UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
ý
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended March 31, 2009
or
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission
File Number: 000-50531
ETRIALS
WORLDWIDE, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
|
20-0308891
(I.R.S.
Employer
Identification
No.)
|
|
4000
Aerial Center Parkway
Morrisville,
North Carolina 27560
(Address
of principal executive offices)
|
|
(919) 653-3400
(Registrant’s
telephone number, including area code)
|
|
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past
90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such
files). Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
|
|
Large accelerated filer
|
|
¨
|
|
Accelerated filer
|
|
¨
|
|
|
|
|
|
|
Non-accelerated
filer
|
|
¨
(Do
not check if a smaller reporting company)
|
|
Smaller reporting company
|
|
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes
¨
No
x
The
number of shares outstanding of the Registrant’s common stock as of March
31,2009 was approximately 10,740,454.
ETRIALS
WORLDWIDE, INC.
QUARTERLY
REPORT ON FORM 10-Q
FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2009
Table
of Contents
|
|
|
|
|
Page
|
|
|
|
Part
I – FINANCIAL INFORMATION
|
|
|
|
Item
1.
|
|
Financial
Statements
|
|
|
|
|
|
Consolidated
Balance Sheets as of March 31, 2009 (unaudited) and December 31,
2008
|
|
3
|
|
|
|
Consolidated
Statements of Operations (unaudited) for the three months ended March 31,
2009 and 2008
|
|
4
|
|
|
|
Consolidated
Statement of Stockholders’ Equity (unaudited) for the three months ended
March 31, 2009
|
|
5
|
|
|
|
Consolidated
Statements of Cash Flows (unaudited) for the three months ended March 31,
2009 and 2008
|
|
6
|
|
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
|
7
|
|
Item
2.
|
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
15
|
|
Item
3.
|
|
Quantitative
and Qualitative Disclosures about Market Risk
|
|
24
|
|
Item
4.
|
|
Controls
and Procedures
|
|
24
|
|
|
|
Part
II – OTHER INFORMATION
|
|
|
|
Item
1.
|
|
Legal
Proceedings
|
|
25
|
|
Item
1A.
|
|
Risk
Factors
|
|
25
|
|
Item
2.
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
25
|
|
Item
3.
|
|
Defaults
Upon Senior Securities
|
|
25
|
|
Item
4.
|
|
Submission
of Matters to a Vote of Security Holders
|
|
25
|
|
Item
5.
|
|
Other
Information
|
|
26
|
|
Item
6.
|
|
Exhibits
|
|
26
|
|
Signatures
|
|
26
|
|
Exhibit
Index
|
|
27
|
Item
1. Financial Statements
|
etrials
Worldwide, Inc.
|
|
Consolidated
Balance Sheets
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
9,060,658
|
|
|
$
|
10,699,537
|
|
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
of
$602,598
|
|
|
3,853,791
|
|
|
|
3,782,191
|
|
|
Inventories
|
|
|
136,500
|
|
|
|
136,500
|
|
|
Prepaid
expenses and other current assets
|
|
|
505,777
|
|
|
|
299,353
|
|
|
Total
current assets
|
|
|
13,556,726
|
|
|
|
14,917,581
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $5,486,886 and
$5,198,853, respectively
|
|
|
2,002,639
|
|
|
|
2,026,478
|
|
|
Other
assets
|
|
|
119,538
|
|
|
|
119,538
|
|
|
Total
assets
|
|
$
|
15,678,903
|
|
|
$
|
17,063,597
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
708,200
|
|
|
$
|
522,909
|
|
|
Accrued
expenses
|
|
|
1,939,338
|
|
|
|
2,446,552
|
|
|
Deferred
revenue
|
|
|
1,215,407
|
|
|
|
1,637,817
|
|
|
Bank
line of credit and other short-term borrowings
|
|
|
1,915,667
|
|
|
|
1,630,666
|
|
|
Current
portion of capital lease obligations
|
|
|
93,524
|
|
|
|
133,559
|
|
|
Total
current liabilities
|
|
|
5,872,136
|
|
|
|
6,371,503
|
|
|
Capital
lease obligations, net of current portion
|
|
|
45,082
|
|
|
|
-
|
|
|
Long-term
borrowings, net of current portion
|
|
|
135,337
|
|
|
|
197,004
|
|
|
Total
liabilities
|
|
|
6,052,555
|
|
|
|
6,568,507
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
|
Common
stock; $0.0001 par value; 50,000,000 shares authorized at
|
|
|
|
|
|
|
|
|
|
March
31, 2009 and December 31, 2008; and
10,740,454 and
|
|
|
|
|
|
|
|
|
|
10,767,520 issued
and outstanding at March 31, 2009 and
|
|
|
|
|
|
|
|
|
|
December
31, 2008, respectively
|
|
|
1,074
|
|
|
|
1,077
|
|
|
Additional
paid-in capital
|
|
|
56,297,527
|
|
|
|
56,203,286
|
|
|
Deferred
compensation
|
|
|
(729
|
)
|
|
|
(1,927
|
)
|
|
Accumulated
deficit
|
|
|
(46,671,524
|
)
|
|
|
(45,707,346
|
)
|
|
Total
stockholders' equity
|
|
|
9,626,348
|
|
|
|
10,495,090
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
15,678,903
|
|
|
$
|
17,063,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying
notes.
|
|
etrials
Worldwide, Inc.
|
|
Consolidated
Statements of Operations
|
|
(unaudited)
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Net
service revenues
|
|
$
|
3,627,092
|
|
|
$
|
3,708,209
|
|
|
Reimbursable
out-of-pocket revenues
|
|
|
10,528
|
|
|
|
587,632
|
|
|
Total
revenues
|
|
|
3,637,620
|
|
|
|
4,295,841
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
Costs
of revenues
|
|
|
2,041,500
|
|
|
|
2,581,653
|
|
|
Reimbursable
out-of-pocket expenses
|
|
|
10,528
|
|
|
|
587,632
|
|
|
Sales
and marketing
|
|
|
791,067
|
|
|
|
1,146,426
|
|
|
General
and administrative
|
|
|
1,221,024
|
|
|
|
1,451,048
|
|
|
Research
and development
|
|
|
489,876
|
|
|
|
645,903
|
|
|
Total
cost and expenses
|
|
|
4,553,995
|
|
|
|
6,412,662
|
|
|
Operating
loss
|
|
|
(916,375
|
)
|
|
|
(2,116,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(17,474
|
)
|
|
|
(46,266
|
)
|
|
Interest
income
|
|
|
27,990
|
|
|
|
137,008
|
|
|
Other
expense, net
|
|
|
(58,319
|
)
|
|
|
(11,405
|
)
|
|
Total
other (expense) income, net
|
|
|
(47,803
|
)
|
|
|
79,337
|
|
|
Net
loss
|
|
$
|
(964,178
|
)
|
|
$
|
(2,037,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
10,643,787
|
|
|
|
10,973,575
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying
notes.
|
|
etrials
Worldwide, Inc.
|
|
Consolidated
Statements of Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
10,767,520
|
|
|
$
|
1,077
|
|
|
$
|
56,203,286
|
|
|
$
|
(1,927
|
)
|
|
$
|
(45,707,346
|
)
|
|
$
|
10,495,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation recorded in accordance with SFAS 123R
|
|
|
-
|
|
|
|
-
|
|
|
|
88,304
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88,304
|
|
|
Stock-based
compensation in connection with Restricted Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
5,937
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,937
|
|
|
Amortization
of deferred stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,198
|
|
|
|
-
|
|
|
|
1,198
|
|
|
Cancellation
of shares in connection with the 2008 Incentive Bonus Plan
|
|
|
(127,066
|
)
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
|
Issuance
of restricted common stock
|
|
|
100,000
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(964,178
|
)
|
|
|
(964,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2009 (unaudited)
|
|
|
10,740,454
|
|
|
$
|
1,074
|
|
|
$
|
56,297,527
|
|
|
$
|
(729
|
)
|
|
$
|
(46,671,524
|
)
|
|
$
|
9,626,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying
notes.
|
|
etrials
Worldwide, Inc.
