10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

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.)

6150 Parkland Boulevard, Mayfield Hts., Ohio	44124
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (440) 443-0082

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:	Common Shares, without par value.
	Series A Junior Participating Preferred Stock Purchase Rights.

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

     Yes o      No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) the Act.

     Yeso      No þ

     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.

     Yes þ      No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

     Large accelerated filer o      Accelerated filer þ      Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

     Yes o      No þ

     As of June 30, 2005, the aggregate market value of the 9,460,731 common shares then outstanding, which together constituted all of the voting shares of the registrant, held by non-affiliates was $109,271,443 (based upon the closing price of $11.55 per common share on the Nasdaq SmallCap Market on June 30, 2005). For purposes of this calculation, the registrant deems the common shares held by all of its Directors and executive officers to be the common shares held by affiliates. As of February 28, 2006, the registrant had 11,355,246 common shares, without par value, issued and outstanding.

Except as otherwise stated, the information contained in this Form 10-K is as of December 31, 2005.

TABLE OF CONTENTS

Part I
Item 1. Business	1
Item 1A. Risk Factors	7
Item 1B. Unresolved Staff Comments	11
Item 2. Properties	11
Item 3. Legal Proceedings	11
Item 4. Submission of Matters to a Vote of Security Holders	12
Item 4A. Executive Officers of the Company	12
Part II
Item 5. Market for Registrant’s Common Shares and Related Shareholder Matters	13
Item 6. Selected Financial Data	14
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23
Item 8. Financial Statements and Supplementary Data	24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	24
Item 9A. Controls and Procedures	24
Item 9B. Other Information	26
Part III
Item 10. Directors and Executive Officers of the Registrant	26
Item 11. Executive Compensation	27
Item 12. Security Ownership of Certain Beneficial Owners and Management	27
Item 13. Certain Relationships and Related Transactions	27
Item 14. Principal Accountant Fees and Services	27
Part IV
Item 15. Exhibits and Financial Statement Schedules	27

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PART I

ITEM 1. BUSINESS

General

     We are a provider of software and other related services, commonly referred to as an application service provider, or ASP. Our customers use our software to collect and transmit clinical trial data electronically, commonly referred to as electronic data capture, or EDC. Our customers are companies in the clinical pharmaceutical, biotechnology, contract research organization, or CRO, and medical device research industries. Our services assist these companies in accelerating the completion of clinical trials by providing improved data quality and reducing the time required to review the results of each clinical trial.

     We currently operate in one business segment as an ASP business providing EDC and other services to the clinical research industry. We began EDC operations in 1997. During that year, we participated in a joint venture with IBM Global Services to develop and market a data collection and management system for use in clinical trials. The joint venture was terminated, and in January 1998, we purchased the software now known as DATATRAK EDC® from PadCom Clinical Research. DATATRAK EDC® was developed to provide clinical research data to sponsors of clinical trials faster and more efficiently than other forms of information-processing. Since the purchase of DATATRAK EDC®, we have devoted the majority of our efforts to developing and improving the EDC technology employed by this software and establishing the market presence necessary to compete in the evolving EDC sector of the clinical research industry.

     In December 2004, we entered into an alliance agreement with SAS Institute Inc. (“SAS”). Pursuant to this alliance, DATATRAK and SAS are making a joint offering to customers to gather and analyze clinical trial data. During the initial two-year term of the alliance, we are obligated to make an aggregate of $650,000 in fixed payments to SAS, for among other things, access to the SAS® Drug Development software. These fixed payments allow us to make the SAS® Drug Development software available to our customers during the initial term of the alliance. We are also entitled to provide similar use of the SAS software to our customers during a third option year upon the payment of a $200,000 fixed fee. We will charge fees to our customers, who utilize the SAS® Drug Development software, which will be designed to allow us to recoup some or all of the fixed fees payable to SAS.

     On February 13, 2006, we acquired all of the outstanding stock of ClickFind, Inc. (“ClickFind”), a company focused on the application of technology in clinical trials, located in Bryan, Texas, for a total purchase price of $18,000,000, less approximately $328,000 in certain transaction expenses and certain outstanding indebtedness of ClickFind. The purchase price consisted of approximately $4,000,000 of cash, $4,000,000 in notes payable and approximately $10,000,000 in Common Shares (1,026,522 Common Shares). ClickFind’s product suite will now be known as DATATRAK eClinical™. As a result of the acquisition, we expect to have the most extensive eClinical™ software suite in the clinical trials industry.

Overview of the Clinical Research Industry

     Our customers are companies in the clinical pharmaceutical, biotechnology, CRO and medical device research industry. This industry is driven by regulatory requirements which mandate that new drugs and medical devices be adequately tested in clinical trials prior to marketing these drugs and devices.

     Competitive pressures are forcing the pharmaceutical and biotechnology industries to become more efficient when developing new products. To improve returns on research and development investments, pharmaceutical and biotechnology companies are continuing to develop new products, while at the same time attempting to shorten product development timelines. These efforts have placed more drugs into the clinical development process and have increased the pressure for companies to develop products faster in order to maintain growth and continue to achieve acceptable returns on research and

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development expenditures. Sponsors of clinical trials have attempted to create process efficiencies, control fixed costs and expand capacity by outsourcing clinical research activities.

DATATRAK Software and Services

     Under the traditional method of clinical research, clinical trial data from each patient is recorded and maintained on paper in a binder, known as a case report form. A separate case report form is maintained for each patient. Clinical research associates then visit research sites to review the clinical trial data for accuracy and integrity. During these visits, known as monitoring visits, the research associate must review each page of each case report form. These visits may last several days, and corrections to the case report forms are frequently required before the data can be delivered to the clinical trial sponsor. Several weeks, or even months, of data may be reviewed during each monitoring visit. At the completion of a monitoring visit, the completed case report form pages are physically transferred to a central location where the data is then entered into a database for statistical compilation. Using this method of data collection and quality control, the duration of the clinical trial process, from patient visit to delivery of clean data to the clinical trial sponsor, can range from six to nine months. Such delays are significant because errors or trends may not be detected until long after the interaction between the patient and clinical investigator.

     DATATRAK EDC® was developed to provide clinical research data to sponsors of clinical research trials faster and more efficiently than other forms of information-processing that utilize paper. Automating data entry and review procedures can save time in the drug development and medical device approval process, and possibly result in enhanced patient safety. The DATATRAK EDC® software and its earlier versions have supported many international clinical trials involving thousands of clinical research sites and tens of thousands of patients in over 50 countries. Our product suite has been utilized in the clinical development of 14 separate drugs that have received regulatory approval from either the U.S. Food and Drug Administration (“FDA”) or counterpart regulatory bodies in Europe.

     The DATATRAK EDC® technology platform consists of Windows™ compatible software and hardware designed to assist clinical trial sponsors in starting and finishing their clinical trials on a more timely and efficient basis while also enhancing the quality of the data. In addition to providing technology, we are also a service business that offers EDC and clinical trial data management capabilities across numerous research sites. Our objective is to improve the traditional process of collecting clinical research and non-interventional health care data by providing cleaner data more quickly than what is available in a paper environment.

     The DATATRAK EDC® system consists of numerous modules designed for flexible adaptation to the clinical research process. We initially provide a set of electronic data forms that can be modeled to suit the needs of each particular clinical trial. Each form is then made available through data entry capability to each research site participating in the clinical trial via the Internet. Once clinical trial data has been collected and entered, the clinical trial sponsor, or other contracted vendor, can review the data remotely via the Internet. After the data is reviewed and cleansed of all entry errors, DATATRAK EDC®’s report capability can generate customized reports. Finally, the software’s export feature allows completed data and reports to be transmitted directly to a clinical trial sponsor’s in-house database. Under this model, research data is collected more quickly and with greater accuracy than with physical review of paper reports.

     We are continually enhancing and testing the DATATRAK EDC® software suite. Recent initiatives and enhancements to the DATATRAK EDC® software include a new portal of entry for all of DATATRAK’s future clinical trials called StudyTrakÔ, our Technology Transfer program which will allow customers to design their own EDC case report forms, and an EDC certification program known as eMerge. Research and development expenses were $1,650,000, $1,142,000, and $850,000 in 2005, 2004, and 2003, respectively. The low level of our research and development expenses during 2003 was largely a result of the staff reductions and other payroll cost savings that were initiated at the end of 2002. During 2004 and 2005, in conjunction with our increased revenue, we increased expenses in research and development.

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     During the performance of clinical trials, a variety of technology applications are used for the collection, management and storage of information. Many of these applications perform limited but important functions that contribute to the overall successful accomplishment of a clinical trial. Because the use of technology in this industry is relatively new, as compared to others, the specific functionalities of individual technology applications have advanced as single point solutions rather than an overall product suite, existing under a single application, architecture and corporate offering. As the global clinical trial market transitions from a paper-based data collection and management process to a technology-enabled process over the next several years, we believe that the clinical trials industry will increasingly demand multiple applications. As the demand for multiple applications increase, we believe sponsors of clinical research will gravitate from the challenges encountered with information collected and residing in several disparate applications to one that houses multiple applications under a single software architecture and corporate structure. This would represent a simplified approach from the workflow process of clinical trials itself and would also yield contracting advantages by being able to deal with only one vendor for a variety of necessary software applications.

     Our recent ClickFind acquisition will expand our product offerings. This new product, DATATRAK eClinical™, will provide the following capabilities: EDC, interactive voice response systems (“IVRS”) (via phone or internet), medical coding, a randomization tool, clinical trial management system (“CTMS”), drug inventory management, digitized electrocardiograms, imaging capabilities, electronic patient recorded outcomes (“ePRO”) and workgroup collaboration capabilities. Several of these new capabilities will represent new revenue opportunities for us as the DATATRAK eClinical™ offering matures. DATATRAK eClinical™ has been used in many clinical trails in nineteen separate countries but has never been utilized in a large multi-national clinical trial with over 1,000 patients, and will require additional investment and testing on our part before it can be used in a clinical trial involving such large volumes of information.

     All clinical trials currently being performed with DATATRAK EDC® will continue through conclusion with that product suite. At this time, it is anticipated that the DATATRAK EDC® platform will be utilized in these, and perhaps some new, clinical trials until the end of 2009. As such, we will provide two different architectures for the use of technology in clinical trials until current trials, and perhaps future trials, using the previous platform are finished. We will continue to support and provide, as needed, appropriate service packs for the maintenance of DATATRAK EDC® as well as DATATRAK eClinical™. However, no extensive, future development efforts are planned for DATATRAK EDC®, and following the conclusion of all clinical trials using DATATRAK EDC®, that product suite will be discontinued.

     Our alliance with SAS, which has been branded as DATATRAK Aware – Powered by SAS, is designed to bring greater speed and efficiency to the conduct of clinical trials. This Alliance will directly integrate clinical trial information from our software with SAS® Drug Development software to allow clinical trial sponsors to have immediately analyzable SAS datasets, automatically updated, for their clinical trials.

     Our software can be deployed globally via a distributed platform using laptop computers, in a centralized environment with resident hardware, or in a wireless mode, all utilizing the Internet.

     Our DataUnifyer™ product will allow data from different data sources to be combined into one general repository. We began work on the prototype of the DataUnifyer™ in 2002, but delayed additional funding for this product as part of our overall cost cutting strategy implemented at the end of 2002. We anticipate significant development of the DataUnifyer™ during 2006.

Customers and Marketing

     Our customers are largely comprised of clinical trial sponsors. We market our software and services through a sales and marketing staff located in the United States and Europe. The market for EDC in general and for our services specifically, has been an emerging one. Our marketing efforts have included selective participation in scientific and medical meetings to promote our services and we have occasionally used direct mail and journal advertisements to build awareness of our capabilities.

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     Our marketing and sales efforts have been focused upon building reference accounts with key customers and leveraging these relationships into new divisions of our current customers, and growing new customers through maintaining a high level of satisfaction in the delivery of our product suite on a worldwide basis.

     The EDC market has been slow to develop. The growth of the Internet has drastically altered business strategies and pricing models in this specific sector. Most EDC vendors have insignificant revenues and are classified as start-ups. Nonetheless, we believe that some type of automation in the collection and review of clinical trial data is inevitable.

     It is our belief that our software offering can be competitive in this emerging marketplace. Our product has been tested and verified to be in compliance with FDA and other regulations. Our software offering is delivered primarily via the Internet and supports multiple languages. Furthermore, many clinical trial sponsors have published statistics indicating that EDC can reduce the length of time to complete a clinical trial, and can reduce the number of questions concerning the clinical trial data thereby improving the quality of the clinical trial data.

     We believe that the efficiencies represented by our relationship with SAS will further contribute to enhancing adoption rates for EDC. We plan to have our DATATRAK EDC® and DATATRAK eClinical™ software offerings automatically integrated with SAS® Drug Development software. SAS® Drug Development software is a set of tools that analyze clinical trial data. SAS data sets are the standard used in the clinical trial industry and with regulatory agencies.

     The extent to which we rely on revenue from one customer varies from period to period, depending upon, among other things, our ability to generate new business, and the timing and size of clinical trials. In light of our small revenue base, we are more dependent on major customers than many of the larger participants in the EDC industry. The table below sets forth the percentage of revenue generated from customers who accounted for more than 10% of our revenue during 2005, 2004 and 2003.

	Year ended December 31,
Customer	2005			2004			2003
Aventis Pharmaceuticals		*			15	%		22	%
Control Delivery Systems		*			*			11	%
Otsuka Research Institute		59	%		55	%		20	%

* Less than 10% of revenue.

Contracting and Backlog

     Our contracts provide a fixed price for each component or service to be delivered, and revenue is recognized as these components or services are delivered. We recognize revenue based on the performance or delivery of the following specified services or components of its EDC contracts in the manner described below:

• Project management and data management (design, report and export) services are recorded as revenue proportionally over the life of a contract as services are performed based on the contractual billing rate per hour for those services.

• Data items revenue is earned based on a price per data unit as data items are entered into DATATRAK’s hosting facility.

• Classroom training services revenue is recognized as classroom training is completed, at rates based on the length of the training program.

• Internet-based training services revenue is recognized on a per user basis as self-study courses are completed.

• Help desk revenue is recognized based on a monthly price per registered user under the contract.

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     Services provided by us that are in addition to those provided for in our contracts are billed on a fee for service basis as services are completed. Costs associated with contract revenue are recognized as incurred. Costs that are paid directly by our clients, and for which we do 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. Our customers, with or without cause, can terminate a contract at any time. If one of our contracts is cancelled, we are 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 standard contract will not result in a material adjustment to the revenue or costs we have previously recognized.

     In some instances, we offer volume discounts to customers over multiple contracts. We estimate the volume discounts to be earned over the life of the contracts to which the discount applies. As a contract progresses, revenues are 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. For the years ended December 31, 2005 and December 31, 2004, we deferred $56,000 and $69,000 of revenue, respectively, as a result of contracts subject to volume discounts. No revenue was deferred in 2003 as a result of contracts subject to volume discounts.

     Our backlog consists of anticipated revenue from authorization letters to commence services and signed contracts yet to be completed. We do not include in our backlog potential contracts or authorization letters that, regardless of whether they have passed the verbal stage, have not yet been signed. At December 31, 2005, our backlog was $20,324,000 compared to backlog of $14,057,000 at December 31, 2004. We expect to convert approximately $11,200,000 of our December 31, 2005 backlog into revenue during 2006. Our contracts can be cancelled or delayed at anytime and, therefore, our backlog, at any point in time, is not an accurate predictor of future levels of revenue. As a result of our transactional and service-based business model combined with the dynamic nature of the clinical trials market where changes in scope are common, backlog has historically been an imprecise predictor of short-term revenue.

Competition

     We compete within the clinical research and the EDC markets. Both of these industries are highly competitive and fragmented. In addition, the EDC industry is currently emerging and is characterized by rapidly evolving technology. The largest competitor to the EDC market is the traditional paper-based method of collecting clinical trial data. EDC may not effectively replace paper as the preferred method of collecting and managing clinical trial data to the extent that we believe it will.

     We compete in the EDC market on the strength of our software’s functionality, design architecture and data entry and review tools, which we believe equal or exceed those available in the market. As demonstrated by our alliance with SAS, we believe that we may be able to enhance our competitive strength through the formation of strategic alliances with established industry organizations.

     Our major competitors include software vendors specializing in EDC, clinical trial data service companies and large pharmaceutical companies currently developing their own in-house technology. Because of the expanded software offering obtained through the acquisition of ClickFind, we now have additional competitors that we did not have before this transaction. The DATATRAK eClinical™ software suite has a variety of unified offerings, such as core laboratory ECG and imaging capabilities; IVRS – both voice- and web-activated; CTMS; Randomization, Medical Coding and ePRO. Each of these individual offerings have distinct single point solution competitors in the clinical trial market. Sponsors of clinical research have a variety of choices in which to satisfy each of these capabilities for their clinical trials from many different organizations. We are not aware of any competitors that have all of these individual components contained under one software offering.

     Many current and potential future competitors have or may have substantially greater financial and technical resources, greater name recognition and more extensive customer bases that could be leveraged, thereby gaining market share or product acceptance to our detriment. We may not be able to capture or

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establish the market presence necessary to effectively compete in this emerging sector of the clinical research industry. Clinical trial sponsors also may continue to contract with individual vendors instead of utilizing our single software solution.

     We are aware of other EDC systems that compete or, in the future, may compete directly with DATATRAK EDC® and DATATRAK eClinical™. There are other companies that have developed or are in the process of developing technologies that are, or, in the future, may be, the basis for competitive products in the clinical research EDC market. Some of those technologies may have an entirely different approach or means of accomplishing the desired effects of DATATRAK EDC® and DATATRAK eClinical™. Either existing or new competitors may also develop products that are superior to or that otherwise achieve greater market acceptance than our software. In addition, we believe that certain large companies in the information technology industry may be forming alliances and attempting to capitalize on the data delivery options offered by the Internet. To the extent that our approach to EDC may gain market acceptance, larger companies in the information technology industry may develop competing technology to our detriment.

Regulatory Matters

     The FDA has issued guidelines and rules on the use of computer systems in clinical trials relating to standard operating procedures, data entry, system design, security, system dependability and controls, personnel training, records inspection and certification of electronic signatures. Based on our review, we believe that both DATATRAK EDC® and DATATRAK eClinical™ comply with these guidelines and rules. The FDA’s guidelines and rules related to the use of computerized systems in clinical trials are still in the early stages of development. Any release of FDA guidance that is significantly inconsistent with the design of our software may cause us to incur substantial costs to remain in compliance with FDA guidance and regulations. We are continuing to monitor the FDA’s guidance to ensure compliance.

     In addition to FDA guidelines and rules, we also comply with International Conference on Harmonization (“ICH”) Regulations guidelines for good clinical practices. These guidelines have been developed by the ICH and have been subject to consultation by regulatory parties, in accordance with the ICH process. The regulatory bodies consist of representatives from the European Union, Japan and the U.S.

     The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) applies to health care providers, health plans and health care clearinghouses, or covered entities. Under HIPPA, covered entities are required to protect the confidentiality, integrity and availability of certain electronic patient information they collect, maintain, use or transmit. Neither we, nor our customers, are covered entities under HIPPA, however, we have taken steps, including encryption techniques, to ensure the confidentiality of all electronic patient information that is captured and transmitted through the use of our software.

Potential Liability and Insurance

     Our services are supported by telecommunications equipment, software, operating protocols and proprietary applications for high-speed transmission of large quantities of data among multiple locations. In such operations, it is possible that data files may be lost, altered or distorted. DATATRAK EDC®, DATATRAK eClinical™ and future enhancements or adaptations may contain undetected design faults and software “bugs” that, despite our testing, are discovered only after the system has been installed and used by customers. Such faults or errors could cause delays or require design modifications on our part. In addition, clinical pharmaceutical and medical device research requires the review and handling of large amounts of patient data. Potential liability may arise from a breach of contract or a loss of or unauthorized release of clinical trial data. Contracts with our customers are designed to limit our liability for damages resulting from errors in the transportation and handling of data. Nevertheless, we may still be subject to claims for data losses in the transportation and handling of data over our information technology network.

     If we were forced to undertake the defense of, or were found financially responsible for, claims based upon the foregoing or related risks we could incur significant costs relating to these claims, and our financial resources could be diminished. We maintain an errors and omissions professional liability insurance

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policy to cover claims in an amount up to $5,000,000 that may be brought against us. This coverage may not be adequate, and insurance may not continue to be available to us, in the future.

Intellectual Property

     Intellectual property rights are significant to our ongoing operations and future opportunities. We have taken steps to secure patent protection for recently-developed database technology. Our software and business processes embody numerous trade secrets which we protect through various physical and technical security measures, as well as by agreement. Modules of our DATATRAK EDC® and DATATRAK eClinical™ software, related manuals and other written and graphical materials are subject to copyright protection. Our DATATRAK® brand is at the heart of a family of registered trademarks and service marks that identify and distinguish our software and services in the market. We sell our services and license our software subject to contract provisions intended to provide appropriate protection to these valuable intellectual property assets.

Employees

     As of February 28, 2006, we had approximately 110 full-time employees. None of our employees are represented by a union, and we consider relations with our employees to be satisfactory. We have employment agreements with all of our executive officers. Due to the early stage of development of our industry and business, the loss of the services of any of our executive officers could put us at a competitive disadvantage, since we would need to attract a qualified new executive to fill the vacancy. To address these risks, we must, among other things, continue to attract, retain and motivate qualified personnel.

Available Information

     Our Internet address is www.datatrak.net which includes links to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC” or the “Commission”). Our SEC reports can be accessed through the investor relations section of our Web site. The information found on our Web site is not part of this or any other report we file with or furnish to the SEC.

     Upon the receipt of a written request from any shareholder we will mail, at no charge to the shareholder, a copy of our Annual Report, including the financial statements and schedules required to be filed with the Commission pursuant to Rule 13a-1 under the Exchange Act, for our most recent fiscal year.

ITEM 1A. RISK FACTORS

     Certain statements made in this Annual Report on Form 10-K contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). All statements that address operating performance, events or developments that we anticipate 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. 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.

     Forward-looking statements are subject to numerous assumptions and risks and uncertainties that may cause our actual results or performance to be materially different from any future results or performance expressed or implied by the forward-looking statements. We have identified the following important factors, which could cause our actual operational or financial results to differ materially from any projections, estimates, forecasts or other forward-looking statements made by or on our behalf. Under no circumstances should the factors listed below be construed as an exhaustive list of all factors that could cause actual results to differ materially from those expressed in forward-looking statements. We undertake no obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to

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forward-looking statements contained herein to take into account events or circumstances that occur after the date of this Annual Report on Form 10-K. In addition, we do not undertake any responsibility to update publicly the occurrence of unanticipated events, which may cause actual results to differ from those expressed or implied by the forward-looking statements contained herein.

We have a limited operating history and we have not until recently had profitable operations.

     We began providing EDC services in 1997 and have a limited operating history upon which our performance may be evaluated. Although we were profitable in 2004 and 2005, we had previously recognized operating losses in each year since 1997. Our cumulative operating loss since 1997 from EDC operations totaled $37,411,000 at December 31, 2005. We anticipate that we will be profitable in 2006. However, any number of factors, including, but not limited to, termination or delays in contracts, inability to grow and convert backlog into revenue or being unable to quickly reduce costs if required, could cause us to record losses in 2006 and in future periods.

If we do not continue to enhance our software, we may not be able to meet the evolving needs of our customers.

     Although our proprietary DATATRAK EDC® and DATATRAK eClinical™ software solutions have been used in clinical trials, continued enhancement is necessary to provide additional functions and services to meet the ever-changing needs and expectations of our customers. To date we have had limited EDC revenue from which to support the costs of this continued software enhancement. Our potential future revenue may not be sufficient to absorb corporate overhead and other fixed operating costs that will be necessary for our future success.

Our quarterly results fluctuate significantly.

     We are subject to significant fluctuations in quarterly results caused by many factors, including

• our success in obtaining new contracts,

• the size and duration of the clinical trials in which we participate, and

• the timing of clinical trial sponsor decisions to conduct new clinical trials or cancel or delay ongoing trials.

