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UNITED  STATES  SECURITIES AND EXCHANGE COMMISSION





WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)





|                                                                            |  | Quarterly    report pursuant to Section 13 or 15(d) of the Securities Exchange Act of    1934.
|--------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------
|For the quarterly period ended    March 31, 2005.                          
|                                                                            |  |                                                                                               
|or                                                                         
|                                                                            |  |                                                                                               
|                                                                            |  | Transitional    report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|For the transitional period from     __________________to__________________




Commission file number  0-29100





|eResearchTechnology,    Inc.                             
|---------------------------------------------------------
|                                                         
|(Exact    name of registrant as specified in its charter)




|Delaware                                                             |  | 22-3264604                             
|-------------------------------------------------------------------- |  | ---------------------------------------
|                                                                     |  |                                        
|(State or    other jurisdiction of incorporation    or organization) |  | (I.R.S.    Employer Identification No.)
|                                                                     |  |                                        
|30    South 17th StreetPhiladelphia, PA                              |  | 19103                                  
|                                                                     |  |                                        
|(Address    of principal executive offices)                          |  | (Zip Code)                             




|215-972-0420                                                                            
|----------------------------------------------------------------------------------------
|                                                                                        
|(Registrants    telephone number, including area code)                                 
|                                                                                        
|                                                                                        
|                                                                                        
|(Former    name, former address and former fiscal year,    if changed since last report)




Indicate by check mark whether the registrant (1) has filed all reports  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of  1934 during the preceding 12 months (or for such shorter period that the  registrant was required to file such reports, and (2) has been subject to such  filing requirements for the past 90 days.








Indicate by check mark whether the registrant is an accelerated filer  (as defined in Rule 12b-2 of the Act).








Indicate the number of shares outstanding of each of the issuers  classes of common stock, as of the latest practicable date.





The number of shares of Common Stock, $.01 par value, outstanding as of  April 29, 2005, was 50,486,403.





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eResearchTechnology, Inc. and Subsidiaries


INDEX





|              |                       |                                                                                          | Page 
|------------- | --------------------- | ---------------------------------------------------------------------------------------- | -----
|              |                       |                                                                                          |      
|              |                       |                                                                                          |      
|Part I.       | Financial Information |                                                                                         
|              |                       |                                                                                          |      
|              | Item 1.               | Consolidated Financial Statements                                                        |      
|              |                       |                                                                                          |      
|              |                       | Consolidated Balance Sheets-December    31, 2004 and March 31, 2005 (unaudited)          | 3    
|              |                       |                                                                                          |      
|              |                       | Consolidated Statements of Operations    (unaudited)Three Months                        |      
|              |                       | Ended March 31, 2004 and 2005                                                            | 4    
|              |                       |                                                                                          |      
|              |                       | Consolidated Statements of Cash Flows    (unaudited)Three Months                        |      
|              |                       | Ended March 31, 2004 and 2005                                                            | 5    
|              |                       |                                                                                          |      
|              |                       | Notes to Consolidated Financial Statements    (unaudited)                                | 6-10 
|              |                       |                                                                                          |      
|              | Item 2.               | Managements Discussion and Analysis    of Financial Condition and Results of Operations | 11-19
|              |                       |                                                                                          |      
|              | Item 3.               | Quantitative and Qualitative    Disclosures about Market Risk                            | 19   
|              |                       |                                                                                          |      
|              | Item 4.               | Controls and Procedures                                                                  | 20   
|              |                       |                                                                                         
|Part II.      | Other Information     |                                                                                         
|              |                       |                                                                                          |      
|              | Item 6.               | Exhibits                                                                                 | 21   
|              |                      
|Signatures    | 22                   
|              |                      
|Exhibit Index | 23                   




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Part 1. Financial Information


Item 1. Consolidated Financial  Statements





eResearchTechnology, Inc.  and Subsidiaries  Consolidated Balance Sheets  (In thousands of dollars, except per share amounts)





|                                                                                                                          |  | December    31, 2004 |         | March 31,    2005 |            
|------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------- | ----------------- | -----------
|                                                                                                                          |  |                      |         |                   |            
|                                                                                                                          |  |                      |         |                   | (unaudited)
|Assets                                                                                                                    |  |                      |         |                   |            
|Current Assets:                                                                                                           |  |                      |         |                   |            
|Cash and cash equivalents                                                                                                 |  | $                    | 45,806  |                   | $          
|Short-term investments                                                                                                    |  |                      | 22,942  |                   |            
|Accounts receivable, net                                                                                                  |  |                      | 14,798  |                   |            
|Prepaid expenses and other                                                                                                |  |                      | 3,522   |                   |            
|Deferred income taxes                                                                                                     |  |                      | 323     |                   |            
|                                                                                                                          |  |                      |         |                   |            
|Total current assets                                                                                                      |  |                      | 87,391  |                   |            
|Property and equipment, net                                                                                               |  |                      | 25,204  |                   |            
|Goodwill                                                                                                                  |  |                      | 1,212   |                   |            
|Other assets                                                                                                              |  |                      | 782     |                   |            
|Deferred income taxes                                                                                                     |  |                      | 1,936   |                   |            
|                                                                                                                          |  |                      |         |                   |            
|Total assets                                                                                                              |  | $                    | 116,525 |                   | $          
|                                                                                                                          |  |                      |         |                   |            
|Liabilities and Stockholders    Equity                                                                                   |  |                      |         |                   |            
|Current Liabilities:                                                                                                      |  |                      |         |                   |            
|Accounts payable                                                                                                          |  | $                    | 2,455   |                   | $          
|Accrued expenses                                                                                                          |  |                      | 4,318   |                   |            
|Income taxes payable                                                                                                      |  |                      | 2,147   |                   |            
|Current portion of    capital lease obligations                                                                           |  |                      | 233     |                   |            
|Deferred revenues                                                                                                         |  |                      | 20,325  |                   |            
|                                                                                                                          |  |                      |         |                   |            
|Total current    liabilities                                                                                              |  |                      | 29,478  |                   |            
|                                                                                                                          |  |                      |         |                   |            
|Capital lease obligations, excluding current portion                                                                      |  |                      | 193     |                   |            
|                                                                                                                          |  |                      |         |                   |            
|Commitments and contingencies                                                                                             |  |                      |         |                   |            
|Stockholders Equity:                                                                                                     |  |                      |         |                   |            
|Preferred stock -    $10.00 par value, 500,000 shares authorized, none issued and outstanding                             |  |                      |        |                   |            
|Common stock - $.01 par    value, 175,000,000 shares authorized, 56,396,696 and 56,506,808 shares    issued, respectively |  |                      | 564     |                   |            
|Additional paid-in    capital                                                                                             |  |                      | 69,694  |                   |            
|Accumulated other    comprehensive income                                                                                 |  |                      | 1,601   |                   |            
|Retained earnings                                                                                                         |  |                      | 46,550  |                   |            
|Treasury stock,    6,067,519 shares at cost                                                                               |  |                      | (31,555 | )                 |            
|                                                                                                                          |  |                      |         |                   |            
|Total stockholders    equity                                                                                             |  |                      | 86,854  |                   |            
|                                                                                                                          |  |                      |         |                   |            
|Total liabilities and    stockholders equity                                                                             |  | $                    | 116,525 |                   | $          
|                                                                                                                          |  |                      |         |                   |            




The accompanying notes  are an integral part of these statements.