|
|
Consolidated
Statements of Cash Flows
|
|
(unaudited)
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(964,178
|
)
|
|
$
|
(2,037,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in
|
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
288,033
|
|
|
|
333,051
|
|
|
Non-cash
stock-based compensation expense
|
|
|
95,439
|
|
|
|
314,655
|
|
|
Provision
for allowance for doubtful accounts
|
|
|
-
|
|
|
|
159,891
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(71,600
|
)
|
|
|
(738,099
|
)
|
|
Prepaid
expenses and other assets
|
|
|
(206,424
|
)
|
|
|
(186,875
|
)
|
|
Inventories
|
|
|
-
|
|
|
|
93,611
|
|
|
Accounts
payable and accrued expenses
|
|
|
(202,923
|
)
|
|
|
368,322
|
|
|
Deferred
revenue
|
|
|
(422,410
|
)
|
|
|
836,384
|
|
|
Net
cash used in operating activities
|
|
|
(1,484,063
|
)
|
|
|
(856,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(98,774
|
)
|
|
|
(386,829
|
)
|
|
Capitalized
internal software development costs
|
|
|
(165,420
|
)
|
|
|
-
|
|
|
Maturities
of short-term investments
|
|
|
-
|
|
|
|
698,309
|
|
|
Net
cash (used in) provided by investing activities
|
|
|
(264,194
|
)
|
|
|
311,480
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
Net
proceeds from bank line of credit
|
|
|
285,000
|
|
|
|
654,000
|
|
|
Payments
on bank equipment loan
|
|
|
(61,667
|
)
|
|
|
(61,666
|
)
|
|
Principal
payments on capital leases
|
|
|
(113,952
|
)
|
|
|
(103,629
|
)
|
|
Proceeds
from issuance of stock options
|
|
|
-
|
|
|
|
5,319
|
|
|
Cancellation
of shares in connection with the 2008 Incentive Bonus Plan
|
|
|
(13
|
)
|
|
|
-
|
|
|
Issuance
of restricted common stock
|
|
|
10
|
|
|
|
-
|
|
|
Net
cash provided by financing activities
|
|
|
109,378
|
|
|
|
494,024
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(1,638,879
|
)
|
|
|
(51,040
|
)
|
|
Cash
and cash equivalents at beginning of year
|
|
|
10,699,537
|
|
|
|
13,792,508
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
9,060,658
|
|
|
$
|
13,741,468
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
18,088
|
|
|
$
|
41,958
|
|
|
Non-cash
information:
|
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets under capital lease
|
|
$
|
119,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying
notes.
|
etrials
Worldwide, Inc.
Notes
to Consolidated Financial Statements (unaudited)
1.
Organization and Capitalization
etrials
Worldwide, Inc.
etrials
Worldwide, Inc. (“etrials” or the “Company”) is a leading eClinical solutions
provider of a suite of software applications, hosting and professional services
to pharmaceutical, biotechnology, medical device, and contract research
organizations. The Company’s end-to-end, Web-based eClinical applications work
together to coordinate data capture, logistics, patient interaction and trial
management through an integrated and comprehensive suite of products, services
and hosted solutions.
The
Company’s flexible eClinical offerings address the costly and time-consuming
clinical trial process of drug development through easy-to-use, adaptable
applications that enable more real-time visibility into the state and progress
of the clinical trial process. This results in earlier and more dynamic
decision-making and ultimately lower cost and shorter
time-to-market.
The
Company’s operations are subject to certain risks and uncertainties, including
among others, rapid technological change, increased competition from existing
competitors and new entrants, lack of operating history, and dependence upon key
members of the management team. The operating results are also affected by
general economic conditions impacting the pharmaceutical industry.
Unaudited
Interim Financial Statements
The
accompanying consolidated balance sheet as of March 31, 2009, consolidated
statements of operations for the three months ended March 31, 2009 and 2008,
consolidated statements of cash flows for the three months ended March 31, 2009
and 2008 and consolidated statement of stockholders’ equity for the three months
ended March 31, 2009 are unaudited. The unaudited consolidated financial
statements include all adjustments (consisting of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
such financial statements. The information disclosed in the notes to the
financial statements for these periods is unaudited. The results of operations
for the three months ended March 31, 2009 are not necessarily indicative of the
results to be expected for the entire fiscal year or for any future
period.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. These
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2008.
2.
Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, etrials, Inc. and etrials Worldwide
LTD. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results will differ from those estimates and may differ
materially.
Revenue
Recognition
The
Company derives its revenues from providing software application-hosting which
includes: services, software and usage fees, hosting fees, and other fees.
Revenues resulting from software application-hosting are recognized in
accordance with Emerging Issues Task Force (EITF) Issue No. 00-03,
Application of AICPA Statement of
Position 97-2 to Arrangements that include the Right to Use Software Stored on
Another Entity’s Hardware
, Securities and Exchange Commission’s (SEC)
Staff Accounting Bulletin (SAB) Nos. 101 and No. 104,
Revenue Recognition.
The
Company recognizes revenue when all of the following conditions are satisfied:
(1) there is persuasive evidence of an arrangement; (2) the service
has been provided to the customer; (3) the collection of fees is probable;
and (4) the amount of fees to be paid by the customer is fixed or
determinable.
The
Company derives revenues from providing software application-hosting and related
services to customers on clinical trial projects. The Company offers its
eClinical solutions through an application service provider model. Revenues
resulting from our professional services and software application-hosting, which
include hosting fees and software usage fees, are generated in three stages of
drug development for each clinical trial. The first stage (development and
deployment) includes trial and application setup, including design of electronic
case report forms and edit checks, investigator site training, and
implementation of the system and server configuration. The second stage (study
conduct) consists of project management services, application hosting and
related professional and support services. The third stage (close out) consists
of services required to close out, or lock, the database for the clinical trial
and deliver final data sets to the client.
Services
provided during the three phases of clinical trials are typically earned under
fixed-price contracts. Although etrials enters into master agreements with each
customer, these master agreements do not contain any minimum revenue commitment
by customers and contain general terms and conditions. All services
and revenues are covered by separately negotiated addendums called task
orders. Revenues generated from each task order, including; services,
software subscription and usage fees, and hosting fees are generally recognized
using the proportional performance method, measured principally by the total
labor hours incurred as a percentage of estimated total labor hours for each
contract. This method is used because management considers total labor hours
incurred to be the best available measure of progress on these
contracts.
The
estimated total labor hours of contracts are reviewed and revised periodically
throughout the duration of the contracts with adjustment to revenues from such
revisions being recorded on a cumulative basis in the period in which the
revisions are made. When estimates indicate a loss, such loss is recognized in
the current period in its entirety. Because of the inherent uncertainties in
estimating total labor hours, it is reasonably possible that the estimates will
change in the near term and could result in a material change. The Company
records a loss for its contracts at the point it is determined that the total
estimated contract costs will exceed management’s estimates of contract
revenues.
Customers
generally have the ability to terminate contracts upon 30 days notice to
the Company. However, these contracts typically require payment to etrials for
fees earned from all services provided through the termination date. In the
event that a customer cancels a clinical trial and its related task order, all
deferred revenue is recognized and certain termination related fees may be
charged.
Provisions
for estimated losses on uncompleted contracts are made on a contract-by-contract
basis and are recognized in the period in which such losses become probable and
can be reasonably estimated. As of March 31, 2009 and December 31, 2008, the
Company had not experienced any material losses on uncompleted
contracts.
The
Company accounts for pass-through expenses in accordance with EITF Issue
No. 01-14,
Income
Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred
(EITF No. 01-14). EITF No. 01-14 requires reimbursable
out-of-pocket expenses incurred to be characterized as revenues in the statement
of operations. Pass-through revenues and expenses include diary hardware and
related taxes, wireless telecommunications, shipping, and travel expenses
incurred on the client’s behalf.
Costs of
revenues consist of compensation and related fringe benefits for project-related
associates, unreimbursed project related costs and indirect costs including
facilities, information systems, and other costs. Selling, general, and
administrative costs are charged to expense as incurred.
Unbilled
services are recorded for revenue recognized to date that has not yet been
billed to the customers. In general, amounts become billable upon the
achievement of milestones or in accordance with predetermined payment schedules.
Deferred revenue represents amounts billed or cash received in advance of
revenue recognition.
Cash,
Cash Equivalents and Short-term Investments
The
Company accounts for its short-term investments in accordance with SFAS No. 115,
Accounting for Certain
Investments in Debt and Equity Securities
. The Company
considers all highly liquid investments with original or remaining maturities of
90 days or less at the time of purchase to be cash equivalents and investments
with original or remaining maturities of between 91 days and one year to be
short-term investments. In order to manage exposure to credit risk, the Company
invests in high quality investments rated at least A2 by Moody’s Investors
Service or A by Standard & Poors.
Inventory
Inventory consists of electronic
patient diaries purchased for future clinical trials. Inventory is
valued at the lower of cost or market value and is allocated on an average cost
method.
Foreign
Currency
The financial Statements of the
Company’s foreign subsidiary in the United Kingdom are remeasured in accordance
with SFAS No. 52,
Foreign
Currency Translation
. The Company determined that the functional currency
of its United Kingdom operations is the U.S. dollar. Assets and
liabilities denominated in foreign currencies are remeasured into U.S. dollars
at current exchange rates. Operating results are remeasured into U.S.
dollars using the average rates of exchange prevailing during the
period. Remeasurement adjustments for non-functional currency
monetary assets and liabilities are included in other expense, net in the
accompanying consolidated statements of operations.