Our expense levels are based in part on our expectations as to future revenue and to a certain extent are fixed. We cannot make assurances as to our revenues in any given period, and we may be unable to adjust expenses in a timely manner to compensate for any unexpected revenue shortfall. As a result of our relatively small revenue base, any significant shortfall in revenue recognized during a particular period could have an immediate adverse effect on our income from operations and financial condition. Volatility in our quarterly results may adversely affect the market price of our common shares.

Our business strategies are unproven and we are in an early stage of development.

     Our efforts to establish a standardized EDC process for collection and management of clinical research data represent a significant departure from the traditional clinical research practices of clinical trial sponsors. The long-term viability of our business remains unproven. Our strategy may not gain acceptance among sponsors of clinical research, research sites or investigators. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets.

We may lose revenue if we experience delays in clinical trials or if we lose contracts.

     Although our contracts provide that we are entitled to receive revenue earned through the date of termination, our customers generally are free to delay or terminate a clinical trial or our contract related to

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the trial at any time. The length of a typical clinical trial contract varies from several months to several years. Clinical trial sponsors may delay or terminate clinical trials for several reasons, including

• unexpected results or adverse patient reactions to a potential product,

• inadequate patient enrollment or investigator recruitment,

• manufacturing problems resulting in shortages of a potential product, or

• sponsor decisions to de-emphasize or terminate a particular trial or drug.

We may lose revenues if a clinical trial sponsor decides to delay or terminate a trial in which we participate.

We may lose future revenue if our major customers decrease their research and development expenditures, or if we lose any of our major customers.

     Our primary customers are companies in the pharmaceutical industry. Our business is substantially dependent on the research and development expenditures of companies in this industry. The extent to which we rely on revenue from one customer varies from period to period, depending upon, among other things, our ability to generate new business and the timing and size of clinical trials. In light of our small revenue base, we are more dependent on major customers than many of the larger participants in the EDC industry. During 2005, one customer accounted for 59% of our total revenue for the year. Our operations could be materially and adversely affected by, among other things,

• any economic downturn or consolidations in the pharmaceutical or biotechnology industries,

• any decrease in these industries’ research and development expenditures, or

• changes in the regulatory environment in which companies in these industries operate.

Changes in government regulations relating to the health care industry could have a material adverse effect on the demand for our services.

     Demand for our services is largely a function of the regulatory requirements associated with the approval of a New Drug Application by the FDA. These requirements are more stringent and thus more burdensome than those imposed by many other developed countries. In recent years, efforts have been made to streamline the drug approval process and coordinate U.S. standards with those of other developed countries. Changes in the level of regulation, including a relaxation in regulatory requirements or the introduction of simplified drug approval procedures could reduce the demand for our services. Several competing proposals to reform the system of health care delivery in the United States have been considered by Congress from time to time. To date, none of these proposals have been adopted.

     The FDA’s guidelines and rules related to the use of computerized systems in clinical trials are still in the early stages of development. Our software may not continue to comply with these guidelines and rules as they develop, and corresponding changes to our product may be required. Any release of FDA guidance that is significantly inconsistent with the design of DATATRAK EDC® or DATATRAK eClinical™ may cause us to incur substantial costs to remain in compliance with FDA guidance and regulations.

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We may not be able to capture or establish the market presence necessary to compete in the EDC market.

     The EDC market, which is still developing, and must compete with the traditional paper method of collecting clinical trial data, is highly fragmented. The major competitors in the EDC market include

• EDC software vendors,

• clinical trial data service companies that use paper for data collection,

• vendors offering single component solutions and

• in-house development efforts within large pharmaceutical companies.

Our current and potential future competitors have or may have substantially greater resources, greater name recognition and more extensive customer bases that could be leveraged, thereby gaining market share or product acceptance to our detriment. We may not be able to capture or establish the market presence necessary to effectively compete in this emerging sector of the clinical research industry.

We may be subject to liability for potential breaches of contracts or losses relating to the unauthorized release of clinical trial data.

     Our services are supported by telecommunications equipment, software, operating protocols and proprietary applications for high-speed transmission of large quantities of data among multiple locations. In addition, clinical pharmaceutical and medical device research requires the review and handling of large amounts of patient data. Potential liability may arise from a breach of contract or a loss of or unauthorized release of clinical trial data. If we were forced to undertake the defense of, or were found financially responsible for, claims based upon these types of losses, our financial resources could be diminished. We maintain a $5,000,000 errors and omissions professional liability insurance policy to cover claims that may be brought against us. This coverage may not be adequate, and insurance may not continue to be available to us, in the future.

Our competitive position and business may be adversely affected if we are unable to protect our intellectual property rights or infringe upon the intellectual property rights of others.

     Intellectual property rights, including patent rights, are significant to our ongoing operations and future opportunities. Our success will depend, in part, on our ability to secure our own intellectual property rights (e.g., patents, copyrights, trademarks, trade secrets), obtain licenses to technology owned by third parties when necessary, and conduct our business without infringing on the proprietary rights of others. There can be no assurance, however, that our proprietary rights will provide us significant protection or commercial advantage or that measures taken to protect our confidential information will adequately prevent the disclosure or misuse of such confidential information. In addition, there can be no assurance that, in the future, a third party will not assert that we are violating their proprietary rights, including that our technologies, products or services infringe their patents. In that event, we could incur substantial costs and diversion of the time and attention of management and technical personnel in defending ourselves against any such claims. Any meritorious claim of intellectual property infringement against us could have a material adverse effect on our competitive position and business.

We may not be able to successfully integrate our recently acquired business into our current business operations.

     We recently completed an acquisition of ClickFind and its product suite. This new product suite, now called DATATRAK eClinical™, will play a significant role in our efforts to continue to be a leading ASP for the EDC industry. We may not be able to successfully integrate and profitably manage ClickFind and our new software offering without substantial costs, delays or other problems. Acquisitions also may involve a number of special risks, including adverse short-term effects on our reported operating results, potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, diversion of management’s attention, dependence on retention hiring and training of key personnel and risks associated with unanticipated problems or legal liabilities some or all of which could have a material adverse effect on our business, results of operations and financial condition.

We will incur increased costs associated with the integration of our new product suite.

     All clinical trials currently being performed with DATATRAK EDC® will continue through conclusion with that product suite. At this time, it is anticipated that the DATATRAK EDC® platform will be utilized in these, and perhaps some new, clinical trials until the end of 2009. As such, we will provide two different architectures for the use of technology in clinical trials until current trials, and perhaps future trials, using the previous platform are finished. We will incur additional costs by continuing to support and provide, as needed, appropriate service packs for the maintenance of DATATRAK EDC® as well as supporting and providing appropriate service packs for the maintenance of DATATRAK eClinical™. We will also incur additional costs to integrate the DATATRAK eClinical™ product into our current operating systems.

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Furthermore, our two product offerings will run on parallel systems, as such we will incur additional costs of maintaining two parallel production systems.

     DATATRAK eClinical™, which has been used in many clinical trails in nineteen separate countries, has never been utilized in a large multi-national clinical trial with over 1,000 patients. As such, we are investing in additional infrastructure, so that DATATRAK eClinical™ can be scaled to meet the needs of clinical trials with such large volumes of data and the software performs to the level of satisfaction that our customers have come to expect. We may incur unforeseen costs if significant modification and testing become necessary to ensure the scalability of DATATRAK eClinical™.

The price of our common shares could be adversely affected by the dilution caused by the common shares issued in our recently completed acquisition.

     In February 2006, we issued 1,026,522 of our unregistered common shares to the former shareholders of ClickFind as part of the acquisition of the outstanding stock of ClickFind. These 1,026,522 common shares represent approximately 9.0% of our outstanding common shares, as of February 28, 2006. Sales of a substantial number of these common shares in the public market could depress the market price of our common shares. The perceived risk resulting from the sale of these common shares could cause some of our shareholders to sell their common shares, thus causing the price of our common shares to further decline. In addition, the downward pressure on the price of our common shares could cause some of our shareholders to engage in short sales of our common shares, which may cause the price of our common shares to decline even further.

We have Anti-takeover Provisions and Preferred Share Purchase Rights

     Our Articles of Incorporation and By-Laws contain provisions that may discourage a third party from acquiring, or attempting to acquire us. These provisions could limit the price that certain investors might be willing to pay for our common shares. In addition preferred shares of our stock can be issued by our Board of Directors, without shareholder approval, whether under our shareholder rights plan or for other uses determined by the Board. The issuance of preferred shares may adversely affect the rights of common shareholders, the market price of our common shares and may make it more difficult for a third party to acquire a majority of our outstanding common shares. At the present time, we do not plan to issue any preferred shares.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     None.

ITEM 2. PROPERTIES

     We presently lease approximately 13,000 square feet of office space in Mayfield Heights, Ohio. This space is used for our executive offices and U.S. operations. In addition, we have U.S. based operations in Bryan, Texas, where we lease approximately 6,000 square feet of office space. We also lease approximately 17,000 square feet of office space in Bonn, Germany for our European operations. We believe that our facilities are suitable and adequate for the current and anticipated conduct of our operations.

ITEM 3. LEGAL PROCEEDINGS

          From time to time, we are a party to various lawsuits arising in the ordinary course of business. We do not believe that the outcome of any current such litigation will have a material adverse effect on our results of operations or financial condition.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2005.

ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY*

     The name, age and positions of each of the Company’s executive officers, as of February 28, 2006, are as follows:

Name	Age		Position
Dr. Jeffrey A. Green		50	President, Chief Executive Officer and Director
Terry C. Black		48	Vice President of Finance, Chief Financial Officer, Treasurer and Assistant Secretary
Marc J. Shlaes		51	Vice President of Product Strategy
Dr. Wolfgang Summa		41	Vice President of Global Operations
Jim Bob Ward		45	Vice President of eClinical Development

* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.

     Jeffrey A. Green, Pharm.D., FCP. Dr. Green is our founder and has served as our President, Chief Executive Officer and a Director since March 1992. Prior to joining us in 1992, Dr. Green served as an Assistant Professor of Medicine and Radiology at Case Western Reserve University, Cleveland, Ohio. During his tenure at Case Western Reserve University, Dr. Green established and directed the Cardiovascular Clinical Pharmacology Research Program at University Hospitals of Cleveland, and was responsible for directing over 90 individual investigations during his tenure. Dr. Green has authored over 90 publications and has been an invited speaker at more than 170 national meetings.

     Terry C. Black, MBA, CPA. Mr. Black has served as our Vice President of Finance and Chief Financial Officer since June 1994 and has served as our Treasurer and Assistant Secretary since January 1996. Prior to joining us, Mr. Black served in a variety of financial and accounting positions within the insurance replacement rental car industry.

     Marc J. Shlaes, BB. Mr. Shlaes has served as our Vice President of Product Strategy since February 2006. Mr. Shlaes is responsible for the continuing innovation of our product solutions. From December 2000 through January 2006, Mr. Shlaes served as our Vice President of Research and Development. Mr. Shlaes has been employed by us since 1998. Prior to joining us, Mr. Shlaes served in a variety of positions in the software development and delivery industry.

     Wolfgang Summa, PhD., MSc. Dr. Summa has served as our Vice President of Global Operations since December 2000. Dr. Summa is responsible for our operational strategy including delivery of our software to customers. Dr. Summa has been employed by us since 1998. Prior to joining us, Dr. Summa served in various research positions within the EDC industry.

     Jim Bob Ward MS. Mr. Ward has been our Vice President of eClinical Development since February 2006. Mr. Ward is responsible for the continuing development of our DATATRAK eClinical™ product suite. Mr. Ward is the former President and Chief Executive Officer of ClickFind. From 2000 through January 2005, while employed at ClickFind, Mr. Ward developed the workflow and clinical research applications that make up the DATATRAK eClinical™ product suite.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON SHARES AND RELATED SHAREHOLDER MATTERS

     Our common shares are traded on The Nasdaq SmallCap Market under the symbol “DATA.”

     Our common shares were initially offered to the public on June 11, 1996 at a stock split adjusted price of $9.00 per share and commenced trading on Nasdaq on that date. On July 20, 2005, our Board of Directors approved a three-for-two share split that was distributed in the form of a 50% share dividend. Our shareholders of record at the close of business on August 15, 2005 received one additional Common Share for every two common shares held on that date. The new common shares were distributed on or around August 31, 2005 and began trading ex-dividend on September 1, 2005. We have restated all prior reported common share and per share amounts as if the share split had occurred at the beginning of the earliest period being reported. The following table sets forth, for the years ended December 31, 2005 and 2004, the high and low sale prices per common share, as reported by Nasdaq. These prices do not include retail markups, markdowns or commissions.

2005	High		Low
First Quarter	$	14.47	$	6.97
Second Quarter	$	12.99	$	9.33
Third Quarter	$	16.00	$	8.43
Fourth Quarter	$	12.74	$	8.48

2004	High		Low
First Quarter	$	6.77	$	4.06
Second Quarter	$	8.81	$	6.05
Third Quarter	$	8.81	$	6.13
Fourth Quarter	$	8.20	$	6.53

     On February 28, 2006, the last sale price of our common shares as reported by Nasdaq was $7.50 per share. As of February 28, 2006, we had 86 shareholders of record.

     We have never declared or paid cash dividends on our common shares. Any determination to pay cash dividends in the future will be at the discretion of our Board of Directors after taking into account various factors, including our financial condition, results of operations, current and anticipated cash needs and plans for expansion.

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ITEM 6. SELECTED FINANCIAL DATA

	Year Ended December 31,
	2005			2004		2003			2002			2001
	(In thousands, except per share data)
Statement of Operations Data:
Revenue	$	15,735		$	11,305	$	7,052		$	4,721		$	2,246
Direct costs		3,789			2,634		1,622			1,804			1,780
Gross profit		11,946			8,671		5,430			2,917			466
Selling, general and administrative expenses		10,025			7,229		5,551			7,893			7,210
Special items		—			—		—			364			—
Depreciation and amortization		748			651		937			1,122			949
Income (loss) from operations		1,173			791		(1,058	)		(6,462	)		(7,693	)
Other income, net		182			35		14			71			339
Income (loss) before income taxes		1,355			826		(1,044	)		(6,391	)		(7,354	)
Income tax (benefit) expense		(1,183	)		9		4			—			—
Net income (loss)	$	2,538		$	817	$	(1,048	)	$	(6,391	)	$	(7,354	)
Net income (loss) per share: basic	$	0.25		$	0.09	$	(0.13	)	$	(0.81	)	$	(1.49	)
Shares used in the computation of basic net income (loss) per share		10,204			9,149		8,348			7,856			4,936
Net income (loss) per share: diluted	$	0.22		$	0.08	$	(0.13	)	$	(0.81	)	$	(1.49	)
Shares used in the computation of diluted net income (loss) per share		11,386			10,237		8,348			7,856			4,936

	December 31,
	2005			2004			2003			2002			2001
	(In thousands, except per share data)
Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	9,363		$	7,919		$	4,261		$	2,244		$	4,912
Working capital		10,796			8,575			3,468			1,380			4,129
Total assets		16,107			11,941			6,377			5,306			7,634
Long-term liabilities		—			—			—			24			162
Accumulated deficit		(28,425	)		(30,964	)		(31,781	)		(30,732	)		(24,341	)
Total shareholders’ equity		13,697			10,117			4,601			3,231			5,755
Book value per common share	$	1.33		$	1.02		$	0.51		$	0.41		$	1.17
Cash dividends declared		—			—			—			—			—

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

     We are an ASP that provides EDC and other services to companies in the clinical pharmaceutical, biotechnology, CRO and medical device research industries. We assist our customers in accelerating the completion of clinical trials by streamlining the collection of data relating to clinical trials, and improving the overall quality of the clinical trial data collected.

     The discussion that follows highlights our business conditions and certain financial information. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

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     Approximately 58% of our assets, or $9,363,000, is held in cash, cash equivalents and short-term investments. During 2005 and 2004, we recorded operating income for the first time since commencing EDC operations in 1997. We are continuing to develop and commercialize our business, and anticipate that our operating results will fluctuate significantly from period to period.

     We use a technology platform that consists of Windows™ compatible software and internet hardware to provide EDC and other services to clinical trial sponsors and CROs. Our future success is dependent on market acceptance of EDC in general, as an alternative to the traditional paper method of collecting clinical trial data, and acceptance of our DATRAK EDC® and DATATRAK eClinical™ software products specifically.

     At December 31, 2005, our backlog was $20,324,000 compared to backlog of $14,057,000 at December 31, 2004. Our December 31, 2005 backlog consisted of 69 contracts with an average remaining value of $295,000. At December 31, 2004, our backlog consisted of 58 contracts with an average remaining value of $242,000. Our contracts in backlog at December 31, 2004 generated $13,513,000 of revenue during 2005. If we have no delays or cancellations to the contracts in backlog at December 31, 2005, we expect to convert approximately $11,200,000 of our December 31, 2005 backlog into revenue during 2006. Our contracts can be cancelled or delayed at anytime and, therefore, our backlog, at any point in time, is not an accurate predictor of future levels of revenue. As a result of our transactional and service-based business model combined with the dynamic nature of the clinical trials market where changes in scope are common, backlog has historically been an imprecise predictor of short-term revenue.

Critical Accounting Policies

     In response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” we have identified the most critical accounting principles upon which our 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.

Revenue Recognition

     Our contracts provide a fixed price for each component or service to be delivered, and revenue is recognized as these components or services are delivered. We recognize revenue based on the performance or delivery of the following specified services or components of our EDC contracts in the manner described below:

• Project management and data management (design, report and export) services are recorded as revenue proportionally over the life of a contract as services are performed, based on the contractual billing rate per hour for those services.

• Data items revenue is earned based on a price per data unit as data items are entered into our hosting facility.

• Classroom training services revenue is recognized as classroom training is completed, at rates based on the length of the training program.

• Internet-based training services revenue is recognized on a per user basis as self-study courses are completed.

• Help desk revenue is recognized based on a monthly price per registered user under the contract.

     Services provided by us that are in addition to those provided for in our contracts are billed on a fee for service basis as services are completed. Costs associated with contract revenue are recognized as incurred. Costs that are paid directly by our clients, and for which we do 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.

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     In some instances, we offer volume discounts to customers over multiple contracts. We estimate the volume discounts to be earned over the life the contracts to which the discount applies. As a contract progresses, revenues are 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. For the years ended December 31, 2005 and December 31, 2004, we deferred $56,000 and $69,000 of revenue, respectively, as a result of our contracts subject to volume discounts. No revenue was deferred in 2003 as a result of volume discounts.

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 Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) 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. We perform 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.

Stock Based Compensation

     We account for stock based compensation in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” for stock options granted to employees and directors. We follow the alternative fair value accounting provided for under SFAS No. 123, “Accounting for Stock-Based Compensation” for stock options granted to non-employees. 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. The following assumptions were used to estimate the fair value for these options using the Black-Scholes option pricing model.

	Year Ended December 31
	2005			2004			2003
Weighted average risk free interest rate		4.2	%		4.1	%		4.3	%
Weighted average volatility of the expected market price of the common shares		1.01			1.01			1.15
Dividend yield		0.0	%		0.0	%		0.0	%
Weighted-average expected life of the option	7 years			8 years			7 years
Weighted-average fair value per share of options granted	$	9.90		$	6.68		$	2.58

     For purposes of pro forma disclosures, the estimated value of the options is amortized to expense over the options’ vesting period.

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     The following table sets forth stock based compensation and pro forma information for each period presented.

	Year Ended December 31,
	2005		2004		2003
Net income (loss) recorded	$	2,538,000	$	817,000	$	(1,049,000	)
Plus: stock compensation expense recognized		66,000		40,000		68,000
Less: stock compensation expense that would have been recognized under SFAS No. 123		894,000		736,000		634,000
Pro forma net income (loss)	$	1,710,000	$	121,000	$	(1,615,000	)
Pro forma basic income (loss) per share	$	0.17	$	0.01	$	(0.19	)
Pro forma diluted income (loss) per share	$	0.15	$	0.01	$	(0.19	)

     On December 16, 2004, the FASB issued SFAS No. 123(Revised 2004), “Share-Based Payment,” which is a revision of SFAS No.123, “Accounting for Stock-Based Compensation.” SFAS No. 123(R) supersedes APB No. 25, and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure will no longer be an alternative. On April 14, 2005, the U.S. Securities and Exchange Commission (“SEC”) announced a deferral of the effective date of SFAS 123(R) for calendar year-end companies until January 1, 2006.

     As permitted by SFAS No. 123, we currently account for share based payments to employees using APB No. 25, and as such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123(R)’s fair value method may have a significant impact on our results of operations, although it will have no impact on our overall financial position. We will adopt SFAS No. 123(R) on January 1, 2006. We will adopt SFAS No. 123 using the “modified prospective” method in which compensation cost is recognized beginning January 1, 2006 based on the requirements of SFAS No. 123(R) for all share based payments granted after the effective date, and based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested at the effective date. We have chosen to use the Black-Scholes option valuation model in valuing stock options granted prior to January 1, 2006, and will continue to use this valuation model for options granted after the effective date of SFAS No. 123(R). The adoption of SFAS 123(R) will increase our operating expenses by approximately $1,250,000 in the aggregate over the four year period beginning in January 2006 through December 2009 for options that remain unvested as of January 1, 2006. During the year ending December 31, 2006, we expect to record approximately $500,000 of stock compensation expense, as a result of the adoption SFAS No. 123(R). The full impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share based payments in the future; however, at this time we do not anticipate granting any additional stock options.

Income Taxes

     The Company follows SFAS No. 109, “Accounting for Income Taxes.” This accounting standard requires that the liability method be used in accounting for income taxes. Under this accounting method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and the tax basis of assets and liabilities and are measured using the enacted tax rates and laws that apply in the periods in which the deferred tax asset or liability is expected to be realized or settled. A valuation allowance is provided for deferred tax assets for which realization currently is not certain. Quarterly income taxes are recorded at the statutory rate, based on annual forecasted income.

     The Company has substantial net operating loss carryforwards from prior years. Until 2005, the existence of operating losses provided sufficient negative evidence under SFAS No. 109, requiring a full valuation allowance against DATATRAK’s deferred tax assets. This situation changed in 2005, as the

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Company realized taxable income of approximately $1,900,000 on a cumulative basis over the past three years. Given DATATRAK’s ability to generate these profits, management now believes that a full valuation allowance on DATATRAK’s deferred tax assets is no longer necessary. However, because the EDC market is still developing, it is difficult to predict taxable income very far into the future. Therefore, the reduction in the valuation allowance of $1,200,000 recorded in 2005 reflects estimates of the next three year’s taxable income based on 2005 actual results, with adjustments for known changes and no assumptions for growth. The reduction in the deferred tax asset valuation allowance is based on historical results and should not be viewed as an estimate of future earnings.

     Beginning in the first quarter of 2006, DATATRAK will record a tax provision at the statutory rate against quarterly pre-tax income. An evaluation will be made at each annual reporting period regarding the continuing need for a valuation allowance, and appropriate adjustments to the valuation allowance will be made at such time.

Results of Operations

     Despite the slow growth of the EDC market, our revenue has grown from $7,052,000 in 2003 to $11,305,000 in 2004 and $15,735,000 in 2005. In conjunction with the growth in revenue, our operating expenses increased to $10,514,000 in 2004 and $14,562,000 in 2005. Personnel costs represented approximately 55.0%, or $5,813,000, of our operating costs during 2004 and approximately 49.0%, or 7,083,000, of our operating costs during 2005. We had approximately 80 employees at December 31, 2004 and approximately 90 employees at December 31, 2005. Our continued growth in revenue allowed us to record operating income in the amount of $791,000 and $1,173,000 for the years ended December 31, 2004 and December 31, 2005, respectively.

     During the second half of 2002, we took steps to reduce our annual operating costs, primarily through reductions in personnel costs. These cost cutting measures enabled us to reduce our personnel costs to $4,299,000 and our total operating expenses to $8,110,000 during 2003. At December 31, 2003 we had approximately 65 employees. Our growth in revenue together with the decrease in our operating expenses allowed us to reduce our net operating loss to $1,058,000 in 2003 compared to $6,462,000 in 2002.

