Edgar Filing: BIO IMAGING TECHNOLOGIES INC

Form 10-Q

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2006

¨	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. 1-11182

BIO-IMAGING TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

11-2872047

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

826 Newtown-Yardley Road, Newtown, Pennsylvania 18940-1721

(Address of Principal Executive Offices)

(267) 757-3000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: x No: ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Large accelerated filer: ¨ Accelerated filer: ¨ Non-accelerated filer: x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes: ¨ No: x

State the number of shares outstanding of each of the registrant’s classes of common stock, as of October 31, 2006:


Class		Number of Shares
Common Stock, $0.00025 par value		11,275,283

BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION.

Item 1.	Financial Statements	1

	CONSOLIDATED BALANCE SHEETS as of September 30, 2006 (unaudited) and December 31, 2005	2

	CONSOLIDATED STATEMENTS OF OPERATIONS For the Nine Months Ended September 30, 2006 and 2005 (unaudited)	3

	CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended September 30, 2006 and 2005 (unaudited)	4

	CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2006 and 2005 (unaudited)	5

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

	Results of Operations	20

	Business Segments	25

	Liquidity and Capital Resources	26

	Changes to Critical Accounting Policies and Estimates	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	30

PART II.	OTHER INFORMATION.

Item 1A.	Risk Factors	30

Item 6.	Exhibits	39

SIGNATURES		40

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PART I. FINANCIAL INFORMATION.

Item 1. Financial Statements.

References in this Form 10-Q to “Bio-Imaging,” “we,” “us,” or “our” refer to Bio-Imaging Technologies, Inc., a Delaware corporation, and its subsidiaries.

Certain information and footnote disclosures required under generally accepted accounting principles in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission, although we believe that such financial disclosures are adequate so that the information presented is not misleading in any material respect. The following consolidated financial statements should be read in conjunction with the year-end consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

The results of operations for the interim periods presented in this Form 10-Q are not necessarily indicative of the results to be expected for the entire fiscal year.

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	September 30, 2006			December 31, 2005
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	13,709,391		$	10,553,668
Accounts receivable, net		5,745,712			6,631,477
Prepaid expenses and other current assets		1,088,752			991,840
Deferred income taxes		2,179,476			715,217

Total current assets		22,723,331			18,892,202

Property and equipment, net		5,622,187			5,108,693

Intangibles and goodwill		2,296,008			2,518,812

Deferred income taxes		610,438			1,844,171

Other assets		495,998			427,055

Total assets	$	31,747,962		$	28,790,933

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	1,213,875		$	1,680,922
Accrued expenses and other current liabilities		2,728,563			2,026,612
Deferred revenue		8,868,420			6,255,027
Current maturities of capital lease obligations		557,540			874,267

Total current liabilities		13,368,398			10,836,828
Long-term capital lease obligations		173,573			551,494
Other liability		211,001			205,787

Total liabilities		13,752,972			11,594,109

Commitments and Contingencies

Stockholders’ equity:
Preferred stock- $.00025 par value; authorized 3,000,000 shares, 0 issued and outstanding at September 30, 2006 and at December 31, 2005		—			—
Common stock - $.00025 par value; authorized 18,000,000 shares, issued and outstanding 11,238,908 shares at September 30, 2006 and 11,167,737 shares at December 31, 2005		2,810			2,792
Additional paid-in capital		22,655,946			22,302,328
Accumulated deficit		(4,655,575	)		(5,046,718	)
Accumulated other comprehensive loss		(8,191	)		(61,578	)

Stockholders’ equity		17,994,990			17,196,824

Total liabilities and stockholders’ equity	$	31,747,962		$	28,790,933

See Notes to Consolidated Financial Statements

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	For the Nine Months Ended September 30,
	2006			2005
Service revenues	$	23,253,269		$	17,020,783
Reimbursement revenues		6,577,147			4,791,040

Total revenues		29,830,416			21,811,823

Cost and expenses:
Cost of revenues		21,163,729			18,382,610
General and administrative expenses		4,164,914			3,698,660
Sales and marketing expenses		4,247,477			3,508,565

Total cost and expenses		29,576,120			25,589,835

Income (Loss) from operations		254,296			(3,778,012	)
Interest income		393,349			128,419
Interest expense		(41,030	)		(84,286	)

Income (Loss) before income tax provision (benefit)		606,615			(3,733,879	)
Income tax provision (benefit)		215,472			(1,493,552	)

Net income (loss)	$	391,143		$	(2,240,327	)

Basic income (loss) per common share	$	0.03		$	(0.20	)

Weighted average number of common shares		11,197,985			11,100,261

Diluted income (loss) per common share	$	0.03		$	(0.20	)

Weighted average number of dilutive common equivalent shares		12,121,454			11,100,261

See Notes to Consolidated Financial Statements

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	For the Three Months Ended September 30,
	2006			2005
Service revenues	$	8,040,324		$	6,042,382
Reimbursement revenues		2,265,600			1,708,000

Total revenues		10,305,924			7,750,382

Cost and expenses:
Cost of revenues		7,115,423			6,208,387
General and administrative expenses		1,401,852			1,229,609
Sales and marketing expenses		1,358,641			1,196,256

Total cost and expenses		9,875,916			8,634,252

Income (Loss) from operations		430,008			(883,870	)
Interest income		146,904			50,213
Interest expense		(10,154	)		(21,621	)

Income (Loss) before income tax provision (benefit)		566,758			(855,278	)
Income tax provision (benefit)		200,082			(325,315	)

Net income (loss)	$	366,676		$	(529,963	)

Basic income (loss) per common share	$	0.03		$	(0.05	)

Weighted average number of common shares		11,213,887			11,146,059

Diluted income (loss) per common share	$	0.03		$	(0.05	)

Weighted average number of dilutive common equivalent shares		12,125,613			11,146,059

See Notes to Consolidated Financial Statements

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	For the Nine Months Ended September 30,
	2006			2005
Cash flows from operating activities:
Net income (loss)	$	391,143		$	(2,240,327	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,535,422			1,662,814
Provision for deferred income taxes		(274,874	)		(1,575,883	)
Bad debt provision (benefit)		1,245			(10,781	)
Sales leaseback deferred gains		—			14,683
Non-cash stock based compensation expense		200,630			1,142
Loss on foreign currency options		51,656			13,800
Changes in operating assets and liabilities:
Decrease in accounts receivable		884,520			1,817,790
Increase in prepaid expenses and other current assets		(81,104	)		(62,849	)
Increase in other assets		(68,943	)		(43,095	)
(Decrease) increase in accounts payable		(665,486	)		845,894
Increase (decrease) in accrued expenses and other current liabilities		837,025			(340,340	)
Increase in deferred revenue		2,613,393			1,627,500
Increase in other liabilities		5,214			70,103

Net cash provided by operating activities		5,429,841			1,780,451

Cash flows from investing activities:
Purchases of property and equipment		(1,627,672	)		(1,522,310	)

Net cash used in investing activities		(1,627,672	)		(1,522,310	)

Cash flows from financing activities:
Payments under equipment lease obligations		(694,648	)		(598,906	)
Premium paid for foreign currency options		(14,077	)		(97,307	)
Proceeds from sales leaseback		—			506,872
Proceeds from exercise of stock options		62,279			82,899

Net cash used in financing activities		(646,446	)		(106,442	)

Net increase in cash and cash equivalents		3,155,723			151,699
Cash and cash equivalents at beginning of period		10,553,668			9,650,140

Cash and cash equivalents at end of period	$	13,709,391		$	9,801,839

See Notes to Consolidated Financial Statements

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 - Interim Financial Statements:

Basis of Presentation.

The financial statements included in this Form 10-Q have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2005.

In the opinion of management, the accompanying consolidated financial statements contain all adjustments, consisting solely of those which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods.

Interim results are not necessarily indicative of results for the full fiscal year.

Note 2 – Stock-Based Compensation:

At September 30, 2006, we have one stock based employee compensation plan. The compensation cost that has been charged against income under the plan for the nine months ended September 30, 2006 was $200,630, of which $143,337 is a result of the expensing of stock options pursuant to FAS 123R. The total windfall tax benefit that would be recognized in the income statement for share-based compensation arrangements was $1,723,498. Since the Company has Net Operating Loss Carryforwards, no windfall tax benefit has been recognized for the nine months ended September 30, 2006.

Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”), which establishes the financial accounting and reporting standards for stock-based compensation plans. SFAS 123R requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors. The stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense on a straight-line basis over the requisite service period of the entire award. This period is generally the vesting period of the corresponding award. Basic and diluted net income per share for the three months ended September 30, 2006 was $0.03 (basic) and $0.03 (diluted). If we had not adopted SFAS 123R, basic and diluted EPS would not have changed for the three month period. Basic and diluted net income per share for the nine months ended September 30, 2006 was $0.03 (basic) and

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

$0.03 (diluted). If we had not adopted SFAS 123R, the basic and diluted EPS would have been higher by $0.01 for the nine month period. We have adopted the forfeiture rate on stock option grants issued after January 1, 2006 and the application of the forfeiture rate on unvested stock options at January 1, 2006 was immaterial to our financial statement and therefore, no cumulative gain was recognized.

Prior to January 1, 2006, we accounted for our stock-based employee compensation plan under the recognition and measurement principles of APB Opinion No. 25. No stock based employee compensation cost was reflected in net income, as all options granted under this plan had an exercise price equal to or greater than the fair market value of the underlying common stock on the date of grant. The following table sets forth the computation of basic and diluted loss per share for the nine months ended September 30, 2005 and illustrates the effect on net loss and loss per share as if we had applied the fair value recognition provisions of SFAS 123R to its stock plans:


	Nine Months Ended September 30, 2005			Three Months Ended September 30, 2005
Net loss, as reported	$	(2,240,327	)	$	(529,963	)
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		689			—
Deduct: Stock-based employee compensation expense determined under SFAS 123R, net of related tax effects		(118,127	)		(39,376	)

Pro forma	$	(2,357,765	)	$	(569,339	)

Loss per share:
Basic-as reported	$	(0.20	)	$	(0.05	)
Basic-pro forma	$	(0.21	)	$	(0.05	)

Diluted-as reported	$	(0.20	)	$	(0.05	)
Diluted-pro forma	$	(0.21	)	$	(0.05	)

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table presents the total stock-based compensation expense resulting from stock options and restricted stock unit awards:


	Nine Months Ended, September 30, 2006			Three Months Ended September 30, 2006
Cost of revenues	$	150,186		$	39,337
General and administrative		24,870			6,514
Sales and marketing		25,574			6,698

Stock-based compensation expense before income taxes	$	200,630		$	52,549
Benefit for income taxes		(74,233	)		(19,443	)

Net compensation expense	$	126,397		$	33,106

The fair value of each stock option grant is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:


	Nine Months Ended September 30, 2006
Dividend yield	0.0
Expected volatility	58	%
Risk-free interest rate (range)	4.61-4.94	%
Expected term (in years)	4

Expected Volatility. Expected volatility is calculated on a weekly basis over the expected term of the option using the company’s common stock close price.

Expected Term. The expected term is based on historical observations of employee exercise patterns during our history.

Risk-Free Interest Rate. The interest rate used in valuing awards is based on the yield at the time of grant of a U.S. Treasury security with an equivalent remaining term.

Dividend Yield. The Company has never paid cash dividends, and does not currently intend to pay cash dividends, and thus has assumed a 0% dividend yield.

Pre-Vesting Forfeitures. Estimates of pre-vesting option forfeitures are based on our experience. We used a 10% forfeiture rate assumption. We will adjust our estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures were recognized through a cumulative catch-up adjustment in the period of change. The cumulative effect resulting from initially applying the provisions of SFAS 123R to nonvested equity awards was not significant.

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Stock Options


Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2005	1,831,308		$	2.34	5.33	$	1,629,864
Granted	198,100		$	4.06	7.39	$	37,639
Exercised	(56,321	)	$	1.11	—	$	176,848
Forfeited or Expired	(30,283	)	$	1.70	—	$	77,222

Outstanding at September 30, 2006	1,942,804		$	2.56	4.93		3,283,334

Unvested at September 30, 2006	176,600		$	4.04	6.32	$	37,086

Exercisable at September 30, 2006	1,766,204		$	2.42	4.70	$	3,232,153

The weighted-average grant date fair value of options granted during the nine months ended September 30, 2006 was $1.59 and in the nine months ended September 30, 2005 was $1.06. We did not grant any options during the three months ended September 30, 2006 and 2005. Cash received from option exercises for the three and nine months ended September 30, 2006 was $30,278 and $62,279, respectively, and in the three and nine months ended September 30, 2005, was $18,012 and $82,899 respectively.

As of September 30, 2006, there was $225,278 of total unrecognized compensation cost related to nonvested stock options. That cost is expected to be recognized over a period of 4.42 years.

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Restricted Stock Units

On March 1, 2006, we entered into an employment agreement with our President and Chief Executive Officer that expires on February 28, 2009. This agreement amended and restated the prior agreement that originally expired January 31, 2007 and extended the term of service through February 28, 2009. Pursuant to this employment agreement our President and Chief Executive Officer can potentially receive up to 25,000 restricted shares of the company’s common stock for fiscal 2006. Based on management’s assumptions, we recognized the related proportionate expense of $79,688 for 25,000 shares of these restricted stock units for the nine months ended September 30, 2006 based on a fair value of $4.25 at September 30, 2006. These restricted shares are service and performance-based and the value is determined by its fair value (as if underlying shares were vested and issued).

Note 3 - Earnings Per Share:

Basic income per common share for the three and nine months ended September 30, 2006 and 2005 was calculated based upon net income divided by the weighted average number of shares of our common stock outstanding during the period. Diluted income per share for the three and nine months ended September 30, 2006 and 2005 was calculated based upon net income divided by the weighted average number of shares of our common stock outstanding during the period, adjusted for dilutive securities using the treasury method.

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The computation of basic income (loss) per common share and diluted income (loss) per common share was as follows:


	Nine Months Ended September 30,					Three Months Ended September 30,
	2006		2005			2006		2005
Net income (loss) – basic	$	391,143	$	(2,240,327	)	$	366,676	$	(529,963	)

Add back: Compensation expense for restricted shares		—		—			—		—

Pro forma net income		391,143		(2,240,327	)		366,676		(529,963	)

Denominator – basic:
Weighted average number of common shares		11,197,985		11,100,261			11,213,887		11,146,059

Basic income (loss) per common	$	0.03	$	(0.20	)	$	0.03	$	(0.05	)

Denominator – diluted:
Weighted average number of common shares		11,197,985		11,100,261			11,213,887		11,146,059
Common share equivalents of outstanding stock options and restricted shares		923,469		—			911,726		—

Weighted average number of Dilutive common equity shares		12,121,454		11,100,261			12,125,613		11,146,059

Diluted income (loss) per common share	$	0.03	$	(0.20	)	$	0.03	$	(0.05	)

As of September 30, 2005, options to purchase 1,846,475 shares of our common stock had been excluded from the calculation of diluted loss per common share as they were all antidilutive. For the three months and nine months ended September 30, 2006, we did not include 25,000 restricted stock units and the related expense in the calculation of diluted loss per common share as they were antidilutive. Also, we excluded 665,100 shares for the three months and nine months ended September 30, 2006 since they were out-of-the-money and antidilutive.

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 4 - Debt:

On May 17, 2005, we renewed and amended our agreement with Wachovia Bank, N.A. The renewed and amended agreement was for an unsecured committed line of credit of $5,000,000. Interest was payable at the LIBOR Market Index Rate plus 2.0%. The agreement required us, among other things, to maintain certain financial covenants. The committed line of credit matured June 30, 2006 and because of our cash balance at that time, we decided not to incur the expense associated with renewing the line, and therefore, did not renew the credit line.

Note 5 – Commitments and Contingencies:

On March 1, 2006, we entered into an employment agreement with our President and Chief Executive Officer that expires on February 28, 2009. This agreement amended and restated the prior agreement that originally expired January 31, 2007. Pursuant to this employment agreement our President and Chief Executive Officer can potentially receive up to 25,000 restricted shares of the company’s common stock for fiscal 2006. Based on management’s assumptions, we recognized the related proportionate expense for these restricted stock units for the nine months ended September 30, 2006. In addition, we have an employment agreement with our Chief Financial Officer that expires February 5, 2007. The aggregate amount of salary expense due from January 1, 2006 through the expiration under these agreements was $957,333. On March 1, 2006, in connection with his employment agreement dated March 28, 2005, we issued 14,850 shares of restricted stock to our President and Chief Executive Officer, this was net of 10,150 shares withheld for withholding taxes associated with the issuance of the shares.

Note 6 – Business Segments

FASB Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires companies to provide certain information about their operating segments. In November 2003, we acquired the intellectual property of CapMed Corporation. Accordingly, we now have two operating segments: pharmaceutical contract services and the CapMed division. Our pharmaceutical contract service segment provides services that support the product development process of the pharmaceutical, biotechnology and medical device industries. Our CapMed segment offers a software application that enables users to manage and store personal health information, including their medical images, on the privacy of their desktop computer, while linking directly to sponsor-directed resources such as drug information, patient education, or disease guidelines. The operating segments are managed separately because each offers different services and applications to different markets. Our management evaluates the performance of each segment based upon operating earnings or losses before interest and income taxes.

