<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>tenk405.txt
<DESCRIPTION>FORM 10-K405
<TEXT>
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                ----------------

                                   FORM 10-K

            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year ended December 31, 2001
                                       or
          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

       For the transition period from _______________ to _______________

                          Commission File No. 0-29100


                           eResearchTechnology, Inc.
               (Exact name of issuer as specified in its charter)

               Delaware                           22-3264604
       (State of incorporation)      (I.R.S. Employer Identification No.)

                  30 South 17th Street Philadelphia, PA 19103
              (Address of Principal Executive Offices - Zip Code)

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

        Securities registered pursuant to Section 12(b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value

    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 |_|

    The aggregate market value of the registrant's Common Stock, $.01 par
value, held by non-affiliates, computed by reference to the average of the
closing bid and asked prices of the Common Stock as reported by NASDAQ on
March 7, 2002 was $69,029,813.

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|

   Number of shares of Common Stock of the registrant issued and outstanding
                       as of March 7, 2002 was 6,951,812


                      DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III (items 10, 11, 12 and 13) is incorporated
by reference from the Registrant's definitive proxy statement for its Annual
Meeting of Stockholders, to be filed with the Commission pursuant to
Regulation 14A, or if such proxy statement is not filed with the Commission on
or before 120 days after the end of the fiscal year covered by this Report,
such information will be included in an amendment to this Report filed no
later than the end of such 120-day period.
<PAGE>

ITEM 1. BUSINESS

General

   eResearchTechnology, Inc. (the "Company") is 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. The Company is a market leader in providing centralized
electrocardiographic (Diagnostic) services and a leading provider of technology
and services that streamline the clinical trials process by enabling its
customers to evolve from traditional, paper-based methods to electronic
processing that leverages the power of the Internet.

   The Company was founded in 1977 to provide Diagnostic services used to
evaluate the safety of new drugs. In February 1997, the Company completed an
initial public offering of its common stock.

   In October 1997, the Company acquired the assets and business of a provider
of clinical research technology and consulting services to the pharmaceutical,
biotechnology and medical device industry.

   The Company's solutions improve the accuracy, timeliness and efficiency of
trial set-up, data collection, interpretation and new drug or device application
submission. The Company's products and services are provided, both in the United
States and internationally, through two business segments: Diagnostics
Technology and Services, which include centralized Diagnostic services and,
prior to January 1, 2000, clinical research operations (CRO operations),
including clinical trial and data management services; and Clinical Research
Technology and Services, which include the developing, marketing and support of
clinical research technology and services. The Company closed its international
CRO operations during the second half of 1999 and sold its domestic CRO
operations in December 1999. The Company's Diagnostic services are, and clinical
trial and data management services were, utilized by clinical trial sponsors
during their conduct of clinical trials. Such services are generally similar in
nature, have similar production processes, distribution methods and general
economics and, therefore, have been aggregated in the Company's Diagnostics
Technology and Services segment. The Company's Clinical Research Technology and
Services segment includes the licensing of its proprietary software products and
the provision of maintenance and services in support of its proprietary software
products and, therefore, have been aggregated in one segment. See Note 10 to the
Consolidated Financial Statements appearing herein for information pertaining to
the amounts of net revenue, operating profit and identifiable assets
attributable to each of the Company's industry segments for the Company's last
three fiscal years.

   The Company conducted its operations through its wholly-owned subsidiary,
eRT Operating Company (eRT OC) from January 2000 to December 31, 2001, at
which time eRT OC was merged with and into the Company. As a result of the
merger, the separate legal existence of eRT OC ceased.

   The Company conducts its operations with offices in the United States and
the United Kingdom (UK). The Company's international net revenues represented
12.6%, 20.5% and 21.5% of total net revenues for the years ended December 31,
1999, 2000 and 2001, respectively. See Note 10 to the Consolidated Financial
Statements appearing herein for information pertaining to the Company's
international operations.

Products and Services

   The Company offers the following products and services:

Diagnostics Technology and Services

   EXPeRT(TM) "eECG". Diagnostic tests are employed in clinical trials to
measure the effect of the product on certain body organs and systems, to
determine the product's safety. Diagnostic testing services provided by the
Company include its EXPeRT "eECG" services which consist of workflow enabled
cardiac safety data collection, interpretation, and distribution of
electrocardiographic (ECG) data and images. These services, which the Company
provides on a centralized basis, are required as part of many new drug studies.
In most cases, the digital or paper ECGs and digital or analog Holter recordings
are delivered to

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<PAGE>

the Company for processing, interpretation and distribution of cardiac safety
data. The Company also rents diagnostic equipment to clients to perform the
ECGs and provides web-based data reporting services.

   The Company provides the following centralized diagnostic testing services
as part of its EXPeRT "eECG" services:

   o    12-lead Electrocardiography. The ECG provides an electronic map of
        the heart's rhythm and structure, and typically is performed in most
        clinical trials. ECG strips are measured by the Company's diagnostic
        specialists utilizing a high-resolution digitizing system, and are
        then interpreted by a Board-certified cardiologist.

   o    Digital Modem ECG. Digital Modem ECG will allow the investigator to
        telephonically transmit 12-lead ECG data directly to the Company for
        interpretation and rapid return of results back to the investigator and
        the sponsor.

   o    Holter Recording. Holter Recording is a 24- or 48-hour continuous
        ECG recording of the heart's rhythm on a cassette tape. Holter data
        reported by the Company is provided for studies assessing the
        incidence of arrhythmias, cardiac ischemia and/or heart rate
        variability findings.

   o    Digital 12-lead Holter Recording. Digital 12-lead Holter Recording is a
        continuous recording of 12-lead ECGs for up to 24-hours. Digital 12-lead
        ECG signals are recorded onto compact flash memory cards and submitted
        to the Company. From these recordings, 12-lead ECGs can be evaluated at
        specific time points or dynamically over the entire duration of the
        recording.

   o    Trans-telephonic Monitoring (TTM). TTM measures the electrical
        activity of the heart, typically for 30 to 60 seconds. This data is
        transmitted over telephone lines by patients carrying a self-
        activated transmitting device. This test typically is utilized in
        trials seeking to identify symptomatic heart rhythm events.

   o    Digital ECG Community. Digital ECG Community, an eResCom solution
        (see Clinical Research Technology and Services) is a secure web-
        based product that extends the reach of the Company's ECG collection
        and interpretation services by providing clients and investigators
        access to real-time clinical cardiac safety data, extensive
        reporting capabilities on key study metrics, and a broad array of
        resources for use throughout the clinical trial process.

   As part of its CRO operations, the Company offered complete services for the
design, performance and management of clinical trial programs. During 1999,
the Company decided to divest its CRO operations. The Company curtailed its
international CRO operations during the second half of 1999 and sold its
domestic CRO operation to SCP Communications, Inc. in December 1999. See Note
2 to Consolidated Financial Statements. The Company also performed centralized
reference testing of blood and urine samples for drug trials. During 1999, the
Company discontinued its clinical laboratory operation and transferred all
remaining client contractual obligations to a third party.

Clinical Research Technology and Services

   The Company develops, markets and supports clinical research technology and
provides services to pharmaceutical, biotechnology and medical device companies.

   The Company offers a broad range of products and services that its customers
can use, as an integrated enterprise solution or on a modular basis, to link
important data with the key participants in a clinical trial: sponsoring
manufacturers, investigating physicians, patients or subjects and any clinical
research organization that a sponsor may use to help in conducting a clinical
trial.

   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. The value of an eResNet is that it allows a sponsor
or clinical research organization to establish an infrastructure that connects
multiple participants in the clinical trial process and that can be used
repeatedly for future clinical trials. As an established infrastructure, an
eResNet will allow a sponsor or clinical research organization to improve the
efficiency and speed of the clinical trial by automating the process for
conducting each new clinical trial.

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<PAGE>

   eDE(TM). eData Entry(TM) (eDE(TM)) technology provides a comprehensive
electronic data capture (EDC) capability comprised of technology and consulting
services formulated to deliver rapid time to benefit for electronic trial
initiatives. EDC Accelerator provides a hosted turnkey electronic clinical trial
environment that requires no capital investment or significant business process
redesign. The program includes comprehensive system implementation, study
support, and site support services. Sponsor, CRO and investigative site access
is delivered through the Company's eResearch Community(TM) (eResCom), a clinical
research portal that serves as a focal point for trial stakeholders accessing
the Company's EDC technology, eResearch Dashboard key trial metrics, and related
trial information.

   eResCom(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. The eResCom technology is specifically designed to
optimize clinical research assets - people, processes, and information - by
providing the participants in clinical research access to real time analysis and
decision support capabilities, and a wide array of value added services and
content designed to optimize the clinical research process. eResCom includes the
Company's eResearch Dashboard(TM) and eHealth Education(TM) modules.

   In the third quarter of 2001, the Company introduced its Accelerator series
of products which offers customers the option to subscribe to the Company's
applications for either a monthly or annual license term with the option to
have the applications hosted in an applications service provider (ASP)
environment. The Accelerator series includes the eResNet Accelerator, the eDC
Accelerator, and the eResCom Accelerator. These Accelerator options provide
customers with an alternative to the traditional one-time software license
which the Company still offers. Through its flexible offerings, the Company
seeks to build market share and obtain customers who were not otherwise
willing to purchase software solutions by traditional means. Also, the eResCom
Accelerator is positioned for organizations that have implemented systems from
multiple vendors in areas as diverse as EDC, LIMS, trial management, clinical
data management, and adverse event management. This technology enables clients
to address a long standing problem with regard to the inability to aggregate,
integrate and provide access to disparate clinical data from a variety of
sources that is required to make timely decisions.

   The Company offers a complete spectrum of packaged consulting services
backed by experienced personnel dedicated to providing quality services to its
clients. For the Accelerator series of products, the Company provides
predefined services and customer kits designed to accelerate each step of the
implementation process.

Product and Service Offerings

<TABLE>
<CAPTION>
Product/Services                                                           Description
----------------                                                           -----------
<S>                             <C>
EXPeRT(TM) "eECG"               The Company's Diagnostics Technology and Services division provides intelligent, workflow-
                                enabled data handling and distribution of paper-based and digital ECG data and images as well a
                                analysis and cardiologist interpretation of ECGs performed on research subjects in connection
                                with the Company's customers' clinical trials. This service permits assessment of the safety
                                of therapies by documenting the occurrence of cardiac electrical change.

                                EXPeRT further enhances the Company's ECG services by permitting cardiologists, with proper
                                security access, linked on the Company's network to perform telecardiology, which is the abilit
                                to access and analyze ECGs electronically in remote locations. It also establishes rules for
                                standardized and automated work flow management, allowing audit trail accounting and generating
                                safety and operational efficiency reports for sponsors and investigators. EXPeRT will permit th
                                digital receipt, annotation and review of ECGs as well as allowing for paper ECGs to be scanned
                                into images or directly digitized and then to be annotated and submitted to the cardiologist fo
                                interpretation and to be viewed as side-by-side ECG images for comparison, supplemented by the
                                ability to review all prior patient ECG tracings.
</TABLE>


                                       4

<PAGE>

<TABLE>
<CAPTION>
<S>                                  <C>
eResearch Network(TM)
 (eResNet(TM))                  An integrated end-to-end clinical research solution that includes the following modules:

 eStudy Conduct(TM)             An Internet-based technology to set up clinical trials, establish standards, track study
                                activities, plan resources, distribute supplies, manage the financial aspects of a trial
                                and electronically view clinical trial data on the Internet.

 eData Management(TM)           An Internet-based technology for collecting, editing and managing clinical trial data
   (eDM(TM))                    in any computing environment. Customers use this technology to analyze data, resolve
                                incomplete or erroneous data entries and support early locking of the database for a
                                particular trial. This product easily integrates with a wide variety of third-party software
                                applications for imaging, workflow and data analysis.

 eSafety Net(TM)                An Internet-based adverse event management system. This application facilitates
                                compliance by sponsors, clinical research organizations and investigators with
                                regulatory reporting requirements regarding adverse events and with the sponsor's or
                                clinical research organization's own internal requirements for safety data analysis.
                                Sponsors or clinical researc organizations can configure this application to match their
                                own processes and forms.

eData Entry(TM) (eDE(TM))       An electronic data capture (EDC) system permitting investigators to use standard
                                Internet browser tools to input data into a centralized database in an online or offline
                                environment. eData Entry accommodates traditional manual, paper-based data entry, data
                                entry using the Internet and other forms of electronic data transmission. eData Entry is
                                also able to capture data in the form of electronic images. This technology allows
                                efficient access to the clinical data, permitting the sponsor or clinical research
                                organization to ensure site compliance with trial protocols.

eResearch Community(TM)         A central command and control portal that provides real-time information related to monitoring
 (eResCom(TM))                  clinical trial activities, data collection and safety. This Internet-based tool, which includes
                                the eResearch Dashboard(TM) and eHealth Education(TM) modules, allows participants in the
                                clinical trial to follow the progress and conduct of a study based on frequently updated data
                                using the Internet. This product allows the participant to analyze data and generate reports in
                                a broad variety of formats that permits early strategic intervention in the clinical trial.
                                eResCom also includes a trial-specific educational tool that allows clinical research
                                professionals to learn about technology developments, new products, clinical protocols and othe
                                educational matters. This application provides a link to the Company's website, www.eRT.com,
                                where the Company provides industry news, therapeutic information, technology updates and chat
                                rooms for professionals.

Consulting                      The Company provides a full spectrum of consulting services that augment the implementation
                                trial execution efforts of customers. The spectrum of services includes study initiation,
                                project management, education, configuration, technology and regulatory review, research
                                dashboards and electronic reporting, uniform standards and standard operating procedures and
                                migration services. Following the implementation, the Company provides on-site research and
                                technology advisory services, support services, including online support and a 24-hour, seven-
                                day help desk, and maintenance.
</TABLE>

                                       5
<PAGE>

   The Company's products use common interfaces and common data delivery
standards, allowing clinical trial participants to learn how to use additional
applications with minimal training. By establishing common naming standards
for data that clinical trial participants may share across applications,
departments and global locations, sponsors and clinical research organizations
can improve data integrity and accelerate reconciliation of information. The
Company's products and services can work with and connect to leading third
party finance, enterprise resource planning and research software through a
batch load utility that the Company has developed.

Technology

   The Company's eResNet, EDC and eResCom applications are available in both
client server and web architectures. The Company develops these applications
using industry-standard development tools including HTML, Visual Basic, Java
and Oracle Developer, all of which provide rapid access to the underlying
Oracle database. The Company's philosophy of using industry-standard tools
allows the Company to focus its attention on the features and functions
delivered through the client interface and the application layer in order to
meet its customers' strategic business requirements, who also use those tools
to benefit from the underlying data stored in the clinical database.

   In order to be able to support both the client server and web architectures,
as well as support the transition of its customers from one architecture to
the other, the Company has been evolving its development platform from one
completely dependant on Oracle Developer to one that utilizes a combination of
Oracle Developer, Visual Basic, Java and HTML. The Company continues to use
the Oracle database server to provide data storage and database-level stored
procedures and triggers to maintain consistent processing of data and to
minimize network traffic for the execution of standard operations. The
Company's currently supported platforms are Win95, Windows NT and Win2000.

Research and Development

   The Company or its predecessors have been developing its products and
services for more than 20 years. The Company's applications have progressed
from mainframe through two-tiered client-server processing and are now three-
tiered web architecture. The Company has developed its software to take
advantage of the power of the Internet. The Company continues to advance its
products by enhancing the human interface of the modules.

   As of December 31, 2001, the Company had 32 employees engaged in research
and development, together with 7 consultants. The Company's research and
development efforts are focused on improving and enhancing its existing
products and services as well as developing new products and services. The
Company is also partnering with other companies to broaden its product
offerings.

   The Company is currently developing an internal application services
provider capability in support of its Digital ECG Community service offering.
Additionally, the Company works with a number of entities, including
International Business Machines Corporation (IBM) and U.S. Internetworking, to
deliver the eResNet, EDC and eResCom Accelerator as a hosted service offering.
Research and development expenses were $2.5 million for 1999, $4.8 million for
2000 and $4.9 million for 2001.

The Company's Customers

   The Company serves pharmaceutical, biotechnology and medical device
companies as well as clinical research organizations. In Diagnostics
Technology and Services, the Company has master service agreements with 50
clients and provides its solutions to 10 of the 15 largest pharmaceutical
companies. In Clinical Research Technology and Services, the Company has 48
clients representing over 100 software modules installed worldwide. In 2001,
one customer, Pharmacia Corporation, accounted for 10% or more of the
Company's consolidated net revenues.

Sales and Marketing

   The Company markets and sells products and services primarily through its
domestic and international direct sales, sales support and professional
services organization. As of December 31, 2001, the Company's

                                       6
<PAGE>

Business Development Team consisted of approximately 45 sales, marketing and
consulting professionals worldwide, which included a direct sales force of 19
sales professionals located in Philadelphia, Pennsylvania, Bridgewater, New
Jersey and Peterborough, United Kingdom.

   The Company focuses its marketing efforts toward educating its target
market, generating new sales opportunities and increasing awareness of its
solutions. The Company conducts a variety of marketing programs
internationally, including an annual software users conference, vendor days at
clients' offices, business seminars, trade shows, press relations and industry
analyst programs and advisory councils.

   The Company's marketing organization also serves an integral role in
managing customer and industry feedback in order to help provide direction to
its product development organization. The Company implemented this customer-
driven approach by establishing advisory council meetings made up of numerous
industry experts. In addition to providing information to prospective
customers, advisory council meetings provide a useful forum in which to share
information, test product concepts and collect data on customer and industry
needs.

   The Company's sales cycle generally begins with its response to a request
from a sponsor or clinical research organization for a proposal to address a
customer-specific research requirement. The Company asks prospective customers
to complete a survey to allow the Company to provide a comprehensive response.
The Company then engages at its expense in a series of consultations,
workshops, implementation reviews, final proposals and contract negotiations
prior to the time when the prospective customer has any obligation to purchase
its products or services. During this process, the Company involves its sales,
consulting and senior management personnel in a collaborative approach. The
Company's sales cycle can vary from a few weeks to as long as nine months
depending upon the scope of the products and services being discussed and the
scope of the clinical trial.

Competition

   The market for the Company's products and services is extremely fragmented,
with hundreds of companies providing niche solutions to satisfy small parts of
the clinical research process. The Company believes it is the only provider of
technology-based solutions in the clinical research industry that offers end-
to-end research solutions that take advantage of the power of the Internet
while also addressing manual, paper-based processes used in clinical research.

   The market for the Company's solution is intensely competitive, continuously
evolving and subject to rapid technological change. The intensity of
competition has increased and is expected to further increase in the future.
This increased competition could result in price reductions, reduced gross
margins and loss of market share, any one of which could seriously harm the
Company's business. Competitors vary in size and in the scope and breadth of
the products and services offered.

   The Company believes that the principal competitive factors affecting its
market include:

   o customer service

   o a significant base of reference customers

   o breadth and depth of solution, including the ability to accommodate both
     manual, paper-based research methods and electronic forms of data
     collection, management and analysis

   o product quality and performance

   o core technology and product features

   o ability to implement solutions

   o price

   Although the Company believes that its solutions currently compete favorably
with respect to these factors, its market is evolving rapidly. The Company may
not be able to maintain its competitive position against current and potential
competitors, especially those with significantly greater financial, marketing,
service, support, technical and other resources.

                                       7
<PAGE>

Government Regulation

   Human and animal pharmaceutical products, biological products and blood
derivatives, and medical devices are subject to rigorous government
regulation. In the United States, the principal federal regulatory agency is
the Food and Drug Administration (FDA) and there are some similar state
agencies. Foreign governments also regulate these products when they are
tested or marketed abroad. In the United States, the FDA has established
standards for conducting clinical trials leading to the approval for new
products.