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eResearchTechnology, Inc.  and Subsidiaries  Consolidated Statements of Operations  (In thousands, except per share amounts)  (unaudited)





|                                                         |  | Three    Months Ended March 31, |       
|-------------------------------------------------------- |  | ------------------------------- | ------
|                                                         |  |                                 |       
|                                                         |  | 2004                            |       
|                                                         |  |                                 |       
|Net    revenues:                                         |  |                                 |       
|Licenses                                                 |  | $                               | 2,453 
|Services                                                 |  |                                 | 18,010
|Site support                                             |  |                                 | 5,629 
|                                                         |  |                                 |       
|Total net    revenues                                    |  |                                 | 26,092
|                                                         |  |                                 |       
|Costs of    revenues:                                    |  |                                 |       
|Cost of licenses                                         |  |                                 | 122   
|Cost of services                                         |  |                                 | 5,985 
|Cost of site support                                     |  |                                 | 2,363 
|                                                         |  |                                 |       
|Total costs    of revenues                               |  |                                 | 8,470 
|                                                         |  |                                 |       
|Gross margin                                             |  |                                 | 17,622
|                                                         |  |                                 |       
|Operating    expenses:                                   |  |                                 |       
|Selling and marketing                                    |  |                                 | 2,453 
|General and administrative                               |  |                                 | 2,150 
|Research and development                                 |  |                                 | 973   
|                                                         |  |                                 |       
|Total    operating expenses                              |  |                                 | 5,576 
|                                                         |  |                                 |       
|Operating    income                                      |  |                                 | 12,046
|Other income    (expense), net                           |  |                                 | 108   
|                                                         |  |                                 |       
|Income    before income taxes                            |  |                                 | 12,154
|Income tax    provision                                  |  |                                 | 4,886 
|                                                         |  |                                 |       
|Net income                                               |  | $                               | 7,268 
|                                                         |  |                                 |       
|Basic net    income per share                            |  | $                               | 0.14  
|                                                         |  |                                 |       
|Diluted net    income per share                          |  | $                               | 0.13  
|                                                         |  |                                 |       
|Shares used    to calculate basic net income per share   |  |                                 | 50,933
|                                                         |  |                                 |       
|Shares used    to calculate diluted net income per share |  |                                 | 55,405
|                                                         |  |                                 |       




The accompanying notes  are an integral part of these statements.





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eResearchTechnology, Inc.  and Subsidiaries  Consolidated Statements of Cash Flows  (In thousands of dollars)  (unaudited)





|                                                                                     |  | Three    Months Ended March 31, |        
|------------------------------------------------------------------------------------ |  | ------------------------------- | -------
|                                                                                     |  |                                 |        
|                                                                                     |  | 2004                            |        
|                                                                                     |  |                                 |        
|Operating activities:                                                                |  |                                 |        
|Net income                                                                           |  | $                               | 7,268  
|Adjustments to    reconcile net income to net cash provided by operating activities: |  |                                 |        
|Depreciation and    amortization                                                     |  |                                 | 2,006  
|Cost of sale of    equipment                                                         |  |                                 |       
|Provision for    uncollectible accounts                                              |  |                                 | 39     
|Stock option income tax    benefits                                                  |  |                                 | 3,647  
|Investment impairment    charge                                                      |  |                                 |       
|Changes in operating    assets and liabilities:                                      |  |                                 |        
|Accounts receivable                                                                  |  |                                 | (4,188 
|Prepaid expenses and    other                                                        |  |                                 | (995   
|Accounts payable                                                                     |  |                                 | (14    
|Accrued expenses                                                                     |  |                                 | (669   
|Income taxes                                                                         |  |                                 | 960    
|Deferred revenues                                                                    |  |                                 | 5,349  
|                                                                                     |  |                                 |        
|Net cash provided by    operating activities                                         |  |                                 | 13,403 
|                                                                                     |  |                                 |        
|Investing activities:                                                                |  |                                 |        
|Purchases of property    and equipment                                               |  |                                 | (4,035 
|Purchases of short-term    investments                                               |  |                                 | (10,900
|Proceeds from sales of    short-term investments                                     |  |                                 | 3,596  
|                                                                                     |  |                                 |        
|Net cash used in    investing activities                                             |  |                                 | (11,339
|                                                                                     |  |                                 |        
|Financing activities:                                                                |  |                                 |        
|Repayment of capital    lease obligations                                            |  |                                 | (161   
|Proceeds from exercise    of stock options                                           |  |                                 | 867    
|                                                                                     |  |                                 |        
|Net cash provided by    financing activities                                         |  |                                 | 706    
|                                                                                     |  |                                 |        
|Effect of exchange rate changes on cash                                              |  |                                 | 58     
|                                                                                     |  |                                 |        
|Net increase (decrease) in cash and cash equivalents                                 |  |                                 | 2,828  
|Cash and cash equivalents, beginning of period                                       |  |                                 | 38,364 
|                                                                                     |  |                                 |        
|Cash and cash equivalents, end of period                                             |  | $                               | 41,192 
|                                                                                     |  |                                 |        




The accompanying notes  are an integral part of these statements.





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eResearchTechnology, Inc. and Subsidiaries  Notes to Consolidated Financial Statements  (unaudited)





Note  1.    Basis of Presentation





The  accompanying unaudited consolidated financial statements, which include the  accounts of eResearchTechnology, Inc. (the Company or we) and its wholly  owned subsidiaries, have been prepared in accordance with generally accepted  accounting principles for interim financial information and with the  instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they  do not include all the information and footnotes required by generally accepted  accounting principles for complete financial statements. In the opinion of  management, all adjustments (consisting of normal recurring adjustments)  considered necessary for a fair presentation have been included. Operating  results for the three month period ended March 31, 2005 are not necessarily  indicative of the results that may be expected for the year ending December 31,  2005. Further information on potential
factors that could affect our financial  results can be found in our Report on Form 10-K  for the year ended December 31, 2004 filed with the Securities and Exchange  Commission and in this Form 10-Q.





Note 2.  Summary of Significant Accounting Policies





Principles  of Consolidation





The  accompanying consolidated financial statements include the accounts of the  Company and its subsidiaries.  All  significant intercompany accounts and transactions have been eliminated.





Use of  Estimates





The  preparation of financial statements in accordance with accounting principles  generally accepted in the United States requires management to make estimates  and assumptions that affect the reported amounts of assets and liabilities and  disclosure of contingent assets and liabilities at the date of the financial  statements and the reported revenues and expenses during the reporting  period.  Actual results could differ from  those estimates.





Property  and Equipment





Pursuant to  Statement of Position 98-1, Accounting for the Costs of Computer Software  Developed or Obtained for Internal Use, we capitalize costs associated with  internally developed and/or purchased software systems for new products and enhancements  to existing products that have reached the application development stage and  meet recoverability tests.  These costs are included in property and  equipment.  Capitalized costs include external direct costs of materials  and services utilized in developing or obtaining internal-use software, and  payroll and payroll-related expenses for employees who are directly associated  with and devote time to the internal-use software project.





Amortization  of capitalized software development costs is charged to cost of revenues.   Amortization of capitalized software development costs was $581,000 and  $370,000 for the three months ended March 31, 2004 and 2005, respectively. For  the three months ended March 31, 2004 and 2005, we capitalized $452,000 and  $728,000, respectively, of software development costs related to labor and  consulting, and $1,139,000 and $0, respectively, of software development costs  related to direct costs of materials.  As of March 31, 2005, $4,162,000 of  capitalized costs have not yet been placed in service and are therefore not  being amortized.