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Summarized financial information concerning our operational segments is shown in the following table:


	Pharmaceutical Contract Services			CapMed Division			Consolidated Total
For the nine months ended September 30, 2006
Total revenues	$	29,600,239		$	230,177		$	29,830,416
Total cost and expenses	$	28,154,036		$	1,422,084		$	29,576,120
Income (Loss) from operations	$	1,446,203		$	(1,191,907	)	$	254,296

For the nine months ended September 30, 2005
Total revenues	$	21,502,930		$	308,893		$	21,811,823
Total cost and expenses	$	24,510,141		$	1,079,694		$	25,589,835
Loss from operations	$	(3,007,211	)	$	(770,801	)	$	(3,778,012	)

For the three months ended September 30, 2006
Total revenues	$	10,285,894		$	20,030		$	10,305,924
Total cost and expenses	$	9,488,345		$	387,571		$	9,875,916
Income (Loss) from operations	$	797,549		$	(367,541	)	$	430,008

For the three months ended September 30, 2005
Total revenues	$	7,665,603		$	84,779		$	7,750,382
Total cost and expenses	$	8,278,400		$	355,852		$	8,634,252
Loss from operations	$	(612,797	)	$	(271,073	)	$	(883,870	)

Segment assets at September 30, 2006	$	30,315,812		$	1,432,150		$	31,747,962
Segment assets at September 30, 2005	$	26,582,466		$	960,095		$	27,542,561

Our foreign customers accounted for approximately 29% and 25% of service revenues for the nine months ended September 30, 2006 and 2005, respectively. For the three months ended September 30, 2006 and 2005, our foreign customers accounted for approximately 31% and 23% of service revenues, respectively.

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 7 – Accounts Receivable and Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts on a specific identification method for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in the inability of our customers’ ability to make payments, additional allowances may be required. We do not have any off-balance-sheet credit exposure related to our customers and the trade accounts receivable does not bear interest.


	September 30, 2006			December 31, 2005
Billed trade accounts receivable	$	5,551,880		$	5,030,642
Unbilled trade accounts receivable		187,601			1,600,155
Other		10,771			3,975

Total Receivables	$	5,750,252		$	6,634,772

Allowance Rollforward:
Balance at January 1, 2006	$	3,295
Additions		4,540
Write offs (net of recoveries)		(3,295	)

Balance at September 30, 2006	$	4,540

Note 8 – Income Taxes

We record a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized. In assessing the need for the valuation allowance, we consider our future taxable income and on-going prudent and feasible tax planning strategies. In the event that we were to determine that, in the future, we would be able to realize our deferred tax assets in excess of its net recorded amount, an adjustment to the deferred tax asset would be made, thereby increasing net income in the period such determination was made. Likewise, should we determine that it is more likely than not that we will be unable to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged, thereby decreasing net income in the period such determination was made.

We have accumulated tax losses, which include allowable deductions related to exercised employee stock options, generating federal and state net operating loss (NOL) carryforwards of $7.5 million as of September 30, 2006. The losses will expire, if unused in the years 2009-2022. Under limitations imposed by Internal Revenue Code Section 382, certain potential changes in

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

our ownership, which may be outside our knowledge or control, may restrict future utilization of these carryforwards. Due to such ownership changes that have occurred in prior years, we have estimated that $1.1 million of our current federal net operating loss will likely expire unused due to Internal Revenue Code Section 382 limitations. Our current and long-term deferred tax assets are primarily comprised of the NOL carryforwards with a tax effected value of $2,789,914 as of September 30, 2006. Generally accepted accounting principles require that we establish a valuation allowance for any portion of our deferred tax assets for which management believes it is more likely than not we will be unable to utilize the asset to offset future taxes. We will continue to evaluate the potential use of our deferred tax assets and the need for a valuation allowance by considering our future taxable income and our on-going prudent and feasible tax planning strategies. Subsequent revisions to the estimated realizable value of our deferred tax assets could cause our provision for income taxes to vary significantly from period to period, although our cash tax payments would remain unaffected until our NOL carryforward is fully utilized or has expired.

We recognize contingent liabilities for any tax related exposures when those exposures are both probable and estimable. We have determined that there is sufficient near term future taxable income to more likely than not utilize the unlimited net operating loss carryforward at September 30, 2006.

Note 9 – Derivatives and Other Hedging Instruments

All derivatives are recognized in our Consolidated Statement of Operations at fair value and are reported in prepaid expenses and other current assets on the Balance Sheet. To qualify for hedge accounting in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” (SFAS No. 133), we require that the instruments are effective in reducing the risk exposure that they are designated to hedge. For instruments that are associated with the hedge of cash flows, hedge effectiveness criteria also require that it be probable that the underlying transaction will occur. Instruments that meet established accounting criteria are formally designated as hedges at the inception of the contract. These criteria demonstrate that the derivative is expected to be highly effective at offsetting changes in fair value or cash flows of the underlying exposure both at inception of the hedging relationship and on an ongoing basis. The assessment for effectiveness is formally documented at hedge inception and reviewed at least quarterly throughout the designated hedge period.

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BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

expiration on March 14, 2007 with a strike price of 1.26 to hedge against the exposure to variability in our cash flows due to the Euro denominated costs for our Netherlands subsidiary. We paid a total premium of $0 and $14,077 for options purchased in the three and nine months ended September 30, 2006. During the nine months ended September 30, 2006, we exercised 4 Euro call options that expired in May, August and September 2006 since the strike price was lower than the current spot rate of the Euro. We mark-to-market unexpired options on a monthly basis and record the valuation difference to Accumulated Other Comprehensive (Loss)/Gain in the stockholders’ equity section of the Balance Sheet. We recorded an Accumulated Other Comprehensive (Loss)/Gain of $(24,187) and $53,387 in the stockholders’ equity section of the Balance Sheet for the three and nine months ended September 30, 2006 due to changes in the value of the derivatives. At September 30, 2006, we have $8,191 of Accumulated Other Comprehensive Loss. We recognized a loss in our Consolidated Statement of Operations of $7,800 and $37,926, for the three and nine months ended September 30, 2006, respectively due to premiums paid for options that expired without being exercised.

Upon expiration or ineffectiveness of the derivative, we will record a gain or loss from the derivative that is deferred in stockholders’ equity to cost of revenues and general and administrative expenses in the Consolidated Statement of Operations based on the nature of the underlying cash flow hedged.

Note 10 – Recently Issued Accounting Statements

In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 prescribes a “more likely than not” threshold for financial statement recognition and measurement of a tax position taken or expected to taken in a tax return. This interpretation also provides guidance on other topics related to accounting for income tax assets and liabilities, interest and penalties associated with tax positions and income taxes in interim periods as well as income tax disclosures. This interpretation is effective as of January 1, 2007. We are currently evaluating FIN 48 and the related impact on our financial position and results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” This statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The company is currently evaluating the impact of its adoption on its consolidated financial statements.

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

Overview

Pharmaceutical Contract Services

We are a global pharmaceutical contract service organization, providing services that support the product development process of the pharmaceutical, biotechnology and medical device industries. We specialize in assisting our clients in the design and management of the medical imaging component of clinical trials for all modalities, which consist of computerized tomography (CT), magnetic resonance imaging (MRI), x-rays, dual energy x-ray absorptiometry (DXA/DEXA), positron emission tomography (PET), single photon emission computerized tomography (SPECT), quantitative coronary angiography (QCA), cardiac MRI and CT, intravascular ultrasound (IVUS), peripheral quantitative angiography (QVA) and ultrasound. We provide services that include the processing and analysis of medical images and the data-basing and regulatory submission of medical images, quantitative data and text.

Our sales cycle, referring to the period from the presentation by us to a potential client to the engagement of us by such client, has historically been approximately 12 months. In addition, the contracts under which we perform services typically cover a period of 12 to 60 months and the volume and type of services performed by us generally vary during the course of a project. We cannot assure you that our project revenues will be at levels sufficient to maintain profitability. Service revenues were generated from 119 clients encompassing 267 distinct projects for the nine months ended September 30, 2006. This compares to 103 clients encompassing 233 distinct projects for the nine months ended September 30, 2005.

Our contracted/committed backlog, referred to as backlog, is the amount of service revenue that remains to be earned and recognized on both signed and verbally agreed to contracts. Our backlog was $70.6 million as of September 30, 2006. This compares to $55.2 million as of September 30, 2005 and $58.4 million as of December 31, 2005. Contracts included in backlog are subject to termination by our clients at any time. In the event that a contract is cancelled by the client, we would be entitled to receive payment for all services performed up to the cancellation date. The duration of the projects included in our backlog range from less than 3 months to 7 years. We believe that our backlog assists our management as a general indicator of our long-term business. However, we do not believe that backlog is a reliable predictor of near-term results because service revenues may be incurred in a given period on contracts that were not included in the previous reporting period’s backlog and/or contract cancellations or project delays may occur in a given period on contracts that were included in the previous reporting period’s backlog.

