##### 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 June 30, 2002

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

|                                         |  |           
|---------------------------------------- |  | ----------
|6150 Parkland Boulevard                  |  |           
|Mayfield Heights, Ohio                   |  | 44124     
|                                         |  |           
|(Address of principal executive offices) |  | (Zip Code)

(440) 443-0082




(Registrants telephone number, including area code)


20600 Chagrin Boulevard, Cleveland Ohio 44122




(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 July 31, 2002
was 5,263,836.





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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   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 2. Changes in Securities and Use of Proceeds                                            
|                              | Item 3. Defaults Upon Senior Securities                                                      
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 5. Other Information                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|Exhibit Index                



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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)
|                                               |                                                                                                                                                                                                                                                  |                                      |           |             | June 30, |   | December 31,
|                                               |                                                                                                                                                                                                                                                  |                                      |           |             | 2002     |   | 2001        
|                                               |                                                                                                                                                                                                                                                  |                                      |           |             |          |   |             
|                                               |                                                                                                                                                                                                                                                  |                                      | ASSETS    |             |          |   |              |             |          |  | 
|Current assets:                                |                                                                                                                                                                                                                                                  |                                      |           |             |          |   |              |            
|                                               | Cash and cash equivalents                                                                                                                                                                                                                        |                                      | $         | 1,878,547   |          |   | $            | 2,174,445   |         
|                                               | Short-term investments                                                                                                                                                                                                                           |                                      |           | 3,531,296   |          |   |              | 3,029,582   |         
|                                               | Accounts receivable, less allowances                                                                                                                                                                                                             |                                      |           | 548,611     |          |   |              | 429,911     |         
|                                               | Prepaid expenses and other current assets                                                                                                                                                                                                        |                                      |           | 449,696     |          |   |              | 373,503     |         
|                                               |                                                                                                                                                                                                                                                  |                                      |           |             |          |   |              |            
|Total current assets                           |                                                                                                                                                                                                                                                  |                                      | 6,408,150 |             |          |   | 6,007,441    |            
|Property and equipment, at cost                |                                                                                                                                                                                                                                                  |                                      |           |             |          |   |              |            
|                                               | net of accumulated depreciation and amortization                                                                                                                                                                                                 |                                      |           | 2,044,441   |          |   |              | 1,574,211   |         
|Other assets                                   |                                                                                                                                                                                                                                                  |                                      | 48,945    |             |          |   | 51,918       |            
|                                               |                                                                                                                                                                                                                                                  |                                      |           |             |          |   |              |            
|Total assets                                   |                                                                                                                                                                                                                                                  | $                                    | 8,501,536 |             |          | $ | 7,633,570    |            
|                                               |                                                                                                                                                                                                                                                  |                                      |           |             |          |   |              |            
|                                               |                                                                                                                                                                                                                                                  | LIABILITIES AND SHAREHOLDERS EQUITY |           |             |          |   |              |             |          | 
|Current liabilities:                           |                                                                                                                                                                                                                                                  |                                      |           |             |          |   |              |            
|                                               | Accounts payable                                                                                                                                                                                                                                 |                                      | $         | 310,751     |          |   | $            | 253,095     |         
|                                               | Current portion of capital lease obligation                                                                                                                                                                                                      |                                      |           | 133,827     |          |   |              | 129,417     |         
|                                               | Accrued expenses                                                                                                                                                                                                                                 |                                      |           | 833,462     |          |   |              | 864,611     |         
|                                               | Deferred revenue                                                                                                                                                                                                                                 |                                      |           | 1,036,320   |          |   |              | 469,275     |         
|                                               |                                                                                                                                                                                                                                                  |                                      |           |             |          |   |              |            
|Total current liabilities                      |                                                                                                                                                                                                                                                  |                                      | 2,314,360 |             |          |   | 1,716,398    |            
|Capital lease obligation, less current portion |                                                                                                                                                                                                                                                  |                                      | 94,332    |             |          |   | 162,367      |            
|Shareholders equity:                          |                                                                                                                                                                                                                                                  |                                      |           |             |          |   |              |            
|                                               | Serial preferred shares, without par value, 1,000,000 shares
authorized, none issued                                                                                                                                                             |                                      |           |            |          |   |              |            |         
|                                               | Common share warrants                                                                                                                                                                                                                            |                                      |           | 357,589     |          |   |              |            |         
|                                               | Common shares, without par value, authorized 15,000,000
shares; issued 8,563,836 shares as of June 30, 2002
and 6,591,322 as of December 31, 2001; outstanding 5,263,836
shares as of June 30, 2002 and 3,291,322 shares as of
December 31, 2001 |                                      |           | 53,860,917  |          |   |              | 50,372,239  |         
|                                               | Treasury shares, 3,300,000 shares at cost                                                                                                                                                                                                        |                                      |           | (20,188,308 | )        |   |              | (20,188,308 | )       
|                                               | Accumulated deficit                                                                                                                                                                                                                              |                                      |           | (27,848,365 | )        |   |              | (24,341,439 | )       
|                                               | Foreign currency translation                                                                                                                                                                                                                     |                                      |           | (88,989     | )        |   |              | (87,687     | )       
|                                               |                                                                                                                                                                                                                                                  |                                      |           |             |          |   |              |            
|Total shareholders equity                     |                                                                                                                                                                                                                                                  |                                      | 6,092,844 |             |          |   | 5,754,805    |            
|                                               |                                                                                                                                                                                                                                                  |                                      |           |             |          |   |              |            
|Total liabilities and shareholders equity     |                                                                                                                                                                                                                                                  | $                                    | 8,501,536 |             |          | $ | 7,633,570    |            
|                                               |                                                                                                                                                                                                                                                  |                                      |           |             |          |   |              |            

