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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 30, 2003.

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 (I.R.S. Employer Identification No.)
incorporation or organization)

30 South 17th Street
Philadelphia, PA 19103
- ---------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)




215-972-0420
----------------------------------------------------
(Registrant's telephone number, including area code)



------------------------------------------------------------------------
(Former name, former address and formal 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.
X Yes No
- ---------- ---------

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
X Yes No
- ---------- ---------

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
July 30, 2003, was 21,993,343.



eResearchTechnology, Inc. and Subsidiaries

INDEX


Page
----


Part I. Financial Information

Item 1. Consolidated Financial Statements

Consolidated Balance Sheets--December 31, 2002 and June 30, 2003 (unaudited) 3

Consolidated Statements of Operations (unaudited)--Three and
Six Months Ended June 30, 2002 and 2003 4

Consolidated Statements of Cash Flows (unaudited)--Six Months
Ended June 30, 2002 and 2003 5

Notes to Consolidated Financial Statements (unaudited) 6-11

Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 12-23

Item 3. Qualitative and Quantitative Disclosures about Market Risk 23

Item 4. Controls and Procedures
24

Part II. Other Information

Item 4. Submission of Matters to a Vote of Security Holders
25

Item 6. Exhibits and Reports on Form 8-K 25

a.) Exhibits

b.) Reports on Form 8-K

Signatures 26

Exhibit Index 27



2




Part 1. Financial Information
Item 1. Consolidated Financial Statements

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




December 31, 2002 June 30, 2003
----------------- -------------
(unaudited)

Assets

Current assets:
Cash and cash equivalents $ 17,443 $ 22,190
Short-term investments 9,307 9,593
Accounts receivable, net 6,954 11,174
Prepaid expenses and other 2,542 2,776
Deferred income taxes 485 315
---------- ---------
Total current assets 36,731 46,048


Property and equipment, net 12,587 13,077
Goodwill 1,212 1,212
Investments in non-marketable securities 509 509
Other assets 21 38
Deferred income taxes 2,332 2,104
---------- ---------
$ 53,392 $ 62,988
========== =========
Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable $ 2,000 $ 2,179
Accrued expenses 3,705 3,190
Income taxes payable 960 1,063
Current portion of capital lease obligations 599 628
Deferred revenues 4,774 5,322
---------- ---------
Total current liabilities 12,038 12,382
---------- ---------

Capital lease obligations, excluding current portion 774 453
---------- ---------

Commitments and contingencies


Stockholders' equity:
Preferred stock - $10.00 par value, 500,000 shares authorized,
none issued and outstanding - -
Common stock - $.01 par value, 50,000,000 shares authorized,
22,924,382 and 23,770,070 shares issued, respectively 229 238
Additional paid-in capital 40,807 45,157
Accumulated other comprehensive income 410 561
Retained earnings 2,363 7,587
Treasury stock, 1,791,000 and 1,805,564 shares at cost (3,229) (3,390)
---------- ---------


Total stockholders' equity 40,580 50,153
---------- ---------

$ 53,392 $ 62,988
========== =========


The accompanying notes are an integral part of these statements.


3

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




Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2003 2002 2003
---- ---- ---- ----

Net revenues:
Licenses $ 496 $ 1,154 $ 1,250 $ 2,343
Services 9,608 13,622 17,215 26,016
---------- ----------- ---------- ----------
Total net revenues 10,104 14,776 18,465 28,359
---------- ----------- ---------- ----------
Costs of revenues:
Cost of licenses 152 188 286 332
Cost of services 4,006 5,630 7,407 10,817
---------- ----------- ---------- ----------
Total costs of revenues 4,158 5,818 7,693 11,149
---------- ----------- ---------- ----------
Gross margin 5,946 8,958 10,772 17,210
---------- ----------- ---------- ----------
Operating expenses:
Selling and marketing 1,922 1,924 3,397 3,747
General and administrative 1,398 1,569 2,740 3,078
Research and development 1,092 1,140 2,251 2,204
---------- ----------- ---------- ----------
Total operating expenses 4,412 4,633 8,388 9,029
---------- ----------- ---------- ----------
Operating income 1,534 4,325 2,384 8,181
Other income, net 186 88 344 144
Gain on sale of domestic CRO operation - - 35 -
---------- ----------- ---------- ----------
Income before income taxes 1,720 4,413 2,763 8,325
Income tax provision 550 1,644 884 3,101
---------- ----------- ---------- ----------

Net income $ 1,170 $ 2,769 $ 1,879 $ 5,224
========== =========== ========== ==========

Basic net income per share $ 0.06 $ 0.13 $ 0.09 $ 0.24
========== =========== ========== ==========
Diluted net income per share $ 0.05 $ 0.12 $ 0.08 $ 0.22
========== =========== ========== ==========

Shares used to calculate basic
net income per share 20,918 21,868 20,846 21,668
========== =========== ========== ==========

Shares used to calculate diluted
net income per share 22,458 23,852 22,204 23,592
========== =========== ========== ==========


The accompanying notes are an integral part of these statements.

4



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


Six Months Ended June 30,
-------------------------
2002 2003
---- ----

Operating activities:
Net income $ 1,879 $ 5,224
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of domestic CRO operation (35) -
Gain on sale of marketable securities (75) -
Depreciation and amortization 1,163 2,323
Issuance of stock options to non-employees 7 -
Stock option income tax benefits - 2,005
Changes in operating assets and liabilities:
Accounts receivable (1,124) (4,168)
Prepaid expenses and other (832) (272)
Accounts payable 321 171
Accrued expenses 284 (522)
Income taxes 769 484
Deferred revenues 336 532
---------- ----------
Net cash provided by operating activities 2,693 5,777
---------- ----------


Investing activities:
Purchases of property and equipment (2,904) (2,775)
Purchase of short-term investments (988) (3,825)
Proceeds from sales of short-term investments 810 3,539
Net proceeds from sale of the domestic CRO operation 35 -
Proceeds from sales of marketable securities 720 -
---------- ----------
Net cash used in investing activities (2,327) (3,061)
---------- ----------
Financing activities:
Repayments of capital lease obligations (178) (293)
Proceeds from exercise of stock options 844 2,193
---------- ----------
Net cash provided by financing activities 666 1,900
---------- ----------

Effect of exchange rate changes on cash - 131
---------- ----------
Net increase in cash and cash equivalents 1,032 4,747
Cash and cash equivalents, beginning of period 11,364 17,443
---------- ----------

Cash and cash equivalents, end of period $ 12,396 $ 22,190
=========== ==========


The accompanying notes are an integral part of these statements.