We believe that demand for our services and technologies will continue to grow as the use of digital technologies for data acquisition and management increases in the radiology and drug development communities. We also believe that there is a growing recognition within the bio-pharmaceutical industry of the advantages in using an independent centralized core laboratory for analysis of medical-imaging data and compliance with the regulatory demands for the submission of such data and this will lead to a growth in our market share for these services.

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The FDA is also requiring more robust studies and additional data for clinical trials. In addition, the FDA continues to develop sophisticated guidelines for computerized submission of clinical trial data, including medical images. Furthermore, we believe that the increased use of digital medical images in clinical trials, especially for important drug classes such as anti-inflammatory, neurologic and oncologic therapeutics and diagnostic image agents, generate large amounts of image data from a large number of imaging sources. These studies require processing, analysis, data management and submission services best handled by vendors with scalable logistical capabilities and extensive experience working with research facilities worldwide. However, due to several factors, including, without limitation, competition from commercial competitors and academic research centers and the risk of project cancellations, slowing of patient enrollment in on-going studies or delay of future project awards, among others, we cannot assure you that demand for our services and technologies will grow, sustain growth, or that additional revenue generating opportunities will be realized by us.

CapMed Division

Our CapMed division offers the Personal Health Record software, referred to as PHR, and the patent-pending Personal HealthKey™ technology. The PHR is a software application that enables users to manage and store personal health information, including their medical images, on the privacy of their desktop computer, while linking directly to sponsor-directed resources such as drug information, patient education, or disease guidelines. The Personal HealthKey™ plugs into a computer’s USB port, allowing doctors and patients easy access to the patient’s medical record without the need for additional hardware or software, and it is password protected.

We intend to expand our CapMed division through partnerships and marketing efforts devoted to the PHR and Personal HealthKey™ products. We believe that continued emphasis on improving patient care and reducing cost will contribute to the growth of the personal electronic medical records market. During the past quarter, CapMed has progressed toward the completion of its .Net conversion and development of its web portal strategy, which includes a web-based PHR. Once completed, our customers will have the choice of managing their health through an on-line PHR, from their desktop PC or from our patent-pending USB Healthkey, which we believe will further enhance value in the marketplace and reduce the lengthy sales cycle typical in this space. We continue to be encouraged by the long-term prospects for this division although the adoption rate has been slower than anticipated.

Certain matters discussed in this Form 10-Q are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. In particular, our statements regarding: our projected financial results; growth potential for our CapMed division; the demand for our services and technologies; growing recognition for the use of independent centralized core laboratories; trends toward the outsourcing of imaging services in clinical trials; realized

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return from our marketing efforts; increased use of digital medical images in clinical trials; integration of our acquired companies and businesses; expansion into new business segments; the success of any potential acquisitions; and the level of our backlog are examples of such forward-looking statements. The forward-looking statements include risks and uncertainties, including, but not limited to, the timing of revenues due to the variability in size, scope and duration of projects, estimates made by management with respect to our critical accounting policies, regulatory delays, clinical study results which lead to reductions or cancellations of projects, and other factors, including general economic conditions and regulatory developments, not within our control. The factors discussed in this Form 10-Q and expressed from time to time in our filings with the Securities and Exchange Commission, as well as the risk factors set forth in our most recent Form 10-K, could cause actual results and developments to be materially different from those expressed in or implied by such statements. The forward-looking statements are made only as of the date of this filing, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Application of Critical Accounting Policies and Estimates

Effective January 1, 2006, we account for stock-based compensation costs in accordance with SFAS 123R, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to our employees and directors. Under the fair value recognition provisions of SFAS 123R, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of the stock-based awards at the grant date requires considerable judgment. In addition, judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. If our actual experience differs significantly from the assumptions used to compute our stock-based compensation cost, or if different assumptions had been used, we may have recorded too much or too little stock based compensation cost.

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Results of Operations

Nine Months Ended September 30, 2006 and 2005


	Nine Months Ended September 30, 2006			% of Total Revenue		Nine Months Ended September 30, 2005			% of Total Revenue		$ Change		% Change
Service revenues	$	23,253,269		78.0	%	$	17,020,783		78.0	%	$	6,232,486	36.6	%
Reimbursement revenues		6,577,147		22.0	%		4,791,040		22.0	%		1,786,107	37.3	%

Total revenues		29,830,416		100.0	%		21,811,823		100.0	%		8,018,593	36.8	%

Cost and expenses:
Cost of revenues		21,163,729		70.9	%		18,382,610		84.3	%		2,781,119	15.1	%
General and administrative expenses		4,164,914		14.0	%		3,698,660		17.0	%		466,254	12.6	%
Sales and marketing expenses		4,247,477		14.2	%		3,508,565		16.1	%		738,912	21.1	%

Total cost and expenses		29,576,120		99.1	%		25,589,835		117.3	%		3,986,285	15.6	%

Income (Loss) from operations		254,296		0.9	%		(3,778,012	)	(17.3	)%		4,032,308	(106.7	)%
Interest income		393,349		1.3	%		128,419		0.6	%		264,930	206.3	%
Interest expense		(41,030	)	(0.1	)%		(84,286	)	(0.4	)%		43,256	(51.3	)%

Income (Loss) before income tax provision (benefit)		606,615		2.0	%		(3,733,879	)	(17.1	)%		4,340,494	(116.2	)%
Income tax provision (benefit)		215,472		0.7	%		(1,493,552	)	(6.8	)%		1,709,024	(114.4	)%

Net income (loss)	$	391,143		1.3	%	$	(2,240,327	)	(10.3	)%	$	2,631,470	(117.5	)%

Service revenues for the nine months ended September 30, 2006 were $23,253,269 as compared to service revenues for the nine months ended September 30, 2005 of $17,020,783, an increase of $6,232,486 or 36.6%. The increase in service revenues was due to an increase in work performed from our increased contract signings in fiscal 2005 and 2006. Our backlog at September 30, 2006 was $70.6 million compared to $55.2 million at September 30, 2005, an increase of 27.9%. We believe this increase in backlog is an indicator that the overall market growth for medical-imaging related services for clinical trials continues to be positive, subject to project cancellations, slowing of patient enrollment in on-going studies and delays of future project awards.

Service revenues were generated from 119 clients encompassing 267 distinct projects for the nine months ended September 30, 2006. This compares to 103 clients encompassing 233 distinct projects for the nine months ended September 30, 2005. Contracts with one client,

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Novartis Pharmaceuticals, Inc., which encompassed 14 projects, represented 11.4% of our service revenues for the nine months ended September 30, 2006. No one client accounted for more than 10% of our service revenues for the nine months ended September 30, 2005. Service revenues generated from our client base, while still concentrated as measured by the number of clients, has continued to become more dispersed over time and we believe more diversification is evident when revenue concentration is measured by the number of individual projects. Our primary scope of work in both periods included medical-imaging core laboratory services and image-based information management services.

Reimbursement revenues consist of reimbursements received from the customer for pass-through costs. Reimbursement revenues fluctuate significantly over the course of any given project and quarter to quarter variations are a reflection of this project timing. Therefore, our management believes that reimbursement revenues are not a significant indicator of our overall performance trends. Bio-Imaging, at the request of our clients, may directly pay the independent radiologists who review our client’s imaging data. These costs are passed directly to our clients and are included in Reimbursement Revenue and Cost of Revenues.

Cost of revenues for the nine months ended September 30, 2006 was $21,163,729 as compared to cost of revenues for the nine months ended September 30, 2005 of $18,382,610, an increase of $2,781,119 or 15.1%. The increase in cost of revenues is primarily due to the increase in reimbursement revenues for the nine months ended September 30, 2006 and consulting costs associated with project related revenues. Cost of revenues for the nine months ended September 30, 2006 and nine months ended September 30, 2005 were comprised of professional salaries and benefits, allocated overhead and pass-through costs, which includes fees paid to independent radiologists. We expect that our cost of revenues will continue to increase in fiscal 2006 as reimbursement revenues and service revenues increase.

The decrease in the cost of revenues as a percentage of total revenues to 70.9% for the nine months ended September 30, 2006 from 84.3% for the nine months ended September 30, 2005 is primarily due to the process improvement efforts resulting in a lower increase in cost of revenues as compared to the increase in service revenues. The cost of revenues as a percentage of total revenues also fluctuates due to work-flow variations in the utilization of staff and the mix of services provided by us in any given period.

