##### Table of Contents



SECURITIES
AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-QSB

[Mark One]

|    |  |                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2003

|      |  |                                                                                                                           
|----- |  | --------------------------------------------------------------------------------------------------------------------------
|[   ] |  | 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: 0-25203

OmniComm Systems, Inc.




(Name of Small Business Issuer in its Charter)


|                       |  |                                           
|---------------------- |  | ------------------------------------------
|Delaware               |  | 11-3349762                                
|                       |  |                                           
|State of Incorporation |  | IRS Federal Employer Identification Number

|                                             |  |  |          | 
|-------------------------------------------- |  |  | -------- | 
|2555 Davie Road, Suite 110-B, Davie, Florida |  |  | 33317    | 
|                                             |  |  |          | 
|Address of Principal Office                  |  |  | Zip Code | 

Registrants Telephone Number: 954.473.1254



| |                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 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  [X]    NO  [  ]



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | The number of shares outstanding of each of the issuers classes of
equity as of November 10, 2003: 14,741,284 common stock $.001 par value.

1



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TABLE OF CONTENTS



|                                          |                                                                    |                                                        |  |  |  |  |  | 
|----------------------------------------- | ------------------------------------------------------------------ | ------------------------------------------------------ |  |  |  |  |  | 
|                                          |                                                                    | CONSOLIDATED BALANCE SHEETS                           
|                                          |                                                                    | CONSOLIDATED STATEMENTS OF OPERATIONS                 
|                                          |                                                                    | CONSOLIDATED STATEMENTS OF CASH FLOWS                 
|                                          |                                                                    | NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|                                          | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
|                                          | ITEM 3. CONTROLS AND PROCEDURES                                   
|PART II OTHER INFORMATION                
|                                          | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS       
|                                          | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                          
|SIGNATURES                               
|CERTIFICATION OF CEO PURSUANT SECTION 302
|CERTIFICATION OF CFO PURSUANT SECTION 302
|CERTIFICATION OF CEO PURSUANT SECTION 906
|CERTIFICATION OF CFO PURSUANT SECTION 906



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##### Table of Contents



FINANCIAL STATEMENTS

Table of Contents

|                                                                                                                                                         
|---------------------------------------------------------------------------------------------------------------------------------------------------------
|PART I. FINANCIAL INFORMATION                                                                                                                            
|Item 1. Unaudited Consolidated Financial Statements                                                                                                      
|Consolidated Balance Sheets                                                                                                                              
|Consolidated Income Statements                                                                                                                           
|Consolidated Statement of Cash Flows                                                                                                                     
|Notes to Consolidated Financial Statements                                                                                                               
|Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations                                                            
|Item 3. Controls and Procedures                                                                                                                          
|PART II. OTHER INFORMATION                                                                                                                               
|Item 4. Submission of Matters to a Vote of Security Holders                                                                                              
|Item 6. Exhibits and Reports on Form 8-K                                                                                                                 
|SIGNATURES                                                                                                                                               
|CERTIFICATIONS                                                                                                                                           
|Exhibit 31.1Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act OF 2002 CEO Cornelis F. Wit                      
|Exhibit 31.2Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act OF 2002 CFO Ronald T. Linares                    
|Exhibit 32.1Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act OF 2002  CEO Cornelis F. Wit 
|Exhibit 32.2Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act OF 2002  CFO Ronald T
Linares

