TABLE OF CONTENTS




|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I. Financial Information
|                              | Item 1  Financial Statements                                                                
|                              | Item 2. Managements Discussion and Analysis of Results of Operations and
Financial Condition
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|Part II. Other Information   
|SIGNATURES                   
|Exhibit Index                
|Exhibit 15.1 - Review Report 
|Exhibit 15.2 - Consent       



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##### Table of Contents



Securities and Exchange Commission
Washington, D.C. 20549

Form 10-Q

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

For the Quarterly Period Ended March 31,
2001

Commission file number 000-20699

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

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Ohio                                                           |  | 34-1685364                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
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|20600 Chagrin Boulevard
Cleveland, Ohio                        |  | 44122                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          

|                                                   
|---------------------------------------------------
|(216) 921-6505                                     
|                                                   
|(Registrants
telephone number, including area code)

|                                                                                  
|----------------------------------------------------------------------------------
|                                                                                  
|(Former name, former address and former fiscal year, if changed since last report)

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

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

The number of Common Shares, without par value, outstanding as of April 30,
2001 was 3,290,322.





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##### Table of Contents






Part I. Financial Information




Item 1  Financial Statements

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                 |                                                                                                                                                                                                             |                                            |           |             |            |  |              |             |            |  | 
|-------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ----------- | ---------- |  | ------------ | ----------- | ---------- |  | 
|                                                                                 |                                                                                                                                                                                                             |                                            |           |             |            |  |              |             | (Note A)  
|                                                                                 |                                                                                                                                                                                                             |                                            |           |             | March 31,  |  | December 31,
|                                                                                 |                                                                                                                                                                                                             |                                            |           |             | 2001       |  | 2000        
|                                                                                 |                                                                                                                                                                                                             |                                            |           |             |            |  |             
|                                                                                 |                                                                                                                                                                                                             |                                            | ASSETS   
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Current assets:                                                                 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cash and cash equivalents                                                                                                                                                                                   |                                            | $         | 2,010,667   |            |  | $            | 2,383,244   |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Short-term investments                                                                                                                                                                                      |                                            |           | 8,207,219   |            |  |              | 9,656,852   |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accounts receivable, less allowances                                                                                                                                                                        |                                            |           | 708,989     |            |  |              | 609,351     |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Prepaid expenses and other current assets                                                                                                                                                                   |                                            |           | 327,283     |            |  |              | 377,212     |           
|                                                                                 |                                                                                                                                                                                                             |                                            |           |             |            |  |              |            
|                                                                                 |                                                                                                                                                                                                             | Total current assets                       |           |             | 11,254,158 |  |              |             | 13,026,659 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Property and equipment, at cost
net of accumulated depreciation and amortization |                                                                                                                                                                                                             |                                            | 1,906,111 |             |            |  | 1,374,352    |            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Other assets                                                                     |                                                                                                                                                                                                             |                                            | 67,947    |             |            |  | 84,989       |            
|                                                                                 |                                                                                                                                                                                                             |                                            |           |             |            |  |              |            
|                                                                                 |                                                                                                                                                                                                             | Total assets                               |           | $           | 13,228,216 |  |              | $           | 14,486,000 | 
|                                                                                 |                                                                                                                                                                                                             |                                            |           |             |            |  |              |            
|                                                                                 |                                                                                                                                                                                                             | LIABILITIES AND SHAREHOLDERS EQUITY      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Current liabilities:                                                            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accounts payable                                                                                                                                                                                            |                                            | $         | 230,808     |            |  | $            | 129,038     |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Current portion of capital lease obligation                                                                                                                                                                 |                                            |           | 123,073     |            |  |              |            |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accrued expenses                                                                                                                                                                                            |                                            |           | 739,313     |            |  |              | 914,114     |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Deferred revenue                                                                                                                                                                                            |                                            |           | 340,986     |            |  |              | 338,879     |           
|                                                                                 |                                                                                                                                                                                                             |                                            |           |             |            |  |              |            
|                                                                                 |                                                                                                                                                                                                             | Total current liabilities                  |           |             | 1,434,180  |  |              |             | 1,382,031  | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Capital lease obligation, less current portion                                   |                                                                                                                                                                                                             |                                            | 260,238   |             |            |  |             |            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Shareholders equity:                                                           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Serial preferred shares, without par value, 1,000,000 shares
authorized, none issued                                                                                                                        |                                            |           |            |            |  |              |            |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Common shares, without par value, authorized 15,000,000
shares; issued 6,590,322 shares as of December 31, 2000
and March 31, 2001; outstanding 3,290,322 shares as of
December 31, 2000 and March 31, 2001 |                                            |           | 50,360,360  |            |  |              | 50,356,667  |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accumulated deficit                                                                                                                                                                                         |                                            |           | (18,578,059 | )          |  |              | (16,987,206 | )         
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Treasury shares, 3,300,000 shares at cost                                                                                                                                                                   |                                            |           | (20,188,308 | )          |  |              | (20,188,308 | )         
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Foreign currency translation                                                                                                                                                                                |                                            |           | (60,195     | )          |  |              | (77,184     | )         
|                                                                                 |                                                                                                                                                                                                             |                                            |           |             |            |  |              |            
|                                                                                 |                                                                                                                                                                                                             | Total shareholders equity                 |           |             | 11,533,798 |  |              |             | 13,103,969 | 
|                                                                                 |                                                                                                                                                                                                             |                                            |           |             |            |  |              |            
|                                                                                 |                                                                                                                                                                                                             | Total liabilities and shareholders equity |           | $           | 13,228,216 |  |              | $           | 14,486,000 | 
|                                                                                 |                                                                                                                                                                                                             |                                            |           |             |            |  |              |            

