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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, 2004 Commission file number 000-20699 DATATRAK International, Inc. 
  Ohio
    
    34-1685364(State or other jurisdiction of
incorporation or organization)
6150 Parkland Boulevard
    
    (I.R.S. Employer
Identification No.)Mayfield Heights,
Ohio
(Address of principal executive offices)
    
    44124
(Zip Code)
 (440) 443-0082 
     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 by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).  [  ] Yes [X] 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,
2004 was 6,066,897.




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TABLE OF CONTENTS  Part I. Financial InformationItem 1  Financial StatementsCONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSItem 2. Managements Discussion and Analysis of Results of Operations and Financial ConditionItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 2. Changes in Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. Exhibits and Reports on Form 8-KSIGNATURES302 CERTIFICATION FOR CEO302 CERTIFICATION FOR CFO906 CERTIFICATION FOR CEO906 CERTIFICATION FOR CFO    Table of Contents  
 Part I. Financial Information 
 Item 1 - Financial Statements 
 DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS March 31,
    
    December 31,2004
    
    2003(Unaudited)
    
    (Note A)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,788,793
    
    
    $
    1,727,335Short-term investments
    
    
    2,497,160
    
    
    
    2,533,849Restricted cash
    
    
    
    
    
    
    23,979Accounts receivable, less allowances
    
    
    1,023,990
    
    
    
    788,342Prepaid expenses and other current assets
    
    
    241,382
    
    
    
    170,552Total current assets
    
    
    5,551,325
    
    
    
    5,244,057Property and equipment, at cost
net of accumulated depreciation and amortization
    
    
    966,848
    
    
    
    1,018,739Other assetsRestricted cash
    
    
    71,949
    
    
    
    74,189Deposit
    
    
    39,549
    
    
    
    39,549111,498
    
    
    
    113,738Total assets
    
    $
    6,629,671
    
    
    $
    6,376,534LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    269,174
    
    
    $
    170,740Capital lease obligation
    
    
    
    
    
    
    23,979Accrued expenses
    
    
    626,802
    
    
    
    683,846Deferred revenue
    
    
    1,063,012
    
    
    
    897,138Total current liabilities
    
    
    1,958,988
    
    
    
    1,775,703Shareholders equity:Serial preferred shares, without par value, 1,000,000 shares
authorized, none issued
    
    
    
    
    
    
    Common share warrants
    
    
    68,049
    
    
    
    135,424Common shares, without par value, authorized 15,000,000
shares; issued 9,366,897 shares as of March 31, 2004 and
9,306,053 shares as of December 31, 2003; outstanding
6,066,897 shares as of March 31, 2004 and 6,006,053 shares
as of December 31, 2002
    
    
    56,724,554
    
    
    
    56,458,996Treasury shares, 3,300,000 shares at cost
    
    
    (20,188,308
    )
    
    
    (20,188,308
    )Accumulated deficit
    
    
    (31,875,176
    )
    
    
    (31,780,670
    )Foreign currency translation
    
    
    (58,436
    )
    
    
    (24,611
    )Total shareholders equity
    
    
    4,670,683
    
    
    
    4,600,831Total liabilities and shareholders equity
    
    $
    6,629,671
    
    
    $
    6,376,534
  Note A:
    
    The balance sheet at December 31, 2003 has been derived from the audited consolidated financial statements at that date,
but does not include all of the information and footnotes required by accounting principles generally accepted in the
United States for complete financial statements. See notes to condensed consolidated financial statements. 2




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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Three Months EndedMarch 31,2004
    
    2003Revenue
    
    $
    2,288,458
    
    
    $
    1,456,584Direct costs
    
    
    533,624
    
    
    
    353,882Gross profit
    
    
    1,754,834
    
    
    
    1,102,702Selling, general and administrative expenses
    
    
    1,658,567
    
    
    
    1,339,133Depreciation and amortization
    
    
    194,932
    
    
    
    262,068Loss from operations
    
    
    (98,665
    )
    
    
    (498,499
    )Other income (expense):Interest income
    
    
    8,062
    
    
    
    5,447Interest expense
    
    
    (203
    )
    
    
    (2,540
    )Other income (expense)
    
