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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, 2005
 000-20699
 DATATRAK International, Inc.
  Ohio
    
    34-1685364(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)6150 Parkland BoulevardMayfield Heights, Ohio
    
    44124(Address of principal executive offices)
    
    (Zip Code)
 
  
  þ o
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TABLE OF CONTENTS  Part I. Financial InformationItem 1  Financial StatementsItem 2. Managements Discussion and Analysis of Results of Operations and Financial ConditionItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 2. Unregistered Sale of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEX-31.1 Certification of CEOEX-31.2 Certification of CFOEX-32.1 Certification of CEOEX-32.2 Certification of CFO    Table of Contents  
 Part I. Financial Information
 
 Item 1  Financial Statements
 DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    December 31,2005
    
    2004(Unaudited)
    
    (Note A)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,627,907
    
    
    $
    2,232,276Short-term investments
    
    
    5,701,007
    
    
    
    5,686,957Accounts receivable, less allowances
    
    
    2,524,381
    
    
    
    1,989,948Prepaid expenses and other current assets
    
    
    916,294
    
    
    
    488,505Total current assets
    
    
    11,769,589
    
    
    
    10,397,686Property and equipment, at cost
net of accumulated depreciation and amortization
    
    
    1,628,725
    
    
    
    1,422,764Other assetsRestricted cash
    
    
    71,288
    
    
    
    80,611Deposit
    
    
    39,549
    
    
    
    39,549110,837
    
    
    
    120,160Total assets
    
    $
    13,509,151
    
    
    $
    11,940,610LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    236,853
    
    
    $
    185,974Accrued expenses
    
    
    895,328
    
    
    
    1,052,301Deferred revenue
    
    
    706,630
    
    
    
    584,857Total current liabilities
    
    
    1,838,811
    
    
    
    1,823,132Shareholders equity:Serial preferred shares, without par value, 1,000,000 shares
authorized, none issued
    
    
    
    
    
    
    Common share warrants
    
    
    711,872
    
    
    
    711,872Common shares, without par value, authorized 25,000,000
shares; issued 10,149,498 shares as of June 30, 2005 and
9,915,895 shares as of December 31, 2004; outstanding
6,849,498 shares as of June 30, 2005 and 6,615,895 shares
as of December 31, 2004
    
    
    61,498,953
    
    
    
    60,584,110Treasury shares, 3,300,000 shares at cost
    
    
    (20,188,308
    )
    
    
    (20,188,308
    )Accumulated deficit
    
    
    (30,170,793
    )
    
    
    (30,963,636
    )Foreign currency translation
    
    
    (181,384
    )
    
    
    (26,560
    )Total shareholders equity
    
    
    11,670,340
    
    
    
    10,117,478Total liabilities and shareholders equity
    
    $
    13,509,151
    
    
    $
    11,940,610
 
 Note A:
    
    The balance sheet at December 31, 2004 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 OPERATIONS
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Revenue
    
    $
    3,724,072
    
    
    $
    2,629,335
    
    
    $
    7,359,424
    
    
    $
    4,917,793Direct costs
    
    
    926,766
    
    
    
    603,893
    
    
    
    1,841,534
    
    
    
    1,137,517Gross profit
    
    
    2,797,306
    
    
    
    2,025,442
    
    
    
    5,517,890
    
    
    
    3,780,276Selling, general and administrative expenses
    
    
    2,375,663
    
    
    
    1,791,471
    
    
    
    4,420,966
    
    
    
    3,450,038Depreciation and amortization
    
    
    201,041
    
    
    
    138,362
    
    
    
    376,681
    
    
    
    333,294Income (loss) from operations
    
    
    220,602
    
    
    
    95,609
    
    
    
    720,243
    
    
    
    (3,056
    )Interest income (expense), net
    
    
    52,416
    
    
    
    7,286
    
    
    
    97,158
    
    
    
    15,145Income before income taxes
    
    
    273,018
    
    
    
    102,895
    
    
    
    817,401
    
    
    