|        |  |                                                                                                                                                                                                                                                                                                
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note A: |  | The balance sheet at December 31, 2000 has been derived from the audited consolidated financial statements at that date,
but does not include all of the information and footnotes required by accounting principles generally accepted in the
United States for complete financial statements.

See notes to condensed consolidated financial
statements.

2



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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                             |                        |   |                    |         |      |   |            |         | 
|-------------------------------------------- | ---------------------- | - | ------------------ | ------- | ---- | - | ---------- | ------- | 
|                                             |                        |   | Three Months Ended
|                                             |                        |   | March 31,         
|                                             |                        |   |                   
|                                             |                        |   | 2001               |         | 2000
|                                             |                        |   |                    |         |     
|Revenue                                      |                        | $ | 673,113            |         |      | $ | 497,342    |        
|                                            
|                                            
|                                            
|                                            
|Direct costs                                 |                        |   | 429,618            |         |      |   | 351,335    |        
|                                             |                        |   |                    |         |      |   |            |        
|Gross profit                                 |                        |   | 243,495            |         |      |   | 146,007    |        
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |                        |   | 1,742,634          |         |      |   | 1,259,466  |        
|                                            
|                                            
|                                            
|                                            
|Depreciation and amortization                |                        |   | 231,001            |         |      |   | 187,480    |        
|                                             |                        |   |                    |         |      |   |            |        
|Loss from operations                         |                        |   | (1,730,140         | )       |      |   | (1,300,939 | )      
|                                            
|                                            
|                                            
|                                            
|Other income (expense):                     
|                                            
|                                            
|                                            
|                                            
|                                             | Interest income        |   |                    | 162,207 |      |   |            | 237,944 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Other income (expense) |   |                    | (22,920 | )    |   |            | 7,785   | 
|                                             |                        |   |                    |         |      |   |            |        
|Net loss                                     |                        | $ | (1,590,853         | )       |      | $ | (1,055,210 | )      
|                                             |                        |   |                    |         |      |   |            |        
|Basic and diluted net loss per share         |                        | $ | (0.48              | )       |      | $ | (0.32      | )      
|                                             |                        |   |                    |         |      |   |            |        
|Weighted average common shares outstanding   |                        |   | 3,290,322          |         |      |   | 3,290,322  |        
|                                             |                        |   |                    |         |      |   |            |        

See notes to condensed consolidated financial
statements.