   Because the Company's products and services assist the sponsor or clinical
research organization in conducting the trial and preparing the new drug or
device application, the Company must comply with these requirements. The
Company also must comply with similar regulatory requirements in foreign
countries. These foreign regulations vary somewhat from country to country,
but generally establish requirements similar to those of the FDA.

   In March 1997, the FDA promulgated regulations related to requirements for
computer systems which support electronic records and electronic signatures.
These regulations define requirements for system control, security,
authentication, validation and retention of electronic records. Further, in
April 1999, the FDA published guidelines regarding the use of computerized
systems to create, modify, maintain, archive, retrieve or transmit clinical
data intended for use in submissions to the agency. The guidelines recommend
that those who use computerized systems in clinical trials design them so that
they can satisfy applicable regulatory requirements for recordkeeping and
retention with the same degree of confidence as exists with paper-based
systems.

   The Company believes that it has designed its products and services to be
consistent with the agency's recommendations and to comply with applicable
regulatory requirements.

   The Health Insurance Portability and Accountability Act of 1996 established
certain requirements relating to the privacy and security of personal health
information. The act directly covers how health plans, health care
clearinghouses and most health care providers transmit, store, use and
disclose individually identifiable health information. Covered uses and
disclosures include uses and disclosures for purposes of clinical trials or
other activities regulated by the FDA.

   In November 2001, the FDA held a public meeting at which it proposed
requiring sponsors of new drugs to submit ECG raw data in digital format and
annotated. Annotated data refers to the defining of measurement points and
events that are used in the analysis of such data. The FDA plans to hold a
second public meeting to further discuss this proposal. At this time, the
Company cannot determine the impact that this proposal may have on its
Diagnostics Technology and Services segment.

Potential Liability and Insurance

   The Company attempts to manage its risk of liability for personal injury or
death to patients from administration of products under study through
contractual indemnification provisions with clients and through insurance
maintained by the Company and its clients. Contractual indemnification
generally does not protect the Company against certain of its own actions,
such as negligence. The terms and scope of such indemnification vary from
client to client and from trial to trial. Although most of the Company's
clients are large, well-capitalized companies, the financial viability of
these indemnification provisions cannot be assured. Therefore, the Company
bears the risk that the indemnifying party may not have the financial ability
to fulfill its indemnification obligations. The Company also maintains
professional liability insurance in the amount of $1 million per claim and in
the aggregate and an umbrella policy of $5 million. The Company's operating
results could be materially and adversely affected if it were required to pay
damages or incur defense costs in connection with a claim that is beyond the
scope of an indemnity provision or beyond the scope or level of insurance
coverage maintained by it or the client or where the indemnifying party does
not fulfill its indemnification obligations.

                                       8
<PAGE>

Intellectual Property

   The Company's services have been enhanced by significant investment in
information technology. The Company's information services group is committed
to achieving operating efficiencies through technical advances. The Company
has developed certain computer software and technically derived procedures
that it seeks to protect through a combination of contract law, trademarks and
trade secrets. The Company has sought patent protection in the United States
for certain aspects of its method and systems for processing ECGs through the
EXPeRT system, although there is no assurance such protection will be granted.
Although the Company does not believe that its intellectual property rights
are as important to its results of operations as are such factors as technical
expertise, knowledge, ability and experience of its professionals, the Company
believes that its technical capabilities provide significant benefits to its
clients.

Employees

   At December 31, 2001, the Company had a total of 196 employees, with 162
employees (159 full-time, 3 part-time) at its locations in the United States
and 34 full-time employees at its location in the United Kingdom. The Company
had 113 employees performing services directly for its clients, 32 employees
in research and development, 19 employees in sales and marketing and 32
employees involved in general and administrative activities.

   The Company is not a party to any collective bargaining agreements covering
any of its employees, has never experienced any material labor disruption and
is unaware of any current efforts or plans to unionize its employees. The
Company considers its relationships with its employees to be good.

Risks Related to the Company's Business

   The risk factors identified in the cautionary statements below could cause
the Company's actual results to differ materially from those suggested in the
forward-looking statements appearing elsewhere in this Form 10-K Report.
However, these risk factors are not exhaustive, as new risks emerge from time
to time, and it is not possible for management to predict all such risk
factors or to assess the impact of all such risk factors on the Company's
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-
looking statements. Accordingly, forward-looking statements should not be
relied upon as a prediction of actual results.

If general economic conditions worsen, potential customers may be unwilling to
make large capital software purchases which could affect the Company's ability
to maintain and/or increase license revenues.

   Throughout 2001, in light of poor economic conditions, the Company has seen
some resistance by potential customers in making the necessary large capital
expenditure to license the Company's software through its traditional one-time
license offering. Despite the Company's efforts to market a subscription
license, the Company is still dependent on selling one-time software licenses in
the near term to achieve growth in license revenues from year to year. If the
Company fails to show growth in license revenues, the Company may not meet the
expectations of market analysts and investors, which would likely cause the
market price of the Company's common stock to decline.

If clinical trial sponsors and clinical research organizations do not shift
from their existing paper-based methods of collecting and managing clinical
trial data to an electronic system, the Company may not achieve the market
penetration necessary to achieve profitability.

   If participants conducting clinical trials are unwilling to adopt the
Company's technology solutions and new ways of conducting business, the
Company's revenues may not be sufficient to cover the expenses incurred in
developing and marketing its technology solutions. The Company's efforts to
establish a standardized, electronic process to collect, manage and analyze
clinical trial data are a significant departure from the traditional clinical
research process. The Company estimates that the vast majority of clinical
trials today use manual, paper-based data entry, management and analysis
tools. Each clinical trial can involve a multitude of participants, including
the sponsor, a clinical research organization, regional site managers,
investigators and patients. With so many participants involved in a clinical
trial, it may be difficult to

                                       9
<PAGE>

convince a sponsor or clinical research organization to accept new methods of
conducting a clinical trial. The Company may not be successful in persuading
these participants to change the manner in which they have traditionally
operated and to accept the Company's products and services.

The Company's customers may not adopt its eResNet subscription solution, which
could prevent the Company from generating recurring revenues. If the Company
is unable to generate the recurring revenues that securities analysts expect,
the Company's stock price will likely fall.

   A key element of the Company's business strategy is the establishment of
eResNets, which are electronic research networks that integrate a combination
of the Company's products and services and selling subscriptions to these
products through its Accelerator Series. If the Company is not successful in
establishing eResNets and collecting monthly subscription fees, it will not
generate the volume of recurring revenues in the future that it is expecting
and the Company's stock price will likely fall. The eResNet subscription model
is unproven and is subject to uncertain market acceptance. The Company's
customers may not adopt the concept of eResNets and may, instead, continue to
use its products or services on an individual or a modular basis.

The Company has several large customers from whom it derives substantial
revenue and therefore the loss of even a few of its customers could
significantly reduce its revenues.

   If the Company loses existing customers and does not replace them with new
customers, the Company's revenues will decrease and may not be sufficient to
cover its costs. The Company currently derives and expects to continue to derive
a significant portion of its revenues from a limited number of customers. The
Company currently has two reportable businesses: Diagnostics Technology and
Services and Clinical Research Technology and Services. In 2001, three customers
each accounted for more than 10% of net revenues from the Company's Diagnostics
Technology and Services segment. In addition, in 2001, three customers each
accounted for more than 10% of net revenues from the Company's Clinical Research
Technology and Services segment. Customers terminate or delay trials for a
variety of reasons including the failure of the product being tested to satisfy
safety requirements, unexpected or undesired clinical results, the customer's
decision to forgo a particular study, insufficient patient enrollment or
investigator recruitment, and production problems resulting in shortages of
required supplies.

The Company may incur losses. If the Company does not achieve or maintain
profitability, the Company's stock price is likely to decline and the Company
may not be able to continue to operate.

   The Company incurred losses for 2001 and may incur losses into 2002, and it
may not be profitable in future periods because the Company's business
strategies may not be successful. Failure to re-achieve or maintain
profitability could reduce the Company's cash reserves, cause the market price
of its common stock to decline and ultimately cause the Company to discontinue
operating its business.

Consolidation among the Company's customers could cause the Company to lose
customers, decrease the market for the Company's products and result in a
reduction of the Company's revenues.

   The Company's customer base could decline because of consolidation, and the
Company may not be able to expand sales of its products and services to new
customers. In addition, the Company's profitability will suffer if the Company
reduces its prices in response to competitive pressures without achieving
corresponding reductions in the Company's expenses. Consolidation in the
pharmaceutical, biotechnology and medical device industries and among clinical
research organizations has accelerated in recent years, and the Company
expects this trend to continue. The new companies or organizations that result
from such consolidation may decide that the Company's products and services
are no longer needed because of their own internal processes or the use of
alternative systems. In addition, as these industries consolidate, competition
to provide products and services to industry participants will become more
intense and the importance of establishing relationships with large industry
participants will become greater. These industry participants may try to use
their market power to negotiate price reductions for the Company's products
and services.

                                       10
<PAGE>

The Company's future operating results are uncertain and are likely to
fluctuate. If the Company fails to meet the expectations of market analysts
and investors, the Company's stock price would likely decline.

   If the Company's operating results in any future period fluctuate
significantly, the Company may not meet the expectations of market analysts
and investors, which would likely cause the market price of the Company's
common stock to decline. The Company's operating results have varied widely in
the past and the Company expects that they will continue to fluctuate in the
future. In addition, the Company's future operating results may not follow any
past trends. It is difficult to predict the timing or amount of the Company's
revenues because:

   o the Company generates a significant percentage of its revenues from a
     limited number of customers

   o the Company's sales cycles are generally lengthy and variable

   o sponsors and clinical research organizations may unexpectedly cancel,
     postpone or reduce the size of clinical trials

   The Company makes decisions on operating expenses based on anticipated
revenue trends and available resources. The Company also incurs expenses
educating and providing information to its customer base, including through
consultations, without any obligation by the customer to purchase the
Company's products and services. Because many of the Company's expenses are
fixed and the Company is committed to making a significant investment in its
organization and in marketing its products and services, delays in recognizing
revenues could cause the Company's operating results to fluctuate from period
to period.

The Company depends entirely on the clinical trial market and a downturn in
this market could cause its revenues to decrease.

   The Company's business depends entirely on the clinical trials that
pharmaceutical, biotechnology and medical device companies conduct. The
Company's revenues will decline if there is less competition in the
pharmaceutical, biotechnology or medical device industries, which would result
in fewer products under development and decreased pressure to accelerate a
product approval. The Company's revenues will also decline if the FDA or
similar agencies in foreign countries loosen their requirements, thereby
decreasing the complexity of conducting clinical trials. Any other
developments that adversely affect the pharmaceutical, biotechnology or
medical device industries generally, including product liability claims, new
technologies or products or general business conditions, could also decrease
the volume of the Company's business.

The Company's failure to expand its business or manage growth successfully
could disrupt its business operations, increase it costs and delay
implementation of the Company's business strategies.

   Difficulties in managing the Company's future growth could disrupt the
Company's business operations, increase the Company's costs and delay
achievement of its business goals, making it more difficult for the Company to
re-achieve or maintain profitability. The Company's growth strategy depends on
its ability to expand and improve its field sales, marketing and services
organization, the Company's Diagnostics Technology and Services and Clinical
Research Technology and Services operations and its corporate and
administrative organizations, both in the United States and throughout the
world. In order to grow, the Company will need to hire additional personnel.
There are a limited number of experienced personnel with an adequate knowledge
of the Company's industry, and competition for their services is intense. In
addition, the Company may not be able to project the rate or timing of
increases in the use of products and services accurately or to expand and
upgrade its systems and infrastructure to accommodate the increases. The
expansion of the Company's foreign operations also will require the Company to
assimilate differences in foreign business practices, overcome language
barriers and hire and retain qualified personnel abroad.

                                       11
<PAGE>

The Company's failure to establish and maintain strategic alliances may delay
the development of its products and services, cause the Company to lose
customers and prevent the Company from growing the Company's business, any of
which could cause the Company's stock price to decline.

   The Company has relationships with providers of hardware and software
systems, telecommunications, web-hosting and development, systems integration
and website content that support its sales and marketing efforts by satisfying
other needs of its existing customers that its solutions do not address and by
providing the Company access to their customers as potential sources of new
business. The Company does not generally have long-term contracts with its
strategic partners, so they may cease doing business with the Company on
relatively short notice.

The Company may not be successful in competing against others providing
similar products and services, which could reduce its revenues and market
share.

   If the Company's products and services do not achieve widespread acceptance
by its customers, its revenues and market share will likely decline. The
Company's competitors include internal research departments of pharmaceutical,
biotechnology and medical device companies, clinical research organizations,
site management companies, software vendors and clinical trial data service
companies. The Company's targeted customers, sponsors and clinical research
organizations, may decide to choose other technology-based products and
services generated internally by them or from another source. Many of the
Company's competitors have substantially greater financial and other
resources, greater name recognition and more extensive customer bases than the
Company does. In addition, many competitors focus their efforts on providing
software or services for discrete aspects of the clinical trials process and
may compare favorably to the Company on those discrete aspects. The Company
may be unable to compete successfully against its competitors.

If the use of the Internet does not continue to grow or the Internet
infrastructure cannot support the growing demand, the Company may not grow as
expected and the Company's stock price would likely decline.

   If the infrastructure of the Internet does not keep pace with the growth of
Internet usage and if the Company's targeted customers do not grow comfortable
using the Internet, the Company's business will not grow as the Company
anticipates, which would likely cause the Company's stock price to decline.
One important aspect of the Company's solution is the ability to connect
clinical trial participants over the Internet. Despite significant increases
in Internet use, many companies have been reluctant to incorporate the
Internet into their businesses for a number of reasons, including:

   o inconsistent service quality resulting in part from inadequate
     infrastructure of servers, routers, switches, telecommunications links
     and other components

   o lack of confidence in the security and privacy of data transmitted over
     the Internet

   o limited internal resources and technical expertise

   o reluctance to dedicate resources to an alternative method of
     communicating that may render substantial personnel and infrastructure
     investments obsolete

System failures or capacity constraints could result in the loss of or
liability to customers, which could reduce the Company's revenues and increase
its expenses.

   If the Company's customers experience any significant level of problems with
its technology, the Company may become liable to those customers, the Company
may be unable to persuade its customers to change from a manual, paper-based
process and the Company may lose customers. The success of the Company's
products and services depends on the ability to protect against:

   o software or hardware malfunctions that interrupt operation of the
     Company's applications

   o power loss or telecommunications failures

                                       12
<PAGE>

   o overloaded systems

   o human error

   o natural disasters

   In addition, when the Company offers its software products as an application
service provider, its network infrastructure may be vulnerable to computer
viruses, break-ins and similar disruptive problems caused by the Company's
customers or other Internet users. This could also lead to delays, loss of
data, interruptions or cessation of service to the Company's customers for
which the Company may be liable. There is no current technology that provides
absolute protection against these events. In addition, the Company may find
that the cost to develop or incorporate technology into its products that
provides the maximum protection against these problems outweighs the
incremental benefits of providing such enhanced protection.

The Company's software products are complex and may contain undetected
software errors, which could lead to an increase in the Company's costs or a
reduction in its revenues.

   The occurrence of hardware and software errors, whether caused by the
Company's solutions or another vendor's products, could:

   o cause sales of the Company's solutions to decrease and its revenues to
     decline

   o cause the Company to incur significant warranty and repair costs

   o divert the attention of the Company's technical personnel away from
     product development efforts

   o cause significant customer relations problems

   Complex software products such as those included in the Company's technology
solutions frequently contain undetected errors when first introduced or as new
versions are released. The Company has, from time to time, found errors in the
software products included in the Company's solutions, and in the future the
Company may find additional errors. In addition, the Company combines its
solutions with software and hardware products from other vendors. As a result,
the Company may experience difficulty in identifying the source of an error.

Rapidly changing technology may impair the Company's ability to develop and
market its solutions and cause the Company to become less competitive.

   The Company's failure to continuously offer competitive products and
services could cause the Company to lose customers and prevent the Company
from successfully marketing the Company's solutions to prospective customers.
As a result, the Company's revenues would likely decline. Because the
Company's business relies on technology, it is susceptible to:

   o rapid technological change

   o changing customer needs

   o frequent new product introductions

   o evolving industry standards

   As the Internet, computer and software industries continue to experience
rapid technological change, the Company must quickly modify the Company's
solutions to adapt to such changes. The demands of operating in such an
environment may delay or prevent the Company's development and introduction of
new or enhanced products and services that continually meet changing market
demands and that keep pace with evolving industry standards. The Company has
experienced development delays in the past and may experience similar or more
significant delays in the future. In addition, competitors may develop
products superior to the Company's solutions, which could make its products
obsolete.

                                       13
<PAGE>

The Company depends on certain key executives, the loss of whom could disrupt
its operations, cause the Company to incur additional expenses and impede its
ability to expand its operations.

   The loss of the services of one or more of the Company's key executives
could negatively affect its ability to achieve its business goals. The
Company's future performance will depend significantly on the continued
service and performance of all of its executives, particularly Dr. Joel
Morganroth, the Company's Chairman and Chief Scientist, and Mr. Joseph A.
Esposito, the Company's President and Chief Executive Officer. The Company
also depends on its key technical, customer support, sales and other
managerial employees. The Company believes that it would be costly and time
consuming to find suitable replacements for these employees.

If the Company is unable to protect its proprietary technology or maintain its
technological advantages, the Company may lose its intellectual property
rights and become less competitive.

   If the Company fails to protect its intellectual property from infringement,
other companies may use the Company's intellectual property to offer
competitive products at lower prices. If the Company fails to compete
effectively against these companies, the Company could lose customers and
experience a decline in sales of its solutions and revenues. To protect the
Company's intellectual property rights, the Company relies on a combination of
copyright and trade secret laws and restrictions on disclosure. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
copy or otherwise obtain and use its products and technology. Monitoring
unauthorized use of the Company's solutions is difficult and the steps the
Company has taken may not prevent unauthorized use of its technology,
particularly in foreign countries where the laws may not protect the Company's
proprietary rights as fully as in the United States.

Third parties may claim that the Company infringes upon their intellectual
property rights, which could result in the loss of its rights, subject the
Company to liability and divert management attention.

   Although the Company is not currently involved in any intellectual property
litigation, the Company may be a party to litigation in the future either to
protect its intellectual property or as a result of an alleged infringement by
the Company of the intellectual property of others. These claims and any
resulting litigation could subject the Company to significant liability or
invalidate the Company's ownership rights in the technology used in its
solutions. As a result, the Company may have to stop selling its solutions.
Litigation, regardless of the merits of the claim or outcome, could consume a
great deal of the Company's time and money and would divert management time
and attention away from its core business.

   Any potential intellectual property litigation also could force the Company
to do one or more of the following:

   o stop using the challenged intellectual property or selling the Company's
     products or services that incorporate it

   o obtain a license to use the challenged intellectual property or to sell
     products or services that incorporate it, which could be costly or
     unavailable

   o redesign those products or services that are based on or incorporate the
     challenged intellectual property, which could be costly and time
     consuming or could adversely affect the functionality and market
     acceptance of the Company's products

   If the Company must take any of the foregoing actions, the Company may be
unable to sell its solutions, which would substantially reduce its revenues.

Extensive governmental regulation of the clinical trial process could require
costly modifications to the Company's products or could adversely affect
prospective customers' willingness to use its products and services.