|        |  |                                                                                                                                                                                                                                                                                                
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note A: |  | The balance sheet at December 31, 2001 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.

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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATI0NS
(UNAUDITED)

|                                             |                        |   |                    |        |                  |   |            |         |      |   |            |         |   |   |            |         |  
|-------------------------------------------- | ---------------------- | - | ------------------ | ------ | ---------------- | - | ---------- | ------- | ---- | - | ---------- | ------- | - | - | ---------- | ------- | -
|                                             |                        |   | Three Months Ended |        | Six Months Ended
|                                             |                        |   | June 30,           |        | June 30,        
|                                             |                        |   |                    |        |                 
|                                             |                        |   | 2002               |        | 2001             |   | 2002       |         | 2001
|                                             |                        |   |                    |        |                  |   |            |         |     
|Revenue                                      |                        | $ | 1,145,417          |        |                  | $ | 400,067    |         |      | $ | 1,961,282  |         |   | $ | 1,073,180  |        
|Direct costs                                 |                        |   | 506,701            |        |                  |   | 428,843    |         |      |   | 940,641    |         |   |   | 858,461    |        
|                                             |                        |   |                    |        |                  |   |            |         |      |   |            |         |   |   |            |        
|Gross profit (loss)                          |                        |   | 638,716            |        |                  |   | (28,776    | )       |      |   | 1,020,641  |         |   |   | 214,719    |        
|Selling, general and administrative expenses |                        |   | 2,100,982          |        |                  |   | 1,569,019  |         |      |   | 4,026,916  |         |   |   | 3,311,653  |        
|Depreciation and amortization                |                        |   | 295,060            |        |                  |   | 241,557    |         |      |   | 551,287    |         |   |   | 472,558    |        
|                                             |                        |   |                    |        |                  |   |            |         |      |   |            |         |   |   |            |        
|Loss from operations                         |                        |   | (1,757,326         | )      |                  |   | (1,839,352 | )       |      |   | (3,557,562 | )       |   |   | (3,569,492 | )      
|Other income (expense):                      |                        |   |                    |        |                  |   |            |         |      |   |            |         |   |   |            |        
|                                             | Interest income        |   |                    | 27,121 |                  |   |            | 106,248 |      |   |            | 61,422  |   |   |            | 270,657 |  
|                                             | Interest expense       |   |                    | (4,193 | )                |   |            | (6,273  | )    |   |            | (10,595 | ) |   |            | (8,475  | )
|                                             | Other income (expense) |   |                    | (1,367 | )                |   |            | 2,745   |      |   |            | (191    | ) |   |            | (20,175 | )
|                                             |                        |   |                    |        |                  |   |            |         |      |   |            |         |   |   |            |        
|Net loss                                     |                        | $ | (1,735,765         | )      |                  | $ | (1,736,632 | )       |      | $ | (3,506,926 | )       |   | $ | (3,327,485 | )      
|                                             |                        |   |                    |        |                  |   |            |         |      |   |            |         |   |   |            |        
|Basic and diluted net loss per share         |                        | $ | (0.33              | )      |                  | $ | (0.53      | )       |      | $ | (0.67      | )       |   | $ | (1.01      | )      
|                                             |                        |   |                    |        |                  |   |            |         |      |   |            |         |   |   |            |        
|Weighted average common shares outstanding   |                        |   | 5,263,836          |        |                  |   | 3,290,322  |         |      |   | 5,210,576  |         |   |   | 3,290,322  |        
|                                             |                        |   |                    |        |                  |   |            |         |      |   |            |         |   |   |            |        