3



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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                 |                                                                             |                                              |                                       |            |                              |          |           |             |          |          |  
|------------------------------------------------ | --------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------- | ---------- | ---------------------------- | -------- | --------- | ----------- | -------- | -------- | -
|                                                 |                                                                             |                                              |                                       |            | Three Months Ended March 31,
|                                                 |                                                                             |                                              |                                       |            |                             
|                                                 |                                                                             |                                              |                                       |            | 2001                         |          | 2000     
|                                                 |                                                                             |                                              |                                       |            |                              |          |          
|Operating Activities                            
|                                                
|                                                
|                                                
|                                                
|                                                 | Net loss                                                                    |                                              | $                                     | (1,590,853 | )                            |          | $         | (1,055,210  | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net loss to net cash
used in operating activities:
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             | Depreciation and amortization                |                                       |            | 231,001                      |          |           |             | 187,480  |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             | Other                                        |                                       |            | (129,027                     | )        |           |             | (200,194 | )       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             | Changes in operating assets and liabilities:
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             |                                              | Accounts receivable                   |            |                              | (104,138 | )         |             |          | (247,115 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             |                                              | Accounts payable and accrued expenses |            |                              | (73,025  | )         |             |          | (170,778 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             |                                              | Other                                 |            |                              | 53,352   |           |             |          | 16,952   |  
|                                                 |                                                                             |                                              |                                       |            |                              |          |           |            
|                                                 | Net cash used in operating activities                                       |                                              |                                       | (1,612,690 | )                            |          |           | (1,468,865  | )       
|                                                
|                                                
|                                                
|                                                
|Investing Activities                            
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of property and equipment                                         |                                              |                                       | (367,608   | )                            |          |           | (281,890    | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Maturities of short term investments                                        |                                              |                                       | 8,980,000  |                              |          |           | 17,029,000  |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of short term investments                                         |                                              |                                       | (7,393,148 | )                            |          |           | (16,176,492 | )       
|                                                 |                                                                             |                                              |                                       |            |                              |          |           |            
|                                                 | Net cash provided by investing activities                                   |                                              |                                       | 1,219,244  |                              |          |           | 570,618     |         
|                                                
|                                                
|                                                
|                                                
|Financing Activities                            
|                                                
|                                                
|                                                
|                                                
|                                                 | Payments under capital lease obligation                                     |                                              |                                       | (9,889     | )                            |          |           |            |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayment (issuance) of notes receivable                                    |                                              |                                       | 15,726     |                              |          |           | (6,540      | )       
|                                                 |                                                                             |                                              |                                       |            |                              |          |           |            
|                                                 | Net cash provided by (used in) financing activities                         |                                              |                                       | 5,837      |                              |          |           | (6,540      | )       
|                                                
|                                                
|                                                
|                                                
|Effect of exchange rate on cash                  |                                                                             |                                              | 15,032                                |            |                              |          | (61,233   | )          
|                                                 |                                                                             |                                              |                                       |            |                              |          |           |            
|Decrease in cash and cash equivalents            |                                                                             |                                              | (372,577                              | )          |                              |          | (966,020  | )          
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                             |                                              | 2,383,244                             |            |                              |          | 2,961,403 |            
|                                                 |                                                                             |                                              |                                       |            |                              |          |           |            
|Cash and cash equivalents at end of period       |                                                                             | $                                            | 2,010,667                             |            |                              | $        | 1,995,383 |            
|                                                 |                                                                             |                                              |                                       |            |                              |          |           |            

See notes to condensed consolidated financial
statements.