Long-lived  Assets





In  accordance with the provisions of Statement of Financial Accounting Standards  (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,  when events or circumstances so indicate, we assess the potential impairment of  our long-lived assets based on anticipated undiscounted cash flows from the  assets. Such events and circumstances include a sale of all or a significant  part of the operations associated with the long-lived asset, or a significant  decline in the operating performance of the asset. If an impairment is  indicated, the amount of the impairment charge would





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be calculated by comparing the anticipated discounted future cash flows  to the carrying value of the long-lived asset. At March 31, 2005, no impairment  was indicated.





Software Development Costs





Research  and development expenditures are charged to operations as incurred. SFAS No.  86, Accounting for the Costs of Computer Software to be Sold, Leased, or  Otherwise Marketed, requires the capitalization of certain software  development costs subsequent to the establishment of technological feasibility.  Since software development costs have not been significant after the  establishment of technological feasibility, all such costs have been charged to  expense as incurred.





Stock-Based  Compensation





In December  2002, SFAS No. 148, Accounting for Stock-Based Compensation  Transition and  Disclosure, was issued. SFAS No. 148 amended SFAS No. 123, Accounting for  Stock-Based Compensation, to provide alternative methods of transition for a  voluntary change to the fair value based method of accounting for stock-based  employee compensation. In addition, SFAS No. 148 amended the disclosure  requirements of SFAS No. 123 related to the disclosures about the method of  accounting for stock-based employee compensation and the effect of the method  used on reported results. The disclosure provisions of SFAS No. 148 are  applicable to interim or annual periods that end after December 15, 2002, and  as such have been incorporated below.





SFAS No.  123, as amended by SFAS No. 148, permits companies to (i) recognize as expense  the fair value of stock-based awards, or (ii) continue to apply the provisions  of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock  Issued to Employees and related interpretations, and provide pro forma net  income and earnings per share disclosures for employee stock option grants as  if the fair value based method defined in SFAS No. 123 had been applied. We  continue to apply the provisions of APB Opinion No. 25 and provide the pro  forma disclosures in accordance with the provisions of SFAS Nos. 123 and 148.  Under APB Opinion No. 25, we have not recorded any stock-based employee  compensation cost associated with our stock option plans, as all options  granted under the plans had an exercise price equal to the market value of the  underlying common stock on the date of
grant.





The  following table illustrates the effect on net income and earnings per share if  we had applied the fair value recognition provisions of SFAS No. 123 to our  stock option plans (in thousands, except per share amounts):





|                                                                                                                                 |  | Three    Months Ended March 31, |      
|-------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -----
|                                                                                                                                 |  |                                 |      
|                                                                                                                                 |  | 2004                            |      
|                                                                                                                                 |  |                                 |      
|Net income, as reported                                                                                                          |  | $                               | 7,268
|Deduct: Net stock-based    employee compensation expense determined under fair value based method, net    of related tax effects |  |                                 | (705 
|                                                                                                                                 |  |                                 |      
|Pro forma net income                                                                                                             |  | $                               | 6,563
|                                                                                                                                 |  |                                 |      
|Earnings per share:                                                                                                              |  |                                 |      
|Basic - as reported                                                                                                              |  | $                               | 0.14 
|Basic - pro forma                                                                                                                |  | $                               | 0.13 
|                                                                                                                                 |  |                                 |      
|Diluted - as reported                                                                                                            |  | $                               | 0.13 
|Diluted - pro forma                                                                                                              |  | $                               | 0.12 




Pro forma  net income reflects only options granted through March 31, 2005 and, therefore,  may not be representative of the effect for future periods.





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Stock  Splits





On May 27,  2004, we effected a 3-for-2 split of our common stock.  All share and per share data have been  restated to reflect this split of our common stock as if the stock split had  occurred as of December 31, 2003.





Note  3.  Net Income per Common Share





Basic net  income per share is computed by dividing net income by the weighted average  number of shares of common stock outstanding during the period. Diluted net  income per share is computed by dividing net income by the weighted average  number of shares of common stock outstanding during the period, adjusted for  the dilutive effect of common stock equivalents, which consist of stock  options.  The dilutive effect of stock  options is calculated using the treasury stock method.





The tables  below set forth the reconciliation of the numerators and denominators of the  basic and diluted net income per share computations (in thousands, except per  share amounts):








|Three Months Ended March 31,2004 |  | NetIncome |       | Shares |  | PerShareAmount | 
|-------------------------------- |  | --------- | ----- | ------ |  | -------------- | 
|                                 |  |           |       |        |  |                | 
|Basic net income                 |  | $         | 7,268 |        |  | 50,933         | 
|Effect of dilutive shares        |  |           |      |        |  | 4,472          | 
|                                 |  |           |       |        |  |                | 
|Diluted net income               |  | $         | 7,268 |        |  | 55,405         | 
|                                 |  |           |       |        |  |                | 
|2005                             |  |           |       |        |  |                | 
|                                 |  |           |       |        |  |                | 
|Basic net income                 |  | $         | 4,072 |        |  | 50,370         | 
|Effect of dilutive shares        |  |           |      |        |  | 2,954          | 
|                                 |  |           |       |        |  |                | 
|Diluted net income               |  | $         | 4,072 |        |  | 53,324         | 
|                                 |  |           |       |        |  |                | 




In  computing diluted net income per share, 598,800 and 1,192,000 options to  purchase shares of common stock were excluded from the computations for the  three months ended March 31, 2004 and 2005, respectively. These options were  excluded from the computations because the exercise prices of such options were  greater than the average market price of our common stock during the respective  periods.





Note  4.  Comprehensive Income





SFAS  No. 130, Reporting Comprehensive Income, requires companies to classify items  of other comprehensive income by their nature in the financial statements and  display the accumulated balance of other comprehensive income separately from  retained earnings and additional paid-in-capital in the stockholders equity  section of the balance sheet. Our comprehensive income includes net income and  unrealized gains and losses from foreign currency translation as follows (in  thousands):





|                                   |  | Three    Months Ended March 31, |      
|---------------------------------- |  | ------------------------------- | -----
|                                   |  |                                 |      
|                                   |  | 2004                            |      
|                                   |  |                                 |      
|Net income                         |  | $                               | 7,268
|Other comprehensive income:        |  |                                 |      
|Currency translation    adjustment |  |                                 | 129  
|                                   |  |                                 |      
|Comprehensive income               |  | $                               | 7,397
|                                   |  |                                 |      




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Note 5.  Recent Pronouncements





In  December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No.  123R, Share-Based Payment.  SFAS No.  123R is a revision of SFAS No. 123.   SFAS No. 123R establishes standards for the accounting for transactions  in which an entity exchanges its equity instruments for goods or services.  SFAS No. 123R requires companies to  recognize in the statement of operations the grant-date fair value of stock  options and other equity-based compensation issued to employees, but expresses  no preference for a type of valuation model.   In April 2005, the Securities and Exchange Commission (SEC) issued Staff  Accounting Bulletin No. 107 which provided additional guidance in implementing  SFAS No. 123R without modifying the conclusions or requirements of SFAS No.  123R.  In April 2005, the SEC also  deferred the effective date of SFAS No. 123R for many
registrants, including  our company.  Whereas SFAS No. 123R  originally was to be effective for most public companies first interim period  beginning after June 15, 2005, the deferral now requires the adoption to be  effective for most public companies first annual period beginning after June  15, 2005.  We currently use the  intrinsic value method to measure compensation expense for stock-based awards  to our employees.  Accordingly, we do  not recognize any compensation expense related to stock option grants that we  issue under our stock option plans.  Under  the new rules, we will be required to adopt a fair value based method for  measuring the expense and this may materially impact our future reported  results of operations.  We are  evaluating the impact on our results from adopting SFAS No. 123R, but  we expect it to be comparable to the pro forma effects of applying the original  SFAS No. 123 (see Stock-Based Compensation in
Note 2 for further  details).