    12,089Income tax expense
    
    
    12,285
    
    
    
    14,300
    
    
    
    24,558
    
    
    
    18,000Net income (loss)
    
    $
    260,733
    
    
    $
    88,595
    
    
    $
    792,843
    
    
    $
    (5,911
    )Net income (loss) per share:Basic:Net income (loss) per share
    
    $
    0.04
    
    
    $
    0.01
    
    
    $
    0.12
    
    
    $
    (0.00
    )Weighted average shares outstanding
    
    
    6,787,874
    
    
    
    6,075,510
    
    
    
    6,747,917
    
    
    
    6,062,133Diluted:Net income (loss) per share
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.10
    
    
    $
    (0.00
    )Weighted average shares outstanding
    
    
    7,604,857
    
    
    
    6,865,988
    
    
    
    7,572,345
    
    
    
    6,062,133
 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 EndedJune 30,2005
    
    2004Operating ActivitiesNet income (loss)
    
    $
    792,843
    
    
    $
    (5,911
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    376,681
    
    
    
    333,294Other
    
    
    (42,553
    )
    
    
    28,140Changes in operating assets and liabilities:Accounts receivable
    
    
    (534,433
    )
    
    
    (535,008
    )Prepaid expenses and other current assets
    
    
    (427,789
    )
    
    
    (289,221
    )Accounts payable and accrued expenses
    
    
    (2,969
    )
    
    
    84,519Deferred revenue
    
    
    121,773
    
    
    
    (241,389
    )Net cash provided by (used in) operating activities
    
    
    283,553
    
    
    
    (625,576
    )Investing activitiesDecrease in restricted cash
    
    
    
    
    
    
    23,979Purchases of property and equipment
    
    
    (598,092
    )
    
    
    (182,479
    )Maturities of short-term investments
    
    
    4,250,000
    
    
    
    4,786,021Purchases of short-term investments
    
    
    (4,188,443
    )
    
    
    (4,238,863
    )Net cash (used in) provided by investing activities
    
    
    (536,535
    )
    
    
    388,658Financing activitiesProceeds from issuance of common shares and stock option exercises
    
    
    881,789
    
    
    
    275,601Share Issuance costs
    
    
    (103,125
    )
    
    
    Payments under capital lease obligation
    
    
    
    
    
    
    (23,979
    )Repayment of notes receivable, net
    
    
    
    
    
    
    803Net cash provided by financing activities
    
    
    778,664
    
    
    
    252,425Effect of exchange rate on cash
    
    
    (130,051
    )
    
    
    (34,352
    )Increase (decrease) in cash and cash equivalents
    
    
    395,631
    
    
    
    (18,845
    )Cash and cash equivalents at beginning of period
    
    
    2,232,276
    
    
    
    1,727,335Cash and cash equivalents at end of period
    
    $
    2,627,907
    
    
    $
    1,708,490
 See notes to condensed consolidated financial statements.
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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
 1. Basis of Presentation
   2. Recently Issued Accounting Standards
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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
 3. Net Income (Loss) per Share
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss) used in the calculation
of basic and diluted loss per share
    
    $
    260,733
    
    
    $
    88,595
    
    
    $
    792,843
    
    
    $
    (5,911
    )Denominator for basic net income (loss)
per share  weighted average common
shares outstanding
    
    
    6,787,874
    
    
    
    6,075,510
    
    
    
    6,747,917
    
    
    
    6,062,133Effect of dilutive common share options
and warrants
    
    
    816,983
    
    
    
    790,478
    
    
    
    824,428
    
    
    
    Denominator for diluted net income (loss)
per share
    
    
    7,604,857
    
    
    
    6,865,988
    
    
    
    7,572,345
    
    
    
    6,062,133Basic net income (loss) per share
    
    $
    0.04
    
    
    $
    0.01
    
    
    $
    0.12
    
    
    $
    (0.00
    )Diluted net income (loss) per share
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.10
    