5

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") 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 six month period ended June 30, 2003 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2003. Further information on potential factors that could affect the Company's
financial results can be found in the Company's Reports on Forms 10-K and 10-Q
filed with the Securities and Exchange Commission and in this Form 10-Q.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.

Reclassifications. The consolidated financial statements for prior periods have
been reclassified to conform to the current period's presentation.

Management's Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of 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," the
Company capitalizes 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 $0 and
$318,000 for the three months ended June 30, 2002 and 2003, respectively, and $0
and $570,000 for the six months ended June 30, 2002 and 2003, respectively. For
the six months ended June 30, 2002 and 2003, the Company capitalized $1,343,000
and $436,000, respectively, of software development costs. All research and
development costs have been expensed as incurred.

In accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No, 142, "Goodwill and Other Intangible Assets," and SFAS No. 144,
"Accounting for the Impairment and Disposal of Long-Lived Assets," when events
or circumstances so indicate, the Company assesses the potential impairment of
its intangible assets and other 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
be calculated by comparing the anticipated discounted future cash flows to the
carrying value of the long-lived asset. At June 30, 2003, no impairment was
indicated.

6


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 amends 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. The
Company continues 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, the Company has not recorded any stock-based
employee compensation cost associated with the Company's 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 the Company had applied the fair value recognition provisions of SFAS No. 123
to its stock option plans (in thousands, except per share amounts):


Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2003 2002 2003
---- ---- ---- ----

Net income, as reported $1,170 $2,769 $1,879 $ 5,224

Deduct: Net stock-based employee compensation expense
determined under fair value based method, net of related
tax effects (316) (829) (498) (1,041)
------ ------ ------ -------
Pro forma net income $ 854 $1,940 $1,381 $ 4,183
====== ====== ====== =======
Earnings per share:
Basic - as reported $ 0.06 $ 0.13 $ 0.09 $ 0.24
Basic - pro forma $ 0.04 $ 0.09 $ 0.07 $ 0.19


Diluted - as reported $ 0.05 $ 0.12 $ 0.08 $ 0.22
Diluted - pro forma $ 0.04 $ 0.08 $ 0.06 $ 0.18


Pro forma net income reflects only options granted through June 30, 2003 and,
therefore, may not be representative of the effect for future periods.

Stock Splits. On July 16, 2002, the Company effected a 3-for-2 split of its
common stock. On May 29, 2003 the Company effected a 2-for-1 split of its common
stock. The stock splits have been retroactively reflected in the accompanying
consolidated financial statements.

Note 3. Investment Impairment Charge - Non-Marketable Securities

At June 30, 2003, investments in non-marketable securities consist of an
investment in AmericasDoctor.com, Inc., which is accounted for under the cost
method in accordance with APB Opinion No. 18, "The Equity Method of Accounting
for Investments in Common Stock." During 2001, in accordance with APB Opinion
No. 18, management determined that a decrease in value of the investment
occurred which was deemed to be other than temporary, and as a result wrote down
the cost basis of the investment from $2,300,000 to $509,000. For the three and
six months ended June 30, 2002 and 2003, no decrease in value was deemed to be
other than temporary and, as a result, no investment impairment charge was
recorded.


7


The Company will continue to assess the fair value of this investment and
whether or not any decline in fair value below the current cost basis is deemed
to be other than temporary. If a decline in the fair value of this investment is
judged to be other than temporary, the cost basis of this investment would be
written down to fair value, and the amount of the write-down would be included
in the Company's results. Given the current performance and general market
conditions for technology related companies, additional write-downs of this
investment may occur in the future.

Note 4. Net Income per Common Share

The Company follows SFAS No. 128, "Earnings per Share." This statement requires
the presentation of basic and diluted earnings per 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, 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 June 30,
- ---------------------------
Per
Net Share
2002 Income Shares Amount
- ------------------------------------------------------------------- ------ ------ ------

Basic net income................................................... $1,170 20,918 $ 0.06
Effect of dilutive shares.......................................... - 1,540 $(0.01)
------ ------ ------

Diluted net income................................................. $1,170 22,458 $ 0.05
====== ====== ======

2003
- -------------------------------------------------------------------

Basic net income................................................... $2,769 21,868 $ 0.13
Effect of dilutive shares.......................................... - 1,984 $(0.01)
------ ------ ------

Diluted net income................................................. $2,769 23,852 $ 0.12
====== ====== ======

Options to purchase 3,403,816 shares of common stock were outstanding at June
30, 2002 and were included in the computation of diluted net income per share
for the three months ended June 30, 2002.

Options to purchase 3,411,129 shares of common stock were outstanding at June
30, 2003 and were included in the computation of diluted net income per share
for the three months ended June 30, 2003.


8



Six Months Ended June 30,
- -------------------------
Per
Net Share
2002 Income Shares Amount
- ------------------------------------------------------------------- ------ ------ ------

Basic net income................................................... $1,879 20,846 $ 0.09
Effect of dilutive shares.......................................... - 1,358 $(0.01)
------ ------ ------

Diluted net income................................................. $1,879 22,204 $ 0.08
====== ====== ======

2003
- -------------------------------------------------------------------
Basic net income................................................... $5,224 21,668 $ 0.24
Effect of dilutive shares.......................................... - 1,924 $(0.02)
------ ------ ------

Diluted net income................................................. $5,224 23,592 $ 0.22
====== ====== ======

Options to purchase 3,388,816 shares of common stock were outstanding at June
30, 2002 and were included in the computation of diluted net income per share
for the six months ended June 30, 2002. Options to purchase 15,000 shares of
common stock were outstanding at June 30, 2002, but were not included in the
computation of diluted net income per share because the option exercise prices
were greater than the average market price of the Company's common stock during
the period.