     The following table shows, for the periods indicated, selected items from our Consolidated Statements of Operations, expressed as a percentage of revenue.

	Year Ended December 31,
	2005			2004			2003
Revenue		100.0	%		100.0	%		100.0	%
Direct costs		24.1			23.3			23.0
Gross profit		75.9			76.7			77.0
Selling, general and administrative expenses		63.7			63.9			78.7
Depreciation and amortization		4.8			5.8			13.3
Income (loss) from operations		7.4			7.0			(15.0	)
Other income, net		1.2			0.3			0.2
Net income (loss) before income taxes		8.6			7.3			(14.8	)
Income tax (benefit) expense		(7.5	)		0.1			0.1
Net income (loss)		16.1			7.2			(14.9	)

Year ended December 31, 2005 compared with year ended December 31, 2004

     Revenue for the year ended December 31, 2005 increased by 39.2% to $15,735,000, compared to $11,305,000 for the year ended December 31, 2004. During the year ended December 31, 2005, we recorded revenue related to 81 contracts compared to 69 contracts during 2004. For the year ended December 31, 2005, $13,513,000 of revenue was the result of contracts that were in backlog at December 31, 2004 and $2,222,000 was the result of new business. For the year ended December 31, 2004,

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$9,402,000 of revenue was generated from contracts that were in backlog at December 31, 2003 and $1,903,000 of revenue was the result of new business.

     Direct costs of revenue, mainly personnel costs, were $3,789,000 and $2,634,000 during the years ended December 31, 2005 and 2004, respectively. Additional staff and other payroll cost increases accounted for $574,000 of the $1,155,000 increase in 2005. Third party license fees, as a result of our license agreements with Microsoft and SAS increased by $444,000 during 2005. Other direct costs, which are primarily travel and other costs billed directly to our customers, increased by $137,000 during the year ended December 31, 2005. The increase in staff was necessitated by the growth in revenue and the increase in the number of contracts we have been managing over the past year. Our gross margin decreased to 75.9% for the year ended December 31, 2005 compared to 76.7% for the year ended December 31, 2004.

     Selling, general and administrative (“SG&A”) expenses include all administrative personnel costs, business and software development costs, and all other expenses not directly chargeable to a specific contract. These expenses increased by 38.7% to $10,025,000 from $7,229,000 for the years ended December 31, 2005 and 2004, respectively. Additional staff, other payroll cost increases and our sales incentive and operational performance bonus plans accounted for $695,000 of the $2,796,000 increase. Expenses related to equipment maintenance and software licensing increased $320,000 compared to the prior year. The increase in these expenses is related to the growth of our information technology infrastructure, and is necessary to ensure that our IT infrastructure is properly maintained and licensed. Outside professional service fees, consisting of accounting and auditing, legal and consulting costs, increased by $1,302,000 during 2005. Of this $1,302,000 increase, $558,000 was related to our Sarbanes-Oxley compliance efforts, $236,000 was due to non-capitalized software development costs associated with development and modification of internal operating systems and the remainder was due to initiatives related to enhancing our sales and marketing efforts and other corporate initiatives. During the year ended December 31, 2005, $105,000 of expense was recorded as a result of our previously disclosed new director compensation program. Cost increases in all other areas, primarily related to our overall growth, resulted in additional expenses of $374,000 during the year ended December 31, 2005.

     Depreciation and amortization expense increased to $748,000 during the year ended December 31, 2005, from $651,000 during the year ended December 31, 2004. The increase is due to our increased level of capital spending over the past fifteen months. From October 1, 2004 through December 31, 2005, we had capital expenditures totaling $1,758,000. This compares to $761,000 of capital expenditures in the period from June 1, 2003 through September 30, 2004.

     Other income for the year ended December 31, 2005 totaled $182,000, compared to $35,000 for the year ended December 31, 2004. Other income includes interest income, which increased by $200,000. The increase in interest income was the result of the our increase in cash and cash equivalents primarily due to our December 2004 private placement of common shares and positive cash flow during 2005 along with increasing interest rates on its investments.

     During 2005, we recorded an income tax benefit of $1,183,000. This was the result of a $1,200,000 decrease in our deferred tax asset valuation allowance. The decrease in our deferred tax asset valuation allowance was offset by U.S. federal alternative minimum tax of $17,000. Due to our net loss carryforwards, we had no state or local income tax expense in 2005. At December 31, 2005 we had a net operating loss carryforward of $18,869,000 for United States income tax purposes. An equity transaction completed on January 7, 2002 has limited our net operating loss carryforwards, incurred prior to that date, to a maximum amount of $967,000 per year, under Section 382 of the Internal Revenue Code. All of our United States net operating loss carryforwards will begin expiring in the year 2018 and will be fully expired in the year 2022. The Company also has a net operating loss carryforward of approximately 8,077,000 Euro for German income tax purposes with no expiration date. For the three years ended December 31, 2005, we realized taxable income of approximately $1,900,000 on a cumulative basis. Given our ability to generate profits over the past three years, we believe that a full valuation allowance on our deferred tax assets is no longer necessary. However, because the EDC market is still developing, it is difficult to predict taxable income very far into the future. Therefore, the reduction in the valuation allowance of $1,200,000 recorded in 2005 reflects estimates of the next three year’s taxable income based on 2005 actual results,

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with adjustments for known changes and no assumptions for growth; and therefore should not be viewed as an estimate of future earnings. At December 31, 2005, a valuation allowance of approximately $9,290,000 remains against our deferred tax assets, which consist primarily of net operating loss carryforwards for both U.S. and non-U.S income taxes. Of the $9,290,000 total allowance, approximately $5,550,000 is recorded against the portion of our deferred tax assets that represent net operating loss carryforwards for U.S income taxes, and approximately $3,480,000 is recorded against the portion of our deferred tax assets that represent net operating loss carryforwards for German income taxes.

Year ended December 31, 2004 compared with year ended December 31, 2003

     Revenue for the year ended December 31, 2004 increased by 60.3% to $11,305,000, compared to $7,052,000 for the year ended December 31, 2003. Included in revenue for the year ended December 31, 2003, is a one-time fee of $150,000. The $150,000 fee relates to consulting work performed for a current customer that was outside of a traditional EDC contract. During the year ended December 31, 2004, we recorded revenue related to 69 contracts compared to 56 contracts during 2003. For the year ended December 31, 2004, $9,402,000 of revenue was the result of contracts that were in backlog at December 31, 2003 and $1,903,000 was the result of new business. For the year ended December 31, 2003, $4,700,000 of revenue was generated from contracts that were in backlog at December 31, 2002 and $2,352,000 was the result of new business.

     Direct costs of revenue were $2,634,000 and $1,622,000 during the years ended December 31, 2004 and 2003, respectively. Additional staff and other payroll cost increases accounted for $708,000 of the $1,012,000 increase in 2004. Third party license fees, as a result of our license agreements with Microsoft and SAS, increased by $163,000 during 2004. Other direct costs, which are primarily travel and other costs billed directly to our customers, increased by $141,000 during the year ended December 31, 2004. The increase in staff was necessitated by the growth in revenue and the increase in the number of contracts being managed. Our gross margin decreased to 76.7% for the year ended December 31, 2004 compared to 77.0% for the year ended December 31, 2003. The $150,000 one-time revenue item caused a 0.5% increase in gross margin in 2003.

     SG&A expenses increased by 30.2% to $7,229,000 from $5,551,000 for the years ended December 31, 2004 and 2003, respectively. Additional staff, other payroll cost increases and our new sales incentive and operational and corporate performance bonus plans accounted for $806,000 of the $1,678,000 increase. Expenses related to equipment maintenance and software licensing increased $168,000 compared to the prior year. The increase in these expenses is related to the growth of our information technology infrastructure, and is necessary to ensure that our IT infrastructure is properly maintained. Consulting costs, primarily associated with non-capitalized software development and testing, increased by $321,000 during 2004. Cost increases in other areas, primarily due to the increased marketing of DATATRAK EDC®, and development of the Company’s corporate infrastructure, resulted in additional expenses of $383,000 during the year ended December 31, 2004.

     Depreciation and amortization expense fell to $651,000 during the year ended December 31, 2004, from $937,000 during the year ended December 31, 2003. The decrease was the result of aging assets, whose replacement was deferred to future periods, not being replaced as indicated by the low level of capital expenditures during 2003 of $184,000. During 2004, we increased capital expenditures to a total of $1,054,000.

     Other income for the year ended December 31, 2004 totaled $35,000, compared to $14,000 for the year ended December 31, 2003. Other income includes interest income, which increased $17,000 for the year ended December 31, 2004 compared to December 31, 2003, primarily due to increasing interest rates during the year.

     During 2004, we provided for U.S. federal alternative minimum tax of $9,000. Due to our net loss carryforwards, we had no other federal, state or local income tax expense in 2004.

20

Liquidity and Capital Resources

     Our principal sources of cash have been cash flow from operations and proceeds from the sale of equity securities. Our investing activities primarily reflect capital expenditures and purchases and maturities of short-term investments. In December 2004, we received approximately $4,376,000 in net proceeds from the completion of a private placement of our common shares.

     Contracts with our customers 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. We record all amounts received 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. We typically receive a low volume of large-dollar receipts. Our accounts receivable will fluctuate due to the timing and size of cash receipts. Our contracting and collection practices are designed to maintain an average collection period for accounts receivable of one to three months. Any increase in our normal collection period for accounts receivable could negatively impact our cash flow from operations and our working capital. At December 31, 2005, our average collection period for accounts receivable was 56 days compared to 45 days at December 31, 2004. Accounts receivable (net of allowance for doubtful accounts) was $2,854,000 at December 31, 2005 and $1,990,000 at December 31, 2004. Deferred revenue was $1,027,000 at December 31, 2005 compared to $585,000 at December 31, 2004.

     Cash and cash equivalents increased $2,175,000 during the year ended December 31, 2005. This was the result of $1,717,000 provided by operating activities, $378,000 used in investing activities and $992,000 provided by financing activities. Foreign currency fluctuations caused a $156,000 decrease in cash and cash equivalents. Cash provided by operating activities was the result of the Company’s net income of $2,538,000, plus non cash operating items of $766,000. This $3,304,000 increase along with the $442,000 increase in deferred revenue was offset by the $864,000 increase in accounts receivable, which was caused by our growth in revenue during 2005, and the $1,200,000 increase in deferred tax assets. Changes in other current assets and liabilities caused cash from operating activities to increase by $35,000. Investing activities included net cash proceeds of $905,000 from purchases and maturities of short-term investments and $1,283,000 used to purchase property and equipment. Financing activities consist of net proceeds from the issuance of common shares resulting from exercises of common share options offset by costs associated with the Company’s private placement of common shares and warrants to purchase its common shares.

     At December 31, 2005, we had working capital of $10,796,000, and our cash, cash equivalents and short-term investments totaled $9,363,000. Our working capital has increased by $2,221,000 since December 31, 2004. The increase was the result of the $2,175,000 increase in our cash, cash equivalents, due to our cash flow from operations and sales of common shares as a result of the exercise of common share options and warrants. The current portion of our deferred tax assets increased by $287,000. Changes in other current assets and liabilities caused working capital to decrease by $241,000.

     We are party to a lease agreement that requires us to maintain a restricted cash balance. Our restricted cash balance was $70,000 at December 31, 2005.

     We have established a line of credit, with a bank, that allows us to borrow up to a certain percentage of our investments, as determined by the type of investment, held at the bank. The line of credit bears interest at rates based on the prime rate, and is payable on demand. We had no amounts outstanding against this line of credit at December 31, 2005.

     The terms of our recently completed acquisition of ClickFind required us to pay approximately $4,000,000 of cash to the former shareholders of ClickFind in February 2006. We also issued notes payable to the former shareholders of ClickFind in the amount of $4,000,000 that bear interest at prime plus 1.0%, and are payable in installments of $500,000, $500,000 and $3,000,000 on February 1, 2007, 2008 and 2009, respectively. We are responsible for the costs of integrating ClickFind’s operations with our current operations, and all future operating costs of ClickFind. During the twelve months ended December

21

31, 2005, Click Find recorded revenue of $1,346,000 and incurred operating costs of $1,093,000. We intend to fund these additional costs with our cash and cash equivalents, maturities of short-term investments, cash flow from operations and borrowings against our line of credit.

     We intend to continue to fund the enhancement and testing of the DATATRAK EDC® software, as well invest in the development, enhancement and testing of DATATRAK eClinical™. Our operations and the EDC market are still in a developmental stage. We have experienced revenue growth; and anticipate positive cash flow from operations during 2006 as we continue to build our customer base, increase our backlog and convert our current backlog into revenue. We anticipate capital and related expenditures of approximately $1,900,000 for the twelve months ending December 31, 2006, for the continued commercialization and enhancement of our two clinical trial product offerings as well as improvements to our internal operating systems. Of the $1,900,000 total, $1,100,000 is required to maintain and upgrade current systems. The remaining $800,000 is in conjunction with the anticipated growth of our business, and is to some extent discretionary. Additionally, we anticipate spending approximately $1,400,000 for maintenance of our information technology infrastructure during 2006.

     Our research and development expenditures have historically been for the continued enhancement of and modifications to our DATATRAK EDC® software. For the twelve months ended December 31, 2005, we expensed approximately $1,600,000 for research and development. During 2006, we anticipate that our research and development expenditures will increase by approximately $1,500,000 to $2,000,000 compared to 2005. Our 2006 research and development expenditures will be for the continued enhancement and modifications to our DATATRAK EDC® and DATATRAK eClinical™ software solutions, the integration with SAS® Drug Development software and the development of our DataUnifyer™ product.

     We expect to fund our working capital requirements from existing cash and cash equivalents, maturities of short-term investments, cash flow from operations and borrowings against our line of credit. We believe that, with the continued anticipated growth in revenue, our cash and cash equivalents, maturities of short-term investments and cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the foreseeable future. However, we may need to raise additional funds to offset delays or cancellations of contacts, support expansion, respond to competitive pressures, acquire complementary businesses or technology or take advantage of unanticipated opportunities. We may raise additional funds 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 our existing shareholders.

Contractual Obligations

     The table below shows our contractual cash obligations, expressed in thousands, at December 31, 2005.

	Payments Due by Period
			Less than						More than
Contractual Obligations	Total		1 year		1 – 3 years		3 – 5 years		5 years
Operating leases	$	2,787	$	541	$	1,066	$	712	$	468
Purchase obligations		150		150		—		—		—
Total contractual cash obligations	$	2,937	$	691	$	1,066	$	712	$	468

     Our purchase obligations consist of the final $150,000 payment, which was made in January 2006, to SAS for access to the SAS® Drug Development software.

     Our recent acquisition of ClickFind resulted in a $4,000,000 purchase obligation that was paid in February 2006, and $4,000,000 in debt obligations that will be paid in installments of $500,000, $500,000

22

and $3,000,000 on February 1, 2007, 2008 and 2009, respectively. These obligations are not included in our contractual obligations as of December 31, 2005.

Inflation

     To date, we believe that the effects of inflation have not had a material adverse effect on our results of operations or financial condition.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to market risk from changes in interest rates and foreign currency exchange rates since we fund our operations through short-term investments and have business transactions in Euros. A summary of our primary market risk exposures is presented below.

Interest Rate Risk

     We have fixed income investments consisting of cash equivalents and short-term investments, which may be affected by changes in market interest rates. We do not use derivative financial instruments in our investment portfolio. We place our cash equivalents and short-term investments with high-quality financial institutions, limit the amount of credit exposure to any one institution and have 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 year ended December 31, 2005 would have resulted in an $87,000 change in our interest income during the year.

Foreign Currency Risk

     Our foreign results of operations are subject to the impact of foreign currency fluctuations through both foreign currency transaction and foreign currency translation adjustments. We manage our risk to foreign currency transaction adjustments by maintaining foreign currency bank accounts in currencies in which we regularly transact business. We do not currently hedge against the risk of exchange rate fluctuations.

     Our 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 December 31, 2005 would have resulted in a $20,000 change in the foreign currency translation amount recorded on our 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 year ended December 31, 2005 would have resulted in a $42,000 change in our net income for the year ended December 31, 2005, due to foreign currency translations. During 2005 the average exchange rate between the Euro and the U.S. dollar increased by approximately 0.1%. The conversion of our foreign operations into U.S. dollars upon consolidation resulted in net income that was approximately $5,000 lower than would have been recorded had the exchange rate between the Euro and the U.S. dollar remained consistent with 2004 rates.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets at December 31, 2005 and 2004	F-3
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2005	F-4
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2005	F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2005	F-6
Notes to Consolidated Financial Statements	F-7

     Quarterly results of operations for the year ended December 31, 2005 are included in Note 13 of the Consolidated Financial Statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None.

ITEM 9A. 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 Annual Report on Form 10-K. Based upon that evaluation, the Company’s management, including the chief executive officer and chief financial officer, have concluded that, as of December 31, 2005, the Company’s disclosure controls and procedures were effective to ensure 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.

Management’s Report on Internal Control over Financial Reporting

     The management of DATATRAK International, Inc. (“DATATRAK” or the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. DATATRAK’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of financial statements issued for external purposes in accordance with U.S. generally accepted accounting principles.

24

     All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial reporting reliability and financial statement preparation and presentation. DATATRAK’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making our assessment, we used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control—Integrated Framework. Based on our assessment we believe that, as of December 31, 2005, the Company’s internal control over financial reporting is effective, at the reasonable assurance level, based on the COSO criteria.

     DATATRAK’s independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on our assessment of the Company’s internal control over financial reporting which immediately follows this report.

Report of Independent Registered Public Accounting Firm On
Internal Control Over Financial Reporting

The Board of Directors and Shareholders
DATATRAK International, Inc.

     We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that DATATRAK International, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). DATATRAK International, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to

25

the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     In our opinion, management’s assessment that DATATRAK International, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, DATATRAK International Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of DATATRAK International, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005 of DATATRAK International, Inc. and our report dated February 13, 2006 expressed an unqualified opinion thereon.

ERNST & YOUNG LLP

Cleveland, Ohio

February 13, 2006

Changes in Internal Control

     There were no changes in the Company’s internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

     None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information appearing under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement to be used in connection with our Annual Meeting of Shareholders to be held on June 8, 2006 (the “2006 Proxy Statement”) is incorporated herein by reference. Information regarding our executive officers is included as Item 4A of Part I of this Annual Report on Form 10-K as permitted by Instruction 3 to Item 401(b) of Regulation S-K.

     We have adopted a code of ethics, as such phrase is defined in Item 406 of Regulation S-K, that applies to all of our directors, officers and employees and all employees of our subsidiaries. The code of ethics, entitled “Code of Business Conduct and Ethics,” has been filed as an exhibit hereto.

     Additionally, we have adopted a code of ethics, as such phrase is defined in Item 406 of Regulation S-K, that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The code of ethics, entitled “Financial Code of Ethics,” has been filed as an exhibit hereto.

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ITEM 11. EXECUTIVE COMPENSATION

     The information appearing under the captions “Compensation of Directors,” “Executive Officer Compensation” and “Compensation Committee Interlocks and Insider Participation” in the 2006 Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information appearing under the captions “Executive Officer Compensation” and “Security Ownership of Certain Beneficial Holders and Management” in the 2006 Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     To the extent applicable, the information appearing under the caption “Certain Related Party Transactions” in the 2006 Proxy Statement is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The information appearing under the caption “Independent Auditors” in the 2006 Proxy Statement is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     (a)(1) Financial Statements

     See Item 8 of Part II of this Annual Report on Form 10-K.

     (a)(2) Financial Statement Schedules

     All financial statement schedules for the Company and its subsidiaries have been included in the consolidated financial statements or the related footnotes, or such schedules are either inapplicable or not required.

     (a)(3) Exhibits

     See the Index to Exhibits at page E-1 of this Annual Report on Form 10-K.

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

     /s/ Jeffrey A. Green

Jeffrey A. Green

President and Chief Executive Officer

Date: March 13, 2006

     Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title
/s/ Jeffrey A. Green	President and Chief Executive Officer and Director
Jeffrey A. Green	(Principal Executive Officer)
/s/ Terry C. Black	Vice President of Finance, Chief Financial Officer and Treasurer and Assistant Secretary
Terry C. Black	(Principal Financial and Accounting Officer)
/s/ Timothy G. Biro	Director
Timothy G. Biro
/s/ Seth B. Harris	Director
Seth B. Harris
/s/ Robert M. Stote	Director
Robert M. Stote
/s/ Jerome H. Kaiser	Director
Jerome H. Kaiser
/s/ Mark J. Ratain	Director
Mark J. Ratain

Date: March 13, 2006

28

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
DATATRAK International, Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets at December 31, 2005 and 2004	F-3
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2005	F-4
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2005	F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2005	F-6
Notes to Consolidated Financial Statements	F-7

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
DATATRAK International, Inc.

We have audited the accompanying consolidated balance sheets of DATATRAK International, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of DATATRAK International, Inc. and subsidiaries at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of DATATRAK International Inc.’s internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2006 expressed an unqualified opinion thereon.

ERNST & YOUNG LLP

Cleveland, Ohio
February 13, 2006

F-2

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2005			2004
Assets
Current assets
Cash and cash equivalents	$	4,407,431		$	2,232,276
Short-term investments		4,955,491			5,686,957
Accounts receivable, net		2,853,823			1,989,948
Deferred tax asset — current		287,000			—
Prepaid expenses and other current assets		702,075			488,505
Total current assets		13,205,820			10,397,686
Property and equipment
Equipment		4,902,894			5,299,820
Leasehold improvements		618,409			614,507
		5,521,303			5,914,327
Less accumulated depreciation		3,642,899			4,491,563
		1,878,404			1,422,764
Other assets
Restricted cash		69,976			80,611
Deferred tax asset		913,000			—
Deposit		39,549			39,549
		1,022,525			120,160
Total assets	$	16,106,749		$	11,940,610
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	549,886		$	185,974
Accrued expenses		832,860			1,052,301
Deferred revenue		1,027,015			584,857
Total current liabilities		2,409,761			1,823,132
Shareholders’ equity
Serial Preferred Shares, without par value; authorized 1,000,000 shares; none issued		—			—
Common shares, without par value, authorized 25,000,000; issued 13,613,161 shares as of December 31, 2005 and 13,223,791 shares as of December 31, 2004; outstanding 10,313,161 shares as of December 31, 2005 and 9,923,791 as of December 31, 2004		61,810,321			60,584,110
Treasury shares, 3,300,000 shares at cost		(20,188,308	)		(20,188,308	)
Common share warrants		711,872			711,872
Accumulated deficit		(28,425,289	)		(30,963,636	)
Foreign currency translation		(211,608	)		(26,560	)
Total shareholders’ equity		13,696,988			10,117,478
Total liabilities and shareholders’ equity	$	16,106,749		$	11,940,610

See accompanying notes.

F-3

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Year Ended December 31,
	2005			2004			2003
Revenue	$	15,734,745		$	11,305,112		$	7,052,158
Direct costs		3,788,771			2,633,805			1,622,231
Gross profit		11,945,974			8,671,307			5,429,927
Selling, general and administrative expenses		10,025,029			7,229,433			5,550,833
Depreciation and amortization		748,358			650,961			936,958
Income (loss) from operations		1,172,587			790,913			(1,057,864	)
Other income (expense):
Interest income		243,315			42,927			25,596
Interest expense		—			(203	)		(6,701	)
Other income (expense)		(60,902	)		(8,103	)		(5,336	)
Income (loss) before income taxes		1,355,000			825,534			(1,044,305	)
Income tax (benefit) expense		(1,183,347	)		8,500			4,316
Net income (loss)	$	2,538,347		$	817,034		$	(1,048,621	)
Net income (loss) per share:
Basic:
Net income (loss) per share	$	0.25		$	0.09		$	(0.13	)
Weighted average shares outstanding		10,203,646			9,149,127			8,347,671
Diluted:
Net income (loss) per share	$	0.22		$	0.08		$	(0.13	)
Weighted average shares outstanding		11,386,413			10,237,449			8,347,671

See accompanying notes.