2



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##### Table of Contents






OMNICOMM SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS

|                                                     |                                                                                                                                                                                                                        |   |               |             |              |   |            |             |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | ----------- | ------------ | - | ---------- | ----------- | -
|                                                     |                                                                                                                                                                                                                        |   | September 30, |             | December 31,
|                                                     |                                                                                                                                                                                                                        |   | 2003          |             | 2002        
|                                                     |                                                                                                                                                                                                                        |   |               |             |             
|                                                     |                                                                                                                                                                                                                        |   | (unaudited)   |             |              |   |           
|ASSETS                                               |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|CURRENT ASSETS                                       |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|                                                     | Cash                                                                                                                                                                                                                   |   | $             | 15,102      |              |   | $          | 194,677     |  
|                                                     | Accounts receivable                                                                                                                                                                                                    |   |               | 102,760     |              |   |            | 274,540     |  
|                                                     | Prepaid expenses                                                                                                                                                                                                       |   |               | 21,676      |              |   |            | 8,959       |  
|                                                     |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|                                                     | Total current assets                                                                                                                                                                                                   |   |               | 139,538     |              |   |            | 478,176     |  
|                                                     |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|PROPERTY AND EQUIPMENT, net                          |                                                                                                                                                                                                                        |   | 163,128       |             |              |   | 261,736    |            
|OTHER ASSETS                                         |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|                                                     | Intangible assets, net                                                                                                                                                                                                 |   |               | -0-         |              |   |            | -0-         |  
|                                                     | Other assets                                                                                                                                                                                                           |   |               | 12,997      |              |   |            | 12,997      |  
|                                                     |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|TOTAL ASSETS                                         |                                                                                                                                                                                                                        | $ | 315,663       |             |              | $ | 752,909    |            
|                                                     |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|LIABILITIES AND SHAREHOLDERS EQUITY                 |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|CURRENT LIABILITIES                                  |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|                                                     | Accounts payable and accrued expenses                                                                                                                                                                                  |   | $             | 828,470     |              |   | $          | 1,007,325   |  
|                                                     | Accrued payroll taxes                                                                                                                                                                                                  |   |               | 257,262     |              |   |            | 439,125     |  
|                                                     | Notes payable  current                                                                                                                                                                                                |   |               | 100,000     |              |   |            | 120,000     |  
|                                                     | Notes payable related party- current                                                                                                                                                                                   |   |               | 6,000       |              |   |            | 106,000     |  
|                                                     | 10% Convertible notes                                                                                                                                                                                                  |   |               | 450,000     |              |   |            | -0-         |  
|                                                     | Deferred revenue                                                                                                                                                                                                       |   |               | 369,977     |              |   |            | 322,520     |  