See notes to condensed
consolidated financial statements.

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

|                                                 |                                                                             |                                              |                                       |            |                           |          |           |             |          |          |  
|------------------------------------------------ | --------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------- | ---------- | ------------------------- | -------- | --------- | ----------- | -------- | -------- | -
|                                                 |                                                                             |                                              |                                       |            | Six Months Ended June 30,
|                                                 |                                                                             |                                              |                                       |            |                          
|                                                 |                                                                             |                                              |                                       |            | 2002                      |          | 2001     
|                                                 |                                                                             |                                              |                                       |            |                           |          |          
|Operating
Activities                             |                                                                             |                                              |                                       |            |                           |          |           |            
|                                                 | Net loss                                                                    |                                              | $                                     | (3,506,926 | )                         |          | $         | (3,327,485  | )       
|                                                 | Adjustments to reconcile net loss to net cash
used in operating activities: |                                              |                                       |            |                           |          |           |             |         
|                                                 |                                                                             | Depreciation and amortization                |                                       |            | 551,287                   |          |           |             | 472,558  |         
|                                                 |                                                                             | Other                                        |                                       |            | (27,627                   | )        |           |             | (207,489 | )       
|                                                 |                                                                             | Changes in operating assets and liabilities: |                                       |            |                           |          |           |             |          |         
|                                                 |                                                                             |                                              | Accounts receivable                   |            |                           | (127,700 | )         |             |          | 277,484  |  
|                                                 |                                                                             |                                              | Accounts payable and accrued expenses |            |                           | 26,507   |           |             |          | (181,180 | )
|                                                 |                                                                             |                                              | Deferred revenue                      |            |                           | 567,045  |           |             |          | (7,556   | )
|                                                 |                                                                             |                                              | Other                                 |            |                           | (88,276  | )         |             |          | 13,518   |  
|                                                 |                                                                             |                                              |                                       |            |                           |          |           |            
|                                                 | Net cash used in operating activities                                       |                                              |                                       | (2,605,690 | )                         |          |           | (2,960,150  | )       
|Investing activities                             |                                                                             |                                              |                                       |            |                           |          |           |            
|                                                 | Purchases of property and equipment                                         |                                              |                                       | (1,004,003 | )                         |          |           | (525,810    | )       
|                                                 | Proceeds from sales of property and equipment                               |                                              |                                       | 1,095      |                           |          |           |            |         
|                                                 | Maturities of short-term investments                                        |                                              |                                       | 8,084,000  |                           |          |           | 17,551,000  |         
|                                                 | Purchases of short-term investments                                         |                                              |                                       | (8,541,701 | )                         |          |           | (14,262,760 | )       
|                                                 |                                                                             |                                              |                                       |            |                           |          |           |            
|                                                 | Net cash provided by (used in) investing activities                         |                                              |                                       | (1,460,609 | )                         |          |           | 2,762,430   |         
|Financing activities                             |                                                                             |                                              |                                       |            |                           |          |           |            
|                                                 | Proceeds from issuance of common shares and stock option exercises          |                                              |                                       | 3,838,881  |                           |          |           |            |         
|                                                 | Payments under capital lease obligation                                     |                                              |                                       | (63,625    | )                         |          |           | (39,788     | )       
|                                                 | Repayment of notes receivable, net                                          |                                              |                                       | 15,056     |                           |          |           | 25,750      |         
|                                                 |                                                                             |                                              |                                       |            |                           |          |           |            
|                                                 | Net cash provided by (used in) financing activities                         |                                              |                                       | 3,790,312  |                           |          |           | (14,038     | )       
|                                                 |                                                                             |                                              |                                       |            |                           |          |           |            
|Effect of exchange rate on cash                  |                                                                             |                                              | (19,911                               | )          |                           |          | (16,432   | )          
|                                                 |                                                                             |                                              |                                       |            |                           |          |           |            
|Decrease in cash and cash equivalents            |                                                                             |                                              | (295,898                              | )          |                           |          | (228,190  | )          
|Cash and cash equivalents at beginning of period |                                                                             |                                              | 2,174,445                             |            |                           |          | 2,383,244 |            
|                                                 |                                                                             |                                              |                                       |            |                           |          |           |            
|Cash and cash equivalents at end of period       |                                                                             | $                                            | 1,878,547                             |            |                           | $        | 2,155,054 |            
|                                                 |                                                                             |                                              |                                       |            |                           |          |           |            