Goodwill
The
Company accounts for its goodwill in accordance with SFAS No. 142,
Goodwill and Other Intangible
Assets
(SFAS No. 142). SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. The Company concluded it has one reporting unit for purposes of
performing the goodwill impairment analysis. Under the non-amortization
approach, goodwill and certain intangibles are not amortized into results of
operations, but instead are reviewed for impairment at least annually and
written down and charged to operations only in the periods in which the recorded
value of goodwill exceeds its fair value.
During
the nine months ended September 30, 2008, the Company experienced a significant
decline in market capitalization. In addition, the Company
experienced a decline in revenues resulting from, among other things, customer
delays and timing of new contracts. These conditions and their effect
on the Company’s current and future financial performance and financial
condition indicated a possible impairment of the Company’s recorded goodwill
balance and required the Company to perform an interim impairment analysis to
determine whether actual impairment had occurred. Based on this
interim impairment analysis, management concluded that its goodwill balance was
impaired and therefore recorded an impairment charge of
$3,995,000. The Company’s goodwill evaluation utilized various
valuation techniques, primarily an estimation of the present value of its future
cash flows that considered the anticipated revenue and earnings effects of the
economic conditions, industry conditions, and conditions specific to the Company
described above.
As part
of its annual goodwill impairment analysis performed during the fourth quarter
of 2008, management noted that the Company had experienced a significant decline
in its market capitalization subsequent to November 2008. In
addition, the global economic recession continued to have a negative impact on
the Company’s revenues and the timing of new contracts, which impacted certain
assumptions used in the goodwill impairment analysis, including the projected
cash flows, discount rates and control premiums. Accordingly, the
Company performed an impairment analysis during the fourth quarter for the
remaining goodwill balance and concluded that additional impairment existed. As
a result of this analysis, the Company concluded that the remaining goodwill
balance was fully impaired. Accordingly, the Company recorded a total
goodwill impairment charge of $8,011,037 for the year-ended December 31,
2008.
Loss
Per Common Share
Basic and
diluted loss per common share was determined by dividing net loss by the
weighted average common shares outstanding during the period in accordance with
SFAS No. 128,
Earnings
Per Share
(SFAS 128). Diluted net income per share includes the effects
of all dilutive, potentially issuable common shares.
The
following common share equivalents have been excluded from the computation of
diluted weighted average shares outstanding as the effect would have been
anti-dilutive:
|
|
|
Three
Months Ended
|
|
|
|
|
March
31
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Unvested
restricted common stock
|
|
|
157,881
|
|
|
|
346,670
|
|
|
Unit
purchase options
|
|
|
-
|
|
|
|
350,000
|
|
|
Stock
options outstanding
|
|
|
1,826,200
|
|
|
|
2,815,314
|
|
3. Cash, Cash Equivalents and
Short-term Investments
Cash, cash equivalents and short-term
investments were as follows:
|
|
|
March
31
|
|
|
December
31
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,345,259
|
|
|
$
|
1,134,164
|
|
|
Certificates
of deposit
|
|
|
1,008,932
|
|
|
|
1,000,000
|
|
|
Money
market
|
|
|
2,954,324
|
|
|
|
3,570,987
|
|
|
U.S.
agency notes
|
|
|
1,590,757
|
|
|
|
2,358,845
|
|
|
Corporate
bonds
|
|
|
2,161,386
|
|
|
|
2,635,541
|
|
|
Total
cash and cash equivalents
|
|
$
|
9,060,658
|
|
|
$
|
10,699,537
|
|
4.
Accounts Receivable
Accounts
receivable consists of the following:
|
|
|
March
31
|
|
|
December
31
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Billed
accounts receivable
|
|
$
|
2,564,559
|
|
|
$
|
2,540,934
|
|
|
Unbilled
accounts receivable
|
|
|
1,891,830
|
|
|
|
1,843,855
|
|
|
Total
accounts receivable
|
|
|
4,456,389
|
|
|
|
4,384,789
|
|
|
Allowance
for doubtful accounts
|
|
|
(602,598
|
)
|
|
|
(602,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,853,791
|
|
|
$
|
3,782,191
|
|
5.
Accrued Expenses
Accrued
expenses consist of the following:
|
|
|
March
31
|
|
|
December
31
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Accrued
severance
|
|
$
|
374,677
|
|
|
$
|
622,587
|
|
|
Accrued
other expenses
|
|
|
374,229
|
|
|
|
550,368
|
|
|
Accrued
client reimbursable expenses
|
|
|
258,837
|
|
|
|
290,559
|
|
|
Accrued
bonus
|
|
|
178,862
|
|
|
|
278,582
|
|
|
Accrued
vacation
|
|
|
254,149
|
|
|
|
235,094
|
|
|
Accrued
rent
|
|
|
212,172
|
|
|
|
220,829
|
|
|
Accrued
professional fees
|
|
|
165,518
|
|
|
|
146,203
|
|
|
Accrued
compensation
|
|
|
120,894
|
|
|
|
102,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,939,338
|
|
|
$
|
2,446,552
|
|
The
Company approved an executive bonus plan that provides for qualified
compensation to certain executives if certain performance measures are
met. The consideration earned will be paid 50% in cash and 50% in the
form of restricted stock. As of March 31, 2009 the Company had
accrued $178,862 under this bonus plan.
6.
Debt
|
|
|
March
31
|
|
|
December
31
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
Bank
line of credit, with an interest rate of 3.5% at March 31, 2009
and December 31, 2008
|
|
$
|
1,669,000
|
|
|
$
|
1,384,000
|
|
|
Bank
equipment loan, with an interest rate of 4.0% at March 31, 2009
and December 31, 2008
|
|
|
208,670
|
|
|
|
250,337
|
|
|
Bank
equipment loan, with an interest rate of 4.0% at March 31, 2009 and
December 31, 2008
|
|
|
173,334
|
|
|
|
193,333
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
borrowings
|
|
$
|
2,051,004
|
|
|
|
1,827,670
|
|
|
Bank
line of credit and other short-term borrowings
|
|
|
1,915,667
|
|
|
|
1,630,666
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings, less current portion
|
|
$
|
135,337
|
|
|
$
|
197,004
|
|
|
|
|
March
31
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
Aggregate
annual maturities of long-term debt (excluding bank line of
credit):
|
|
|
|
|
2009
(remaining nine months)
|
|
$
|
185,000
|
|
|
2010
|
|
|
163,670
|
|
|
2011
|
|
|
33,334
|
|
|
Total
|
|
$
|
382,004
|
|
On
February 1, 2005, the Company entered into two loan agreements with RBC
Centura Bank. These loan agreements were modified on May 31, 2006 when a third
loan agreement was added and on May 31, 2007 when a fourth loan agreement was
added. The first agreement is a $2,500,000 revolving accounts
receivable line of credit which provides for borrowings up to 80% of current
accounts receivable balance at the prime rate of interest plus
0.25%. This line of credit has $1,669,000 outstanding as of March 31,
2009 and these borrowings are secured primarily by accounts receivable and other
corporate assets. The second agreement is a $300,000 equipment line
of credit which was repaid during the three months ended March 31,
2008. This loan funded equipment purchases and provided for interest
at the bank’s prime rate of interest plus 1.0%. The third agreement is a
$500,000 equipment loan which has $208,670 outstanding as of March 31, 2009.
Borrowings under this equipment loan are being paid over a period of 36 months
at the bank’s prime rate of interest plus 0.75%. The fourth agreement is a
$240,000 equipment line of credit which had $173,334 outstanding as of March 31,
2009. This loan funded equipment purchases and provided for interest at the
bank’s prime rate of interest plus 0.75%. Borrowings under the equipment line of
credit will be paid over a period of 39 months. The capital equipment borrowings
are secured primarily by the fixed assets that were acquired. In
addition to the loans listed above, the Company has an additional amount of
$500,000 available to borrow through the draw-down period which expires
September 10, 2009. As of March 31, 2009, the Company has not
exercised this option.
7.
Contingencies and Guarantees
From time
to time, the Company may become involved in various legal actions,
administrative proceedings and claims in the ordinary course of its business.
Although it is not possible to predict with certainty the outcome of such legal
actions or the range of possible loss or recovery, based upon current
information, management believes such legal actions will not have a material
effect on the financial position or results of operations of the
Company.