Options to purchase 3,411,129 shares of common stock were outstanding at June
30, 2003 and were included in the computation of diluted net income per share
for the six months ended June 30, 2003.

Note 5. Comprehensive Income

The Company follows SFAS No. 130, "Reporting Comprehensive Income." The
Company's comprehensive income includes net income and unrealized gains and
losses from foreign currency translation and marketable securities. The foreign
currency translation adjustment was immaterial for the six months ended June 30,
2002. For the six months ended June 30, 2003, the Company recorded a foreign
currency translation adjustment of $151,000 which increased the accumulated
foreign currency translation income to $561,000. For the six months ended June
30, 2002, the Company recorded an unrealized gain of $299,000 for the mark to
market of its investment in marketable securities.

Note 6. Recent Pronouncements

In July 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities," which
addresses the financial accounting and reporting of expenses related to
restructurings initiated after 2002, and applies to costs associated with an
exit activity (including a restructuring) or with a disposal of long-lived
assets. Those activities can include eliminating or reducing product lines,
terminating employees and contracts, and relocating plant facilities or
personnel. Under SFAS No. 146, a company will record a liability for a cost
associated with an exit or disposal activity when the liability is incurred and
can be measured at fair value. The provisions of SFAS No. 146 are effective
prospectively for exit or disposal activities initiated after December 31, 2002.
The adoption of SFAS No. 146 did not have any impact on the Company's financial
statements.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," which elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the fair
value of the obligation undertaken. The initial recognition and measurement
provisions of the Interpretation are applicable to guarantees issued or modified
after December 31, 2002. The disclosure requirements are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
adoption of FASB Interpretation No. 45 did not have any impact on the Company's
financial statements.


9


In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," which addresses the consolidation by business
enterprises of variable interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interests in variable interest
entities created after January 31, 2003, and to variable interests in variable
interest entities obtained after January 31, 2003. The application of this
Interpretation did not have any impact on the Company's financial statements.

The Emerging Issues Task Force (EITF) recently reached a consensus on EITF Issue
No. 00-21, "Revenue Arrangements with Multiple Deliverables," which provides
accounting guidance for customer solutions where delivery or performance of
products, services and/or performance may occur at different points in time or
over different periods of time. Companies are required to adopt this consensus
for fiscal periods beginning after June 15, 2003. The Company believes the
adoption of EITF Issue No. 00-21 will not have a material impact on the
Company's financial statements.

Note 7. Operating Segments / Geographic Information

Commencing in 2003, the Company considers its operations to consist of one
segment. The development of the one segment approach corresponds to the
implementation of the Company's refinement in strategic focus in late 2002, and
represents management's view of the Company's operations. Prior to 2003, the
Company's reportable segments were Cardiac Safety and Clinical Research
Technology and Services. All prior periods have been restated to conform to the
current-year presentation.

The Company operates on a worldwide basis with two locations in the United
States and one location in the United Kingdom, which is categorized below as
North America and Europe, respectively.

Geographic information is as follows:



Three Months Ended June 30, 2002
----------------------------------------------
North
America Europe Total
------- ------ -------

License revenues $ 479 $ 17 $ 496
Service revenues 6,945 2,663 9,608
------- ------ -------
Net revenues from external customers 7,424 2,680 10,104
Operating income 627 907 1,534
Identifiable assets 41,270 3,529 44,799

Three Months Ended June 30, 2003
----------------------------------------------
North
America Europe Total
------- ------ -------
License revenues $ 864 $ 290 $ 1,154
Service revenues 10,233 3,389 13,622
------- ------ -------
Net revenues from external customers 11,097 3,679 14,776
Operating income 2,676 1,649 4,325
Identifiable assets 54,926 8,062 62,988


10




Six Months Ended June 30, 2002
----------------------------------------------
North
America Europe Total
------- ------ -------

License revenues $ 1,219 $ 31 $ 1,250
Service revenues 12,642 4,573 17,215
------- ------ -------
Net revenues from external customers 13,861 4,604 18,465
Operating income 991 1,393 2,384
Identifiable assets 41,270 3,529 44,799


Six Months Ended June 30, 2003
----------------------------------------------
North
America Europe Total
------- ------ -------
License revenues $ 1,951 $ 392 $ 2,343
Service revenues 20,414 5,602 26,016
------- ------ -------
Net revenues from external customers 22,365 5,994 28,359
Operating income 5,880 2,301 8,181
Identifiable assets 54,926 8,062 62,988


11





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 financial statements appearing
elsewhere in this report. The following includes a number of forward-looking
statements 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 competitive factors, technology development, market
demand and our ability to obtain new contracts and accurately estimate net
revenues due to variability in size, scope and duration of projects, and
internal issues of the sponsoring client. These and other risk factors have been
further discussed in our Report on Form 10-K for the year ended December 31,
2002. 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 in our
Report on Form 10-Q for the quarter ended March 31, 2003 filed with the
Securities and Exchange Commission and throughout this Form 10-Q.

Overview

We are a provider of 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 (ECG) services (Cardiac Safety
services) and a leading provider of technology and services that streamline the
clinical trials process by enabling our customers to evolve from traditional,
paper-based methods to electronic processing that leverages the power of the
Internet.

We were founded in 1977 to provide a number of clinical research related
services, including Cardiac Safety services, used to evaluate the safety of new
drugs. In February 1997, we completed an initial public offering of our common
stock. In October 1997, we acquired the assets and business of a provider of
clinical research technology and consulting services to the pharmaceutical,
biotechnology and medical device industry. Starting in 2000, we concentrated our
products and services offerings on providing premier Cardiac Safety services and
clinical research technology and consulting services.