See notes to condensed consolidated financial statements.

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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(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 and six month periods ended
June 30, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. 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, 2001 (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 June 30, |            | Six Months Ended June 30,
|                                                                                                                                                                   |  |                             |            |                          
|                                                                                                                                                                   |  | 2002                        |            | 2001                      |  | 2002 |            | 2001
|                                                                                                                                                                   |  |                             |            |                           |  |      |            |     
|Net loss used in the calculation of basic and
diluted loss per share                                                                                               |  | $                           | (1,735,765 | )                         |  | $    | (1,736,632 | )    |  | $ | (3,506,926 | ) |  | $ | (3,327,485 | )
|                                                                                                                                                                   |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|Denominator for basic and diluted net loss
per share  weighted average Common
Shares outstanding                                                                  |  |                             | 5,263,836  |                           |  |      | 3,290,322  |      |  |   | 5,210,576  |   |  |   | 3,290,322  |  
|                                                                                                                                                                   |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|Basic and diluted net loss per share                                                                                                                               |  | $                           | (0.33      | )                         |  | $    | (0.53      | )    |  | $ | (0.67      | ) |  | $ | (1.01      | )
|                                                                                                                                                                   |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|Common share options and warrants
excluded from the computation of diluted
net loss per share because they would have
an antidilutive effect on net loss per share |  |                             | 1,309,093  |                           |  |      | 1,024,923  |      |  |   | 1,309,093  |   |  |   | 1,024,923  |  
|                                                                                                                                                                   |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  

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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)

3. Comprehensive loss

The following table sets forth comprehensive loss.

|                             |  |                           |            |      |  |   |            |  
|---------------------------- |  | ------------------------- | ---------- | ---- |  | - | ---------- | -
|                             |  | Six Months Ended June 30,
|                             |  |                          
|                             |  | 2002                      |            | 2001
|                             |  |                           |            |     
|Net loss                     |  | $                         | (3,506,926 | )    |  | $ | (3,327,485 | )
|Foreign currency translation |  |                           | (1,302     | )    |  |   | (3,140     | )
|                             |  |                           |            |      |  |   |            |  
|Comprehensive loss           |  | $                         | (3,508,228 | )    |  | $ | (3,330,625 | )
|                             |  |                           |            |      |  |   |            |  

4. Shareholders Equity

In January 2002, the Company completed a private placement of its common
shares with certain outside investors. The Company sold 1,922,514 of its
common shares at a price of $2.25 per share. Net of expenses, the Company
raised approximately $3.8 million in cash. In conjunction with this private
placement, DATATRAK issued 192,252 warrants to purchase common shares at a
price of $2.25 per share. The warrants are fully vested as of the grant date
and expire five years from the date of grant. A non-cash charge of $371,589 to
shareholders equity was recorded as a result of stock options and warrants
that were granted and vested due to the Companys private placement of common
shares.

5. Restricted Cash

The Company is party to 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.
The restricted cash balance was $228,159 at June 30, 2002.

6. Common Share Warrants

At June 30, 2002, the Company had outstanding warrants to purchase 192,252
common shares at a price of $2.25 per share. The warrants became exercisable
on January 4, 2002 and will expire on January 4, 2007.