4



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##### Table of Contents



DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of
DATATRAK International, Inc. and subsidiaries (DATATRAK or the Company)
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31,
2001 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Companys Form 10-K for the year ended December 31, 2000 (File No. 000-20699).

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that might affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.

2. Net Loss per Share

The following table sets forth the computation of basic and diluted loss
per share.

|                                                                                                                                                      |  |                              |            |      |  |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | ---- |  | - | ---------- | -
|                                                                                                                                                      |  | Three Months Ended March 31,
|                                                                                                                                                      |  |                             
|                                                                                                                                                      |  | 2001                         |            | 2000
|                                                                                                                                                      |  |                              |            |     
|Net loss used in the calculation of basic and
diluted earnings per share                                                                              |  | $                            | (1,590,853 | )    |  | $ | (1,055,210 | )
|                                                                                                                                                      |  |                              |            |      |  |   |            |  
|Denominator for basic and diluted net loss
per share  weighted average Common
Shares outstanding                                                     |  |                              | 3,290,322  |      |  |   | 3,290,322  |  
|                                                                                                                                                      |  |                              |            |      |  |   |            |  
|Basic and diluted net loss per share                                                                                                                  |  | $                            | (0.48      | )    |  | $ | (0.32      | )
|                                                                                                                                                      |  |                              |            |      |  |   |            |  
|Common Share options excluded from the
computation of diluted net loss per share
because they would have an antidilutive
effect on net loss per share |  |                              | 931,658    |      |  |   | 666,089    |  
|                                                                                                                                                      |  |                              |            |      |  |   |            |  

5



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##### Table of Contents



DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)

3. Capital Lease Obligation

During March 2001, the Company entered into an agreement with an
unaffiliated third party to lease certain computer equipment. The lease has
been recorded as a capital lease. Terms of the lease agreement require the
Company to maintain a restricted cash balance equal to the outstanding balance
payable on the lease ($383,311 at March 31, 2001). Future minimum lease
payments under the capital lease obligation as of March 31, 2001 are as
follows:

|                                   |  |   |         | 
|---------------------------------- |  | - | ------- | 
|Twelve months ending March 31,    
|                                  
|2002                               |  | $ | 145,089 | 
|                                  
|                                  
|                                  
|                                  
|2003                               |  |   | 145,089 | 
|                                  
|                                  
|                                  
|                                  
|2004                               |  |   | 132,997 | 
|                                   |  |   |         | 
|                                   |  |   | 423,175 | 
|                                  
|                                  
|                                  
|                                  
|Less amounts representing interest |  |   | 39,864  | 
|                                   |  |   |         | 
|                                   |  | $ | 383,311 | 
|                                   |  |   |         | 

4. Comprehensive loss

The following table sets forth comprehensive loss.

|                             |  |                              |            |      |  |   |            |  
|---------------------------- |  | ---------------------------- | ---------- | ---- |  | - | ---------- | -
|                             |  | Three Months Ended March 31,
|                             |  |                             
|                             |  | 2001                         |            | 2000
|                             |  |                              |            |     
|Net loss                     |  | $                            | (1,590,853 | )    |  | $ | (1,055,210 | )
|                            
|                            
|                            
|                            
|Foreign currency translation |  |                              | 16,989     |      |  |   | (35,214    | )
|                             |  |                              |            |      |  |   |            |  
|                            
|                            
|                            
|                            
|Comprehensive loss           |  | $                            | (1,573,864 | )    |  | $ | (1,090,424 | )
|                             |  |                              |            |      |  |   |            |  

5. Reclassification

Certain prior year amounts have been reclassified to conform to the current
year presentation.

6



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##### Table of Contents






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

The information set forth and discussed below for the three months ended
March 3l, 2001 is derived from the Condensed Consolidated Financial Statements
included elsewhere herein. The financial information set forth and discussed
below is unaudited, but in the opinion of management, reflects all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
such information. The Companys results of operations for a particular quarter
may not be indicative of results expected during the other quarters or for the
entire year.

