7% for
        the six
        months ended June 30, 2007 and 2006, respectively.
  General
        and administrative costs increased by 82.2% to $3,981,396 from $2,185,647
        for
        the six months ended June 30, 2007 and 2006, respectively. This increase
        was
        primarily the result of $630,000 stock-based compensation expense in accordance
        with SFAS 123R ($388,000 of which related to CEO transition costs related
        to
        severance), CEO transition costs of $461,000 for severance, recruiting fee
        and
        other costs, costs associated with being a public company and approximately
        $387,000 of legal costs related to a patent infringement lawsuit. As a
        percentage of net service revenues, general and administrative expenses were
        42.9% and 31.9% for the six months ended June 30, 2007 and 2006, respectively.
  Amortization
        of intangible assets consists of amortization of acquired software technologies
        over their estimated useful life of three years. These costs were $15,199
        and
        $65,621 for the six months ended June 30, 2007 and 2006, respectively.
  Research
        and development costs increased by 8.8% to $1,000,714 from $919,878 for the
        six
        months ended June 30, 2007 and 2006, respectively due to increase development
        efforts. The increase was primarily attributable to increased personnel costs
        related to contractors used to assist R&D development efforts for our new
        EDC 2.0 technology. As a percentage of net service revenues, research and
        development expenses were 10.8% and 13.4% for the six months ended June 30,
        2007
        and 2006, respectively.
 
 Other
        income for the six months ended June 30, 2007 was $443,231 as compared with
        $361,375 for the six months ended June 30, 2006. The change is primarily
        the
        result of an increase in interest income offset by foreign currency exchange
        losses.
  We
        experienced a net loss attributable to common stockholders’ of $2,271,525
        compared with a net loss of $2,112,372 for the six months ended June 30,
        2007
        and 2006, respectively. The net loss for the six months ended June 30, 2007
        was
        negatively impacted by an increase of $600,000 in non-cash stock-based
        compensation expense ($325,000 of which related to CEO transition costs related
        to severance), other CEO transition costs for severance, recruiting fee and
        other costs of $470,000, costs associated with being a public company including
        Sarbanes Oxley costs of $113,000, and approximately $387,000 of legal costs
        related to a patent infringement lawsuit (see Part II - Item 1). We expect
        patent litigation costs will continue to increase during the remainder of
        2007.
        The net loss attributable to the six months ended June 30, 2006 was impacted
        by
        $1.1 million in preferred stock dividends and an induced conversion of common
        stock warrants.
 
  26
  ***Liquidity
        and Capital Resources***
  Our
        principal sources of cash have been from revenues from software
        application-hosting and related services as well as from proceeds from the
        issuance of various debt instruments and the sale of equity securities.
 
 At
        June
        30, 2007 we had cash, cash equivalents and short-term investments of
        approximately $18.5 million. Our cash, cash equivalents and short-term
        investments decreased by approximately $1.5 million during the six months
        ended
        June 30, 2007 primarily due to the net loss incurred during the period.
 
 In
        the
        six months ended June 30, 2007 and 2006 operating activities used approximately
        $2.0 million and $1.9 million of net cash, respectively. The increase in
        net
        cash used in operating activities was primarily due to the increased net
        loss
        and an increase in accounts receivable, prepaid and non-cash expenses and
        inventory partially offset by an increase in accounts payable and accrued
        expenses.
 