F-4

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common Shares				Treasury Shares					Common Share Warrants									Foreign
	Number		Stated		Number					Number						Accumulated			Currency
	of Shares		Amount		of Shares		Cost			of Shares			Cost			Deficit			Translation			Total
Balance at January 1, 2003		7,895,701	$	53,868,303		3,300,000	$	(20,188,308	)		288,378		$	357,589		$	(30,732,049	)	$	(74,918	)	$	3,230,617
Private placement of common shares		903,750		2,103,914																			2,103,914
Issuance of common share warrants											37,688			135,424									135,424
Exercise of common share options		75,845		60,919																			60,919
Exercise of common share warrants		88,731		357,589							(288,378	)		(357,589	)								—
Stock compensation		45,000		68,271																			68,271
Comprehensive loss:
Foreign currency translation																				50,307			50,307
Net loss																	(1,048,621	)					(1,048,621	)
Comprehensive loss																							(998,314	)
Balance at December 31, 2003		9,009,027		56,458,996		3,300,000		(20,188,308	)		37,688			135,424			(31,780,670	)		(24,611	)		4,600,831
Private placement of common shares		729,470		3,628,717																			3,628,717
Issuance of common share warrants											141,399			643,823									643,823
Exercise of common share options		166,544		328,824																			328,824
Exercise of common share warrants		18,750		127,375							(18,750	)		(67,375	)								60,000
Stock compensation				40,198																			40,198
Comprehensive income:
Foreign currency translation																				(1,949	)		(1,949	)
Net income																	817,034						817,034
Comprehensive income																							815,085
Balance at December 31, 2004		9,923,791		60,584,110		3,300,000		(20,188,308	)		160,337			711,872			(30,963,636	)		(26,560	)		10,117,478
Private placement of common shares																							0
Issuance of common share warrants																							0
Exercise of common share options		383,253		1,095,103																			1,095,103
Exercise of common share warrants																							0
Stock compensation		6,117		131,108																			131,108
Comprehensive income:
Foreign currency translation																				(185,048	)		(185,048	)
Net income																	2,538,347						2,538,347
Comprehensive income																							2,353,299
Balance at December 31, 2005		10,313,161	$	61,810,321		3,300,000	$	(20,188,308	)		160,337		$	711,872		$	(28,425,289	)	$	(211,608	)	$	13,696,988

See accompanying notes

F-5

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended December 31,
	2005			2004			2003
Operating Activities
Net income (loss)	$	2,538,347		$	817,034		$	(1,048,621	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		748,358			650,961			936,958
Accretion of discount on investments		(173,946	)		(27,420	)		(14,456	)
Stock compensation		131,108			40,198			68,271
Other		60,902			18,203			6,330
Changes in operating assets and liabilities:
Accounts receivable		(863,875	)		(1,211,706	)		95,242
Prepaid expenses and other assets		(213,570	)		(318,756	)		(8,227	)
Deferred tax assets		(1,200,000	)
Accounts payable and accrued expenses		247,596			280,564			(156,495	)
Deferred revenue		442,158			(312,281	)		(4,371	)
Net cash used in operating activities		1,717,078			(63,203	)		(125,369	)
Investing Activities
Decrease in restricted cash		—			23,979			138,388
Purchases of property and equipment		(1,282,992	)		(1,054,189	)		(183,520	)
Maturities of short-term investments		11,500,000			7,536,021			3,729,612
Purchases of short-term investments		(10,594,588	)		(10,661,709	)		(5,626,095	)
Net cash (used in) provided by investing activities		(377,580	)		(4,155,898	)		(1,941,615	)
Financing Activities
Payments under capital lease obligation		—			(23,979	)		(138,388	)
Repayment, net, of notes receivable		—			803			3,132
Proceeds from issuance of shares, net of issuance costs		(103,125	)		4,375,665			2,239,338
Proceeds from exercise of stock options and warrants		1,095,103			388,824			60,919
Net cash provided by financing activities		991,978			4,741,313			2,165,001
Effect of exchange rate on cash		(156,321	)		(17,271	)		8,611
Increase in cash and cash equivalents		2,175,155			504,941			106,628
Cash and cash equivalents at beginning of year		2,232,276			1,727,335			1,620,707
Cash and cash equivalents at end of year	$	4,407,431		$	2,232,276		$	1,727,335
Cash paid during the year for interest	$	—		$	203		$	6,701
Net cash paid during the year for income taxes	$	40,000		$	4,316		$	—
Unpaid share issuance costs	$	—		$	103,125		$	—

See accompanying notes.

F-6

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2005, 2004 and 2003

1. Accounting Policies

Description of Business

     DATATRAK International, Inc. (“DATATRAK” or the “Company”) is an Application Service Provider (“ASP”) that provides electronic data capture (“EDC”) and other services, which assist companies in the clinical pharmaceutical, biotechnology, contract research organization (“CRO”) and medical device research industries, to accelerate the completion of clinical trials. The Company’s wholly-owned subsidiary, DATATRAK GmbH, provides the Company with various customer support services and software development services. The Company’s other wholly-owned subsidiary, DATATRAK Inc., is an inactive holding company with no employees that does not provide any services to the Company or its customers.

Stock Split

     On July 20, 2005 DATATRAK’s Board of Directors approved a three-for-two share split that was distributed in the form of a 50% share dividend (the “Share Split”). The Company’s shareholders of record at the close of business on August 15, 2005 received one additional common share for every two common shares held on that date. The new common shares were distributed on or around August 31, 2005 and began trading ex- dividend on September 1, 2005. The Company has restated all prior reported common share and per share amounts as if the share split had occurred at the beginning of the earliest period being reported.

Principles of Consolidation

     The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

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. DATATRAK recognizes revenue based on the performance or delivery of the following specified services or components of its EDC contracts in the manner described below:

• Project management and data management (design, report and export) services are recorded as revenue proportionally over the life of a contract as services are performed, based on the contractual billing rate per hour for those services.

• Data items revenue is earned based on a price per data unit as data items are entered into DATATRAK’s hosting facility.

• Classroom training services revenue is recognized as classroom training is completed, at rates based on the length of the training program.

• Internet-based training services revenue is recognized on a per user basis as self-study courses are completed.

• Help desk revenue is recognized based on a monthly price per registered user under the contract.

     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. Costs associated with contract revenue are recognized as incurred. Costs that are paid directly by the Company’s clients, and for which the Company does not bear the risk of economic

F-7

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

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, the Company offers volume discounts to customers over multiple contracts. The Company estimates the volume discounts to be earned over the life the contracts to which the discount applies. As a contract progresses, revenues are 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. For the years ended December 31, 2005 and December 31, 2004, DATATRAK deferred $56,000 and $69,000 of revenue, respectively, as a result of its contracts subject to volume discounts. No revenue was deferred in 2003 as a result of volume discounts.

Concentration of Credit Risk

     The Company is subject to credit risk through accounts receivable and short-term investments. The Company generally does not require collateral and the majority of its accounts receivable are unsecured. Short-term investments are placed with high credit-quality financial institutions or in short-duration with high credit-quality debt securities. The Company limits the amount of credit exposure in any one institution or type of investment instrument.

Cash Equivalents

     The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Investments in cash equivalents are carried at cost which approximates market value.

Short-term Investments

     Short-term investments are comprised of obligations of U.S. government agencies and corporate obligations with maturities of one year or less. These securities are stated at amortized cost, which approximates fair value. The Company has the positive intent and ability to hold the securities to maturity.

Property and Equipment

     Property and equipment are stated at cost. Depreciable assets consist of office and computer equipment, software and software development costs, and leasehold improvements. Depreciation and amortization on office and computer equipment and software, and software development costs is computed using the straight-line method over estimated useful lives of 3 to 7 years. Leasehold improvements are amortized using the straight-line method over the lesser of the assets’ estimated useful life or the lease term. Depreciation and amortization expense related to depreciable assets was $748,000, $651,000 and $937,000 for 2005, 2004 and 2003, respectively.

Impairment of Long-Lived Assets

     The Company evaluates impairment of long-lived assets in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets.” As such, the carrying values of long-lived assets are evaluated if circumstances indicate a possible impairment in value. If undiscounted cash flows over the remaining amortization period indicate that long-lived assets may not be recoverable, the carrying value will be reduced by the estimated shortfall of cash flows on a discounted basis.

F-8

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

Deferred Revenue

     Deferred revenue represents cash advances received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is entitled to payment for all work performed through the point of cancellation.

Stock Based Compensation

     The Company accounts for stock based compensation in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” for stock options granted to employees and directors. The Company follows the alternative fair value accounting provided for under SFAS No. 123, “Accounting for Stock-Based Compensation” for stock options granted to non-employees. 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. The following assumptions were used to estimate the fair value for these options using the Black-Scholes option pricing model.

	Year Ended December 31
	2005			2004			2003
Weighted average risk free interest rate		4.2	%		4.1	%		4.3	%
Weighted average volatility of the expected market price of the common shares		1.01			1.01			1.15
Dividend yield		0.0	%		0.0	%		0.0	%
Weighted-average expected life of the option	7 years			8 years			7 years
Weighted-average fair value per share of options granted	$	9.90		$	6.68		$	2.58

     For purposes of pro forma disclosures, the estimated value of the options is amortized to expense over the options’ vesting period.

     The following table sets forth stock based compensation and pro forma information for each period presented.

	Year Ended December 31,
	2005		2004		2003
Net income (loss) recorded	$	2,538,000	$	817,000	$	(1,049,000	)
Plus: stock compensation expense recognized		66,000		40,000		68,000
Less: stock compensation expense that would have been recognized under SFAS No. 123		894,000		736,000		634,000
Pro forma net income (loss)	$	1,710,000	$	121,000	$	(1,615,000	)
Pro forma basic income (loss) per share	$	0.17	$	0.01	$	(0.19	)
Pro forma diluted income (loss) per share	$	0.15	$	0.01	$	(0.19	)

     On December 16, 2004, the FASB issued SFAS No. 123(Revised 2004), “Share-Based Payment,” which is a revision of SFAS No.123, “Accounting for Stock-Based Compensation.” SFAS No. 123(R) supersedes APB No. 25, and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure will no longer be an alternative. On April 14, 2005, the U.S. Securities and Exchange

F-9

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

Commission (“SEC”) announced a deferral of the effective date of SFAS 123(R) for calendar year-end companies until January 1, 2006.

     As permitted by SFAS No. 123, the Company currently accounts for share based payments to employees using APB No. 25, and as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123(R)’s fair value method may have a significant impact on the Company’s results of operations, although it will have no impact on its overall financial position. DATATRAK will adopt SFAS No. 123(R) on January 1, 2006. The Company will adopt SFAS No. 123 using the “modified prospective” method in which compensation cost is recognized beginning January 1, 2006 based on the requirements of SFAS No. 123(R) for all share based payments granted after the effective date, and based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested at the effective date. The Company has chosen to use the Black-Scholes option valuation model in valuing stock options granted prior to January 1, 2006, and will continue to use this valuation model for options granted after the effective date of SFAS No. 123(R). The adoption of SFAS 123(R) will increase DATATRAK’s operating expenses by approximately $1,250,000 in the aggregate over the four year period beginning in January 2006 through December 2009 for options that remain unvested as of January 1, 2006. During the year ending December 31, 2006, DATATRAK expects to record approximately $500,000 of stock compensation expense, as a result of the adoption SFAS No. 123(R). The full impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share based payments in the future, however, at this time the Company’s management does not anticipate granting any additional stock options.

Income Taxes

     The Company follows SFAS No. 109, “Accounting for Income Taxes”. This accounting standard requires that the liability method be used in accounting for income taxes. Under this accounting method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and the tax basis of assets and liabilities and are measured using the enacted tax rates and laws that apply in the periods in which the deferred tax asset or liability is expected to be realized or settled. A valuation allowance is provided for deferred tax assets for which realization currently is not certain. Quarterly income taxes are recorded at the statutory rate, based on annual forecasted income.

     The Company has substantial net operating loss carryforwards from prior years. Until 2005, the existence of operating losses provided sufficient negative evidence under SFAS No. 109, requiring a full valuation allowance against DATATRAK’s deferred tax assets. This situation changed in 2005, as the Company realized taxable income of approximately $1,900,000 on a cumulative basis over the past three years. Given DATATRAK’s ability to generate these profits, management now believes that a full valuation allowance on DATATRAK’s deferred tax assets is no longer necessary. However, because the EDC market is still developing, it is difficult to predict taxable income very far into the future. Therefore, the reduction in the valuation allowance of $1,200,000 recorded in 2005 reflects estimates of the next three year’s taxable income based on 2005 actual results, with adjustments for known changes and no assumptions for growth.

     Beginning in the first quarter of 2006, DATATRAK will record a tax provision at the statutory rate against quarterly pre-tax income. An evaluation will be made at each annual reporting period regarding the continuing need for a valuation allowance, and appropriate adjustments to the valuation allowance will be made.

F-10

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

Use of Estimates

     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.

Financial Instruments

     The carrying values of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued expenses are reasonable estimates of fair value due to the short-term nature of these financial instruments. Investments are reported at amortized cost, which approximates fair value.

Advertising Costs

     Advertising costs are expensed as incurred and are included in selling, general and administrative expenses. Advertising expenses were $163,000, $153,000 and $88,000 for 2005, 2004 and 2003, respectively.

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 SFAS 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.

     Research and development expenses included in selling, general and administrative expenses were $1,650,000, $1,142,000 and $850,000 in 2005, 2004 and 2003, respectively.

Foreign Currency Translation

     The assets and liabilities of the Company’s foreign subsidiary are translated into U.S. dollars at current exchange rates. Revenue and expense accounts of these operations are translated at average rates prevailing during the period. These translation adjustments are accumulated in a separate component of shareholders’ equity. Foreign currency transaction gains and losses are included in determining net income (loss) when realized.

2. Short-term Investments

     The following is a summary of held-to-maturity securities:

	December 31, 2005				December 31, 2004
			Amortized				Amortized
	Cost		Cost		Cost		Cost
Obligations of U.S. government agencies	$	1,961,008	$	1,980,701	$	4,700,181	$	4,708,482
Corporate obligations		2,951,809		2,974,790		978,400		978,475
	$	4,912,817	$	4,955,491	$	5,678,581	$	5,686,957

F-11

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

3. Accounts Receivable

     Accounts receivable consist of the following:

	December 31,
	2005			2004
Trade accounts receivable:
Billed	$	2,845,630		$	1,947,130
Unbilled		6,894			56,445
Total trade accounts receivable		2,852,524			2,003,575
Other		51,799			36,873
Allowance for doubtful accounts		(50,500	)		(50,500	)
	$	2,853,823		$	1,989,948

     Included in trade accounts receivable at December 31, 2005 and 2004 is $1,878,000 and $1,052,000, respectively, from one customer. This amount represents the loss the Company would incur in the event that all trade receivables from this customer were deemed uncollectible.

     Movement of the allowance for doubtful accounts is as follows:

	Year Ended December 31,
	2005		2004		2003
Balance at beginning of year	$	50,500	$	40,400	$	40,400
Provision for uncollectible accounts		—		10,100		—
Uncollectible accounts written off		—		—		—
Balance at end of year	$	50,500	$	50,500	$	40,400

4. Accrued Expenses

     Accrued expenses consist of the following:

	December 31,
	2005		2004
Office rent and utilities	$	124,169	$	144,056
Payroll and other employee costs		307,432		507,986
Professional fees		280,114		274,873
Income and other taxes		13,820		11,831
Software license fees		26,000		40,664
Other		81,325		72,891
	$	832,860	$	1,052,301

F-12

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

5. Income Taxes

     Income tax expense (benefit) consists of the following:

	Year Ended December 31,
	2005			2004		2003
Current:
Federal	$	17,000		$	9,000	$	4,000
State and local		—			—		—
		17,000			9,000		4,000
Deferred
Federal		(1,200,000	)		—		—
State and local		—			—		—
		—			—		—
	$	(1,183,000	)	$	9,000	$	4,000

     Due to its net losses and net loss carryforwards, the Company had no state or local income tax expense in 2005, 2004 and 2003. A reconciliation of income tax benefit at the U.S. federal statutory rate to the effective income tax rate is as follows:

	Year Ended December 31,
	2005			2004			2003
Income tax provision (benefit) at the United States statutory rate	$	461,000		$	281,000		$	(355,000	)
Non — U.S. income tax (benefit)		10,000			10,000			(62,000	)
Change in valuation allowance		(1,690,000	)		(303,000	)		417,000
Other		36,000			21,000			4,000
	$	(1,183,000	)	$	9,000		$	4,000

     At December 31, 2005 the Company had a net operating loss carryforward of approximately $18,869,000 for United States income tax purposes. An equity transaction completed on January 7, 2002 has limited the Company’s net operating loss carryforwards, incurred prior to that date, to a maximum amount of $967,000 per year, under Section 382 of the Internal Revenue Code. All of the Company’s United States net operating loss carryforwards will begin expiring in the year 2018 and will be fully expired in the year 2022. The Company also has a net operating loss carryforward of approximately 8,077,000 Euro for German income tax purposes with no expiration date.

F-13

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

     The significant components of the Company’s deferred tax assets, stated in US dollars, are as follows:

	December 31,
	2005			2004
Deferred tax assets (liabilities):
U.S. net operating loss carryforward	$	6,416,000		$	6,824,000
Non — U.S. net operating loss carryforwards		3,822,000			3,926,000
Alternative minimum tax credit carryforward		122,000			105,000
Allowances and accruals		70,000			69,000
Depreciation and amortization		60,000			56,000
		10,490,000			10,980,000
Valuation allowance		(9,290,000	)		(10,980,000	)
Net deferred tax assets recorded	$	1,200,000		$	—

     For the three years ended December 31, 2005, the Company realized taxable income of approximately $1,900,000 on a cumulative basis. Given DATATRAK’s ability to generate profits over the past three years, management believes that a full valuation allowance on DATATRAK’s deferred tax assets is no longer necessary. However, because the EDC market is still developing, it is difficult to predict taxable income very far into the future. Therefore, the reduction in the valuation allowance of $1,200,000 recorded in 2005 reflects estimates of the next three year’s taxable income based on 2005 actual results, with adjustments for known changes and no assumptions for growth.

     At December 31, 2005, a valuation allowance of approximately $9,290,000 remains against DATATRAK’s deferred tax assets, which consist primarily of net operating loss carryforwards for both U.S. and non-U.S. income taxes. Of the $9,270,000 total allowance, approximately $5,550,000 is recorded against the portion of DATATRAK’s deferred tax assets that represent net operating loss carryforwards for U.S. income taxes, and approximately $3,480,000 is recorded against the portion of DATATRAK’s deferred tax assets that represent net operating loss carryforwards for German income taxes.

6. Operating Leases

     The Company leases certain office equipment and space. Rent expense relating to these operating leases was approximately $588,000, $603,000 and $583,000 in 2005, 2004 and 2003, respectively. Future minimum lease payments for the Company under noncancelable operating leases as of December 31, 2005 are as follows:

Year Ending December 31,	Amount
2006	$	541,000
2007		528,000
2008		538,000
2009		415,000
2010		297,000
Subsequent to 2010		468,000
	$	2,787,000

F-14

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

7. Shareholders’ Equity

     Effective April 21, 2003, the Company entered into an agreement for consulting services related to its investor relations program. As compensation for these services, the Company issued 45,000 restricted common shares to an outside consultant. During the year ended December 31, 2003, a non-cash charge of $42,000 was recorded as compensation expense for these common shares.

     In addition, the same investor relations consultant was granted an option to purchase 37,500 common shares on May 27, 2003. The exercise price of the options is $1.76 per share, the market price of the common shares on the date of grant. DATATRAK has recorded $22,000, $22,000 and $13,000 of compensation expense related to these options during the years ended December 31, 2005, 2004 and 2003, respectively. The option will become exercisable in equal amounts over a three-year period and expires on the tenth anniversary of the date of grant. The option was granted under the Company’s Amended and Restated 1996 Key Employees and Consultants Stock Option Plan (the “1996 Plan”).

     On August 8, 2003, the Company completed a private placement of its common shares with certain outside investors. The Company sold 903,750 of its common shares at a price of $2.67 per share. Net of expenses, the Company raised $2,239,000 in cash. In conjunction with this private placement, DATATRAK issued 37,688 warrants to purchase common shares at a price of $3.20 per share. The warrants, which were valued at $135,424, are fully vested as of the grant date and will expire five years from the date of grant. During 2004, the holders of 18,750 of these common share warrants surrendered the warrants along with the exercise price in exchange for 18,750 common shares.

     On December 28, 2004, the Company completed another private placement of common shares with outside investors. The Company sold 729,470 of its common shares at a price of $6.33 per share. Net of expenses, the Company raised $4,273,000 in cash. In conjunction with this private placement, DATATRAK issued 141,399 warrants to purchase common shares at a price of $9.60 per share. The warrants, which were valued at $643,823, are fully vested as of the grant date and will expire three years from the date of grant.

     On July 22, 2005, the Company’s shareholders approved the DATATRAK International, Inc. 2005 Omnibus Equity Plan (the “Omnibus Plan”). The Omnibus Plan is intended to be the primary share-based award program for covered employees and directors.

     The Omnibus Plan gives the Compensation Committee, of the Board of Directors, flexibility to grant a wider variety of share-based awards than currently available under the Company’s existing stock option plans, by taking into account such factors as the type and level of employee, relevant business and performance goals and the prevailing tax and accounting treatments. The goals of the Omnibus Plan are to: (i) attract and retain skilled and qualified officers, employees and directors who are expected to contribute to the Company’s success by providing long-term incentive compensation opportunities competitive with those made available by other companies; (ii) motivate participants to achieve the long-term success and growth of the Company; (iii) facilitate ownership of shares of the Company; and (iv) align the interests of the participants with those of the Company’s shareholders.

     Under the previously disclosed new director compensation program, in consideration of their services to the Company, each non-employee member of the Board of Directors will receive, in addition to cash payments, an annual base compensation grant of $16,000 worth of fully-vested common shares. In addition, non-employee Directors will receive additional awards of common shares as compensation for attendance at Board and Committee meetings, as well as for chairing a Committee of the Board. During the year ended December 31, 2005, non-employee Directors were awarded 6,117 common shares. Stock compensation expense of $66,000 was recorded as a result of the common shares granted under the director compensation program.

F-15

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

Reserved Shares

     At December 31, 2005, the Company had reserved 2,047,200 common shares for the exercise of common share options and warrants. Of the 2,047,200 reserved shares, 266,972 shares are reserved for future grants under the Company’s previously established share option plans. Because the Omnibus Plan was approved, the 266,972 common share options that could have been granted pursuant to the Company’s previously established share option plans will not be granted.

     In addition, at December 31, 2005 the Company had reserved 343,883 common shares for stock grants pursuant to the Omnibus Plan.

Serial Preferred Shares

     At December 31, 2005 and 2004, the Company had 1,000,000 Serial Preferred Shares, without par value, authorized, with none outstanding.

Treasury Shares

     At December 31, 2005 and 2004, the Company held 3,300,000 of its common shares in treasury at a cost of $20,188,308.

Shareholder Rights Plan

     On September 2, 1997, following the adoption of the rights agreement between the Company and National City Bank (the “Rights Agreement”), the Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding common share, payable to the Company’s shareholders of record on September 15, 1997. Each Right entitled the registered holder of the common shares to buy one one-hundredth of a Series A Junior Participating Preferred Share (the “Preferred Share”) at an exercise price of $30.00 per one one-hundredth of a Preferred Share, subject to adjustment as provided in the Rights Agreement and as discussed below. The value of one one-hundredth interest in a Preferred Share purchasable upon exercise of each Right is intended to approximate the value of one common share.

     The Rights are not exercisable until such time, the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) have acquired beneficial ownership of 20% or more of the Company’s outstanding common shares or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 20% of more of the Company’s outstanding common shares (the earlier of such date being called the “Distribution Date”).

     Until the Rights are exercised, the holder has no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. Other than as provided for in the Rights Agreement, the Rights are not traded separately from the common shares and will expire on September 15, 2007. Pursuant to the Rights Agreement, each Right was adjusted to reflect the Share Split that occurred in 2005.