7. Reclassification

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

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

The information set forth and discussed below for the three and six month
periods ended June 30, 2002 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 a provider of software and other related services, commonly
referred to as an application service provider, or ASP. DATATRAKs customers
use the software known as DATATRAK EDC to collect and transmit clinical trial
data, commonly referred to as electronic data capture, or EDC. The Companys
services assist companies in the clinical pharmaceutical, biotechnology,
contract research organization (CRO) and medical device research industries,
in accelerating the completion of clinical trials. Approximately 64% of the
Companys assets, or approximately $5.4 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 enhance 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, and revenue is recognized as these components or
services are delivered. Services provided by DATATRAK that are in addition to
those provided for in its contracts are billed on a fee for service basis as
completed. Generally, these contracts range in duration from one to three
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 per
the specific terms of each contract. 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.

Since its purchase of the DATATRAK EDC software in January 1998, DATATRAK
has recorded revenue related to a small number of contracts. At June 30, 2002,
DATATRAKs backlog was $15.2 million. Backlog includes a $2.4 million contract
that has been placed on hold, by the clinical trial sponsor, for a minimum of
twelve months. 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.

Critical Accounting Policies

The Company has identified the most critical accounting principles upon
which its financial status depends. Critical principles were determined by
considering accounting policies that involve the most complex or subjective
decisions or assessments. The significant accounting policies which the
Company believes are the most critical to aid in fully understanding and
evaluating the reported consolidated results include the following:

Revenue Recognition

DATATRAKs contracts provide a fixed price for each component or service
to be delivered, and revenue is recognized as these components or services are
delivered. Services provided by DATATRAK that

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are in addition to those provided for in its contracts are billed on a fee for service basis as services
are completed. As services are performed over the life of the contract,
revenue is recognized per the specific terms of each contract. Costs
associated with contract revenue are recognized as incurred. Pass-through
costs that are paid directly by the Companys clients, and for which the
Company does not bear the risk of economic loss, are excluded from revenue. The
termination of a contract will not result in a material adjustment to the
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.

Software Development Costs

Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established, any additional costs are capitalized
in accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. Such costs are amortized over the lesser of three years or the
economic life of the related product. The Company performs an annual review of
the recoverability of such capitalized software costs. At the time a
determination is made that capitalized amounts are not recoverable based on the
estimated cash flows to be generated from the applicable software, any
remaining capitalized amounts are expensed.

Results of Operations

Three months ended June 30, 2002 compared with three months ended June 30, 2001

Revenue for the three months ended June 30, 2002 increased 175.0% to $1.1
million, as compared to $400,000 for the three months ended June 30, 2001. The
increase was the result of the Companys growing backlog and the resulting
increase in the number of clinical trials using the DATATRAK EDC software.

Direct costs of revenue, mainly personnel costs, were $510,000 and
$430,000 during the three months ended June 30, 2002 and 2001, respectively.
The 18.6% increase in direct costs was the result of increased personnel costs
of $50,000; other direct costs, primarily travel and other
costs billed directly to DATATRAKs customers, increased by $30,000 during the
three months ended June 30, 2002. DATATRAK was able to leverage its employee
costs, in conjunction with its increased revenue to increase its gross margin
to 53.6% compared to a negative 7.0% in the second quarter of the prior year.

Selling general and administrative expenses (SG&A) include all
administrative personnel costs, business and software development costs, and
all other expenses not directly chargeable to a specific contract. SG&A
expenses increased by 31.3% to $2.1 million from $1.6 million for the three
months ended June 30, 2002 and 2001, respectively. During the three months
ended June 30, 2002, there was a $340,000 increase in personnel costs caused by
an increase in sales and marketing and corporate office personnel. The
remainder of the increase was due to increased expenditures related to the
Companys sales and marketing activities and growth of its infrastructure.

Depreciation and amortization expense increased to $300,000 during the
three months ended June 30, 2002 from $240,000 during the three months ended
June 30, 2001. The increase was the result of depreciating capital
expenditures associated with the building of DATATRAKs information technology
infrastructure and amortizing leasehold improvements at the Companys new
corporate headquarters.

Other income decreased to $20,000 during the three months ended June 30,
2002 from $100,000 during the three months ended June 30, 2001. Other income
includes interest income which decreased

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$80,000 for the three months ended June 30, 2002, compared to June 30, 2001, due to the Companys use of cash to
fund its operating losses and other working capital needs and declining
interest rates on the Companys short-term investments.