|                                                     |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|                                                     | Total current liabilities                                                                                                                                                                                              |   |               | 2,011,709   |              |   |            | 1,994,970   |  
|10% Convertible Notes                                |                                                                                                                                                                                                                        |   | -0-           |             |              |   | 450,000    |            
|Notes payable, net of current portion                |                                                                                                                                                                                                                        |   | 755,926       |             |              |   | 485,926    |            
|Notes payable, related party, net of current portion |                                                                                                                                                                                                                        |   | 512,644       |             |              |   | 196,644    |            
|                                                     |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|TOTAL LIABILITIES                                    |                                                                                                                                                                                                                        |   | 3,280,279     |             |              |   | 3,127,540  |            
|                                                     |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|COMMITMENTS AND CONTINGENCIES                        |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|SHAREHOLDERS EQUITY (DEFICIT)                       |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|                                                     | Undesignated preferred stock   $.001 par value. 4,022,500 shares
authorized, no shares issued and outstanding                                                                                                         |   |               | -0-         |              |   |            | -0-         |  
|                                                     | Series B convertible preferred stock,   $.001 par value. 230,000 shares
authorized, 200,000 and 200,000 issued and outstanding, respectively;
liquidation preference $2,000,000 and $2,000,000, respectively          |   |               | 200         |              |   |            | 200         |  
|                                                     | Series C convertible preferred stock,   $.001 par value. 747,500 shares
authorized, 337,150 and 307,650 issued and outstanding, respectively;
liquidation preference $3,371,500 and $3,076,500, respectively          |   |               | 337         |              |   |            | 308         |  
|                                                     | 5% Series A convertible preferred stock   $0.001 par value, 5,000,000
shares authorized; 4,215,224 and 4,215,224 issued and outstanding,
respectively; liquidation preference $4,215,224 and $4,215,224,
respectively |   |               | 4,215       |              |   |            | 4,215       |  
|                                                     | Common stock  150,000,000 shares authorized, 14,534,618 and 12,018,719
issued and outstanding, after deducting 673,878 and 669,777 shares of
treasury stock, at $.001 par value, respectively                         |   |               | 15,160      |              |   |            | 12,640      |  
|                                                     | Additional paid in capital  preferred                                                                                                                                                                                 |   |               | 9,203,352   |              |   |            | 8,938,117   |  
|                                                     | Additional paid in capital  common                                                                                                                                                                                    |   |               | 11,913,861  |              |   |            | 10,939,462  |  
|                                                     | Less: Treasury stock, cost method, 673,878 and 669,777 shares, respectively                                                                                                                                            |   |               | (299,861    | )            |   |            | (298,794    | )
|                                                     | Accumulated deficit                                                                                                                                                                                                    |   |               | (23,750,349 | )            |   |            | (21,897,111 | )
|                                                     | Deferred compensation                                                                                                                                                                                                  |   |               | (50,391     | )            |   |            | (72,528     | )
|                                                     | Subscriptions receivable                                                                                                                                                                                               |   |               | (1,140      | )            |   |            | (1,140      | )
|                                                     |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|TOTAL SHAREHOLDERS EQUITY (DEFICIT)                 |                                                                                                                                                                                                                        |   | (2,964,616    | )           |              |   | (2,374,631 | )          
|                                                     |                                                                                                                                                                                                                        |   |               |             |              |   |            |            
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT) |                                                                                                                                                                                                                        | $ | 315,663       |             |              | $ | 752,909    |            
|                                                     |                                                                                                                                                                                                                        |   |               |             |              |   |            |            