General and administrative expenses for the nine months ended September 30, 2006 were $4,164,914 as compared to general and administrative expenses for the nine months ended September 30, 2005 of $3,698,660, an increase of $466,254 or 12.6%. The increase is primarily due to an increase in professional and consulting services. General and administrative expenses in each of the nine months ended September 30, 2006 and 2005 consisted primarily of professional salaries and benefits, depreciation and amortization, professional and consulting services, office rent, corporate insurance and franchise capital stock tax. We expect that our general and administrative expenses will continue to increase due to a general increase in the fees associated with being a publicly traded company, including the cost of implementing Sarbanes-Oxley 404 internal controls.

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The decrease in general and administrative expenses as a percentage of total revenues to 14.0% for the nine months ended September 30, 2006 from 17.0% for the nine months ended September 30, 2005 is primarily due to a greater increase in our total revenues.

Sales and marketing expenses for the nine months ended September 30, 2006 were $4,247,477 as compared to sales and marketing expenses for the nine months ended September 30, 2005 of $3,508,565, an increase of $738,912 or 21.1%. The increase is due to an increase in expenses associated with our CapMed division of $300,682 and $438,230 in marketing expenses and sales commissions in our Pharmaceutical Contract Services division. Sales and marketing expenses in each of the nine months ended September 30, 2006 and September 30, 2005 were comprised of direct sales and marketing costs, professional salaries and benefits and allocated overhead. We expect that sales and marketing expenses will increase in fiscal 2006 as we continue to expand our market presence in the United States and Europe.

The decrease in sales and marketing expenses as a percentage of total revenues to 14.2% for the nine months ended September 30, 2006 from 16.1% for the nine months ended September 30, 2005 is primarily due to a greater increase in our total revenues.

Net interest income for the nine months ended September 30, 2006 was $352,319 as compared to net interest income for the nine months ended September 30, 2005 of $44,133, an increase of $308,186 or 698.3%. This increase is primarily due to the interest earned on a higher cash balance and less interest expense paid on debt obligations during the nine months ended September 30, 2006. Net interest income for the nine months ended September 30, 2006 and 2005 is comprised of interest income earned on our cash balance and interest expense incurred on equipment lease obligations.

Income before income taxes was $606,615 for the nine months ended September 30, 2006 and loss before income taxes was $3,733,879 for the nine months ended September 30, 2005, an increase in net income of $4,340,494 or 116.2%. The increase was due to the reduction of $4,032,308 of operating loss from the prior year from greater service revenue while expenses increased at a slower rate due to our process improvement efforts during the nine months ended September 30, 2006.

We had an income tax provision of $215,472 for the nine months ended September 30, 2006 as compared to an income tax benefit for the nine months ended September 30, 2005 of $1,493,552, an increase of $1,709,024 or 114.4%. Our effective tax rate is approximately 37% for fiscal 2006 and 40% for fiscal 2005. The decrease in the effective tax rate is due to the mix of pre-tax income in the U.S. versus the Netherlands. The Netherlands has a lower corporate income tax rate

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Three Months Ended September 30, 2006 and 2005


	Three Months Ended September 30, 2006			% of Total Revenue		Three Months Ended September 30, 2005			% of Total Revenue		$ Change		% Change
Service revenues	$	8,040,324		78.0	%	$	6,042,382		78.0	%	$	1,997,942	33.1	%
Reimbursement revenues		2,265,600		22.0	%		1,708,000		22.0	%		557,600	32.6	%

Total revenues		10,305,924		100.0	%		7,750,382		100.0	%		2,555,542	33.0	%

Cost and expenses:
Cost of revenues		7,115,423		69.0	%		6,208,387		80.1	%		907,036	14.6	%
General and administrative expenses		1,401,852		13.6	%		1,229,609		15.9	%		172,243	14.0	%
Sales and marketing expenses		1,358,641		13.2	%		1,196,256		15.4	%		162,385	13.6	%

Total cost and expenses		9,875,916		95.9	%		8,634,252		111.4	%		1,241,664	14.4	%

Income (Loss) from operations		430,008		4.2	%		(883,870	)	(11.4	)%		1,313,878	(148.7	)%
Interest income		146,904		1.4	%		50,213		0.6	%		96,691	192.6	%
Interest expense		(10,154	)	(0.1	)%		(21,621	)	(0.3	)%		11,467	(53.0	)%

Income (Loss) before income tax provision (benefit)		566,758		5.5	%		(855,278	)	(11.0	)%		1,422,036	(166.3	)%
Income tax provision (benefit)		200,082		1.9	%		(325,315	)	(4.2	)%		525,397	(161.5	)%

Net income (loss)	$	366,676		3.6	%	$	(529,963	)	(6.8	)%	$	896,639	(169.2	)%

Service revenues for the three months ended September 30, 2006 were $8,040,324 as compared to service revenues for the three months ended September 30, 2005 of $6,042,382, an increase of $1,997,942 or 33.1%. The increase in service revenues was due to an increase in work performed from our increased contract signings in fiscal 2006 and fiscal 2005. Our backlog at September 30, 2006 was $70.6 million compared to $55.2 million at September 30, 2005, an increase of 27.9%. We believe this increase in backlog is an indicator that the overall market growth for medical-imaging related services for clinical trials continues to be positive, subject to project cancellations, slowing of patient enrollment in on-going studies and delays of future project awards.

Service revenues were generated from 100 clients encompassing 223 distinct projects for the three months ended September 30, 2006. This compares to 88 clients encompassing 194 distinct projects for the three months ended September 30, 2005. No one client accounted for more than 10% of service revenues for the three months ended September 30, 2006 or 2005. Service revenues generated from our client base, while still concentrated as measured by the number of clients, has continued to become more dispersed over time and we believe more

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diversification is evident when revenue concentration is measured by the number of individual projects. Our primary scope of work in both periods included medical-imaging core laboratory services and image-based information management services.

Cost of revenues for the three months ended September 30, 2006 was $7,115,423 as compared to cost of revenues for the three months ended September 30, 2005 of $6,208,387, an increase of $907,036 or 14.6%. The increase in cost of revenues is primarily due to the increase in reimbursement revenues for the three months ended September 30, 2006 and consulting costs associated with project related revenues. Cost of revenues for the three months ended September 30, 2006 and three months ended September 30, 2005 were comprised of professional salaries and benefits, allocated overhead and pass-through costs, which includes fees paid to independent radiologists. We expect that our cost of revenues will continue to increase in fiscal 2006 as reimbursement revenues and service revenues increase.

The decrease in the cost of revenues as a percentage of total revenues to 69.0% for the three months ended September 30, 2006 from 80.1% for the three months ended September 30, 2005 is primarily due to the process improvement efforts resulting in a lower increase in cost of revenues as compared to the increase in service revenues. The cost of revenues as a percentage of total revenues also fluctuates due to work-flow variations in the utilization of staff and the mix of services provided by us in any given period.

General and administrative expenses for the three months ended September 30, 2006 were $1,401,852 as compared to general and administrative expenses for the three months ended September 30, 2005 of $1,229,609, an increase of $172,243 or 14.0%. The increase is primarily due to an increase in consulting services. General and administrative expenses in each of the three months ended September 30, 2006 and 2005 consisted primarily of professional salaries and benefits, depreciation and amortization, professional and consulting services, office rent, corporate insurance, and franchise capital stock tax. We expect that our general and administrative expenses will continue to increase due to a general increase in the fees associated with being a publicly traded company, including the cost of implementing Sarbanes-Oxley 404 internal controls.

The decrease in general and administrative expenses as a percentage of total revenues to 13.6% for the three months ended September 30, 2006 from 15.9% for the three months ended September 30, 2005 is primarily due to a greater increase in our total revenues.

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Sales and marketing expenses for the three months ended September 30, 2006 were $1,358,641 as compared to sales and marketing expenses for the three months ended September 30, 2005 of $1,196,256, an increase of $162,385 or 13.6%. The increase is primarily due to an increase in marketing expenses and sales commissions in our Pharmaceutical Contract Services division. Sales and marketing expenses in each of the three months ended September 30, 2006 and September 30, 2005 were comprised of direct sales and marketing costs, professional salaries and benefits and allocated overhead. We expect that sales and marketing expenses will increase in fiscal 2006 as we continue to expand our market presence in the United States and Europe.

The decrease in sales and marketing expenses as a percentage of total revenues to 13.2% for the three months ended September 30, 2006 from 15.4% for the three months ended September 30, 2005 is primarily due to a greater increase in our total revenues.

Net interest income for the three months ended September 30, 2006 was $136,750 as compared to net interest income for the three months ended September 30, 2005 of $28,592, an increase of $108,158 or 378.3%. This increase is primarily due to the interest earned on a higher cash balance and less interest expense paid on debt obligations during the three months ended September 30, 2006. Net interest income and expense for the three months ended September 30, 2006 and 2005 is comprised of interest income earned on our cash balance and interest expense incurred on equipment lease obligations.