   The Company may incur increased expenses or suffer a reduction in revenues
if its products and services do not comply with applicable government
regulations. The FDA has published regulations and guidelines addressing a
broad range of matters relating to the use of computerized systems to collect,
manage and

                                       14
<PAGE>

analyze data from clinical trials. Moreover, electronic data entry, management
and analysis of medical information pertaining to subjects in clinical trials
is a recent concept that will be subject to state and federal government
regulations that are not yet finalized. Conforming the Company's products and
services to these guidelines or to future changes in regulation could
substantially increase the Company's expenses. In the United States and in
foreign countries, regulatory authorities have also established other
standards for conducting clinical trials leading to the approval of new
products with which the Company must comply. The Company is subject to these
regulations because its products and services assist sponsors and clinical
research organizations in conducting trials and preparing new drug or device
applications. If a regulatory authority concludes that trials were not
conducted in accordance with established requirements, it may take a variety
of enforcement actions depending upon the nature of the violation and the
applicable country. In the United States, these measures may range from
issuing a warning letter or seeking injunctive relief or civil penalties to
recommending criminal prosecution, which could result in a prohibition upon
the Company's continued participation in future clinical trials.

   In November 2001, the FDA held a public meeting at which it proposed
requiring sponsors of new drugs to submit ECG raw data in digital format and
annotated. Annotated data refers to the defining of measurement points and
events that are used in the analysis of such data. The FDA plans to hold a
second public meeting to further discuss this proposal. At this time, the
Company cannot determine the impact that this proposal may have on its
Diagnostics Technology and Services segment.

   The Company's customers and prospective customers will be less likely to use
the Company's products and services if the products and services do not comply
with regulatory requirements in all countries where clinical trials are
expected to take place or if the Company is precluded from participating in
clinical trials in countries where trials will be conducted.

The Company's international operations expose the Company to significant risks
and the revenues generated from these operations may not exceed the expenses
of maintaining and expanding its international presence.

   A key element of the Company's business strategy is to expand its global
operations. The Company faces a number of risks and expenses that are inherent
in operating in foreign countries and, accordingly, the Company's global
operations may never be profitable to the Company. The risks to the Company
from the Company's global operations include:

   o Government regulations

   o Trade restrictions

   o Burdensome foreign taxes

   o Exchange rate controls and currency exchange rate fluctuations

   o Political and economic instability

   o Varying technology standards

   o Difficulties in staffing and managing foreign operations

   The Company will be subject to a variety of government regulations in the
countries where the Company markets its products and services. The Company
currently operates in the United Kingdom through a foreign subsidiary and may
operate in other countries through additional foreign subsidiaries. If the
Company forms foreign subsidiaries outside of the United Kingdom, the Company
may need to withhold taxes on earnings or other payments they distribute to
the Company. Generally, the Company can claim a foreign tax credit against its
federal income tax expense for these taxes. However, the United States tax
laws have a number of limitations on the Company's ability to claim that
credit or to use any foreign tax losses, which could result in higher payment
by the Company of taxes in the United States. The Company may also need to
include its share of its foreign subsidiaries' earnings in its income even if
the subsidiaries do not distribute money to the Company. As a result, less
cash would be available to the Company in the United States.

                                       15
<PAGE>

   The Company's global operations may involve transactions in a variety of
currencies. Fluctuations in currency exchange rates could reduce the Company's
reported revenues or increase its reported expenses. The Company currently
does not have hedging investments.

   The agreements that the Company signs with customers outside the United
States may be governed by the laws of the countries where the Company provides
its products and services. The Company may also need to resolve any disputes
under these agreements in the courts or other dispute resolution forums in
those countries. This could be expensive or could distract management's
attention away from the Company's core business.

The Company may incur liability as a result of providing Diagnostic analysis
and interpretation services.

   The Company provides centralized analysis and interpretation of ECGs in
connection with its customers' clinical trials. It is possible that liability
may be asserted against the Company and the physicians who interpret the ECGs
for the Company for failing to accurately diagnose a medical problem indicated
by the ECG or for failing to disclose a medical problem to the investigator
responsible for the subject being tested. If the Company is found liable, it
may be forced to pay fines and damages and to discontinue a portion of its
operations. The contractual protections included in the Company's customer
contracts and its insurance coverage may not be sufficient to protect the
Company against such liability. If the protections are not adequate, the
Company may be unable to achieve or maintain profitability and the Company's
stock price would likely fall.

The diagnostic rental equipment owned and leased by the Company could become
obsolete due to technological advances.

   The Company owns and leases equipment, which it rents to its clients to
perform diagnostic procedures. This equipment may become obsolete due to
advances in technology and the introduction of newer equipment models prior to
the time that the Company has fully depreciated the asset or fulfilled its
lease obligations. This could result in the Company recording additional
expense to write-off the book value or the remaining lease value of the
equipment.

ITEM 2. PROPERTIES

   The Company's corporate headquarters are located at 30 South 17th Street,
Philadelphia, Pennsylvania, where the Company leases approximately 29,000
square feet, of which approximately 840 square feet the Company subleases to a
third party. The Company's lease expires in August 2005. The Company also
leases a 30,944 square foot facility in Bridgewater, New Jersey under a lease
that expires August 2010 and an 8,840 square foot facility in Peterborough,
United Kingdom under a lease that expires October 2009. The Company also
leases a 14,088 square foot facility in Bridgewater, New Jersey under a lease
that expires April 2006, all of which the Company subleases to a third party.
The Company operates its Diagnostics Technology and Services segment primarily
from its Philadelphia and Peterborough locations and its Clinical Research
Technology and Services segment primarily from its Bridgewater location.

   The Company anticipates that it may require additional space for its
operations as the Company expands, and believes that suitable additional or
alternative space will be available in the future on commercially reasonable
terms.

ITEM 3. LEGAL PROCEEDINGS

   The Company is involved in legal proceedings from time to time in the
ordinary course of its business. Management believes that none of these legal
proceedings will have a material adverse effect on its financial condition or
results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   The Company did not submit any matters during the fourth quarter of the year
covered by this Report to a vote of the security holders through the
solicitation of proxies or otherwise.

                                       16
<PAGE>

SPECIAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT

   Officers are elected by the Board of Directors and serve at the pleasure of
the Board. The executive officers of the Company are as follows:

Name                               Age      Position
----                               ---      --------
Joseph A. Esposito .............    49      President, Chief Executive Officer
                                            and Director
Joel Morganroth, MD ............    56      Chairman and Chief Scientist
Robert S. Brown ................    46      Senior Vice President, Diagnostics
                                            Technology and Services
Scott Grisanti .................    39      Senior Vice President, Business
                                            Development and Chief Marketing
                                            Officer
Bruce Johnson ..................    51      Senior Vice President, Chief
                                            Financial Officer and Secretary
Jeffrey S. Litwin, MD ..........    44      Senior Vice President and Chief
                                            Medical Officer
Vincent Renz ...................    45      Senior Vice President, Technology
                                            and Consulting and Chief Technology
                                            Officer

   Mr. Esposito has served as President and Chief Executive Officer of the
Company since March 2001. Mr. Esposito formerly served as the President and
Chief Operating Officer of the Company since April 1998 and has served as a
member of its Board of Directors since 1999. He also has served as the
President and Chief Executive Officer of the Company's wholly-owned
subsidiary, eRT Operating Company, from January 2000 to December 2001 and
President of the Company's Clinical Research Technology and Services division
from October 1997 to April 1998. From May 1997 through October 1997, he was
President of DLB Systems, Inc., a Safeguard Scientifics company. Mr. Esposito
was President of Worldwide Operations for Computron Software Inc. from October
1994 to May 1997. He has over 25 years experience in technology, working
closely with pharmaceutical companies in the areas of clinical research,
supply chain management and regulatory document management.

   Dr. Morganroth has served as the Chairman of the Company since 1999, its
Chief Scientist since March 2001 and as a Director of the Company since 1997.
He served as Chief Executive Officer from 1993 to March 2001. In addition, Dr.
Morganroth has consulted for the Company since 1976. Dr. Morganroth is an
internationally recognized cardiologist and clinical researcher. Dr.
Morganroth served for over ten years as a Medical Review Officer/Expert for
the U.S. Food and Drug Administration and since 1995 has served in a similar
capacity for the Health Protection Branch of Canada.

   Mr. Brown has been the Senior Vice President, Diagnostics Technology and
Services for the Company, or its wholly-owned subsidiary, since January 2000.
From December 1997 to December 1999, Mr. Brown was Vice President, Business
Development for the Company. Mr. Brown was Senior Director, Research and
Regulatory Services for the Company from November 1993 to December 1997. Mr.
Brown has been employed with the Company for over 20 years.

   Mr. Grisanti has been the Senior Vice President, Business Development and
Chief Marketing Officer for the Company, or its wholly-owned subsidiary, since
October 2000. Mr. Grisanti was previously employed by ClearCross, Inc., from
November 1998 to October 2000, most recently as Area Vice President of Sales.
Prior to that, he was Director of Sales for Metasys from December 1996 to
November 1998. From August 1994 to December 1996, Mr. Grisanti served as
Director of Workflow and COLD Business Development for Computron Software Inc.

   Mr. Johnson has been the Company's Senior Vice President and Chief Financial
Officer since February 2000. He also serves as the Company's Secretary. Mr.
Johnson has over 25 years of previous experience in public accounting and
financial management positions. From March 1999 to November 1999, Mr. Johnson
served as Chief Operating Officer and Chief Financial Officer of
HealthAxis.com. From February 1988 to March 1999, Mr. Johnson was employed by
N2K Inc., an online music entertainment company, most recently as Senior Vice
President, Chief Financial Officer and director. Mr. Johnson is a certified
public accountant.

   Dr. Litwin has been the Senior Vice President and Chief Medical Officer for
the Company, or its wholly-owned subsidiary, since July 2000. Dr. Litwin was
previously employed by Executive Health Group from May 1993 to July 2000, most
recently as Executive Vice President and Chief Operating Officer. Dr.

                                       17
<PAGE>

Litwin also served as a consultant for Schlumberger, Ltd. from March 1996 to
July 2000 and for the American and National League of Professional Baseball
Clubs from April 1995 to March 1999.

   Mr. Renz has been the Senior Vice President, Technology and Consulting and
Chief Technology Officer for the Company, or its wholly-owned subsidiary,
since January 2000. Mr. Renz served as the Vice President and General Manager
of the Company's Clinical Research Technology and Services division from May
1998 to December 1999. Prior to joining the Company, from January 1998 to May
1998, he worked as a consultant in defining the Client Services infrastructure
for the Clinical Research Technology and Services division. Mr. Renz was Vice
President, Client Services for Computron Software Inc. from May 1988 to
November 1997. Prior to that time, Mr. Renz worked as an information
technology consultant for Deloitte, Haskins and Sells from 1984 to 1988 and
Arthur Andersen from 1981 to 1984, serving a wide range of industries in the
design and implementation of large-scale information systems.


                                       18
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

   The Company's Common Stock has been traded on the NASDAQ National Market
System since February 4, 1997, currently under the symbol "ERES". Below is the
range of high and low sales prices for the common stock for the following
quarters as quoted on the NASDAQ National Market System:

          Calendar Period                    High        Low
          ---------------                    ----        ---
          2000
          First Quarter                    $22.0000    $ 9.5000
          Second Quarter                    15.6875      7.0000
          Third Quarter                     17.6875     10.7500
          Fourth Quarter                    12.1875      5.5000

          2001
          First Quarter                    $ 9.2500    $ 4.1250
          Second Quarter                     5.9000      3.7500
          Third Quarter                      8.0000      5.0000
          Fourth Quarter                    11.9900      5.9500

   The Company has never declared or paid any cash dividend on its common
stock. In March 2001, the Company paid $639,000 in accrued dividends related
to a eRT Operating Company preferred shareholder prior to redeeming the
preferred stock. See Note 11 to Consolidated Financial Statements. The Company
does not anticipate paying any cash dividends in the foreseeable future, and
the Company intends to retain future earnings for the development and
expansion of its business.

   As of March 12, 2002, there were approximately 62 holders of record of the
Company's Common Stock.

   In the Company's initial public offering (IPO), the Company sold 2,206,250
shares of common stock (including over-allotments), pursuant to its
Registration Statement on Form S-1, File No. 333-17001 (the "Registration
Statement"), which was declared effective by the Securities and Exchange
Commission on February 3, 1997 (the "Effective Date"). The gross proceeds from
the IPO were approximately $37,506,000, and, after underwriting discounts and
commissions, expenses paid to or for the benefit of underwriters, and other
costs of the IPO, net proceeds were approximately $34,182,000.

   From the Effective Date to December 31, 2001, the Company expended net
proceeds from the IPO of approximately $13,573,000 for the purchase of
property and equipment, $8,655,000 for the purchase of DLB Systems, Inc.,
$3,229,000 for the repurchase of common stock under the Company's share
repurchase program and $8,725,000 for investments in marketable and non-
marketable securities.

   None of the foregoing payments resulted in direct or indirect payments (i)
to directors or officers of the Company, nor their associates, (ii) to persons
owning 10% or more of the Common Stock of the Company, nor (iii) to affiliates
of the Company.

   The Company's use of proceeds does not represent a material change in the
use of proceeds described in the Prospectus contained within the Registration
Statement.

                                       19
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

   The following selected consolidated financial data of the Company is
qualified by reference to, and should be read in conjunction with, the
consolidated financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Report.

Consolidated Statements of Operations Data (in thousands, except per share
data)

<TABLE>
<CAPTION>

                                                                                               Year Ended December 31
                                                                                 --------------------------------------------------
                                                                                   1997       1998       1999      2000       2001
                                                                                 --------   -------    -------    -------   -------
<S>                                                                              <C>        <C>        <C>        <C>       <C>
Net revenues:
  License....................................................................    $    210   $ 5,142    $ 4,381    $ 5,189   $ 1,372
  Services...................................................................       7,485    14,611     21,694     22,878    26,625
  CRO operations.............................................................       6,468    12,054     16,710          -         -
                                                                                 --------   -------    -------    -------   -------
Total net revenues...........................................................      14,163    31,807     42,785     28,067    27,997
                                                                                 --------   -------    -------    -------   -------
Costs of revenues:
  Cost of licenses...........................................................          20       138        319        721       576
  Cost of services...........................................................       5,250     9,131     12,578     13,296    12,388
  Cost of CRO operations.....................................................       6,806    10,488     12,512          -         -
                                                                                 --------   -------    -------    -------   -------
Total costs of revenues......................................................      12,076    19,757     25,409     14,017    12,964
                                                                                 --------   -------    -------    -------   -------
Gross margin.................................................................       2,087    12,050     17,376     14,050    15,033
                                                                                 --------   -------    -------    -------   -------
Operating expenses:
  Selling and marketing......................................................       2,492     3,764      5,124      4,754     5,427
  General and administrative.................................................       2,873     4,966      6,565      6,593     5,188
  Research and development...................................................         357     3,131      2,472      4,840     4,865
  Write-off of registration costs............................................           -         -          -        782         -
  Write-off of acquired in-process research and development(1)...............       7,883         -          -          -         -
                                                                                 --------   -------    -------    -------   -------
Total operating expenses.....................................................      13,605    11,861     14,161     16,969    15,480
                                                                                 --------   -------    -------    -------   -------
Operating income (loss)......................................................     (11,518)      189      3,215     (2,919)     (447)
Interest income, net.........................................................       1,250     1,012        735      1,770       941
Investment asset impairment charge...........................................           -         -          -          -    (5,686)
Gain on sale of CRO business.................................................           -         -      4,850      2,114     1,422
                                                                                 --------   -------    -------    -------   -------
Income (loss) before income taxes and minority interest......................     (10,268)    1,201      8,800        965    (3,770)
Income tax provision (benefit)(2)............................................      (4,037)      480      3,520        322      (112)
Minority interest dividend(3)................................................           -         -          -        523       116
                                                                                 --------   -------    -------    -------   -------
Net income (loss)............................................................    $ (6,231)  $   721    $ 5,280    $   120   $(3,774)
                                                                                 ========   =======    =======    =======   =======
Basic net income (loss) per share                                                $  (0.93)  $  0.10    $  0.75    $  0.02   $ (0.54)
Diluted net income (loss) per share                                              $  (0.93)  $  0.10    $  0.74    $  0.02   $ (0.54)
</TABLE>

Consolidated Balance Sheet Data (in thousands)

<TABLE>
<CAPTION>
                                                                                                     December 31
                                                                                  -------------------------------------------------
                                                                                   1997       1998       1999      2000       2001
                                                                                  -------   -------    -------    -------   -------
<S>                                                                               <C>       <C>        <C>        <C>       <C>
Cash and cash equivalents and short-term investments..........................    $21,763   $16,490    $21,065    $27,657   $18,430
Working capital...............................................................     21,661    20,017     25,266     30,689    20,689
Total assets..................................................................     36,774    40,172     45,212     53,964    41,000
Total stockholders' equity....................................................     30,467    30,941     35,377     34,170    32,792
</TABLE>
                                       20
<PAGE>

(1) Represents a one-time charge of $7.9 million for the write-off of acquired
    in-process research and development in connection with the acquisition of
    DLB Systems, Inc. in October 1997.

(2) For periods prior to February 3, 1997, the Company was included in the
    consolidated income tax returns of UM Holdings Ltd. ("UM"). The financial
    statements reflect income taxes calculated on a separate company basis for
    all periods presented.

(3) Represents a minority interest dividend earned by the eRT Operating Company
    preferred shareholder.

ITEM 7. 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 the
Company's financial statements and the related notes to the financial statements
appearing elsewhere in this Annual Report. The following includes a number of
forward-looking statements that reflects the Company's current views with
respect to future events and financial performance. The Company uses words such
as anticipate, believe, expect, future, 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 Annual
Report. These forward-looking statements are subject to risks and uncertainties
such as competitive factors, technology development, market demand and the
Company's 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. 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 the Company's
financial results can be found in Item 1 of this Report.

Overview

   eResearchTechnology, Inc. (the "Company") is a provider of technology and
services that enables the pharmaceutical, biotechnology and medical device
industries to collect, interpret and distribute cardiac safety and clinical data
more efficiently. The Company is a market leader in providing centralized
electrocardiographic (Diagnostic) services and a leading provider of technology
and services that streamline the clinical trials process by enabling its
customers to evolve from traditional, paper-based methods to electronic
processing that leverages the power of the Internet.

   The Company was founded in 1977 to provide Diagnostic services used to
evaluate the safety of new drugs. In February 1997, the Company completed an
initial public offering of its common stock.

   In October 1997, the Company acquired the assets and business of a provider
of clinical research technology and consulting services to the pharmaceutical,
biotechnology and medical device industry.

   The Company's solutions improve the accuracy, timeliness and efficiency of
trial set-up, data collection, interpretation and new drug or medical device
application submission. The Company's products and services are provided, both
in the United States and internationally, through two business segments:
Diagnostics Technology and Services, which include centralized Diagnostic
services and, prior to January 1, 2000, clinical research operations (CRO
operations), including clinical trial and data management services; and Clinical
Research Technology and Services, which include the developing, marketing and
support of clinical research technology and services. The Company closed its
international CRO operations during the second half of 1999 and sold its
domestic CRO operations in December 1999. The Company's Diagnostic services are,
and clinical trial and data management services were, utilized by clinical trial
sponsors during their conduct of clinical trials. Such services are generally
similar in nature, have similar production processes, distribution methods and
general economics and, therefore, have been aggregated in the Company's
Diagnostics Technology and Services segment. The Company's Clinical Research
Technology and Services segment includes the licensing of its proprietary
software products and the provision of maintenance and services in support of
its proprietary software products and, therefore, have been

                                       21
<PAGE>

aggregated in one segment. See Note 10 to the Consolidated Financial
Statements appearing herein for information pertaining to the amounts of net
revenue, operating profit and identifiable assets attributable to each of the
Company's industry segments for the Company's last three fiscal years.

   In the third quarter of 2001, the Company introduced its Accelerator series
of products which offers customers the option to subscribe to the Company's
applications for either a monthly or annual license term with the option to
have the applications hosted in an applications service provider (ASP)
environment. Through its flexible offerings, the Company seeks to build market
share and obtain customers who were not otherwise willing to purchase software
solutions by traditional means. The Company anticipates that an increasing
portion of the Company's revenues will be attributable to these Accelerator
products. However, this business model is in an emerging state and its revenue
and income potential is unproven. Furthermore, the Company's historical
revenue sources will likely continue to be major contributors to the Company's
overall revenues.

