##### Table of Contents



Securities and Exchange Commission
Washington, D.C. 20549




Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended
March 31, 2002

Commission file number
000-20699

DATATRAK International,
Inc.

---

(Exact name of registrant as
specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Ohio                                                           |  | 34-1685364                          
|(State or other jurisdiction of
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,
2002 was 5,263,836.



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TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Form 10-Q                                                                                    
|Part 1. Financial InformationItem 1  Financial Statements                                   
|Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|Part II. Other Information                                                                   
|Item 1. Legal Proceedings                                                                    
|Item 2. Changes in Securities and Use of Proceeds                                            
|Item 3. Defaults Upon Senior Securities                                                      
|Item 4. Submission of Matters to a Vote of Security Holders                                  
|Item 5. Other Information                                                                    
|Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                   
|Exhibit Index                                                                                



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##### Table of Contents






Part 1. Financial Information
Item 1  Financial Statements

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |              |           |          |  | 
|-------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ----------- | ---------- | --------- | --------- | ------------ | --------- | -------- |  | 
|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |              |           | (Note A)
|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      |             |            | March 31, |           | December 31,
|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      |             |            | 2002      |           | 2001        
|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |             
|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      | ASSETS      |            |           |           |              |           |          |  | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Current assets:                                                                  |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |             
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cash and cash equivalents                                                                                                                                                                                                                          |                                            | $                                    | 2,089,222   |            |           | $         | 2,174,445    |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Short-term investments                                                                                                                                                                                                                             |                                            |                                      | 5,539,915   |            |           |           | 3,029,582    |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accounts receivable, less allowances                                                                                                                                                                                                               |                                            |                                      | 484,573     |            |           |           | 429,911      |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Prepaid expenses and other current assets                                                                                                                                                                                                          |                                            |                                      | 308,267     |            |           |           | 373,503      |          
|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |             
|                                                                                 |                                                                                                                                                                                                                                                    | Total current assets                       |                                      |             | 8,421,977  |           |           |              | 6,007,441 |         
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Property and equipment, at cost
net of accumulated depreciation and amortization |                                                                                                                                                                                                                                                    |                                            | 1,851,749                            |             |            |           | 1,574,211 |             
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Other assets                                                                     |                                                                                                                                                                                                                                                    |                                            | 49,488                               |             |            |           | 51,918    |             
|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |             
|                                                                                 |                                                                                                                                                                                                                                                    | Total assets                               |                                      | $           | 10,323,214 |           |           | $            | 7,633,570 |         
|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |             
|                                                                                 |                                                                                                                                                                                                                                                    |                                            | LIABILITIES AND SHAREHOLDERS EQUITY |             |            |           |           |              |           |          | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Current liabilities:                                                             |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |             
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accounts payable                                                                                                                                                                                                                                   |                                            | $                                    | 413,956     |            |           | $         | 253,095      |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Current portion of capital lease obligation                                                                                                                                                                                                        |                                            |                                      | 131,604     |            |           |           | 129,417      |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accrued expenses                                                                                                                                                                                                                                   |                                            |                                      | 737,165     |            |           |           | 864,611      |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Deferred revenue                                                                                                                                                                                                                                   |                                            |                                      | 1,094,954   |            |           |           | 469,275      |          
|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |             
|                                                                                 |                                                                                                                                                                                                                                                    | Total current liabilities                  |                                      |             | 2,377,679  |           |           |              | 1,716,398 |         
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Capital lease obligation, less current portion                                   |                                                                                                                                                                                                                                                    |                                            | 128,634                              |             |            |           | 162,367   |             
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Shareholders equity:                                                            |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |             
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Serial preferred shares, without par value, 1,000,000 shares
authorized, none issued                                                                                                                                                               |                                            |                                      |            |            |           |           |             |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Common share warrants                                                                                                                                                                                                                              |                                            |                                      | 357,589     |            |           |           |             |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Common shares, without par value, authorized 15,000,000
shares; issued 8,563,836 shares as of March 31, 2002
and 6,591,322 as of December 31, 2001; outstanding 5,263,836
shares as of March 31, 2002 and 3,291,322 shares as of
December 31, 2001 |                                            |                                      | 53,857,224  |            |           |           | 50,372,239   |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Treasury shares, 3,300,000 shares at cost                                                                                                                                                                                                          |                                            |                                      | (20,188,308 | )          |           |           | (20,188,308  | )        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accumulated deficit                                                                                                                                                                                                                                |                                            |                                      | (26,112,600 | )          |           |           | (24,341,439  | )        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Foreign currency translation                                                                                                                                                                                                                       |                                            |                                      | (97,004     | )          |           |           | (87,687      | )        
|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |             
|                                                                                 |                                                                                                                                                                                                                                                    | Total shareholders equity                 |                                      |             | 7,816,901  |           |           |              | 5,754,805 |         
|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |             
|                                                                                 |                                                                                                                                                                                                                                                    | Total liabilities and shareholders equity |                                      | $           | 10,323,214 |           |           | $            | 7,633,570 |         
|                                                                                 |                                                                                                                                                                                                                                                    |                                            |                                      |             |            |           |           |             