F-16

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

8. Share Option Plans

     The Company has four share option plans with unexpired options that may be exercised by the holders of such options. At December 31, 2005, the Company had reserved 3,046,567 common shares for the exercise of common share options. The Company has granted 2,779,595 options to purchase common shares to employees, directors and others of which 1,159,704 have been previously exercised. There are 266,972 options to purchase common shares available for future grants, however no future grants are expected be made under the Company’s share option plans. The weighted average contractual life of all options outstanding was 5.8 years as of December 31, 2005. The range of exercise prices for all options outstanding at December 31, 2005 was $1.33 to $12.93.

     The Amended and Restated 1994 Directors’ Share Option Plan (the “1994 Director Plan”) was established by the Company to provide common share options to directors of the Company for their participation in Board of Directors’ meetings. All options awarded under the plan have an exercise price per share that was equal to the fair market value of a common share on the date of grant. All options granted under the 1994 Director Plan expire ten years after the grant date. At December 31, 2005 there were 752 options outstanding under the 1994 Director Plan with an exercise price of $6.40, all of which were 100% vested. These options will expire in February 2006.

     The Amended and Restated 1996 Outside Directors’ Stock Option Plan, as amended ( the “1996 Director Plan”) was established by the Company to provide common share options as compensation to directors of the Company. Certain options, as approved by the Company’s shareholders, were granted under the 1996 Director Plan at exercise prices below the market value of a common share on the date of approval. All compensation expense related to these common share options has been previously recognized by the Company. All other options granted under the 1996 Director Plan have been granted at exercise prices that represented the fair market value of a common share on the date of grant. At December 31, 2005 there were 69,000 options outstanding under the 1996 Director Plan with exercise prices ranging from $2.79 to $6.40, all of which were 100% vested. These options had a weighted average contractual life of 2.3 years and a weighted average exercise price of $3.19.

     The 1996 Plan provides for the granting of options to purchase common shares to key employees and consultants of the Company and its affiliates. During 2000, 116,031 common share options were granted at exercise prices of less than the fair market value of a common share on the date of grant. The Company recognized compensation expense related to these common share options of $14,000 in 2003. All other options granted under the 1996 Plan have been granted at exercise prices that represented the fair market value of a common share on the date of grant. In addition, the Company has recorded compensation expense of $66,000 $40,000 and $12,000 in 2005, 2004 and 2003, respectively, related to options granted to non-employees. Vesting of options awarded under the 1996 Plan is determined by the Board of Directors’ Compensation Committee, and all options granted under the 1996 Plan expire ten years after the grant date. At December 31, 2005 there were 1,024,389 options outstanding under the 1996 Plan with exercise prices ranging from $1.33 to $12.93, of which 685,361 were 100% vested. These options had a weighted average contractual life of 6.0 years and a weighted average exercise price of $3.84.

     The Amended and Restated Outside Director Stock Option Plan (the “Director Plan”) provides for the granting of options to purchase common shares to outside directors of the Company. Certain options approved by Company’s Board of Directors and its shareholders have been granted at exercise prices below the market value of a common share on the grant date in 2000. All compensation expense related to these common share options has been previously recognized by the Company. All other options granted under the Director Plan have been granted at exercise prices that represented the fair market value of a common share on the date of grant. Options fully vest one year following the grant date. All options granted under the Director Plan expire ten years after the grant date. At December 31, 2005 there were 525,750 options outstanding under the Director Plan with exercise prices ranging from $1.33 to $7.56, all of which were 100% vested. These options had a weighted average contractual life of 5.8 years and a weighted average exercise price of $2.93.

F-17

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

     The Company’s share option activity and related information is summarized below:

	Year Ended December 31,
	2005					2004					2003
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Options			Price		Options			Price		Options			Price
Outstanding at beginning of period		1,988,974		$	3.31		1,969,967		$	2.73		1,540,191		$	2.56
Granted		28,823			11.45		220,125			7.42		573,205			2.86
Exercised		(383,253	)		2.86		(166,544	)		1.97		(75,845	)		0.80
Cancelled		(14,653	)		7.56		(34,574	)		3.11		(67,584	)		2.12
Outstanding at end of period		1,619,891		$	3.52		1,988,974		$	3.31		1,969,967		$	2.73
Exercisable at end of period		1,280,863		$	3.00		1,457,307		$	2.70		1,376,886		$	2.67

9. Retirement Savings Plan

     The Company sponsors The DATATRAK International, Inc. Retirement Savings Plan (the “Plan”) as defined by Section 401(k) of the Internal Revenue Code of 1986, as amended. The Plan covers substantially all United States employees who elect to participate. Participants may contribute up to 20% of their annual compensation into a variety of mutual fund options. Matching and profit sharing contributions by the Company are discretionary. The Company did not make any matching or profit sharing contributions in 2005, 2004 or 2003.

10. Net Income (Loss) Per Share

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

	Year Ended December 31,
	2005		2004		2003
Net income (loss) used in the calculation of basic and diluted loss per share	$	2,538,347	$	817,034	$	(1,048,621	)
Denominator for basic net income (loss) per share — weighted average common shares outstanding		10,203,646		9,149,127		8,347,671
Effect of dilutive common share options and warrants		1,182,767		1,088,322		—
Denominator for diluted net income (loss) per share		11,386,413		10,237,449		8,347,671
Basic net income (loss) per share	$	0.25	$	0.09	$	(0.13	)
Diluted net income (loss) per share	$	0.22	$	0.08	$	(0.13	)
Weighted average common share options and warrants excluded from the computation of diluted net income (loss) per share because they would have an anti-dilutive effect on net income (loss) per share		14,904		63,429		1,846,412

F-18

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

11. Segment Information

     The Company operates in one business segment: the DATATRAK EDC Business.

Enterprise-Wide Disclosures

     Geographic Information

Year Ended December 31,	United States		Germany			Total
Revenue from external customers:
2005	$	15,734,745	$	—		$	15,734,745
2004		11,305,112		—			11,305,112
2003		7,052,158		—			7,052,158
Net income (loss):
2005		6,726,776		(4,188,429	)		2,538,347
2004		4,347,926		(3,530,892	)		817,034
2003		1,523,476		(2,572,097	)		(1,048,621	)
Long-lived assets, net at December 31,
2005		1,768,618		109,786			1,878,404
2004		1,283,793		138,971			1,422,764

     Major Customers

     The following sets forth the percentage of revenue generated by customers who accounted for more than 10% of the Company’s revenue during each of the periods presented:

	Year Ended December 31,
Customer	2005			2004			2003
Aventis Pharmaceuticals		*			15	%		22	%
Control Delivery Systems		*			*			11	%
Otsuka Research Institute		59	%		55	%		20	%

* Less than 10% of revenue.

12. Restricted Cash

     DATATRAK GmbH is required to provide a bank guarantee to the lessor of its office space equal to three months rent. The terms of the bank guarantee require DATATRAK GmbH to maintain a restricted cash balance of 59,000 Euros with the bank. The U.S. dollar equivalent of this amount was $69,976 at December 31, 2005.

F-19

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

13. Quarterly Data (Unaudited)

     Selected quarterly data is as follows (in thousands):

	Year Ended December 31, 2005
	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
Revenue	$	3,635	$	3,724	$	4,056	$	4,320
Gross profit		2,721		2,797		3,157		3,271
Income from operations		500		221		354		98
Net income		532		261		413		1,332
Basic net income per share		0.05		0.03		0.04		0.13
Diluted net income per share		0.05		0.02		0.04		0.12

	Year Ended December 31, 2004
	First			Second		Third		Fourth
	Quarter			Quarter		Quarter		Quarter
Revenue	$	2,288		$	2,630	$	2,974	$	3,413
Gross profit		1,755			2,025		2,292		2,599
Income (loss) from operations		(99	)		96		386		408
Net income (loss)		(95	)		89		398		425
Basic net income (loss) per share		(0.01	)		0.01		0.04		0.05
Diluted net income (loss) per share		(0.01	)		0.01		0.04		0.04

     The Company recorded a reduction in its deferred tax asset valuation allowance, and therefore increased its net income in the amount of $1,200,000 during the fourth quarter of 2005. As described further in Note 5, this reduction reflects the Company’s estimate of its deferred tax assets it will be able to utilize over the next three years.

14. Subsequent Events

Acquisition

     On February 13, 2006, DATATRAK acquired all of the outstanding stock of ClickFind, Inc. (“ClickFind”), an EDC company located in Bryan, Texas. As a result of the acquisition, DATATRAK is expected to have the most extensive eClinical software suite in the clinical trials industry.

     The aggregate purchase price was $18,000,000, less approximately $328,000 in certain transaction expenses and certain indebtedness of ClickFind. The purchase price consisted of approximately $4,000,000 of cash, $4,000,000 in notes payable and approximately $10,000,000 in common shares (1,026,522 common shares). The value of the 1,026,522 common shares was determined based on the average closing price per share of the Company’s common shares for the thirty days ending on and including February 10, 2006. The notes payable bear interest at prime plus 1%, and are payable in installments of $500,000, $500,000 and $3,000,000 on February 1, 2007, 2008 and 2009, respectively.

     The value of ClickFind’s stock was determined through arms-length negotiations between DATATRAK and ClickFind. An independent third party has reviewed the transaction and consideration paid by DATATRAK, and determined it to be fair, from a financial point of view, to DATATRAK.

F-20

DATATRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
For the Years Ended December 31, 2005, 2004 and 2003

     The acquisition was accounted for as a purchase, and accordingly fair value adjustments to the assets acquired and liabilities assumed will be recorded as of the date of acquisition. The Company is in the process of obtaining a third party valuation of certain tangible and intangible assets acquired. As of February 28, 2006, this evaluation has not been completed. The operating results of ClickFind will be included in the Company’s consolidated results of operations for all periods subsequent to February 13, 2006.

Line of Credit

     In February 2006, DATATRAK established a line of credit, with a bank, that allows the Company to borrow up to a certain percentage of its investments, as determined by the type of investment, held at the bank. The line of credit bears interest at rates based on the prime rate, and is payable on demand.

F-21

Exhibit Index

Exhibit No.	Description	Page
2.1	Agreement and Plan of Merger among DATATRAK International, Inc., CF Merger Sub, Inc., ClickFind, Inc., each of the shareholders of ClickFind, Inc and Jim Bob Ward, dated February 13, 2006		(10	)
3.1	Sixth Amended and Restated Articles of Incorporation		(1	)
3.2	Third Amended and Restated Code of Regulations		(2	)
3.3	Amendment to the Third Amended and Restated Code of Regulations		(2	)
3.4	Amendment to the Third Amended and Restated Code of Regulations		(1	)
4.1	Specimen Certificate of the Company’s Common Shares, without par value		(5	)
4.2	Form of Warrant Agreement, dated August 8, 2003		(7	)
4.3	Form of Warrant Agreement, dated December 28, 2004		(5	)
4.4	Form of Promissory Note		(10	)
4.5	Registration Rights Agreement among DATATRAK International, Inc. and the Cash and Securities Recipients, dated February 13, 2006		(10	)
4.6	Rights Agreement between the Company and National City Bank, as Rights Agent, dated September 2, 1997		(11	)
10.1	Amended and Restated 1994 Directors’ Share Option Plan*		(4	)
10.2	Amendment to the Amended and Restated 1994 Directors’ Share Option Plan*		(2	)
10.3	Amended and Restated 1996 Outside Directors’ Stock Option Plan*		(4	)
10.4	Amendment No. 1 to the Amended and Restated 1996 Outside Directors’ Stock Option Plan*		(2	)
10.5	Amendment No. 2 to the Amended and Restated 1996 Outside Directors’ Stock Option Plan*		(2	)
10.6	Amendment to the Amended and Restated 1996 Outside Directors’ Stock Option Plan*		(2	)
10.7	DATATRAK International, Inc. 2005 Omnibus Equity Plan*		(9	)
10.8	Amended and Restated 1996 Key Employees’ and Consultants Stock Option Plan*		(4	)
10.9	Amendment No. 1 to the Amended and Restated 1996 Key Employees’ and Consultants Stock Option Plan*		(2	)
10.10	Amendment No. 2 to the Amended and Restated 1996 Key Employees’ and Consultants Stock Option Plan*		(2	)
10.11	Amendment No. 3 to the Amended and Restated 1996 Key Employees’ and Consultants Stock Option Plan*		(2	)
10.12	Amendment to the Amended and Restated 1996 Key Employees’ and Consultants Stock Option Plan*		(2	)
10.13	Amended and Restated Outside Director Stock Option Plan*		(8	)

E-1

Exhibit Index

Exhibit No.	Description	Page
10.14	Form of Indemnification Agreement*		(3	)
10.15	Employment Agreement between the Company and Jeffrey A. Green, dated February 5, 2001*
10.16	Employment Agreement between the Company and Terry C. Black, dated February 5, 2001*
10.17	Employment Agreement between the Company and Marc J. Shlaes dated March 5, 2003*		(2	)
10.18	Managing Director Employment Agreement between the Company and Wolfgang Summa, dated December 29, 2000*
10.19	Employment Agreement between the Company and Jim Bob Ward, dated February 13, 2006*		(10	)
10.20	DATATRAK International, Inc. Retirement Savings Plan*		(6	)
10.21	Limited Software License Agreement between DATATRAK International, Inc. and Jim Bob Ward, dated February 13, 2006		(10	)
14.1	Code of Business Conduct and Ethics		(7	)
14.2	Financial Code of Ethics		(7	)
21.1	Subsidiaries of the Company
23.1	Consent of Ernst & Young LLP
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer

*	Management compensatory plan or arrangement.
(1)	Incorporated herein by reference to the Company’s Form 10-Q for the quarter ended June 30, 2003 (File No. 000-20699).
(2)	Incorporated herein by reference to the Company’s Form 10-K for the year ended December 31, 2002 (File No. 000-20699).
(3)	Incorporated herein by reference to the Company’s Form S-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).
(4)	Incorporated herein by reference to the Company’s Form S-8 Registration Statement filed on November 13, 1996 (File No. 333-16061).

E-2

Exhibit Index

Exhibit No.	Description	Page
(5)	Incorporated herein by reference to the Company’s Form 10-K for the year ended December 31, 2004 (File No. 000-20699).
(6)	Incorporated herein by reference to the Company’s Form S-8 Registration Statement filed on April 30, 1997 (File No. 333-26251).
(7)	Incorporated herein by reference to the Company’s Form 10-K for the year ended December 31, 2003 (File No. 000-20699).
(8)	Incorporated herein by reference to the Company’s Form 10-Q for the quarter ended June 30, 2004 (File No. 000-20699).
(9)	Incorporated herein by reference to the Company’s current report on Form 8-K dated July 22, 2005 (File No. 000-20699).
(10)	Incorporated herein by reference to the Company’s current report on Form 8-K dated February 13, 2006 (File No. 000-20699).
(11)	Incorporated herein by reference to the Company’s Form 8-A filed on September 19, 1997 (File No. 000-20699).

E-3

EX-10.15

                                                                   EXHIBIT 10.15

                              EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT ("Agreement") is made and effective as of
the date indicated below by and between DATATRAK INTERNATIONAL, INC., an Ohio
corporation with its principal place of business at 20600 Chagrin Boulevard,
Suite 1050, Cleveland, Ohio 44122 ("Company") and JEFFREY A. GREEN (the
"Employee").

                                   WITNESSETH:

          WHEREAS, on or about July 1, 1994, Employee entered into an Employment
Agreement with Collaborative Clinical Research, Inc., pursuant to which Employee
was retained as President and Chief Executive Officer of Collaborative Clinical
Research, Inc.; and

          WHEREAS, following the sale of Collaborative Clinical Research, Inc.'s
clinical research division, Collaborative Clinical Research, Inc. changed its
name to DATATRAK International, Inc.; and

          WHEREAS, the Company desires to retain Employee as its President and
Chief Executive Officer, to include nomination to the Company's Board of
Directors, and Employee desires to be so retained; and

          WHEREAS, Employee and the Company desire to enter into an agreement
expressly indicating the terms and conditions of their relationship.

          NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the Company and the Employee agree as follows:

          1. DUTIES. During the Term of this Agreement, as those terms are
defined herein, Employee shall, under the general supervision of the Company's
Board of Directors, serve as President and Chief Executive Officer and devote
his skill and experience to serving the interests of the Company. The Company
agrees to nominate Employee as an officer and director of the Company, and
Employee agrees to accept election to and serve as an officer and director of
the Company. During the course of his employment, Employee shall at all times,
faithfully, industriously and to the best of his abilities, perform all duties
that reasonably may be required of him by virtue of his position. Employee shall
devote his full business time and efforts to the affairs of the Company.

          2. SALARY. The Company will pay Employee a base salary of One Hundred
Eighty Thousand ($180,000) per year in accordance with the Company's payroll
practices, or in such other periodic method to which both parties agree, minus
appropriate withholdings and deductions. The Company will review Employee's
compensation hereunder on an annual basis, and may adjust the above-indicated
level, in its sole discretion, based on Employee's performance of his duties
hereunder and/or the performance of the Company, provided, however, that the
Company shall not reduce the Employee's salary to be paid in any


                                                                               1



succeeding year to an amount less than the Employee's base salary as established
herein or as increased over time without Employee's written agreement. Both
parties agree that the above reference to an "annual base salary" or to other
benefits of employment, including but not limited to bonuses, does not in any
way guarantee and/or add to the express length of employment of Employee, other
than as set forth herein.

          3. BONUS PLANS. The Company may pay Employee additional compensation
in the form of a discretionary bonus and/or pursuant to Company established
bonus plan(s) that the Company may have in effect from time to time for
similarly-situated employees. The Company reserves the right to modify or cancel
any bonus plan(s) that it may have in effect at any given time. The Company will
be obligated to pay all amounts earned and due to Employee prior to the
modification or cancellation of any established bonus plans. The bonus may be
paid in cash, in equity securities of the Company, in stock options, or in any
combination thereof at the Company's discretion.

          4. STOCK OPTION PLAN. Employee shall be eligible to participate in any
stock option plan(s) that the Company may make available from time to time for
similarly situated employees. The granting of stock options will be pursuant to
the terms and conditions of a separate Stock Option Agreement.

          5. BENEFITS. During the Term of this Agreement, Employee shall be
entitled to participate in any employment benefit plans which are maintained or
established by the Company for its similarly-situated employees, including
enrollment in medical, dental, and life insurance policies or plans, as well as
a 401K plan, and all paid holidays afforded to other similarly-situated
employees.

               During the Term of this Agreement, Employee shall receive a
monthly automobile allowance in the amount of $350 and shall be reimbursed for
expenses reasonably incurred in connection with the business of the Company.

          6. VACATIONS. During the Term of this Agreement, Employee shall be
entitled to annual paid vacation time equal to twenty (20) days, to be taken at
a time or times acceptable to the Company and otherwise consistent with the
terms and conditions of this Agreement and the Company's vacation pay policy.

          7. RELOCATION EXPENSES. During the Term of this Agreement, if Employee
is required by the Company to relocate his permanent residence to a location
outside of Northeastern Ohio, then the Company will reimburse Employee for all
reasonable relocation expenses, including the expense of moving Employee's
possessions and reasonable expenses incurred in travel to the new location for
the purpose of locating housing. The Company will further reimburse Employee for
all reasonable temporary housing expenses at the new location for the first 90
days after the date requested by the Company for the Employee's relocation.

          7.1 REAL ESTATE BROKER'S COMMISSIONS. The Company will reimburse


                                                                               2



Employee for reasonable licensed real estate broker's commission (Broker's Fee)
incurred by Employee in the sale of the Employee's permanent residence if
Employees is required by the Company to relocate his permanent residence to a
location outside of Northeastern Ohio. The Employee will provide the Company
with appropriate documentation to support the Broker's Fee incurred by Employee.

          8. TERM AND TERMINATION OF AGREEMENT. This Agreement shall commence on
the date signed by both parties as indicated below and shall continue for a
period of one (1) year (the "Initial Term"), unless sooner terminated as
provided in Sections 8.1, 8.2, 8.3, 8.5, 8.6, 8.7, 8.8 or 8.9 of this Agreement.
This Agreement will renew automatically for successive one (1) year periods (the
"Renewal Period," and collectively with the Initial Term, the "Term") unless
previously terminated or either party gives notice of non-renewal at least 90
days prior to the commencement of such Renewal Period.

          8.1 TERMINATION FOR DEATH. This Agreement shall terminate
automatically upon the Employee's death. With the exception of any benefits
under the Company's employee benefit plans, and any stock options that have
vested under the Company's Stock Option Plan(s) which may inure to the benefit
of Employee's beneficiaries, upon Employee's death, the Company shall have no
further obligations under the terms and conditions of this Agreement. If
Employee's employment is terminated pursuant to this section during the Term of
this Agreement, employee shall be entitled to his salary through the date of
such termination, payment for any pro-rata bonus earned and due at the time of
termination pursuant to any (if any) bonus plan(s) the Company may have in
effect at the time of termination, and to any other employee benefits maintained
or established by the Company for its similarly situated employees.

          8.2 TERMINATION FOR DISABILITY. The Company and the Employee
acknowledge and agree that the essential functions of the Employee's position
are unique and critical to the Company and that a disability condition which
causes the Employee to be unable to perform the essential functions of his
position with or without reasonable accommodations for a period in excess of one
hundred twenty (120) calendar days will constitute an undue hardship on the
Company. If the Company determines in good faith upon medical certification and
in consultation with Employee and, if necessary or appropriate, with Employee's
physician(s), that the Employee is disabled and unable to perform the essential
function of his position with or without reasonable accommodations, it may give
Employee written notice of its intention to terminate Employee's employment. If
Employee's employment is terminated pursuant to this section during the Term of
this Agreement, employee shall be entitled to his salary through the date of
such termination, payment for any pro-rata bonus earned and due at the time of
termination pursuant to any (if any) bonus plan(s) the Company may have in
effect at the time of termination, and to any other employee benefits maintained
or established by the Company for its similarly situated employees.

          8.3 TERMINATION BY COMPANY FOR CAUSE. During the Term of this
Agreement, the Company may terminate Employee's employment for cause by written


                                                                               3



notification citing the specific reasons for termination. For purposes of this
Agreement, "Cause" means:

               (1) Employee's conviction of a felony involving moral turpitude
or a felony in connection with his employment;

               (2) Employee's theft, fraud, embezzlement, material willful
destruction of property or material disruption of the operations of the Company;

               (3) Employee's use or possession of illegal drugs and/or
unauthorized use or possession of alcohol on Company premises or reporting to
work under the influence of same; or

               (4) Employee's engaging in conduct, in or out of the workplace,
which in the Company's reasonable determination has an adverse effect on the
reputation or business of the Company;

          Under any such termination for Cause, all rights, benefits, obligation
and duties of the parties hereunder shall immediately cease, except any
compensation due and owing through the date of termination and/or fringe
benefits which have vested on Employee's behalf prior to such termination, if
any, and except for the covenants of Employee set forth in Section 9 of this
Agreement.

          8.4 SUSPENSION. In the event Employee engages in conduct subjecting
Employee to potential civil or criminal liability which could have an adverse
effect upon the Company's reputation or business or is related to Employee's
duties and responsibilities, the Company reserves the right to immediately
suspend Employee with pay, pending investigation and/or the outcome of the
matter.

          8.5 TERMINATION BY EMPLOYEE WITHOUT GOOD REASON/NON-RENEWAL BY
EMPLOYEE. During the Term of this Agreement, Employee may terminate his
employment and this Agreement at any time for any or no reason upon at least 30
days written notice by the Employee directly to the Company's Board of
Directors. Prior to and/or during any Renewal Period, Employee may also
terminate this Agreement by giving a notice of non-renewal at least 120 days
prior to the commencement of the next Renewal Period. Employee acknowledges and
agrees that a voluntary resignation, termination, or retirement by Employee
during the Term of this Agreement as described in this Section 8.5, and/or a
notice of non-renewal by Employee prior to and/or during any Renewal Period as
described in this Section 8.5, shall result in the termination of this Agreement
and all rights and obligations under this Agreement shall immediately cease,
except any fringe benefits or stock options which have vested on Employee's
behalf prior to such termination.

          8.6 TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may terminate
his employment hereunder at any time during the Term of this Agreement for "Good
Reason."