Income before income taxes was $566,758 for the three months ended September 30, 2006 and loss before income taxes was $855,278 for the three months ended September 30, 2005, an increase of $1,422,036 or 166.3%. The increase was due to greater service revenue while expenses increased at a slower rate due to our process improvement efforts.

We had an income tax provision of $200,082 for the three months ended September 30, 2006 as compared to an income tax benefit for the three months ended September 30, 2005 of $325,315, an increase of $525,397 or 161.5%. Our effective tax rate is approximately 37% for fiscal 2006 and 40% for fiscal 2005. The decrease in the effective tax rate is due to the mix of pre-tax income in the U.S. versus the Netherlands. The Netherlands has a lower corporate income tax rate.

Business Segments

We have set forth certain financial information with respect to our two business segments, pharmaceutical contract services and the CapMed division, in “Note 6 – Business Segments” to our Consolidated Financial Statements in this Form 10-Q. During the nine months ended September 30, 2006, we had CapMed segment sales of $230,177 and total costs and expenses of $1,422,084, consisting of $1,054,235 of sales and marketing expenses, $263,559 of general and administrative expenses and $104,291 of cost of revenues. During the three months ended September 30, 2006, we had CapMed segment sales of $20,030 and total costs and expenses of $387,571, consisting of $301,573 of sales and marketing expenses, $75,393 of general and administrative expenses and $10,606 of cost of revenues.

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Liquidity and Capital Resources


	Nine Months Ended September 30, 2006			Nine Months Ended September 30, 2005
Net cash provided by operating activities	$	5,429,841		$	1,780,451
Net cash used in investing activities	$	(1,627,672	)	$	(1,522,310	)
Net cash used in financing activities	$	(646,446	)	$	(106,442	)

At September 30, 2006, we had cash and cash equivalents of $13,709,391. Working capital at September 30, 2006 was $9,354,933.

Net cash provided by operating activities for the nine months ended September 30, 2006 was $5,429,841 as compared to $1,780,451 for the nine months ended September 30, 2005. This increase is primarily due to the increase in our deferred revenue of $4,164,290 at September 30, 2006 from September 30, 2005.

Net cash used in investing activities for the nine months ended September 30, 2006 represents our investment in capitalized computer software costs and equipment. We currently anticipate that capital expenditures for the remainder of the fiscal year ending December 31, 2006 will be approximately $550,000. These expenditures primarily represent additional upgrades in our networking, data storage and core laboratory capabilities for both our United States and European operations as well as capitalization of software costs.

Net cash used in financing activities for the nine months ended September 30, 2006 is primarily attributable to the payments under equipment lease obligations of $694,648.

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The following table lists our cash contractual obligations as of September 30, 2006:


	Payments Due By Period
Contractual obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Capital lease obligations	$	731,113	$	557,540	$	173,573	$	0	$	0

Facility rent operating leases	$	11,306,139	$	1,418,665	$	4,333,250	$	5,554,224	$	0

Employment agreements	$	809,083	$	377,000	$	432,083	$	0	$	0

Total contractual cash obligations	$	12,846,335	$	2,353,205	$	4,938,906	$	5,554,224	$	0

We have neither paid nor declared dividends on our common stock since our inception and do not plan to pay dividends on our common stock in the foreseeable future.

In accordance with our current foreign exchange rate risk management policy, during the nine months ended September 30, 2006, we purchased two monthly Euro call options in the amount of 250,000 Euros each, with the first expiration on February 14, 2007 and the last expiration on March 14, 2007 with a strike price of 1.26 to hedge against the exposure to variability in our cash flows due to the Euro denominated costs for our Netherlands subsidiary. We paid a total premium of $0 and $14,077 for options purchased in the three and nine months ended September 30, 2006. During the nine months ended September 30, 2006, we exercised four Euro call options that expired in May, August and September 2006 since the strike price was lower than the current spot rate of the Euro. We mark-to-market unexpired options on a monthly basis and record the valuation difference to Accumulated Other Comprehensive (Loss)/Gain in the stockholders’ equity section of the Balance Sheet. We recorded an Accumulated Other Comprehensive (Loss)/Gain of $(24,187) and $53,387 in the stockholders’ equity section of the Balance Sheet for the three and nine months ended September 30, 2006 due to changes in the value of the derivatives. At September 30, 2006, we have $8,191 of Accumulated Other Comprehensive Loss. We recognized a loss in our Consolidated Statement of Operations of $7,800 and $37,926, for the three and nine months ended September 30, 2006, respectively due to premiums paid for options that expired without being exercised.

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We have not entered into any off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of or requirements for capital resources.

We anticipate that our existing capital resources together with cash flow from operations will be sufficient to meet our cash needs. However, we cannot assure you that our operating results will achieve profitability on an annual basis in the future. The inherent operational risks associated with the following risks may have a material adverse affect on our future liquidity:

•

our ability to gain new client contracts;

•

project cancellations;

•

the variability of the timing of payments on existing client contracts; and

•

other changes in our operating assets and liabilities.

We may seek to raise additional capital from equity or debt sources in order to take advantage of unanticipated opportunities, such as more rapid expansion, acquisitions of complementary businesses or the development of new services. We cannot assure you that additional financing will be available, if at all, on terms acceptable to us.

Our fiscal year 2006 operating plan contains assumptions regarding revenue and expenses. The achievement of our operating plan depends heavily on the timing of work performed by us on existing projects and our ability to gain and perform work on new projects. Project cancellations, or delays in the timing of work performed by us on existing projects or our inability to gain and perform work on new projects, could have an adverse impact on our ability to execute our operating plan and maintain adequate cash flow. In the event actual results do not meet the operating plan, our management believes it could execute contingency plans to mitigate these effects. Our plans include additional financing, to the extent available, through the line of credit discussed above. Considering the cash on hand and based on the achievement of the operating plan and management’s actions taken to date, management believes it has the ability to continue to generate sufficient cash to satisfy our operating requirements in the normal course of business for at least the next 12 months and the foreseeable future.

Changes to Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005. As of September 30, 2006, there have been no changes to such critical accounting policies and estimates, except for the adoption of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment”, which establishes the financial accounting and reporting standards for stock-based compensation plans.

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Recently Issued Accounting Statements

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

We invest in high-quality financial instruments, primarily money market funds, federal agency notes, asset backed securities, corporate debt securities and United States treasury notes, with an effective duration of the portfolio of less than nine months and no security with an effective duration in excess of two years, which we believe are subject to limited credit risk. We currently do not hedge our interest rate exposure. Due to the short-term nature of our investments, we do not believe that we have any material exposure to interest rate risk arising from our investments.

Foreign Currency Risk

Our financial statements are denominated in United States dollars. Fluctuations in foreign currency exchange rates could materially increase the operating costs of our facility in the Netherlands, which are primarily EURO denominated. At September 30, 2006 and December 31, 2005, a 10% increase or decrease in the EURO to U.S. dollar spot exchange rate would result in a change of $98,557 and $60,000 to our net asset position at September 30, 2006 and December 31, 2005, respectively. In addition, certain of our contracts are denominated in foreign currency. We believe that any adverse fluctuation in the foreign currency markets relating to these contracts will not result in any material adverse effect on our financial condition or results of operations. In the event we derive a greater portion of our service revenues from international operations, factors associated with international operations, including changes in foreign currency exchange rates, could affect our results of operations and financial condition.

We do hedge our foreign currency exposure. Our foreign currency financial instruments primarily consist of cash, trade receivables, prepaid expenses, fixed assets, trade payables and accrued expenses and were in a net asset position at September 30, 2006 and December 31, 2005. An increase in the exchange rate would result in less net assets when converted to U.S. dollars. Conversely, if we were in a net liability position, a decrease in the exchange rate would result in more net liabilities when converted to U.S. dollars.

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Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures. Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2006, our president and chief executive officer (principal executive officer) and our chief financial officer (principal accounting and financial officer) have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and are operating in an effective manner for the period covered by this report.

Changes in internal control over financial reporting. There was no change in our internal controls over financial reporting that occurred during the quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION.

Item 1A. Risk Factors.

The more prominent risks and uncertainties inherent in our business are described below. However, additional risks and uncertainties may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations may suffer. Investing in our common stock involves a high degree of risk. Any of the following factors could harm our business and future results of operations and you could lose all or part of your investment.

Risks Related to Our Company and Business

We may incur financial losses because contracts may be delayed or terminated or reduced in scope for reasons beyond our control.

Our clients may terminate or delay their contracts for a variety of reasons, including, but not limited to:

•

unexpected or undesired clinical results;

•

the client’s decision to terminate the development of a particular product or to end a particular study;

•

insufficient patient enrollment in a study;

•

insufficient investigator recruitment;

•

failure to perform our obligations under the contract; or

•

the failure of products to satisfy safety requirements.