|        |  |                                                                                                                                                                                                                                                                                                
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note A: |  | The balance sheet at December 31, 2001 has been derived from the
audited consolidated financial statements at that date, but does
not include all of the information and footnotes required by
accounting principles generally accepted in the United States for
complete financial statements.

See notes to condensed consolidated financial statements.

2



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##### Table of Contents



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

|                                             |                        |   |                    |        |      |   |            |         |  
|-------------------------------------------- | ---------------------- | - | ------------------ | ------ | ---- | - | ---------- | ------- | -
|                                             |                        |   | Three Months Ended
|                                             |                        |   | March 31,         
|                                             |                        |   |                   
|                                             |                        |   | 2002               |        | 2001
|                                             |                        |   |                    |        |     
|Revenue                                      |                        | $ | 815,865            |        |      | $ | 673,113    |        
|                                            
|                                            
|                                            
|                                            
|Direct costs                                 |                        |   | 433,940            |        |      |   | 429,618    |        
|                                             |                        |   |                    |        |      |   |            |        
|Gross profit                                 |                        |   | 381,925            |        |      |   | 243,495    |        
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |                        |   | 1,925,934          |        |      |   | 1,742,634  |        
|                                            
|                                            
|                                            
|                                            
|Depreciation and amortization                |                        |   | 256,227            |        |      |   | 231,001    |        
|                                             |                        |   |                    |        |      |   |            |        
|Loss from operations                         |                        |   | (1,800,236         | )      |      |   | (1,730,140 | )      
|                                            
|                                            
|                                            
|                                            
|Other income (expense):                      |                        |   |                    |        |      |   |            |        
|                                            
|                                            
|                                            
|                                            
|                                             | Interest income        |   |                    | 34,301 |      |   |            | 164,409 |  
|                                            
|                                            
|                                            
|                                            
|                                             | Interest expense       |   |                    | (6,402 | )    |   |            | (2,202  | )
|                                            
|                                            
|                                            
|                                            
|                                             | Other income (expense) |   |                    | 1,176  |      |   |            | (22,920 | )
|                                             |                        |   |                    |        |      |   |            |        
|Net loss                                     |                        | $ | (1,771,161         | )      |      | $ | (1,590,853 | )      
|                                             |                        |   |                    |        |      |   |            |        
|Basic and diluted net loss per share         |                        | $ | (0.34              | )      |      | $ | (0.48      | )      
|                                             |                        |   |                    |        |      |   |            |        
|Weighted average common shares outstanding   |                        |   | 5,156,724          |        |      |   | 3,290,322  |        
|                                             |                        |   |                    |        |      |   |            |        