   The Company's license revenues consist of license fees for upfront license
sales and monthly and annual subscription license sales. The Company's
services revenues consist of Diagnostic services, technology consulting and
training services and software maintenance services. Prior to the December
1999 sale of the domestic clinical research service business, the Company also
generated revenues from managing clinical trials. The Company has not
accounted for the clinical research service business as a discontinued
operation because it was not a separate reportable segment. The Company will
not generate any future revenues from clinical research services.

   The Company recognizes software revenues under the residual method in
accordance with Statement of Position 97-2, Software Revenue Recognition, as
amended by Statement of Position 98-9. Accordingly, the Company recognizes up-
front license fee revenues when a formal agreement exists, delivery of the
software and related documentation has occurred, collectibility is probable
and the license fee is fixed or determinable. The Company recognizes
subscription license fee revenues over the term of the subscription.
Diagnostic service revenues consist of revenues from services that the Company
provides on a fee-for-service basis and the Company recognizes such revenues
as the services are performed. The Company recognizes revenues from software
maintenance contracts on a straight-line basis over the term of the
maintenance contract, which is typically twelve months. The Company provides
consulting and training services on a time and materials basis and recognizes
revenues as the Company performs the services. Clinical research services were
generally based on fixed-price contracts, with variable components. Revenues
from clinical research services were recognized as services were rendered.

   Cost of licenses consists primarily of ASP fees, the cost of producing
compact disks and related documentation and royalties paid to third parties in
connection with their contributions to the Company's product development. Cost
of services includes the cost of Diagnostic services and the cost of
technology consulting, training and maintenance services. Cost of Diagnostic
services consists primarily of direct costs related to the Company's
centralized Diagnostic services and includes wages, fees paid to outside
consultants, 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 the Company's consulting and customer support functions. Cost of
clinical research services consisted primarily of wages, fees paid to outside
consultants and other direct operating costs associated with the Company's CRO
operations. Selling and marketing expenses consist primarily of wages and
commissions paid to sales and marketing personnel or paid to third parties
under marketing assistance agreements, travel expenses and advertising and
promotional expenditures. General and administrative expenses consist
primarily of wages and direct costs for the Company's finance, administrative,
corporate information technology and

                                       22
<PAGE>

executive management functions, in addition to professional service fees.
Research and development expenses consist primarily of wages paid to the
Company's product development staff, costs paid to outside consultants and
direct costs associated with the development of the Company's technology
products.

   The Company conducted its operations through its wholly-owned subsidiary,
eRT Operating Company (eRT OC) from January 2000 to December 31, 2001, at
which time eRT OC was merged with and into the Company. As a result of the
merger, the separate legal existence of eRT OC ceased. The Company conducts
its operations with offices in the United States and the United Kingdom (UK).
The Company's international net revenues represented 12.6%, 20.5% and 21.5% of
total net revenues for the years ended December 31, 1999, 2000 and 2001,
respectively.

Results of Operations

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

<TABLE>
<CAPTION>
                                                           Year Ended December 31
                                                           ----------------------
                                                            1999    2000     2001
                                                           -----    -----   -----
<S>                                                        <C>      <C>     <C>
Net revenues:
  Licenses.............................................     10.2%    18.5%    4.9%
  Services.............................................     50.7%    81.5%   95.1%
  CRO operations.......................................     39.1%      --      --
                                                           -----    -----   -----
Total net revenues.....................................    100.0%   100.0%  100.0%
                                                           -----    -----   -----
Costs of revenues:
  Cost of licenses.....................................      0.7%     2.6%    2.1%
  Cost of services.....................................     29.4%    47.3%   44.2%
  Cost of CRO operations...............................     29.2%      --      --
                                                           -----    -----   -----
Total costs of revenues................................     59.3%    49.9%   46.3%
                                                           -----    -----   -----
Gross margin...........................................     40.7%    50.1%   53.7%
                                                           -----    -----   -----
Operating expenses:
  Selling & marketing..................................     12.0%    16.9%   19.4%
  General & administrative.............................     15.3%    23.5%   18.5%
  Research and development.............................      5.9%    17.2%   17.4%
  Write-off of registration costs......................       --      2.9%     --
                                                           -----    -----   -----
Total operating expenses...............................     33.2%    60.5%   55.3%
                                                           -----    -----   -----
Operating income (loss)................................      7.5%   (10.4%)  (1.6%)
Interest income, net...................................      1.7%     6.3%    3.3%
Investment asset impairment charge.....................       --       --   (20.3%)
Gain on sale of CRO business...........................     11.3%     7.5%    5.1%
                                                           -----    -----   -----
Income (loss) before income taxes......................     20.5%     3.4%  (13.5%)
Income tax provision (benefit).........................      8.2%     1.1%   (0.4%)
Minority interest dividend.............................       --      1.9%    0.4%
                                                           -----    -----   -----
Net income (loss)......................................     12.3%     0.4%  (13.5%)
                                                           =====    =====   =====
</TABLE>

Year ended December 31, 2001 compared to the year ended December 31, 2000

   Total net revenues decreased 0.4% to $28.0 million for the year ended
December 31, 2001 compared to $28.1 million for the year ended December 31,
2000.

   License revenues decreased 73.1% to $1.4 million for the year ended December
31, 2001 from $5.2 million for the year ended December 31, 2000. The decrease
in license revenues was primarily due to fewer license contract signings and
software deliveries in 2001. The Company believes the decrease in license
contract signings was primarily the result of caution in the general business
climate and particularly in the technology sector, which impacted final
decisions on new software licenses in 2001. The Company cannot

                                       23
<PAGE>

predict what impact the current economic climate will have on future software
license revenues. In the third quarter of 2001, the Company introduced its
Accelerator series of products which offers customers the option to subscribe
to the Company's applications for either a monthly or annual license term with
the option to have the applications hosted in an ASP environment. Through its
flexible offerings, the Company seeks to build market share and obtain
customers who were not otherwise willing to purchase software solutions by
traditional means. License revenue from the Accelerator series of products
will be recognized over the subscription period, which has the effect of
reducing revenues in the short-term as compared to upfront licenses which are
typically recognized upon delivery.

   Total services revenues increased 16.2% to $26.6 million for the year ended
December 31, 2001 from $22.9 million for the year ended December 31, 2000.

   Diagnostic service revenues increased 34.2% to $19.6 million for the year
ended December 31, 2001 from $14.6 million. The increase in Diagnostic service
revenues was primarily due to increased sales volume with both new and
existing clients.

   Technology consulting and training service revenues decreased 31.1% to $3.1
million for the year ended December 31, 2001 compared to $4.5 million for the
year ended December 31, 2000. The decrease in technology consulting and
training service revenues was due primarily to the termination of a two-year
consulting contract in December 2000, which accounted for $2.3 million of
revenue in the year ended December 31, 2000. This decrease was partially
offset by additional support revenues from new software installations and
increased consulting activity in support of the Company's software and client
needs during 2001.

   Software maintenance revenues increased 2.6% to $3.9 million for the year
ended December 31, 2001 compared to $3.8 million for the year ended December
31, 2000. The increase in software maintenance was due to a larger installed
base of software licenses during the year ended December 31, 2001 compared to
the year ended December 31, 2000.

   Total cost of revenues decreased 7.1% to $13.0 million, or 46.3% of
revenues, for the year ended December 31, 2001 compared to $14.0 million, or
49.9% of revenues, for the year ended December 31, 2000.

   The cost of licenses decreased 20.1% to $576,000 for the year ended December
31, 2001 from $721,000 for the year ended December 31, 2000. The decrease in
the cost of licenses was primarily due to third party royalties incurred in
2000 from software sales. There were minimal royalties payable to third
parties in 2001. This decrease was partially offset by ASP hosting fees
incurred in 2001. There were no ASP hosting fees in 2000.

   As a percentage of license revenues, the cost of licenses increased to 41.1%
for the year ended December 31, 2001 from 13.9% for the year ended December
31, 2000. The increase in the cost of licenses as a percentage of license
revenues in 2001 was due to the significant decrease in license revenues with
only a small reduction in costs, some of which are relatively fixed in nature.

   The cost of services decreased 6.8% to $12.4 million, or 46.6% of services
revenues for the year ended December 31, 2001 from $13.3 million, or 58.1% of
services revenues for the year ended December 31, 2000.

   The cost of Diagnostic services increased 2.4% to $8.6 million for the year
ended December 31, 2001 from $8.4 million for the year ended December 31,
2000. The increase in the cost of Diagnostic services was due primarily to an
increase in variable costs associated with the increase in Diagnostic service
revenues. This increase was partially offset by a cost control initiative,
which took effect during the second quarter of 2001.

   As a percentage of Diagnostic services revenues, the cost of Diagnostic
services decreased to 43.9% for the year ended December 31, 2001 from 57.5%
for the year ended December 31, 2000. The decrease in the cost of Diagnostic
services as a percentage of Diagnostic service revenues was due primarily to
the increase in Diagnostic service revenues without a comparable increase in
costs, many of which are fixed in nature, and the impact of the cost control
initiative, which took effect during the second quarter of 2001.

                                       24
<PAGE>

   The cost of technology consulting and training services increased 4.3% to
$2.4 million, or 77.4% of technology consulting and training service revenues,
for the year ended December 31, 2001 compared to $2.3 million, or 51.1% of
technology consulting and training service revenues, for the year ended
December 31, 2000. The increase in both the cost of technology consulting and
training services and the cost of technology consulting and training services
as a percentage of technology consulting and training service revenues was due
primarily to additional personnel subcontracting costs and travel and
increased facility and depreciation expenses. The increase in the costs of
technology consulting and training services as a percentage of technology
consulting and training service revenues was also due to the termination of a
two-year consulting contract in December 2000 that accounted for $2.3 million
of revenues in the year ended December 31, 2000 with a higher than typical
margin.

   The cost of software maintenance services decreased 46.2% to $1.4 million,
or 35.9% of software maintenance revenues, for the year ended December 31,
2001 compared to $2.6 million, or 68.4% of software maintenance revenues, for
the year ended December 31, 2000. The decrease in both the cost of software
maintenance services and the cost of software maintenance services as a
percentage of software maintenance revenues was due primarily to a reduction
in subcontracting costs, recruiting fees, and personnel dedicated to software
maintenance during the year ended December 31, 2001.

   Selling and marketing expenses increased 12.5% to $5.4 million, or 19.4% of
total net revenues, for the year ended December 31, 2001 compared to $4.8
million, or 16.9% of total net revenues, for the year ended December 31, 2000.
The increase in both the selling and marketing expense and the selling and
marketing expense as a percentage of net revenues was primarily due to
increased payroll costs associated with expanding the Company's sales force
during the fourth quarter of 2000. This increase was partially offset by lower
advertising production, advertising placement and promotion costs in the year
ended December 31, 2001.

   General and administrative expenses decreased 21.2% to $5.2 million, or
18.5% of total net revenues, for the year ended December 31, 2001 compared to
$6.6 million, or 23.5% of total net revenues, for the year ended December 31,
2000. The decrease in both the general and administrative expenses and general
and administrative expenses as a percentage of total net revenues was
primarily due to decreases in professional fees and bad debt expense in the
year ended December 31, 2001.

   Research and development expenses increased 2.1% to $4.9 million, or 17.4%
of total net revenues, for the year ended December 31, 2001 compared to $4.8
million, or 17.2% of total net revenues, for the year ended December 31, 2000.
The increase in both the research and development expenses and research and
development expenses as a percentage of total net revenues was primarily due
to increased payroll, subcontracting, training and facility costs. The
increase in the research and development expenses as a percentage of total net
revenues was also due to the decrease in total net revenues in 2001 without a
comparable decrease in costs, many of which are fixed in nature.

   The Company recorded an investment asset impairment charge of $5.7 million
in the year ended December 31, 2001. This charge was primarily the result of
continued negative market conditions affecting the carrying value of the
Company's investments in Medical Advisory Systems, Inc., AmericasDoctor.com,
Inc., and INNX, Inc. At December 31, 2001, the remaining carrying values on
the balance sheet for Medical Advisory Systems, Inc., AmericasDoctor.com,
Inc., and INNX, Inc. are $2.7 million, $509,000 and $0, respectively. Included
in the $2.7 million carrying value for Medical Advisory Systems, Inc. as of
December 31, 2001 is an unrealized gain of $665,000. The Company will continue
to assess the fair values of these investments and whether or not any declines
in fair values below the current cost bases are deemed to be other than
temporary. If declines in the fair values of these investments are judged to
be other than temporary, the cost bases of these investments 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 these investments
may occur in the future.

   The Company recorded a one-time charge for costs incurred in connection with
eRT OC's proposed initial public offering of $782,000 in the quarter ended
December 31, 2000. In March 2001, eRT OC withdrew its registration statement.

                                       25
<PAGE>

   In December 1999, the Company sold its domestic CRO operations to SCP
Communications, Inc. In connection with the settlement of certain earn-outs,
the Company recorded additional pre-tax gain of $1.4 million and $2.1 million
in 2001 and 2000, respectively, from this transaction.

   Interest income, net, consisted primarily of interest income realized from
the Company's cash, cash equivalents and short-term investments. Interest
income decreased 47.7% to $941,000 for the year ended December 31, 2001
compared to $1.8 million for the year ended December 31, 2000. The primary
reason for the decrease was due to a lower cash balance during 2001 resulting
from the $9.5 million repurchase of eRT OC's convertible preferred stock in
March 2001 and lower interest rates in 2001.

   The Company's effective tax rate was 3.0% and 33.4% for the years ended
December 31, 2001 and 2000, respectively. The decrease in the Company's
effective tax rate in 2001 was primarily due to the Company not recording a
tax benefit for the capital loss associated with the investment asset
impairment charge of $5.7 million recognized during 2001, due to the
uncertainty of the realization of any tax benefit associated with these long-
term capital losses in future periods. The impact of the capital loss not
benefited was partially offset by research and development tax credits of
$702,000, which were recognized in 2001.

Year ended December 31, 2000, compared to the year ended December 31, 1999

   Total net revenues decreased 34.3%, or $14.7 million, to $28.1 million for
the year ended December 31, 2000 compared to $42.8 million for the year ended
December 31, 1999. Total net revenues for the year ended December 31, 1999
included net revenues of $16.7 million from CRO operations. The Company sold
its domestic CRO operations to SCP Communications, Inc. in December 1999 and
closed the Company's international CRO operations during the second half of
1999.

   License revenues increased 18.2% to $5.2 million for the year ended December
31, 2000 from $4.4 million for the year ended December 31, 1999. The increase
in license revenues was due primarily to revenue recognized under master
software license agreements that included the Company's eResNet product.
Services revenues increased 5.5% to $22.9 million for the year ended December
31, 2000 from $21.7 million for the year ended December 31, 1999. Diagnostic
service revenues increased 4.3% to $14.6 million for the year ended December
31, 2000 compared to $14.0 million for the year ended December 31, 1999.
During 1999, the Company's clinical laboratory operation was included in
Diagnostic service revenues. Clinical laboratory operations were phased out
during the second half of 1999. Clinical laboratory operations net revenues
for the year ended December 31, 1999 were $651,000. Technology consulting and
training service revenues increased 15.4% to $4.5 million for the year ended
December 31, 2000 compared to $3.9 million for the year ended December 31,
1999. The increase in technology consulting and training service revenues was
due primarily to additional support revenues from new software installations
and increased consulting activity in support of the Company's clients' needs.
During 1999, the Company signed a two-year consulting contract with a customer
to help it enhance its capabilities to identify and recruit patients for
clinical trials. Of the $4.5 million and $3.9 million in technology consulting
and training service revenues recognized in 2000 and 1999, respectively, $2.3
million was recognized each year from this contract. This contract expired on
December 31, 2000. Software maintenance revenue was $3.8 million for the years
ended December 31, 2000 and 1999.

   Total costs of revenues decreased 44.9% to $14.0 million, or 49.9% of
revenues, for the year ended December 31, 2000 compared to $25.4 million, or
59.3% of revenues, for the year ended December 31, 1999. Total costs of
revenues for the year ended December 31, 1999 included costs of revenues of
$12.5 million from CRO operations. The Company sold its domestic CRO
operations in December 1999 and closed its international CRO operations during
the second half of 1999.

   The cost of license revenues increased 126.0% to $721,000, or 13.9% of
license revenues, for the year ended December 31, 2000 from $319,000, or 7.3%
of license revenues, for the year ended December 31, 1999. The increase in
both the cost of licenses and the cost of licenses as a percentage of license
revenues was primarily due to third party royalties incurred in 2000 based on
software revenues. In addition, documentation costs increased due to
requirements associated with new software releases in 2000. The cost of
services revenues increased 5.6% to $13.3 million, or 58.1% of services
revenues, for the year ended December 31, 2000 from $12.6 million, or 58.0% of
services revenues, for the year ended December 31,

                                       26
<PAGE>

1999. The cost of Diagnostic services decreased 4.5% to $8.4 million for the
year ended December 31, 2000 compared to $8.8 million for the year ended
December 31, 1999. The decrease in the cost of Diagnostic service revenues was
primarily due to the cost associated with the Company's clinical laboratory
operations, which were included in the Company's cost of Diagnostic services
during 1999. For the year ended December 31, 1999, cost of services for the
clinical laboratory operations were $1.2 million. As a percentage of
Diagnostic service revenues, cost of Diagnostic services decreased to 57.5%
for the year ended December 31, 2000 from 62.9% for the year ended December
31, 1999. The decrease in the cost of Diagnostic services as a percentage of
Diagnostic service revenues was primarily due to the phase-out of the
Company's clinical laboratory operations in 1999. The cost of consulting and
software maintenance revenues increased 28.9% to $4.9 million for the year
ended December 31, 2000 compared to $3.8 million for the year ended December
31, 1999. As a percentage of consulting and software maintenance revenues, the
cost of consulting and software maintenance revenues increased to 59.0% for
the year ended December 31, 2000 from 49.4% for the year ended December 31,
1999. The increase was due primarily to additional personnel, recruiting fees,
subcontracting costs and travel and increased facility and depreciation
expenses to support the increase in maintenance and consulting revenues and to
implement the Company's new business model.

   Selling and marketing expenses decreased 5.9% to $4.8 million for the year
ended December 31, 2000 compared to $5.1 million for the year ended December
31, 1999. The decrease in selling and marketing expenses was due to lower
compensation costs resulting from the sale of the Company's domestic clinical
research services in December 1999. This decrease was partially offset by
increased advertising, promotion, convention and other selling expenses as a
result of eRT OC's corporate formation and branding program, in addition to
increased commission expense resulting from increased software license
revenues in the year ended December 31, 2000. As a percentage of total net
revenues, selling and marketing expenses increased to 16.9% for the year ended
December 31, 2000 from 12.0% for the year ended December 31, 1999. This
increase is due to reduced revenues as a result of the sale of the Company's
domestic CRO operations in December 1999 and increased spending for brand
awareness noted above.

   General and administrative expenses were $6.6 million for the year ended
December 31, 2000 and 1999. As a percentage of total net revenues, general and
administrative expenses increased to 23.5% from 15.3% primarily because a
significant portion of these expenses are fixed in nature and revenues
decreased in 2000 due to the Company's sale of the domestic CRO operation in
December 1999.

   Research and development expenses increased 92.0% to $4.8 million, or 17.2%
of total net revenues, for the year ended December 31, 2000 compared to $2.5
million, or 5.9% of total net revenues, for the year ended December 31, 1999.
The Company increased its investment in research related activities in 2000 to
implement its new business model. This increase was due primarily to increased
payroll, subcontracting, training and facility costs.

   The Company recorded a one-time charge for costs incurred in connection with
eRT OC's initial public offering of $782,000 in the quarter ended December 31,
2000. In March 2001, eRT OC withdrew its registration statement.