Our solutions improve the collection, analysis and distribution of cardiac
safety and clinical data in order to safely accelerate new drug and device
development processes. We globally offer the following products and services:

Cardiac Safety. Cardiac Safety / EXPeRT(TM) ECG services provide
intelligent, workflow-enabled data handling and distribution of digital
and paper-based ECG data and images as well as analysis and physician
electrocardiographer interpretation of ECGs performed on research
subjects in connection with our customers' clinical trials.

eResNet(TM). The eResearch Network(TM) (eResNet) technology provides an
integrated end-to-end clinical research solution that includes trials,
data and safety management modules.

eDE(TM). eData Entry(TM) (eDE) technology provides a comprehensive
electronic data capture (EDC) capability comprised of technology
formulated to deliver rapid time to market benefit for electronic trial
initiatives.

eResCom(TM). eResearch Community(TM) (eResCom) is a central command and
control Web portal that provides real-time information related to
monitoring clinical trial activities, data quality and safety.

Consulting. We provide a full spectrum of consulting services for all
of our products that augment the implementation and execution efforts
of customers.

Our license revenues consist of license fees for upfront license sales and
monthly and annual license sales. Our services revenues consist of Cardiac
Safety services, technology consulting and training services and software
maintenance services.

12


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 service revenues consist of revenues from
services that we provide on a fee-for-service basis and we recognize such
revenues as the services are performed. 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.

Cost of licenses consists primarily of application service provider (ASP) fees
for those customers 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, fees paid to outside consultants, depreciation, shipping expenses 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
customer support functions. 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 26.5% and 24.9% of
total net revenue for the three months ended June 30, 2002 and 2003,
respectively, and 24.9% and 21.1% of total net revenue for the six months ended
June 30, 2002 and 2003, respectively.


13




Results of Operations

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


Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
2002 2003 2002 2003
---- ---- ---- ----

Net revenues:
Licenses 4.9% 7.8% 6.8% 8.3%
Services 95.1% 92.2% 93.2% 91.7%
------ ------ ------ ------
Total net revenues 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------

Costs of revenues:
Cost of licenses 1.5% 1.3% 1.5% 1.2%
Cost of services 39.7% 38.1% 40.2% 38.1%
------ ------ ------ ------
Total costs of revenues 41.2% 39.4% 41.7% 39.3%
------ ------ ------ ------
Gross margin 58.8% 60.6% 58.3% 60.7%
------ ------ ------ ------

Operating expenses:
Selling and marketing 19.0% 13.0% 18.4% 13.2%
General and administrative 13.8% 10.6% 14.8% 10.9%
Research and development 10.8% 7.7% 12.2% 7.8%
------ ------ ------ ------
Total operating expenses 43.6% 31.3% 45.4% 31.9%
------ ------ ------ ------

Operating income 15.2% 29.3% 12.9% 28.8%
Other income, net 1.8% 0.6% 1.9% 0.6%
Gain on sale of domestic CRO operation - - 0.2% -
------ ------ ------ ------
Income before income taxes 17.0% 29.9% 15.0% 29.4%
Income tax provision 5.4% 11.2% 4.8% 11.0%
------ ------ ------ ------
Net income 11.6% 18.7% 10.2% 18.4%
====== ====== ====== ======


14


Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002.

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



Three Months Ended June 30,
---------------------------
2002 2003 Increase (Decrease)
------- ------- -----------------------

Licenses:
Net revenues $ 496 $ 1,154 $ 658 132.7%
Costs of revenues 152 188 36 23.7%
------- ------- -------
Gross margin 344 966 622 180.8%

Services:
Cardiac Safety
Net revenues 8,048 11,735 3,687 45.8%
Costs of revenues 3,239 4,657 1,418 43.8%
------- ------- -------
Gross margin 4,809 7,078 2,269 47.2%

Technology consulting and training
Net revenues 573 911 338 59.0%
Costs of revenues 441 708 267 60.5%
------- ------- -------
Gross margin 132 203 71 53.8%

Software maintenance
Net revenues 987 976 (11) (1.1%)
Costs of revenues 326 265 (61) (18.7%)
------- ------- -------
Gross margin 661 711 50 7.6%

Total services
Net revenues 9,608 13,622 4,014 41.8%
Costs of revenues 4,006 5,630 1,624 40.5%
------- ------- -------
Gross margin 5,602 7,992 2,390 42.7%

Total
Net revenues 10,104 14,776 4,672 46.2%
Costs of revenues 4,158 5,818 1,660 39.9%
------- ------- -------
Gross margin 5,946 8,958 3,012 50.7%


Operating expenses:
Selling and marketing 1,922 1,924 2 0.1%
General and administrative 1,398 1,569 171 12.2%
Research and development 1,092 1,140 48 4.4%
------- ------- -------
Total operating expenses 4,412 4,633 221 5.0%
------- ------- -------
Operating income 1,534 4,325 2,791 181.9%
Other income, net 186 88 (98) (52.7%)
------- ------- -------
Income before income taxes 1,720 4,413 2,693 156.6%
Income tax provision 550 1,644 1,094 198.9%
------- ------- -------
Net income $ 1,170 $ 2,769 $ 1,599 136.7%
======= ======= =======


15

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 June 30,
--------------------------- Increase
2002 2003 (Decrease)
------ ------ ----------

Cost of licenses 30.6% 16.3% (14.3%)
Cost of services:
Cardiac Safety 40.2% 39.7% (0.5%)
Technology consulting and training 77.0% 77.7% 0.7%
Software maintenance 33.0% 27.2% (5.8%)
Total cost of services 41.7% 41.3% (0.4%)
Total costs of revenues 41.2% 39.4% (1.8%)

Operating expenses:
Selling and marketing 19.0% 13.0% (6.0%)
General and administrative 13.8% 10.6% (3.2%)
Research and development 10.8% 7.7% (3.1%)


Total net revenues increased 46.2% to $14.8 million for the three months ended
June 30, 2003 compared to $10.1 million for the three months ended June 30,
2002.

License revenues increased 132.7% to $1.2 million for the three months ended
June 30, 2003 from $496,000 for the three months ended June 30, 2002. The
increase in license revenues was primarily due to an increase in software
licensed on a monthly and annual basis with new clients.