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 Ended March 31,
|                                                 |                                                                             |                                              |                                       |            |                             
|                                                 |                                                                             |                                              |                                       |            | 2002                         |         | 2001     
|                                                 |                                                                             |                                              |                                       |            |                              |         |          
|Operating Activities                             |                                                                             |                                              |                                       |            |                              |         |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Net loss                                                                    |                                              | $                                     | (1,771,161 | )                            |         | $         | (1,590,853 | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net loss to net cash
used in operating activities: |                                              |                                       |            |                              |         |           |            |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             | Depreciation and amortization                |                                       |            | 256,227                      |         |           |            | 231,001  |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             | Other                                        |                                       |            | (16,530                      | )       |           |            | (129,027 | )       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             | Changes in operating assets and liabilities: |                                       |            |                              |         |           |            |          |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             |                                              | Accounts receivable                   |            |                              | (59,162 | )         |            |          | (104,138 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             |                                              | Accounts payable and accrued expenses |            |                              | 33,415  |           |            |          | (73,025  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             |                                              | Deferred revenue                      |            |                              | 625,679 |           |            |          | 2,107    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                             |                                              | Other                                 |            |                              | 64,881  |           |            |          | 51,245   |  
|                                                 |                                                                             |                                              |                                       |            |                              |         |           |           
|                                                 | Net cash used in operating activities                                       |                                              |                                       | (866,651   | )                            |         |           | (1,612,690 | )       
|                                                
|                                                
|                                                
|                                                
|Investing Activities                             |                                                                             |                                              |                                       |            |                              |         |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of property and equipment                                         |                                              |                                       | (538,062   | )                            |         |           | (367,608   | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sales of property and equipment                               |                                              |                                       | 847        |                              |         |           |           |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Maturities of short term investments                                        |                                              |                                       | 3,035,000  |                              |         |           | 8,980,000  |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of short term investments                                         |                                              |                                       | (5,520,610 | )                            |         |           | (7,393,148 | )       
|                                                 |                                                                             |                                              |                                       |            |                              |         |           |           
|                                                 | Net cash provided by (used in) investing activities                         |                                              |                                       | (3,022,825 | )                            |         |           | 1,219,244  |         
|                                                
|                                                
|                                                
|                                                
|Financing Activities                             |                                                                             |                                              |                                       |            |                              |         |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from issuance of common shares and stock option exercises          |                                              |                                       | 3,838,881  |                              |         |           |           |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Payments under capital lease obligation                                     |                                              |                                       | (31,546    | )                            |         |           | (9,889     | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayment of notes receivable                                               |                                              |                                       | 2,785      |                              |         |           | 15,726     |         
|                                                 |                                                                             |                                              |                                       |            |                              |         |           |           
|                                                 | Net cash provided by financing activities                                   |                                              |                                       | 3,810,120  |                              |         |           | 5,837      |         
|                                                
|                                                
|                                                
|                                                
|Effect of exchange rate on cash                  |                                                                             |                                              | (5,867                                | )          |                              |         | 15,032    |           
|                                                 |                                                                             |                                              |                                       |            |                              |         |           |           
|Decrease in cash and cash equivalents            |                                                                             |                                              | (85,223                               | )          |                              |         | (372,577  | )         
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                             |                                              | 2,174,445                             |            |                              |         | 2,383,244 |           
|                                                 |                                                                             |                                              |                                       |            |                              |         |           |           
|Cash and cash equivalents at end of period       |                                                                             | $                                            | 2,089,222                             |            |                              | $       | 2,010,667 |           
|                                                 |                                                                             |                                              |                                       |            |                              |         |           |           

See notes to condensed consolidated financial statements.

4



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##### Table of Contents



DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of
DATATRAK International, Inc. and subsidiaries (DATATRAK or the Company)
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31,
2002 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2002. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Companys Form 10-K for the year ended December 31, 2001 (File No. 000-20699).

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

2. Net Loss per Share

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

|                                                                                                                                                                   |  |                              |            |      |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ---------- | ---- |  | - | ---------- | -
|                                                                                                                                                                   |  | Three Months Ended March 31,
|                                                                                                                                                                   |  |                             
|                                                                                                                                                                   |  | 2002                         |            | 2001
|                                                                                                                                                                   |  |                              |            |     
|Net loss used in the calculation of basic and
diluted earnings per share                                                                                           |  | $                            | (1,771,161 | )    |  | $ | (1,590,853 | )
|                                                                                                                                                                   |  |                              |            |      |  |   |            |  
|Denominator for basic and diluted net loss
per share  weighted average Common
Shares outstanding                                                                  |  |                              | 5,156,724  |      |  |   | 3,290,322  |  
|                                                                                                                                                                   |  |                              |            |      |  |   |            |  
|Basic and diluted net loss per share                                                                                                                               |  | $                            | (0.34      | )    |  | $ | (0.48      | )
|                                                                                                                                                                   |  |                              |            |      |  |   |            |  
|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 |  |                              | 1,231,710  |      |  |   | 931,658    |  
|                                                                                                                                                                   |  |                              |            |      |  |   |            |  