In  December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets,  which eliminates an exception in APB Opinion No. 29 for nonmonetary exchanges  of similar productive assets and replaces it with a general exception for  exchanges of nonmonetary assets that do not have commercial substance.  SFAS No. 153 will be effective for us for  nonmonetary asset exchanges occurring in fiscal periods beginning after June  15, 2005.  We are evaluating the impact  from adopting SFAS No. 153, which is not expected to have an impact on our  consolidated financial position, results of operations or cash flows.





Note 6.  Operating  Segments / Geographic Information





Since  2003, we have considered our operations to consist of one segment. The  development of the one segment approach corresponded to the implementation of  our refinement in strategic focus in late 2002, and represents managements  view of our operations.





We  operate on a worldwide basis with two locations in the United States and one  location in the United Kingdom, which are categorized below as North  America and Europe, respectively.   Revenues are allocated where the work is performed and not based upon  the location of the client or the study.





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Geographic information is as follows (in thousands of dollars):





|                                     |  | Three Months Ended March 31, 2004 |       
|------------------------------------ |  | --------------------------------- | ------
|                                     |  |                                   |       
|                                     |  | North     America                 |       
|                                     |  |                                   |       
|License revenues                     |  | $                                 | 2,295 
|Service revenues                     |  |                                   | 15,553
|Site support revenues                |  |                                   | 4,539 
|                                     |  |                                   |       
|Net revenues from external customers |  | $                                 | 22,387
|                                     |  |                                   |       
|Income from operations               |  | $                                 | 11,270
|Long-lived assets                    |  | $                                 | 14,509
|Identifiable assets                  |  | $                                 | 99,763







|                                     |  | Three Months Ended March 31, 2005 |        
|------------------------------------ |  | --------------------------------- | -------
|                                     |  |                                   |        
|                                     |  | North     America                 |        
|                                     |  |                                   |        
|License revenues                     |  | $                                 | 1,021  
|Service revenues                     |  |                                   | 12,261 
|Site support revenues                |  |                                   | 4,433  
|                                     |  |                                   |        
|Net revenues from external customers |  | $                                 | 17,715 
|                                     |  |                                   |        
|Income from operations               |  | $                                 | 5,699  
|Long-lived assets                    |  | $                                 | 16,129 
|Identifiable assets                  |  | $                                 | 107,452




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





Cautionary Statement for  Forward-Looking Information





The  following discussion and analysis should be read in conjunction with our  financial statements and the related notes to the consolidated financial  statements appearing elsewhere in this Form 10-Q. The following includes a  number of forward-looking statements made pursuant to the safe-harbor  provisions of the Private Securities Litigation Reform Act of 1995 that reflect  our current views with respect to future events and financial performance. We  use words such as anticipate, believe, expect, intend, and similar expressions  to identify forward-looking statements. You should not place undue reliance on  these forward-looking statements, which apply only as of the date of this  report. These forward-looking statements are subject to risks and uncertainties  such as the companys ability to obtain new contracts and accurately estimate  net revenues due to uncertain regulatory guidance,
variability in size, scope  and duration of projects, and internal issues at the sponsoring client,  competitive factors, technological development, and market demand. These and  other risk factors have been further discussed in our Form 10-K for the year  ended December 31, 2004. Such risks and uncertainties could cause actual  results to differ materially from historical results or future predictions.  Further information on potential factors that could affect our financial  results can be found throughout this Form 10-Q and our other reports filed with  the Securities and Exchange Commission.





Overview





We were  founded in 1977 to provide Cardiac Safety services to evaluate the safety of  new drugs.  We provide technology and  services that enable the pharmaceutical, biotechnology and medical device  industries to collect, interpret and distribute cardiac safety and clinical  data more efficiently.  We are a market  leader in providing centralized electrocardiographic services (Cardiac Safety  services or EXPeRT® ECG services) and a leading provider of technology and  services that streamline the clinical trials process by enabling our clients to  evolve from traditional, paper-based methods to electronic processing using our  Clinical Data Management products and services.





Our  solutions improve the accuracy, timeliness and efficiency of trial set-up, data  collection from sites worldwide, data interpretation and new drug, biologic and  device application submission.  We offer  Cardiac Safety services, which are utilized by clinical trial sponsors and  Clinical Research Organizations (CROs) during the conduct of clinical trials,  including comprehensive Thorough QTc studies.   Services may be provided through the Digital ECG Franchise program,  which offers a unique approach designed to address the growing capacity demands  for eRTs ECG services through partnerships with sponsors that desire dedicated  resources within eRT to address specific levels of cardiac safety monitoring  transactions.  Additionally, we offer  the licensing and, at the clients option, hosting of our proprietary Clinical  Data Management software products and the
provision of maintenance and  consulting services in support of our proprietary Clinical Data Management  software products.  We offer the  following products and services on a global basis:





| | EXPeRT®.     EXPeRT® Cardiac Safety services provide intelligent, workflow-enabled    cardiac safety data collection, interpretation and distribution of    electrocardiographic (ECG) data and images, as well as analysis and    cardiologist interpretation of ECGs performed on research subjects in    connection with our clients clinical trials.  In addition, we establish rules for standardized,    semi-automated and automated workflow management, allowing audit trail    accounting and generating safety and operational metrics reports for sponsors    and investigators. Also included in EXPeRT® Cardiac Safety services is FDA    XML delivery which provides for the delivery of ECGs, encapsulated in the now    approved FDA XML schema standard, to Cardiac Safety customers.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | eRC.eResearch Community (eRC) is a central command and control portal    that provides real-time information related to monitoring clinical trial    activities, data quality and safety.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | eDE.     eData Entry (eDE) technology provides a comprehensive electronic data    capture (EDC) system comprised of technology and consulting services    formulated to deliver rapid time to benefit for electronic trial initiatives.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | eResNet.     The eResearch Network (eResNet) technology provides an integrated    end-to-end clinical research solution that includes trials, data and safety    management modules.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  




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| | Project    Assurance/Implementation Assurance.  We provide a full spectrum    of consulting services for all of our products that augment the study    management and implementation efforts of clients in support of their clinical    research requirements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Our  license revenues consist of license fees for perpetual licenses and monthly and  annual license sales. Our services revenues consist of Cardiac Safety services,  technology consulting and training services and software maintenance services.  Our site support revenue consists of cardiac safety equipment rentals and sales  along with related supplies and freight.





We  recognize software revenues in accordance with Statement of Position 97-2,  Software Revenue Recognition, as amended by Statement of Position 98-9.  Accordingly, we recognize up-front license fee revenues under the residual  method when a formal agreement exists, delivery of the software and related  documentation has occurred, collectability is probable and the license fee is  fixed or determinable. We recognize monthly and annual license fee revenues  over the term of the arrangement. Hosting service fees are recognized evenly  over the term of service. Cardiac Safety services revenues consist of fee for  service revenues and are recognized as the services are performed.  Site support revenues are recognized at the  time of sale or over the rental period. We recognize revenues from software  maintenance contracts on a straight-line basis over the term of the maintenance
contract, which is typically twelve months. We provide consulting and training  services on a time and materials basis and recognize revenues as we perform the  services.