Total service revenues increased 41.8% to $13.6 million for the three months
ended June 30, 2003 from $9.6 million for the three months ended June 30, 2002.

Cardiac Safety service revenues increased 45.8% to $11.7 million for the three
months ended June 30, 2003 compared to $8.0 million for the three months ended
June 30, 2002. The increase in Cardiac Safety service revenues was primarily due
to increased sales volume with both new and existing clients, including an
increase in revenue from the rental of cardiac safety equipment, which our
clients use to perform cardiac safety procedures. Additionally, the average
revenue per transaction has increased with a shift to digital ECG processing and
the implementation of project assurance fees.

Technology consulting and training service revenues increased 59.0% to $911,000
for the three months ended June 30, 2003 compared to $573,000 for the three
months ended June 30, 2002. The increase in technology consulting and training
service revenues was primarily due to increased consulting activity for new
clients as well as increases in implementation fees from new licenses.

Software maintenance service revenues decreased 1.1% to $976,000 for the three
months ended June 30, 2003 compared to $987,000 for the three months ended June
30, 2002. Software maintenance service revenues decreased due to a low level of
license sales that included maintenance as a separate component of revenue
combined with a reduction in users at one client. Annual licenses do not contain
a separate maintenance component.

Total cost of revenues increased 39.9% to $5.8 million for the three months
ended June 30, 2003 compared to $4.2 million for the three months ended June 30,
2002. As a percentage of total net revenues, total cost of revenues decreased to
39.4% for the three months ended June 30, 2003 from 41.2% for the three months
ended June 30, 2002.

The cost of licenses increased 23.7% to $188,000 for the three months ended June
30, 2003 from $152,000 for the three months ended June 30, 2002. The increase in
the cost of licenses was primarily due to third-party software license expense
partially offset by a decrease in ASP hosting fees associated with a change in
ASP hosting providers at the beginning of 2003.

16


As a percentage of license revenues, the cost of licenses decreased to 16.3% for
the three months ended June 30, 2003 from 30.6% for the three months ended June
30, 2002. The decrease was due primarily to the increase in license revenues
without a comparable increase in costs, many of which are fixed in nature.

The cost of services increased 40.5% to $5.6 million for the three months ended
June 30, 2003 from $4.0 million for the three months ended June 30, 2002. As a
percentage of service revenues, the cost of services decreased to 41.3% for the
three months ended June 30, 2003 from 41.7% for the three months ended June 30,
2002.

The cost of Cardiac Safety services increased 43.8% to $4.7 million for the
three months ended June 30, 2003 compared to $3.2 million for the three months
ended June 30, 2002. The increase in the cost of Cardiac Safety services was
primarily due to an increase in rental and depreciation costs associated with
cardiac safety rental equipment, and increased labor, facilities and other costs
associated with expanding capabilities to meet the growth in Cardiac Safety
service revenues. We also began amortization of our internal use software costs
during the third quarter of 2002. Additional internal use software costs were
capitalized throughout the remainder of 2002 and through the first quarter of
2003. We began amortizing the additional capitalized costs in the second quarter
of 2003. Amortization expense related to internal use software costs was
$318,000 for the three months ended June 30, 2003.

As a percentage of Cardiac Safety service revenues, the cost of Cardiac Safety
services decreased to 39.7% for the three months ended June 30, 2003 from 40.2%
for the three months ended June 30, 2002. The decrease in the cost of Cardiac
Safety services as a percentage of Cardiac Safety service revenues was primarily
due to the increase in Cardiac Safety service revenues without a comparable
increase in costs, some of which are fixed in nature.

The cost of technology consulting and training services increased 60.5% to
$708,000 for the three months ended June 30, 2003 from $441,000 for the three
months ended June 30, 2002. The increase in the cost of technology consulting
and training services was due primarily to increased third party consulting and
labor costs associated with the increase in technology consulting and training
service revenues.

The cost of technology consulting and training services as a percentage of
technology consulting and training service revenues increased to 77.7% for the
three months ended June 30, 2003 from 77.0% for the three months ended June 30,
2002. The increase in the cost of technology consulting and training services as
a percentage of technology consulting and training service revenues was due
primarily to additional costs that were not fully utilized in revenue-generating
activities during the three months ended June 30, 2003.

The cost of software maintenance services decreased 18.7% to $265,000, or 27.2%
of software maintenance service revenues, for the three months ended June 30,
2003, from $326,000, or 33.0% of software maintenance service revenues, for the
three months ended June 30, 2002. The decrease in the cost of software
maintenance services, both in absolute terms and as a percentage of software
maintenance service revenues, was due primarily to a reduction in labor, office
rent, depreciation and other costs during the first quarter of 2003.

Selling and marketing expenses remained level at $1.9 million for the three
months ended June 30, 2003 and for the three months ended June 30, 2002.
Increases in commissions that resulted from the increase in commissionable
revenue were offset by planned reductions in advertising and marketing expenses.

As a percentage of total net revenues, selling and marketing expenses decreased
to 13.0% for the three months ended June 30, 2003 from 19.0% for the three
months ended June 30, 2002. The decrease in selling and marketing expenses as a
percentage of total net revenues was primarily due to the increase in total net
revenues with no increase in selling and marketing expenses.

General and administrative expenses increased 12.2% to $1.6 million for the
three months ended June 30, 2003 from $1.4 million for the three months ended
June 30, 2002. The increase in general and administrative expenses was due
primarily to an increase in insurance and public relations expense during the
three months ended June 30, 2003.

As a percentage of total net revenues, general and administrative expenses
decreased to 10.6% for the three months ended June 30, 2003 from 13.8% for the
three months ended June 30, 2002. The decrease in general and administrative
expenses as a percentage of total net revenues was primarily due to the increase
in total net revenues with a less than proportional increase in general and
administrative expenses, many of which are fixed in nature.

17


Research and development expenses remained constant at $1.1 million for the
three months ended June 30, 2003 and for the three months ended June 30, 2002.