From time
to time, the Company enters into certain types of contracts that contingently
require it to indemnify parties against third party claims. These obligations
relate to certain agreements with the Company’s officers, directors and
employees, under which the Company may be required to indemnify such persons for
liabilities arising out of their employment relationship. Other obligations
relate to certain commercial agreements with its customers, under which the
Company may be required to indemnify such parties against liabilities and
damages arising out of claims of patent, copyright, trademark or trade secret
infringement by its software. The terms of such obligations vary. Generally, a
maximum obligation is not explicitly stated. Because the obligated amounts of
these types of agreements often are not explicitly stated, the overall maximum
amount of the obligations cannot be reasonably estimated. Historically, the
Company has not had to make any payments for these obligations, and no
liabilities have been recorded for these obligations on the Company’s
consolidated balance sheets as of March 31, 2009 and December 31,
2008.
8.
Stockholders’ Equity
As of March 31, 2009, the Company had
reserved a total of 2,727,760 of its authorized 50,000,000 shares of common
stock for future issuance as follows:
|
|
|
March
31
|
|
|
December
31
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Unit
purchase options
|
|
|
-
|
|
|
|
350,000
|
|
|
Stock
options outstanding
|
|
|
1,826,200
|
|
|
|
1,848,504
|
|
|
Reserved
for future stock option grants and restricted stock grants
|
|
|
901,560
|
|
|
|
1,075,882
|
|
|
Total
shares reserved for future issuance
|
|
|
2,727,760
|
|
|
|
3,274,386
|
|
9.
Stock Based Compensation
The Company’s 2005 Equity Performance
Plan (the “Plan”) was approved by the stockholders of the Company on February 9,
2006. The purpose of the Plan is to provide incentives to eligible
employees, officers, directors and consultants in the form of non-qualified
stock options and, as permissible, incentive stock options. On March
31, 2009, the Company had a total of 3,500,000 shares of common stock reserved
for issuance under the Plan. Of this amount, 901,560 shares were
available for future stock option grant as of March 31, 2008.
Effective
with the adoption of SFAS 123R, the Company has elected to use the
Black-Scholes-Merton option pricing model to determine the weighted average fair
value of options granted. The Company has a limited trading history
for its common stock as it began trading on the NASDAQ Global Market on February
10, 2006. Accordingly, the Company has determined the volatility for
options granted in 2007 and 2008 based on an analysis of reported data for a
peer group of companies that have issued stock options with substantially
similar terms. The expected life of options granted by the Company has been
determined based upon the “simplified” method as allowed under the provisions of
the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 (“SAB
107”) and represents the period of time that options granted are expected to be
outstanding. The risk-free interest rate is based on a treasury
instrument whose term is consistent with the expected life of the stock options.
The Company has not paid and does not anticipate paying cash dividends on its
shares of common stock; therefore, the expected dividend yield is assumed to be
zero. In addition, SFAS 123R requires companies to utilize an
estimated forfeiture rate when calculating the expense for the period, whereas,
SFAS 123 permitted companies to record forfeitures based on actual forfeitures.
The assumptions utilized to determine the above values are indicated in the
following table:
|
|
Three Months
Ended March 31,
|
|
|
2009
|
|
Expected
dividend yield
|
0%
|
|
Expected
volatility
|
100%
|
|
Risk-free
interest rate
|
1.72%
|
|
Expected
life (in years)
|
4
|
During
the three months ended March 31, 2009, the Company recorded $89,502 of
stock-based compensation expense, of which $88,304 was related to options issued
subsequent to the adoption of SFAS No. 123R. As of March 31, 2009, there was
$595,064 of unrecognized compensation expense related to non-vested share awards
issued under SFAS No. 123R that is expected to be recognized over a
weighted-average period of 3.05 years. The remaining stock-based compensation is
due to the amortization of previously recorded deferred compensation, for stock
options that have continued to be accounted for under APB 25 in accordance with
the prospective transition method of SFAS 123R.
The
following summarizes the activity of the Plan for the three months ended March
31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
Remaining
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Intrinsic
|
|
Contractual
|
|
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
Term
(years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
1,848,504
|
|
|
$
|
2.67
|
|
|
|
|
|
|
Granted
|
|
|
282,500
|
|
|
|
0.72
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(304,804
|
)
|
|
|
2.23
|
|
|
|
|
|
|
Outstanding
at March 31, 2009
|
|
|
1,826,200
|
|
|
$
|
2.44
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2009
|
|
|
915,766
|
|
|
$
|
3.29
|
|
|
$
|
-
|
|
3.96
|
10. Income
Taxes
The
Company adopted the provisions of FIN 48, an interpretation of the SFAS 109,
Accounting for Income Taxes,
on January 1, 2007. As a result of the implementation of FIN
48, the Company recognized no material adjustment in the liability for
unrecognized income tax benefits. At the adoption date of January 1,
2007 the Company had no unrecognized tax benefits which would affect the
Company’s effective tax rate. At March 31, 2009, the Company had no
unrecognized tax benefits.
The Company recognizes interest and
penalties related to uncertain tax positions in the provision for income
taxes. As of the date of adoption, January 1, 2007, and as of March
31, 2009, the Company had no accrued interest or penalties related to uncertain
tax positions.
The
Company has its tax years of 2005 through 2008 open to examination by federal
tax authorities and 2004 through 2008 for state tax
jurisdictions. The Company’s only foreign subsidiary is in the United
Kingdom and has tax years of 2006 through 2008 open to
examination. The Company has not been informed by any tax authorities
for any jurisdiction that any of its tax years are under examination as of March
31, 2009.
The
estimated marginal tax rate for etrials Worldwide, Inc. for the quarter ended
March 31, 2009 is 34% and 5% for federal and state tax purposes,
respectively. It is expected that should the Company be able to
utilize its deferred tax assets the taxable income for the Company will be
between $335,000 and $10,000,000. The federal tax rate used reflects
this tax bracket. The state tax rate is based on the appropriate
rates for the states that the Company is currently filing in, net of the federal
tax benefit of the state tax deduction.
The
Company has a loss for the interim period ended March 31, 2009 and expects to be
in a loss position for both the remaining interim periods of 2009 and for
financial statement purposes for the annual period ended December 31,
2009. There are no anticipated additions that will result in taxable
income during this period; accordingly, the expected result is a tax loss for
the year; therefore, no federal or state income taxes are expected and none have
been recorded. Accordingly, the Company’s estimated annual effective
tax rate is zero.
Due to
the Company's history of losses from 1995 through 2008, there is not enough
evidence as of March 31, 2009 to support an expectation that the Company will
generate future income of a sufficient amount and nature to utilize the benefits
of its net deferred tax assets. Accordingly, to the extent that
deferred tax assets exceed deferred tax liabilities that are anticipated to
reverse within the same period, the deferred tax assets have been reduced by a
valuation allowance, since it has been determined that it is more likely than
not that all of the deferred tax assets will not be realized.
At
December 31, 2006, the Company no longer qualified to use the cash method of
accounting for tax purposes under the Small Business Taxpayer
Exemption. An adjustment was made under IRC Section 481 to convert
the Company to the accrual method for tax purposes and since this adjustment was
negative, it was included in the Company’s 2007 tax return and therefore no
deferred tax asset or liability exists for the requested cash to accrual method
change.
Under the
Tax Reform Act of 1986, the amounts of and benefits from net operating losses
carried forward may be impaired or limited in certain circumstances. Events
which might cause limitations in the amount of net operating losses that the
Company may utilize in any one year include, but are not limited to, a
cumulative change in ownership of more than 50% over a three-year
period.
11. Subsequent
Event
As
previously announced, we have entered into an agreement to be acquired by
Bio-Imaging Technologies, Inc. (NASDAQ: BITI) (d/b/a "BioClinica”) through a
tender offer for all of the outstanding shares of etrials stock. For each share
of etrials stock, shareholders will receive 0.124 shares of newly issued
Bio-Imaging common stock, 0.076 shares of newly issued Bio-Imaging preferred
stock, and $0.15 in cash. Subject to customary closing conditions,
and assuming a majority of etrials shares will be tendered pursuant to the
tender offer, the tender offer is expected to expire on or about June 15,
2009.
12. Recently
Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS
No. 157, “
Fair Value
Measurements”
(SFAS 157), which defines fair value, establishes a
framework for measuring fair value under generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS
No. 157 applies to other accounting pronouncements that require or permit
fair value measurements. The new guidance is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and for interim
periods within those fiscal years. The adoption of SFAS No. 157 did not
have a material impact on the Company’s consolidated financial position and
results of operations.
In
February 2007, the FASB issued Statement No. 159, “
The Fair Value Option for Financial
Assets and Financial Liabilities”
(SFAS 159). SFAS 159 permits entities
to choose to measure many financial assets and financial liabilities at fair
value. Unrealized gains and losses on items for which the fair value option has
been elected are reported in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company did not choose to measure
any financial assets or liabilities at fair value pursuant to SFAS
159.