For  arrangements with multiple deliverables where the fair value of each element is  known, the revenue is allocated to each component based on the relative fair  values of each element.  For  arrangements with multiple deliverables where the fair value of the delivered  element is not known, revenue is allocated to each component of the arrangement  using the residual method provided that the fair value of all undelivered  elements is known.  Fair values for  undelivered elements are based primarily upon stated renewal rates for future  products or services.





Cost  of licenses consists primarily of applications service provider (ASP) fees for  those clients that choose hosting, the cost of producing compact disks and  related documentation and royalties paid to third parties in connection with  their contributions to our product development. Cost of services includes the  cost of Cardiac Safety services and the cost of technology consulting, training  and maintenance services. Cost of Cardiac Safety services consists primarily of  direct costs related to our centralized Cardiac Safety services and includes  wages, depreciation and other direct operating costs.  Cost of technology consulting, training and maintenance services  consists primarily of wages, fees paid to outside consultants and other direct  operating costs related to our consulting and client support functions. Cost of  site support consists primarily of wages, cardiac safety equipment
rent and  depreciation, related supplies, cost of equipment sold, shipping expenses and  other direct operating costs.  Selling  and marketing expenses consist primarily of wages and commissions paid to sales  personnel, travel expenses and advertising and promotional expenditures.  General and administrative expenses consist primarily of wages and direct costs  for our finance, administrative, corporate information technology and executive  management functions, in addition to professional service fees and corporate  insurance. Research and development expenses consist primarily of wages paid to  our product development staff, costs paid to outside consultants and direct  costs associated with the development of our technology products.





We conduct  our operations through offices in the United States and the United Kingdom  (UK). Our international net revenues represented approximately 14% and 23% of  total net revenues for the three months ended March 31, 2004 and 2005,  respectively.  The increase in the  percentage of UK revenues is due to our management assigning more studies to  the UK location. Revenues are allocated to locations where the work is  performed and not based upon the location of the client or the study.





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Results of Operations





Recent Developments





On  April 27, 2005, we announced that our Board of Directors consented to the  acquisition by Blum Capital Partners, L.P. (Blum Capital) or its affiliates of  shares of our common stock which would result in Blum Capital becoming an  interested stockholder within the meaning of Section 203 of the Delaware  General Corporation Law (the GCL). The purpose of the Boards approval was to  render the limitations set forth in Section 203(a) of the GCL inapplicable to  Blum Capital.  The approval of the Board  was conditioned upon Blum Capital agreeing that, without the Boards approval,  Blum Capital will not acquire beneficial ownership of 20% or more of our  outstanding common stock.





In  addition, the Board increased the number of directors from eight to nine and  appointed John H. Park, CFA, to fill the vacancy created by the increase.  Although Mr. Parks term of office will not expire until the 2008 Annual  Meeting of Stockholders, the Board will submit Mr. Parks Board appointment to  our stockholders for their ratification at the 2006 annual meeting and Mr. Park  has agreed to resign if the stockholders do not ratify his appointment.  Mr. Park is a Partner of Blum Capital.





On  May 3, 2005, we announced that our Board of Directors authorized the purchase  of up to an additional 10 million shares of our common stock, which extends the  previously announced stock buy-back program to authorize the repurchase of a  total of 12.5 million shares.  The  buy-back authorization allows us to make purchases from time to time on the  open market at prevailing prices or in privately negotiated transactions. Our  management will make the purchase decisions based upon market conditions and  other considerations.





Executive Overview





As  we discussed in our press release issued on March 10, 2005 and reiterated in  our conference call regarding first quarter results on April 27, 2005, there  continues to be significant uncertainty in the clinical research and drug  development industry, due in part to evolving regulatory guidance.  In our Form 10-K for the fiscal year ended  December 31, 2004, see Risks Related to Our Business---Extensive governmental regulation of  the clinical trial process could require costly modifications to our products,  adversely affect prospective clients willingness to use our products and could  increase competition and reduce our market share.We believe that this uncertainty continues to delay  new contract signings and extend the time for initiation of new studies.  Although we believe that further  clarification of this regulatory guidance will be provided in
the second or  third quarter of 2005 and that the continued uncertainty that we believe has  temporarily impacted our industry may be alleviated, our results of operations  may continue to be adversely affected if this clarification is delayed or does  not adequately address the uncertainty in the industry.





Regulatory  bodies, such as the United States Food and Drug Administration (FDA) and the  International Conference on Harmonization (ICH), provide guidance on the  clinical trial process.  This guidance  can have a significant influence on the decisions made by our clients and  potential clients regarding the use of our services.  For example, in the June 2004 ICH release, E14: The Clinical Evaluation of QT/QTc  Interval Prolongation and Proarrhythmic Potential for Non-Antiarrhythmic Drugs  (Step 3), it was suggested that semi-automated processing of  electrocardiograms may be found acceptable in certain instances.  Semi-automated processing uses software  algorithm placed measurements that are later adjudicated by a cardiac  specialist or physician.  We have  historically been a leader in the industry in manual processing and we now also  provide semi-automated processing
with the same service level commitments to  our customers as we have with our manual processing. Our manual processing  includes manually performed measurements using our on screen, high resolution  caliper placement system which are later interpreted by a cardiologist.





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The  following table presents certain financial data as a percentage of total net  revenues:





|                            |  | Three Months Ended March 31, |      
|--------------------------- |  | ---------------------------- | -----
|                            |  |                              |      
|                            |  | 2004                         |      
|                            |  |                              |      
|Net revenues:               |  |                              |      
|Licenses                    |  |                              | 9.4  
|Services                    |  |                              | 69.0 
|Site support                |  |                              | 21.6 
|                            |  |                              |      
|Total net revenues          |  |                              | 100.0
|                            |  |                              |      
|Costs of revenues:          |  |                              |      
|Cost of licenses            |  |                              | 0.5  
|Cost of services            |  |                              | 22.9 
|Site support                |  |                              | 9.1  
|                            |  |                              |      
|Total costs of revenues     |  |                              | 32.5 
|                            |  |                              |      
|Gross margin                |  |                              | 67.5 
|                            |  |                              |      
|Operating expenses:         |  |                              |      
|Selling and marketing       |  |                              | 9.4  
|General and administrative  |  |                              | 8.2  
|Research and    development |  |                              | 3.7  
|                            |  |                              |      
|Total operating    expenses |  |                              | 21.3 
|                            |  |                              |      
|Operating income            |  |                              | 46.2 
|Other income (expense) net  |  |                              | 0.4  
|                            |  |                              |      
|Income before income taxes  |  |                              | 46.6 
|Income tax provision        |  |                              | 18.7 
|                            |  |                              |      
|Net income                  |  |                              | 27.9 
|                            |  |                              |      




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Three Months Ended March 31, 2005  Compared to Three Months Ended March 31, 2004.