As a percentage of total net revenues, research and development expenses
decreased to 7.7% for the three months ended June 30, 2003 from 10.8% for the
three months ended June 30, 2002. The decrease in research and development
expenses as a percentage of total net revenues was primarily due to the increase
in total net revenues with only a minimal increase in research and development
expenses, many of which are fixed in nature.

Other income, 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. Additionally, $47,000 of interest income
was earned on the escrow accounts related to the sale of the domestic clinical
research operations to SCP Communications, Inc. and was recorded during the
three months ended June 30, 2002. Other income, net, decreased 52.7% to $88,000
for the three months ended June 30, 2003 compared to $186,000 for the three
months ended June 30, 2002. The primary reasons for the decrease were lower
interest rates during the first quarter of 2003. The decrease was also due to
interest income earned on the escrow accounts, which was realized during the
three months ended June 30, 2002.

Our effective tax rate was 32.0% and 37.3% for the three months ended June 30,
2002 and 2003, respectively. The 2003 tax rate increased primarily due to new
tax legislation that increased our 2003 income tax liability to New Jersey as
well as our decision to provide deferred taxes for the repatriation of foreign
earnings, which was made in the fourth quarter of 2002.


18




Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002.

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



Six Months Ended June 30,
---------------------------
2002 2003 Increase (Decrease)
------- ------- -----------------------

Licenses:
Net revenues $ 1,250 $ 2,343 $ 1,093 87.4%
Costs of revenues 286 332 46 16.1%
------- ------- -------
Gross margin 964 2,011 1,047 108.6%

Services:
Cardiac Safety
Net revenues 14,337 22,271 7,934 55.3%
Costs of revenues 5,937 8,980 3,043 51.3%
------- ------- -------
Gross margin 8,400 13,291 4,891 58.2%

Technology consulting and training
Net revenues 939 1,763 824 87.8%
Costs of revenues 818 1,312 494 60.4%
------- ------- -------
Gross margin 121 451 330 272.7%

Software maintenance
Net revenues 1,939 1,982 43 2.2%
Costs of revenues 652 525 (127) (19.5%)
------- ------- -------
Gross margin 1,287 1,457 170 13.2%

Total services
Net revenues 17,215 26,016 8,801 51.1%
Costs of revenues 7,407 10,817 3,410 46.0%
------- ------- -------
Gross margin 9,808 15,199 5,391 55.0%

Total
Net revenues 18,465 28,359 9,894 53.6%
Costs of revenues 7,693 11,149 3,456 44.9%
------- ------- -------
Gross margin 10,772 17,210 6,438 59.8%


Operating expenses:
Selling and marketing 3,397 3,747 350 10.3%
General and administrative 2,740 3,078 338 12.3%
Research and development 2,251 2,204 (47) (2.1%)
------- ------- -------
Total operating expenses 8,388 9,029 641 7.6%
------- ------- -------
Operating income 2,384 8,181 5,797 243.2%
Other income, net 344 144 (200) (58.1%)
Gain on sale of domestic CRO operation 35 - (35) (100.0%)
------- ------- -------
Income before income taxes 2,763 8,325 5,562 201.3%
Income tax provision 884 3,101 2,217 250.8%
------- ------- -------
Net income $ 1,879 $ 5,224 $ 3,345 178.0%
======= ======= =======


19



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


Six Months Ended June 30,
---------------------------
2002 2003 Decrease
------ ------ ----------

Cost of licenses 22.9% 14.2% (8.7%)
Cost of services:
Cardiac Safety 41.4% 40.3% (1.1%)
Technology consulting and training 87.1% 74.4% (12.7%)
Software maintenance 33.6% 26.5% (7.1%)
Total cost of services 43.0% 41.6% (1.4%)
Total costs of revenues 41.7% 39.3% (2.4%)

Operating expenses:
Selling and marketing 18.4% 13.2% (5.2%)
General and administrative 14.8% 10.9% (3.9%)
Research and development 12.2% 7.8% (4.4%)


Total net revenues increased 53.6% to $28.4 million for the six months ended
June 30, 2003 compared to $18.5 million for the six months ended June 30, 2002.

License revenues increased 87.4% to $2.3 million for the six months ended June
30, 2003 from $1.3 million for the six months ended June 30, 2002. The increase
in license revenues was primarily due to an increase in software licensed on a
monthly and annual basis.

Total service revenues increased 51.1% to $26.0 million for the six months ended
June 30, 2003 from $17.2 million for the six months ended June 30, 2002.

Cardiac Safety service revenues increased 55.3% to $22.3 million for the six
months ended June 30, 2003 compared to $14.3 million for the six months ended
June 30, 2002. The increase in Cardiac Safety service revenues was primarily due
to increased sales volume with both new and existing clients, including an
increase in revenue from the rental of cardiac safety equipment, which our
clients use to perform cardiac safety procedures. Additionally, the average
revenue per transaction has increased with a shift to digital ECG processing and
the implementation of project assurance fees.

Technology consulting and training service revenues increased 87.8% to $1.8
million for the six months ended June 30, 2003 compared to $939,000 for the six
months ended June 30, 2002. The increase in technology consulting and training
service revenues was primarily due to increased consulting activity for new
clients as well as increases in implementation fees from new licenses.

Software maintenance service revenues increased 2.2% to $2.0 million for the six
months ended June 30, 2003 compared to $1.9 million for the six months ended
June 30, 2002. Software maintenance service revenues did not increase
proportionately with license revenues due to a low level of license sales that
included maintenance as a separate component of revenue combined with a
reduction in users at one client. Annual licenses do not contain a separate
maintenance component.

Total cost of revenues increased 44.9% to $11.1 million for the six months ended
June 30, 2003 compared to $7.7 million for the six months ended June 30, 2002.
As a percentage of total net revenues, total cost of revenues decreased to 39.3%
for the six months ended June 30, 2003 from 41.7% for the six months ended June
30, 2002.