    
    
    
    
    
    695Loss before income taxes
    
    
    (90,806
    )
    
    
    (494,897
    )Income tax expense
    
    
    3,700
    
    
    
    Net loss
    
    $
    (94,506
    )
    
    $
    (494,897
    )Basic and diluted net loss per share
    
    $
    (0.02
    )
    
    $
    (0.09
    )Weighted average shares outstanding
    
    
    6,043,722
    
    
    
    5,263,836
 See notes to condensed consolidated financial statements. 3




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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months EndedMarch 31,2004
    
    2003Operating ActivitiesNet loss
    
    $
    (94,506
    )
    
    $
    (494,897
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    194,932
    
    
    
    262,068Other
    
    
    10,757
    
    
    
    6,073Changes in operating assets and liabilities:Accounts receivable
    
    
    (246,448
    )
    
    
    233,988Accounts payable and accrued expenses
    
    
    41,390
    
    
    
    (372,145
    )Deferred revenue
    
    
    165,874
    
    
    
    236,240Other
    
    
    (71,633
    )
    
    
    (37,233
    )Net cash provided by (used in) operating activities
    
    
    366
    
    
    
    (165,906
    )Investing ActivitiesDecrease in restricted cash
    
    
    23,979
    
    
    
    33,732Purchases of property and equipment
    
    
    (146,666
    )
    
    
    (14,173
    )Maturities of short term investments
    
    
    2,536,021
    
    
    
    1,002,268Purchases of short term investments
    
    
    (2,493,180
    )
    
    
    (1,033,935
    )Net cash used in investing activities
    
    
    (79,846
    )
    
    
    (12,108
    )Financing ActivitiesProceeds from issuance of common shares and stock option exercises
    
    
    192,074
    
    
    
    Payments under capital lease obligation
    
    
    (23,979
    )
    
    
    (33,732
    )Repayment of notes receivable
    
    
    803
    
    
    
    1,671Net cash provided by (used in) financing activities
    
    
    168,898
    
    
    
    (32,061
    )Effect of exchange rate on cash
    
    
    (27,960
    )
    
    
    1,173Increase (decrease) in cash and cash equivalents
    
    
    61,458
    
    
    
    (208,902
    )Cash and cash equivalents at beginning of period
    
    
    1,727,335
    
    
    
    1,620,707Cash and cash equivalents at end of period
    
    $
    1,788,793
    
    
    $
    1,411,805
 See notes to condensed
consolidated financial statements. 4




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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of
DATATRAK International, Inc. and subsidiaries (DATATRAK or the Company)
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31,
2004 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2004. 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, 2003 (File No. 000-20699). The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that might affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates. 2. Net Loss per Share The following table sets forth the computation of basic and diluted loss
per share. Three Months Ended March 31,2004
    
    2003Net loss used in the calculation of basic and
diluted earnings per share
    
    $
    (94,506
    )
    
    $
    (494,897
    )Denominator for basic and diluted net loss per
share  weighted average common shares
outstanding
    
    
    6,043,722
    
    
    
    5,263,836Basic and diluted net loss per share
    
    $
    (0.02
    )
    
    $
    (0.09
    )Weighted average common share options and
warrants excluded from the computation of
diluted net loss per share because they would
have an antidilutive effect on net loss per
share
    
    
    1,300,751
    
    
    
    1,217,960
 3. Comprehensive Loss The following table sets forth comprehensive loss. Three Months Ended March 31,2004
    
    2003Net loss
    
    $
    (94,506
    )
    
    $
    (494,897
    )Foreign currency translation
    
    
    (33,825
    )
    
    
    (2,866
    )Comprehensive loss
    
    $
    (128,331
    )
    
