TABLE OF CONTENTS




| |                                                                                               |  |  |  |  |  |  | 
| | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
| | 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                                                                   



---



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, 2000

Commission file number 000-20699

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

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

| |                                                                                    | 
| | ---------------------------------------------------------------------------------- | 
| | (216) 921-6505                                                                     | 
| |                                                                                    | 
| | (Registrants telephone number, including area code)                               
|
|
| |                                                                                    | 
| | (Former name, former address and former fiscal year, if changed since last
report) | 

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

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

The number of Common Shares, without par value, outstanding as of April 30,
2000 was 3,290,322.





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##### Table of Contents



Part I. Financial Information




Item 1  Financial Statements

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                 |                                                                                                                                                                                                             |                                      |                                            |             |   |              |           |             |   |            |  | 
|-------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------------ | ----------- | - | ------------ | --------- | ----------- | - | ---------- |  | 
|                                                                                 |                                                                                                                                                                                                             |                                      |                                            |             |   | (Note A)     |           | (Unaudited)
|                                                                                 |                                                                                                                                                                                                             |                                      |                                            |             |   | December 31, |           | March 31,  
|                                                                                 |                                                                                                                                                                                                             |                                      |                                            |             |   | 1999         |           | 2000       
|                                                                                 |                                                                                                                                                                                                             |                                      |                                            |             |   |              |           |            
|                                                                                 |                                                                                                                                                                                                             |                                      |                                            | ASSETS     
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Current assets:                                                                 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cash and cash equivalents                                                                                                                                                                                   |                                      | $                                          | 2,961,403   |   |              | $         | 1,995,383   |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Short-term investments                                                                                                                                                                                      |                                      |                                            | 14,575,071  |   |              |           | 13,925,757  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accounts receivable, less allowances                                                                                                                                                                        |                                      |                                            | 334,645     |   |              |           | 574,044     |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Prepaid expenses and other current assets                                                                                                                                                                   |                                      |                                            | 289,016     |   |              |           | 250,180     |  
|                                                                                 |                                                                                                                                                                                                             |                                      |                                            |             |   |              |           |            
|                                                                                 |                                                                                                                                                                                                             |                                      | Total current assets                       |             |   | 18,160,135   |           |             |   | 16,745,364 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Property and equipment, at cost
net of accumulated depreciation and amortization |                                                                                                                                                                                                             |                                      | 1,257,558                                  |             |   |              | 1,344,220 |            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Other assets                                                                     |                                                                                                                                                                                                             |                                      | 65,700                                     |             |   |              | 78,506    |            
|                                                                                 |                                                                                                                                                                                                             |                                      |                                            |             |   |              |           |            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                                                                                                                                                             |                                      | Total assets                               |             | $ | 19,483,393   |           |             | $ | 18,168,090 | 
|                                                                                 |                                                                                                                                                                                                             |                                      |                                            |             |   |              |           |            
|                                                                                 |                                                                                                                                                                                                             | LIABILITIES AND SHAREHOLDERS EQUITY
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Current liabilities:                                                            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accounts payable                                                                                                                                                                                            |                                      | $                                          | 281,867     |   |              | $         | 191,398     |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accrued expenses                                                                                                                                                                                            |                                      |                                            | 864,569     |   |              |           | 746,361     |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Deferred revenue                                                                                                                                                                                            |                                      |                                            | 30,960      |   |              |           | 14,758      |  
|                                                                                 |                                                                                                                                                                                                             |                                      |                                            |             |   |              |           |            
|                                                                                 |                                                                                                                                                                                                             |                                      | Total current liabilities                  |             |   | 1,177,396    |           |             |   | 952,517    | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Shareholders equity:                                                           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Foreign currency translation                                                                                                                                                                                |                                      |                                            | (38,789     | ) |              |           | (74,003     | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Serial preferred shares, without par value, 1,000,000 shares
authorized, none issued                                                                                                                        |                                      |                                            |            |   |              |           |            |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Common shares, without par value, authorized 15,000,000
shares; issued 6,590,322 shares as of December 31, 1999
and March 31, 2000; outstanding 3,290,322 shares as of
December 31, 1999 and March 31, 2000 |                                      |                                            | 50,236,553  |   |              |           | 50,236,553  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accumulated deficit                                                                                                                                                                                         |                                      |                                            | (11,703,459 | ) |              |           | (12,758,669 | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Treasury shares, 3,300,000 shares at cost                                                                                                                                                                   |                                      |                                            | (20,188,308 | ) |              |           | (20,188,308 | )
|                                                                                 |                                                                                                                                                                                                             |                                      |                                            |             |   |              |           |            
|                                                                                 |                                                                                                                                                                                                             |                                      | Total shareholders equity                 |             |   | 18,305,997   |           |             |   | 17,215,573 | 
|                                                                                 |                                                                                                                                                                                                             |                                      |                                            |             |   |              |           |            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                                                                                                                                                             |                                      | Total liabilities and shareholders equity |             | $ | 19,483,393   |           |             | $ | 18,168,090 | 
|                                                                                 |                                                                                                                                                                                                             |                                      |                                            |             |   |              |           |            