See accompanying summary of accounting policies and notes to financial statements.

3



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OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                        |  |                           |            |                            |  |      |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------- |  | ------------------------- | ---------- | -------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                        |  | For the nine months ended |            | For the three months ended
|                                                        |  | September 30,             |            | September 30,             
|                                                        |  |                           |            |                           
|                                                        |  | 2003                      |            | 2002                       |  | 2003 |            | 2002
|                                                        |  |                           |            |                            |  |      |            |     
|Revenues                                                |  | $                         | 539,549    |                            |  | $    | 319,351    |      |  | $ | 205,999    |   |  | $ | 93,378     |  
|Cost of sales                                           |  |                           | 151,613    |                            |  |      | 249,104    |      |  |   | 56,279     |   |  |   | 46,170     |  
|                                                        |  |                           |            |                            |  |      |            |      |  |   |            |   |  |   |            |  
|Gross margin                                            |  |                           | 387,936    |                            |  |      | 70,247     |      |  |   | 149,720    |   |  |   | 47,208     |  
|Other expenses                                          |  |                           |            |                            |  |      |            |      |  |   |            |   |  |   |            |  
|Salaries, benefits and related taxes                    |  |                           | 1,301,348  |                            |  |      | 1,299,588  |      |  |   | 384,405    |   |  |   | 423,023    |  
|Rent & occupancy expenses                               |  |                           | 108,455    |                            |  |      | 119,391    |      |  |   | 33,173     |   |  |   | 40,827     |  
|Consulting  medical advisory                           |  |                           | (53,385    | )                          |  |      | 81,731     |      |  |   | -0-        |   |  |   | 67,308     |  
|Consulting  marketing sales                            |  |                           | 2,239      |                            |  |      | 582        |      |  |   | -0-        |   |  |   | -0-        |  
|Legal and professional fees                             |  |                           | 92,594     |                            |  |      | 153,567    |      |  |   | 61,077     |   |  |   | 34,772     |  
|Travel                                                  |  |                           | 33,756     |                            |  |      | 29,486     |      |  |   | 4,899      |   |  |   | 9,226      |  
|Telephone and internet                                  |  |                           | 49,755     |                            |  |      | 56,868     |      |  |   | 14,337     |   |  |   | 16,812     |  
|Selling, general and administrative                     |  |                           | 97,106     |                            |  |      | 96,767     |      |  |   | 29,643     |   |  |   | 43,283     |  
|Interest expense, net                                   |  |                           | 90,232     |                            |  |      | 218,781    |      |  |   | 31,810     |   |  |   | 73,755     |  
|Depreciation and amortization                           |  |                           | 109,157    |                            |  |      | 168,313    |      |  |   | 35,455     |   |  |   | 39,919     |  
|                                                        |  |                           |            |                            |  |      |            |      |  |   |            |   |  |   |            |  
|Total other expenses                                    |  |                           | 1,831,257  |                            |  |      | 2,225,074  |      |  |   | 594,799    |   |  |   | 748,925    |  
|                                                        |  |                           |            |                            |  |      |            |      |  |   |            |   |  |   |            |  
|(Loss) before taxes and preferred dividends             |  |                           | (1,443,321 | )                          |  |      | (2,154,827 | )    |  |   | (445,079   | ) |  |   | (701,717   | )
|Income tax expense (benefit)                            |  |                           | -0-        |                            |  |      | -0-        |      |  |   | -0-        |   |  |   | -0-        |  
|                                                        |  |                           |            |                            |  |      |            |      |  |   |            |   |  |   |            |  
|Net income (loss)                                       |  |                           | (1,443,321 | )                          |  |      | (2,154,827 | )    |  |   | (445,079   | ) |  |   | (701,717   | )
|Preferred stock dividends Series A Preferred            |  |                           | -0-        |                            |  |      | (108,934   | )    |  |   | -0-        |   |  |   | (18,567    | )
|Preferred stock dividends in arrears Series
A Preferred |  |                           | (153,600   | )                          |  |      | (33,196    | )    |  |   | (51,763    | ) |  |   | (33,196    | )
|Preferred stock dividends in arrears Series
B Preferred |  |                           | (119,671   | )                          |  |      | (119,671   | )    |  |   | (40,329    | ) |  |   | (40,329    | )
|Preferred stock dividends in arrears Series
C Preferred |  |                           | (197,941   | )                          |  |      | (30,392    | )    |  |   | (67,985    | ) |  |   | (18,298    | )
|Preferred stock dividends  deemed dividends            |  |                           | (409,919   | )                          |  |      | (578,767   | )    |  |   | (113,998   | ) |  |   | (200,492   | )
|                                                        |  |                           |            |                            |  |      |            |      |  |   |            |   |  |   |            |  
|Total preferred stock dividends                         |  |                           | (881,131   | )                          |  |      | (870,960   | )    |  |   | (274,075   | ) |  |   | (310,882   | )
|                                                        |  |                           |            |                            |  |      |            |      |  |   |            |   |  |   |            |  
|Net income (loss) attributable to common
stockholders   |  | $                         | (2,324,452 | )                          |  | $    | (3,025,787 | )    |  | $ | (719,154   | ) |  | $ | (1,012,599 | )
|                                                        |  |                           |            |                            |  |      |            |      |  |   |            |   |  |   |            |  
|Net (loss) per share                                    |  | $                         | (0.18      | )                          |  | $    | (0.36      | )    |  | $ | (0.05      | ) |  | $ | (0.12      | )
|                                                        |  |                           |            |                            |  |      |            |      |  |   |            |   |  |   |            |  
|Weighted average number of shares outstanding           |  |                           | 12,928,214 |                            |  |      | 8,323,697  |      |  |   | 13,911,951 |   |  |   | 8,323,697  |  
|                                                        |  |                           |            |                            |  |      |            |      |  |   |            |   |  |   |            |  