The cost of licenses increased 16.1% to $332,000 for the six months ended June
30, 2003 from $286,000 for the six months ended June 30, 2002. The increase in
the cost of licenses was primarily due to third-party software license expense
partially offset by a decrease in ASP hosting fees associated with a change in
ASP hosting providers at the beginning of 2003.

20


As a percentage of license revenues, the cost of licenses decreased to 14.2% for
the six months ended June 30, 2003 from 22.9% for the six months ended June 30,
2002. The decrease was due primarily to the increase in license revenues without
a comparable increase in costs, many of which are fixed in nature.

The cost of services increased 46.0% to $10.8 million for the six months ended
June 30, 2003 from $7.4 million for the six months ended June 30, 2002. As a
percentage of service revenues, the cost of services decreased to 41.6% for the
six months ended June 30, 2003 from 43.0% for the six months ended June 30,
2002.

The cost of Cardiac Safety services increased 51.3% to $9.0 million for the six
months ended June 30, 2003 compared to $5.9 million for the six months ended
June 30, 2002. The increase in the cost of Cardiac Safety services was primarily
due to an increase in rental and depreciation costs associated with cardiac
safety rental equipment, and increased labor, facilities and other costs
associated with expanding capabilities to meet the growth in Cardiac Safety
service revenues. We also began amortization of our internal use software costs
during the third quarter of 2002. Additional internal use software costs were
capitalized throughout the remainder of 2002 and through the first quarter of
2003. We began amortizing the additional capitalized costs in the second quarter
of 2003. Amortization expense related to internal use software costs was
$570,000 for the six months ended June 30, 2003.

As a percentage of Cardiac Safety service revenues, the cost of Cardiac Safety
services decreased to 40.3% for the six months ended June 30, 2003 from 41.4%
for the six months ended June 30, 2002. The decrease in the cost of Cardiac
Safety services as a percentage of Cardiac Safety service revenues was primarily
due to the increase in Cardiac Safety service revenues without a comparable
increase in costs, some of which are fixed in nature.

The cost of technology consulting and training services increased 60.4% to $1.3
million for the six months ended June 30, 2003 from $818,000 for the six months
ended June 30, 2002. The increase in the cost of technology consulting and
training services was due primarily to increased third party consulting and
labor costs associated with the increase in technology consulting and training
service revenues.

The cost of technology consulting and training services as a percentage of
technology consulting and training service revenues decreased to 74.4% for the
six months ended June 30, 2003 from 87.1% for the six months ended June 30,
2002. The decrease in the cost of technology consulting and training services as
a percentage of technology consulting and training service revenues was due
primarily to the increase in consulting and training service revenues without a
comparable increase in costs, some of which are fixed in nature.

The cost of software maintenance services decreased 19.5% to $525,000, or 26.5%
of software maintenance service revenues, for the six months ended June 30,
2003, from $652,000, or 33.6% of software maintenance service revenues, for the
six months ended June 30, 2002. The decrease in the cost of software maintenance
services, both in absolute terms and as a percentage of software maintenance
service revenues, was due primarily to a reduction in labor, office rent,
depreciation and other costs during the six months ended June 30, 2003.

Selling and marketing expenses increased 10.3% to $3.7 million for the six
months ended June 30, 2003 from $3.4 million for the six months ended June 30,
2002. The increase in selling and marketing expenses was due primarily to
increased commissions that resulted from the increase in commissionable revenue
as well as additional labor costs associated with new hires.

As a percentage of total net revenues, selling and marketing expenses decreased
to 13.2% for the six months ended June 30, 2003 from 18.4% for the six months
ended June 30, 2002. The decrease in selling and marketing expenses as a
percentage of total net revenues was primarily due to the increase in total net
revenues without a comparable increase in costs.

General and administrative expenses increased 12.3% to $3.1 million for the six
months ended June 30, 2003 from $2.7 million for the six months ended June 30,
2002. The increase in general and administrative expenses was due primarily to
an increase in insurance and public relations expense during the six months
ended June 30, 2003.

21


As a percentage of total net revenues, general and administrative expenses
decreased to 10.9% for the six months ended June 30, 2003 from 14.8% for the six
months ended June 30, 2002. The decrease in general and administrative expenses
as a percentage of total net revenues was primarily due to the increase in total
net revenues with a less than proportional increase in general and
administrative expenses, many of which are fixed in nature.

Research and development expenses decreased 2.1% to $2.2 million for the six
months ended June 30, 2003 from $2.3 million for the six months ended June 30,
2002. The decrease in research and development expenses is primarily due to a
reduction in third-party consulting expense.

As a percentage of total net revenues, research and development expenses
decreased to 7.8% for the six months ended June 30, 2003 from 12.2% for the six
months ended June 30, 2002. The decrease in research and development expenses as
a percentage of total net revenues was primarily due to the increase in total
net revenues without a comparable increase in research and development expenses,
many of which are fixed in nature.

Other income, 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. We also recorded a net realized gain of
$73,000 from the sale of our shares of our investment in Digital Angel
Corporation (DAC) (formerly known as Medical Advisory Systems, Inc.) during the
six months ended June 30, 2002. Additionally, $47,000 of interest income was
earned on the escrow accounts related to the sale of the domestic clinical
research operations to SCP Communications, Inc. and was recorded during the six
months ended June 30, 2002. Other income, net, decreased 58.1% to $144,000 for
the six months ended June 30, 2003 compared to $344,000 for the six months ended
June 30, 2002. In addition to the gain on the sale of the DAC shares and the
interest income earned on the escrow accounts, both of which were realized
during the six months ended June 30, 2002, the decrease in other income, net was
also due to lower interest rates during the six months ended June 30, 2003.

Our effective tax rate was 32.0% and 37.3% for the six months ended June 30,
2002 and 2003, respectively. The 2003 tax rate increased primarily due to new
tax legislation that increased our 2003 income tax liability to New Jersey as
well as our decision to provide deferred taxes for the repatriation of foreign
earnings, which was made in the fourth quarter of 2002.