|        |  |                                                                                                                                                                                                                                                                           
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note A: |  | The balance sheet at December 31, 1999 has been derived from the audited consolidated financial statements at that date,
but does not include all of the information and footnotes required by generally accepted accounting principles for
complete financial statements.

See notes to condensed consolidated financial statements.

2



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##### Table of Contents



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

|                                             |                        |   |                    |          |      |   |            |         | 
|-------------------------------------------- | ---------------------- | - | ------------------ | -------- | ---- | - | ---------- | ------- | 
|                                             |                        |   | Three Months Ended
|                                             |                        |   | March 31,         
|                                             |                        |   |                   
|                                             |                        |   | 1999               |          | 2000
|                                             |                        |   |                    |          |     
|Revenue                                      |                        | $ | 4,179,648          |          |      | $ | 497,342    |        
|                                            
|                                            
|                                            
|                                            
|Direct costs                                 |                        |   | 2,649,177          |          |      |   | 468,062    |        
|                                             |                        |   |                    |          |      |   |            |        
|Gross profit                                 |                        |   | 1,530,471          |          |      |   | 29,280     |        
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |                        |   | 2,517,527          |          |      |   | 1,142,739  |        
|                                            
|                                            
|                                            
|                                            
|Depreciation and amortization                |                        |   | 249,314            |          |      |   | 187,480    |        
|                                             |                        |   |                    |          |      |   |            |        
|Loss from operations                         |                        |   | (1,236,370         | )        |      |   | (1,300,939 | )      
|                                            
|                                            
|                                            
|                                            
|Other income (expense):                     
|                                            
|                                            
|                                            
|                                            
|                                             | Interest income        |   |                    | 322,753  |      |   |            | 237,944 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Other income (expense) |   |                    | (155,387 | )    |   |            | 7,785   | 
|                                             |                        |   |                    |          |      |   |            |        
|Loss before income taxes                     |                        |   | (1,069,004         | )        |      |   | (1,055,210 | )      
|                                            
|                                            
|                                            
|                                            
|Income tax expense                           |                        |   | 40,000             |          |      |   |           |        
|                                             |                        |   |                    |          |      |   |            |        
|Net loss                                     |                        | $ | (1,109,004         | )        |      | $ | (1,055,210 | )      
|                                             |                        |   |                    |          |      |   |            |        
|Basic and diluted net loss per share         |                        | $ | (0.17              | )        |      | $ | (0.32      | )      
|                                             |                        |   |                    |          |      |   |            |        
|Weighted average common shares outstanding   |                        |   | 6,428,028          |          |      |   | 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)