   In December 1999, the Company sold its domestic CRO operations to SCP
Communications, Inc. The Company recognized the consideration which was not
subject to contingencies and reported a pre-tax gain of $4.9 million on the
transaction in 1999. In connection with the settlement of certain earn-outs,
the Company recorded additional pre-tax gain of $2.1 million in 2000, from
this transaction.

   Interest income, net, consisted primarily of interest income realized from
the Company's cash, cash equivalents and short-term investments. Interest
income increased 144.9% to $1.8 million for the year ended December 31, 2000
compared to $735,000 for the year ended December 31, 1999. The primary reason
for the increase was due to a higher cash balance during the year resulting
from the $9.5 million investment in eRT OC preferred stock in March 2000 and
the receipt of payment of the $8 million note in January 2000 from the sale of
the CRO operations.

   The Company's effective tax rate was 33.4% for the year ended December 31,
2000 compared to 40.0% for the year ended December 31, 1999. The 2000 tax rate
reflects increased pre-tax income earned in the

                                       27
<PAGE>

Company's UK subsidiary in 2000, which is taxed at a lower rate than income
earned in the United States and increased interest income in 2000 that is not
taxable for federal income tax purposes. These items were partially offset by
a valuation allowance recorded during 2000 for the state net operating loss
carryforwards available as of December 31, 2000.

Liquidity and Capital Resources

   In February 1997, the Company completed its initial public offering, which
resulted in proceeds from the offering, net of expenses, of $34.2 million.

   For the year ended December 31, 2001, the Company's operations provided cash
of $3.0 million compared to cash used in operations of $2.4 million during the
year ended December 31, 2000. The change was primarily the result of a lower
operating loss, decreased accounts receivable and changes to other working
capital accounts for the year ended December 31, 2001 compared to the year
ended December 31, 2000.

   During the year ended December 31, 2001, the Company purchased $4.6 million
of property and equipment compared to $3.2 million purchased in 2000. The
increase is due to a higher level of spending on diagnostic rental equipment
in 2001 to accommodate business needs, furniture and equipment purchases for
the Company's office expansions and capital expenditures related to the
Company's increased headcount.

   In December 1999, the Company sold its domestic clinical research operations
to SCP Communications, Inc. The Asset Purchase Agreement related to this sale
called for two escrow accounts (collectively hereinafter referred to as the
"Escrow Account") from which the Company would be entitled to additional
proceeds upon the occurrence of certain events. In 2001, the Company received
$3.0 million from the Escrow Account of which $1.6 million was recorded as
additional gain on sale in the fourth quarter of 2000 and $1.4 million was
recorded as additional gain on sale in 2001. During the first quarter of 2002,
the Company expects to finalize the accounting for the disposition related to
certain earn-outs and record any final adjustment at that time.

   In March 2000, the Company's wholly-owned subsidiary, eRT OC, sold 95,000
shares of its convertible preferred stock to Communicade, Inc. for a total
gross proceeds of $9.5 million and agreed, if eRT OC consummated an initial
public offering of its stock, to issue a warrant to Communicade, Inc. to
purchase 2.5% of eRT OC's outstanding common stock. The preferred stock would
have automatically converted into common stock upon consummation of an eRT OC
initial public offering. In March 2000, eRT OC issued a warrant to purchase
common stock to Scirex Corporation. The warrant entitled Scirex Corporation to
purchase the number of common shares equal to $1.0 million divided by eRT OC's
initial public offering price per share, at an exercise price per share equal
to eRT OC's initial public offering price per share and would have been
exercisable for a two year period following consummation by eRT OC of an
initial public offering of its common stock. On March 1, 2001, eRT OC withdrew
the registration statement associated with its initial public offering and the
Company purchased the convertible preferred stock sold to Communicade, Inc.
for the original purchase price of $9.5 million plus $639,000 in accrued
dividends. Following the merger of eRT OC with and into the Company, the
separate legal existence of eRT OC ceased, thereby preventing eRT OC from ever
consummating an initial public offering. As a result, the Company believes
that there will never be an obligation to issue a warrant to Communicade, Inc.
and that the warrant issued to Scirex Corporation is effectively null and void
because it will never become exercisable and neither the exercise price per
share nor the number of shares subject to the warrant will ever be
established.

   In February 2001, the Board of Directors authorized a stock buy-back program
of up to 500,000 shares of the Company's common stock. The share purchase
authorization allows the Company to make purchases from time to time on the
open market at prevailing prices or in privately negotiated transactions.
Company management will make the purchase decisions based upon market
conditions and other considerations. During the year ended December 31, 2001,
the Company used $518,000 to purchase 91,700 shares of its common stock on the
open market at an average price of $5.65 per share.

   During the year ended December 31, 2001, the Company received $48,000 in
cash from the exercise of 20,000 stock options at exercise prices per option
of between $6.00 and $10.00. An additional $120,000 in cash was received in
January 2002 related to the options exercised in 2001.

                                       28
<PAGE>

   The Company has a line of credit arrangement with First Union National Bank
totaling $3.0 million. At December 31, 2001, the Company had no outstanding
borrowings under the line.

   The Company expects that existing cash and cash equivalents, short-term
investments, marketable securities, cash flows from operations and available
borrowings under its line of credit will be sufficient to meet its foreseeable
cash needs for at least the next year. However, there may be acquisition and
other growth opportunities that require additional external financing, and the
Company 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 the
Company.

Inflation

   The Company believes the effects of inflation and changing prices generally
do not have a material adverse effect on its results of operations or
financial condition.

Recent Pronouncements

   See discussion in Note 1 to the Consolidated Financial Statements.

Critical Accounting Policies

   In December 2001, the Securities and Exchange Commission (SEC) issued
disclosure guidance for "critical accounting policies". The SEC defines
"critical accounting policies" as those that require application of
management's most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain and may change in subsequent periods.

   The Company's significant accounting policies are described in Note 1 in the
Notes to Consolidated Financial Statements. Not all of these significant
accounting policies require management to make difficult, subjective or
complex judgments or estimates. However, the following policies could be
deemed to be critical within the SEC definition.

Revenue recognition

   The Company recognizes its revenue primarily from two sources: license fees
and services. The Company's license revenues consist of fees for software
license sales and monthly and annual subscription license fees. The Company's
services revenues consist of Diagnostic services, technology consulting and
training services and software maintenance services. Prior to the December
1999 sale of the domestic clinical research service business, the Company also
generated revenues from managing clinical trials.

   The Company recognizes software revenues under the residual method in
accordance with Statement of Position 97-2, "Software Revenue Recognition", as
amended by Statement of Position 98-9. Accordingly, the Company recognizes
software license fee revenues 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. The Company recognizes
subscription license fee revenues over the term of the subscription.
Diagnostic service revenues consist of revenues from services that the Company
provides on a fee-for-service basis, which are recognized as the services are
performed. The Company recognizes revenues from software maintenance contracts
on a straight-line basis over the term of the maintenance contract, which is
typically twelve months. The Company provides consulting and training services
on a time and materials basis and recognizes revenues as the services are
performed. Clinical research services were generally based on fixed-price
contracts, with variable components. Revenues from clinical research services
were recognized as services were rendered.

   At the time of the transaction, management assesses whether the fee
associated with the Company's revenue transactions is fixed and determinable
and whether or not collection is reasonably assured. The assessment of whether
the fee is fixed and determinable is based upon the payment terms of the
transaction. If a significant portion of a fee is due after the Company's
normal payment terms or upon implementation or

                                       29
<PAGE>

customer acceptance, the fee is accounted for as not being fixed or
determinable. In these cases, revenue is recognized as the fees become due or
after implementation or customer acceptance has occurred.

   Collectability is assessed based on a number of factors, including past
transaction history with the customer and the credit-worthiness of the
customer. If it is determined that collection of a fee is not reasonably
assured, the fee is deferred and revenue is recognized at the time collection
becomes reasonably assured, which is generally upon receipt of cash. Under a
typical contract for Diagnostic services, customers pay the Company a portion
of the Company's fee for these services upon contract execution as an upfront
deposit, which is typically nonrefundable upon contract termination. Revenues
are then recognized under Diagnostic service contracts as the services are
performed.

   For arrangements with multiple obligations (for example, a software license
with a maintenance contract), revenue is allocated to each component of the
arrangement using the residual value method based on the fair value of the
undelivered elements, which is specific to the Company. Fair values for
maintenance obligations are based upon rates in the Company's price lists, and
are generally 20% of the license fee charged.

Marketable Securities

   Pursuant to Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", available-
for-sale securities are carried at fair value, based on quoted market prices,
with unrealized gains and losses reported as a separate component of
stockholders' equity. If a decline in the fair value of available-for-sale
securities occurs, management is required to assess whether such a decline is
other than temporary and, if so determined, the basis of the investment would
be written down to fair value, and an investment asset impairment charge would
be recognized in the Company's consolidated statements of operations. Testing
for impairment of investments requires significant management judgment
including the identification of potentially impaired investments, the
determination of their fair value and the assessment of whether any decline in
value is other than temporary. Revisions of impairment judgments are made when
new information becomes known, and any resulting impairment charges are made
at that time. Management's review for impairment includes, but is not limited
to, reviewing the investee's cash position, earnings and revenue outlook,
recent stock price performance, liquidity and management/ownership. See Note 1
in the Notes to Consolidated Financial Statements for more information.

Investments in Non-Marketable Securities

   The Company accounts for its investments in non-marketable securities under
the cost method in accordance with Accounting Principles Board (APB) No. 18,
"The Equity Method of Accounting for Investments in Common Stock", as the
Company does not have "significant influence" over its investees as defined in
APB No. 18. If a decline in the fair value of a non-marketable security
occurs, management is required to assess whether such a decline is other than
temporary and, if so determined, the cost basis of the investment would be
written down to fair value and an investment asset impairment charge would be
recognized in the Company's consolidated statements of operations. The
Company's non-marketable investments consist of investments in privately held
entities for which fair values are not readily determinable. Given the nature
of these investments, management's assessments of fair value are judgmental
and based upon available financial and other data. Testing for impairment of
investments requires significant management judgment including the
identification of potentially impaired investments, the determination of their
fair value and the assessment of whether any decline in value is other than
temporary. Revisions of impairment judgments are made when new information
becomes known, and any resulting impairment charges are made at that time.
Management's review for impairment includes, but is not limited to, reviewing
the investee's cash position, earnings and revenue outlook, liquidity and
management/ownership. See Note 1 in the Notes to Consolidated Financial
Statements for more information.


                                       30
<PAGE>


Accounting for Income Taxes

   As part of the process of preparing its consolidated financial statements,
the Company is required to estimate its income taxes in each of the
jurisdictions in which it operates. This process involves management's
estimating its current tax exposure together with assessing temporary
differences resulting from the differing treatment of certain items for tax
and accounting purposes. These differences result in deferred tax assets and
liabilities, which are included in the Company's consolidated balance sheets.
Management must then assess the likelihood that the Company's net deferred tax
assets will be recovered from future taxable income, and, to the extent that
management believes that recovery is not likely, must establish a valuation
allowance. To the extent management establishes or increases a valuation
allowance in a period, an expense must be included within the tax provision in
the consolidated statement of operations.

   Significant management judgment is required in determining the Company's
provision for income taxes, deferred taxes and any valuation allowance
recorded against deferred tax assets. As of December 31, 2001, the Company
recorded a valuation allowance of $1.3 million related to its deferred tax
assets. See Note 6 in the Notes to Consolidated Financial Statements for more
information.

   The above listing is not intended to be a comprehensive list of all of the
Company's accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted
accounting principles, with no need for management's judgment in their
application. There are also areas in which management's judgment in selecting
any available alternatives would not produce a materially different result.
See the Company's audited Consolidated Financial Statements and Notes thereto,
which begin on page F-1 of this Annual Report on Form 10-K, and contain
accounting policies and other disclosures required by generally accepted
accounting principles.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company's primary financial market risks include fluctuations in
interest rates and currency exchange rates.

Interest Rate Risk

   The Company generally places its investments in A1P1 rated commercial bonds
and paper, municipal securities and certificates of deposit with fixed rates
with maturities of less than one year. The Company actively manages its
portfolio of cash equivalents and marketable securities but in order to ensure
liquidity will only invest in instruments with high credit quality where a
secondary market exists. The Company has not and does not hold any derivatives
related to its interest rate exposure. Due to the average maturity and
conservative nature of the Company's 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 the Company's investments
decreased by 100 basis points, the Company's interest income for the year
ended December 31, 2001 would have decreased by less than $200,000. This
estimate assumes that the decrease occurred on the first day of 2001 and
reduced the yield of each investment by 100 basis points. The impact on the
Company's future interest income of future changes in investment yields will
depend largely on the gross amount of the Company's cash, cash equivalents and
short-term investments. See "Liquidity and Capital Resources".

                                       31
<PAGE>

Foreign Currency Risk

   The Company operates 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 US dollars or pounds sterling. As such, the Company faces
exposure to adverse movements in the exchange rate of the pound sterling. As
the currency rate changes, translation of the income statement of the
Company's UK subsidiary from the local currency to U.S. dollars affects year-
to-year comparability of operating results. The Company does not hedge
translation risks because any cash flows from international operations are
generally reinvested. To date, the effect of foreign currency fluctuations are
reflected in the Company's operating results and have not been material.

   Management estimates that a 10% change in the exchange rate of the pound
sterling would have impacted the reported operating income for international
operations by less than $100,000.

   The introduction of the Euro as a common currency for members of the
European Monetary Union took place in January 1999. To date, the introduction
of the Euro has had no impact on the Company's operations in the UK, as all
net revenues have been billed in pounds sterling.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The information called for by this Item is set forth on Pages F-1 through
F-22.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

   None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   Information relating to Directors of the Company is incorporated by
reference from the "Election of Directors" section of the Proxy Statement for
the Company's 2002 Annual Meeting of Shareholders (the "Proxy Statement"). For
information concerning the executive officers of the Company, see "Executive
Officers of Registrant" in Part 1 of this Report.

ITEM 11. EXECUTIVE COMPENSATION

   "Executive Compensation" in the Proxy Statement is incorporated by
reference.

ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   "Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement is incorporated herein.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   "Certain Relationships and Related Party Transactions" in the Proxy
Statement is incorporated herein.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

   (a)

   1.   The financial statements of the Company filed as a part of this
        Report are listed on the attached Index to Consolidated Financial
        Statements and Financial Schedule at [F-1]

   2.   The Schedules to the financial statements of the Company filed as a
        part of this Report are listed in the attached Index to Consolidated
        Financial Statements and Financial Statement Schedule at [F-1]

                                       32
<PAGE>

   3. Exhibits.

       3.1      Amended and Restated Certificate of Incorporation, as
                amended.(10)

       3.2      Bylaws.(2)

       3.3      Amendment to Bylaws.(4)

       3.4      Certificate of Merger between the Company and eRT Operating
                Company.(filed herewith)

       4.1      Form of Stock Certificate.(filed herewith)

      10.6      Amended and Restated 1993 Stock Option Plan.(2)(3)

      10.7      1996 Stock Option Plan, as amended.(filed herewith)(3)

      10.10     Tax Sharing Agreement with UM Holdings, Inc.(2)

      10.17     Tax Indemnity Agreement with UM Holdings, Ltd.(2)

      10.23     Sublease Agreement between the Company and Raytheon
                Engineers & Constructors, Inc.(4)

      10.25     Registration Rights Agreement dated August 27, 1999.(1)

      10.33     Management Consulting Agreement effective as of January 1,
                2000 between Joel Morganroth, M.D., P.C. and the
                Company.(3)(5)

      10.34     Management Employment Agreement effective January 1, 2000
                between Joseph A. Esposito and the Company.(3)(6)

      10.35     Management Employment Agreement effective January 27, 2000
                between Bruce Johnson and the Company.(3)(6)

      10.36     Management Employment Agreement effective January 1, 2000
                between Vincent Renz and the Company.(3)(6)

      10.37     Amendment to Management Employment Agreement effective
                January 2, 2002 between Bruce Johnson and the
                Company.(filed herewith)(3)

      10.41     Series A Preferred Stock Purchase Agreement dated as of
                March 24, 2000 among the Company, eRT Operating Company and
                Communicade Inc.(6)

      10.42     Investor Rights Agreement dated as of March 24, 2000
                between the Company, eRT Operating Company and Communicade
                Inc.(6)

      10.43     Put Option Agreement dated March 24, 2000 between the
                Company and Communicade Inc.(6)

      10.44     Form of Warrant to be issued by the Company in favor of
                Communicade Inc.(6)

      10.45     Warrant dated March 27, 2000 issued by the Company in favor
                of Scirex Corporation (6)

      10.46     Stock Purchase Agreement dated March 8, 2000 between the
                Company and Medical Advisory Systems, Inc.(6)

      10.47     Amendment to Management Agreement dated September 7, 1999
                between the Company and Joel Morganroth, MD.(3)(6)

      10.48     Management Employment Agreement effective as of January 1,
                2000 between Robert Brown and the Company, as
                amended.(3)(7)

      10.50     eRT Operating Company 2000 Stock Option Plan.(3)(7)

      10.51     Management Employment Agreement effective as of July 5,
                2000 between Jeffrey Litwin, M.D. and the Company, as
                amended.(3)(7)


                                       33

<PAGE>
      10.52     Lease Agreement dated August 18, 2000 between Advance/GLD 2
                L.L.C. and the Company.(8)

      10.53     Employment Termination Agreement with Joel Morganroth,
                M.D.(3)(9)

      10.54     Management Consulting Agreement with Joel Morganroth, M.D.,
                P.C.(3)(9)

      10.55     Promissory Note to First Union National Bank.(12)

      10.56     Management Employment Agreement effective May 21, 2001
                between Dr. Joel Morganroth and the Company.(11)

      10.57     Management Consulting Agreement effective May 21, 2001
                between Dr. Joel Morganroth and the Company.(11)

      10.58     Management Employment Agreement effective as of October 16,
                2000 between Scott Grisanti and the Company.(filed
                herewith)(3)

      10.59     Attornment Agreement between 17th Ludlow Property, L.L.C.
                and the Company.(filed herewith)

      21.1      Subsidiaries of the Registrant.(filed herewith)

      23.1      Consent of Arthur Andersen LLP.(filed herewith)
---------------
(1)   Incorporated by reference to exhibit 10.1, filed in connection with the
      Company's Form 8-K on August 27, 1999.
(2)   Incorporated by reference to the exhibit with the same number, filed in
      connection with the Company's Registration Statement on Form S-1, File
      No. 333-17001, declared effective by the Securities and Exchange
      Commission on February 3, 1997.
(3)   Management contract or compensatory plan or arrangement.
(4)   Incorporated by reference to the exhibit filed in connection with the
      Company's Form 10-K on March 31, 1999.
(5)   Incorporated by reference to the exhibit filed in connection with the
      Company's Form 10-K on March 30, 2000.
(6)   Incorporated by reference to the exhibit filed in connection with the
      Company's Form 10-Q on May 15, 2000.
(7)   Incorporated by reference to the exhibit filed in connection with the
      Company's Form 10-Q on August 14, 2000.
(8)   Incorporated by reference to the exhibit filed in connection with the
      Company's Form 10-Q on November 13, 2000.
(9)   Incorporated by reference to the exhibit filed in connection with the
      Company's Form 10-K on March 19, 2001.
(10)  Incorporated by reference to the exhibit filed in connection with the
      Company's Form 10-Q on May 11, 2001.
(11)  Incorporated by reference to the exhibit filed in connection with the
      Company's Form 10-Q on August 10, 2001.
(12)  Incorporated by reference to the exhibit filed in connection with the
      Company's Form 10-Q on November 8, 2001.

(b)   Reports on Form 8-K.

    None.


                                       34
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) 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, on this 12th day
of March, 2002.