General

DATATRAK is an application service provider (ASP) that uses the software
known as DATATRAK EDC to provide electronic data capture (EDC) and
other services, which assist companies in the clinical pharmaceutical,
biotechnology, contract research organization (CRO) and medical device
research industries, to accelerate the completion of clinical trials.
Approximately 77% of the Companys assets, or approximately $10.2 million, are
held in cash, cash equivalents and short-term investments. The Company has
recognized minimal revenue and has experienced significant losses and negative
cash flow from operations since commencing EDC operations in 1997. The Company
is continuing to develop and commercialize the DATATRAK EDC software
and anticipates that its operating results will fluctuate significantly from
period to period. There can be no assurance of the Companys long-term future
prospects.

The Companys contracts provide a fixed price for each component or
service to be delivered. Services provided by DATATRAK that are in addition to
those provided for in its contracts are billed on a fee for service basis for
services completed. Generally, these contracts range in duration from several
months to several years. The ultimate contract value is dependent upon the
length of the customers use of DATATRAK EDC and the services
provided by DATATRAK. As services are performed over the life of the contract,
revenue is recognized under the percentage of completion method utilizing units
of delivery. Costs associated with contract revenues are recognized as
incurred. These contracts can be terminated by the customer with or without
cause. DATATRAK is entitled to payment for all work performed through the date
of notice of termination and for recovery of some or all costs incurred to
terminate a contract. The termination of a contract will not result in a
material adjustment to revenue or costs previously recognized.

DATATRAK is also a seller and licenser of software. Generally, revenue is
recognized upon delivery of sold software. Licensing revenue is recognized
ratably over the life of the license. To date, DATATRAK has not recognized any
revenue from software sales.

Since its purchase of the DATATRAK EDC software in January
1998, DATATRAK has recorded revenue related to a small number of contracts. At
March 31, 2001, DATATRAKs backlog was $5.0 million. Due to DATATRAKs early
stage of development and its low level of backlog, there can be no assurance as
to its future levels of revenue.

Results of Operations

Three months ended March 31, 2001 compared with three months ended March
31, 2000

Revenue for the three months ended March 31, 2001 increased 34.0% to
$670,000 as compared to $500,000 for the three months ended March 31, 2000.
The increase was the result of an increase in the number of clinical trials
using the DATATRAK EDC software. Twice as many clinical trails used
DATATRAK EDC during the three months ended March 31, 2001 as
compared to the three months ended March 31, 2000.

7



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##### Table of Contents



Direct costs of revenue, mainly personnel costs, were $430,000 and
$350,000 during the three months ended March 31, 2001 and 2000, respectively.
The 22.9% increase in direct costs was mainly the result of increased personnel
costs of $50,000 caused by additional employees. The remaining increase was
due to additional contract costs related to the increased usage of the DATATRAK
EDC software.

Selling, general and administrative expenses (SG&A) include all
administrative personnel costs, business development costs, and all other
expenses not directly chargeable to a specific contract. SG&A expenses
increased by 30.8% to $1.7 million from $1.3 million for the three months ended
March 31, 2001 and 2000, respectively. Of the increase, $380,000 was due to
increased personnel costs, which were partially offset by a $110,000 decrease
in consulting costs. The remaining increase was caused by an increase in other
SG&A expenses associated with the Companys development of and marketing of the
DATATRAK EDC software.

Depreciation and amortization expense increased to $230,000 during the
three months ended March 31, 2001 from $190,000 during the three months ended
March 31, 2000. The increase was the result of depreciating capital
expenditures associated with the building of DATATRAKs information technology
infrastructure.

Other income decreased to $140,000 during the three months ended March 31,
2001 from $250,000 during the three months ended March 31, 2000. Other income
includes interest income which decreased $80,000 for the three months ended
March 31, 2001 compared to March 31, 2000, due to the Companys use of cash to
fund its operating losses and other working capital needs.