    $
    (497,763
    )
 5




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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited) 4. Shareholders Equity During January 2004, the holders of 12,500 common share warrants, with an
exercise price of $4.80 per share, surrendered the warrants along with the
exercise price in exchange for 12,500 common shares. In addition during the
three months ended March 31, 2004, the holders of 48,344 common share options,
at a weighted average exercise price of $2.73 per share, exercised the options
and purchased 48,344 common shares. 5. Income Taxes During the three months ended March 31, 2004, the Company had U.S. federal
alternative minimum tax of $3,700 due to income earned by its U.S. based
operations. Due to its U.S. and non-U.S. consolidated net loss and net loss
carryforwards, the Company had no other income tax expense during the three
months ended March 31, 2004. 6. Stock Based Compensation The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB No. 25) and related
interpretations in accounting for its employee and director stock options.
Under APB No. 25 compensation expense has been recognized for all options
granted at less than the fair market value of the common shares on the date of
grant. The alternative fair value accounting provided for under Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation requires use of
option valuation models that were not developed for use in valuing employee
stock options. SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure, requires disclosure of compensation expense under
both APB No. 25 and SFAS No. 123. SFAS No. 123 requires that stock
compensation be determined as if the Company has accounted for its stock
options granted subsequent to December 31, 1994 under the fair value method of
SFAS 123. For purposes of pro forma disclosures, the estimated value of the options
is amortized to expense over the options vesting period. The pro forma
results are not necessarily indicative of what would have occurred had the
Company adopted SFAS No. 123. The following table sets forth stock based compensation and pro forma
information for each period presented. Three Months ended March 31,2004
    
    2003Net loss recorded
    
    $
    (95,000
    )
    
    $
    (495,000
    )Plus: stock compensation expense recognized
    
    
    6,000
    
    
    
    4,000Less: stock compensation expense that would
have been recognized under SFAS No. 123
    
    
    157,000
    
    
    
    82,000Pro forma net loss
    
    $
    (246,000
    )
    
    $
    (573,000
    )Pro forma basic and diluted loss per share
    
    $
    (0.04
    )
    
    $
    (0.12
    )
 6




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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited) 7. Reclassification Certain prior year amounts have been reclassified to conform to the
current year presentation. 7




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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, 2004 is derived from the Condensed Consolidated Financial Statements
included elsewhere herein. The financial information set forth and discussed
below is unaudited, but in the opinion of management, reflects all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
such information. The Companys results of operations for a particular quarter
may not be indicative of results expected during the other quarters or for the
entire year. General DATATRAK is a provider of software and other related services, commonly
referred to as an application service provider, or ASP. DATATRAKs customers
use the software known as DATATRAK EDC® to collect and transmit clinical trial
data, commonly referred to as electronic data capture, or EDC. The Companys
services assist companies in the clinical pharmaceutical, biotechnology,
contract research organization and medical device research industries, in
accelerating the completion of clinical trials. Approximately 65% of the
Companys assets, or approximately $4,286,000, is held in cash, cash
equivalents and short-term investments. Since commencing EDC operations in
1997, the Company has experienced significant revenue growth and has begun to
generate positive cash flow from operations, but for the three months ended
March 31, 2004 continued to record net losses. The Company is continuing to
enhance and commercialize its business and the DATATRAK EDC® software, and
anticipates that its operating results may fluctuate significantly from period
to period. There can be no assurance of the Companys long-term future
prospects. The Companys standard contracts provide a fixed price for each component
or service to be delivered, and revenue is recognized as these components or
services are delivered. Services provided by DATATRAK that are in addition to
those provided for in its contracts are billed on a fee for service basis as
services are completed. Generally, these contracts range in duration from one
to three years. The ultimate contract value is dependent upon the length of
the customers use of DATATRAK EDC® and the services DATATRAK provides. As
services are performed over the life of the contract, revenue is recognized per
the specific terms of each contract. Costs associated with contract revenue
are recognized as incurred. Pass-through costs that are paid directly by
DATATRAKs customers, and for which the Company does not bear the risk of
economic loss, are excluded from revenue. The termination of a standard
contract will not result in a material adjustment to the revenue or costs
previously recognized. In some instances, DATATRAK offers volume discounts to customers over
multiple contracts. DATATRAK estimates the volume discounts to be earned over
the life the contracts to which the discount applies. As contracts progress,
revenue is recorded using rates that reflect the anticipated volume discount to
be achieved by the customer. The termination of a contract subject to a volume
discount could result in a material adjustment to revenue previously
recognized, in order to reflect the true economic value of the contract at the
time of cancellation. To date, DATATRAK has not recorded any revenue at rates
that anticipate the earning of volume discounts by a customer. Since its purchase of the DATATRAK EDC software in January 1998, DATATRAK
has recorded revenue related to approximately eighty contracts. Backlog
consists of anticipated revenue from authorization letters to commence services
and signed contracts yet to be completed. Potential contracts or authorization
letters that have passed the verbal stage, but have not yet been signed, are
excluded from backlog. At March 31, 2004, DATATRAKs backlog was $14,137,000.
DATATRAKs contracts can be cancelled or delayed at anytime and, therefore, the
Companys backlog, at any point in time, is not an accurate predictor of future
levels of revenue. 8