|                                                 |                                                                             |                                              |                                       |             |                              |            |           |             |          |          |  
|------------------------------------------------ | --------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------- | ----------- | ---------------------------- | ---------- | --------- | ----------- | -------- | -------- | -
|                                                 |                                                                             |                                              |                                       |             | Three Months Ended March 31,
|                                                 |                                                                             |                                              |                                       |             |                             
|                                                 |                                                                             |                                              |                                       |             | 1999                         |            | 2000     
|                                                 |                                                                             |                                              |                                       |             |                              |            |          
|Operating Activities                            
|                                                
|                                                
|                                                
|                                                
|                                                 | Net loss                                                                    |                                              | $                                     | (1,109,004  | )                            |            | $         | (1,055,210  | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net loss to net cash
used in operating activities:
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             | Depreciation and amortization                |                                       |             | 249,314                      |            |           |             | 187,480  |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             | Other                                        |                                       |             | (111,766                     | )          |           |             | (200,194 | )       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             | Changes in operating assets and liabilities:
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             |                                              | Accounts receivable                   |             |                              | (1,518,801 | )         |             |          | (247,115 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             |                                              | Accounts payable and accrued expenses |             |                              | (557,090   | )         |             |          | (170,778 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             |                                              | Other                                 |             |                              | (81,442    | )         |             |          | 16,952   |  
|                                                 |                                                                             |                                              |                                       |             |                              |            |           |            
|                                                 | Net cash used in operating activities                                       |                                              |                                       | (3,128,789  | )                            |            |           | (1,468,865  | )       
|                                                
|                                                
|                                                
|                                                
|Investing Activities                            
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of property and equipment                                         |                                              |                                       | (150,793    | )                            |            |           | (281,890    | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Maturities of short term investments                                        |                                              |                                       | 18,289,128  |                              |            |           | 17,029,000  |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of short term investments                                         |                                              |                                       | (15,967,021 | )                            |            |           | (16,176,492 | )       
|                                                 |                                                                             |                                              |                                       |             |                              |            |           |            
|                                                 | Net cash provided by investing activities                                   |                                              |                                       | 2,171,314   |                              |            |           | 570,618     |         
|                                                
|                                                
|                                                
|                                                
|Financing Activities                            
|                                                
|                                                
|                                                
|                                                
|                                                 | Issuance of note receivable                                                 |                                              |                                       |            |                              |            |           | (6,540      | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Net proceeds from issuance of common shares                                 |                                              |                                       | 1,200       |                              |            |           |            |         
|                                                 |                                                                             |                                              |                                       |             |                              |            |           |            
|                                                 | Net cash provided by (used in) financing activities                         |                                              |                                       | 1,200       |                              |            |           | (6,540      | )       
|                                                
|                                                
|                                                
|                                                
|Effect of exchange rate on cash                  |                                                                             |                                              | 85,338                                |             |                              |            | (61,233   | )          
|                                                 |                                                                             |                                              |                                       |             |                              |            |           |            
|Decrease in cash and cash equivalents            |                                                                             |                                              | (870,937                              | )           |                              |            | (966,020  | )          
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                             |                                              | 4,072,586                             |             |                              |            | 2,961,403 |            
|                                                 |                                                                             |                                              |                                       |             |                              |            |           |            
|Cash and cash equivalents at end of period       |                                                                             | $                                            | 3,201,649                             |             |                              | $          | 1,995,383 |            
|                                                 |                                                                             |                                              |                                       |             |                              |            |           |            

See notes to condensed consolidated financial statements.

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##### Table of Contents



DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of
DATATRAK International, Inc. and subsidiaries (the Company) have been
prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month
period ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000. 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,
1999 (File No. 000-20699).

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

2. Net Loss per Share

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

|                                                                                                                                                      |  |                              |            |      |  |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | ---- |  | - | ---------- | -
|                                                                                                                                                      |  | Three Months Ended March 31,
|                                                                                                                                                      |  |                             
|                                                                                                                                                      |  | 1999                         |            | 2000
|                                                                                                                                                      |  |                              |            |     
|Net loss used in the calculation of basic and
diluted earnings per share                                                                              |  | $                            | (1,109,004 | )    |  | $ | (1,055,210 | )
|                                                                                                                                                      |  |                              |            |      |  |   |            |  
|Denominator for basic net loss per share 
weighted average Common Shares
outstanding                                                                 |  |                              | 6,428,028  |      |  |   | 3,290,322  |  
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|Effect of dilutive Common Share options and
warrants                                                                                                  |  |                              |           |      |  |   |           |  
|                                                                                                                                                      |  |                              |            |      |  |   |            |  
|Denominator for diluted net loss per share                                                                                                            |  |                              | 6,428,028  |      |  |   | 3,290,322  |  
|                                                                                                                                                      |  |                              |            |      |  |   |            |  
|Basic net loss per share                                                                                                                              |  | $                            | (0.17      | )    |  | $ | (0.32      | )
|                                                                                                                                                      |  |                              |            |      |  |   |            |  
|Diluted net loss per share                                                                                                                            |  | $                            | (0.17      | )    |  | $ | (0.32      | )
|                                                                                                                                                      |  |                              |            |      |  |   |            |  
|Common Share options excluded from the
computation of diluted net loss per share
because they would have an antidilutive
effect on net loss per share |  |                              | 432,450    |      |  |   | 666,089    |  
|                                                                                                                                                      |  |                              |            |      |  |   |            |  