                                                                               4



"Good Reason" shall mean (a) the Company's material breach of this Agreement, or
(b) the failure of the Shareholders of the Company to elect Employee to the
Company's Board of Directors and/or other act of the Company to remove Employee
from the Company's Board of Directors, or (c) except in connection with the
termination by the Company of Employee's employment in strict compliance with
the terms of this Agreement, the Board of Directors of the Company shall have
(i) failed to elect Employee as an officer of the Company or shall have removed
him from any of such offices, (ii) failed to vest Employee with the powers and
authority customarily associated with such offices, or (iii) in any other way
significantly diminished Employee's responsibilities, duties, powers or
authority. Prior to any Termination by Employee for Good Reason pursuant to this
Section 8.6, Employee shall provide the Company with sixty (60) calendar days'
written notice of the acts and/or omissions of the Company which Employee
asserts constitute "Good Reason," and if, at the conclusion of that sixty (60)
calendar period, the Company has not undertaken reasonable efforts to cure or
correct the alleged acts and/or omissions, then Employee may terminate his
employment pursuant to this Section 8.6. In the event of any termination under
this Section 8.6, Employee shall be entitled to receive (a) his Base Salary
through the date of such termination and for a period of two (2) years following
the date of such termination.

          8.7 TERMINATION BY COMPANY FOR SUFFICIENT REASON. The Company may
terminate Employee's employment hereunder at any time during the Term of this
Agreement for Sufficient Reason. "Sufficient Reason" shall mean the good faith
determination by the majority of the Board of Directors that Employee shall have
failed (i) to adequately perform his/her duties as an officer of the Company;
(ii) to exercise and employ a level of judgment and skill in the management of
the Company and the supervision of its employees commensurate with his position
and comparable to the judgment and skill employed by executives of companies of
similar size and development; or (iii) to achieve the business objectives for
Employee or the Company mutually established from time to time by the Board of
Directors of Executive and Employee (with such business objectives stated in the
Company's Annual Business Plan to be developed by Employee and approved by the
Board of Directors). Prior to any Termination by Company for Sufficient Reason
pursuant to this Section 8.7, the Company shall provide sixty (60) calendar
days' written notice approved by the majority of the Company's Board of
Directors stating the acts and/or omissions of Employee which the Company
asserts constitute "Sufficient Reason," and if, at the conclusion of that sixty
(60) calendar period, Employee has not undertaken reasonable efforts to cure or
correct the alleged acts and/or omissions, then the Company may terminate
Employee's employment pursuant to this Section 8.7. In the event of any
termination under this Section 8.7, Employee shall be entitled to receive (a)
his Base Salary through the date of such termination and for a period of one (1)
year following the date of such termination and (b) any accrued and unpaid
expense reimbursement as of the date of termination.

          8.8 TERMINATION OTHER THAN FOR CAUSE, DEATH, DISABILITY OR SUFFICIENT
REASON; TERMINATION BY NON-RENEWAL. During the Term of this Agreement, the
Company may terminate the Employee for other than Cause, Death, Disability, or
Sufficient Reason at any time, upon not less than thirty (30) days notice. Prior
to and/or during any Renewal Period, the Company may also terminate this
Agreement by giving a notice of non-renewal at least 90 days


                                                                               5



prior to the commencement of the next Renewal Period. In the event the Company
exercises its right to terminate the Employee other than for Cause, Death,
Disability, or Sufficient Reason during the Term of this Agreement as described
in this Section 8.8, and/or gives a notice of non-renewal prior to and/or during
any Renewal Period as described in this Section 8.8, Employee shall at the time
of such termination be entitled to receive (a) his Base Salary through the date
of such termination and for a period of two (2) years following the date of such
termination.

          8.9 CHANGE OF CONTROL. If a Change of Control (as defined in this
section) shall occur during the Term of this Agreement, and Employee's
employment is (a) not continued by the purchaser or successor or (b) there is a
material change in the Employee's role, duties, responsibility or title
following a Change of Control and Employee voluntarily terminates his employment
and this Agreement therefor, Employee shall be entitled to receive (i) his
salary through the date of such non-continuation and for a period of one (1)
year after such non-continuation. For purposes hereof, the term "Change of
Control" shall mean (A) the sale of all or substantially all of the assets of
the Company, (B) the sale of a majority of the outstanding shares of capital
stock of the Company entitled to vote in a single transaction or series of
related transactions (except with respect to a public offering of the Company's
shares of capital stock), (C) the consummation of a merger, consolidation or
similar transaction involving the Company in which the holders of the Company's
capital stock immediately prior to the transaction do not retain at least a
majority of the voting power of the Company surviving the merger or its parent
Company, or (D) the complete liquidation or dissolution of the Company.

          8.10 BINDING ARBITRATION. In the event, upon termination of Employee's
employment, a disagreement exists between Employee and the Company as to which
section of this Section 8 governs such termination (i.e., if the party
terminating Employee's employment (the "Terminating Party") claims that "Cause",
"Good Reason", "Sufficient Reason" or "Disability" exists and the other party
(the "Disputing Party") disputes such claim), the issue of which section should
govern such termination shall be submitted by the parties to binding arbitration
in accordance with the provisions of this Section 8.10. Within thirty (30) days
after termination of Employee's employment the Disputing Party may challenge the
claimed basis for termination by giving written notice (the "Dispute Notice") of
such challenge to the Terminating Party. Within thirty (30) days after delivery
of such Dispute Notice, the parties shall appoint an independent arbitrator
experienced in employment matters who shall determine which section of this
Section 8 applies to the termination. In the event the parties cannot agree on
an arbitrator within thirty (30) days after delivery of the Dispute Notice, then
each party shall appoint one arbitrator, and the two arbitrators shall appoint a
third arbitrator. In either case, the determination of the arbitrator or the
majority of the arbitrators, as the case may be, shall be final and binding upon
both Employee and the Company. The authority of the arbitrators hereunder shall
be limited to determining which section of this Section 8 governs, and the
arbitrators shall not have authority to reinstate Employee, to alter the amount
of the payment due to Employee under the applicable section of this Section 8,
or to award Employee or the Company any other amounts by way of damages or
otherwise. Any arbitration hereunder shall be conducted in Cleveland, Ohio in
accordance with the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association. In the event the Disputing party fails to
give


                                                                               6



the Dispute Notice within the thirty (30) day period provided above, all rights
of the Disputing Party to challenge the claimed basis for termination shall
expire.

          9. RESTRICTIVE COVENANTS OF EMPLOYEE. Employee acknowledges that the
services rendered to the Company are special, unique, and of extraordinary
character; that the market for the Company's services and products is worldwide;
and that through the Internet, World Wide Web, and/or other media of electronic
commerce, the Company regularly transacts business on a worldwide basis. In
light of those factors, Employee acknowledges that the following covenants are
reasonable and necessary for the protection of the Company's reasonable business
interests.

          9.1 NON-COMPETITION. During the period of Employee's employment by the
Company and, (i) in the case of the termination of Employee's employment under
Sections 8.2, 8.6, or 8.9 hereof, for a period of one (1) year thereafter or,
(ii) in the case of the termination of Employee's employment under any provision
of Section 8 hereof other than Sections 8.2, 8.6, or 8.9, for a period of twenty
four (24) months (the "Non-competition Period"), Employee shall not, directly or
indirectly, whether as an individual on his own account, or as a partner, joint
venturer, director, officer, employee, consultant, creditor and/or agent or
otherwise, in any place in which the Company now or hereafter conducts business:

          (a) Enter into or engage in any business which provides software and
related web hosting, educational and training services, and/or other
Applications Services Provider ("ASP") services, to customers in the
pharmaceutical, biotech, and/or medical device industries to assist in the
electronic capture of clinical trial patient data from clinical trial sites;

          (b) Solicit customers, business, patronage or orders from, or perform
other services for, any person, firm, association, corporation or other entity,
engaged in any business, including without limitation, an Applications Services
Provider, which directly or indirectly competes with the business of the Company
or any parent or subsidiary of, or entity controlling, controlled by or under
common control with the Company ("Company Affiliate"); or

          (c) Promote or assist, financially or otherwise, any person, firm,
association, corporation or other entity, engaged in any business, including
without limitation, an Applications Services Provider, which competes with the
current or future business of the Company or any Company Affiliate; provided,
however, that the foregoing covenant shall not be deemed to have been violated
solely by (i) the ownership of equity securities of an entity which competes
with a future business of the Company or any Company Affiliate, to the extent
that such securities are acquired prior to the date that the Company or Company
Affiliate commences such future business; or (ii) the ownership for investment
purposes of less than five percent (5%) of the equity securities of any entity
which has equity securities listed on a national securities exchange or publicly
traded in the over-the-counter market.

          9.2 CONFIDENTIALITY AND WORK PRODUCT. Employee acknowledges that
during his employment with the Company he has had and will have access to
confidential information, knowledge, and data regarding the business of the
Company and Company Affiliates, whether received, acquired or developed by him
or otherwise, including, without


                                                                               7



limitation, trade secrets, design information, software programs, research
methods and techniques, scientific data and formulae, pricing data, customer
information and all other information or data relevant to the business of the
Company (collectively, except any of the foregoing which is at the time
generally known to the public and which did not become generally known through
the breach of any agreement restricting its disclosure, "Proprietary
Information"). Employee further acknowledges that in the course of his
employment he may be producing designs, analyses, recommendations, reports,
complications, software, studies and other worth product, acquiring information
on behalf of the Company and any conceive of ideas, innovations, processes and
improvements relating to the business of the Company (collectively, "Work
Product"). As to the ownership, disclosure and use of Proprietary Information
and Work Product, Employee agrees that, from and after the date hereof:

          (a) he will promptly disclose in writing to the Company all Work
Product;

          (b) all Proprietary Information, all Work Product and all rights
therein are and shall be the sole and exclusive property of the Company and all
rights or interest of Employee therein are hereby assigned by Employee to the
Company, and Employee will cooperate with and assist the Company from time to
time, in any manner reasonably requested by the Company, in obtaining title or
ownership therein or evidence thereof;

          (c) Employee shall not divulge, disclose or communicate to any third
party in any manner, directly or indirectly, Proprietary Information or Work
Product;

          (d) Employee will not use for his own benefit or purposes or for the
benefit or purposes of any third party or permit or assist, by acquiescence or
otherwise, any third party to use in any manner, directly or indirectly,
Proprietary Information or Work Product;

          (e) upon the termination of his employment, Employee will promptly
deliver to the Company all Proprietary Information and Work Product, including,
without limitation, any reproductions, copies, abstracts, summaries or other
documents or records of Proprietary Information or Work Product; and

          9.3 NO INTERFERENCE. During the Non-competition Period, Employee
agrees that he shall not:

          (a) interfere with the contractual relationship of the Company, any
Company Affiliate, customers, suppliers, employees or other which relate to the
business of the Company or any Company Affiliate; or

          (b) induce any employee or representative of the Company or any
Company Affiliate not to continue as an employee or representative of the
Company or any Company Affiliate;

          (c) make remarks or take any other action which disparages or
diminishes the


                                                                               8



reputation of the Company or any Company Affiliate;

          (d) without limiting the generality of the foregoing, without the
prior written consent of the Company's Board of Directors, directly or
indirectly employ, whether as an employee, officer, director, agent, consultant
or independent contractor, any person who was an employee, representative,
officer or director of the Company or any Company Affiliate at any time during
the six-month period prior to the date of such proposed employment; provided,
however, that the covenants contained in this clause (d) shall not apply with
respect to such person terminated by action of the Company or any Company
Affiliate.

          9.4 INJUNCTIVE RELIEF. Both parties hereto recognize that the services
to be rendered by Employee to the Company are special, unique and of
extraordinary character; that the market for the Company's services and products
is worldwide; that through the Internet, World Wide Web, and/or other media of
electronic commerce, the Company regularly transacts business worldwide; and
that if Employee hereafter fails to comply with the restrictions and obligations
imposed upon him hereunder, the Company may not have an adequate remedy at law.
Accordingly, the Company, in addition to any other rights which it may have,
shall be entitled to seek injunctive relief to enforce such restrictions and
obligations without the necessity of posting any bond.

          10. REPRESENTATIONS OF EMPLOYEE. Employee represents and warrants to
the Company that he has the capacity to enter into this Agreement that he is not
a party to any agreement, arrangement or other understanding with any person or
entity which might affect, restrain or conflict with the provisions of this
Agreement and/or the services to be provided to the Company by Employee under
this Agreement. Employee further certifies that he (i) has carefully read the
entire contents of this Agreement before signing his/her name hereto, (ii) was
encouraged and afforded sufficient opportunity by the Company to obtain
independent legal advice prior to his executing this Agreement, (iii) fully
understands all of the terms, conditions, restrictions and provisions set forth
in this Agreement, particularly including, but not limited to, those
restrictions contained in Section 9 hereof, (iv) agrees that such restrictions
are necessary for the reasonable and proper protection of the Company's
business, and (v) acknowledges that each such term, condition, restriction and
provision is fair and reasonable with respect to the subject matter thereof.

          11. REFORMATION OF AGREEMENT; SEVERABILITY. In the event that any
provision or term of this Agreement is found to be void or unenforceable to any
extent for any reason, it is the agreed-upon intent of the parties hereto that
all remaining provisions or terms of the Agreement shall remain in full force
and effect to the maximum extent permitted and that the Agreement shall be
enforceable as if such void or unenforceable provision or term had never been a
part hereof.

          12. ASSIGNMENT. This Agreement shall inure to the benefit of, and
shall be binding upon, the Company, its successors and assigns. Employee shall
not assign this Agreement without the prior written consent of the Company.


                                                                               9



          13. NOTICE. Any notice required to be given under the terms of this
Agreement shall be in writing, and mailed to the recipient's last known address
or delivered in person. If sent by registered or certified mail, such notice
shall be effective when mailed; otherwise, it shall be effective upon delivery.

          14. ENTIRE AGREEMENT; AMENDMENTS: WAIVERS. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof and replaces or supersedes any previous agreement on such subject matter.
It may not be changed orally, but only by agreement, in writing, signed by each
of the parties hereto. The terms or covenants of this Agreement may be waived
only by a written instrument specifically referring to this Agreement, executed
by the party waiving compliance. The failure of the Company at any time, or from
time to time, to require performance of any of Employee's obligations under this
Agreement shall in no manner affect the Company's right to enforce any
provisions of this Agreement at a subsequent time; and the waiver by the Company
of any right arising out of any breach shall not be construed as a waiver of any
right arising out of any subsequent breach.

          15. HEADINGS. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.

          16. COUNTERPARTS. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same document.

          17. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio without giving effect to the
conflict of law provisions thereof.

                    EXECUTED THIS 5th DAY OF February, 2001.


                                        /s/ Jeffrey A. Green
                                        ----------------------------------------
                                        JEFFREY A. GREEN (EMPLOYEE)


                                        DATATRAK INTERNATIONAL, INC.


                                        By: /s/ Terry C. Black
                                            ------------------------------------
                                        TITLE: Vice President, Finance - CFO


                                                                              10

EX-10.16

                                                                   EXHIBIT 10.16

                              EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT is made and effective as of the date
indicated below by and between DATATRAK INTERNATIONAL, INC., an Ohio corporation
with its principal place of business at 20600 Chagrin Boulevard, Suite 1050,
Cleveland, Ohio 44122 ("Company") and TERRY C. BLACK ("Employee").

                                   WITNESSETH:

          WHEREAS, on or about July 15, 1994, Employee entered into an
Employment Agreement with Collaborative Clinical Research, Inc., pursuant to
which Employee was retained as Vice President Finance, Chief Financial Officer,
Treasurer and Assistant Secretary of Collaborative Clinical Research, Inc.; and

          WHEREAS, following the sale of Collaborative Clinical Research, Inc.'s
clinical research division, Collaborative Clinical Research, Inc. changed its
name to DATATRAK International, Inc.; and

          WHEREAS, the Company desires to retain Employee as its Vice President
Finance, Chief Financial Officer, Treasurer and Assistant Secretary, and
Employee desires to be so retained; and

          WHEREAS, the Employee and the Company desire to enter into an
agreement expressly indicating the terms and conditions of their relationship;

          NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the Company and the Employee agree as follows:

          1. DUTIES. The Company employs Employee in the position of Vice
President Finance, Chief Financial Officer, Treasurer and Assistant Secretary.
Employee shall perform his duties under the direction of the Company's President
and Chief Executive Officer or designee of the Company. Employee agrees to
accept election to and serve as an officer of the Company. During the Term of
this Agreement, as those terms are defined herein, Employee shall at all times,
faithfully, industriously and to the best of his abilities, perform all duties
that reasonably may be required of him by virtue of his position. Employee shall
devote his full business time and efforts to the affairs of the Company.

          2. SALARY. The Company will pay Employee a base salary of One Hundred
Twenty Five Thousand ($125,000) per year in accordance with the Company's
payroll practices, or in such other periodic method to which both parties agree,
minus appropriate withholdings and deductions. The Company will review
Employee's compensation hereunder on an annual basis, and may adjust the
above-indicated level, in its sole discretion, based on Employee's performance
of his duties hereunder and/or the performance of the Company, provided,
however, that the Company shall not reduce the Employee's salary to be paid in
any


                                                                               1



succeeding year to an amount less than the Employee's base salary as established
herein or as increased over time without Employee's written agreement. Both
parties agree that the above reference to an "annual base salary" or to other
benefits of employment, including but not limited to bonuses, does not in any
way guarantee and/or add to the express length of employment of Employee, other
than as set forth herein.

          3 BONUS PLANS. The Company may pay Employee additional compensation in
the form of a discretionary bonus and/or pursuant to an established bonus
plan(s) that the Company may have in effect from time to time for similarly
situated employees. The Company reserves the right to modify or cancel any bonus
plan(s) that it may have in effect at any given time. The Company will be
obligated to pay all amounts earned and due to Employee prior to the
modification or cancellation of any established bonus plans. The bonus may be
paid in cash, in equity securities of the Company, in stock options, or in any
combination thereof at the Company's discretion.

          4. STOCK OPTION PLAN. Employee shall be eligible to participate in any
stock option plans that the Company may make available from time to time for
similarly situated employees. The granting of stock options will be pursuant to
the terms and conditions of a separate Stock Option Agreement.

          5. BENEFITS. During the Term of this Agreement, Employee shall be
entitled to participate in any employment benefit plans which are maintained or
established by the Company for its similarly situated employees, including
enrollment in medical, dental, and life insurance policies or plans, as well as
a 401K plan, and all paid holidays afforded to other similarly situated
employees.

          6. VACATIONS. During the Term of this Agreement, Employee shall be
entitled to annual paid vacation time equal to twenty (20) days, to be taken at
a time or times acceptable to the Company and otherwise consistent with the
terms and conditions of this Agreement and the Company's vacation pay policy.

          7. RELOCATION EXPENSES. During the Term of this Agreement, if Employee
is required by the Company to relocate his permanent residence to a location
outside of Northeastern Ohio, then the Company will reimburse Employee for all
reasonable relocation expenses, including the expense of moving Employee's
possessions and reasonable expenses incurred in travel to the new location for
the purpose of locating housing. The Company will further reimburse Employee for
all reasonable temporary housing expenses at the new location for the first 90
days after the date requested by the Company for the Employee's relocation.

               7.1 REAL ESTATE BROKER'S COMMISSIONS. The Company will reimburse
Employee for reasonable licensed real estate broker's commission (Broker's Fee)
incurred by Employee in the sale of the Employee's permanent residence if
Employees is required by the Company to relocate his permanent residence to a
location outside of Northeastern Ohio. The Employee will provide the Company
with appropriate documentation to


                                                                               2



support the Broker's Fee incurred by Employee.

          8. TERM AND TERMINATION OF AGREEMENT. This Agreement shall commence on
the date signed by both parties as indicated below and shall continue for a
period of one (1) year (the "Initial Term"), unless sooner terminated as
provided in paragraphs 8.1, 8.2, 8.3, 8.5, 8.6, 8.7 or 8.8 of this Agreement.
This Agreement will renew automatically for successive one (1) year periods (the
"Renewal Period," and collectively with the Initial Term, the "Term") unless
previously terminated or either party gives notice of non-renewal at least 90
days prior to the commencement of such Renewal Period.

               8.1 TERMINATION FOR DEATH. This Agreement shall terminate
automatically upon the Employee's death. With the exception of any benefits
under the Company's employee benefit plans, and any stock options that have
vested under the Company's Stock Option Plan(s) which may inure to the benefit
of Employee's beneficiaries, upon Employee's death, the Company shall have no
further obligations under the terms and conditions of this Agreement. If
Employee's employment is terminated pursuant to this section during the Term of
this Agreement, employee shall be entitled to his salary through the date of
such termination, payment for any pro-rata bonus earned and due at the time of
termination pursuant to any (if any) bonus plan(s) the Company may have in
effect at the time of termination, and to any other employee benefits maintained
or established by the Company for its similarly situated employees.

               8.2 TERMINATION FOR DISABILITY. The Company and the Employee
acknowledge and agree that the essential functions of the Employee's position
are unique and critical to the Company and that a disability condition which
causes the Employee to be unable to perform the essential functions of his
position with or without reasonable accommodations for a period in excess of one
hundred twenty (120) calendar days will constitute an undue hardship on the
Company. If the Company determines in good faith upon medical certification and
in consultation with Employee and, if necessary or appropriate, with Employee's
physician(s), that the Employee is disabled and unable to perform the essential
function of his position with or without reasonable accommodations, it may give
Employee written notice of its intention to terminate Employee's employment. If
Employee's employment is terminated pursuant to this section during the Term of
this Agreement, employee shall be entitled to his salary through the date of
such termination, payment for any pro-rata bonus earned and due at the time of
termination pursuant to any (if any) bonus plans the Company may have in effect
at the time of termination, and to any other employee benefits maintained or
established by the Company for its similarly situated employees.

               8.3 TERMINATION BY COMPANY FOR CAUSE. During the Term of this
Agreement, the Company may terminate Employee's employment for cause by written
notification citing the specific reasons for termination. For purposes of this
Agreement, "Cause" means:

                    (1) Employee's conviction of a felony involving moral
turpitude or a felony in connection with his employment;


                                                                               3



                    (2) Employee's theft, fraud, embezzlement, material willful
destruction of property or material disruption of the operations of the Company;

                    (3) Employee's use or possession of illegal drugs and/or
unauthorized use or possession of alcohol on Company premises or reporting to
work under the influence of same; or

                    (4) Employee's engaging in conduct, in or out of the
workplace, which in the Company's reasonable determination has an adverse effect
on the reputation or business of the Company;

               Under any such termination for Cause, all rights, benefits,
obligation and duties of the parties hereunder shall immediately cease, except
any compensation due and owing through the date of termination and/or fringe
benefits which have vested on Employee's behalf prior to such termination, if
any, and except for the covenants of Employee set forth in Section 9 of this
Agreement.

               8.4 SUSPENSION. In the event Employee engages in conduct
subjecting Employee to potential civil or criminal liability which could have an
adverse effect upon the Company's reputation or business or is related to
Employee's duties and responsibilities, the Company reserves the right to
immediately suspend Employee with pay, pending investigation and/or the outcome
of the matter.

               8.5 TERMINATION BY EMPLOYEE WITHOUT GOOD REASON/NON-RENEWAL BY
EMPLOYEE. During the Term of this Agreement, Employee may terminate his
employment and this Agreement at any time for any or no reason upon at least 30
days written notice by the Employee directly to the Company's President. Prior
to and/or during any Renewal Period, Employee may also terminate this Agreement
by giving a notice of non-renewal at least 120 days prior to the commencement of
the next Renewal Period. Employee acknowledges and agrees that a voluntary
resignation, termination or retirement by Employee during the Term of this
Agreement as described in this Section 8.5, and/or a notice of non-renewal by
Employee prior to and/or during any Renewal Period as described in this Section
8.5, shall result in the termination of this Agreement and all rights and
obligations under this Agreement shall immediately cease, except any fringe
benefits or stock options which have vested on Employee's behalf prior to such
termination.