Six months ended June 30, 2002 compared with six months ended June 30, 2001

Revenue for the six months ended June 30, 2002 increased 81.8% to $2.0
million, as compared to $1.1 million for the six months ended June 30, 2001.
The increase was the result of the Companys growth in backlog during the past
year and the resulting increase in the number of clinical trials using the
DATATRAK EDC software.

Direct costs of revenue, mainly personnel costs, were $940,000 and
$860,000 during the six months ended June 30, 2002 and 2001, respectively. The
9.3% increase in direct costs was the result of increased personnel costs of
$100,000 offset by a decrease in other direct costs of $20,000. DATATRAK was
able to leverage its employee costs, in conjunction with its increased revenue
to increase its gross margin to 53.0% compared to 21.8% in the first six months
of the prior year.

SG&A expenses increased by 21.2% to $4.0 million from $3.3 million for the
six months ended June 30, 2002 and 2001, respectively. During the six months
ended June 30, 2002, there was a $550,000 increase in personnel costs caused by
an increase in sales and marketing, software development and corporate office
personnel. The remainder of the increase was due to increased expenditures
related to the Companys sales and marketing activities and growth of its
infrastructure.

Depreciation and amortization expense increased to $550,000 during the six
months ended June 30, 2002 from $470,000 during the six months ended June 30,
2001. The increase was the result of depreciating capital expenditures
associated with the building of DATATRAKs information technology
infrastructure and amortizing leasehold improvements at the Companys new
corporate headquarters.

Other income decreased to $50,000 during the six months ended June 30,
2002 from $240,000 during the six months ended June 30, 2001. Other income
includes interest income which decreased $210,000 for the six months ended June
30, 2002 compared to June 30, 2001, due to the Companys use of cash to fund
its operating losses and other working capital needs and decreasing interest
rates on the Companys short-term investments.

Liquidity and Capital Resources

Since its inception, the Companys principal sources of cash have been
cash flow from operations, proceeds from the sale of equity securities and the
sale of its Clinical Business. The Companys investing activities primarily
reflect capital expenditures and purchases and maturities of short-term
investments. In January 2002 the Company raised approximately $3.8 million in
cash with the completion of its private placement of common shares.

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, as work progresses, 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 $549,000 at June 30, 2002 and
$430,000 at December 31, 2001. Deferred revenue was $1.0 million at June 30,
2002 and $470,000 at December 31, 2001.

Cash and cash equivalents decreased $300,000 during the six months ended
June 30, 2002. This was the result of $2.6 million used in operating
activities and $1.5 used in investing activities, offset by

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$3.8 million provided by financing activities. Cash used for operating activities resulted
from the funding of net operating losses and other working capital needs.
Investing activities included net purchases of short-term investments of
$460,000 and $1.0 million used to purchase property and equipment. Financing
activities include $3.8 million received from the Companys private placement
of its common shares.

At June 30, 2002, the Company had working capital of $4.1 million, and its
cash, cash equivalents and short-term investments totaled $5.4 million. The
Companys working capital decreased by $200,000 since December 31, 2001. The
decrease was primarily the result of the $570,000 increase in deferred revenue.
The increase in deferred revenue was partially offset by the $200,000 increase
in cash, cash equivalents and short-term investments and the $120,000 increase
in accounts receivable.

The Company is responsible for funding the future enhancement 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 2002, as it continues to build its operational and business
development infrastructure. The Company anticipates capital and related
expenditures of approximately $400,000 through the end of the current year 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
through December 31, 2002. However, at the current rates of negative cash
flows, capital and related expenditures and revenue growth, the Company
anticipates that it will 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.

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 raise additional funds absorb corporate overhead and other fixed costs in
order to successfully market the DATATRAK EDC software; the development of 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; 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

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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 Euros. A summary of
the Companys market risk exposures is presented below.

Interest Rate Risk

DATATRAK 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. A 1.0% change in interest rates during the six months
ended June 30, 2002, would have resulted in a $27,000 change in DATATRAKs
interest income during the six month period.