5



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DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)

3. Comprehensive loss

The following table sets forth comprehensive loss.

|                             |  |                              |            |      |  |   |            |  
|---------------------------- |  | ---------------------------- | ---------- | ---- |  | - | ---------- | -
|                             |  | Three Months Ended March 31,
|                             |  |                             
|                             |  | 2002                         |            | 2001
|                             |  |                              |            |     
|Net loss                     |  | $                            | (1,771,161 | )    |  | $ | (1,590,853 | )
|                            
|                            
|                            
|                            
|Foreign currency translation |  |                              | (9,317     | )    |  |   | 16,989     |  
|                             |  |                              |            |      |  |   |            |  
|Comprehensive loss           |  | $                            | (1,780,478 | )    |  | $ | (1,573,864 | )
|                             |  |                              |            |      |  |   |            |  

4. Shareholders Equity

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

5. Restricted Cash

The Company is party to an agreement with an unaffiliated third party to
lease certain computer equipment. The lease has been recorded as a capital
lease. Terms of the lease agreement require the Company to maintain a
restricted cash balance equal to the outstanding balance payable on the lease.
The restricted cash balance was $260,238 at March 31, 2002.

6. Common Share Warrants

At March 31, 2002, the Company had outstanding warrants to purchase
192,252 common shares at a price of $2.25 per share. The warrants became
exercisable on January 4, 2002 and will expire on January 4, 2007.

7. Reclassification

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

6



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##### Table of Contents






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, 2002 is derived from the Condensed Consolidated Financial Statements
included elsewhere herein. The financial information set forth and discussed
below is unaudited, but in the opinion of management, reflects all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
such information. The Companys results of operations for a particular quarter
may not be indicative of results expected during the other quarters or for the
entire year.

General

DATATRAK is a provider of software and other related services, commonly
referred to as an application service provider, or ASP. DATATRAKs customers
use the software known as DATATRAK EDC to collect and transmit clinical trial
data, commonly referred to as electronic data capture, or EDC. The Companys
services assist companies in the clinical pharmaceutical, biotechnology,
contract research organization (CRO) and medical device research industries,
in accelerating the completion of clinical trials. Approximately 74% of the
Companys assets, or approximately $7.6 million, are held in cash, cash
equivalents and short-term investments. The Company has recognized minimal
revenue and has experienced significant losses and negative cash flow from
operations since commencing EDC operations in 1997. The Company is continuing
to enhance and commercialize the DATATRAK EDC software and anticipates that
its operating results will fluctuate significantly from period to period.
There can be no assurance of the Companys long-term future prospects.

The Companys contracts provide a fixed price for each component or
service to be delivered, and revenue is recognized as these components or
services are delivered. Services provided by DATATRAK that are in addition to
those provided for in its contracts are billed on a fee for service basis as
completed. Generally, these contracts range in duration from one to three
years. The ultimate contract value is dependent upon the length of the
customers use of DATATRAK EDC and the services provided by DATATRAK. As
services are performed over the life of the contract, revenue is recognized per
the specific terms of each contract. Costs associated with contract revenues
are recognized as incurred. These contracts can be terminated by the customer
with or without cause. DATATRAK is entitled to payment for all work performed
through the date of notice of termination and for recovery of some or all costs
incurred to terminate a contract. The termination of a contract will not
result in a material adjustment to revenue or costs previously recognized.

Since its purchase of the DATATRAK EDC software in January 1998, DATATRAK
has recorded revenue related to a small number of contracts. At March 31,
2002, DATATRAKs backlog was $14.1 million. Backlog includes a $2.4 million
contract that has been placed on hold, by the clinical trial sponsor, for a
minimum of twelve months. Due to DATATRAKs early stage of development and its
low level of backlog, there can be no assurance as to its future levels of
revenue.