               8.6 TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may
terminate his employment at any time during the Term of this Agreement for "Good
Reason." "Good Reason" shall mean (a) any material reduction by the Company of
Employee's duties, responsibilities, base salary, title or position, or (b) any
involuntary removal of Employee from any position previously held (except in
connection with a promotion or a termination for Cause, Death, or Disability, or
the voluntary termination by the Employee Without Good Reason). Prior to any
Termination by Employee for Good Reason pursuant to this Section 8.6, Employee
shall


                                                                               4



provide the President with sixty (60) calendar days' written notice of the acts
and/or omissions of the Company which Employee asserts constitute "Good Reason,"
and if, at the conclusion of that sixty (60) calendar day period, the Company
has not undertaken reasonable efforts to cure or correct the alleged acts and/or
omissions, then Employee may terminate his employment pursuant to this Section
8.6. In the event of such termination by Employee for Good Reason, Employee
shall be entitled to receive (i) his salary through the date of such termination
and for a period of one (1) year after such termination, and (ii) outplacement
services from an agency to be selected by the Company in an amount not to exceed
Ten Thousand ($10,000) Dollars,

               8.7 TERMINATION OTHER THAN FOR CAUSE, DEATH, OR DISABILITY;
TERMINATION BY NON-RENEWAL. During the Term of this Agreement, the Company may
terminate Employee for other than Cause, Death, or Disability at any time during
the Term of this Agreement, upon not less than thirty (30) days notice. Prior to
and/or during any Renewal Period, the Company may also terminate this Agreement
by giving a notice of non-renewal at least 90 days prior to the commencement of
the next Renewal Period. In the event the Company exercises its right to
terminate the Employee other than for Cause, Death, or Disability at any time
during this Agreement, during the Term of this Agreement as described in this
Section 8.7, and/or gives a notice of non-renewal prior to and/or during any
Renewal Period as described in this Section 8.7, Employee shall at the time of
such termination be entitled to receive (i) his salary through the date of such
termination and for a period of one (1) year after such termination, and (ii)
outplacement services from an agency to be selected by the Company in an amount
not to exceed Ten Thousand ($10,000) Dollars,

               8.8 CHANGE OF CONTROL. If a Change of Control (as defined in this
paragraph) shall occur during the Term of this Agreement, and Employee's
employment is (a) not continued by the purchaser or successor or (b) there is a
material change in Employee's role, duties, responsibility or title following a
Change of Control and Employee voluntarily terminates his employment and this
Agreement therefor, Employee shall be entitled to receive (i) his salary through
the date of such non-continuation and for a period of one (1) year after such
non-continuation, and (ii) outplacement services from an agency to be selected
by the Company in an amount not to exceed Ten Thousand ($10,000) Dollars. For
purposes hereof, the term "Change of Control" shall mean (A) the sale of all or
substantially all of the assets of the Company, (B) the sale of a majority of
the outstanding shares of capital stock of the Company entitled to vote in a
single transaction or series of related transactions (except with respect to a
public offering of the Company's shares of capital stock), (C) the consummation
of a merger, consolidation or similar transaction involving the Company in which
the holders of the Company's capital stock immediately prior to the transaction
do not retain at least a majority of the voting power of the Company surviving
the merger or its parent Company, or (D) the complete liquidation or dissolution
of the Company.

               8.9 BINDING ARBITRATION. In the event, upon termination of
Employee's employment, a disagreement exists between Employee and the Company as
to which section of this Section 8 governs such termination (i.e., if the party
terminating Employee's employment (the "Terminating Party") claims that "Cause",
"Good Reason" or


                                                                               5



"Disability" exists and the other party (the "Disputing Party") disputes such
claim), the issue of which section should govern such termination shall be
submitted by the parties to binding arbitration in accordance with the
provisions of this Section 8.9. Within thirty (30) days after termination of
Employee's employment the Disputing Party may challenge the claimed basis for
termination by giving written notice (the "Dispute Notice") of such challenge to
the Terminating Party. Within thirty (30) days after delivery of such Dispute
Notice, the parties shall appoint an independent arbitrator experienced in
employment matters who shall determine which section of this Section 8 applies
to the termination. In the event the parties cannot agree on an arbitrator
within thirty (30) days after delivery of the Dispute Notice, then each party
shall appoint one arbitrator, and the two arbitrators shall appoint a third
arbitrator. In either case, the determination of the arbitrator or the majority
of the arbitrators, as the case may be, shall be final and binding upon both
Employee and the Company. The authority of the arbitrators hereunder shall be
limited to determining which section of this Section 8 governs, and the
arbitrators shall not have authority to reinstate Employee, to alter the amount
of the payment due to Employee under the applicable section of this Section 8,
or to award Employee or the Company any other amounts by way of damages or
otherwise. Any arbitration hereunder shall be conducted in Cleveland, Ohio in
accordance with the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association. In the event the Disputing party fails to
give the Dispute Notice within the thirty (30) day period provided above, all
rights of the Disputing Party to challenge the claimed basis for termination
shall expire.

          9.0 RESTRICTIVE COVENANTS OF EMPLOYEE. Employee acknowledges that the
services rendered to the Company are special, unique, and of extraordinary
character; that the market for the Company's services and products is worldwide;
and that through the Internet, World Wide Web, and/or other media of electronic
commerce, the Company regularly transacts business on a worldwide basis. In
light of those factors, Employee acknowledges that the following covenants are
reasonable and necessary for the protection of the Company's reasonable business
interests.

               9.1 NON-COMPETITION. During the period of Employee's employment
by the Company and, in the case of the termination of Employee's employment
under Sections 8.2, 8.6, 8.7, or 8.8 hereof, for a period of one (1) year
thereafter, or (ii) in the case of the termination of Employee's employment
under any provision of Section 8 hereof other than Sections 8.2, 8.6, 8.7, or
8.8 for a period of eighteen (18) months (the "Non-competition Period"),
Employee shall not, directly or indirectly, whether as an individual on his own
account, or as a partner, joint venturer, director, officer, employee,
consultant, creditor and/or agent or otherwise, in any place in which the
Company now or hereafter conducts business:

          (a) Enter into or engage in any business which provides software and
related web hosting, educational and training services, and/or other
Applications Services Provider ("ASP") services, to customers in the
pharmaceutical, biotech, and/or medical device industries to assist in the
electronic capture of clinical trial patient data from clinical trial sites;

          (b) Solicit customers, business, patronage or orders from, or perform
other services for, any person, firm, association, corporation or other entity,
engaged in any business,


                                                                               6



including without limitation, an Applications Services Provider, which directly
or indirectly competes with the business of the Company or parent or subsidiary
of, or entity controlling, controlled by or under common control with the
Company ("Company Affiliate"); or

          (c) Promote or assist, financially or otherwise, any person, firm,
association, corporation or other entity, engaged in any business, including
without limitation, an Applications Services Provider, which competes with the
current or future business of the Company or any Company Affiliate; provided,
however, that the foregoing covenant shall not be deemed to have been violated
solely by (i) the ownership of equity securities of an entity which competes
with a future business of the Company or any Company Affiliate, to the extent
that such securities are acquired prior to the date that the Company or Company
Affiliate commences such future business; or (ii) the ownership for investment
purposes of less than five percent (5%) of the equity securities of any entity
which has equity securities listed on a national securities exchange or publicly
traded in the over-the-counter market.

               9.2 CONFIDENTIALITY AND WORK PRODUCT. Employee acknowledges that
during his employment with the Company he has had and will have access to
confidential information, knowledge, and data regarding the business of the
Company and Company Affiliates, whether received, acquired or developed by him
or otherwise, including, without limitation, trade secrets, design information,
software programs, research methods and techniques, scientific data and
formulae, pricing data, customer information and all other information or data
relevant to the business of the Company (collectively, except any of the
foregoing which is at the time generally known to the public and which did not
become generally known through the breach of any agreement restricting its
disclosure, "Proprietary Information"). Employee further acknowledges that in
the course of his employment he may be producing designs, analyses,
recommendations, reports, complications, software, studies and other worth
product, acquiring information on behalf of the Company and any conceive of
ideas, innovations, processes and improvements relating to the business of the
Company (collectively, "Work Product"). As to the ownership, disclosure and use
of Proprietary Information and Work Product, Employee agrees that, from and
after the date hereof:

               (a) he will promptly disclose in writing to the Company all Work
Product;

               (b) all Proprietary Information, all Work Product and all rights
therein are and shall be the sole and exclusive property of the Company and all
rights or interest of Employee therein are hereby assigned by Employee to the
Company, and Employee will cooperate with and assist the Company from time to
time, in any manner reasonably requested by the Company, in obtaining title or
ownership therein or evidence thereof;

               (c) Employee shall not divulge, disclose or communicate to any
third party in any manner, directly or indirectly, Proprietary Information or
Work Product;

               (d) Employee will not use for his own benefit or purposes or for
the


                                                                               7



benefit or purposes of any third party or permit or assist, by acquiescence or
otherwise, any third party to use in any manner, directly or indirectly,
Proprietary Information or Work Product; and

               (e) upon the termination of his employment, Employee will
promptly deliver to the Company all Proprietary Information and Work Product,
including, without limitation, any reproductions, copies, abstracts, summaries
or other documents or records of Proprietary Information or Work Product.

               9.3 NO INTERFERENCE. During the Non-competition Period, Employee
agrees that he shall not:

          (a) interfere with the contractual relationship of the Company, any
Company Affiliate, customers, suppliers, employees or other which relate to the
business of the Company or any Company Affiliate; or

          (b) induce any employee or representative of the Company or any
Company Affiliate not to continue as an employee or representative of the
Company or any Company Affiliate;

          (c) make remarks or take any other action which disparages or
diminishes the reputation of the Company or any Company Affiliate; and

          (d) without limiting the generality of the foregoing, without the
prior written consent of the Chief Executive Officer, directly or indirectly
employ, whether as an employee, officer, director, agent, consultant or
independent contractor, any person who was an employee, representative, officer
or director of the Company or any Company Affiliate at any time during the
six-month period prior to the date of such proposed employment; provided,
however, that the covenants contained in this clause (d) shall not apply with
respect to such person terminated by action of the Company or any Company
Affiliate.

               9.4 INJUNCTIVE RELIEF. Both parties hereto recognize that the
services to be rendered by Employee to the Company are special, unique and of
extraordinary character; that the market for the Company's services and products
is worldwide; that through the Internet, World Wide Web, and/or other media of
electronic commerce, the Company regularly transacts business worldwide; and
that if Employee hereafter fails to comply with the restrictions and obligations
imposed upon him hereunder, the Company may not have an adequate remedy at law.
Accordingly, the Company, in addition to any other rights which it may have,
shall be entitled to seek injunctive relief to enforce such restrictions and
obligations without the necessity of posting any bond.

          10. REPRESENTATIONS OF EMPLOYEE. Employee represents and warrants to
the Company that he has the capacity to enter into this Agreement that he is not
a party to any agreement, arrangement or other understanding with any person or
entity which might affect, restrain or conflict with the provisions of this
Agreement and/or the services to be provided to the Company by Employee under
this Agreement.


                                                                               8



          11. REFORMATION OF AGREEMENT; SEVERABILITY. In the event that any
provision or term of this Agreement is found to be void or unenforceable to any
extent for any reason, it is the agreed-upon intent of the parties hereto that
all remaining provisions or terms of the Agreement shall remain in full force
and effect to the maximum extent permitted and that the Agreement shall be
enforceable as if such void or unenforceable provision or term had never been a
part hereof.

          12. ASSIGNMENT. This Agreement shall inure to the benefit of, and
shall be binding upon, the Company, its successors and assigns. Employee shall
not assign this Agreement without the prior written consent of the Company.

          13. NOTICE. Any notice required to be given under the terms of this
Agreement shall be in writing, and mailed to the recipient's last known address
or delivered in person. If sent by registered or certified mail, such notice
shall be effective when mailed; otherwise, it shall be effective upon delivery.

          14. ENTIRE AGREEMENT; AMENDMENTS: WAIVERS. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof and replaces or supersedes any previous agreement on such subject matter.
It may not be changed orally, but only by agreement, in writing, signed by each
of the parties hereto. The terms or covenants of this Agreement may be waived
only by a written instrument specifically referring to this Agreement, executed
by the party waiving compliance. The failure of the Company at any time, or from
time to time, to require performance of any of Employee's obligations under this
Agreement shall in no manner affect the Company's right to enforce any
provisions of this Agreement at a subsequent time; and the waiver by the Company
of any right arising out of any breach shall not be construed as a waiver of any
right arising out of any subsequent breach.

          15. HEADINGS. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.

          16. COUNTERPARTS. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same document.

          17. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio without giving effect to the
conflict of law provisions thereof.

          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the dates written below.


                                                                               9




Date: February 5, 2001                  /s/ Terry C. Black
                                        ----------------------------------------
                                        TERRY C. BLACK (EMPLOYEE)


                                        DATATRAK INTERNATIONAL, INC.


Date February 5, 2001                   By /s/ Jeffrey A. Green
                                           -------------------------------------
                                        TITLE: CHIEF EXECUTIVE OFFICER AND
                                               PRESIDENT


                                                                              10

EX-10.18

                                                                   EXHIBIT 10.18

                     MANAGING DIRECTOR EMPLOYMENT AGREEMENT

          THIS MANAGING DIRECTOR EMPLOYMENT AGREEMENT (the "Contract") is made
and effective as of the date indicated below by and between

DataTRAK Deutschland GmbH, Am Probsthof 80, 53121 Bonn (the "Company")

and

Dr. Wolfgang Summa, Endenicher Allee 124, 53121 Bonn.

                                   WITNESSETH:

          WHEREAS, based on his employment contract dated January 13, 1998, Dr.
Summa is employed with the Company since January 1, 1998, as Manager Operations;
and

          WHEREAS, since the parties entered into the employment contract dated
January 13, 1998, the nature and scope of Dr. Summa's responsibilities has
changed; and

          WHEREAS, by shareholders' resolution of February 23, 1999, Dr. Summa
was appointed as Managing Director (Geschaftsfuhrer) of the Company with sole
signatory power; and

          WHEREAS, the Company and Dr. Summa desire to terminate the employment
contract dated January 13, 1998, and enter into an agreement expressly
indicating the new terms and conditions of their relationship.

          NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the Company and the Dr. Summa agree as follows:

          1. DUTIES AND REPRESENTATION. The Company employs Dr. Summa as
Managing Director (Geschaftsfuhrer). Dr. Summa shall perform his duties in
accordance with the instructions of the shareholders' meeting and in compliance
with this managing director employment contract (the "Contract"), the Articles
of Association of the Company and the applicable legal provisions.

               1.1 PERFORMANCE OF DUTIES. During the Term of this Contract, as
those terms are defined herein, Dr. Summa shall at all times, faithfully,
industriously and to the best of his abilities, perform all duties that
reasonably may be required of him by virtue of his position. Dr. Summa shall
devote his full business time and efforts to the affairs of the Company. Dr.
Summa shall require the prior written approval of the shareholders' meeting for
any compensated or


                                       1



uncompensated side activities (Nebentatigkeit). This shall also apply for
positions on a supervisory board, advisory board or similar boards.

               1.2 REPRESENTATION. Dr. Summa shall be entitled to represent the
Company alone. However, Dr. Summa must always comply with the applicable
DataTRAK internal control procedures and practices.

Notwithstanding the approval requirements pursuant to the Articles of
Association, Dr. Summa shall require the prior written approval of the
shareholders' meeting for the following transactions, unless they have already
been approved by the shareholders' meeting in the annual budget:

     -    the granting and revocation (unless in case of imminent danger) of
          Prokura or other general Powers of Attorney,

     -    any measure which significantly changes the structure of the Company
          or outside the object of the Company, including the cessation of
          existing lines of business and areas of business activity of the
          Company,

     -    the sale of the Company in whole or essential parts thereof,

     -    the acquisition, sale or encumbrance of participations in other
          companies in whole or in part,

     -    the establishment, closure, sale or relocation of subsidiaries and
          branches,

     -    the entering into any joint venture or partnership agreement and the
          exercise of voting rights conferred by virtue of participation in
          another company, partnership or other organization,

     -    the purchase, encumbrance or sale of real estate or similar rights as
          well as any obligatory contracts related thereto,

     -    the erection of new or major change of existing buildings belonging to
          the Company,

     -    the conclusion, termination or amendment of customer contracts (in
          particular Clinical Trial Projects) having an aggregate financial
          exposure of more than DM 500,000 per contract,

     -    the conclusion, termination or amendment of employee contracts having
          a term of more than one year and an aggregate financial exposure of
          more than DM 100,000,

     -    the conclusion, termination or amendment of any other contract with an
          aggregate exposure of more than DM 50,000,

     -    the assuming of guarantees or warranties (except customary product
          warranties), the assuming or granting of loans of any kind outside the
          customary payment requirements of suppliers and customers,


                                       2



     -    the conclusion, termination or amendment of existing agreements with
          banks or credit institutions,

     -    the granting of loans to employees,

     -    the formation or acquisition of trademarks, trade names or licenses,

     -    all transactions which exceed the limits of the annual budget of the
          Company as approved by the shareholders' meeting,

     -    the conclusion, amendment or termination of employment contracts with
          Prokuristen or other executive employees,

     -    the granting of participation rights on turnover and profit as well as
          the granting of boni in excess of the DataTRAK bonus plan approved by
          the shareholders' meeting,

     -    the establishment and change of non-budgeted remuneration and/or
          pension payments to employees of the Company,

     -    the introduction of new, fundamental changes or the cessation of
          existing product groups, fundamental changes of the internal
          organisation or the wage and salary policy as well as other
          fundamental strategic decisions that relate to the sales program,
          sales activities, etc.,

     -    the pledging or mortgaging of any asset of the Company,

     -    the issuing or acceptance of bills of trade,

     -    the instigation or resolution of legal actions (including arbitration
          proceedings) to which the Company is a party with an exposure of more
          than DM 200,000,

     -    any waiver of claims exceeding DM 20,000, and

     -    any other measure, action or decision which may have a material impact
          on the business of the Company.

          2. SALARY. The Company will pay Dr. Summa a base salary of DM 210,000
(two hundred ten thousand Deutsche Mark per year in accordance with the
Company's payroll practices, or in such other periodic method to which both
parties agree, minus statutory withholdings and deductions. The Company will
review Dr. Summa's compensation hereunder on an annual basis, and may adjust the
above-indicated level, in its sole discretion, based on Dr. Summa's performance
of his duties hereunder and/or the performance of the Company, provided,
however, that the Company shall not reduce Dr. Summa's salary to be paid in any
succeeding year to an amount less than Dr. Summa's base salary as established
herein or as increased over time without Dr. Summa's written agreement. Both
parties agree that the above reference to an "annual base salary" or to other
benefits of employment, including but not limited to bonuses, does not in any
way guarantee and/or add to the express


                                       3



length of employment of Dr. Summa, other than as set forth herein.

          3. BONUS PLANS. The Company may pay Dr. Summa additional compensation
in the form of a discretionary bonus and/or pursuant to an established bonus
plan(s) that the Company or DataTRAK International Inc. may have in effect from
time to time for similarly situated employees. The Company reserves the right to
modify or cancel any bonus plan(s) that it may have in effect at any given time.
The Company will be obligated to pay all amounts earned and due to Dr. Summa
prior to the modification or cancellation of any established bonus plans. The
bonus may be paid in cash, in equity securities of DataTRAK International Inc.,
in stock options, or in any combination thereof at the Company's discretion.

          4. STOCK OPTION PLAN. Dr. Summa shall be eligible to participate in
any stock option plans that the Company or DataTRAK International Inc. may make
available from time to time for similarly situated employees. The granting of
stock options will be pursuant to the terms and conditions of a separate Stock
Option Agreement.

          5. BENEFITS. During the Term of this Contract, Dr. Summa shall be
entitled to participate in any employment benefit plans and/or retirement plans
which are maintained or established by the Company for its similarly situated
employees, including enrollment in medical, dental, and life insurance policies
or plans, as well as a 401K plan, and all paid holidays afforded to other
similarly situated employees. Additionally, Dr. Summa is entitled to capital
accumulation benefits (Vermogenswirksame Leistungen) in the amount of DM 936.00
(nine-hundred-thirty-six Deutsche Mark) per year. These benefits are granted in
addition to his salary as provided in Section 2.

          6. RESERVATION OF VOLUNTARINESS. Any and all payments in kind and any
and all payments in cash as gratification, bonus, profit sharing or any other
benefits provided in addition to the base salary according to Section 2 are
discretionary benefits by the Company and establish no right to such claims in
the future. However, this does not apply for the capital accumulation benefits
as mentioned in Section 5.

          7. COMPANY CAR. The Company will provide Dr. Summa with a company car
which he is also entitled to use for private purposes. Type and purchase price
will be determined by the shareholders' meeting. The current allowance is DM
7,800 p.a. (This Allowance is in addition to Dr. Summa's salary as stated in
section 2.) All taxes arising out of the private use as well as expenditures for
private travels shall be borne by Dr. Summa. The Company is entitled to demand
the return of the company car at the end of Dr. Summa's employment or in case of
Dr. Summa's suspension. Until further notice, the vehicle [Audi A6] with the
license plate number BN-DT440 remains at Dr. Summa's disposal as his company
car.

          8. VACATIONS. During the Term of this Contract, Dr. Summa shall be
entitled to annual paid vacation time equal to thirty (30) days, to be taken at
a time or times acceptable to the Company and otherwise consistent with the
terms and conditions of this Contract and the Company's vacation pay policy.


                                       4



          9. RELOCATION EXPENSES. The Company is entitled to transfer Dr. Summa
to a different employment location outside of Bonn. During the Term of this
Contract, if Dr. Summa is required by the Company to relocate his permanent
residence to a location outside of [North-Rhine-Westphalia/Germany], then the
Company will reimburse Dr. Summa for all reasonable relocation expenses,
including the expense of moving Dr. Summa's possessions and reasonable expenses
incurred in travel to the new location for the purpose of locating housing. The
Company will further reimburse Dr. Summa for all reasonable temporary housing
expenses at the new location for the first 90 days after the date requested by
the Company for Dr. Summa's relocation.

               9.1 REAL ESTATE BROKER'S COMMISSIONS. The Company will reimburse
Dr. Summa for reasonable licensed real estate broker's commission (Broker's Fee)
incurred by Dr. Summa in the sale of Dr. Summa's permanent residence if Dr.
Summa is required by the Company to relocate his permanent residence to a
location outside of [North-Rhine-Westphalia/Germany]. Dr. Summa will provide the
Company with appropriate documentation to support the Broker's Fee incurred by
Dr. Summa.

          10. TERM AND TERMINATION OF AGREEMENT. This Contract shall commence on
the date signed by both parties as indicated below and shall continue for a
period of one (1) year (the "Initial Term"), unless sooner terminated as
provided in paragraphs 10.1, 10.2, 10.3, 10.5, 10.6, 10.7 or 10.8 of this
Contract. This Contract will renew automatically for successive one (1) year
periods (the "Renewal Period," and collectively with the Initial Term, the
"Term") unless previously terminated or either party gives notice of non-renewal
at least 90 days prior to the commencement of such Renewal Period.

               10.1 TERMINATION FOR DEATH. This Contract shall terminate
automatically upon the Dr. Summa's death. With the exception of any benefits
under the Company's employee benefit plans, and any stock options that have
vested under the Company's Stock Option Plan(s) which may inure to the benefit
of Dr. Summa's beneficiaries upon Dr. Summa's death, the Company shall have no
further obligations under the terms and conditions of this Contract. If Dr.
Summa's employment is terminated pursuant to this section during the Term of
this Contract, Dr. Summa's heirs shall be entitled to his salary through the
date of such termination, payment for any pro-rata bonus earned and due at the
time of termination pursuant to any (if any) bonus plan(s) the Company may have
in effect at the time of termination, and to any other employee benefits
maintained or established by the Company for its similarly situated employees.