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In addition, we believe that FDA-regulated companies may proceed with fewer clinical trials or conduct them without assistance of contract service organizations if they are trying to reduce costs as a result of cost containment pressures associated with healthcare reform, budgetary limits or changing priorities. These factors may cause such companies to cancel contracts with contract service organizations.

We cannot assure you that our clients will continue to use our services or that we will be able to replace, in a timely or effective manner, departing clients with new clients that generate comparable revenues. Further, we cannot assure you that our clients will continue to generate consistent amounts of revenues over time.

A significant number of our projects are oncology related clinical trials. These clinical trials may experience delays for patient recruitment and have a greater likelihood of cancellation.

The loss, reduction in scope or delay of a large contract or the loss or delay of multiple contracts could materially adversely affect our business, although our contracts entitle us to receive all fees earned up to the time of termination. The loss of business from our client, Novartis Pharmaceuticals, Inc., would have a material adverse effect on our financial condition.

We depend on a small number of industries and clients for all of our business, and the loss of one such significant client could cause revenues to drop quickly and unexpectedly.

We depend on research and development expenditures by pharmaceutical, biotechnology and medical device companies to sustain our business. Our operations could be materially and adversely affected if:

•

clients’ businesses experience financial problems or are affected by a general economic downturn;

•

consolidation in the pharmaceutical, biotechnology or medical device industries leads to a smaller client base for us; or

•

clients reduce their research and development expenditures.

Novartis Pharmaceuticals, Inc., encompassing 14 projects represented 11.4% of our service revenues for the nine months ended September 30, 2006. No one client accounted for more than 10% of our service revenues for the nine months ended September 30, 2005. The loss of business from a significant client or our failure to continue to obtain new business to replace completed or canceled projects would have a material adverse effect on our business and revenues.

Our contracted/committed backlog may not be indicative of future results.

Our reported contracted/committed backlog of $70.6 million at September 30, 2006 is based on anticipated service revenue from uncompleted projects with clients. Backlog is the amount of revenue that remains to be earned and recognized on signed and verbally agreed to contracts.

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Contracts included in backlog are subject to termination by our clients at any time. In the event that the client cancels a contract, we would be entitled to receive payment for all services performed up to the cancellation date and subsequent client authorized services related to the cancellation of the project. The duration of the projects included in our backlog range from less than three months to seven years. We cannot assure that this backlog will be indicative of future results. A number of factors may affect backlog, including:

•

the variable size and duration of the projects (some are performed over several years);

•

the loss or delay of projects;

•

the change in the scope of work during the course of a project; and

•

the cancellation of such contracts by our clients.

Also, if clients delay projects, the projects will remain in backlog, but will not generate revenue at the rate originally expected. Accordingly, historical indications of the relationship of backlog to revenues are not indicative of future results.

We have experienced substantial expansion in the past, and if we fail to properly manage that expansion, our business may suffer.

Our business has expanded substantially in the past. Our continuing sales and marketing efforts have increased the number of projects under management from 194 in the third quarter of 2005 to 223 in the third quarter of 2006. Rapid expansion and future acquisitions could strain our operational, human and financial resources. If we fail to properly manage this expansion, our results of operations and financial condition might be adversely affected. In order to manage our expansion, we must:

•

effectively market our services to pharmaceutical, biotechnology and medical device companies;

•

continue to improve operating, administrative and information systems;

•

accurately predict future personnel and resource needs to meet client contract commitments;

•

successfully integrate our acquired companies and businesses;

•

track the progress of on-going client projects; and

•

attract and retain qualified management, sales, professional and technical operating personnel.

We will face additional risks in expanding foreign operations. Specifically, we might find it difficult to:

•

assimilate differences in foreign business practices and regulations;

•

hire and retain qualified personnel; and

•

overcome language and cultural barriers.

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We may engage in future acquisitions, which may be expensive and time consuming and from which we may not realize anticipated benefits.

We acquired one company in November 2003 and another company in December 2004. We may acquire additional businesses, technologies and products if we determine that these additional businesses, technologies and products complement our existing business or otherwise serve our strategic goals. If we do undertake transactions of this sort, the process of integrating an acquired business, technology or product may result in operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of our business. Moreover, we may never realize the anticipated benefits of any acquisition. Future acquisitions could result in potentially dilutive issuances of our securities, the incurrence of debt and contingent liabilities and amortization expenses related to intangible assets, which could adversely affect our results of operations and financial condition.

Loss of key personnel, or failure to attract and retain additional personnel, may cause the success and growth of our business to suffer.

Future success depends on the personal efforts and abilities of the principal members of our senior management to provide strategic direction, develop business, manage operations and maintain a cohesive and stable environment. Specifically, we are dependent upon Mark L. Weinstein, President and Chief Executive Officer, David A. Pitler, Senior Vice President Operations, Colin G. Miller, Ph.D., Senior Vice President Medical Affairs and Ted I. Kaminer, Senior Vice President and Chief Financial Officer. Although we have employment agreements with Mr. Weinstein and Mr. Kaminer, this does not necessarily mean that they will remain with us. Although we have executive retention agreements with our officers, we do not have employment agreements with any other key personnel. Furthermore, our performance also depends on our ability to attract and retain management and qualified professional and technical operating staff. Competition for these skilled personnel is intense. The loss of services of any key executive, or inability to continue to attract and retain qualified staff, could have a material adverse effect on our business, results of operations and financial condition. We do not maintain any key employee insurance on any of our executives.

Our revenues, earnings and operating costs are exposed to exchange rate fluctuations.

During the third quarter of 2006, a small portion of our service revenues were denominated in foreign currency. Our financial statements are denominated in United States dollars. In the event a greater portion of our service revenues are denominated in a foreign currency changes in foreign currency exchange rates could affect our results of operations and financial condition. Fluctuations in foreign currency exchange rates could materially impact the operating costs of our European facility in Leiden, the Netherlands which are primarily EURO denominated.

Risks Related to Our Industry

Our failure to compete effectively in the competitive industry could cause our revenues to decline.

Significant factors in determining whether we will be able to compete successfully include:

•

consultative and clinical trials design capabilities;

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•

reputation for on-time quality performance;

•

expertise and experience in specific therapeutic areas;

•

the scope of service offerings;

•

strength in various geographic markets;

•

the price of services;

•

ability to acquire, process, analyze and report data in a time-saving and accurate manner;

•

ability to manage large-scale clinical trials both domestically and internationally;

•

our size; and

•

the service and product offerings of our competitors.

If our services are not competitive based on these or other factors, our business, financial condition and results of operations will be materially harmed.

The biopharmaceutical services industry is highly competitive, and we face numerous competitors in our business, including hundreds of contract research organizations. If we fail to compete effectively, we will lose clients, which would cause our business to suffer. We primarily compete against in-house departments of pharmaceutical companies, full service contract research organizations, or CROs, small specialty CROs, and to a lesser extent, universities and teaching hospitals. Some of these competitors have substantially greater capital, technical and other resources than we do. In addition, certain of our competitors that are smaller specialized companies may compete effectively against us because of their concentrated size and focus.

Changes in outsourcing trends in the pharmaceutical and biotechnology industries could adversely affect our operating results and growth rate.

Service revenues depend greatly on the expenditures made by the pharmaceutical and biotechnology industries in research and development. Accordingly, economic factors and industry trends that affect our clients in these industries also affect our business. For example, the practice of many companies in these industries has been to hire outside organizations like us to conduct clinical research projects. This practice has grown significantly in the last decade, and we have benefited from this trend. However, if this trend were to change and companies in these industries were to reduce the number of research and development projects they outsource, our business could be materially adversely affected.

Additionally, numerous governments have undertaken efforts to control growing healthcare costs through legislation, regulation and voluntary agreements with medical care providers and pharmaceutical companies. If future regulatory cost containment efforts limit the profits that can be derived on new drugs, our clients might reduce their research and development spending, which could reduce our business.

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Failure to comply with existing regulations could result in increased costs to complete clinical trials.

Our business is subject to numerous governmental regulations, primarily relating to pharmaceutical product development and the conduct of clinical trials. In particular, we are subject to 21 CFR Part 11 of the Code of Federal Regulations that provides the criteria for acceptance by the FDA of electronic records. If we fail to comply with these governmental regulations, it could result in the termination of ongoing clinical research or the disqualification of data for submission to regulatory authorities. We also could be barred from providing clinical trial services in the future or be subjected to fines. Any of these consequences would harm our reputation, our prospects for future work and our operating results.

Our CapMed division may not reach profitability.

Our CapMed division had a loss from operations of $367,541 for the three months ended September 30, 2006 and a loss of operations of $1,191,907 for the nine months ended September 30, 2006. If our CapMed division continues to incur such losses, our businesses, results of operations and financial condition could be materially adversely affected.