In
December 2007, the FASB issued FASB Statements No. 141 (revised 2007),
“Business Combinations”
(SFAS 141R) and No. 160,
“Noncontrolling Interests in
Consolidated Financial Statements”
(SFAS 160). Effective for fiscal years
beginning after December 15, 2008, the standards will improve, simplify,
and converge internationally the accounting for business combinations and the
reporting of noncontrolling interests in consolidated financial statements. SFAS
141R requires the acquiring entity in a business combination to recognize all
the assets acquired and liabilities assumed in the transaction; establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; and requires the acquirer to disclose to investors and
other users all of the information they need to evaluate and understand the
nature and financial effect of the business combination. SFAS 160 provides
guidance for accounting and reporting of noncontrolling interests in
consolidated financial statements. The Company is currently assessing the impact
of SFAS 141R and SFAS 160 on its consolidated financial statements and future
operations.
In March
2008, the FASB issued SFAS No. 161, “
Disclosures about Derivative
Instruments and Hedging Activities”
(SFAS No. 161), an amendment of
FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures
about an entity’s derivative and hedging activities and thereby improves the
transparency of financial reporting. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. This Statement
encourages, but does not require, comparative disclosures for earlier periods at
initial adoption. The Company believes that the adoption of SFAS No. 161
will not have a material effect on its financial position or results of
operations.
In May
2008, the FASB issued SFAS No. 162, “
The Hierarchy of Generally Accepted
Accounting
Principles
” (SFAS 162) which
provides a framework for selecting accounting principals to be used in preparing
financial statements that are presented in conformity with U.S. generally
accepted accounting principals for nongovernmental entities. The
Company does not expect the adoption of SFAS 162 to have any impact on the
Company’s consolidated financial statements. SFAS 162 will be
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operation
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited consolidated
financial statements and related notes that appear elsewhere in this Quarterly
Report on Form 10-Q. In addition to historical consolidated financial
information, the following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to these differences include those discussed below and
elsewhere in this Quarterly Report on Form 10-Q, as well as in our Form
10-K filed on March 10, 2009.
Overview
We offer
a broad range of clinical trial technology and services including electronic
data capture, handheld devices, and interactive voice and Web response software
which is designed to speed and improve the process of collecting data in
clinical trials performed for drug and medical device development. We provide
pharmaceutical, biotechnology, medical device companies and contract research
organizations with integrated software technology and services designed to
significantly reduce the time spent collecting clinical trials data, and
managing clinical trials performance, using an automated and easy-to-use
mechanism to collect data directly from clinical investigators and patients. We
believe that our automated data collection software enables our customers to
reduce overall clinical trial research costs, enhance data quality and reduce
the time it takes to close a study database.
Industry
analysts and commentators have estimated that the growth in the use of eClinical
technologies will continue to accelerate. We will have to continue to expand our
customer base and technologies in order to maintain and grow our market share.
The number of active eClinical trials being performed by us has grown from 24 in
2002 to 84 in 2009 because of the increased market penetration and adoption of
eClinical technologies by the pharmaceutical and biotechnology
industries.
Recent
Events
As
previously announced, we have entered into an agreement to be acquired by
Bio-Imaging Technologies, Inc. (NASDAQ: BITI) (d/b/a "BioClinica”) through a
tender offer for all of the outstanding shares of etrials stock. For each share
of etrials stock, shareholders will receive 0.124 shares of newly issued
Bio-Imaging common stock, 0.076 shares of newly issued Bio-Imaging preferred
stock, and $0.15 in cash. Subject to customary closing conditions,
and assuming a majority of etrials shares will be tendered pursuant to the
tender offer, the tender offer is expected to expire on or about June 15,
2009.
This
description is for informational purposes only and is not an offer to purchase
or a solicitation of an offer to sell securities of etrials. The tender offer
described herein has not yet been commenced. At the time the tender offer is
commenced, Bio-Imaging intends to file a registration statement on Form S-4 and
a tender offer statement on a Schedule TO containing an offer to purchase, a
letter of transmittal and other related documents with the SEC, and etrials
intends to file with the SEC a solicitation/recommendation statement on Schedule
14D-9 and, if required, will, file a proxy statement or information statement
with the SEC in connection with the merger, the second step of the transaction,
at a later date. Such documents will be mailed to stockholders of record and
will also be made available for distribution to beneficial owners of common
stock of etrials. The solicitation of offers to buy common stock of etrials will
only be made pursuant to the offer to purchase, the letter of transmittal and
related documents. Stockholders are advised to read the offer to purchase and
the letter of transmittal, the solicitation/recommendation statement, the proxy
statement, the information statement and all related documents, if and when such
documents are filed and become available, as they will contain important
information about the tender offer and proposed merger. Stockholders can obtain
these documents when they are filed and become available free of charge from the
SEC’s website at http://www.sec.gov, or from the information agent Bio-Imaging
selects. In addition, copies of the solicitation/recommendation statement, the
proxy statement and other filings containing information about etrials, the
tender offer and the merger may be obtained, if and when available, without
charge, by directing a request to etrials, or on etrials corporate website at
http://www.etrials.com.
Sources
of Revenues
We derive
revenues from providing software application-hosting and related services to our
customers on clinical trial projects. We offer our eClinical solutions through
an application service provider model. We generate revenues from our
professional services and software application-hosting, which include hosting
fees and software usage fees, in three stages of drug development for each
clinical trial. The first stage (development and deployment) includes trial and
application setup, including design of electronic case report forms and edit
checks, investigator site training, and implementation of the system and server
configuration. The second stage (study conduct) consists of project management
services, application hosting and related professional and support services. The
third stage (close out) consists of services required to close out, or lock, the
database for the clinical trial and deliver final data sets to the
client.
Software usage fees and hosting fees
revenues
- We derive our software usage fees and hosting fees revenues
from our eClinical solution suite, which includes primarily our electronic data
capture, electronic patient diaries, interactive voice response and post
marketing solutions.
Services revenue
- We provide
our customers a full range of professional services in support of our eClinical
software solutions. These services are delivered during all three stages of the
clinical trial as described above.
Services
provided for all three stages are generally on a fixed fee basis according to
the budget assumptions specified in the contract. If budget assumptions change,
etrials and the client generally agree to a change in scope amendment to the
contract. We recognize revenues from services, including software subscriptions
and usage fees, and hosting fees, utilizing the proportional performance method,
measured principally by the total labor hours incurred as a percentage of
estimated total labor hours for each contract. We use this method because
management considers total labor hours incurred to be the best available measure
of progress on these contracts. The company records a loss for its contracts at
the point it is determined that the total estimated contract costs will exceed
management estimates of contract revenues. No such losses had been incurred as
of March 31, 2009.
Billing
for eClinical services will occur over the life of the contract. Although the
billing increments are negotiated in each contract individually, the total value
of the agreement is generally invoiced in the following increments:
|
Stage
|
|
|
% of Contract Value
|
|
Contract
execution
|
|
|
25%
|
|
System
deployment
|
|
|
25%
|
|
Study
conduct
|
|
|
40%
|
|
Project
close-out
|
|
|
10%
|
|
|
|
|
100%
|
Customers
generally have the ability to terminate contracts upon 30 days notice to
us. In the event that a customer cancels a clinical trial and its
related task order, all deferred revenue is recognized and certain termination
related fees may be charged.
We record
new projects into backlog when we receive written confirmations from clients
that they have decided to award us contracts or work orders for specific
projects, which means that our backlog includes projects for which we do not
have contracts or project work orders signed by customers. The amount of backlog
is the total amount of the project budget agreed upon by the client and us less
revenue previously recognized by us on each project. Customer delays
in conducting clinical trials and the ability of customers to cancel projects
without penalty means that our backlog is not a guaranty as to the amount or
timing of future revenue.
Reimbursable Out-of-pocket
Revenues
– Reimbursable out-of-pocket revenues and corresponding expenses
consist of client pass-through costs, which can fluctuate quarterly based upon
contract activity.
Cost
of Revenues and Operating Expenses
We
allocate overhead expenses such as rent, occupancy charges, certain office
administrative costs, depreciation and employee benefit costs to all departments
based on headcount. As such, general overhead expenses are reflected in the
costs of revenues, sales and marketing, research and development, and general
and administrative expense categories. We charge overhead costs that can be
specifically identifiable back to the functional area.
Costs of Revenues
- Costs of
revenues consists primarily of compensation and related fringe benefits for
project-related personnel, department management and all other dedicated project
related costs and indirect costs including facilities, information systems,
hosting facility fees, server depreciation, amortization of capitalized internal
software development costs, software license and royalty costs and other
costs. Costs can fluctuate and impact our expenses based upon
employee utilization levels associated with specific projects.
Sales and Marketing
- Sales
and marketing expenses consist primarily of employee-related expenses, including
travel, marketing programs (which include product marketing expenses such as
trade shows, workshops and seminars, corporate communications, other brand
building and advertising), allocated overhead and commissions. We expect that
sales and marketing expenses will increase as we expand and further penetrate
our existing customer base, expand our domestic and international selling and
marketing activities associated with existing and new product and service
offerings, and build brand awareness.