Foreign Currency Risk

DATATRAKs foreign sales and results of operations are subject to the
impact of foreign currency fluctuations. Approximately 6% of the Companys
revenue for the six months ended June 30, 2002 was earned by the Companys
German subsidiary. The Company manages its risk to foreign currency exchange
rates by maintaining foreign currency bank accounts in currencies in which it
regularly transacts business. DATATRAK does not currently hedge against the
risk of exchange rate fluctuations. A 1.0% fluctuation in the exchange rate
between United States dollars and the Euro at June 30, 2002, would have
resulted in a $23,000 change in the foreign currency translation amount
recorded on the Companys balance sheet, and $65,000 change in the Companys
net loss for the six months ended June 30, 2002 due to foreign currency
transactions.




Part II. Other Information




Item 1. Legal Proceedings

| |      
| | -----
| | None.




Item 2. Changes in Securities and Use of Proceeds

| |      
| | -----
| | None.




Item 3. Defaults Upon Senior Securities

| |      
| | -----
| | None.




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



| |                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At the Annual Meeting of Shareholders held on June 4, 2002 (the
Annual Meeting), the Companys shareholders voted to approve an
amendment to the Companys Amended and Restated 1996 Key Employees
and Consultants Stock Option Plan (the 1996 Plan), and did not
approve an amendment to the Companys 1999 Outside Director Stock
Option Plan (the 1999 Plan). Also, the required number of votes
necessary to amend

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| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | the Companys Third Amended and Restated Code of Regulations (the Code) was not received.

The following is a summary of the voting:

|          |  |               |           |               |  |              |           |  |  |  |           | 
|--------- |  | ------------- | --------- | ------------- |  | ------------ | --------- |  |  |  | --------- | 
|          |  | Amendment of  |           | Amendment of  |  | Amendment of
|Votes     |  | the 1996 Plan |           | the 1999 Plan |  | the Code    
|          |  |               |           |               |  |             
|For       |  |               | 1,454,836 |               |  |              | 1,185,715 |  |  |  | 2,333,511 | 
|Against   |  |               | 936,277   |               |  |              | 1,204,973 |  |  |  | 59,564    | 
|Abstain   |  |               | 3,487     |               |  |              | 3,912     |  |  |  | 1,525     | 
|Non-votes |  |               | 1,302,507 |               |  |              | 1,302,507 |  |  |  | 1,302,507 | 



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Also at the Annual Meeting, the Companys shareholders voted to
elect Mark J. Ratain, Seth B. Harris and Robert E. Flaherty each
to an additional two-year term as a director of the Company.
|
| | The following is a summary of the voting:                                                                                                                                                    

|         |  |                |           |                |  |                    |           |  |  |  |           | 
|-------- |  | -------------- | --------- | -------------- |  | ------------------ | --------- |  |  |  | --------- | 
|Votes    |  | Mark J. Ratain |           | Seth B. Harris |  | Robert E. Flaherty
|         |  |                |           |                |  |                   
|For      |  |                | 3,416,494 |                |  |                    | 3,126,248 |  |  |  | 3,416,494 | 
|Withheld |  |                | 280,613   |                |  |                    | 570,859   |  |  |  | 280,613   | 




Item 5.                     Other Information

None.




Item 6.                     Exhibits and Reports on Form 8-K



| |                                                                               
| | ------------------------------------------------------------------------------
| | (a) Exhibits                                                                  
|
| | See the Exhibit Index at page E  1 of this Form 10  Q.                      
|
| | (b) Reports on Form 8-K                                                       
|
| | No reports were filed on form 8-K during the three months ended June 30, 2002.

