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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 March 31, 2007
 Commission file number 000-20699
 DATATRAK International, Inc.
  Ohio
    
    34-1685364(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)6150 Parkland Boulevard 
Mayfield Heights, Ohio
    
    44124(Address of principal executive offices)
    
    (Zip Code)
  
  
  þ o
  o þ o
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TABLE OF CONTENTS  Parat I. Financial InformationItem 1  Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales 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-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 Part I. Financial Information
 
 Item 1  Financial Statements
 DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)
    
    
    (Note A)ASSETSCurrent assetsCash and cash equivalents
    
    $
    3,302,273
    
    
    $
    3,019,184Short-term investments
    
    
    9,351,703
    
    
    
    1,996,393Accounts receivable, net
    
    
    1,874,766
    
    
    
    2,226,317Deferred tax asset  current
    
    
    113,100
    
    
    
    113,100Prepaid expenses and other current assets
    
    
    381,792
    
    
    
    488,112Total current assets
    
    
    15,023,634
    
    
    
    7,843,106Property and equipment, at cost
net of accumulated depreciation and amortization
    
    
    4,476,207
    
    
    
    4,736,233Other assetsRestricted cash
    
    
    78,785
    
    
    
    78,005Deferred tax asset
    
    
    1,602,100
    
    
    
    1,745,700Deposit
    
    
    39,549
    
    
    
    39,549Other intangible assets, net of accumulated amortization
    
    
    1,688,373
    
    
    
    1,914,206Goodwill
    
    
    10,863,383
    
    
    
    10,863,38314,272,190
    
    
    
    14,640,843Total assets
    
    $
    33,772,031
    
    
    $
    27,220,182LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    219,079
    
    
    $
    568,697Current portion of long-term debt
    
    
    939,756
    
    
    
    733,548Accrued expenses
    
    
    1,680,008
    
    
    
    1,419,065Deferred revenue
    
    
    1,051,295
    
    
    
    988,175Total current liabilities
    
    
    3,890,138
    
    
    
    3,709,485Long-term liabilitiesLong-term debt
    
    
    3,320,572
    
    
    
    3,811,903Deferred tax liability
    
    
    1,517,500
    
    
    
    1,634,8004,838,072
    
    
    
    5,446,703Shareholders equitySerial Preferred Shares, without par value, 1,000,000 shares
authorized, none issued
    
    
    
    
    
    
    Common shares, without par value, authorized 25,000,000
shares; issued 16,862,437 shares as of March 31, 2007 and
14,862,473 shares as of December 31, 2006; outstanding
13,562,437 shares as of March 31, 2007 and 11,562,473 shares
as of December 31, 2006
    
    
    78,500,659
    
    
    
    70,742,073Treasury shares, 3,300,000 shares at cost
    
    
    (20,188,308
    )
    
    
    (20,188,308
    )Common share warrants
    
    
    1,835,108
    
    
    
    700,176Accumulated deficit
    
    
    (34,810,926
    )
    
    
    (32,915,699
    )Foreign currency translation
    
    
    (292,712
    )
    
    
    (274,248
    )Total shareholders equity
    
    
    25,043,821
    
    
    
    18,063,994Total liabilities and shareholders equity
    
    $
    33,772,031
    
    
    $
    27,220,182
 
 Note A:
    
    The condensed consolidated balance sheet at December 31, 2006 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 EndedMarch 31,2007
    
    
    2006Revenue
    
    $
    3,542,095
    
    
    $
    4,500,868Direct costs
    
    
    1,337,471
    
    
    
    1,171,876Gross profit
    
    
    2,204,624
    
    
    
    3,328,992Selling, general and administrative expenses
    
    
    3,422,671
    
    
    
    2,981,212Depreciation and amortization
    
    
    622,403
    
    
    
    438,682Loss from operations
    
    
    (1,840,450
    )
    
    
    (90,902
    )Other income (expense):Interest income
    
    
    70,192
    
    
    
    81,101Interest expense
    
    
    (98,669
    )
    
    
    (50,269
    )Loss before income taxes
    
    
    (1,868,927
    )
    
    
    (60,070
    )Income tax expense
    
    
    26,300
    
    
    
    21,000Net loss
    
    $
    (1,895,227
    )
    