The following table  presents statements of operations with product line detail (in thousands):





|                                   |  | Three Months Ended March 31, |        |      |   |                     |   |  
|---------------------------------- |  | ---------------------------- | ------ | ---- | - | ------------------- | - | -
|                                   |  |                              |        |      |   |                     |   |  
|                                   |  | 2004                         |        | 2005 |   | Increase (Decrease) |  
|                                   |  |                              |        |      |   |                     |  
|Licenses:                          |  |                              |        |      |   |                     |   |  
|Net revenues                       |  | $                            | 2,453  |      | $ | 1,663               |   | $
|Costs of revenues                  |  |                              | 122    |      |   | 133                 |   |  
|                                   |  |                              |        |      |   |                     |   |  
|Gross margin                       |  | $                            | 2,331  |      | $ | 1,530               |   | $
|                                   |  |                              |        |      |   |                     |   |  
|Services:                          |  |                              |        |      |   |                     |   |  
|Cardiac Safety                     |  |                              |        |      |   |                     |   |  
|Net revenues                       |  | $                            | 16,021 |      | $ | 14,122              |   | $
|Costs of revenues                  |  |                              | 4,934  |      |   | 5,682               |   |  
|                                   |  |                              |        |      |   |                     |   |  
|Gross margin                       |  | $                            | 11,087 |      | $ | 8,440               |   | $
|                                   |  |                              |        |      |   |                     |   |  
|Technology consulting and training |  |                              |        |      |   |                     |   |  
|Net revenues                       |  | $                            | 845    |      | $ | 594                 |   | $
|Costs of revenues                  |  |                              | 759    |      |   | 514                 |   |  
|                                   |  |                              |        |      |   |                     |   |  
|Gross margin                       |  | $                            | 86     |      | $ | 80                  |   | $
|                                   |  |                              |        |      |   |                     |   |  
|Software maintenance               |  |                              |        |      |   |                     |   |  
|Net revenues                       |  | $                            | 1,144  |      | $ | 1,186               |   | $
|Costs of revenues                  |  |                              | 292    |      |   | 294                 |   |  
|                                   |  |                              |        |      |   |                     |   |  
|Gross margin                       |  | $                            | 852    |      | $ | 892                 |   | $
|                                   |  |                              |        |      |   |                     |   |  
|Total services                     |  |                              |        |      |   |                     |   |  
|Net revenues                       |  | $                            | 18,010 |      | $ | 15,902              |   | $
|Costs of revenues                  |  |                              | 5,985  |      |   | 6,490               |   |  
|                                   |  |                              |        |      |   |                     |   |  
|Gross margin                       |  | $                            | 12,025 |      | $ | 9,412               |   | $
|                                   |  |                              |        |      |   |                     |   |  
|Site    support:                   |  |                              |        |      |   |                     |   |  
|Net revenues                       |  | $                            | 5,629  |      | $ | 5,349               |   | $
|Costs of revenues                  |  |                              | 2,363  |      |   | 3,183               |   |  
|                                   |  |                              |        |      |   |                     |   |  
|Gross margin                       |  | $                            | 3,266  |      | $ | 2,166               |   | $
|                                   |  |                              |        |      |   |                     |   |  
|Total:                             |  |                              |        |      |   |                     |   |  
|Net revenues                       |  | $                            | 26,092 |      | $ | 22,914              |   | $
|Costs of revenues                  |  |                              | 8,470  |      |   | 9,806               |   |  
|                                   |  |                              |        |      |   |                     |   |  
|Gross margin                       |  |                              | 17,622 |      |   | 13,108              |   |  
|                                   |  |                              |        |      |   |                     |   |  
|Operating    expenses:             |  |                              |        |      |   |                     |   |  
|Selling and marketing              |  |                              | 2,453  |      |   | 2,338               |   |  
|General and administrative         |  |                              | 2,150  |      |   | 2,896               |   |  
|Research and development           |  |                              | 973    |      |   | 991                 |   |  
|                                   |  |                              |        |      |   |                     |   |  
|Total    operating expenses        |  |                              | 5,576  |      |   | 6,225               |   |  
|                                   |  |                              |        |      |   |                     |   |  
|Operating    income                |  |                              | 12,046 |      |   | 6,883               |   |  
|Other income    (expense), net     |  |                              | 108    |      |   | (5                  | ) |  
|                                   |  |                              |        |      |   |                     |   |  
|Income    before income taxes      |  |                              | 12,154 |      |   | 6,878               |   |  
|Income tax    provision            |  |                              | 4,886  |      |   | 2,806               |   |  
|                                   |  |                              |        |      |   |                     |   |  
|Net income                         |  | $                            | 7,268  |      | $ | 4,072               |   | $
|                                   |  |                              |        |      |   |                     |   |  




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The  following table presents costs of revenues as a percentage of related net  revenues and operating expenses as a percentage of total net revenues:





|                                      |  | Three Months Ended March 31, |   |      |  
|------------------------------------- |  | ---------------------------- | - | ---- | -
|                                      |  |                              |   |      |  
|                                      |  | 2004                         |   | 2005 |  
|                                      |  |                              |   |      |  
|Cost of licenses                      |  | 5.0                          | % | 8.0  | %
|Cost of services:                     |  |                              |   |      |  
|Cardiac Safety                        |  | 30.8                         | % | 40.2 | %
|Technology consulting    and training |  | 89.8                         | % | 86.5 | %
|Software maintenance                  |  | 25.5                         | % | 24.8 | %
|Total cost of services                |  | 33.2                         | % | 40.8 | %
|Cost of site support                  |  | 42.0                         | % | 59.5 | %
|Total costs of revenues               |  | 32.5                         | % | 42.8 | %
|Operating expenses:                   |  |                              |   |      |  
|Selling and marketing                 |  | 9.4                          | % | 10.2 | %
|General and    administrative         |  | 8.2                          | % | 12.7 | %
|Research and    development           |  | 3.7                          | % | 4.3  | %




License  revenues decreased primarily due to a decrease in the revenue from the sale of  perpetual licenses primarily due to the fact that the average license revenue  for each of the perpetual licenses sold in the first quarter of 2004 generated  license revenues substantially in excess of the licenses sold in the first  quarter of 2005.  This is largely the  result of the mix of licenses sold and the number of users for each license.





The  decrease in Cardiac Safety service revenues was primarily due to a decrease in  sales volume, including a decrease in transactions performed and a decrease in  average revenue per transaction.  The  decrease in sales volume in the first quarter of 2005 was partially attributed  to a decrease in comprehensive Thorough QTc studies.  Thorough QTc studies are typically of large volume and of short  duration, with ECGs performed over a two to six month period. As a result,  revenues resulting from Thorough QTc studies are more difficult to  predict.  The decrease in average  revenue per transaction is largely due to the impact of increased activity in  franchise accounts which generally include lower fees per transaction than  other studies.  In addition, if drug  sponsors shift towards semi-automated processing using software algorithm  placed measurements in place of our manual
high-resolution caliper placement system,  more competitors may join our market, thus reducing pricing and our market  share.  The effect of such action may  reduce our average revenue per transaction.





Technology  consulting and training revenues decreased primarily due to a reduction in  consulting on Clinical Data Management software products as there were several  larger consulting engagements in the first quarter of 2004 with nothing of a  comparable size in the first quarter of 2005.





Site  support revenue decreased primarily due to a decrease in the revenue from the  rental of cardiac safety equipment, which our clients use to perform cardiac  safety procedures and related sales of supplies. The decrease in sales volume  in the first quarter of 2005 was partially attributed to a decrease in  comprehensive Thorough QTc studies.   These decreases were partially offset by equipment sales of $515,000 in  the first quarter of 2005 while equipment sales in the first quarter of 2004  were immaterial.  We have seen increased  interest from clients in purchasing equipment during the latter part of 2004  and year-to-date 2005 which could indicate additional sales might occur in  future periods.