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Critical Accounting Policies In response to the SECs Release No. 33-8040, Cautionary Advice Regarding
Disclosure About Critical Accounting Policies, the Company has identified the
most critical accounting principles upon which its financial status depends.
Critical principles were determined by considering accounting policies that
involve the most complex or subjective decisions or assessments. The most
critical accounting policies were identified to be those related to revenue
recognition, software development costs and stock based compensation. A summary of these critical accounting policies can be found in the
Companys Annual Report on Form 10-K, filed on March 19, 2004, under the
heading Critical Accounting Policies in Managements Discussion and Analysis
of Financial Condition and Results of Operations. Results of Operations Three months ended March 31, 2004 compared with three months ended March
31, 2003 Revenue for the three months ended March 31, 2004 increased 57.0% to
$2,288,000 as compared to $1,457,000 for the three months ended March 31, 2003.
During the first three months of 2004, DATATRAK recorded revenue related to 47
contracts compared to 37 contracts during 2003. For the three months ended
March 31, 2004, $2,242,000 of revenue was the result of contracts that were in
backlog at December 31, 2003 and $46,000 was the result of new business. For
the first quarter of 2003, $1,110,000 of revenue was generated from contracts
that were in backlog at December 31, 2002 and $347,000 of revenue was the
result of new business. Assuming there are no contract delays or
cancellations, the Company expects to generate approximately an additional
$6,700,000 of revenue from contracts that were in backlog at December 31, 2003
throughout the remainder of 2004. Direct costs of revenue, mainly personnel costs, were $534,000 and
$354,000 during the three month periods ended March 31, 2004 and 2003,
respectively. Additional staff and other payroll cost increases accounted for
 $170,000 of this increase. The increase in staff was necessitated by the
growth in revenue and the increase in the number of contracts DATATRAK has been
managing over the past year. DATATRAKs gross margin increased slightly to
76.7% for the three months ended March 31, 2004 compared to 75.7% in the first
quarter of 2003. Based on its anticipated levels of revenue and current cost
structure, DATATRAK anticipates that its gross margin in 2004 will remain
consistent with the levels achieved in the first quarter of 2004. Selling, general and administrative expenses (SG&A) include all
administrative personnel costs, business development costs, and all other
expenses not directly chargeable to a specific contract. SG&A expenses
increased by 23.9% to $1,659,000 from $1,339,000 for the three months ended
March 31, 2004 and 2003, respectively. Payroll cost increases and the
Companys new bonus plan accounted for $139,000 of the $320,000 increase.
Expenses related to equipment maintenance and software licensing increased
$67,000 compared to the prior year. These expenses are necessary to ensure
that DATATRAKs information technology environment is properly maintained. The
development of the Companys corporate internal infrastructure, and increased
sales and marketing activity accounted for the remainder of the increase in
SG&A costs. Depreciation and amortization expense decreased to $195,000 for the period
ended March 31, 2004 compared to $262,000 for the period ended
March 31, 2003.
The decrease was the result of aging and fully depreciated assets not being
replaced throughout 2003 as indicated by the low level of capital expenditures
during 2003. During the three months ended March 31, 2004, DATATRAK spent
$147,000 for new equipment. The Company expects increased capital expenditure
activity throughout the remainder of 2004. 9