Critical Accounting Policies

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

Revenue Recognition

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

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are in addition to those provided for in its contracts are billed on a fee for service
basis as services are completed. As services are performed over the life of the contract,
revenue is recognized per the specific terms of each contract. Costs
associated with contract revenue are recognized as incurred. Pass-through
costs that are paid directly by the Companys clients, and for which the
Company does not bear the risk of economic loss, are excluded from revenue. The
termination of a contract will not result in a material adjustment to the
revenue or costs previously recognized. DATATRAK is also a seller and licenser
of software. Generally, revenue is recognized upon delivery of sold software.
Licensing revenue is recognized ratably over the life of the license. To date,
DATATRAK has not recognized any revenue from software sales.

Software Development Costs

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

Results of Operations

Three months ended March 31,
2002 compared with three months ended March 31, 2001

Revenue for the three months ended March 31, 2002 increased 22.4% to
$820,000 as compared to $670,000 for the three months ended March 31, 2001.
The increase was the result of the Companys growth in backlog in 2001 and the
resulting increase in the number of clinical trials using the DATATRAK EDC
software.

Direct costs of revenue, mainly personnel costs, were $430,000 during each
of the three month periods ended March 31, 2002 and 2001. The addition of new
employees caused personnel costs to increase by $50,000 during the three months
ended March 31, 2002. Other direct costs, primarily travel and other costs
billed directly to DATATRAKs customers decreased by $50,000 during the three
months ended March 31, 2002.

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 11.8% to $1.9 million from $1.7 million for the three months ended
March 31, 2002 and 2001. The $200,000 increase was due to increased personnel
costs caused by an increase in sales and marketing and software development
personnel.

Depreciation and amortization expense increased to $260,000 during the
three months ended March 31, 2002 from $230,000 during the three months ended
March 31, 2001. The increase was the result of depreciating capital
expenditures associated with the development of DATATRAKs information
technology infrastructure.

Other income decreased $110,000 during the three months ended March 31,
2002 compared to the three months ended March 31, 2001. Other income includes
interest income which decreased $130,000 for the three months ended March 31,
2002 compared to March 31, 2001, due to the Companys use of cash to fund its
operating losses and other working capital needs.

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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.
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. In 1999, DATATRAK
repurchased 3.3 million of its common shares at a cost of $20.2 million. In
January 2002 the Company raised approximately $3.8 million in cash with the
completion of its private placement of common shares.

The Companys contracts usually require a portion of the contract amount
to be paid at the time the contract is initiated. Additional payments are
generally received 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 $490,000 at March 31, 2002 and $430,000 at December 31, 2001.
Deferred revenue was $1.1 million at March 31, 2002 and $470,000 at December
31, 2001.

Cash and cash equivalents decreased $90,000 during the three months ended
March 31, 2002. This was the result of $780,000 provided by investing and
financing activities, offset by $870,000 used in operating activities.
Investing activities included net purchases of short-term investments of $2.5
million and $540,000 used to purchase property and equipment. Financing
activities include $3.8 million received from the Companys private placement
of its common shares. Cash used for operating activities resulted from the
funding of net operating losses and other working capital needs.

At March 31, 2002, the Company had working capital of $6.0 million, and
its cash, cash equivalents and short-term investments totaled $7.6 million.
The Companys working capital increased by $1.7 million since December 31,
2001. The increase was primarily the result of the $2.4 million increase in
cash, cash equivalents and short-term investments, which was offset by the
$630,000 increase in deferred revenue.

The Company is responsible for funding the future enhancement and testing
of the DATATRAK EDC software. The Company will continue to invest in the
development of the DATATRAK® process. The Companys operations and the EDC
market are still in a developmental stage. DATATRAK has experienced marginal
revenue growth, however, the Company anticipates negative cash flow from
operations during 2002, as it continues to build its operational and business
development infrastructure. The Company anticipates capital and related
expenditures of approximately $900,000 through the end of the current year for
continued commercialization and product development of DATATRAK EDC, which the
Company expects to fund from existing cash and cash equivalents, maturities of
short-term investments and cash flow from operations. The Company believes
that its cash and cash equivalents, maturities of short-term investments and
cash flow from operations, together with its existing sources of equity, will
be sufficient to meet its working capital and capital expenditure requirements
through the end of the current year. However, at the current rates of negative
cash flows, capital and related expenditures and revenue growth, the Company
anticipates that it may need to raise additional funds for working capital by
selling debt or equity securities or through other arrangements. Additional
capital may not be available on acceptable terms, if at all.