The  increase in the cost of Cardiac Safety services, both in absolute terms and as  a percentage of Cardiac  Safety service revenues, was primarily due to an increase in labor,  depreciation and increased facilities and other costs associated with expanding  capabilities to meet the past and expected growth in Cardiac Safety service  revenues. Partially offsetting these increases is a reduction in amortization  expense related to internal use software costs and a reduction in incentive  bonuses due to higher targets set for the first quarter of 2005 that were not  fully achieved.  See Liquidity and Capital  Resources for additional information related to internal use software. The  increase in the cost of Cardiac Safety services as a percentage of Cardiac  Safety service revenues was also due to the fact that some of the costs do not  necessarily increase or decrease in direct
relation with changes in revenue.





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The  decrease in the cost of technology consulting and training services, both in  absolute terms and as a percentage of technology consulting and training  service revenues, was primarily due to a reduction in third-party consulting  costs which is partially attributable to the decrease in related revenue and a  reduction in incentive bonuses due to higher targets set for the first quarter  of 2005 that were unmet.





The  increase in the cost of site support, both in absolute terms and as a  percentage of site support revenues, was due primarily to an increase in rental  and depreciation costs associated with cardiac safety rental equipment, cost of  equipment sold in the first quarter of 2005 and other costs associated with  expanding capabilities to meet the past and expected growth in site support  activities, including the addition of new dedicated site support facilities in  both the US and UK during 2004.





The  decrease in selling and marketing expenses was primarily due to lower commissions  that resulted from a decrease in commissionable revenue and the conversion of  certain business development directors from incentive compensation primarily  based upon commission to one primarily based upon bonus.   In the first quarter of 2005, bonus targets generally exceeded actual  performance, and resulted in lower incentive bonuses compared to the first  quarter of 2004.  The increase in  selling and marketing expenses as a percentage of total net revenues was due to  maintaining other selling and marketing expenditures despite the decrease in  total net revenues.





The  increase in general and administrative expenses, both in absolute terms  and as a percentage of total net revenues, was due primarily to costs incurred in the first quarter of 2005 for  consultants assisting with fiscal 2004 internal control work required by the  Sarbanes-Oxley Act as well as increased audit and internal control attestation  fees of our independent registered public accountants and higher labor costs  due to new hires. These increases were partially offset by a reduction in  incentive bonuses due to higher targets in the first quarter of 2005 that were  not fully achieved. The increase in general and administrative expenses as a  percentage of total net revenues was also due to the decrease in net revenues  and the fact that general and administrative expenses do not necessarily  increase or decrease with changes in revenues.





Other  income (expense), net, consisted primarily of interest income realized from our  cash, cash equivalents and short-term investments, net of interest expense  related to capital lease obligations. In the first quarter of 2005, other income  (expense), net also included an investment impairment charge of $284,000 which  was the result of continued negative market conditions affecting the carrying  value of our investment in Essential Group, Inc.  At March 31, 2005, the carrying value for Essential Group, Inc.  was $225,000.  Exclusive of the  investment impairment charge, other income, net increased $171,000 primarily  due to higher balances of cash, cash equivalents and short-term investments in  the first quarter of 2005 as well as a shift to higher yielding money market  investments and a decrease in interest expense related to capital leases in the  first quarter of
2005.





Our  effective tax rate was 40.2% and 40.8% for the three months ended March 31,  2004 and 2005, respectively. The first quarter of 2005 tax rate is comparable  to the effective tax rate for the entire fiscal year 2004 which increased from  the first quarter of 2004 primarily due to increased income before taxes with  relatively static offsets such as tax credits for research and development. As  income increased, the impact of these tax offsets has decreased as a percentage  of income before income taxes, and as a result, the effective tax rate has  increased.





Liquidity and Capital Resources





At March  31, 2005, we had $38.9 million of cash and cash equivalents and $31.9 million  invested in short-term investments.  We generally place our investments in money  market funds, municipal securities, bonds of government sponsored agencies,  certificates of deposit with fixed rates with maturities of less than one year,  and A1P1 rated commercial bonds and paper.





For  the three months ended March 31, 2005, our operations provided cash of $5.0  million compared to $13.4 million during the three months ended March 31, 2004.  The change was primarily the result of a reduction in deferred revenues due to  franchise activity exceeding franchise payments in the first quarter of 2005  compared to the first quarter of 2004 where deferred revenue increased as  franchise payments exceeded franchise activity.  The decrease in operating cash flow was also attributed to lower  operating income and smaller income tax benefits related to stock options  recognized during the three months ended March 31, 2005 compared to the three  months ended March 31, 2004.  This  change was partially offset by a





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much smaller increase in accounts receivable  due to lower revenue and the impact of franchise study activity, which is  largely prepaid.





For  the three months ended March 31, 2005, our investing activities used cash of  $12.1 million compared to $11.3 million during the three months ended March 31,  2004.  The change was primarily the  result of the net purchases of short-term investments, which totaled $9.0  million for the three months ended March 31, 2005, compared to $7.3 million for  the three months ended March 31, 2004.





During the  three months ended March 31, 2005, we capitalized $3.1 million of property and  equipment compared to $4.0 million capitalized in the first quarter of 2004.  The decrease was primarily the result of software purchased in the first  quarter of 2004 used in the development of the upgrade to EXPeRT® as discussed  below.





Included in  property and equipment is internal use software associated with the development  of a data and communications management services software product (EXPeRT®)  used in connection with our centralized core cardiac safety  electrocardiographic services. We capitalize certain internal use software  costs in accordance with Statement of Position 98-1. The amortization is  charged to the cost of Cardiac Safety services beginning at the time the  software is ready for its intended use. The initial development costs of  EXPeRT® were for the basic functionality required for this product. Additional  development costs of EXPeRT® were incurred to develop new functionalities and  enhancements. We started a new internal use software project to allow for  semi-automated processing of ECGs in the second quarter of 2003 and further  enhancements were begun in October 2004. We also began
capitalizing costs  associated with an upgrade to EXPeRT® beginning in the fourth quarter of 2003.





In  mid-August of 2004, we revised our estimated timing for the completion of the  upgrade to EXPeRT® to continue the development work through the fourth quarter  of 2005 as opposed to the first quarter of 2005, as we previously had  estimated. As this upgrade will replace many parts of the existing EXPeRT®  product, we previously had accelerated the amortization of previously  capitalized labor and consulting costs to fully amortize the associated costs  of the existing EXPeRT® product by the end of the first quarter of 2005, which  increased monthly amortization expense by $76,000 beginning in the fourth  quarter of 2003. Beginning in mid-August of 2004, we revised the amortization  period for previously capitalized labor and consulting costs to fully amortize  the associated costs of the existing EXPeRT® product by the end of the fourth  quarter of 2005, which decreased monthly
amortization expense by $76,000  beginning in mid-August 2004.  At the  beginning of April 2005, we decided to extend the life of the existing EXPeRT®  product to co-exist with the upgrade and will extend the depreciation period  through August 2006 which coincides with our standard useful life for internal  use software of four years.  This will  result in a decrease in monthly amortization expense of $32,000 beginning in  April 2005.