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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. The
Companys investing activities primarily reflect capital expenditures and net
purchases of short-term investments. In January 2003 the Company raised
approximately $2,239,000 in cash with the completion of a private placement of
its common shares. The Companys contracts usually require a portion of the contract amount
to be paid at the time the contract is initiated. Additional payments are
generally received monthly as work on the contract progresses. 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. DATATRAKs accounts receivable
will fluctuate due to the timing and size of cash receipts. Contracting and
collection practices are designed to maintain an average collection period for
accounts receivable of one to 3 months. Any increase in the Companys normal
collection period for accounts receivable could negatively impact its cash flow
from operations and our working capital. At March 31, 2004, the average
collection period for accounts receivable was 39 days compared to 43 days at
December 31, 2003. Accounts receivable (net of allowance for doubtful
accounts) was $1,024,000 at March 31, 2004 and $788,000 at December 31, 2003.
DATATRAKs increased revenue has caused the accounts receivable balance to
increase during 2004, however the accounts receivable collection period has
remained consistent with prior periods. Deferred revenue was $1,063,000 at
March 31, 2004 compared to $897,000 at December 31, 2003. Cash and cash equivalents increased $61,000 during the three months ended
March 31, 2004. This was the result of $80,000 used in investing activities
and $169,000 provided by financing activities. Foreign currency fluctuations
caused a $28,000 decrease in cash and cash equivalents. Investing activities
included $147,000 used to purchase property and equipment, offset by net
maturities of investments and a decrease in restricted cash totaling $67,000.
Financing activities include proceeds from the issuance of common shares
totaling $192,000 as the result of exercises of common share options and
warrants, which was partially offset by capital lease payments totaling
$24,000. At March 31, 2004, the Company had working capital of $3,592,000 and its
cash, cash equivalents and short-term investments totaled $4,286,000. The
Companys working capital increased by $124,000 since December 31, 2003. The
increase was primarily the result of a $70,000 increase in net accounts
receivable (accounts receivable less deferred revenue) and the $25,000 increase
in cash, cash equivalents and short-term investments. The Company is responsible for funding the future enhancement and testing
of the DATATRAK EDC® software. The Company will continue to invest in the
development of the DATATRAK® process. The Companys operations and the EDC
market are still in a developmental stage. DATATRAK has experienced revenue
growth, and anticipates recording net income and positive cash flow from
operations for the year ended December 31, 2004, as it continues to build its
customer base, increase its backlog and convert existing backlog into revenue.
During the three months ended March 31, 2004, the Company expended $147,000 for
capital expenditures, and had expenditures totaling $64,000 for equipment
maintenance and related items. The Company anticipates capital and related
expenditures of approximately $829,000 through the end of 2004 for continued
commercialization, product development and maintenance of DATATRAK EDC® and the
anticipated growth of DATATRAKs business and information technology
infrastructure. A portion of these anticipated expenditures are dependent on
the Companys growth, and are therefore discretionary in nature. DATATRAK
expects to fund these working capital requirements, from existing cash and cash
equivalents, maturities of short-term investments and cash flow from
operations. The Company believes that, with its continued anticipated growth
in revenue, its cash and cash equivalents, maturities of short-term investments
and cash flow from operations will be sufficient to meet its working capital
and capital expenditure requirements for the foreseeable future. However,
DATATRAK may need to raise additional funds to offset delays or cancellations of contracts, support
expansion, respond to 10