    $
    (81,070
    )Net loss per share:Basic:Net loss per share
    
    $
    (0.16
    )
    
    $
    (0.01
    )Weighted average shares outstanding
    
    
    11,858,949
    
    
    
    10,845,627Diluted:Net loss per share
    
    $
    (0.16
    )
    
    $
    (0.01
    )Weighted average shares outstanding
    
    
    11,858,949
    
    
    
    10,845,627
 See notes to condensed consolidated financial statements.
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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED  STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006Operating ActivitiesNet loss
    
    $
    (1,895,227
    )
    
    $
    (81,070
    )Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:Depreciation and amortization
    
    
    622,403
    
    
    
    438,682Stock-based compensation
    
    
    136,057
    
    
    
    193,283Accretion of discount on investments
    
    
    (35,282
    )
    
    
    (36,558
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    351,551
    
    
    
    (21,150
    )Prepaid expenses and other current assets
    
    
    106,320
    
    
    
    41,921Deferred taxes, net
    
    
    26,300
    
    
    
    21,000Accounts payable and accrued expenses
    
    
    (284,839
    )
    
    
    (127,254
    )Deferred revenue
    
    
    63,120
    
    
    
    (306,817
    )Net cash (used in) provided by operating activities
    
    
    (909,597
    )
    
    
    122,037Investing activitiesAcquisition of business, less cash acquired
    
    
    
    
    
    
    (3,901,381
    )Purchases of property and equipment
    
    
    (47,787
    )
    
    
    (209,721
    )Maturities of short-term investments
    
    
    4,500,000
    
    
    
    3,000,000Purchases of short-term investments
    
    
    (11,820,028
    )
    
    
    (42,681
    )Net cash used in investing activities
    
    
    (7,367,815
    )
    
    
    (1,153,783
    )Financing activitiesProceeds from exercise of stock option and warrants
    
    
    30,384
    
    
    
    50,139Proceeds from issuance of common shares, net of paid issuance costs
    
    
    8,916,105
    
    
    
    Payments of long-term debt
    
    
    (364,747
    )
    
    
    (118,184
    )Net cash provided by (used in) financing activities
    
    
    8,581,742
    
    
    
    (68,045
    )Effect of exchange rate changes on cash
    
    
    (21,241
    )
    
    
    (16,464
    )Increase (decrease) in cash and cash equivalents
    
    
    283,089
    
    
    
    (1,116,255
    )Cash and cash equivalents at beginning of period
    
    
    3,019,184
    
    
    
    4,407,431Cash and cash equivalents at end of period
    
    $
    3,302,273
    
    
    $
    3,291,176Unpaid acquisition costs
    
    $
    
    
    
    $
    824,486Unpaid share issuance costs
    
    $
    189,028
    
    
    $
    
 See notes to condensed consolidated financial statements.
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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
(Unaudited)
 1. Basis of Presentation
   2. ClickFind Acquisition
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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
(Unaudited)
  Cash, accounts receivable and other current assets
    
    $
    254,000Amortizable intangible assets
    
    
    6,040,000Goodwill
    
    
    10,863,000Accounts payable and other current liabilities
    
    
    (421,000
    )Long-term debt
    
    
    (117,000
    )Total acquisition cost
    
    $
    16,619,000
     Three Months EndedMarch 31, 2006Pro forma revenue
    
    $
    4,709,000Pro forma net loss
    
    $
    (359,000
    )Pro forma basic loss per share
    
    $
    (0.03
    )Pro forma diluted loss per share
    
    $
    (0.03
    )
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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
(Unaudited)
 3. Net Loss per Share
  Three Months Ended March 31,2007
    
    
    2006Net loss used in the calculation of basic
and diluted earnings per share
    
    $
    (1,895,227
    )
    
    $
    (81,070
    )Denominator for basic net loss per share 
weighted average common shares outstanding
    
    
    11,858,949
    
    
    
    10,845,627Effect of dilutive common share options and
warrants
    
    
    
    
    
    
    Denominator for diluted net loss per share
    
    
    11,858,949
    
    
    
    10,845,627Basic net loss per share
    
    $
    (0.16
    )
    
    $
    (0.01
    )Diluted net loss per share
    
    $
    (0.16
    )
    
    $
    (0.01
    )Weighted average common share options and
warrants excluded from the computation of
diluted net loss per share because they
would have an anti-dilutive effect on net
loss per share
    