Liquidity and Capital Resources

Since its inception, the Companys principal sources of cash have been
cash flow from operations and proceeds from the sale of equity securities.
During 1999, the Company also generated $15.6 million in cash through the sale
of its Clinical Business and $1.3 million in cash from a favorable legal
settlement. The Companys investing activities primarily reflect capital
expenditures and net purchases of short-term investments.

The Companys contracts usually require a portion of the contract amount
to be paid at the time the contract is initiated. Additional payments are
generally received upon completion of negotiated performance milestones
throughout the life of the contract. All amounts received are recorded as a
liability (deferred revenue) until work has been completed and revenue is
recognized. Cash receipts do not necessarily correspond to costs incurred or
revenue recognized. The Company typically receives a low volume of
large-dollar receipts. Accounts receivable will fluctuate due to the timing
and size of cash receipts. Accounts receivable (net of allowance for doubtful
accounts) was $710,000 at March 31, 2001 and $610,000 at December 31, 2000.
Deferred revenue was $340,000 at both March 31, 2001 and December 31, 2000.

Cash and cash equivalents decreased $370,000 during the three months ended
March 31, 2001. This was the result of $1.2 million provided by investing and
financing activities, offset by $1.6 million used in operating activities.
Investing activities included net proceeds of $1.6 million from purchases and
maturities of short-term investments offset by $370,000 used to purchase
property and equipment. A capital lease obligation of $390,000 is excluded
from financing and investing activities on the Condensed Consolidated Statement
of Cash Flows, entered into during the three months ended March 31, 2001. Cash
used for operating activities resulted from the funding of net operating losses
and other working capital needs.

At March 31, 2001, the Company had working capital of $9.8 million, and
its cash, cash equivalents and short-term investments totaled $10.2 million.
The Companys working capital decreased

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by $1.8 million since December 31,
2000. The decrease was primarily the result of the $1.8 million decrease in
cash, cash equivalents and short-term investments.

The Company is responsible for funding the future development and testing
of the DATATRAK EDC software. The Company will continue to invest
in the development of the DATATRAK® process. The Companys
operations and the EDC market are still in a developmental stage. DATATRAK has
experienced marginal revenue growth, however, the Company anticipates negative
cash flow from operations during 2001, as it continues to build its operational
and business development infrastructure. The Company anticipates capital and
related expenditures of approximately $2.0 million over the next twelve months
for continued commercialization and product development of DATATRAK
EDC, which the Company expects to fund from existing cash and cash
equivalents, maturities of short-term investments and cash flow from
operations. The Company believes that its cash and cash equivalents,
maturities of short-term investments and cash flow from operations, together
with its existing sources of equity, will be sufficient to meet its working
capital and capital expenditure requirements for the next year. However, at
the current rates of negative cash flows, capital and related expenditures and
revenue growth, the Company anticipates that it may need to raise additional
funds for working capital by selling debt or equity securities or through other
arrangements. Additional capital may not be available on acceptable terms, if
at all.

Inflation

To date, the Company believes the effects of inflation have not had a
material adverse effect on its results of operations or financial condition.

Interest Rate Risk

The Company has fixed income investments consisting of cash equivalents
and short-term investments, which may be affected by changes in market interest
rates. The Company does not use derivative financial instruments in its
investment portfolio. The Company places its cash equivalents and short-term
investments with high-quality financial institutions, limits the amount of
credit exposure to any one institution and has established investment
guidelines relative to diversification and maturities designed to maintain
safety and liquidity. Investments are reported at amortized cost, which
approximates fair value.