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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)

3. Segment Disclosures and Related Information

The Company currently operates one business segment: the DATATRAK EDC
Business. The DATATRAK EDC Business is an Application Service Provider (ASP)
that provides electronic data capture (EDC) technology and other services to
assist its customers in the timely completion of clinical trials. Prior to
April 20, 1999, the Company also operated the Clinical Business, which provided
Phase I through IV clinical research services and over-the-counter product
services. The Clinical Business was sold on April 20, 1999, and the Company no
longer operates that business.

Historically, prior to the sale of the Clinical Business, the Company evaluated
performance and allocated resources based on profit or loss from operations
before other income and expense and income taxes. The accounting policies of
the reportable segments were the same as those described in the summary of
significant accounting policies.

The Companys reportable segments are business units that offer different
services utilized in the performance of clinical trials. The reportable
segments are managed separately because they offer separate and distinct
services to customers in the clinical research industry.

Information on the Companys business segments is as follows:

|                               |      |          |              |                   |   |       |   |           |  |  |   |            |  
|------------------------------ | ---- | -------- | ------------ | ----------------- | - | ----- | - | --------- |  |  | - | ---------- | -
|                               |      |          | DATATRAK EDC
|Three Months ended March 31,   |      | Business |              | Clinical Business |   | Total
|                               |      |          |              |                   |   |      
|Revenue:                      
|                              
|                              
|                              
|                              
|                               | 1999 |          | $            | 33,609            |   |       | $ | 4,146,039 |  |  | $ | 4,179,648  |  
|                              
|                              
|                              
|                              
|                               | 2000 |          |              | 497,342           |   |       |   |          |  |  |   | 497,342    |  
|                              
|                              
|                              
|                              
|Income (loss) from operations:
|                              
|                              
|                              
|                              
|                               | 1999 |          |              | (1,541,241        | ) |       |   | 304,871   |  |  |   | (1,236,370 | )
|                              
|                              
|                              
|                              
|                               | 2000 |          |              | (1,300,939        | ) |       |   |          |  |  |   | (1,300,939 | )

4. Comprehensive Income (loss)

The following table sets forth comprehensive income (loss).

|                             |  |                              |            |      |  |   |            |  
|---------------------------- |  | ---------------------------- | ---------- | ---- |  | - | ---------- | -
|                             |  | Three Months Ended March 31,
|                             |  |                             
|                             |  | 1999                         |            | 2000
|                             |  |                              |            |     
|Net loss                     |  | $                            | (1,109,004 | )    |  | $ | (1,055,210 | )
|                            
|                            
|                            
|                            
|Foreign currency translation |  |                              | 25,046     |      |  |   | (35,214    | )
|                             |  |                              |            |      |  |   |            |  
|Comprehensive loss           |  | $                            | (1,083,958 | )    |  | $ | (1,090,424 | )
|                             |  |                              |            |      |  |   |            |  

6



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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 months ended March
3l, 2000 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

The Companys DATATRAK EDC Business is an application service provider (ASP)
that uses the software known as DATATRAK EDC to provide EDC and
other services, which assist companies in the clinical pharmaceutical,
biotechnology, contract research organization (CRO) and medical device
research industries, to accelerate the completion of clinical trials. The
DATATRAK EDC Business is the sole source of the Companys revenue and along
with corporate overhead is the sole draw on the Companys working capital.
Approximately 88% of the Companys assets, or approximately $15.9 million, are
held in cash, cash equivalents and short-term investments. The DATATRAK EDC
Business has recognized minimal revenue to date and has experienced significant
losses and negative cash flow from operations since its inception in 1997. The
Company is continuing to develop and commercialize the DATATRAK EDC Business
and anticipates that its operating results will fluctuate significantly from
period to period. There can be no assurance of the Companys long-term future
prospects.