Inflation

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

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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 of and fluctuations in the
market for electronic data capture technology; the degree of the Companys
success in obtaining new contracts; the timing of payments from customers and
the timing of clinical trial sponsor decisions to conduct new clinical trials
or cancel or delay ongoing trials; governmental regulation; the early stage of
the Companys ASP operations; and general economic conditions such as the rate
of employment, inflation, interest rates and the condition of capital markets.
This list of factors is not exclusive. In addition, the Companys success
depends on the outcome of various strategic initiatives it has undertaken, all
of which are based on assumptions made by the Company concerning trends in the
clinical research market and the health care industry.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from changes in interest rates and
foreign currency exchange rates since it funds its operations through
short-term investments and has business transactions in Euros. A summary of
the Companys market risk exposures is presented below.

Interest Rate Risk

DATATRAK has fixed income investments consisting of cash equivalents and
short-term investments, which may be affected by changes in market interest
rates. The Company does not use derivative financial instruments in its
investment portfolio. The Company places its cash equivalents and short-term
investments with high-quality financial institutions, limits the amount of
credit exposure to any one institution and has established investment
guidelines relative to diversification and maturities designed to maintain
safety and liquidity. Investments are reported at amortized cost, which
approximates fair value. A 1.0% change in interest rates during the three
months ended March 31, 2002, would have resulted in a $16,000 change in
DATATRAKs interest income during the quarter.

Foreign Currency Risk

DATATRAKs foreign sales and results of operations are subject to the
impact of foreign currency fluctuations. Approximately 13% of the Companys
revenue for the three months ended March 31, 2002 was earned by the Companys
German subsidiary. The Company manages its risk to foreign currency exchange
rates by maintaining foreign currency bank accounts in currencies in which it
regularly transacts business. DATATRAK does not currently hedge against the
risk of exchange rate fluctuations. A 1.0% fluctuation in the exchange rate
between United States dollars and the Euro at March 31, 2002, would have
resulted in a $19,000 change in the foreign currency translation amount
recorded on the Companys balance sheet and had a negligible effect on its net
income.

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Part II. Other Information




Item 1. Legal
Proceedings

None.




Item 2. Changes in Securities and Use of Proceeds

No securities of the Company that were not registered under the Securities
Act of 1933, as amended, have been issued or sold by the Company for the period
covered by this Quarterly Report on Form 10-Q other than the following:

On January 4, 2002, the Company issued 1,922,514 common shares in
connection with the consummation of a private placement to a total of twelve
purchasers at a purchase price of $2.25 per common share. The purchasers
included 80/20 Fund L.P., Apollo Capital Management Group LP, Boston Partners
Small Cap Value Fund II, Contrarian Opportunities Fund, L.P., Dolphin Offshore
Partners, L.P., Matador Microcap Fund, L.P., MidSouth Investor Fund, L.P.,
Kaiser Permanente Retirement Plans, State of Wisconsin Investment Board, Gary
Stein, TexRock, Ltd., and White Rock Capital Partners, L.P. The terms of the
private placement included the issuance of five-year warrants to purchase a
total of 192,252 common shares at $2.25 per common share to Stonegate
Securities, Inc., the Companys placement agent for the private placement. The
aggregate offering price of the 1,922,514 common shares was $4,325,657, and
Stonegate Securities, Inc. received a commission of $302,000 (or 7% of the
aggregate offering price) in connection with the private placement. The
Company expects to use the proceeds of the private placement to expand its
worldwide marketing and sales efforts, continue investing in software
development and for other general working capital purposes.

Registration under the Securities Act of 1933, as amended, was not
effected with respect to the private placement described above in reliance upon
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933, as amended, for transactions by an issuer not involving any public
offering.




Item 3. Defaults Upon Senior Securities

None.