Foreign Currency Risk

The Companys foreign sales and results of operations are subject to the
impact of foreign currency fluctuations. Approximately 16% of the Companys
revenue for the three months ended March 31, 2001 was earned in Germany. The
Company manages its risk to foreign currency exchange rates by maintaining
foreign currency bank accounts in currencies which it regularly transacts
business. The Company does not currently hedge against the risk of exchange
rate fluctuations.

Euro Currency Conversion

On January 1, 1999, eleven of the fifteen members of the European Union
adopted a new European currency unit (the Euro) as their common legal
currency. The participating countries national currencies will remain legal
tender as denominations of the Euro from January 1, 1999 through January 1,
2002, and the exchange rates between the Euro and such national currency units
will be fixed. The conversion to the Euro is not expected to have a material
impact on the Companys financial position, results of operations or cash
flows. However, uncertainty exists as to the effects the Euro will have on the
marketplace.

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Information About Forward-Looking Statements

Certain statements made in this Form 10-Q, other SEC filings or written
materials or orally by the Company or its representatives may constitute
forward-looking statements that are based on managements current beliefs,
estimates and assumptions concerning the operations, future results and
prospects of the Company and the clinical pharmaceutical research industry in
general. All statements that address operating performance, events or
developments that management anticipates will occur in the future, including
statements related to future revenue, profits, expenses, income and earnings
per share or statements expressing general optimism about future results, are
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 (Exchange Act). In addition, words such as expects,
anticipates, intends, plans, believes, estimates, variations of such
words, and similar expressions are intended to identify forward-looking
statements. Forward-looking statements are subject to the safe harbors created
in the Exchange Act. Factors that may cause actual results to differ materially
from those in the forward-looking statements include the ability of the Company
to absorb corporate overhead and other fixed costs in order to successfully
market the DATATRAK EDC software; the development and fluctuations
in the market for electronic data capture technology; the degree of the
Companys success in obtaining new contracts; the timing of payments from
customers and the timing of clinical trial sponsor decisions to conduct new
clinical trials or cancel or delay ongoing trials; dependence on key personnel;
governmental regulation; the early stage of the Companys ASP operations; and
general economic conditions such as the rate of employment, inflation, interest
rates and the condition of capital markets. This list of factors is not
exclusive. In addition, the Companys success depends on the outcome of
various strategic initiatives it has undertaken, all of which are based on
assumptions made by the Company concerning trends in the clinical research
market and the health care industry.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from changes in interest rates and
foreign currency exchange rates since it funds its operations through
short-term investments and has business transactions in German Deutschmarks.




Part II. Other Information

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|Item 1. |  | Legal Proceedings                                  
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|Item 2. |  | Changes in Securities and Use of Proceeds          
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|Item 3. |  | Defaults Upon Senior Securities                    
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|Item 4. |  | Submission of Matters to a Vote of Security Holders
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|Item 5. |  | Other Information                                  
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|        |  |                                                                                
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|Item 6. |  | Exhibits and Reports on Form 8-K                                               
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|        |  | (a) Exhibits                                                                   
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|        |  | See the Exhibit Index at page E  1 of this Form 10  Q.                       
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|        |  | (b) Reports on Form 8-K                                                        
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|        |  | No reports were filed on form 8-K during the three months ended March 31, 2001.





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SIGNATURES

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

|      |  |         |  |                                                                                                                                    
|----- |  | ------- |  | -----------------------------------------------------------------------------------------------------------------------------------
|      |  |         |  | DATATRAK International, Inc.                                                                                                       
|      |  |         |  |                                                                                                                                    
|      |  |         |  | Registrant                                                                                                                         
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|Date: |  | 5/15/01 |  | /s/ Jeffrey A. Green                                                                                                               
|      |  |         |  | Jeffrey A. Green,
President and Chief Executive Officer and a Director
(Principal Executive Officer)                               
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|Date: |  | 5/15/01 |  | /s/ Terry C. Black                                                                                                                 
|      |  |         |  | Terry C. Black,
Vice President of Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
(Principal Financial Officer)