                           eResearchTechnology, Inc.

                           By: /s/ Joseph A. Esposito
                                ----------------------
                                Joseph A. Esposito
                                President and Chief Executive Officer, Director

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
               Signature                         Title                                 Date
               ---------                         -----                                 ----
<S>                                 <C>                                              <C>
     /s/ Joseph A. Esposito        President and Chief Executive Officer,          March 12, 2002
--------------------------------     Director (Principal executive officer)
        Joseph A. Esposito


       /s/ Joel Morganroth         Chairman and Chief Scientist                    March 12, 2002
--------------------------------
      Joel Morganroth, M.D.


        /s/ Bruce Johnson          Senior Vice President, Chief Financial          March 12, 2002
--------------------------------     Officer and Secretary (Principal
          Bruce Johnson              financial and accounting officer)


     /s/ Sheldon M. Bonovitz       Director                                        March 12, 2002
--------------------------------
       Sheldon M. Bonovitz


        /s/ James C. Gale          Director                                        March 12, 2002
--------------------------------
          James C. Gale


   /s/ Arthur Hull Hayes, Jr.      Director                                        March 12, 2002
--------------------------------
   Arthur Hull Hayes, Jr., M.D.


        /s/ Jerry D. Lee           Director                                        March 12, 2002
--------------------------------
           Jerry D. Lee


       /s/ Howard D. Ross          Director                                        March 12, 2002
--------------------------------
          Howard D. Ross


        /s/ John M. Ryan           Director                                        March 12, 2002
--------------------------------
           John M. Ryan
</TABLE>

                                       35

<PAGE>
            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE


                                                                        Page
                                                                        ----
Report of Independent Public Accountants............................     F-2

Consolidated Balance Sheets.........................................     F-3

Consolidated Statements of Operations...............................     F-4

Consolidated Statements of Stockholders' Equity.....................     F-5

Consolidated Statements of Cash Flows...............................     F-6

Notes to Consolidated Financial Statements..........................     F-7

Consolidated Financial Statement Schedule:

   II. Valuation and Qualifying Accounts............................    F-22


                                      F-1

<PAGE>
                    Report of Independent Public Accountants


To eResearchTechnology, Inc.:

   We have audited the accompanying consolidated balance sheets of
eResearchTechnology, Inc. and subsidiaries as of December 31, 2000 and 2001,
and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2001. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of eResearchTechnology, Inc.
and subsidiaries, as of December 31, 2000 and 2001, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.

   Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements and schedule is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.


                                   /s/ Arthur Andersen LLP

Philadelphia, PA
February 5, 2002


                                      F-2

<PAGE>
                   eResearchTechnology, Inc. and Subsidiaries
                          Consolidated Balance Sheets


                                                           December 31,
                                                     -------------------------
                                                        2000           2001
                                                     -----------   -----------
Assets
Current Assets:
 Cash and cash equivalents .......................   $21,910,000   $11,364,000
 Short-term investments ..........................     5,747,000     7,066,000
 Marketable securities ...........................     2,372,000     2,695,000
 Accounts receivable, net ........................     6,811,000     5,900,000
 Prepaid expenses and other ......................     3,710,000     1,320,000
 Deferred income taxes ...........................       433,000       212,000
                                                     -----------   -----------
   Total current assets...........................    40,983,000    28,557,000
Property and equipment, net ......................     4,429,000     8,110,000
Goodwill, net ....................................     1,528,000     1,212,000
Investments in non-marketable securities .........     2,450,000       509,000
Other assets .....................................       405,000        21,000
Deferred income taxes ............................     4,169,000     2,591,000
                                                     -----------   -----------
                                                     $53,964,000   $41,000,000
                                                     ===========   ===========
Liabilities and Stockholders' Equity
Current Liabilities:
 Accounts payable ................................   $ 1,745,000   $ 1,383,000
 Accrued expenses ................................     3,843,000     2,394,000
 Income taxes payable ............................     1,209,000       461,000
 Current portion of capital lease obligations ....            --       155,000
 Deferred revenues ...............................     3,497,000     3,475,000
                                                     -----------   -----------
   Total current liabilities......................    10,294,000     7,868,000
Capital lease obligations ........................            --       340,000
Minority interest in subsidiary ..................     9,500,000            --
Commitments and contingencies (Note 9)
Stockholders' equity:
 Preferred stock--$10 par value, 500,000 shares
   authorized, none issued and outstanding........            --            --
 Common stock--$.01 par value, 15,000,000 shares
   authorized, 7,470,687 and 7,490,687 shares
   issued.........................................        75,000        75,000
 Additional paid-in capital ......................    38,861,000    39,068,000
 Unrealized gain (loss) on marketable securities .    (2,042,000)      665,000
 Treasury stock, 499,800 and 591,500 shares at
  cost............................................    (2,711,000)   (3,229,000)
 Accumulated deficit .............................       (13,000)   (3,787,000)
                                                     -----------   -----------
   Total stockholders' equity.....................    34,170,000    32,792,000
                                                     -----------   -----------
                                                     $53,964,000   $41,000,000
                                                     ===========   ===========

        The accompanying notes are an integral part of these statements.

                                      F-3

<PAGE>
                   eResearchTechnology, Inc. and Subsidiaries
                     Consolidated Statements of Operations


<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                      ----------------------------------------
                                                                          1999          2000           2001
                                                                      -----------    -----------   -----------
<S>                                                                   <C>            <C>           <C>
Net revenues:
 Licenses.........................................................    $ 4,381,000    $ 5,189,000   $ 1,372,000
 Services.........................................................     21,694,000     22,878,000    26,625,000
 CRO operations...................................................     16,710,000             --            --
                                                                      -----------    -----------   -----------
Total net revenues................................................     42,785,000     28,067,000    27,997,000
                                                                      -----------    -----------   -----------
Costs of revenues:
 Cost of licenses.................................................        319,000        721,000       576,000
 Cost of services.................................................     12,578,000     13,296,000    12,388,000
 Cost of CRO operations...........................................     12,512,000             --            --
                                                                      -----------    -----------   -----------
Total costs of revenues...........................................     25,409,000     14,017,000    12,964,000
                                                                      -----------    -----------   -----------
Gross margin......................................................     17,376,000     14,050,000    15,033,000
                                                                      -----------    -----------   -----------
Operating expenses:
 Selling and marketing............................................      5,124,000      4,754,000     5,427,000
 General and administrative.......................................      6,565,000      6,593,000     5,188,000
 Research and development.........................................      2,472,000      4,840,000     4,865,000
 Write-off of registration costs..................................             --        782,000            --
                                                                      -----------    -----------   -----------
Total operating expenses..........................................     14,161,000     16,969,000    15,480,000
                                                                      -----------    -----------   -----------
Operating income (loss)...........................................      3,215,000     (2,919,000)     (447,000)
Interest income, net..............................................        735,000      1,770,000       941,000
Investment asset impairment charge................................             --             --    (5,686,000)
Gain on sale of domestic CRO operations...........................      4,850,000      2,114,000     1,422,000
                                                                      -----------    -----------   -----------
Income (loss) before income taxes.................................      8,800,000        965,000    (3,770,000)
Income tax provision (benefit)....................................      3,520,000        322,000      (112,000)
Minority interest dividend........................................             --        523,000       116,000
                                                                      -----------    -----------   -----------
Net income (loss).................................................    $ 5,280,000    $   120,000   $(3,774,000)
                                                                      ===========    ===========   ===========
Basic net income (loss) per share.................................    $      0.75    $      0.02   $     (0.54)
Diluted net income (loss) per share...............................    $      0.74    $      0.02   $     (0.54)
Shares used to calculate basic net income (loss)
  per share.......................................................      7,007,000      6,956,000     6,945,000
Shares used to calculate diluted net income (loss)
  per share.......................................................      7,115,000      7,141,000     6,945,000
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>

                   eResearchTechnology, Inc. and Subsidiaries
                Consolidated Statements of Stockholders' Equity


<TABLE>
<CAPTION>
                                                                           Unrealized
                                        Common Stock       Additional    Gain (Loss) on
                                    -------------------      Paid-in       Marketable        Treasury     Accumulated
                                     Shares      Amount      Capital       Securities         Stock         Deficit        Total
                                    ---------   -------    -----------   --------------    -----------    -----------   -----------
<S>                                 <C>         <C>        <C>           <C>               <C>            <C>           <C>
Balance, December 31, 1998......    7,217,520   $72,000    $37,061,000     $        --     $  (779,000)   $(5,413,000)  $30,941,000
 Net income.....................           --        --             --              --              --      5,280,000     5,280,000
 Purchase of treasury stock.....           --        --             --              --      (1,932,000)            --    (1,932,000)
 Tax benefit from exercise of
  non-qualified stock options...           --        --        644,000              --              --             --       644,000
 Issuance of common stock
  options to non-employee.......           --        --         30,000              --              --             --        30,000
 Exercise of stock options            172,632     2,000        412,000              --              --             --       414,000
                                    ---------   -------    -----------     -----------     -----------    -----------   -----------
Balance, December 31, 1999......    7,390,152    74,000     38,147,000              --      (2,711,000)      (133,000)   35,377,000
 Comprehensive income
   Net income...................                                                    --                        120,000       120,000
   Unrealized loss on marketable
    securities, net of tax......                                            (2,042,000)                            --    (2,042,000)
                                                                         --------------                   -----------   -----------
   Total comprehensive income
    (loss)......................                                            (2,042,000)                       120,000    (1,922,000)
 Tax benefit from exercise of
  non-qualified stock options...           --        --        237,000              --              --             --       237,000
 Issuance of common stock
  options to non-employee.......           --        --         90,000              --              --             --        90,000
 Exercise of stock options......       80,535     1,000        387,000              --              --             --       388,000
                                    ---------   -------    -----------     -----------     -----------    -----------   -----------
Balance, December 31, 2000......    7,470,687    75,000     38,861,000      (2,042,000)     (2,711,000)       (13,000)   34,170,000
 Comprehensive income
   Net loss.....................                                                    --                     (3,774,000)   (3,774,000)
   Reclassification adjustment
    for investment impairment
    losses on marketable
    securities..................                                             2,042,000                             --     2,042,000
   Unrealized gain on marketable
    securities..................                                               665,000                             --       665,000
                                                                         --------------                   -----------   -----------
   Total comprehensive income
     (loss).....................                                             2,707,000                     (3,774,000)   (1,067,000)
 Purchase of treasury stock.....           --        --             --              --        (518,000)            --      (518,000)
 Tax benefit from exercise of
  non-qualified stock options...           --        --         10,000              --              --             --        10,000
 Issuance of common stock
  options to non-employee.......           --        --         29,000              --              --             --        29,000
 Exercise of stock options             20,000        --        168,000              --              --             --       168,000
                                    ---------   -------    -----------     -----------     -----------    -----------   -----------
Balance, December 31, 2001......    7,490,687   $75,000    $39,068,000     $   665,000     $(3,229,000)   $(3,787,000)  $32,792,000
                                    =========   =======    ===========     ===========     ===========    ===========   ===========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>

                   eResearchTechnology, Inc. and Subsidiaries
                     Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                                   Year Ended December 31,
                                                                                          -----------------------------------------
                                                                                              1999          2000           2001
                                                                                          -----------    -----------   ------------
<S>                                                                                       <C>            <C>           <C>
Operating activities:
 Net income (loss)....................................................................    $ 5,280,000    $   120,000   $ (3,774,000)
 Adjustments to reconcile net income to net cash provided by (used in) operating
   activities--
    Gain on sale of the domestic CRO operation........................................     (4,850,000)    (2,114,000)    (1,422,000)
    Depreciation and amortization.....................................................      2,167,000      1,762,000      1,775,000
    Provision for losses on accounts receivable.......................................        399,000        448,000             --
    Provision for impairment of note receivable.......................................             --        300,000             --
    Issuance of stock options to non-employees........................................         30,000         90,000         29,000
    Accrued minority interest dividend................................................             --        523,000             --
    Deferred income taxes.............................................................      1,198,000        593,000        438,000
    Loss on sales of property and equipment...........................................         20,000             --             --
    Investment asset impairment charge................................................             --             --      5,686,000
    Changes in operating assets and liabilities, excluding effects of business
      disposition:
       Accounts receivable............................................................      1,320,000     (2,472,000)       911,000
       Prepaid expenses and other.....................................................        999,000     (1,037,000)     1,287,000
       Accounts payable...............................................................       (550,000)       (16,000)      (362,000)
       Accrued expenses...............................................................      2,128,000       (600,000)      (810,000)
       Income taxes payable...........................................................      2,291,000     (1,139,000)      (748,000)
       Deferred revenues..............................................................     (1,470,000)     1,093,000        (22,000)
                                                                                          -----------    -----------   ------------
        Net cash provided by (used in)
         operating activities.........................................................      8,962,000     (2,449,000)     2,988,000
                                                                                          -----------    -----------   ------------
Investing activities:
 Purchases of property and equipment..................................................     (2,317,000)    (3,170,000)    (4,633,000)
 Proceeds from sales of property and equipment........................................         73,000             --             --
 Net (purchases) sales of short-term investments......................................      1,368,000     (1,447,000)    (1,319,000)
 Purchase of marketable securities....................................................             --     (5,775,000)            --
 Net proceeds from sale of the domestic CRO operation.................................      1,000,000      8,248,000      3,039,000
 Deemed distribution from non-marketable securities...................................             --        200,000             --
 Purchases of non-marketable securities...............................................     (1,625,000)      (350,000)            --
                                                                                          -----------    -----------   ------------
        Net cash used in investing activities.........................................     (1,501,000)    (2,294,000)    (2,913,000)
                                                                                          -----------    -----------   ------------
Financing activities:
 Net proceeds from the issuance of redeemable
   convertible preferred stock in subsidiary..........................................             --      9,500,000             --
 Purchase of convertible preferred stock in subsidiary................................             --             --     (9,500,000)
 Repayment of capital lease obligations...............................................             --             --        (12,000)
 Minority interest dividend paid......................................................             --             --       (639,000)
 Net proceeds from exercise of stock options..........................................        414,000        388,000         48,000
 Repurchase of common stock for treasury..............................................     (1,932,000)            --       (518,000)
                                                                                          -----------    -----------   ------------
        Net cash provided by (used in)
         financing activities.........................................................     (1,518,000)     9,888,000    (10,621,000)
                                                                                          -----------    -----------   ------------
Net increase (decrease) in cash and cash equivalents..................................      5,943,000      5,145,000    (10,546,000)
Cash and cash equivalents, beginning of year..........................................     10,822,000     16,765,000     21,910,000
                                                                                          -----------    -----------   ------------
Cash and cash equivalents, end of year................................................    $16,765,000    $21,910,000   $ 11,364,000
                                                                                          ===========    ===========   ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-6
<PAGE>

                   eResearchTechnology, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

1. Background and Summary of Significant Accounting Policies:

Background

   eResearchTechnology, Inc. (the "Company"), a Delaware corporation, is a
provider of technology and services that enables the pharmaceutical,
biotechnology and medical device industries to collect, interpret and distribute
cardiac safety and clinical data more efficiently. The Company is a market
leader in providing centralized electrocardiographic (Diagnostic) services and a
leading provider of technology and services that streamline the clinical trials
process by enabling its customers to evolve from traditional paper-based methods
to electronic processing that leverages the power of the Internet.

   The Company was founded in 1977 to provide Diagnostic services used to
evaluate the safety of new drugs. In February 1997, the Company completed an
initial public offering of its common stock.

   The Company's solutions improve the accuracy, timeliness and efficiency of
trial set-up, data collection, interpretation and new drug or medical device
application submission. The Company's products and services are provided, both
in the United States and internationally, through two business segments:
Diagnostics Technology and Services, which include centralized Diagnostic
services and, prior to January 1, 2000, clinical research operations (CRO
operations), including clinical trial and data management services; and Clinical
Research Technology and Services, which include the developing, marketing and
support of clinical research technology and services. The Company closed its
international CRO operations during the second half of 1999 and sold its
domestic CRO operations in December 1999. The Company's Diagnostic services are,
and clinical trial and data management services were, utilized by clinical trial
sponsors during their conduct of clinical trials. Such services are generally
similar in nature, have similar production processes, distribution methods and
general economics and, therefore, have been aggregated in the Company's
Diagnostics Technology and Services segment. The Company's Clinical Research
Technology and Services segment includes the licensing of its proprietary
software products and the provision of maintenance and services in support of
its proprietary software products and, therefore, have been aggregated in one
segment. See Note 10 appearing herein for information pertaining to the amounts
of net revenue, operating profit and identifiable assets attributable to each of
the Company's industry segments for the Company's last three fiscal years.

   The Company conducted its operations through its wholly-owned subsidiary,
eRT Operating Company (eRT OC) from January 2000 to December 31, 2001, at
which time eRT OC was merged with and into the Company. As a result of the
merger, the separate legal existence of eRT OC ceased. The Company conducts
its operations with offices in the United States and the United Kingdom (UK).

Principles of Consolidation

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

Use of Estimates

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

Revenues

   The Company's license revenues consist of fees for software license sales
and monthly and annual subscription license fees. The Company's services
revenues consist of Diagnostic services, technology consulting and training
services and software maintenance services. Prior to the December 1999 sale of
the

                                      F-7
<PAGE>

domestic clinical research service business, the Company also generated
revenues from managing clinical trials. The Company has not accounted for the
clinical research service business as a discontinued operation because it was
not a separate reportable segment. The Company will not generate any future
revenues from clinical research services.

   The Company recognizes software revenues under the residual method in
accordance with Statement of Position 97-2, Software Revenue Recognition, as
amended by Statement of Position 98-9. Accordingly, the Company recognizes
software license fee revenues when a formal agreement exists, delivery of the
software and related documentation has occurred, collectibility is probable
and the license fee is fixed or determinable. The Company recognizes
subscription license fee revenues over the term of the subscription.
Diagnostic service revenues consist of revenues from services that the Company
provides on a fee-for-service basis which are recognized as the services are
performed. The Company recognizes revenues from software maintenance contracts
on a straight-line basis over the term of the maintenance contract, which is
typically twelve months. The Company provides consulting and training services
on a time and materials basis and recognizes revenues as the services are
performed. Clinical research services were generally based on fixed-price
contracts, with variable components. Revenues from clinical research services
were recognized as services were rendered.

Cash and Cash Equivalents

   The Company considers cash on deposit with financial institutions and all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents. At the balance sheet dates, cash equivalents
consisted primarily of investments in money market funds, municipal securities
and bonds of government sponsored agencies.

Short-Term Investments

   At December 31, 2001, short-term investments consisted of municipal
securities and bonds of government sponsored agencies with maturities of less
than one year. Pursuant to Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities",
available-for-sale securities are carried at fair value, based on quoted
market prices, with unrealized gains and losses, reported as a separate
component of stockholders' equity. The Company has classified all of its
short-term investments at December 31, 2001 as available-for-sale and at
December 31, 2000 and 2001, unrealized gains and losses were immaterial.
Realized gains and losses during 1999, 2000 and 2001 were immaterial. For the
purpose of determining realized gains and losses, the costs of the securities
sold is based upon specific identification.

Marketable Securities

   At December 31, 2001, marketable securities consisted of an investment in
the common stock of Medical Advisory Systems (MAS), a publicly traded company.
Pursuant to SFAS No. 115, available-for-sale

                                      F-8
<PAGE>

securities are carried at fair value, based on quoted market prices, with
unrealized gains and losses reported as a separate component of stockholders'
equity.

   In March 2000, the Company made an investment of $5.8 million for a 10%
equity ownership in MAS. The Company has classified its investment in MAS as
available-for-sale and, as of December 31, 2000, an unrealized loss of
$2,042,000, net of tax, was reported as a separate component of stockholders'
equity. In March 2001, in accordance with SFAS No. 115, management determined
the decline in the fair value of MAS common stock to be other than temporary,
and as a result wrote down the cost basis of the MAS investment to $2,029,000,
which was the market value of the MAS common stock held on March 31, 2001. In
connection with this write-down, an investment asset impairment charge of
$3,746,000 was recorded during the quarter ended March 31, 2001. As of
December 31, 2001, the market value of the Company's investment in MAS stock
exceeded its cost basis by $665,000.