Research and Development
-
Research and development expenses consist primarily of employee-related
expenses, allocated overhead and outside contractors. We have historically
focused our research and development efforts on increasing the functionality,
performance and integration of our software products. We expect that in the
future, research and development expenses will increase as we introduce
additional integrated software solutions to our product suite and develop
automation tools to streamline use and deployment of our
technologies. We capitalize certain internal software development
costs for new software products and releases, which are incurred during the
application development stage and amortize them over the software’s estimated
useful life of one to five years. The amortization of such capitalized costs is
included in costs of revenues.
General and Administrative
-
General and administrative expenses consist primarily of employee-related
expenses, professional fees, other corporate expenses and allocated overhead. We
expect that in the future, general and administrative expenses will decrease
slightly as a percentage of revenues, as a result of an organizational focus on
driving operational efficiency, as well as the fact that we do not anticipate
the level of severance expense that was incurred during
2008.
Foreign
Currency
The reporting currency for the Company
is the U.S. dollar. The financial statements of the Company’s foreign
subsidiary in the United Kingdom are re-measured in accordance with SFAS
No. 52,
Foreign Currency
Translation
. Re-measurement adjustments for non-functional currency
monetary assets and liabilities are included in other income (expense) in the
accompanying consolidated statements of operations.
Critical
Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. These items are regularly monitored and analyzed by management
for changes in facts and circumstances, and material changes in these estimates
could occur in the future. These estimates include, among others, our revenue
recognition policies related to the proportional performance methodology of
revenue recognition of contracts and assessing our goodwill for impairment
annually. Changes in estimates are recorded in the period in which they become
known. We base our estimates on historical experience and various other
assumptions that we believe are reasonable under the circumstances. Actual
results will differ and may differ materially from the estimates if past
experience or other assumptions do not turn out to be substantially
accurate.
Our
significant accounting policies are presented within Note 2 to our
consolidated financial statements as filed with the SEC on Form 10-K on March
10, 2009, and the following summaries should be read in conjunction with the
unaudited consolidated financial statements and the related notes included in
this Quarterly Report. While all accounting policies impact the financial
statements, certain policies may be viewed as critical. Critical accounting
policies are those that are both most important to the portrayal of financial
condition and results of operations and that require management’s most
subjective or complex judgments and estimates. Our management believes the
policies that fall within this category are the policies on revenue recognition,
accounting for stock-based compensation, and income taxes.
Revenue
Recognition
We derive
our revenues from providing software application-hosting and related services.
We recognize revenues resulting from application hosting services in accordance
with Emerging Issues Task Force (EITF) Issue No. 00-03,
Application of AICPA Statement of
Position 97-2 to Arrangements that include the Right to Use Software Stored on
Another Entity’s Hardware
and Securities and Exchange Commission Staff
Accounting Bulletins Nos. 101 and No. 104,
Revenue Recognition.
We
recognize revenue when all of the following conditions are satisfied:
(1) there is persuasive evidence of an arrangement; (2) the service
has been provided to the customer; (3) the collection of fees is probable;
and (4) the amount of fees to be paid by the customer is fixed or
determinable.
Overall
services provided during clinical trials are typically earned under fixed-price
contracts. Although we enter into master agreements with each customer, the
master agreements do not contain any minimum commitment by customers and contain
general terms and conditions. All services and revenues are covered
by separately negotiated addendums called task orders. We generally recognize
revenues generated from each project or task order using the proportional
performance method, measured principally by the total labor hours incurred as a
percentage of estimated total labor hours for each contract. We use this method
because management considers total labor hours incurred to be the best available
measure of progress on these contracts. We review and revise the estimated total
labor hours of contracts periodically throughout the duration of the contracts
with adjustment to revenues from such revisions being recorded on a cumulative
basis in the period in which the revisions are made. When estimates indicate a
loss, we recognize the loss in the current period in its entirety. Because of
the inherent uncertainties in estimating total labor hours, it is reasonably
possible that the estimates will change in the near term and could result in a
material change.
Customers
generally have the ability to terminate contracts upon 30 days written
notice. In the event that a customer cancels a clinical trial and its related
task order, deferred revenue is recognized for the work performed prior to
termination and certain termination related fees may be charged. Consequently,
termination of a contact may result in us recognizing more revenue during the
period in which the termination occurs.
Deferred
revenue represents amounts billed or cash received in advance of revenue
recognition. Included in accounts receivable are unbilled accounts receivable,
which represent revenue recognized in excess of amounts billed.
Provisions
for estimated losses on uncompleted contracts are made on a contract-by-contract
basis and are recognized in the period in which such losses become probable and
can be reasonably estimated. To date, we have not experienced any material
losses on uncompleted contracts.
The
Company generally does not require collateral as a substantial amount of the
revenues are generated from recurring customers. Management periodically reviews
the aging of customer accounts receivable balances, the current economic
environment and its industry experience and establishes an allowance on accounts
receivable based on these reviews.
We
account for pass-through expenses in accordance with EITF Issue No. 01-14,
Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred
. EITF No. 01-14 requires reimbursable out-of-pocket
expenses incurred to be characterized as revenue in the statement of operations.
Pass-through revenues and expenses include diary hardware and related taxes,
wireless telecommunications, shipping, and travel expenses incurred on the
client’s behalf.
Accounting for Stock-Based
Compensation
The
Company adopted the provisions of SFAS No. 123 (Revised 2004),
Share Based Payments
(SFAS
123R) on January 1, 2006. SFAS 123R also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow. The Company will
recognize excess tax benefits when those benefits reduce current income taxes
payable.
Since the
Company used the minimum-value method as a non-public company to estimate the
fair value of stock awards under SFAS 123 for pro forma footnote disclosure
purposes, the Company was required to adopt SFAS 123R using the
“prospective-transition” method, upon the effective date. Under the prospective
method, nonpublic entities that previously applied SFAS 123 using the
minimum-value method whether for financial statement recognition or pro forma
disclosure purposes will continue to account for non-vested equity awards
outstanding at the date of adoption of SFAS 123R in the same manner as they had
been accounted for prior to adoption (APB 25 intrinsic value method for the
Company). All awards granted, modified, or settled after the date of
adoption are accounted for using the measurement, recognition, and attribution
provisions of SFAS 123R. The Company has continued to recognize
compensation expense for awards issued prior to the adoption of SFAS 123R in
accordance with the provisions of APB 25. Awards granted to employees subsequent
to January 1, 2006 have been accounted for in accordance with SFAS
123R.
Goodwill
The
Company accounts for its goodwill in accordance with SFAS No. 142,
Goodwill and Other Intangible
Assets
(SFAS No. 142). SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. The Company concluded it has one reporting unit for purposes of
performing the goodwill impairment analysis. Under the non-amortization
approach, goodwill and certain intangibles are not amortized into results of
operations, but instead are reviewed for impairment at least annually and
written down and charged to operations only in the periods in which the recorded
value of goodwill exceeds its fair value.
During
the nine months ended September 30, 2008, the Company experienced a significant
decline in market capitalization. In addition, the Company
experienced a decline in revenues resulting from, among other things, customer
delays and timing of new contracts. These conditions and their effect
on the Company’s current and future financial performance and financial
condition indicated a possible impairment of the Company’s recorded goodwill
balance and required the Company to perform an interim impairment analysis to
determine whether actual impairment had occurred. Based on this
interim impairment analysis, management concluded that its goodwill balance was
impaired and therefore recorded an impairment charge of
$3,995,000. The Company’s goodwill evaluation utilized various
valuation techniques, primarily an estimation of the present value of its future
cash flows that considered the anticipated revenue and earnings effects of the
economic conditions, industry conditions, and conditions specific to the Company
described above.
As part
of its annual goodwill impairment analysis performed during the fourth quarter
of 2008, management noted that the Company had experienced a significant decline
in its market capitalization subsequent to November 2008. In
addition, the global economic recession continued to have a negative impact on
the Company’s revenues and the timing of new contracts, which impacted certain
assumptions used in the goodwill impairment analysis, including the projected
cash flows, discount rates and control premiums. Accordingly, the
Company performed an impairment analysis during the fourth quarter for the
remaining goodwill balance and concluded that additional impairment existed. As
a result of this analysis, the Company concluded that the remaining goodwill
balance was fully impaired. Accordingly, the Company recorded a total
goodwill impairment charge of $8,011,037 for the year-ended December 31,
2008.