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Exhibit Index

|            |  |                                                                                                                         |  |      |  |  |  | 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ---- |  |  |  | 
|Exhibit No. |  | Description                                                                                                             |  | Page
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|4.1         |  | Specimen Certificate of the Companys Common Shares, without par value                                                  |  | (B) 
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|4.2         |  | Second Amended and Restated Registration Agreement, dated July 15,1994,
as amended on June 1, 1995 and February 5, 1996 |  | (A) 
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|10.1        |  | Amended and Restated 1994 Directors Share Option Plan*                                                                 |  | (C) 
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|10.2        |  | Amended and Restated 1996 Outside Directors Stock Option Plan*                                                         |  | (C) 
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|10.3        |  | Amendment No. 2 to the Amended and Restated 1996 Outside Directors Stock
Option Plan*                                  |  | (F) 
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|10.4        |  | Amended and Restated 1992 Share Incentive Plan*                                                                         |  | (C) 
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|10.5        |  | Amended and Restated 1996 Key Employees and Consultants
Stock Option Plan*                                             |  | (C) 
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|10.6        |  | Amendment No. 2 to the Amended and Restated 1996 Key Employees
and Consultants Stock Option Plan*                      |  | (G) 
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|10.7        |  | Form of Indemnification Agreement*                                                                                      |  | (A) 
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|10.8        |  | Employment Agreement between the Company and Jeffrey A. Green, dated
February 5, 2001*                                  |  | (H) 
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|10.9        |  | Employment Agreement between the Company and Terry C. Black,
dated February 5, 2001*                                    |  | (H) 
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|10.10       |  | Separation Agreement between the Company and Terry C. Black,
dated December 22, 1998*                                   |  | (E) 
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|10.11       |  | Employment Agreement between the Company and Marc J. Shlaes
dated July 2, 1998*                                         |  | (B) 
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|10.12       |  | Employment Agreement between the Company and Wolfgang Summa,
dated December 29, 2000*                                   |  | (H) 
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|10.13       |  | DATATRAK International, Inc. Retirement Savings Plan*                                                                   |  | (D) 
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|10.14       |  | 1999 Outside Director Stock Option Plan*                                                                                |  | (G) 
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|15.1        |  | Independent Accountants Review Report                                                                                 
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|15.2        |  | Acknowledgement of Ernst & Young LLP                                                                                   



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|* |  | Management compensatory plan or arrangement.
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E-1



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Exhibit Index

|            |  |                                                                                                                                                              |  |      |  | 
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|Exhibit No. |  | Description                                                                                                                                                  |  | Page
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|(A)         |  | Incorporated herein by reference to the appropriate exhibit to the
Companys Registration Statement on Form S-1 (Registration statement No.
333-2140).      
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|(B)         |  | Incorporated herein by reference to the appropriate exhibit to the
Companys Form 10-K for the year ended December 31, 1999 (Commission file No.
000-20699).
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|(C)         |  | Incorporated herein by reference to the appropriate exhibit to the
Companys Registration Statement on Form S-8 (Registration statement No.
333-16061).     
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|(D)         |  | Incorporated herein by reference to the appropriate exhibit to the
Companys Registration Statement on Form S-8 (Registration statement No.
333-26251).     
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|(E)         |  | Incorporated herein by reference to the appropriate exhibit to the
Companys Form 10-K for the year ended December 31, 1998 (Commission file No.
000-20699).
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|(F)         |  | Incorporated herein by reference to the appropriate exhibit to the
Companys Schedule 14A dated March 17, 1999 (Commission File No. 000-20699).             
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|(G)         |  | Incorporated herein by reference to the appropriate exhibit to the
Companys Schedule 14A dated May 3, 2000 (Commission File No. 000-20699).                
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|(H)         |  | Incorporated herein by reference to the appropriate exhibit to the
Companys Form 10-K for the year ended December 31, 2000 (Commission file No.
000-20699).

E-2