Liquidity and Capital Resources

At June 30, 2003, we had $22.2 million of cash and cash equivalents and $9.6
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 maturities of less than one year, and
A1P1 rated commercial bonds and paper.

For the six months ended June 30, 2003, our operations provided cash of $5.8
million compared to $2.7 million for the six months ended June 30, 2002. The
change was primarily the result of improved operating income as well as stock
option income tax benefits recognized during the six months ended June 30, 2003.
These changes were partially offset by an increase in accounts receivable during
the six months ended June 30, 2003 compared to the six months ended June 30,
2002.

For the six months ended June 30, 2003, our investing activities used cash of
$3.1 million compared to $2.3 million used for the six months ended June 30,
2002. The primary cause of the change is the proceeds from the sales of
marketable securities during the six months ended June 30, 2002. There were no
sales of marketable securities during the six months ended June 30, 2003. During
the six months ended June 30, 2003, we capitalized $2.8 million of property and
equipment compared to $2.9 million capitalized during the six months ended June
30, 2002. The decrease was primarily the result of lower expenditures for
internal use software partially offset by higher purchases of cardiac safety
rental equipment in the six months ended June 30, 2003 compared to the six
months ended June 30, 2002. Included in property and equipment is internal use
software associated with the development of a new data and communications
management services software product used in connection with our centralized
core cardiac safety electrocardiographic services. We capitalize our internal
use software costs in accordance with Statement of Position No. 98-1. We began
amortizing $4.0 million of internal use software costs in August of 2002, which
resulted in an additional amortization charge to the cost of Cardiac Safety
services of approximately $84,000 per month. Additional internal use software
costs of $1.1 million were capitalized throughout the remainder of 2002 and

22



through the first quarter of 2003. We began amortizing the additional
capitalized costs in the second quarter of 2003, which resulted in additional
amortization charges of approximately $22,000 per month. We started a new
internal use software project in the second quarter of 2003 for which we expect
to capitalize costs through the fourth quarter of 2003.

For the six months ended June 30, 2003, our financing activities provided cash
of $1.9 million compared to $666,000 for the six months ended June 30, 2002.
During the six months ended June 30, 2003, we received $2.2 million in cash from
the exercise of stock options at exercise prices per option of between $1.25 and
$6.70.

We have a line of credit arrangement with Wachovia Bank, National Association
totaling $3.0 million. At June 30, 2003, 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 such financings will be available or
available on terms acceptable to us.

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. Qualitative and Quantitative 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 six months ended June
30, 2003 would have decreased by less than $150,000. This estimate assumes that
the decrease occurred on the first day of 2003 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 British pound sterling. As such, we face exposure to
adverse movements in the exchange rate of the British 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 British pound
sterling would have impacted the reported operating income for the six months
ended June 30, 2003 by less than $240,000.

23


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 controls and procedures pursuant to Rule
13a-15 under the Securities Exchange Act of 1934, as amended, as of the end of
the period covered by this report. 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 covered by this report 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 4. Submission of Matters to a Vote of Security Holders

We held our Annual Meeting of Stockholders on April 22, 2003. The matters
submitted to the stockholders for vote were the election of three directors to
each serve a three-year term until 2006, approval of our 2003 Stock Option Plan,
approval of an amendment to our Restated Certificate of Incorporation to
authorize an additional 35,000,000 shares of Common Stock, $0.01 par value, and
ratification of the appointment of KPMG LLP as our independent accountants for
the year ending December 31, 2003.

At the meeting, the stockholders elected Joseph A. Esposito, John M. Ryan and
David D. Gathman to the Board of Directors. Joseph A. Esposito was elected with
8,614,978 shares voted for the election, or 79.3% of the 10,870,555 shares
outstanding and eligible to vote, with 1,444,762 shares withheld. John M. Ryan
was elected with 9,739,140 shares voted for the election, or 89.6% of the
10,870,555 shares outstanding and eligible to vote, with 320,600 shares
withheld. David D. Gathman was elected with 9,745,892 shares voted for the
election, or 89.7% of the 10,870,555 shares outstanding and eligible to vote,
with 313,848 shares withheld. With their election, they joined Sheldon M.
Bonovitz, Arthur H. Hayes, M.D., Stephen S. Phillips and Joel Morganroth, M.D.
as our Directors.

The stockholders approved our 2003 Stock Option Plan with 5,801,477 shares voted
for the approval, or 53.4% of the 10,870,555 shares outstanding and eligible to
vote, with 897,677 shares voted against the approval and 11,135 shares
abstained.

The stockholders approved the amendment to our Restated Certificate of
Incorporation to authorize an additional 35,000,000 shares of Common Stock,
$0.01 par value, with 7,812,560 shares voted for the amendment, or 71.9% of the
10,870,555 shares outstanding and eligible to vote, with 2,215,190 shares voted
against the amendment and 31,990 shares abstained.

In addition, the stockholders ratified the appointment of KPMG LLP as our
independent accountants for 2003 with 9,932,506 shares voted for ratification,
or 91.4% of the 10,870,555 shares outstanding and eligible to vote, with 97,602
shares voted against ratification and 29,632 shares abstained.

All share amounts referred to in this Item 4 have not been adjusted to reflect
our 2-for-1 stock split effective on May 29, 2003.

Item 6. Exhibits and Reports on Form 8-K

a.) Exhibits

10.3 2003 Stock Option Plan

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

b.) Reports on Form 8-K

On April 23, 2003, we filed a report on Form 8-K disclosing a press
release we issued on April 23, 2003, reporting our results of
operations for the quarter ended March 31, 2003 and providing
financial guidance for the second quarter and fiscal 2003.

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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: August 7, 2003 By: Joseph A. Esposito
----------------------------------------
Joseph A. Esposito
President and Chief Executive Officer,
Director (Principal executive officer)




Date: August 7, 2003 By: Bruce Johnson
-----------------------------------------
Bruce Johnson
Senior Vice President and Chief Financial
Officer (Principal financial and
accounting officer)




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EXHIBIT INDEX

Exhibit No. Exhibit
- ----------- -------

10.3 2003 Stock Option Plan

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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