The  following table presents the internal use software costs and related  amortization as of March 31, 2005, with the exception of EXPeRT® which reflects  the changes to be made in April 2005 as noted above (in thousands):





|                                       |  | Amortization    Start Date |                        | Labor and    Consulting |   | Related    Direct Costs    of Materials |  | Total    Capitalized    Costs |       | Monthly    Amortization |   | Accumulated    Amortization | 
|-------------------------------------- |  | -------------------------- | ---------------------- | ----------------------- | - | --------------------------------------- |  | ----------------------------- | ----- | ----------------------- | - | --------------------------- | 
|                                       |  |                            |                        |                         |   |                                         |  |                               |       |                         |   |                             | 
|EXPeRT®                                |  |                            |                        |                         |   |                                         |  |                               |       |                         |   |                             | 
|Initial costs                          |  |                            | August 2002            |                         | $ | 2,618                                   |  | $                             | 1,413 |                         | $ | 4,031                       | 
|Additional costs                       |  |                            | April 2003             |                         |   | 1,003                                   |  |                               | 50    |                         |   | 1,053                       | 
|Semi-automated ECG processing software |  |                            |                        |                         |   |                                         |  |                               |       |                         |   |                             | 
|Initial costs                          |  |                            | February 2004          |                         |   | 449                                     |  |                               | 361   |                         |   | 810                         | 
|Enhancements                           |  |                            | October 2004           |                         |   | 380                                     |  |                               |      |                         |   | 380                         | 
|Additional enhancements                |  |                            | May 2005               |                         |   | 377                                     |  |                               |      |                         |   | 377                         | 
|Upgrade to EXPeRT®                     |  |                            | March 2006 (estimated) |                         |   | 2,646                                   |  |                               | 1,139 |                         |   | 3,785                       | 
|                                       |  |                            |                        |                         |   |                                         |  |                               |       |                         |   |                             | 
|Total                                  |  |                            |                        |                         | $ | 7,473                                   |  | $                             | 2,963 |                         | $ | 10,436                      | 
|                                       |  |                            |                        |                         |   |                                         |  |                               |       |                         |   |                             | 




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For the  three months ended March 31, 2005, our financing activities provided cash of  $226,000 compared to cash provided of $706,000 for the three months ended March  31, 2004. The change was primarily the result of lower net proceeds from  exercise of stock options in the first quarter of 2005 as compared to the first  quarter of 2004.





We have a  line of credit arrangement with Wachovia Bank, National Association totaling  $3.0 million. For the three months ended March 31, 2005, we had no outstanding  borrowings under the line.





We expect  that existing cash and cash equivalents, short-term investments, cash flows  from operations and available borrowings under our line of credit will be  sufficient to meet our foreseeable cash needs for at least the next year.  However, there may be acquisition and other growth opportunities that require  additional external financing and we may from time to time seek to obtain  additional funds from the public or private issuances of equity or debt  securities. There can be no assurance that any such acquisitions will occur or  that such financings will be available or available on terms acceptable to us.





As  noted in Recent Developments, the stock buy-back program was recently extended  by 10 million shares to a total of 12.5 million shares.  The purchase of a majority of the shares  authorized could require us to use a significant portion of our cash,
cash equivalents and short-term investments and could  also require us to seek additional external financing.  The stock buy-back authorization allows us,  but does not require us to purchase the authorized shares.





Inflation





We believe  the effects of inflation and changing prices generally do not have a material  adverse effect on our results of operations or financial condition.





Item  3.  Quantitative and Qualitative Disclosures About Market Risk





Our primary  financial market risks include fluctuations in interest rates and currency  exchange rates.





Interest Rate Risk





We  generally place our investments in money market funds, municipal securities,  bonds of government sponsored agencies, certificates of deposit with fixed  rates with maturities of less than one year, and A1P1 rated commercial bonds  and paper. We actively manage our portfolio of cash equivalents and short-term  investments, but in order to ensure liquidity, will only invest in instruments  with high credit quality where a secondary market exists. We have not held and  do not hold any derivatives related to our interest rate exposure. Due to the  average maturity and conservative nature of our investment portfolio, a sudden  change in interest rates would not have a material effect on the value of the  portfolio. Management estimates that had the average yield of our investments  decreased by 100 basis points, our interest income for the three months ended  March 31, 2005 would have decreased by
approximately $175,000. This estimate  assumes that the decrease occurred on the first day of 2005 and reduced the  yield of each investment by 100 basis points. The impact on our future interest  income of future changes in investment yields will depend largely on the gross  amount of our cash, cash equivalents and short-term investments. See Liquidity  and Capital Resources as part of Managements Discussion and Analysis of  Financial Condition and Results of Operations.





Foreign  Currency Risk





We  operate on a global basis from locations in the United States and the United  Kingdom. All international net revenues are billed and expenses incurred in  either U.S. dollars or pounds sterling. As such, we face exposure to adverse  movements in the exchange rate of the pound sterling. As the currency rate  changes, translation of the income statement of our UK subsidiary from the  local currency to U.S. dollars affects year-to-year comparability of operating  results. We do not hedge translation risks because any cash flows from UK  operations are generally reinvested in the UK.





Management  estimates that a 10% change in the exchange rate of the pound sterling would  have impacted the reported operating income for the three months ended March  31, 2005 by less than $120,000.





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Item 4.  Controls and  Procedures





We carried  out an evaluation, under the supervision and with the participation of our  management, including our Chief Executive Officer and Chief Financial Officer,  of the effectiveness of our disclosure controls and procedures pursuant to Rule  13a-15 under the Securities Exchange Act of 1934, as amended, as of March 31,  2005.  Based upon that evaluation, our Chief Executive Officer and Chief  Financial Officer concluded that our disclosure controls and procedures are  effective to ensure that information required to be disclosed by our Company  (including our consolidated subsidiaries) in our periodic filings with the  Securities and Exchange Commission is recorded, processed, summarized and  reported within the time periods specified in the Commissions rules and  forms.  There has been no change in our internal control over financial  reporting during the quarter ended
March 31, 2005 that has materially affected,  or is reasonably likely to materially affect, our internal control over  financial reporting.





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Part II.  Other Information





Item 6.  Exhibits





| | 31.1     Certification of Chief Executive Officer.                                                              
| | ----------------------------------------------------------------------------------------------------------------
| |                                                                                                                 
| | 31.2     Certification of Chief Financial Officer.                                                              
| |                                                                                                                 
| | 32.1     Statement of Chief Executive Officer Pursuant to Section 1350 of Title    18 of the United States Code.
| |                                                                                                                 
| | 32.2  Statement of Chief Financial Officer Pursuant    to Section 1350 of Title 18 of the United States Code.   




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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.





|                           | eResearchTechnology, Inc.
|-------------------------- | -------------------------
|                           | (Registrant)             
|                           |                          
|Date       May 5,    2005  | By:                      
|                           |                          
|                           |                          
|                           |                          
|                           |                          
|                           |                          
|                           |                          
|                           |                          
|                           |                          
|Date:       May    5, 2005 | By:                      
|                           |                          
|                           |                          
|                           |                          




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EXHIBIT  INDEX





|Exhibit No. |  | Exhibit                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------------
|            |  |                                                                                                        
|31.1        |  | Certification of Chief Executive Officer.                                                              
|            |  |                                                                                                        
|31.2        |  | Certification of Chief Financial Officer.                                                              
|            |  |                                                                                                        
|32.1        |  | Statement of Chief Executive Officer Pursuant to    Section 1350 of Title 18 of the United States Code.
|            |  |                                                                                                        
|32.2        |  | Statement of Chief Financial Officer Pursuant to    Section 1350 of Title 18 of the United States Code.




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