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

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

Since its purchase of the DATATRAK EDC software in January 1998,
DATATRAK has recorded revenue related to a small number of contracts. At March
31, 2000, DATATRAKs backlog was $1.8 million. Of this backlog, $1.2 million
relates to three contracts from one customer. 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.

7



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##### Table of Contents



Results of Operations  DATATRAK EDC Business

The following tables set forth, for the periods indicated, certain items from
the Companys Consolidated Statements of Operations, expressed in thousands,
for the Companys DATATRAK EDC Business.

|                                             |  |                             |        |      |  |   |        |  
|-------------------------------------------- |  | --------------------------- | ------ | ---- |  | - | ------ | -
|                                             |  | Three Months ended March 31
|                                             |  |                            
|                                             |  | 2000                        |        | 1999
|                                             |  |                             |        |     
|Revenue                                      |  | $                           | 497    |      |  | $ | 34     |  
|                                            
|                                            
|                                            
|                                            
|Direct costs                                 |  |                             | 468    |      |  |   | 152    |  
|                                             |  |                             |        |      |  |   |        |  
|Gross profit (loss)                          |  |                             | 29     |      |  |   | (118   | )
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |  |                             | 1,143  |      |  |   | 1,284  |  
|                                            
|                                            
|                                            
|                                            
|Depreciation and amortization                |  |                             | 187    |      |  |   | 139    |  
|                                             |  |                             |        |      |  |   |        |  
|Loss from operations                         |  |                             | (1,301 | )    |  |   | (1,541 | )
|                                            
|                                            
|                                            
|                                            
|Other income (expense)                       |  |                             | 246    |      |  |   | 167    |  
|                                             |  |                             |        |      |  |   |        |  
|Loss before income taxes                     |  |                             | (1,055 | )    |  |   | (1,374 | )
|                                            
|                                            
|                                            
|                                            
|Income tax expense                           |  |                             |       |      |  |   | 40     |  
|                                             |  |                             |        |      |  |   |        |  
|Net loss                                     |  | $                           | (1,055 | )    |  | $ | (1,414 | )
|                                             |  |                             |        |      |  |   |        |  

Three months ended March 31, 2000 compared with three months ended March
31, 1999

Revenue for the three months ended March 31, 2000 increased to $500,000 as
compared to $30,000 for the three months ended March 31, 1999. The increase
was the result of an increase in the number of clinical trials using the
DATATRAK EDC software.

Direct costs of revenue, mainly personnel costs, were $470,000 and $150,000
during the three months ended March 31, 2000 and 1999, respectively. The
increase in direct costs was mainly the result of increased personnel costs of
$210,000 caused by additional employees. The remaining increase was due to
additional contract costs related to the increased usage of the DATATRAK
EDC software.

SG&A expenses decreased from $1.3 million to $1.1 million for the three months
ended March 31, 1999 and 2000, respectively. First quarter of 1999 expenses
included a one-time expense of $350,000 associated with services provided by an
outside consultant to assess the market potential of the DATATRAK
EDC software. This decrease was partially offset by an increase in
other SG&A expenses, primarily personnel and other costs, associated with the
Companys development of and marketing of the DATATRAK EDC Business.

Depreciation and amortization expense increased from $140,000 during the three
months ended March 31, 1999 to $190,000 during the three months ended March 31,
2000. The increase was the result of depreciating capital expenditures
associated with the building of DATATRAKs information technology
infrastructure.

Other income increased from $170,000 during the three months ended March 31,
1999 to $250,000 during the three months ended March 31, 2000. This increase
was partially caused by $110,000 of expenses associated with the sale of the
Companys Clinical Business and $50,000 of expense related to the disposal of
obsolete equipment during the three months ended March 31, 1999. Other income
also includes interest income which decreased $80,000 for the three months
ended March 31, 2000 compared to March 31, 1999, due to the Companys use of
cash to fund its repurchase of Common Shares, operating losses and other
working capital needs.

Income tax expense for the three months ended March 31, 1999 was $40,000 as a
result of state taxes incurred.