Accounting
for Income Taxes
In
connection with preparing our financial statements, we are required to estimate
our income taxes in each of the jurisdictions in which we operate. This process
involves the assessment of our net operating loss carry-forwards and credits, as
well as estimating the actual current tax liability together with assessing
temporary differences resulting from differing treatment of items, such as
reserves and accrued liabilities, for tax and accounting purposes. We then
assess the likelihood that deferred tax assets will be recovered from future
taxable income, and to the extent we believe that recovery is not likely, we
must establish a valuation allowance. Based on historical results, we believe
that it is more likely than not that we will not realize the value of our
deferred tax assets and therefore have provided a full valuation allowance
against our net deferred tax assets as of March 31, 2009.
Results
of Operations
Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008
Net
service revenues decreased 2.2% to $3,627,092 for the three months ended March
31, 2009 as compared to $3,708,209 for the three months ended March 31,
2008. The decrease in net revenue is primarily the result of a 32.3%
decline in active studies during the first quarter of 2009, compared to the
first quarter of 2008. This decline was partially offset by
three significant change orders to existing contracts that resulted in an
increase to revenue in this quarter of approximately $600,000. During the
quarter ended March 31, 2009, we experienced cancellations of $5.0 million and
ended the quarter with $3.3 million of studies on hold. This was a
direct reflection of the economic times and the fact that customers are opting
to cancel studies sooner than was the case in the past, especially if they do
not show promising results early in the study. As a result, total
available backlog decreased 26.3% to $18.5 million at March 31, 2009 compared to
$25.1 at December 31, 2008. Of the $18.5 million in total available backlog,
$2.5 million was scheduled to start later than six months, or after September
30, 2009. Approximately 47% and 46% of our total available backlog as
of March 31, 2009 and December 31, 2008, respectively consisted of fully
executed contracts.
Reimbursable out-of-pocket revenues and
corresponding expenses decreased to $10,528 from $587,632 for the three months
ended March 31, 2009 and 2008, respectively. This decrease is
primarily the result of fewer active diary related projects in 2009 compared to
2008. The hardware and wireless charges associated with the diary
devices are responsible for driving the reimbursable expenses, so in the first
quarter of 2008 the expenses were much higher. The majority of the Company’s
award commitments in the first quarter of 2009 are studies requiring our
interactive voice response (IVR) and electronic data capture (EDC)
solutions.
Costs of
revenues decreased 20.9 % to $2,041,500 from $2,581,653 for the three months
ended March 31, 2009 and 2008, respectively. The decrease was
primarily a result of a reduction in headcount of 15 employees compared to last
year and a reduction in direct project costs. As a percentage of net
service revenues, costs of revenues decreased to 56.3% from 69.6% for the three
months ended March 31, 2009 and 2008, respectively.
Sales and
marketing costs decreased 31.0% to $791,067 from $1,146,426 for the three months
ended March 31, 2009 and 2008, respectively. This decrease was
primarily the result of a decrease in headcount of 5 employees, in addition to a
reduction in recruiting expense. As a percentage of net service
revenues, sales and marketing costs decreased to 21.8% from 30.9% for the three
months ended March 31, 2009 and 2008, respectively.
General
and administrative costs decreased by 15.9% to $1,221,024 from $1,451,048 for
the three months ended March 31, 2009 and 2008, respectively. This
decrease was primarily the result of a reduction in headcount of 3 employees. As
a percentage of net service revenues, general and administrative expenses
decreased to 33.7% from 39.1% for the three months ended March 31, 2009 and
2008, respectively.
Research
and development costs decreased by 24.2% to $489,876 from $645,903 for the three
months ended March 31, 2009 and 2008, respectively. The decrease was
primarily the result of additional costs of $165,420 capitalized in connection
with the development of internal software. As a percentage of net
service revenues, research and development expenses decreased to 13.5% from
17.4% for the three months ended March 31, 2009 and 2008,
respectively.
Other
income (expense) for the three months ended March 31, 2009 was $(47,803) as
compared with $79,337 for the three months ended March 31, 2008. The decrease is
primarily due to lower interest rates, as well as reduced cash
investments.
We
experienced a net loss of $964,178 compared with net loss of $2,037,484 for the
three months ended March 31, 2009 and 2008, respectively. The
reduction in the net loss for the three months ended March 31, 2009 compared to
March 31, 2008 was primarily the result of lower operating expenses in
2009.
Liquidity
and Capital Resources
The
Company’s principal sources of cash have been from revenues generated by the
Company’s software application hosting and related services, as well as from
proceeds from the issuance of various debt instruments and the sale of equity
securities.
At March
31, 2009, the Company had cash and cash equivalents of approximately $9.0
million. The Company’s cash and cash equivalents decreased by
approximately $1.6 million during the three months ended March 31,
2009. During the quarter we borrowed an additional $0.3 million
against our available line of credit, resulting in an outstanding principal
balance of $1.7 million at March 31, 2009.
In the
three months ended March 31, 2009 and 2008 operating activities used
approximately $1.6 million and $0.9 million of net cash,
respectively. The increase in net cash used in operating activities
was primarily the result of our operating loss.
In the
three months ended March 31, 2009 we used $0.3 million of net cash in investing
activities, as compared to $0.3 million of net cash provided by investing
activities for the three months ended March 31, 2008. The decrease is
primarily attributed to the reduction of net sales of short-term
investments.
In the
three months ended March 31, 2009 and 2008 financing activities provided
approximately $0.2 and $0.5 of net cash, respectively. The decrease
was primarily the result of a reduction in new borrowing for the three months
ending March 31, 2009 compared to March 31, 2008 of approximately $0.2
million.
This
paragraph addresses our liquidity in the event we were to remain independent,
rather than being acquired by Bio-Imaging. The Company intends to
continue to fund the enhancement and expansion of the etrials eClinical software
technologies through both internal development and the acquisition of additional
complementary technologies in the future. The Company believes its existing
cash, cash equivalents, short-term investments, and cash provided by operating
activities and our debt facilities will be sufficient to meet our working
capital and capital expenditure needs over the next twelve months. The
Company’s future capital requirements will depend on many factors, including the
Company’s rate of revenue growth, the expansion of the Company’s marketing and
sales activities, the timing and extent of spending to support product
development efforts, the timing of introductions of new services and
enhancements to existing services, and the continuing market acceptance of our
services. To the extent that existing cash and securities and cash from
operations are insufficient to fund the Company’s future activities, including
potential acquisitions of complementary eClinical technology companies, the
Company may need to raise additional funds through public or private equity or
debt financing. Additional funds may not be available on terms favorable to the
Company or at all.
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The
FDA can request changes in a clinical trial program – additional Phase II
trials may be requested before Phase III trials may
begin;
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Mergers
and acquisitions – client companies can be acquired and the resulting
review of clinical programs can result in project cancellations due to
similar compounds in development by each
company;
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·
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Short
project start timelines can result in client decisions to utilize paper
instead of eClinical technologies which require longer start
times;
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·
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Adverse
and serious adverse reactions to the study
drug;
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·
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Poor
results or lack of statistically significant performance of drug in active
trials based upon interim analysis;
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Adjustments
of future subscription license commitments based upon actual usage during
prior contract year.
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Contractual
Obligations
We do not
have any special purpose entities or any other off balance sheet financing
arrangements. We have operating leases for office space and office equipment and
a capital lease for the purchase of third party software.
On
February 1, 2005, the Company entered into two loan agreements with RBC
Centura Bank. These loan agreements were modified on May 31, 2006 when a third
loan agreement was added and on May 31, 2007 when a fourth loan agreement was
added. The first agreement is a $2,500,000 revolving accounts
receivable line of credit which provides for borrowings up to 80% of current
accounts receivable balance at the prime rate of interest plus
0.25%. This line of credit has $1,669,000 outstanding as of March 31,
2009 and these borrowings are secured primarily by accounts receivable and other
corporate assets. The second agreement is a $300,000 equipment line
of credit which was repaid during the three months ended March 31,
2008. This loan funded equipment purchases and provided for interest
at the bank’s prime rate of interest plus 1.0%. The third agreement is a
$500,000 equipment loan which has $208,670 outstanding as of March 31, 2009.
Borrowings under this equipment loan are being paid over a period of 36 months
at the bank’s prime rate of interest plus 0.75%. The fourth agreement is a
$240,000 equipment line of credit which had $173,334 outstanding as of March 31,
2009. This loan funded equipment purchases and provided for interest at the
bank’s prime rate of interest plus 0.75%. Borrowings under the equipment line of
credit will be paid over a period of 39 months. The capital equipment borrowings
are secured primarily by the fixed assets that were acquired. In
addition to the loans listed above, the Company has an additional amount of
$500,000 available to borrow through the draw down period which expires
September 10, 2009. As of March 31, 2009, the Company has not
exercised this option.