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competitive pressures, acquire complementary businesses
or technology or take advantage of unanticipated opportunities. Additional
funds may be raised by selling debt or equity securities, by entering into
strategic relationships or through other arrangements. Additional capital may
not be available on acceptable terms, if at all. To the extent that additional
equity capital is raised, it could have a dilutive effect on existing
shareholders. Inflation To date, the Company believes the effects of inflation have not had a
material adverse effect on its results of operations or financial condition. Information About Forward-Looking Statements Certain statements made in this Form 10-Q, other SEC filings or written
materials or orally by the Company or its representatives may constitute
forward-looking statements that are based on managements current beliefs,
estimates and assumptions concerning the operations, future results and
prospects of the Company and the clinical pharmaceutical research industry in
general. All statements that address operating performance, events or
developments that management anticipates will occur in the future, including
statements related to future revenue, profits, expenses, income and earnings
per share or statements expressing general optimism about future results, are
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (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 of and
fluctuations in the market for electronic data capture technology; the degree
of the Companys success in obtaining new contracts; the timing of payments
from customers and the timing of clinical trial sponsor decisions to conduct
new clinical trials or cancel or delay ongoing trials; governmental regulation;
the early stage of the Companys ASP operations; and general economic
conditions such as the rate of employment, inflation, interest rates and the
condition of capital markets. This list of factors is not all inclusive. 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. Any forward-looking statement speaks only as of the date on
which such statement is made and the Company does not undertake any obligation
to update any statements whether as a result of new information, future events
or otherwise. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risk from changes in interest rates and
foreign currency exchange rates since it funds its operations through
short-term investments and has business transactions in Euros. A summary of
the Companys market risk exposures is presented below. Interest Rate Risk DATATRAK has fixed income investments consisting of cash equivalents and
short-term investments, which may be affected by changes in market interest
rates. The Company does not use derivative financial instruments in its
investment portfolio. The Company places its cash equivalents and short-term
investments with high-quality financial institutions, limits the amount of
credit exposure to any one institution and has established investment
guidelines relative to diversification and maturities designed to maintain
safety and liquidity. Investments are reported at amortized cost, which
approximates fair value. A 1.0% change in interest rates during the three months ended March 31, 2004,
would have resulted in an $11,000 change in DATATRAKs interest income during
the quarter. 11




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Foreign Currency Risk DATATRAKs foreign results of operations are subject to the impact of
foreign currency fluctuations through both foreign currency transaction and
foreign currency translation adjustments. The Company manages its risk to
foreign currency transaction adjustments by maintaining foreign currency bank
accounts in currencies in which we regularly transact business. DATATRAK does
not currently hedge against the risk of exchange rate fluctuations. DATATRAKs financial position and results of operations are impacted by
translation adjustments caused by the conversion of foreign currency accounts
and operating results into U.S. dollars for financial reporting purposes. A
1.0% fluctuation in the exchange rate between the U.S. dollar and the Euro at
March 31, 2003, would have resulted in a $33,000 change in the foreign currency
translation amount recorded on the Companys balance sheet, due to foreign
currency translations. A 1.0% fluctuation in the average exchange rate between
the U.S. dollar and the Euro for the three months ended March 31, 2004 would
have resulted in a $6,000 change in our net loss for the three months ended
March 31, 2004 due to foreign currency translations. During the three months
ended March 31, 2004 the average exchange rate between the Euro and the U.S.
dollar by increased by approximately 17% compared to the three months ended
March 31, 2003. The conversion of our foreign operations into U.S. dollars
upon consolidation resulted in a net loss that was approximately $90,000 higher
than would have been recorded had the exchange rate between the Euro and the
U.S. dollar remained consistent with first quarter 2003 rates. 
 Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Company carried out an evaluation, under the supervision and with the
participation of the Companys management, including the chief executive
officer and chief financial officer, of the design and operation of the
Companys disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-14(e)) as of the end of the period covered by this report.
Based upon that evaluation the Companys management, including the chief
executive officer and chief financial officer, have concluded that, as of March
31, 2004, the Companys disclosure controls and procedures were effective to
ensure that material information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those entities, so
that information required to be disclosed by the Company in the reports it
files and submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms. Changes in Internal Controls There were no significant changes in the Companys internal controls over
financial reporting that occurred during the fiscal quarter covered by this
report that have materially affected, or are reasonably likely to materially
affect, the Companys internal controls over financial reporting. 
 Part II. Other Information 
 Item 1. Legal Proceedings None. 
 Item 2. Changes in Securities and Use of Proceeds None. 12




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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  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  (b)
    Reports on Form 8-KNo reports were filed on form 8-K during the three months ended
March 31, 2004, other than the following:Current Report on Form 8-K dated March 1, 2004, furnishing under
Item 12, a press release and a conference call transcript. 13




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

RegistrantDate: 5/13/04
    
    /s/ Jeffrey A. GreenJeffrey A. Green,President and Chief Executive Officer(Principal Executive Officer)Date: 5/13/04
    
    /s/ Terry C. BlackTerry C. Black,Vice President of Finance, Chief Financial Officer,Treasurer and Assistant Secretary(Principal Financial Officer)
 14