   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.

Investments in Non-Marketable Securities

   In July 1998, the Company paid $1.0 million for a minority equity position
in AmericasDoctor.com, Inc. This investment is accounted for under the cost
method. In 1999, in connection with the merger of AmericasDoctor.com, Inc.
with Affiliated Research Centers, Inc. (Affiliated Research), the Company
invested an additional $1.5 million in AmericasDoctor.com, Inc. During 2000,
the carrying value of the Company's investment was reduced by $200,000 as the
result of proceeds received to buy out the Company's exclusive right to
patient data under the original investment agreement. In March 2001, in
accordance with Accounting Principles Board (APB) No. 18, "The Equity Method
of Accounting for Investments in Common Stock", management determined that a
decrease in the 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 to
$1,076,000. In connection with this write-down, an investment asset impairment
charge of $1,224,000 was recorded during the quarter ended March 31, 2001. In
December 2001, management determined that an additional decrease in the 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 to $509,000. In
connection with this write-down, an asset impairment charge of $566,000 was
recorded during the quarter ended December 31, 2001.

   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.

   In 1999, the Company entered into a two-year, $4.6 million consulting
contract with AmericasDoctor.com, Inc. Under the terms of the contract, the
Company provided consulting services to enhance AmericasDoctor.com, Inc.'s
ability to effectively support patient identification, recruitment and
referral to clinical investigational sites for both the Company and other
companies in the pharmaceutical, biotechnology and medical device industries.
During each of the years ended December 31, 1999 and 2000, the Company
recognized net revenues of $2.3 million, under this consulting agreement.

   In 2000, the Company made an investment in INNX, Inc. (INNX) of $150,000 for
2,706 shares of Series A preferred stock. In December 2001, in accordance with
APB No. 18, management determined that a decrease in the value of the
investment occurred that was deemed to be other than temporary, and as a
result wrote off the entire cost basis of the investment. In connection with
this write-off, an investment asset impairment charge of $150,000 was recorded
during the quarter ended December 31, 2001.

                                      F-9
<PAGE>

Property and Equipment

   Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets ranging
from three to five years. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful life of the
asset or the remaining lease term. Repair and maintenance costs are expensed
as incurred. Improvements and betterments are capitalized. Internal use
software development costs are capitalized in accordance with Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", (SOP 98-1). SOP 98-1 allows for the capitalization
of costs related to the development and implementation of software obtained
for internal use including materials, payroll and interest costs once the
criteria of the SOP have been met. As of December 31, 2000 and 2001,
$1,323,000 and $2,356,000, respectively, of these related costs had been
capitalized. Gains or losses on the disposition of property and equipment are
included in operations. Depreciation expense was $1,851,000, $1,446,000 and
$1,459,000 for the years ended December 31, 1999, 2000 and 2001, respectively.

Goodwill

   Goodwill is amortized using the straight-line method over eight years and is
net of accumulated amortization of $1,336,000 and $1,652,000 as of December
31, 2000 and 2001, respectively. The related amortization expense was $316,000
for the years ended December 31, 1999, 2000 and 2001. See Recent Pronouncements.

Long-lived Assets

   The Company continually evaluates whether later events and circumstances
have occurred that indicate the remaining estimated useful life may warrant
revision or that the remaining balance of long-lived assets may not be
recoverable. If factors indicate that long-lived assets should be evaluated
for possible impairment, the Company would use an estimate of the related
undiscounted cash flows in measuring whether long-lived assets should be
written down to their fair value, in accordance with SFAS No. 121 "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". Management believes that there has been no impairment of long-lived
assets as of December 31, 2001.

Accrued Expenses

   Included in accrued expenses at December 31, 2000 and 2001 was accrued
compensation of $1,488,000 and $1,123,000, respectively.

Software Development Costs

   Research and development expenditures are charged to operations as incurred.
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed", requires the capitalization of certain software
development costs subsequent to the establishment of technological
feasibility. The Company has determined that technological feasibility for its
products is generally achieved upon completion of a working model. Since
software development costs have not been significant after the completion of a
working model, all such costs have been charged to expense as incurred.

Advertising Costs

   The Company expenses advertising costs as incurred. Advertising expense for
the years ended December 31, 1999, 2000 and 2001 was $481,000, $854,000 and
$916,000, respectively.

Income Taxes

   Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

                                      F-10
<PAGE>

Supplemental Cash Flow Information

   The Company paid approximately $60,000, $1,912,000 and $887,000 for income
taxes in the years ended December 31, 1999, 2000 and 2001, respectively.

   During the year ended December 31, 2001, the Company acquired $507,000 of
property and equipment through the execution of capital leases.

   The following table displays the net non-cash assets that were
deconsolidated as a result of the Company's 1999 business divestiture (see
Note 2):

                                                       Year Ended December 31,
                                                                1999
                                                       -----------------------
   Non-cash assets/liabilities:
    Accounts receivable.............................         $ 4,167,000
    Note receivable.................................          (8,000,000)
    Property and equipment..........................           1,778,000
    Accounts payable................................            (208,000)
    Accrued expenses................................              95,000
    Deferred revenues...............................          (1,682,000)
                                                             -----------
                                                              (3,850,000)
    Gain on sale of the domestic CRO operations.....           4,850,000
                                                             -----------
    Net cash received in divestiture................         $ 1,000,000
                                                             ===========

Interest Income, Net

   Interest income, net consists primarily of earnings on cash, cash
equivalents and short-term investments.

Concentration of Credit Risk and Significant Customers

   Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade accounts receivable from companies
operating in the pharmaceutical, biotechnology and medical device industries.
For the year ended December 31, 2000, no single client accounted for greater
than 10% of net revenues. For each of the years ended December 31, 1999 and
2001, one client accounted for 11.1% of net revenues. The loss of any such
client could have a material adverse effect on the Company's operations. The
Company maintains reserves for potential credit losses and such losses, in the
aggregate, have not historically exceeded management's expectations.

Translation of Foreign Financial Statements

   Assets and liabilities of the Company's UK subsidiary are translated at the
exchange rate as of the end of each reporting period. The income statement is
translated at the average exchange rate for the period. Cumulative adjustments
from translating the UK financial statements are immaterial.

Net Income (Loss) per Common Share

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

                                      F-11
<PAGE>

   The table below sets forth the reconciliation of the numerators and
denominators of the basic and diluted net income per share computations.

<TABLE>
<CAPTION>
                                                          Net                     Per Share
Year Ended December 31,                              Income (Loss)     Shares       Amount
-----------------------                              -------------    ---------   ---------
<S>                                                  <C>              <C>         <C>
1999
Basic net income.................................     $ 5,280,000     7,007,000     $ 0.75
Effect of dilutive shares........................              --       108,000      (0.01)
                                                      -----------     ---------     ------
Diluted net income...............................     $ 5,280,000     7,115,000     $ 0.74
                                                      ===========     =========     ======
2000
Basic net income.................................     $   120,000     6,956,000     $ 0.02
Effect of dilutive shares........................              --       185,000         --
                                                      -----------     ---------     ------
Diluted net income...............................     $   120,000     7,141,000     $ 0.02
                                                      ===========     =========     ======
2001
Basic net loss...................................     $(3,774,000)    6,945,000     $(0.54)
Effect of dilutive shares........................              --            --         --
                                                      -----------     ---------     ------
Diluted net loss.................................     $(3,774,000)    6,945,000     $(0.54)
                                                      ===========     =========     ======
</TABLE>

   In computing diluted net income (loss) per share, 210,102, 195,475 and
1,248,425 options to purchase shares of common stock were excluded from the
computations for the years ended December 31, 1999, 2000 and 2001,
respectively. The options were excluded from the 1999 and 2000 computations
because the exercise prices of such options were greater than the average
market price of the Company's common stock during the respective periods. The
options were excluded from the 2001 computation because their effect would be
anti-dilutive.

Comprehensive Income

   SFAS No. 130, "Reporting Comprehensive Income", requires companies to
classify items of other comprehensive income by their nature in the financial
statements and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of a balance sheet. The Company's comprehensive income includes net
income and unrealized gains and losses from foreign currency translation and
marketable securities. The unrealized gains and losses from foreign currency
translation were immaterial as of December 31, 2000 and 2001. For the year
ended December 31, 2000, the Company recorded an unrealized loss of
$2,042,000, net of tax of $1,361,000, from its investment in marketable
securities. For the year ended December 31, 2001, the Company recorded an
unrealized gain of $665,000 from its investment in marketable securities.

Recent Pronouncements

   In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" (SFAS 141), and SFAS No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). They also issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" (SFAS 144), in October 2001.

   SFAS 141 requires all business combinations initiated after June 30, 2001 be
accounted for under the purchase method of accounting. SFAS 141 supersedes APB
Opinion No. 16, "Business Combinations", and SFAS No. 38, "Accounting for
Preacquisition Contingencies of Purchased Enterprises", and is effective for
all business combinations initiated after June 30, 2001.

   SFAS 142 addresses the financial accounting and reporting for acquired
goodwill and other intangible assets. Under the new rules, the Company is no
longer required to amortize goodwill and other intangible assets with
indefinite lives, but will be subject to periodic testing for impairment. SFAS
142 supersedes APB Opinion No. 17, "Intangible Assets." The Company adopted
SFAS 142 effective January 1, 2002 and implemented certain provisions,
specifically the discontinuation of goodwill amortization. During the year
ended December 31, 2001, the Company recorded $316,000 of annual goodwill
amortization. The Company

                                      F-12
<PAGE>

does not believe that the implementation of the remaining provisions of SFAS
142 will have a material impact on its consolidated results of operations or
financial position.

   SFAS 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
to be Disposed Of" (SFAS 121), and APB Opinion No. 30, "Reporting the Results
of Operations -- Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". The provisions of SFAS 144 are effective in fiscal years
beginning after December 15, 2001. The Company will adopt SFAS 144 on January
1, 2002 and does not expect that the adoption will have a material impact on
its consolidated results of operations or financial position.

2. Sale of the Domestic CRO Operation

   On December 31, 1999, the Company sold the business and certain of the
assets of its domestic CRO operation (the "Division"), which consisted of
clinical trial management and clinical data management operations. The Company
received cash consideration of $1,000,000 on December 31, 1999, and $8,000,000
on January 31, 2000, with additional consideration, if any, payable over time,
subject to adjustments and earn-outs. In addition, certain specific
liabilities of the Division were assumed by the buyer as part of the
transaction. After recognizing related professional fees, a pre-tax gain of
$4,850,000 was included in the statement of operations for the year ended
December 31, 1999 as a result of this disposition. During the years ended
December 31, 2000 and 2001, the Company recognized additional pre-tax gain of
$2,114,000 and $1,422,000, respectively, related to the disposition. An amount
receivable from escrow of $1,616,000 was included in prepaid expenses and
other in the accompanying consolidated balance sheets as of December 31, 2000.
During the first quarter of 2002, the Company expects to finalize the
accounting for the disposition related to certain earn-outs and record any
final adjustment at that time.

3. Accounts Receivable

                                                          December 31,
                                                    ------------------------
                                                       2000          2001
                                                    ----------    ----------
      Billed ....................................   $7,147,000    $5,822,000
      Unbilled ..................................      497,000       528,000
      Allowance for doubtful account ............     (833,000)     (450,000)
                                                    ----------    ----------
                                                    $6,811,000    $5,900,000
                                                    ==========    ==========

4. Property and Equipment

                                                         December 31,
                                                  --------------------------
                                                      2000          2001
                                                  -----------    -----------
      Computer and other equipment ............   $ 4,695,000    $ 8,043,000
      Furniture and fixtures ..................     1,656,000      2,252,000
      Leasehold improvements ..................     1,258,000      1,421,000
      System development costs ................     1,323,000      2,356,000
                                                  -----------    -----------
                                                    8,932,000     14,072,000
      Less-Accumulated depreciation ...........    (4,503,000)    (5,962,000)
                                                  -----------    -----------
                                                  $ 4,429,000    $ 8,110,000
                                                  ===========    ===========

5. Line of Credit

   The Company has a line of credit with a bank, through June 30, 2002, that
provides for borrowings up to $3 million at an interest rate of prime minus 35
basis points. The line of credit agreement includes certain covenants, the
most restrictive of which limit future indebtedness and require compliance
with a liabilities-to-tangible net worth ratio. To date, the Company has not
borrowed any amounts under its line of credit.

                                      F-13
<PAGE>

6. Income Taxes

   The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                             -------------------------------------
                                                                1999         2000          2001
                                                             ----------    ---------   -----------
   <S>                                                       <C>           <C>         <C>
   Current provision (benefit):
    Federal ..............................................   $1,523,000    $(793,000)  $  (133,000)
    State and local ......................................      671,000           --            --
    Foreign ..............................................      128,000      522,000       219,000
                                                             ----------    ---------   -----------
                                                              2,322,000     (271,000)       86,000
                                                             ----------    ---------   -----------
   Deferred provision (benefit):
    Federal ..............................................      955,000      448,000      (198,000)
    State and local ......................................      243,000     (139,000)   (1,002,000)
                                                             ----------    ---------   -----------
                                                              1,198,000      309,000    (1,200,000)
                                                             ----------    ---------   -----------
                                                              3,520,000       38,000    (1,114,000)
   Increase in valuation allowance .......................           --      284,000     1,002,000
                                                             ----------    ---------   -----------
                                                             $3,520,000    $ 322,000   $  (112,000)
                                                             ==========    =========   ===========
</TABLE>

   Foreign income before income taxes was $414,000, $1,716,000 and $730,000 for
the years ended December 31, 1999, 2000 and 2001, respectively.

   The reconciliation between income taxes at the federal statutory rate and
the amount recorded in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                    -------------------------------------
                                                                       1999         2000          2001
                                                                    ----------    ---------   -----------
   <S>                                                              <C>           <C>         <C>
   Tax at federal statutory rate ................................   $2,992,000    $ 328,000   $(1,282,000)
   Increase in valuation allowance ..............................           --      284,000     1,002,000
   State and local taxes, net of federal ........................      581,000      (92,000)   (1,002,000)
   Change in effective rate for deferred assets .................           --           --       486,000
   Federal tax credits ..........................................           --           --      (807,000)
   Investment asset impairment not benefited ....................           --           --     1,933,000
   Foreign pre-tax income .......................................      (12,000)     (51,000)      (29,000)
   Tax-free interest income .....................................      (79,000)    (156,000)      (75,000)
   Other ........................................................       38,000        9,000      (338,000)
                                                                    ----------    ---------   -----------
                                                                    $3,520,000    $ 322,000   $  (112,000)
                                                                    ==========    =========   ===========
</TABLE>

   The components of the Company's net deferred tax asset are as follows:

                                                      Year Ended December 31,
                                                      -----------------------
                                                        2000          2001
                                                     ----------    ----------
    Goodwill amortization .........................  $2,699,000    $2,166,000
    Unrealized loss on marketable securities ......   1,361,000            --
    Federal tax credit carryforwards ..............          --       807,000
    Depreciation ..................................      (7,000)     (483,000)
    Reserves and accruals .........................     549,000       313,000
                                                     ----------    ----------
                                                     $4,602,000    $2,803,000
                                                     ==========    ==========

   At December 31, 2001, the Company had net operating loss carry-forwards for
state tax purposes of approximately $16.0 million, which will begin to expire
in 2007. A valuation allowance has been provided for the deferred tax asset
related to the Company's state net operating loss carry-forwards because of
the uncertainty of their realization. At December 31, 2001, the Company had
alternative minimum tax credit carryforwards of $105,000, which have no
expiration date, and research and development tax credits of $702,000, which
begin to expire in 2018.

                                      F-14
<PAGE>

7. Related Party Transactions

   In August 1999, the Company, pursuant to its share repurchase program, used
$1,932,000 to repurchase 322,000 shares of Common Stock from UM Holdings Ltd.
(UM) at a price of $6 per share.

   The Company's Chairman and, until March 1, 2001, Chief Executive Officer,
who is a stockholder, is a cardiologist who, in addition to his role as an
executive officer of the Company during 1999, 2000 and 2001, provided medical
services to the Company as an independent contractor through his wholly-owned
professional corporation (see Note 9). Fees incurred under this consulting
arrangement approximated $156,000, $156,000 and $255,000 for the years ended
December 31, 1999, 2000 and 2001, respectively. In addition, at December 31,
2000 and 2001, $52,000 and $45,000, respectively, was owed to the professional
corporation in connection with the consulting agreement. The Company entered
into a new consulting agreement with the professional corporation in May 2001
(see Note 9).

   The Company recognized license fee revenues associated with an agreement
with MAS of approximately $800,000 during the year ended December 31, 2000
which were included in the Company's consolidated license revenues.
Additionally, $135,000 and $180,000 of software maintenance service revenues
were recognized in the years ended December 31, 2000 and 2001, respectively,
which were included in the Company's consolidated services revenues (see Note
1).

   A director of the Company is a partner of the law firm of Duane Morris LLP,
which performs legal services for the Company. Fees paid by the Company for
such services were $19,000, $418,000 and $84,000 for the years ended December
31, 1999, 2000 and 2001, respectively.

8. Stock Option Plans

   In August 1993, the Company established a nonqualified stock option plan
(the "1993 Plan") authorizing the grant of options to acquire up to 1,100,500
shares of the Company's common stock. The purpose of the 1993 Plan was to
provide an incentive for key individuals to advance the success of the
Company. The options cover the purchase of common stock of the Company at
exercise prices determined by the Board of Directors which were initially set
at or above current fair value. Options granted under the 1993 Plan became
fully vested 90 days after the Company's 1997 initial public offering and
expire five years from the initial public offering date. No additional options
may be granted under this plan.

   In 1996, the Company adopted a new stock option plan (the "1996 Plan") that
authorized the grant of both incentive and non-qualified options to acquire up
to 500,000 shares of the Company's common stock. The Company's Board of
Directors determines the exercise price of the options under the 1996 Plan.
The exercise price of incentive stock options may not be below fair value on
the grant date. Incentive stock options under the 1996 Plan expire ten years
from the grant date and are exercisable in accordance with vesting provisions
set by the Board, generally over four to five years.

   In May 1999, the shareholders approved an amendment to the 1996 Stock Option
Plan and increased the number of shares which could be granted under the Plan
by 600,000 to 1,100,000 and provided for an annual option grant of 5,000
shares to each outside director. In April 2001, the shareholders approved an
amendment to the 1996 Stock Option Plan that increased the number of shares
which could be granted under the Plan by 300,000 to 1,400,000.

   In 2000, eRT OC adopted a stock option plan (the "Sub Plan") that authorized
the grant of both incentive and non-qualified options to acquire up to
2,000,000 shares of eRT OC's common stock. eRT OC's Board of Directors
determines the exercise price of the options under the Sub Plan. The exercise
price of incentive stock options may not be below fair value on the grant
date. Incentive stock options under the Sub Plan expire ten years from the
grant date and are exercisable in accordance with vesting provisions set by
the Board. In contemplation of the merger with and into the Company, eRT OC's
Board terminated the Sub Plan on December 17, 2001. All outstanding options,
not otherwise exercised, were forfeited on this date. There were no options
exercised under the Sub Plan prior to such termination and no further grants
will be issued.