Working
capital borrowings are secured primarily by our accounts receivable and other
corporate assets while capital equipment borrowings are secured by the fixed
assets that were acquired. Under the terms of these credit lines, we are
required to comply with certain financial covenants. As a result of
the goodwill impairment charge recorded during the third quarter of 2008, the
lender amended certain restrictive financial covenants related to the
outstanding debt such that the Company was in compliance at December 31,
2008. To the extent we are unable to satisfy those covenants in the
future, we will need to obtain waivers to avoid being in default of the terms of
these credit lines. If an un-waived default occurs, the bank may require that we
repay all amounts then outstanding. We expect that we will have sufficient
resources to fund any amounts which may become due under these credit lines as a
result of a default by us or otherwise. However, any amounts we are required to
repay prior to a scheduled repayment date would reduce funds that we could
otherwise allocate to other opportunities that we consider
desirable.
To date,
we believe that the effects of inflation have not had a material adverse effect
on our results of operations or financial condition.
Certain
Factors Which May Affect Future Results
We
operate in a rapidly changing environment that involves a number of risks, some
of which are beyond our control. This discussion highlights some of the risks
which may affect future operating results. These are the risks and uncertainties
we believe are most important for you to consider. Additional risks and
uncertainties not presently known to us, which we currently deem immaterial or
which are similar to those faced by other companies in our industry or business
in general, may also impair our business operations. If any of the following
risks or uncertainties actually occurs, our business, financial condition and
operating results would likely suffer.
Forward
Looking Statements and Risks
We
believe that some of the information in this document constitutes
forward-looking statements within the definition of the Private Securities
Litigation Reform Act of 1995. Our actual results could differ
materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to these
differences include those discussed in this Report, particularly in “Risk
Factors.” You can identify these statements by forward-looking words
such as “might,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,”
“intends,” and “continue” or similar words. You should read statements that
contain these words carefully because they:
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discuss
future expectations;
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●
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contain
projections of future results of operations or financial condition;
or
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state
other “forward-looking”
information.
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We
believe it is important to communicate our expectations to our stockholders.
However, there may be events in the future that we are not able to predict
accurately or over which we have no control. The risk factors and cautionary
language discussed in this Report provide examples of risks, uncertainties and
events that may cause actual results to differ materially from the expectations
described by us in our forward-looking statements.
You are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Report.
All
forward-looking statements included herein attributable to any of us, or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. Except to the
extent required by applicable laws and regulations, we undertake no obligations
to update these forward-looking statements to reflect events or circumstances
after the date of this document or to reflect the occurrence of unanticipated
events.
Interest
Rate Risk
Our cash
and cash equivalents are invested with highly-rated financial institutions in
North America with the primary objective of preservation of
principal. When purchased, the investments generally have a maturity
of less than 3 months. Interest income on certain of these
investments is subject to interest rate risk and interest income will fall if
market interest rates decrease. To minimize market risk, we invest
primarily in money market funds and bank certificates of deposit. All
of our investments at March 31, 2009 met these criteria. Due to the
conservative nature of these investments, we do not believe we have a material
exposure to interest rate risk.
There
have been no material changes in other market risk from the information provided
at the end of Item 7A. Quantitative and Qualitative Disclosures About Market
Risk" in the registrant's Form 10-K as of December 31, 2008.
Item
4. Controls and Procedures
(a) Disclosure
Controls and Procedures.
The
Company has established disclosure controls and procedures to ensure that
material information relating to etrials Worldwide, Inc. is made known to the
officers who certify the Company financial reports and to other members of
senior management and the Board of Directors. Based on their evaluation, the
Company’s principal executive and principal financial officers have concluded
that disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) were effective as of
December 31, 2007 to ensure that information required to be disclosed in the
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
(b) Changes
in Internal Control over Financial Reporting.
There was
no change in the Company’s internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, the Company’s
control over financial reporting.
The
evaluation of our disclosure controls included a review of whether there were
any significant deficiencies in the design or operation of such controls and
procedures, material weaknesses in such controls and procedures, any corrective
actions taken with regard to such deficiencies and weaknesses and any fraud
involving management or other employees with a significant role in such controls
and procedures.
Our
management does not expect that our disclosure controls and procedures and our
internal control over financial reporting will prevent all errors and
fraud. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
controls system are met. The design of any system of controls is
based in part upon assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings.
On
December 4, 2008, we filed a lawsuit in the Superior Court of Wake County, North
Carolina, etrials, Inc. v. Tapestry Pharmaceuticals, Inc., File No.
08-CVS-21113, against Tapestry Pharmaceuticals, Inc., seeking damages in the
amount of $216,794 for unpaid invoices, as well as accrued finance charges and
attorneys' fees. etrials, Inc. provided various drug development
support activities to Tapestry pursuant to a Master Services Agreement and
various task orders. In or around the first quarter of 2008, Tapestry
informed the Company that it was unable to continue with the projects
that were the subject of the agreement, and the Company ceased
performing services. We requested payment of the outstanding invoices
from Tapestry, but to date, Tapestry has failed to pay. The complaint
was served on February 3, 2009, and we do not know whether Tapestry will defend
the lawsuit or whether it will contest any of the damages.
On
December 29, 2008, we filed a lawsuit in the Superior Court of Wake County,
North Carolina, etrials, Inc. v. Archer Biosciences, Inc., File No.
08-CVS-22556, against Archer Biosciences, Inc., seeking damages for unpaid
invoices in the amount of $358,700, as well as for accrued finance charges and
attorneys' fees. etrials, Inc. provided various services to Archer
pursuant to four separate task orders, and incurred further expenses
for which Archer agreed to be responsible under a Master Services Agreement
and task orders. When Archer informed the Company that it would not
be continuing with most of the project, the Company demanded payment as
reflected in its invoices to Archer. Archer disputes an unknown
amount of the invoices, and we entered negotiations to attempt to resolve the
claim. When negotiations broke down, the Company filed suit seeking
damages for the unpaid invoices. Archer has obtained an
extension of time to file the answer, and settlement discussions are ongoing
with Archer's counsel.
On
January 6, 2009, we filed a lawsuit in the Superior Court of Wake County, North
Carolina, etrials Worldwide, Inc. v. Robert Sammis and Brendon Ball, File No.
09-CVS-00275, against its former Chief Operating Officer and Vice President of
Client Services, Robert Sammis, and its former Director of Product Development,
Brendon Ball, seeking injunctive relief and damages in excess of
$10,000. We filed the lawsuit to enforce Confidentiality Agreements
that Sammis and Ball signed while at etrials, and to prevent the disclosure or
unauthorized use of confidential or non-public information of etrials in
connection with the employment of Sammis and Ball at Unithink, Inc., a direct
competitor of etrials. On February 2, 2009, the court issued us a
preliminary injunction against the defendants. Unithink was added to
the case as a defendant on February 9, 2009. In May 2009, the defendants
filed counterclaims against us, including for sanctions for frivolous claims,
wrongful injunction, untair trade practices and unpaid commissions. We
believe these counterclaims are without merit and intend to vigorously defend
against them. The lawsuit against Sammis, Ball and Unithink remains
pending, and etrials will continue to take all such further actions relating to
Sammis, Ball and/or Unithink as are necessary to protect the information and
customers of etrials to the full extent permitted by law.
Item
1A. Risk Factors.
The
primary risks related to our business described in our Annual Report on form
10-K for the year ended December 31, 2008 remain relevant, with those related to
general economic conditions and customer cancellations heightened through March
31, 2009.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
No
unregistered sales of securities were made during the quarter that were not
previously reported on a Current Report on Form 8-K, except for stock option and
restricted stock grants for compensation purposes in the normal course of the
Company’s business.
On August
12, 2008, the Company announced a plan to repurchase up to $1,000,000 of the
Company’s common stock through June 30, 2009. The Company will determine
when and if the re-purchases are in the long-term interests of our
stockholders. This new program replaces the prior stock repurchase program
that expired on June 30, 2008. Repurchases will be made in compliance with
the limitations of securities laws, which limit the timing, volume, price and
manner of stock repurchases. No stock was repurchased during the
three months ended March 31, 2009.
Item
3. Defaults Upon Senior Securities.
None.
Item 4. Submission of
Matters to a Vote of Security Holders.
None.
Item
5. Other Information.
None.
Item
6. Exhibits.
The
Exhibit Index that follows the signature page of the Report is hereby
incorporated by reference.
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.
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ETRIALS
WORLDWIDE, INC.
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May
11, 2009
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By:
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/s/ M. DENIS
CONNAGHAN
M.
Denis Connaghan
President
and Chief Executive Officer (Principal Executive
Officer)
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May
11, 2009
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By:
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/s/ JOSEPH (JAY) F. TREPANIER III
Joseph
(Jay) F. Trepanier III
Chief
Financial Officer (Principal Accounting and Financial
Officer)
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EXHIBIT
INDEX
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Exhibit
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Description
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31.1
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Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
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31.2
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Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
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32.1
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002.*
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*Filed
herewith.
27
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