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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                                          
|             |  |  |                      |                                                     
|Date:8/12/02 |  |  | /s/ Jeffrey A. Green
|             |  |  |                     
|             |  |  |                      | Jeffrey A. Green,                                   
|             |  |  |                      | President and Chief Executive Officer and a Director
|             |  |  |                      | (Principal Executive Officer)                       
|             |  |  |                      |                                                     
|Date:8/12/02 |  |  | /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
|            |  |                                                                                                                         | 
|4.1         |  | Specimen Certificate of the Companys Common Shares, without par value                                                  |  |      | (1 | )
|            |  |                                                                                                                         | 
|4.2         |  | Second Amended and Restated Registration Agreement, dated July 15,1994,
as amended on June 1, 1995 and February 5, 1996 |  |      | (2 | )
|            |  |                                                                                                                         | 
|10.1        |  | Amended and Restated 1994 Directors Share Option Plan*                                                                 |  |      | (3 | )
|            |  |                                                                                                                         | 
|10.2        |  | Amended and Restated 1996 Outside Directors Stock Option Plan*                                                         |  |      | (3 | )
|            |  |                                                                                                                         | 
|10.3        |  | Amendment No. 2 to the Amended and Restated 1996 Outside Directors Stock
Option Plan*                                  |  |      | (4 | )
|            |  |                                                                                                                         | 
|10.4        |  | Amended and Restated 1992 Share Incentive Plan*                                                                         |  |      | (3 | )
|            |  |                                                                                                                         | 
|10.5        |  | Amended and Restated 1996 Key Employees and Consultants
Stock Option Plan*                                             |  |      | (3 | )
|            |  |                                                                                                                         | 
|10.6        |  | Amendment No. 2 to the Amended and Restated 1996 Key Employees
and Consultants Stock Option Plan*                      |  |      | (5 | )
|            |  |                                                                                                                         | 
|10.7        |  | Amendment No. 3 to the Amended and Restated 1996 Key Employees
and Consultants Stock Option Plan*                      |  |      | (9 | )
|            |  |                                                                                                                         | 
|10.8        |  | Form of Indemnification Agreement*                                                                                      |  |      | (2 | )
|            |  |                                                                                                                         | 
|10.9        |  | Employment Agreement between the Company and Jeffrey A. Green, dated
February 5, 2001*                                  |  |      | (6 | )
|            |  |                                                                                                                         | 
|10.10       |  | Employment Agreement between the Company and Terry C. Black,
dated February 5, 2001*                                    |  |      | (6 | )
|            |  |                                                                                                                         | 
|10.11       |  | Separation Agreement between the Company and Terry C. Black,
dated December 22, 1998*                                   |  |      | (7 | )
|            |  |                                                                                                                         | 
|10.12       |  | Employment Agreement between the Company and Wolfgang Summa,
dated December 29, 2000*                                   |  |      | (6 | )
|            |  |                                                                                                                         | 
|10.13       |  | DATATRAK International, Inc. Retirement Savings Plan*                                                                   |  |      | (8 | )
|            |  |                                                                                                                         | 
|10.14       |  | 1999 Outside Director Stock Option Plan*                                                                                |  |      | (5 | )

|    |  |                                                                                                                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   |  | Management compensatory plan or arrangement.                                                                                                                                                                                             
|    |  |                                                                                                                                                                                                                                          
|(1) |  | Incorporated herein by reference to the Companys Form 10-K for the year ended December 31, 1999 (File No.
000-20699).                                                                                                                   
|    |  |                                                                                                                                                                                                                                          
|(2) |  | Incorporated herein by reference to the Companys Form 1 Registration Statement filed on March 8, 1996, as
amended by Amendment No. 1 filed on May 10, 1996 and as amended by Amendment No. 2 filed on June 10, 1996 (File
No. 333-2140).

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Exhibit Index

|            |  |                                                                                                                                   
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                       
|            |  |                                                                                                                                   
|(3)         |  | Incorporated herein by reference to the Companys Form S-8 Registration Statement filed on November 13, 1996
(File No. 333-16061).
|            |  |                                                                                                                                   
|(4)         |  | Incorporated herein by reference to the Companys Schedule 14A filed on March 17, 1999 (File No. 000-20699).                      
|            |  |                                                                                                                                   
|(5)         |  | Incorporated herein by reference to the Companys Schedule 14A filed on April 28, 2000 (File No. 000-20699).                      
|            |  |                                                                                                                                   
|(6)         |  | Incorporated herein by reference to the Companys Form 10-K for the year ended December 31, 2000 (File No.
000-20699).            
|            |  |                                                                                                                                   
|(7)         |  | Incorporated herein by reference to the Companys Form 10-K for the year ended December 31, 1998 (File No.
000-20699).            
|            |  |                                                                                                                                   
|(8)         |  | Incorporated herein by reference to the Companys Form S-8 Registration Statement filed on April 30, 1997 (File
No. 333-26251).   
|            |  |                                                                                                                                   
|(9)         |  | Incorporated herein by reference to the Companys Schedule 14A filed on May 7 , 2002 (File No. 000-20699).                        

E-2