8



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##### Table of Contents



Liquidity and Capital Resources

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

The Companys contracts usually require a portion of the contract amount to be
paid at the time the contract is initiated. Additional payments are generally
received upon completion of negotiated performance milestones throughout the
life of the contract. All amounts received are recorded as a liability
(deferred revenue) until work has been completed and revenue is recognized.
Cash receipts do not necessarily correspond to costs incurred or revenue
recognized. The Company typically receives a low volume of large-dollar
receipts. Accounts receivable will fluctuate due to the timing and size of
cash receipts. Accounts receivable (net of allowance for doubtful accounts)
was $570,000 at March 31, 2000 and $330,000 at December 31, 1999. Deferred
revenue was $10,000 at March 31, 2000 and $30,000 at December 31, 1999.

Cash and cash equivalents decreased $970,000 during the three months ended
March 31, 2000. This was the result of $570,000 provided by investing and
financing activities, offset by $1.5 million used in operating activities.
Investing activities included net proceeds of $850,000 from purchases and
maturities of short-term investments offset by $280,000 used to purchase
property and equipment. Cash used for operating activities resulted from the
funding of net operating losses and other working capital needs.

At March 31, 2000, the Company had working capital of $15.8 million, and its
cash, cash equivalents and short-term investments totaled $15.9 million. The
Companys working capital decreased by $1.2 million since December 31, 1999.
The decrease was primarily the result of the $1.6 million decrease in cash,
cash equivalents and short-term investments and a $240,000 increase in accounts
receivable.

In January 1998, DATATRAK purchased the EDC software now known as DATATRAK
EDC from Padcom for $610,000. The Company is responsible for
funding the future development and testing of this software. The Company will
also continue to invest in the development of the DATATRAK®
process. The Companys sources of cash are cash generated by operations and
the maturities of short-term investments. The DATATRAK EDC Business has had a
negative cash flow of approximately $12.7 million since it began operations in
1997. The Companys operations and the EDC market are still in a developmental
stage. While the Company has experienced marginal revenue growth in the
DATATRAK EDC Business, it anticipates a negative cash flow from operations
during 2000, as the Company continues to build its operational and business
development infrastructure. The Company anticipates software development and
other capital expenditures of $2.5 million to $2.7 million over the next two
years 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.

Year 2000 Disclosure

The Company has completed its Year 2000 remediation efforts and, since January
1, 2000, has not experienced any significant problems internally or with
suppliers and customers in connection with this event. Nevertheless, the
Company is aware of some remaining future dates that could potentially cause
computer system problems, and is continuing to monitor its mission critical
computer applications to ensure that any problems are addressed promptly.

The Companys most likely worst-case scenario would be a long-term electrical
power disruption. The Companys contingency plans for large-scale Year 2000
disruptions, that may occur at future dates, focuses on two critical high-level
operational issues: (1) the preservation and availability of critical

9



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##### Table of Contents



company data and (2) the use of manual transaction processing until all disruptions are
eliminated. Because the Company has not, to date, experienced any significant
problems in the Year 2000, it does not anticipate any major impact on in its
operations.

Inflation

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

Interest Rate Risk

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

Foreign Currency Risk

The Companys foreign sales and results of operations are subject to the impact
of foreign currency fluctuations. Approximately 29% of the DATATRAK EDC
Businesss revenue for the three months ended March 31, 2000 was earned in
Germany. The Company manages its risk to foreign currency exchange rates by
maintaining foreign currency bank accounts in currencies which it regularly
transacts business. The Company does not currently hedge against the risk of
exchange rate fluctuations.

Euro Currency Conversion

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

Information About Forward-Looking Statements

Certain statements made in this Form 10-Q, other SEC filings or written
materials or orally by the Company or its representatives may constitute
forward looking statements that are based on managements current beliefs,
estimates and assumptions concerning the operations, future results and
prospects of the Company and the clinical pharmaceutical research industry in
general. All statements that address operating performance, events or
developments that management anticipates will occur in the future, including
statements related to future revenue, profits, expenses, income and earnings
per share or statements expressing general optimism about future results, are
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 (Exchange Act). In addition, words such as expects,
anticipates, intends, plans, believes, estimates, variations of such
words, and similar expressions are intended to identify forward-looking
statements. Forward-looking statements are subject to the safe harbors created
in the Exchange Act. Factors that may cause actual results to differ materially
from those in the forward looking statements include the ability of the Company
to absorb corporate overhead and other fixed costs in order to successfully
market the DATATRAK EDC software; the development and fluctuations
in the market for electronic data capture technology; the degree of the
Companys success in obtaining new contracts; the timing of payments from
customers and the timing of clinical trial sponsor decisions to conduct new
clinical trials or cancel or delay ongoing trials;