See accompanying summary of accounting policies and notes to financial statements

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OMNICOMM SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002
(unaudited)

|                                                                                      |                                                                                            |   |            |            |      |   |            |            |  
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | - | ---------- | ---------- | ---- | - | ---------- | ---------- | -
|                                                                                      |                                                                                            |   | 2003       |            | 2002
|                                                                                      |                                                                                            |   |            |            |     
|CASH FLOWS FROM OPERATING ACTIVITIES                                                  |                                                                                            |   |            |            |      |   |            |           
|                                                                                      | Net income (loss)                                                                          |   | $          | (1,443,321 | )    |   | $          | (2,154,827 | )
|                                                                                      | Adjustment to reconcile net income to net cash provided by (used in)
operating activities: |   |            |            |      |   |            |            |  
|                                                                                      | Depreciation and amortization                                                              |   |            | 109,157    |      |   |            | 168,313    |  
|                                                                                      | Amortization of deferred compensation                                                      |   |            | 22,137     |      |   |            | 11,601     |  
|                                                                                      | Interest expense on detachable warrants                                                    |   |            | -0-        |      |   |            | 165        |  
|                                                                                      | Change in assets and liabilities:                                                          |   |            |            |      |   |            |            |  
|                                                                                      | Accounts receivable                                                                        |   |            | 170,713    |      |   |            | (114,397   | )
|                                                                                      | Prepaid expenses                                                                           |   |            | (12,717    | )    |   |            | (7,225     | )
|                                                                                      | Other assets                                                                               |   |            | -0-        |      |   |            | (7,500     | )
|                                                                                      | Accounts payable and accrued expenses                                                      |   |            | (110,717   | )    |   |            | 916,429    |  
|                                                                                      | Deferred revenue                                                                           |   |            | 47,458     |      |   |            | 71,938     |  
|                                                                                      |                                                                                            |   |            |            |      |   |            |           
|Net cash provided by (used in) operating activities                                   |                                                                                            |   | (1,217,290 | )          |      |   | (1,115,503 |           
|                                                                                      |                                                                                            |   |            |            |      |   |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES                                                  |                                                                                            |   |            |            |      |   |            |           
|                                                                                      | Purchase of property and equipment                                                         |   |            | (10,550    | )    |   |            | -0-        |  
|                                                                                      |                                                                                            |   |            |            |      |   |            |           
|Net cash provided by (used in) investing activities                                   |                                                                                            |   | (10,550    | )          |      |   | -0-        |           
|                                                                                      |                                                                                            |   |            |            |      |   |            |           
|CASH FLOWS FROM FINANCING ACTIVITIES                                                  |                                                                                            |   |            |            |      |   |            |           
|Proceeds from notes payable                                                           |                                                                                            |   | 218,600    |            |      |   | 23,841     |           
|Payments on notes payable                                                             |                                                                                            |   | (2,600     | )          |      |   | (3,841     | )         
|Proceeds from issuance of common stock, net of issuance costs                         |                                                                                            |   | 567,000    |            |      |   | -0-        |           
|Proceeds from issuance of Series C convertible preferred stock, net of issuance costs |                                                                                            |   | 265,265    |            |      |   | 968,144    |           
|                                                                                      |                                                                                            |   |            |            |      |   |            |           
|Net cash provided by (used in) financing activities                                   |                                                                                            |   | 1,048,265  |            |      |   | 988,144    |           
|                                                                                      |                                                                                            |   |            |            |      |   |            |           
|Net increase (decrease) in cash and cash equivalents                                  |                                                                                            |   | (179,575   | )          |      |   | (127,359   | )         
|Cash and cash equivalents at beginning of period                                      |                                                                                            |   | 194,677    |            |      |   | 142,826    |           
|                                                                                      |                                                                                            |   |            |            |      |   |            |           
|Cash and cash equivalents at end of period                                            |                                                                                            | $ | 15,102     |            |      | $ | 15,467     |           
|                                                                                      |                                                                                            |   |            |            |      |   |            |           

|                                                                 |  |                           |       |      |  |   |        | 
|---------------------------------------------------------------- |  | ------------------------- | ----- | ---- |  | - | ------ | 
|                                                                 |  | For the nine months ended
|                                                                 |  | September 30,            
|                                                                 |  |                          
|                                                                 |  | 2003                      |       | 2002
|                                                                 |  |                           |       |     
|Supplemental Disclosure of Cash Flow Information:                |  |                           |       |      |  |   |        | 
|Cash paid during the period for:                                 |  |                           |       |      |  |   |        | 
|Income tax                                                       |  | $                         | -0-   |      |  | $ | -0-    | 
|                                                                 |  |                           |       |      |  |   |        | 
|Interest                                                         |  | $                         | -0-   |      |  | $ | 22,560 | 
|                                                                 |  |                           |       |      |  |   |        | 
|Non-cash Transactions                                            |  |                           |       |      |  |   |        | 
|Treasury stock repurchase of stock for trade accounts receivable |  | $                         | 1,067 |      |  | $ | -0-    | 

See accompanying summary of accounting policies and notes to financial statements