 In
        the
        six months ended June 30, 2007 and 2006, investing activities provided
        approximately $3.7 million and used approximately $2.0 of net cash,
        respectively. The increase is primarily attributable to the net sales of
        $4.1
        million of short-term investment offset by approximately $0.2 million in
        purchases of property and equipment. The Company has capitalized $242,794
        and
        $212,652 of internal software development costs during the six months ended
        June
        30, 2007 and 2006, respectively.
  In
        the
        six months ended June 30, 2007 approximately $1.0 million of net cash was
        provided by financing activities, as compared to approximately $21.1 million
        in
        the six months ended June 30, 2006. The decrease was primarily the result
        of the
        net cash received in connection with the CEA merger in 2006 offset by $0.9
        million in net borrowings during the first six months of 2007.
  We
        intend
        to continue to fund the enhancement and expansion of the etrials eClinical
        software technologies through both internal development and acquiring additional
        complementary technologies in the future. We believe our existing cash, cash
        equivalents, short-term investments, and cash provided by operating activities
        and our debt facilities will be sufficient to meet our working capital and
        capital expenditure needs over the next twelve months. Our future capital
        requirements will depend on many factors, including our rate of revenue growth,
        the expansion of our marketing and sales activities, the timing and extent
        of
        spending to support product development efforts, the timing of introductions
        of
        new services and enhancements to existing services, and the continuing market
        acceptance of our services. To the extent that existing cash and securities
        and
        cash from operations, are insufficient to fund our future activities, including
        potential acquisitions of complementary eClinical technology companies, we
        may
        need to raise additional funds through public or private equity or debt
        financing. Additional funds may not be available on terms favorable to us
        or at
        all.
 
 Our
        backlog was approximately $18.1 million at June 30, 2007 compared to $17.7
        million at December 31, 2006 and $25.6 million at June 30, 2006. Our backlog
        includes both projects covered by contracts and projects for which customers
        have provided written confirmation that they have decided to award contracts
        or
        work orders to us for a specific project. The increase in backlog since December
        31, 2006 is primarily the result of an increase in new project bookings during
        the period (approximately $10.6 million of new project bookings during the
        first
        six months of 2007 compared to $9.5 million during the same period in 2006)
        and
        a decrease in project cancellations experienced in 2007 as compared to 2006
        (approximately $1.0 million of cancellations during the first six months
        of 2007
        compared to $5.4 million during the same period of 2006) offset by higher
        revenues recognized during the period. Project cancellations, which can be
        made
        by customers without penalty, are a normal part of the clinical research
        services industry and occur for a variety of reasons outside our control.
        Some
        examples of reasons for cancellations are noted below:
 
 ·
              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;
  27
  
 ·
              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 June 30, 2007,
        the
        future minimum payments under these commitments were as follows:
 
 **Periods
                    Ending December 31,**
                
                **Capital
                    Leases**
                
                **Operating
                    Leases**2007
                    (last six months)
                
                $
                283,358
                
                $
                309,0062008
                
                
                459,965
                
                
                624,1412009
                
                
                26,642
                
                
                619,8172010
                
                
                122
                
                
                606,9042011
                
                
                -
                
                
                419,9152012
                
                
                -
                
                
                391,2522013
                    and thereafter
                
                
                -
                
                
                99,646Total
                    required lease payments
                
                $
                770,087
                
                $
                3,070,681Less
                    interest included
                
                
                (65,378
                )
                