               10.2 TERMINATION FOR DISABILITY. The Company and Dr. Summa
acknowledge and agree that the essential functions of the Dr. Summa's position
are unique and critical to the Company and that a disability condition which
causes the Dr. Summa to be unable to perform the essential functions of his
position with or without reasonable accommodations for a period in excess of one
hundred twenty (120) calendar days will constitute an undue hardship on the
Company. If the Company determines in good faith upon medical certification and
in consultation with Dr. Summa and, if necessary or appropriate, with Dr.
Summa's physician(s), that Dr. Summa is disabled and unable to perform the
essential function of his position with or without reasonable accommodations, it
may give Dr. Summa written notice of its intention to terminate Dr. Summa's
employment. If Dr. Summa's employment


                                       5



is terminated pursuant to this section during the Term of this Contract, Dr.
Summa shall be entitled to his salary through the date of such termination,
payment for any pro-rata bonus earned and due at the time of termination
pursuant to any (if any) bonus plans the Company may have in effect at the time
of termination, and to any other employee benefits maintained or established by
the Company for its similarly situated employees.

               10.3 TERMINATION BY COMPANY FOR CAUSE. During the Term of this
Contract, the Company may terminate Dr. Summa's employment for cause by written
notification citing the specific reasons for termination. For purposes of this
Contract, "Cause" means in particular (without being limited thereto):

                    (1) Dr. Summa's conviction of a felony involving moral
turpitude or a felony in connection with his employment;

                    (2) Dr. Summa's theft, fraud, embezzlement, material willful
destruction of property or material disruption of the operations of the Company;

                    (3) Dr. Summa's use or possession of illegal drugs and/or
unauthorized use of significant amounts of alcohol on Company premises or
reporting to work under the influence of same; or

                    (4) Dr. Summa's engaging in conduct, in or out of the
workplace, which in the Company's reasonable determination has an adverse effect
on the reputation or business of the Company.

Under any such termination for Cause, all rights, benefits, obligation and
duties of the parties hereunder shall immediately cease, except any compensation
due and owing through the date of termination and/or fringe benefits which have
vested on Dr. Summa's behalf prior to such termination, if any.

               10.4 SUSPENSION. In the event Dr. Summa engages in conduct
subjecting Dr. Summa to potential civil or criminal liability which could have
an adverse effect upon the Company's reputation or business or is related to Dr.
Summa's duties and responsibilities, the Company reserves the right to
immediately suspend Dr. Summa with pay, pending investigation and/or the outcome
of the matter.

Additionally, the Company at any time shall have the right to suspend Dr. Summa
in the event of any termination of this Contract by either party, regardless for
which reason, until the expiration of the Contract.

               10.5 TERMINATION BY DR. SUMMA WITHOUT GOOD REASON/NON-RENEWAL BY
DR. SUMMA. During the Term of this Contract, Dr. Summa may terminate his
employment and this Contract at any time for any or no reason upon at least 30
days written notice by Dr. Summa directly to the shareholders of the Company.
Prior to and/or during any Renewal Period, Dr. Summa may also terminate this
Contract by giving a notice of non-renewal at least 120 days prior to the
commencement of the next Renewal Period. Dr. Summa acknowledges and agrees that
a voluntary resignation, termination or retirement by Dr.


                                       6


Summa during the Term of this Contract as described in this Section 10.5, and/or
a notice of non-renewal prior to and/or during any Renewal Period as described
in this Section 10.5, shall result in the termination of this Contract and all
rights and obligations under this Contract shall immediately cease upon the
expiration of the Contract, except any fringe benefits or stock options which
have vested on Dr. Summa's behalf prior to such expiration and - for the
avoidance of doubt - except for the rights and obligations according to Section
11.

               10.6 TERMINATION BY DR. SUMMA FOR GOOD REASON. Dr. Summa may
terminate his employment and this Contract at any time during the Term of this
Contract for "Good Reason." "Good Reason" shall mean any fundamental breach of
contract by the Company, including but not limited to (a) any material reduction
by the Company of Dr. Summa's duties, responsibilities, base salary, title or
position, or (b) any involuntary removal of Dr. Summa from any position
previously held (except in connection with a promotion or a termination for
Cause, Death, or Disability, or the voluntary termination by Dr. Summa without
Good Reason). Prior to any termination by Dr. Summa for Good Reason pursuant to
this Section 10.6, Dr. Summa shall provide the Company with sixty (60) calendar
days' written notice of the acts and/or omissions of the Company which Dr. Summa
asserts constitute "Good Reason," and if, at the conclusion of that sixty (60)
calendar day period, the Company has not undertaken reasonable efforts to cure
or correct the alleged acts and/or omissions, then Dr. Summa may terminate his
employment pursuant to this Section 10.6. In the event of such termination by
Dr. Summa for Good Reason, Dr. Summa shall be entitled to receive (i) his salary
through the date of the expiration of the Contract and for a period of one (1)
year after such expiration, and (ii) outplacement services from an agency to be
selected by the Company in an amount not to exceed Ten Thousand (US$10,000)
US-Dollars or the equivalent thereof in Deutsche Mark or EURO.

               10.7 TERMINATION OTHER THAN FOR CAUSE, DEATH, OR
DISABILITY/NON-RENEWAL BY COMPANY. During the Term of this Contract, the Company
may terminate Dr. Summa for other than Cause, Death, or Disability at any time
during the Term and/or any Renewal Term of this Contract, upon not less than
thirty (30) days notice. Prior to and/or during any Renewal Period, the Company
may also terminate this Contract by giving a notice of non-renewal at least 120
days prior to the commencement of the next Renewal Period. In the event the
Company exercises its right to terminate Dr. Summa other than for Cause, Death,
or Disability at any time during the Term of this Contract as described in this
Section 10.7, and/or gives a notice of non-renewal prior to and/or during any
Renewal Period as described in this Section 10.7, Dr. Summa shall at the time of
the expiration of the Contract be entitled to receive (i) his salary through the
date of such expiration of the Contract and for a period of one (1) year after
such expiration, and (ii) outplacement services from an agency to be selected by
the Company in an amount not to exceed Ten Thousand (US$10,000) US-Dollars or
the equivalent thereof in Deutsche Mark or EURO.

               10.8 CHANGE OF CONTROL. If a Change of Control (as defined in
this paragraph) shall occur during the Term of this Contract, and Dr. Summa's
employment is (a) not continued by the purchaser or successor or (b) there is a
material change in Dr. Summa's role, duties, responsibility or title following a
Change of Control and Dr. Summa voluntarily terminates his employment and this
Contract therefor, Dr. Summa shall be entitled to receive (i) his salary through
the date of such non-continuation and for a period of one (1) year after


                                       7



such non-continuation, and (ii) outplacement services from an agency to be
selected by the Company in an amount not to exceed Ten Thousand (US$10,000)
US-Dollars or the equivalent thereof in Deutsche Mark or EURO. For purposes
hereof, the term "Change of Control" shall mean (A) the sale of all or
substantially all of the assets of the Company, (B) the sale of a majority of
the outstanding shares of capital stock of the Company entitled to vote in a
single transaction or series of related transactions (except with respect to a
public offering of the Company's shares of capital stock), (C) the consummation
of a merger, consolidation or similar transaction involving the Company in which
the holders of the Company's capital stock immediately prior to the transaction
do not retain at least a majority of the voting power of the Company surviving
the merger or its parent Company, or (D) the complete liquidation or dissolution
of the Company.

               10.9 RESIGNATION FROM OFFICES. In case of a termination of this
Contract, for whatever reason, Dr. Summa shall resign with immediate effect from
all positions on supervisory or similar boards that have been transferred to him
with respect to his position as Managing Director of the Company.

               10.10 DISPUTE RESOLUTION. In the event, upon termination of Dr
Summa's employment, a disagreement exists between Dr. Summa and the Company as
to the validity of the termination or as to which section of this Section 10
governs such termination (i.e., if the party terminating Dr. Summa's employment
(the "Terminating Party") claims that "Cause", "Good Reason", "Disability" or
"Change of Control" exists and the other party (the "Disputing Party") disputes
such claim), the Disputing Party shall within thirty (30) days after termination
of Dr. Summa's employment challenge the claimed basis for termination by giving
written notice (the "Dispute Notice") of such challenge to the Terminating
Party. In the event the Disputing party fails to give the Dispute Notice within
the thirty (30) day period provided above, all rights of the Disputing Party to
challenge the claimed basis for termination shall expire.

               11.0 RESTRICTIVE COVENANTS OF DR. SUMMA.

               11.1 NON-COMPETITION.

                    (1) During the period of Dr. Summa's employment by the
Company and, (i) in the case of the termination of Dr. Summa's employment under
Sections 10.2, 10.6, 10.7, or 10.8 hereof, for a period of one (1) year
thereafter, or (ii) in the case of the termination of Dr. Summa's employment
under any provision of Section 10 hereof other than Sections 10.2, 10.6, 10.7,
or 10.8 for a period of eighteen (18) months (the "Non-competition Period"), Dr.
Summa shall not, directly or indirectly, whether as an individual on his own
account, or as a partner, joint venturer, director, officer, employee,
consultant, creditor and/or agent or otherwise, in any place in which the
Company now or hereafter conducts business:

                         (a) Enter into or engage in any business which provides
software and related web hosting, educational and training services, and/or
other Applications Services Provider ("ASP") services, to customers in the
pharmaceutical, biotech, and/or medical device industries to assist in the
electronic capture of clinical trial patient data from clinical trial sites;


                                       8



                         (b) Solicit customers, business, patronage or orders
from, or perform other services for, any person, firm, association, corporation
or other entity, engaged in any business, including without limitation, an
Applications Services Provider, which directly or indirectly competes with the
business of the Company or any parent or subsidiary of, or entity controlling,
controlled by or under common control with the Company ("Company Affiliate"); or

                         (c) Promote or assist, financially or otherwise, any
person, firm, association, corporation or other entity, engaged in any business,
including without limitation, an Applications Services Provider, which competes
with the current or future business of the Company or any Company Affiliate;
provided, however, that the foregoing covenant shall not be deemed to have been
violated solely by (i) the ownership of equity securities of an entity which
competes with a future business of the Company or any Company Affiliate, to the
extent that such securities are acquired prior to the date that the Company or
Company Affiliate commences such future business; or (ii) the ownership for
investment purposes of less than five percent (5%) of the equity securities of
any entity which has equity securities listed on a national securities exchange
or publicly traded in the over-the-counter market.

                    (2) Dr. Summa, however, is allowed to work as an employee or
as a consultant for pharmaceutical, biotech, and/or medical device companies as
long as his activities do not have a negative impact on the Company's business
with its customers (ref. to Section 11.3).

                    (3) For the time period after the expiration of the
Contract, the competition prohibition according to this Section 11 is limited to
the territory of Germany.

                    (4) As compensation for the non competition obligation for
the time period after the expiration of the Contract, during such time frame the
Company shall be obligated to pay to Dr. Summa on a monthly basis 50% of the
gross average remuneration Dr. Summa was entitled to prior the expiration of the
Contract ("Previous Remuneration") in accordance with Section 74b sub-section
(2) of the German Commercial Code (HGB). Such compensation shall be due at the
end of each respective month.

Any and all benefits (including any payments by the Company Dr. Summa is
entitled to under this Contract after its expiration) earned by Dr. Summa during
the term of the post-contractual non-competition obligation by utilizing his
working capacity as well as any and all benefits not earned due to malicious
intent shall be credited to the compensation due to the extent that such
benefits and the compensation would exceed the Previous Remuneration by 1/10,
respectively 1/4 in the event Dr. Summa changes his residence based on this
post-contractual non competition obligation.

                    (5) During the post-contractual non-competition period, Dr.
Summa shall be obligated to supply to the Company by the end of each calendar
quarter, or at any other time at the Company's written request, information as
to the benefits earned and the names and addresses of his respective employers.
He shall furthermore, at the Company's request, furnish evidence thereof.


                                       9



                    (6) Unemployment benefits ("Arbeitslosengeld") will be
deducted from any payment due under this Section 11.

                    (7) Section 75a of the German Commercial Code shall apply.

               11.2 CONFIDENTIALITY AND WORK PRODUCT. Dr. Summa acknowledges
that during his employment with the Company he has had and will have access to
confidential information, knowledge, and data regarding the business of the
Company and Company Affiliates, whether received, acquired or developed by him
or otherwise, including, without limitation, trade secrets, design information,
software programs, research methods and techniques, scientific data and
formulae, pricing data, customer information and all other information or data
relevant to the business of the Company (collectively, except any of the
foregoing which is at the time generally known to the public and which did not
become generally known through the breach of any agreement restricting its
disclosure, "Proprietary Information"). Dr. Summa further acknowledges that in
the course of his employment he may be producing designs, analyses,
recommendations, reports, complications, software, studies and other worth
product, acquiring information on behalf of the Company and any conceive of
ideas, innovations, processes and improvements relating to the business of the
Company (collectively, "Work Product"). As to the ownership, disclosure and use
of Proprietary Information and Work Product, Dr. Summa agrees that, from and
after the date hereof:

               (a) he will promptly disclose in writing to the Company all Work
Product;

               (b) all Proprietary Information, all Work Product and all rights
therein are and shall be the sole and exclusive property of the Company (to the
extent this is not possible for legal reasons, the Company shall have the
exclusive and comprehensive right to use such Proprietary Information and/or
Work Product) and all rights or interest of Dr. Summa therein are covered by the
remuneration according to Section 2 of this Contract and are hereby assigned by
Dr. Summa to the Company, and Dr. Summa will cooperate with and assist the
Company from time to time, in any manner reasonably requested by the Company, in
obtaining title or ownership therein or evidence thereof;

               (c) Dr. Summa shall not divulge, disclose or communicate to any
third party in any manner, directly or indirectly, Proprietary Information or
Work Product; this applies during and upon expiration of this Contract;

               (d) Dr. Summa will not use, during or upon expiration of this
Contract, for his own benefit or purposes or for the benefit or purposes of any
third party or permit or assist, by acquiescence or otherwise, any third party
to use in any manner, directly or indirectly, Proprietary Information or Work
Product; and

               (e) upon the expiration of the Contract, Dr. Summa will promptly
deliver to the Company all Proprietary Information and Work Product, including,
without limitation, any reproductions, copies, abstracts, summaries or other
documents or records of


                                       10



Proprietary Information or Work Product.

               11.3 NO INTERFERENCE. During the Non-competition Period, Dr.
Summa agrees that he shall not:

                    (a) interfere with the contractual relationship of the
Company, any Company Affiliate, customers, suppliers, employees or other which
relate to the business of the Company or any Company Affiliate; or

                    (b) induce any employee or representative of the Company or
any Company Affiliate not to continue as an employee or representative of the
Company or any Company Affiliate;

                    (c) make remarks or take any other action which disparages
or diminishes the reputation of the Company or any Company Affiliate; and

                    (d) without limiting the generality of the foregoing,
without the prior written consent of the shareholders' meeting of the Company,
directly or indirectly employ, whether as an employee, officer, director, agent,
consultant or independent contractor, any person who was an employee,
representative, officer or director of the Company or any Company Affiliate at
any time during the six-month period prior to the date of such proposed
employment; provided, however, that the covenants contained in this clause (d)
shall not apply with respect to such person terminated by action of the Company
or any Company Affiliate.

               11.4 INJUNCTIVE RELIEF. Both parties hereto recognize that the
services to be rendered by Dr. Summa to the Company are special, unique and of
extraordinary character, that the market for the Company's services and products
is worldwide; that through the Internet, World Wide Web, and/or other media of
electronic commerce, the Company regularly transacts business worldwide; and
that if Dr. Summa hereafter fails to comply with the restrictions and
obligations imposed upon him hereunder, the Company may not have an adequate
remedy at law. Accordingly, the Company, in addition to any other rights, which
it may have, shall be entitled to seek injunctive relief to enforce such
restrictions and obligations without the necessity of posting any bond.

          12. REPRESENTATIONS OF DR. SUMMA. Dr. Summa represents and warrants to
the Company that he has the capacity to enter into this Contract that he is not
a party to any agreement, arrangement or other understanding with any person or
entity which might affect, restrain or conflict with the provisions of this
Contract and/or the services to be provided to the Company by Dr. Summa under
this Contract.


                                       11



          13. PRECLUSIVE TIME LIMIT Any and all alleged claims under this
Contract must be asserted by the respective party vis-a-vis the other party
within three (3) months after obtaining knowledge of the facts constituting the
claim, or, in case of salary or bonus claims, since receipt of the respective
pay-slip. In the event of non-compliance with the above period of three (3)
months, all such claims are deemed to be waived. Section 10.10 remains
unaffected.

          14. REFORMATION OF AGREEMENT; SEVERABILITY. In the event that any
provision or term of this Contract is found to be void or unenforceable to any
extent for any reason, it is the agreed-upon intent of the parties hereto that
all remaining provisions or terms of the Contract shall remain in full force and
effect to the maximum extent permitted and that the Contract shall be
enforceable as if such void or unenforceable provision or term had never been a
part hereof.

          15. ASSIGNMENT. This Contract shall inure to the benefit of, and shall
be binding upon, the Company, its successors and assigns. Dr. Summa shall not
assign this Contract without the prior written consent of the Company.

          16. NOTICE. Any notice required to be given under the terms of this
Contract shall be in writing, and mailed to the recipient's last known address
or delivered in person. If sent by registered or certified mail, such notice
shall be effective when mailed; otherwise, it shall be effective upon delivery.

          17. ENTIRE AGREEMENT; AMENDMENTS: WAIVERS. This Contract contains the
entire agreement between the parties hereto with respect to the subject matter
hereof. This Contract may not be validly changed orally, but only by agreement,
in writing, signed by each of the parties hereto. The terms or covenants of this
Contract, including this provision, may be waived only by a written instrument
specifically referring to this Contract, executed by the party waiving
compliance. The failure of the Company at any time, or from time to time, to
require performance of any of Dr. Summa's obligations under this Contract shall
in no manner affect the Company's right to enforce any provisions of this
Contract at a subsequent time; and the waiver by the Company of any right
arising out of any breach shall not be construed as a waiver of any right
arising out of any subsequent breach.

          18. HEADINGS. The headings in this Contract are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Contract.

          19. COUNTERPARTS. This Contract may be executed in multiple
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same document.

          20. PREVIOUS EMPLOYMENT AGREEMENT. The parties hereby terminate Dr.
Summa's employment contract dated January 13, 1998 with effect to the
commencement of this Contract.

          21. GENERAL PROVISIONS. This Contract shall be governed by and
construed


                                       12



in accordance with the laws of Germany.

          IN WITNESS WHEREOF, the parties hereto have executed this Contract as
of the dates written below.


Date: December 29, 2000                 /s/ Wolfgang Summa
                                        ----------------------------------------
                                        DR. WOLFGANG SUMMA


                                        DATATRAK DEUTSCHLAND GMBH


Date December 29, 2000                  By /s/ Jeffrey A. Green
                                           -------------------------------------
                                        Title: Chief Executive Officer and
                                               President of DataTRAK
                                               International Inc.).


                                       13

EX-21.1

                                                                    EXHIBIT 21.1

                         SUBSIDIARIES OF THE REGISTRANT

                                 DATATRAK, Inc.
                           DATATRAK Deutschland, GmbH
                               CF Merger Sub, Inc.

EX-23.1

                                                                               .
                                                                               .
                                                                               .
                                                                    EXHIBIT 23.1




            Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration
Statements:




  Registration      Registration
    Number              Form            Description of Registration Statement
- --------------------------------------------------------------------------------
                                
  333-118997         Form S-8         DATATRAK International, Inc. Amended and
                                      Restated 1996 Key Employees and
                                      Consultants Stock Option Plan

  333-118998         Form S-8         DATATRAK International, Inc. Amended and
                                      Restated Outside Directors Stock Option
                                      Plan

   333-90699         Form S-8         DATATRAK International, Inc. Amended and
                                      Restated 1996 Directors Stock Option Plan

  333-127554         Form S-8         DATATRAK International, Inc. 2005 Omnibus
                                      Equity Plan

  333-121993         Form S-3         DATATRAK International, Inc. Common Stock


of our report dated February 13, 2006, with respect to the consolidated
financial statements of DATATRAK International, Inc. and subsidiaries, and our
report dated February 13, 2006 with respect to DATATRAK International, Inc.
management's assessment of the effectiveness of internal control over financial
reporting and the effectiveness of internal control over financial reporting of
DATATRAK International, Inc., included in this Annual Report (Form 10-K) for the
year ended December 31, 2005.



                                                ERNST & YOUNG LLP

Cleveland, Ohio
March 13, 2006

EX-31.1

                                                                    EXHIBIT 31.1

                                  CERTIFICATION

I, Jeffrey A. Green, Chief Executive Officer, DATATRAK International, Inc.,
certify that:

1.   I have reviewed this annual report on Form 10-K of DATATRAK International,
     Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer(s) and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
     financial reporting (as defined in Exchange Act Rules 13a-15(f) and
     15d-15(f)) for the registrant and have:

     (a)  Designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is made known to
          us by others within those entities, particularly during the period in
          which this report is being prepared;

     (b)  Designed such internal control over financial reporting, or caused
          such internal control over financial reporting to be designed under
          our supervision, to provide reasonable assurance regarding the
          reliability of financial reporting and the preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     (c)  Evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     (d)  Disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's fourth fiscal quarter in
          the case of an annual report) that has materially affected, or is
          reasonably likely to materially affect, the registrant's internal
          control over financial reporting; and


                                       1



5.   The registrant's other certifying officer(s) and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     (a)  All significant deficiencies and material weaknesses in the design or
          operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     (b)  Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          control over financial reporting.

Date: March 13, 2006


/s/ Jeffrey A. Green
- -------------------------------------
Jeffrey A. Green,
President and Chief Executive
Officer


                                       2

EX-31.2

                                                                    EXHIBIT 31.2

                                  CERTIFICATION

I, Terry C. Black, Chief Financial Officer, DATATRAK International, Inc.,
certify that:

1.   I have reviewed this annual report on Form 10-K of DATATRAK International,
     Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer(s) and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
     financial reporting (as defined in Exchange Act Rules 13a-15(f) and
     15d-15(f)) for the registrant and have:

     (a)  Designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is made known to
          us by others within those entities, particularly during the period in
          which this report is being prepared;

     (b)  Designed such internal control over financial reporting, or caused
          such internal control over financial reporting to be designed under
          our supervision, to provide reasonable assurance regarding the
          reliability of financial reporting and the preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     (c)  Evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     (d)  Disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's fourth fiscal quarter in
          the case of an annual report) that has materially affected, or is
          reasonably likely to materially affect, the registrant's internal
          control over financial reporting; and


                                       1



5.   The registrant's other certifying officer(s) and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     (a)  All significant deficiencies and material weaknesses in the design or
          operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     (b)  Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          control over financial reporting.

Date: March 13, 2006


/s/ Terry C. Black
- -------------------------------------
Terry C. Black,
Vice President of Finance, Chief
Financial Officer, Treasurer and
Assistant Secretary


                                       2

EX-32.1

                                                                    EXHIBIT 32.1

                                  CERTIFICATION

     The undersigned officer of DATATRAK International, Inc. (the "Company"),
does hereby certify, to such officer's knowledge, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

     1.   the Company's Annual Report on Form 10-K for the year ended December
          31, 2005 (the "Form 10-K") fully complies with the requirements of
          Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
          amended; and

     2.   the information contained in the Form 10-K fairly presents, in all
          material respects, the financial condition and results of operations
          of the Company as of, and for, the periods presented in the Form 10-K.


Dated: March 13, 2006                  /s/ Jeffrey A. Green
                                        ----------------------------------------
                                        Jeffrey A. Green
                                        Chief Executive Officer

EX-32.2

                                                                    EXHIBIT 32.2

                                  CERTIFICATION

     The undersigned officer of DATATRAK International, Inc. (the "Company"),
does hereby certify, to such officer's knowledge, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

     1.   the Company's Quarterly Report on Form 10-K for the year ended
          December 31, 2005 (the "Form 10-K") fully complies with the
          requirements of Section 13(a) or 15(d) of the Securities Exchange Act
          of 1934, as amended; and

     2.   the information contained in the Form 10-K fairly presents, in all
          material respects, the financial condition and results of operations
          of the Company as of, and for, the periods presented in the Form 10-K.


Dated: March 13, 2006                  /s/ Terry C. Black
                                        ----------------------------------------
                                        Terry C. Black
                                        Chief Financial Officer