10



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##### Table of Contents



dependence on key personnel; governmental regulation; the early stage of the Companys DATATRAK business and
operations; and general economic conditions such as the rate of employment,
inflation, interest rates and the condition of capital markets. This list of
factors is not exclusive. In addition, the Companys success depends on the
outcome of various strategic initiatives it has undertaken, all of which are
based on assumptions made by the Company concerning trends in the clinical
research market and the health care industry.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

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




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



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

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
March 31, 2000.

11



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##### Table of Contents



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: |  |  | 5/12/00 |  |  | /s/ Jeffrey A. Green                                                                                                               
|      |  |  |         |  |  |                                                                                                                                    
|      |  |  |         |  |  | Jeffrey A. Green,
President and Chief Executive Officer and a Director
(Principal Executive Officer)                               
|     
|Date: |  |  | 5/12/00 |  |  | /s/ Terry C. Black                                                                                                                 
|      |  |  |         |  |  |                                                                                                                                    
|      |  |  |         |  |  | Terry C. Black,
Vice President of Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
(Principal Financial Officer)

12



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##### Table of Contents



Exhibit Index

|        |  |                                                                                                                         |  |     
|------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ----
|Exhibit
|No.     |  | Description                                                                                                             |  | Page
|        |  |                                                                                                                         |  |     
|4.1     |  | Specimen Certificate of the Companys Common Shares, without par value                                                  |  | (B) 
|       
|       
|       
|       
|4.2     |  | Second Amended and Restated Registration Agreement, dated July 15,1994,
as amended on June 1, 1995 and February 5, 1996 |  | (A) 
|       
|       
|       
|       
|10.1    |  | Amended and Restated 1994 Directors Share Option Plan*                                                                 |  | (C) 
|       
|       
|       
|       
|10.2    |  | Amended and Restated 1996 Outside Directors Stock Option Plan*                                                         |  | (C) 
|       
|       
|       
|       
|10.3    |  | Amendment No. 2 to the Amended and Restated 1996 Outside Directors Stock
Option Plan*                                  |  | (F) 
|       
|       
|       
|       
|10.4    |  | Amended and Restated 1992 Share Incentive Plan*                                                                         |  | (C) 
|       
|       
|       
|       
|10.5    |  | Amended and Restated 1996 Key Employees and Consultants
Stock Option Plan*                                             |  | (C) 
|       
|       
|       
|       
|10.6    |  | Amendment No. 2 to the Amended and Restated 1996 Key Employees
and Consultants Stock Option Plan*                      |  | (G) 
|       
|       
|       
|       
|10.7    |  | Form of Indemnification Agreement*                                                                                      |  | (A) 
|       
|       
|       
|       
|10.8    |  | Employment Agreement between the Company and Jeffrey A. Green, dated
July 1, 1994*                                      |  | (A) 
|       
|       
|       
|       
|10.9    |  | Employment Agreement between the Company and Terry C. Black,
dated July 20, 1994*                                       |  | (A) 
|       
|       
|       
|       
|10.10   |  | Separation Agreement between the Company and Terry C. Black,
dated December 22, 1998*                                   |  | (E) 
|       
|       
|       
|       
|10.11   |  | Employment Agreement between the Company and Marc J. Shlaes
dated July 2, 1998*                                         |  | (B) 
|       
|       
|       
|       
|10.12   |  | Employment Agreement between the Company and Wolfgang Summa,
dated January 13, 1998*                                    |  | (B) 
|       
|       
|       
|       
|10.13   |  | DATATRAK International, Inc. Retirement Savings Plan*                                                                   |  | (D) 
|       
|       
|       
|       
|10.14   |  | 1999 Outside Director Stock Option Plan*                                                                                |  | (G) 
|       
|       
|       
|       
|15.1    |  | Independent Accountants Review Report                                                                                 
|       
|       
|       
|       
|15.2    |  | Acknowledgement of Ernst & Young LLP                                                                                   
|       
|       
|       
|       
|27.1    |  | Financial Data Schedule                                                                                                



---

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

E-1



---



##### Table of Contents



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

E-2