                -Total
                    minimum payments
                
                
                704,709
                
                $
                3,070,681Current
                    portion of capital lease
                
                $
                461,573Long
                    term portion of capital lease
                
                $
                243,137
 
 On
        February 1, 2005, the Company entered into two loan agreements with RBC
        Centura Bank. These loan agreements were modified on May 31, 2006 when a
        third
        loan agreement was added and on May 31, 2007 when a fourth loan agreement
        was
        added. The first agreement is a $2,000,000 revolving accounts receivable
        line of
        credit which provides for borrowings up to 80% of current accounts receivable
        balance at the prime rate of interest plus 0.25%. This line of credit has
        $1,000,000 outstanding as of June 30, 2007 and these borrowings are secured
        primarily by accounts receivable. The second agreement is a $300,000 equipment
        line of credit which has $80,000 outstanding as of June 30, 2007. This loan
        funds equipment purchases and provides for interest at the bank’s prime rate of
        interest plus 1.0%. Borrowings under the equipment line of credit are being
        paid
        over a period of thirty months. The third agreement is a $500,000 equipment
        loan
        which has $486,111 outstanding as of June 30, 2007. Borrowings under this
        equipment loan are being paid over a period of thirty-six months at the bank’s
        prime rate of interest plus 0.75%. The fourth agreement is a $500,000 equipment
        line of credit. This loan will be available to fund equipment purchases and
        provides for interest at the bank’s prime rate of interest plus 0.75%.
        Borrowings under the equipment line of credit, if any, will be paid over
        a
        period of thirty-six months. The Company has not had any borrowings under
        this
        equipment loan as of June 30, 2007. The capital equipment borrowings are
        secured
        by the fixed assets that were acquired.
  Working
        capital borrowings are secured primarily by our accounts receivable while
        capital equipment borrowings are secured by the fixed assets that were acquired.
        Under the terms of these credit lines, we are required to comply with certain
        financial covenants. To the extent we are unable to satisfy those covenants
        in
        the future, we will need to obtain waivers to avoid being in default of the
        terms of these credit lines. If an unwaived default occurs, the bank may
        require
        that we repay all amounts then outstanding. We expect that we will have
        sufficient resources to fund any amounts which may become due under these
        credit
        lines as a result of a default by us or otherwise. However, any amounts which
        we
        may be required to repay prior to a scheduled repayment date would reduce
        funds
        that we could otherwise allocate to other opportunities that we consider
        desirable.
  ***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.
  28
  
 
 ***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.
 
 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.
  29
   **Item3.    Controls
        and
        Procedures** ******
  An
        evaluation of the effectiveness of both our disclosure controls and procedures
        and of our internal control over financial reporting as of June 30, 2007
        was
        made under the supervision and with the participation of management,
        including our chief executive officer and chief financial officer. The
        evaluations of our disclosure controls and procedures and our internal control
        over financial reporting include a review of the objectives, design and
        operation of the controls and the effect of the controls on the information
        generated for use in this Annual Report.
 
 Based
        on
        that evaluation, we concluded that our disclosure controls and procedures
        are
        effective as of the end of the period covered by this report to ensure that
        information required to be disclosed by us in reports that we file or submit
        under the Securities Exchange Act of 1934 is recorded, processed, summarized
        and
        reported within the time periods specified in Securities and Exchange Commission
        rules and forms.
  During
        2007, we are continuing to enhance Company-wide policies and procedures intended
        to reasonably assure consistent and appropriate assessment and application
        of
        generally accepted accounting principles. We have also retained consultants
        and
        are recruiting additional experienced accounting personnel in order to
        strengthen our internal controls and enable the Company to implement Sarbanes
        Oxley compliance by the currently required 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.
 
  30
  **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. Unregistered Sales of Equity Securities
        and Use of
        Proceeds.**
 
 No
        unregistered sales of securities were made during the quarter that were not
        previously reported on a Current Report on Form 8-K, except for stock option
        grants and exercises in the normal course of the Company’s
        business.
 
 **Item
        3. DefaultsUpon Senior Securities.**
 
 None.
 
 **Item
        4. Submissionof Matters to a Vote of Security
        Holders.**
 
 None.
 
 **Item
        5. OtherInformation.**
 
 None.
 
 **Item
        6. Exhibits**
 
 The
        Exhibit Index that follows the signature page of the Report is hereby
        incorporated by reference.
 
  31
   **SIGNATURES**
   Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  ETRIALS
                  WORLDWIDE, INC.August
                  14, 2007
              
              By:
              /s/
                  EUGENE E. JENNINGS
                
                Eugene
                  E. Jennings
                President,
                  Chief Executive Officer and Director (Principal Executive
                  Officer)August
                  14, 2007
              
              By:
              /s/
                  JAMES W. CLARK, JR.
                