                                      F-15
<PAGE>

   Information with respect to outstanding options under the Company's plans,
exclusive of the Sub Plan, is as follows:

                                                 Outstanding     Option Price
                                                    Shares        Per Share
                                                 -----------    --------------
   Balance, December 31, 1998 ................      673,500     $ 2.270-13.125
    Granted ..................................      181,500        5.500-9.380
    Exercised ................................     (172,632)       2.270-6.625
    Cancelled ................................     (134,745)      3.750-13.125
                                                  ---------     --------------
   Balance, December 31, 1999 ................      547,623       2.270-13.125
    Granted ..................................      314,500      10.000-17.813
    Exercised ................................      (80,535)      2.270-13.125
    Cancelled ................................      (37,176)      2.270-13.125
                                                  ---------     --------------
   Balance, December 31, 2000 ................      744,412       2.270-17.813
    Granted ..................................      552,113       4.350-11.350
    Exercised ................................      (20,000)      6.000-10.000
    Cancelled ................................      (28,100)      4.350-17.813
                                                  ---------     --------------
   Balance, December 31, 2001 ................    1,248,425     $ 2.270-16.250
                                                  =========     ==============

   As of December 31, 2001, 446,825 options with a weighted average exercise
price of $8.83 per share were exercisable and 125,297 options were available
for future grants under the 1996 Plan.

   Information with respect to outstanding options under the Sub Plan is as
follows:

                                                   Outstanding    Option Price
                                                      Shares       Per Share
                                                   -----------    ------------
   Balance, December 31, 1999 ..................            --       $   --
    Granted ....................................     1,602,750        15.00
    Cancelled ..................................       (16,400)       15.00
                                                    ----------       ------
   Balance, December 31, 2000 ..................     1,586,350        15.00
    Granted ....................................            --           --
    Cancelled ..................................    (1,586,350)       15.00
                                                    ----------       ------
   Balance, December 31, 2001 ..................            --       $   --
                                                    ==========       ======

   The following table summarizes information about stock options outstanding
at December 31, 2001:

<TABLE>
<CAPTION>
                                           Outstanding                      Exercisable
                               ------------------------------------    ---------------------
                                              Weighted
                                              Average
                                             Remaining     Weighted                 Weighted
                                              Years of     Average                  Average
      Range of                   Number     Contractual    Exercise     Number      Exercise
      Exercise Prices          of Options       Life        Price     of Options     Price
      ---------------          ----------   -----------    --------   ----------    --------
      <S>                      <C>          <C>            <C>        <C>           <C>
      $1.00 - $4.99              152,322        7.1         $ 3.84       71,122      $ 3.29
      $5.00 - $9.99              698,553        8.2           6.56      179,270        6.40
      $10.00 - $14.99            337,550        7.8          11.62      143,933       11.89
      $15.00 - $19.99             60,000        8.4          16.19       52,500       16.23
                               ---------                                -------
                               1,248,425                                446,825
                               =========                                =======
</TABLE>

   The Company accounts for its option grants under APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and the related interpretations.
Had compensation cost for the Company's stock option plans been determined
based upon the fair value of the options at the date of grant, as prescribed
under SFAS No. 123, "Accounting for Stock-based Compensation," the Company's
net income and basic and diluted net income per share would have been adjusted
to the following pro forma amounts:

                                      F-16
<PAGE>

<TABLE>
<CAPTION>
                                                                     Year Ended December 31
                                                            ---------------------------------------
                                                               1999          2000           2001
                                                            ----------    -----------   -----------
<S>                                                         <C>           <C>           <C>
Net income (loss):
 As reported............................................    $5,280,000    $   120,000   $(3,774,000)
 Pro forma..............................................     5,137,000     (1,136,000)   (6,045,000)
Basic net income (loss) per share:
 As reported............................................          0.75           0.02         (0.54)
 Pro forma..............................................          0.73          (0.16)        (0.87)
Diluted net income (loss) per share:
 As reported............................................          0.74           0.02         (0.54)
 Pro forma..............................................          0.72          (0.16)        (0.87)
</TABLE>

   The weighted average fair value per share of the Company's options granted
during 1999, 2000 and 2001, exclusive of the Sub Plan, was estimated as $2.56,
$7.44, and $3.97, respectively. The weighted average fair value per share of
the Sub Plan options granted during 2000 was estimated as $5.92. The fair
value of each option grant is estimated on the date of grant using the Black-
Scholes option-pricing model with the following weighted average assumptions:

                                                 1999      2000       2001
                                               -------    -------   -------
Risk-free interest rate....................       5.70%      6.58%     4.65%
Expected dividend yield....................       0.00%      0.00%     0.00%
Expected life..............................    3 years    3 years   3 years
Expected volatility........................      55.00%     89.60%    93.68%

   The effects of applying SFAS No. 123 in the pro forma disclosure may not be
representative of future disclosures since the estimated fair value of stock
options is amortized to expense over the vesting period and additional options
may be granted in future years.

9. Commitments and Contingencies

Leases

   The Company leases office space and certain equipment. While the majority of
the leases are operating leases, certain diagnostic equipment is leased under
capital leases. During the year ended December 31, 1998, the Company leased
its primary operating facility from UM under a lease agreement executed in
June 1996 that was to expire in September 2003. The Company terminated the
facility lease with UM, without penalty, on January 3, 1999 and moved into a
new facility under a lease agreement with a sublandlord that expires in August
2005. Rent expense for all operating leases for the years ended December 31,
1999, 2000 and 2001 was $1,579,000, $910,000, and $1,355,000, respectively. In
connection with the sale of the domestic CRO operations, the Company entered
into a sub-sublease agreement with the buyer to lease approximately two-thirds
of its new facility through August 2005. In 2001, this sublease agreement was
renegotiated with the buyer to lease approximately one-half of the facility
through August 2005. In May 2001, the sublandlord filed bankruptcy proceedings
under Chapter 11 of 18 U.S.C. ss.1111 et. seq. In October 2001, the Company
entered into an agreement with 17th Ludlow Property, L.L.C. (Ludlow), the
building owner, and attorned to and recognized Ludlow as the sublandlord for
the unexpired balance of the term of the sublease for approximately one-half
of the facility. The buyer entered into a separate attornment agreement with
Ludlow for the balance of the facility. Such recognition of attornment became
effective in February 2002, at which time the sublandlord rejected the
sublease with the Company under Section 365 of the Bankruptcy Code.

   In 1999, the Company entered into a lease for a facility in Bridgewater, New
Jersey, which commenced on May 1, 1999 and expires on April 30, 2006. In 2000,
the Company entered into a sublease agreement with a third party to lease this
facility, which commenced on February 1, 2001 and expires on April 30, 2006.
Also, in 1999, the Company entered into a lease for a facility in
Peterborough, United Kingdom, which commenced on October 1, 1999 and expires
on September 30, 2004.

                                      F-17
<PAGE>

   In 2000, the Company entered into a lease for a new facility in Bridgewater,
New Jersey, which commenced on February 1, 2001 and expires on January 31,
2011.

   Future minimum lease payments as of December 31, 2001 are as follows:

<TABLE>
<CAPTION>
                                                                                                 Gross
                                                                                  Capital      Operating     Sublease
                                                                                   Leases       Leases        Income
                                                                                 ---------    -----------   ----------
<S>                                                                              <C>          <C>           <C>
2002.........................................................................    $ 194,000    $ 2,638,000   $  852,000
2003.........................................................................      194,000      2,546,000      852,000
2004.........................................................................      178,000      2,410,000      857,000
2005.........................................................................           --      1,893,000      677,000
2006.........................................................................           --        985,000      104,000
2007 and thereafter..........................................................           --      3,830,000           --
                                                                                 ---------    -----------   ----------
                                                                                 $ 566,000    $14,302,000   $3,342,000
                                                                                              ===========   ==========
Less imputed interest........................................................      (71,000)
                                                                                 ---------
Net present value of capital lease obligations...............................      495,000
Less current installments....................................................     (155,000)
                                                                                 ---------
Long-term capital lease obligations, excluding current installments..........    $ 340,000
                                                                                 =========
</TABLE>

Royalties

   In 1997, the Company entered into a development agreement, as amended, that
provides for royalty-based payments on two of the Company's software products.
The agreement provides for a 5% royalty on certain net license revenues during
a three-year period, not to exceed total royalties of $775,000. During 1999,
2000 and 2001, the Company charged $131,000, $149,000 and $8,500,
respectively, to expense under this agreement. The royalty agreement was
terminated on October 25, 2001.

Agreements with the Company's Management

   In addition to an employment agreement with the Company's Chairman and Chief
Scientist, the Company entered into a consulting agreement with the Chairman
and Chief Scientist's wholly-owned professional corporation for a one-year
period commencing May 21, 2001, which is automatically renewable on an annual
basis. Either party may terminate the agreement at any time, with or without
cause. The consulting agreement relates to the Chairman and Chief Scientist's
capacity as a medical doctor and cardiologist and, among other things,
requires the Chairman and Chief Scientist to advise the Company on matters
related to the successful operation, marketing and business development of the
Company's Diagnostic services operations. Compensation under the consulting
agreement is $180,000 per year plus discretionary bonuses of $48,000 per year.
The Board of Directors, at its discretion, can award additional bonus amounts.

   The Company maintains employment agreements with certain of its executive
officers. Either the Company or the employee may terminate the employment
agreements at any time, with or without cause. However, if the Company
terminates the employment agreements without cause, the Company must continue
to pay certain salaries for up to a one-year period subsequent to termination.

Contingencies

   The Company is involved in legal proceedings from time to time in the
ordinary course of its business. Management believes that none of these legal
proceedings will have a material adverse effect on the financial condition or
results of operations of the Company.

                                      F-18
<PAGE>

10. Operating Segments and Geographic Information

   The Company's operating segments are strategic business units that offer
different products and services to a common client base. The Company's
products and services are provided both in the United States and
internationally through two reportable business segments: Diagnostics
Technology and Services, which includes clinical research support services,
clinical trial management services and clinical data management services; and
Clinical Research Technology and Services, which includes software sales and
support and consulting services. Identifiable assets not allocated to
reportable segments are reported as Other.

   In 1999, one client accounted for 15.5% of Diagnostics Technology and
Services net revenues and three clients accounted for 25.9%, 19.1% and 11.7%,
respectively, of Clinical Research Technology and Services net revenues. In
2000, two clients accounted for 12.9% and 11.2% of Diagnostics Technology and
Services net revenues, respectively, and three clients accounted for 17.7%,
17.1%, and 10.6%, respectively, of Clinical Research Technology and Services
net revenues. In 2001, three clients accounted for 15.7%, 12.4%, and 11.0% of
Diagnostics Technology and Services net revenues, respectively, and three
clients accounted for 14.6%, 13.1%, and 11.3%, respectively, of Clinical
Research Technology and Services net revenues.

   The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 1). The Company
evaluates performance based on the net revenues and operating earnings of the
respective business segments.

<TABLE>
<CAPTION>
                                                                        Year Ended December 31, 1999
                                                   -----------------------------------------------------------------------
                                                                            Clinical Research
                                                  Diagnostics Technology      Technology and
                                                       and Services              Services           Other         Total
                                                  ----------------------    -----------------    -----------   -----------
<S>                                               <C>                       <C>                  <C>           <C>
License revenues ..............................         $        --            $ 4,381,000       $        --   $ 4,381,000
Services revenues .............................          14,013,000              7,681,000                --    21,694,000
CRO operations revenues. ......................          16,710,000                     --                --    16,710,000
                                                        -----------            -----------       -----------   -----------
Net revenues from external customers ..........          30,723,000             12,062,000                --    42,785,000
Income (loss) from operations                              (755,000)             3,970,000                --     3,215,000
Identifiable assets ...........................           5,318,000              4,884,000        35,010,000    45,212,000
Depreciation and amortization .................           1,585,000                582,000                --     2,167,000
Capital expenditures ..........................           1,654,000                663,000                --     2,317,000
<CAPTION>
                                                                        Year Ended December 31, 2000
                                                   -----------------------------------------------------------------------
                                                                            Clinical Research
                                                  Diagnostics Technology      Technology and
                                                       and Services              Services           Other         Total
                                                  ----------------------    -----------------    -----------   -----------
<S>                                               <C>                       <C>                  <C>           <C>
License revenues ..............................         $        --            $ 5,189,000       $        --   $ 5,189,000
Services revenues .............................          14,607,000              8,271,000                --    22,878,000
                                                        -----------            -----------       -----------   -----------
Net revenues from external customers ..........          14,607,000             13,460,000                --    28,067,000
Loss from operations ..........................            (113,000)            (2,806,000)               --    (2,919,000)
Identifiable assets ...........................           7,827,000              6,502,000        39,635,000    53,964,000
Depreciation and amortization .................           1,013,000                749,000                --     1,762,000
Capital expenditures ..........................           2,690,000                480,000                --     3,170,000
</TABLE>

                                      F-19
<PAGE>

<TABLE>
<CAPTION>
                                                             Year Ended December 31, 2001
                                        -----------------------------------------------------------------------
                                                                 Clinical Research
                                        Diagnostics Technology     Technology and
                                             and Services             Services           Other         Total
                                        ----------------------   -----------------    -----------   -----------
<S>                                     <C>                      <C>                  <C>           <C>
License revenues....................         $        --            $ 1,372,000       $        --   $ 1,372,000
Services revenues...................          19,617,000              7,008,000                --    26,625,000
                                             -----------            -----------       -----------   -----------
Net revenues from external customers          19,617,000              8,380,000                --    27,997,000
Income (loss) from operations.......           3,583,000             (4,030,000)               --      (447,000)
Identifiable assets.................          11,284,000              5,279,000        24,437,000    41,000,000
Depreciation and amortization.......             898,000                877,000                --     1,775,000
Capital expenditures................           3,451,000              1,179,000                --     4,630,000
</TABLE>

   The Company operates on a worldwide basis with two locations in the United
States and one location in the United Kingdom.

   Geographic information is as follows:

<TABLE>
<CAPTION>
                                                              Year Ended December 31, 1999
                                                        ---------------------------------------
                                                           North
                                                          America        Europe        Total
                                                        -----------    ----------   -----------
<S>                                                     <C>            <C>          <C>
License revenues.....................................   $ 4,381,000    $       --   $ 4,381,000
Services revenues....................................    17,004,000     4,690,000    21,694,000
CRO operations revenues..............................    15,993,000       717,000    16,710,000
                                                        -----------    ----------   -----------
Net revenues from external customers.................    37,378,000     5,407,000    42,785,000
Income (loss) from operations........................     3,718,000      (593,000)    3,215,000
Identifiable assets..................................    44,811,000       401,000    45,212,000
<CAPTION>
                                                               Year Ended December 31, 2000
                                                         ---------------------------------------
                                                            North
                                                           America        Europe        Total
                                                         -----------    ----------   -----------
<S>                                                      <C>            <C>          <C>
License revenues.....................................    $ 4,846,000    $  343,000   $ 5,189,000
Services revenues....................................     17,473,000     5,405,000    22,878,000
                                                         -----------    ----------   -----------
Net revenues from external customers.................     22,319,000     5,748,000    28,067,000
Income (loss) from operations........................     (4,632,000)    1,713,000    (2,919,000)
Identifiable assets..................................     52,004,000     1,960,000    53,964,000
<CAPTION>
                                                               Year Ended December 31, 2001
                                                         ---------------------------------------
                                                            North
                                                           America        Europe        Total
                                                         -----------    ----------   -----------
<S>                                                      <C>            <C>          <C>
License revenues.....................................    $ 1,282,000    $   90,000   $ 1,372,000
Services revenues....................................     20,701,000     5,924,000    26,625,000
                                                         -----------    ----------   -----------
Net revenues from external customers.................     21,983,000     6,014,000    27,997,000
Income (loss) from operations                             (1,161,000)      714,000      (447,000)
Identifiable assets..................................     39,201,000     1,799,000    41,000,000
</TABLE>

11. Sale and Redemption of eRT OC Preferred Stock and Issuance of Common Stock
    Warrants

   On March 24, 2000, eRT OC sold 95,000 shares of its convertible preferred
stock to Communicade, Inc. for total gross proceeds of $9.5 million and
agreed, if eRT OC consummated an initial public offering of its stock, to
issue a warrant to Communicade, Inc. to purchase 2.5% of eRT OC's outstanding
common stock. The preferred stock would have automatically converted into
common stock upon consummation of an eRT OC initial public offering. On March
27, 2000, eRT OC issued a warrant to purchase eRT OC's common stock to Scirex
Corporation. The warrant entitled Scirex Corporation to purchase the number of
common

                                      F-20
<PAGE>

shares equal to $1.0 million divided by eRT OC's initial public offering price
per share, at an exercise price per share equal to the initial public offering
price per share and would have been exercisable for a two year period
following consummation by eRT OC of an initial public offering of its common
stock. On March 1, 2001, eRT OC withdrew the registration statement associated
with its initial public offering, and the Company repurchased the eRT OC
convertible preferred stock sold to Communicade, Inc. for the original
purchase price of $9.5 million plus $639,000 in accrued dividends. Following
the merger of eRT OC with and into the Company, the separate legal existence
of eRT OC ceased, thereby preventing eRT OC from ever consummating an initial
public offering. As a result, the Company believes that there will never be an
obligation to issue a warrant to Communicade, Inc. and that the warrant issued
to Scirex Corporation is effectively null and void because it will never
become exercisable and neither the exercise price per share nor the number of
shares subject to the warrant will ever be established.

12. Quarterly Financial Data (Unaudited)
    (in thousands, except per share data)

   The quarterly data below includes all adjustments (consisting only of normal
recurring adjustments with the exception of those indicated below) that the
Company considers necessary for a fair presentation.

<TABLE>
<CAPTION>
                                                     March 31,           June 30,         September 30,       December 31,
                                                   2001      2000     2001      2000     2001      2000      2001      2000
                                                 -------    ------   ------    ------   ------    ------    ------   -------
<S>                                              <C>        <C>      <C>       <C>      <C>       <C>       <C>      <C>
Net revenues .................................   $ 5,894    $6,081   $6,958    $7,061   $7,331    $8,071    $7,814   $ 6,854
Gross margin .................................     2,674     2,902    3,789     3,619    4,168     4,389     4,402     3,140
Operating income (loss) (a) ..................    (1,233)     (627)    (100)     (550)     222      (283)      664    (1,459)
                                                 -------    ------   ------    ------   ------    ------    ------   -------
Net income (loss) (a) (b) ....................   $(5,447)   $ (213)  $   86    $   48   $  272    $ (230)   $1,315   $   515
                                                 -------    ------   ------    ------   ------    ------    ------   -------
Basic net income (loss) per share ............   $ (0.78)   $(0.03)  $ 0.01    $ 0.01   $ 0.04    $(0.03)   $ 0.19   $  0.07
Diluted net income (loss) per share ..........   $ (0.78)   $(0.03)  $ 0.01    $ 0.01   $ 0.04    $(0.03)   $ 0.19   $  0.07
</TABLE>

---------------
(a) Includes write-off of eRT OC registration costs of $782 in the quarter
    ended December 31, 2000 and gains on the sale of the Company's domestic CRO
    of $248, $1,866, $232 and $1,190 in the quarters ended June 30, 2000,
    December 31, 2000, March 31, 2001, and December 31, 2001, respectively.
(b) Includes investment asset impairment charges of $4,970 and $716 in the
    quarters ended March 31, 2001 and December 31, 2001, respectively.

                                      F-21
<PAGE>

                                  SCHEDULE II

                   eResearchTechnology, Inc. and Subsidiaries
                       VALUATION AND QUALIFYING ACCOUNTS
                        Allowance for Doubtful Accounts
                                 (in thousands)

<TABLE>
<CAPTION>
                                                         Balance                                    Balance
                                                      Beginning of    Charges to     Deductions       End
                                                         Period         Expense     from Reserve   of Period
                                                      ------------    ----------    ------------   ---------
<S>                                                   <C>             <C>           <C>            <C>
December 31, 1999 .................................       $243           $399           $217          $425

December 31, 2000 .................................       $425           $448           $ 40          $833

December 31, 2001 .................................       $833             --           $383          $450
</TABLE>


                                      F-22


</TEXT>
</DOCUMENT>