    
    $
    (0.00
    )Weighted average common share options and
warrants excluded from the computation
of
diluted net income (loss) per share
because they would have an antidilutive
effect on net income (loss) per share
    
    
    6,300
    
    
    
    14,385
    
    
    
    8,978
    
    
    
    1,291,883
 4. Comprehensive Income (Loss)
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss)
    
    $
    260,733
    
    
    $
    88,595
    
    
    $
    792,843
    
    
    $
    (5,911
    )Foreign currency translation
    
    
    (95,372
    )
    
    
    (8,007
    )
    
    
    (154,824
    )
    
    
    (41,832
    )Comprehensive income (loss)
    
    $
    165,361
    
    
    $
    80,588
    
    
    $
    638,019
    
    
    $
    (47,743
    )
 5. Shareholders Equity
  6. Income Taxes
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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
 7. Stock Based Compensation
   Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss) recorded
    
    $
    261,000
    
    
    $
    89,000
    
    
    $
    793,000
    
    
    $
    (6,000
    )Plus: stock compensation expense
recognized
    
    
    17,000
    
    
    
    6,000
    
    
    
    33,000
    
    
    
    12,000Less: stock compensation expense that
would
have been recognized under SFAS No.
123
    
    
    290,000
    
    
    
    155,000
    
    
    
    565,000
    
    
    
    311,000Pro forma net income (loss)
    
    $
    (12,000
    )
    
    $
    (60,000
    )
    
    $
    261,000
    
    
    $
    (305,000
    )Pro forma basic income (loss) per share
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    0.04
    
    
    $
    (0.05
    )Pro forma diluted income (loss) per share
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    0.03
    
    
    $
    (0.05
    )
 8. Reclassification
  9. Subsequent Events
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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss) used in the calculation
of basic and diluted loss per share
    
    $
    260,733
    
    
    $
    88,595
    
    
    $
    792,843
    
    
    $
    (5,911
    )Denominator for basic net income (loss)
per share  weighted average common
shares outstanding
    
    
    10,181,817
    
    
    
    9,113,265
    
    
    
    10,121,880
    
    
    
    9,093,203Effect of dilutive common share options
and warrants
    
    
    1,225,444
    
    
    
    1,185,275
    
    
    
    1,236,432
    
    
    
    Denominator for diluted net income (loss)
per share
    
    
    11,407,261
    
    
    
    10,298,540
    
    
    
    11,358,312
    
    
    
    9,093,203Proforma basic net income (loss) per share
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.08
    
    
    $
    (0.00
    )Proforma diluted net income (loss) per
share
    
    $
    0.02
    
    
    $
    0.01
    
    
    $
    0.07
    
    
    $
    (0.00
    )Weighted average common share options and
warrants excluded from the computation
of
diluted net income (loss) per share
because they would have an antidilutive
effect on net income (loss) per share
    
    
    9,450
    
    

    
    21,577
    
    
    
    13,467
    
    
    
    1,937,848
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Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
  General
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Critical Accounting Policies
   Results of Operations
 Three months ended June 30, 2005 compared with three months ended June 30, 2004
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Six months ended June 30, 2005 compared with six months ended June 30, 2004
     Outlook
   11




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Liquidity and Capital Resources
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Inflation
  13




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Information About Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk
  Foreign Currency Risk
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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  
 Part II. Other Information
 
   
   
   
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10.1
    
    DATATRAK International, Inc. 2005 Omnibus Equity Plan, which
is incorporated herein by reference to Exhibit 10.1 of the Companys current
report on Form 8-K dated July 22, 2005.31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer
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SIGNATURES
  DATATRAK International, Inc.RegistrantDate: 8/12/05
    
    
    
    /s/ Jeffrey A. GreenJeffrey A. Green,President and Chief Executive Officer(Principal Executive Officer)Date: 8/12/05
    
    
    
    /s/ Terry C. BlackTerry C. Black,Vice President of Finance, Chief
Financial Officer,
Treasurer and Assistant Secretary(Principal Financial Officer)
 17