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

None.




Item 5. Other Information

None.

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|        |  |                                                                                                                            
|------- |  | ---------------------------------------------------------------------------------------------------------------------------
|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, 2002, other than the following:                  
|       
|        |  | Current Report on Form 8-K, dated January 7, 2002, reporting under
item 5 the Companys private placement of common shares.

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SIGNATURES

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

|              |  |                                                                                                                                                      
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|              |  | DATATRAK International, Inc.Registrant                                                                                                               
|             
|Date: 5/13/02 |  | /s/ Jeffrey A. GreenJeffrey A. Green,
President and Chief Executive Officer and a Director
(Principal Executive Officer)                             
|             
|Date: 5/13/02 |  | /s/ Terry C. BlackTerry C. Black,
Vice President of Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
(Principal Financial Officer)

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Exhibit Index

|            |  |                                                                                                                                                                                                                                          |  |      |    |  
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | -
|Exhibit No. |  | Description                                                                                                                                                                                                                              |  | Page
|            |  |                                                                                                                                                                                                                                          |  |     
|4.1         |  | Specimen Certificate of the Companys Common Shares, without par value                                                                                                                                                                   |  |      | (1 | )
|           
|4.2         |  | Second Amended and Restated Registration Agreement, dated July 15,1994,
as amended on June 1, 1995 and February 5, 1996                                                                                                                  |  |      | (2 | )
|           
|10.1        |  | Amended and Restated 1994 Directors Share Option Plan*                                                                                                                                                                                  |  |      | (3 | )
|           
|10.2        |  | Amended and Restated 1996 Outside Directors Stock Option Plan*                                                                                                                                                                          |  |      | (3 | )
|           
|10.3        |  | Amendment No. 2 to the Amended and Restated 1996 Outside Directors Stock
Option Plan*                                                                                                                                                   |  |      | (4 | )
|           
|10.4        |  | Amended and Restated 1992 Share Incentive Plan*                                                                                                                                                                                          |  |      | (3 | )
|           
|10.5        |  | Amended and Restated 1996 Key Employees and Consultants
Stock Option Plan*                                                                                                                                                              |  |      | (3 | )
|           
|10.6        |  | Amendment No. 2 to the Amended and Restated 1996 Key Employees
and Consultants Stock Option Plan*                                                                                                                                       |  |      | (5 | )
|           
|10.7        |  | Form of Indemnification Agreement*                                                                                                                                                                                                       |  |      | (2 | )
|           
|10.8        |  | Employment Agreement between the Company and Jeffrey A. Green, dated
February 5, 2001*                                                                                                                                                   |  |      | (6 | )
|           
|10.9        |  | Employment Agreement between the Company and Terry C. Black,
dated February 5, 2001*                                                                                                                                                     |  |      | (6 | )
|           
|10.10       |  | Separation Agreement between the Company and Terry C. Black,
dated December 22, 1998*                                                                                                                                                    |  |      | (7 | )
|           
|10.11       |  | Employment Agreement between the Company and Wolfgang Summa,
dated December 29, 2000*                                                                                                                                                    |  |      | (6 | )
|           
|10.12       |  | DATATRAK International, Inc. Retirement Savings Plan*                                                                                                                                                                                    |  |      | (8 | )
|           
|10.13       |  | 1999 Outside Director Stock Option Plan*                                                                                                                                                                                                 |  |      | (5 | )
|           
|           
|           
|*           |  | Management compensatory plan or arrangement.                                                                                                                                                                                             |  |      |    |  
|           
|(1)         |  | Incorporated herein by reference to the Companys Form 10-K for the year
ended December 31, 1999 (File No. 000-20699)                                                                                                                   
|           
|(2)         |  | Incorporated herein by reference to the Companys Form 1 Registration
Statement filed on March 8, 1996, as amended by Amendment No. 1 filed on
May 10, 1996 and as amended by Amendment No. 2 filed on June 10, 1996
(File No. 333-2140)
|           
|(3)         |  | Incorporated herein by reference to the Companys Form S-8 Registration
Statement filed on November 13, 1996 (File No. 333-16061)                                                                                                       

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Exhibit Index

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

E-2