    
    1,548,463
    
    
    
    1,774,825
 4. Comprehensive Loss
  Three Months Ended March 31,2007
    
    
    2006Net loss
    
    $
    (1,895,227
    )
    
    $
    (81,070
    )Foreign currency translation
    
    
    (18,464
    )
    
    
    (13,147
    )Comprehensive loss
    
    $
    (1,913,691
    )
    
    $
    (94,217
    )
 5. Shareholders Equity
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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
(Unaudited)
     6. Operating Leases
  Twelve Months ended March 31,
    
    Amount2008
    
    $
    933,0002009
    
    
    937,0002010
    
    
    648,0002011
    
    
    597,0002012
    
    
    604,000Subsequent to March 31, 2012
    
    
    351,000$
    4,070,000
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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
(Unaudited)
 7. Income Taxes
  Three Months Ended March 31,2007
    
    
    2006Deferred:Federal
    
    $
    
    
    
    $
    21,000State and local
    
    
    
    
    
    
    Foreign
    
    
    26,300
    
    
    
    $
    26,300
    
    
    $
    21,000
  Three Months Ended March 31,2007
    
    
    2006Income tax (benefit) provision at the
United States statutory rate
    
    $
    (635,400
    )
    
    $
    (21,000
    )Increase in valuation allowance
    
    
    587,800
    
    
    
    Foreign taxes
    
    
    26,300
    
    
    
    Non-deductible permanent differences
    
    
    47,600
    
    
    
    42,000$
    26,300
    
    
    $
    21,000
  Accounting for
Uncertainty in Income Taxes Accounting for
Income Taxes
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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
(Unaudited)
 8. Long-term Debt
  March 31,
    
    
    December 31,2007
    
    
    2006Insurance note payable
    
    $
    
    
    
    $
    74,000Notes payable  ClickFind (the ClickFind Notes)
    
    
    3,753,000
    
    
    
    4,000,000Financing agreement with Oracle Credit
Corporation (the Oracle Agreement)
    
    
    211,000
    
    
    
    234,000Capital lease agreements with Dell Financial
Services (the Dell Agreements)
    
    
    296,000
    
    
    
    238,0004,260,000
    
    
    
    4,546,000Less current maturities
    
    
    940,000
    
    
    
    734,000$
    3,320,000
    
    
    $
    3,812,000
      9. Restricted Cash
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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
(Unaudited)
 10. Software Development Costs
   11. Reclassification
  12. Contingencies
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  General
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Revenue Recognition Revenue Arrangements with Multiple
Deliverables
 
    
    Project management and data management (design, report and export) service
revenue is recognized proportionally over the life of a contract as services are
performed, based on the contractual billing rate per hour for those services.
    
    Data items revenue is earned based on a price per data unit as data items are
entered into our hosting facility.
    
    Classroom training services revenue is recognized as classroom training is
completed, at rates based on the length of the training program.
    
    Internet-based training services revenue is recognized on a per user basis as
self-study courses are completed.
    
    Help desk revenue is recognized based on a monthly price per registered user
under the contract.
   Critical Accounting Policies
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Results of Operations
 Three months ended March 31, 2007 compared with three months ended March 31, 2006
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Liquidity and Capital Resources
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Inflation
  Information About Forward-Looking Statements
  17




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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
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
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Item 5. Other Information
  
 Item 6. Exhibits
 4.1
    
    Form of Warrant, dated March 19, 2007, which is incorporated herein
by reference to Exhibit 10.2 to the Companys Current Report on Form
8-K, as filed with the Securities and Exchange Commission on March
20, 2007.10.2
    
    Securities Purchase Agreement by and among the Company and the
Purchasers named on Schedule A(3) thereto, dated March 16, 2007,
which is incorporated herein by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, as filed with the Securities
and Exchange Commission on March 20, 2007.31.1
    
    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: May 10, 2007
    
    /s/ Jeffrey A. GreenJeffrey A. Green,President and Chief Executive Officer and a Director(Principal Executive Officer)Date: May 10, 2007
    
    /s/ Terry C. BlackTerry C. Black,Vice President of Finance, Chief Financial Officer,
Treasurer and Assistant Secretary(Principal Financial and Accounting Officer)
 21