                James
                  W. Clark, Jr.
                Chief
                  Financial Officer (Principal Accounting and Financial
                  Officer)
  
  
 
 
 
 
 
 
  32
  **EXHIBITINDEX**
 **Exhibit**
              
              **Description**3.1
              
              Certificate
                  of Incorporation of the Registrant. (Incorporated by reference
                  from
                  Registration Statement No. 333-110365 on Form S-1 filed November
                  10,
                  2003).3.1.1
              
              Amended
                  and Restated Certificate of Incorporation of the Registrant. (Incorporated
                  by reference from Registration Statement No. 333-110365 on Form
                  S-4 filed
                  October 28, 2005).3.2
              
              Bylaws
                  of the Registrant (Incorporated by reference from Registration
                  Statement
                  No. 333-110365 on Form S-1 filed November 10, 2003).4.1
              
              Specimen
                  Unit Certificate of Registrant (Incorporated by reference from
                  Registration Statement No. 333-110365 on Form S-1 filed November
                  10,
                  2003).4.2
              
              Specimen
                  Common Stock Certificate of Registrant (Incorporated by reference
                  from
                  Registration Statement No. 333-110365 on Form S-1 filed November
                  10,
                  2003).4.3
              
              Specimen
                  Warrant Certificate of Registrant (Incorporated by reference from
                  Registration Statement No. 333-110365 on Form S-1 filed November
                  10,
                  2003).4.4
              
              Form
                  of Unit Purchase Option. (Incorporated by reference from Registration
                  Statement No. 333-110365 on Form S-1 filed November 10,
                  2003).4.5
              
              Form
                  of Warrant Agreement between Continental Stock Transfer & Trust
                  Company and the Registrant (Incorporated by reference from Registration
                  Statement No. 333-110365 on Form S-1 filed November 10,
                  2003).10.41
              
              Employment
                  Agreement dated as of May 18, 2007 between etrials Worldwide, Inc.
                  and
                  Eugene Jennings. . (Incorporated by reference from Exhibit 99.2
                  to Current
                  Report on Form 8-K filed May 22, 2007)10.42
              
              Restricted
                  Stock Agreement dated as of May 18, 2007 between etrials Worldwide,
                  Inc.
                  and Eugene Jennings. . (Incorporated by reference from Exhibit
                  99.3 to
                  Current Report on Form 8-K filed May 22, 2007)10.43
              
              Nonqualified
                  Stock Option Agreement dated as of May 18, 2007 between etrials
                  Worldwide,
                  Inc. and Eugene Jennings. . (Incorporated by reference from Exhibit
                  99.4
                  to Current Report on Form 8-K filed May 22, 2007)10.44
              
              Sixth
                  Modification Agreement dated as of May 31, 2007 between and among
                  the
                  Company, etrials, Inc., etrials Worldwide Limited and RBC Centura
                  Bank.
                  (Incorporated by reference from Exhibit 99.1 to Current Report
                  on Form 8-K
                  filed July 7, 2007)10.45
              
              Commercial
                  Promissory Note dated as of May 31, 2007, in $500,000 principal
                  amount of
                  etrials, Inc. to RBC Centura Bank.  (Incorporated by reference from
                  Exhibit 99.2 to Current Report on Form 8-K filed July 7,
                  2007)10.46
              
              Assignment
                  and Assumption Agreement dated as of May 31, 2007, between and
                  among the
                  Company, etrials, Inc., etrials Worldwide Limited and RBC Bank.
                  (Incorporated by reference from Exhibit 99.3 to Current Report
                  on Form 8-K
                  filed July 7, 2007)31.1
              
              Certification
                  of Principal Executive Officer of Periodic Report Pursuant to Rule
                  13a-14(a) or Rule 15d-14(a)*31.2
              
              Certification
                  of Principal Financial Officer of Periodic Report Pursuant to Rule
                  13a-14(a) or Rule 15d-14(a)*32.1
              
              Certification
                  of Principal Executive Officer and Principal Financial Officer
                  of Periodic
                  Report Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C.
                  Section
                  1350*
 *Filed
        herewith.
  33