Changes in governmental regulation could decrease the need for the services we provide, which would negatively affect our future business opportunities.

In recent years, the United States Congress and state legislatures have considered various types of healthcare reform in order to control growing healthcare costs. The United States Congress and state legislatures may again address healthcare reform in the future. We are unable to predict what legislative proposals will be adopted in the future, if any. Similar reform movements have occurred in Europe and Asia.

Implementation of healthcare reform legislation that results in additional costs could limit the profits that can be made by clients from the development of new products. This could adversely affect our clients’ research and development expenditures, which could, in turn, decrease the business opportunities available to us both in the United States and abroad. In addition, new laws or regulations may create a risk of liability, increase costs or limit service offerings. We cannot predict the likelihood of any of these events.

In addition to healthcare reform proposals, the expansion of managed care organizations in the healthcare market may result in reduced spending on research and development. Managed care organizations’ efforts to cut costs by limiting expenditures on pharmaceuticals and medical devices could result in pharmaceutical, biotechnology and medical device companies spending less on research and development. If this were to occur, we would have fewer business opportunities and our revenues could decrease, possibly materially.

Governmental agencies throughout the world, but particularly in the United States, strictly regulate the drug development/approval process. Our business involves helping pharmaceutical and biotechnology companies navigate the regulatory drug approval process. Changes in

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regulation, such as relaxation in regulatory requirements or the introduction of simplified drug approval procedures or an increase in regulatory requirements that we may have difficulty satisfying could eliminate or substantially reduce the need for our services. If these changes in regulations were to occur, our business, results of operations and financial condition could be materially adversely affected. These and other changes in regulation could have a material adverse impact on our available business opportunities.

If governmental agencies do not accept the data and analyses generated by our services, the need for our services would be eliminated or substantially reduced.

The success of our business is dependent upon continued acceptance by the FDA and other regulatory authorities of the data and analyses generated by our services in connection with the evaluation of the safety and efficacy of new drugs and devices. The FDA has formal guidelines that encourage the use of “surrogate measures,” through submission of digital image data, for evaluation of drugs to treat life-threatening or debilitating conditions. We cannot assure you that the FDA or other regulatory authorities will accept the data or analyses generated by us in the future and, even assuming acceptance, the FDA or other regulatory authorities may not require the application of imaging techniques to numbers of patients and over time periods substantially similar to those required of traditional safety and efficacy techniques. If the governmental agencies do not accept data and analyses generated by our services in connection with the evaluation of new drugs and devices, the need for our services would be eliminated or substantially reduced, and, as a result, our business, results of operations and financial condition could be materially adversely affected.

We may be exposed to liability claims as a result of our involvement in clinical trials.

We may be exposed to liability claims as a result of our involvement in clinical trials. We cannot assure you that liability claims will not be asserted against us as a result of work performed for our clients. We maintain liability insurance coverage in amounts that we believe are sufficient for the pharmaceutical services industry. Furthermore, we cannot assure you that our clients will agree to indemnify us, or that we will have sufficient insurance to satisfy any such liability claims. If a claim is brought against us and the outcome is unfavorable to us, such outcome could have a material adverse impact on us.

Risks related to our common stock

Your percentage ownership and voting power and the price of our common stock may decrease as a result of events that increase the number of our outstanding shares.

As of September 30, 2006, we had the following capital structure:


Common stock outstanding		11,238,908

Common stock issuable upon:
Exercise of options which are outstanding		1,942,804
Exercise of options which have not been granted		712,716

Total common stock outstanding assuming exercise or conversion of all of the above		13,894,428

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As of September 30, 2006, we had outstanding options to purchase 1,942,804 shares of common stock at exercise prices ranging from $0.63 to $7.03 per share (exercisable at a weighted average of $2.56 per share), of which 1,766,204 options were then exercisable. Exercise of our outstanding options into our common stock may significantly and negatively affect the market price for our common stock as well as decrease your percentage ownership and voting power. In addition, we may conduct future offerings of our common stock or other securities with rights to convert the securities into shares of our common stock. As a result of these and other events that increase the number of our outstanding shares, your percentage ownership and voting power and the price of our common stock may decrease.

Shares of our common stock eligible for public sale may have a negative impact on its market price.

Future sales of shares of our common stock by existing holders of our common stock or by holders of outstanding options, upon the exercise thereof, could have a negative impact on the market price of our common stock. As of September 30, 2006, we had 11,238,908 shares of our common stock issued and outstanding, all of which are currently freely tradable. On March 1, 2006, in connection with his employment agreement dated March 28, 2005, we issued 14,850 shares of restricted stock to our President and Chief Executive Officer, this was net of 10,150 shares withheld for withholding taxes associated with the issuance of the shares.

We are unable to estimate the number of shares that may be sold since this will depend on the market price for our common stock, the personal circumstances of the sellers and other factors. Any sale of substantial amounts of our common stock or other securities in the open market may adversely affect the market price of the securities offered hereby and may adversely affect our ability to obtain future financing in the capital markets as well as create a potential market overhang.

Our affiliates have significant control over our common stock, allowing them to have significant influence over the outcome of all matters submitted to our stockholders for approval, which influence may conflict with our interests and the interests of our other stockholders.

Our directors, officers and principal stockholders (stockholders owning 10% or more of our common stock), including Covance Inc., beneficially owned 47% of the outstanding shares of common stock on a fully diluted as-converted to common stock basis at September 30, 2006, and such stockholders will have significant influence over the outcome of all matters submitted to our stockholders for approval, including the election of our directors and other corporate actions. In addition, such influence by these affiliates could have the effect of discouraging others from attempting to take us over, thereby increasing the likelihood that the market price of the common stock will not reflect a premium for control.

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Because we do not intend to pay dividends, stockholders will benefit from an investment in our common stock only if it appreciates in value.

We have never declared or paid any cash dividends on our common stock. We currently intend to retain our future earnings, if any, to finance further research and development and do not expect to pay any cash dividends in the foreseeable future. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

Trading in our common stock may be volatile, which may result in substantial declines in its market price.

The market price of our common stock has experienced historical volatility and might continue to experience volatility in the future in response to quarter-to-quarter variations in:

•

operating results;

•

analysts’ reports;

•

market conditions in the industry;

•

changes in governmental regulations; and

•

changes in general conditions in the economy or the financial markets.

The market has also experienced significant decreases in value. This volatility and the recent market decline has affected the market prices of securities issued by many companies, often for reasons unrelated to their operating performance, and may adversely affect the price of our common stock. Between January 1, 2006 and September 30, 2006, our common stock has traded at a low of $3.11 per share and a high of $4.83 per share.

Our common stock began trading on the NASDAQ National Market on December 18, 2003 and has a limited trading market. In July 1, 2006, the NASDAQ National Market changed its name to the NASDAQ Global Market. Prior to that time, our common stock was trading on the American Stock Exchange since February 2003. We cannot assure that an active trading market will develop or, if developed, will be maintained. As a result, our stockholders may find it difficult to dispose of shares of our common stock and, as a result, may suffer a loss of all or a substantial portion of their investment.

Certain provisions of our charter and Delaware law could make a takeover difficult and may prevent or frustrate attempts by our stockholders to replace or remove our management team.

We have an authorized class of 1,750,000 shares of undesignated preferred stock that may be issued by our board of directors, on such terms and with such rights, preferences and designation as the Board may determine. Issuance of such preferred stock, depending upon the rights,

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preferences and designations thereof, may have the effect of delaying, deterring or preventing a change in control of our company. In addition, we are subject to provisions of Delaware corporate law which, subject to certain exceptions, will prohibit us from engaging in any “business combination” with a person who, together with affiliates and associates, owns 15% or more of our common stock for a period of three years following the date that the person came to own 15% or more of our common stock unless the business combination is approved in a prescribed manner.

These provisions of our certificate of incorporation, and of Delaware law may have the effect of delaying, deterring or preventing a change in control of our company, may discourage bids for our common stock at a premium over market price and may adversely affect the market price, and the voting and other rights of the holders, of our common stock. In addition, these provisions make it more difficult to replace or remove our current management team in the event our stockholders believe this would be in the best interest of our company and our stockholders.

Item 6. Exhibits.


31.1		Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification of principal financial and accounting officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350 (furnished herewith).

32.2		Certification of principal financial and accounting officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350 (furnished herewith).

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	BIO-IMAGING TECHNOLOGIES, INC.

DATE: November 14, 2006	By:	/s/ Mark L. Weinstein
		Mark L. Weinstein, President and Chief Executive Officer (Principal Executive Officer)

DATE: November 14, 2006	By:	/s/ Ted I. Kaminer
		Ted I. Kaminer, Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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