5



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OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)



|NOTE 1: |  | ORGANIZATION AND NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|        |  | OmniComm Systems, Inc. is a healthcare technology company that
provides Internet-based electronic data capture (EDC) solutions
and related value-added services to pharmaceutical and biotech
companies, clinical research organizations, and other clinical
trial sponsors. TrialMaster® allows clinical trial sponsors and
investigative sites to securely collect, validate, transmit, and
analyze clinical study data. The Medical Event Reporting System
(MERS-TH) is an event reporting system developed for hospitals and
medical centers to collect, classify, and analyze events that could
potentially compromise patient safety. MERS-TH provides the
opportunity to study and monitor both actual and near-miss events
to facilitate process improvement efforts. MERS-TH was developed
in conjunction with Columbia University and will be marketed by
both of us to hospital and medical centers in the U.S. and Europe
initially.
|       
|NOTE 2: |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       
|        |  | BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       
|        |  | The Companys accounts include those of its two wholly owned
subsidiaries, OmniCommerce and OmniTrial B.V and have been prepared
in conformity with (i) generally accepted accounting principles;
and (ii) the rules and regulations of the United States Securities
and Exchange Commission. All significant intercompany accounts and
transactions between the Company and its subsidiaries have been
eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       
|        |  | ESTIMATES IN FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        |  | The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and footnotes thereto. Actual results may
differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       
|        |  | RECLASSIFICATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        |  | Certain reclassifications have been made in the 2002 financial
statements to conform to the 2003 presentation. These
reclassifications did not have any effect on net income (loss) or
shareholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|        |  | SEGMENT INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       
|        |  | The Company operates in one reportable segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|        |  | CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       
|        |  | Cash equivalents consist of highly liquid, short-term investments
with maturities of 90 days or less. The carrying amount reported
in the accompanying balance sheets approximates fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        |  | ACCOUNTS RECEIVABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       
|        |  | Accounts receivable are judged as to collectibility by management
and an allowance for bad debts is established as necessary. As of
each balance sheet date, no reserve was considered necessary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        |  | CONCENTRATION OF CREDIT RISK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|        |  | Accounts receivable subject the Company to its highest potential
concentration of credit risk. The Company reserves for credit
losses. The Company does not require collateral on trade accounts
receivables.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

6



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



| |  | PROPERTY AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Property and equipment are recorded at cost. Additions and
betterments are capitalized; maintenance and repairs are expensed
as incurred. Depreciation is calculated using the straight-line
method over the assets estimated useful life, which is 5 years for
leasehold improvements, equipment and furniture and 3 years for
software. Gains or losses on disposal are charged to operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | INTANGIBLE AND OTHER ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Intangible assets are amortized on a straight-line basis over
periods ranging from one to five years. The Company continually
reviews the recoverability of the carrying value of these assets
using the methodology prescribed in SFAS 121. The Company also
reviews long-lived assets and the related intangible assets for
impairment whenever events or changes in circumstances indicate the
carrying amounts of such assets may not be recoverable. If it is
determined the carrying amount of the assets is permanently
impaired then intangible assets are written down to fair value and
the useful life of the asset may be changed prospectively. Fair
value is determined based on discounted cash flows, appraised
values or managements estimates, depending upon the nature of the
assets. As of September 30, 2003, management believes no revision
to the remaining useful lives or write-down of intangible assets is
required.
|
| |  | 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.
As of September 30, 2003 the Company had $369,977 in deferred
revenues relating to contracts for services to be performed over
periods ranging from 4 months to 5 years.                                                                                                                                                                                                                                                                                                           
|
| |  | REVENUE RECOGNITION POLICY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | OmniComms revenue model is transaction-based and can be
implemented either as an ASP (application service provider) or
licensed for implementation by a customer such as a pharmaceutical
company. Revenues are derived from the set-up of clinical trial
engagements; on-going maintenance fees incurred throughout the
duration of an engagement; fees for report writing and change
orders. The clinical trials that are conducted using TrialMaster
can last from a few months to several years. Most of the fees
associated with our product including post-setup customer support
in the form of maintenance charges are recognized ratably over the
term of the clinical trial. Cost of sales is primarily comprised
of programmer salaries and taxes and is expensed as incurred.                                                                                                                                                        
|
| |  | The Company recognizes sales, for both financial statement and tax
purposes in accordance with SEC Staff Accounting Bulletin No. 101
Revenue Recognition in Financial Statements (SAB 101). SAB 101
requires that revenues be recognized ratably over the life of a
contract. In accordance with SAB 101 the Company will periodically
record deferred revenues relating to
advance payments in contracts. As of September 30, 2003 the
Company had $369,977 in deferred revenue relating to contracts for
services to be performed over periods ranging from 4 months to 5
years.                                                                                                                                                                                                                                                                                                                                                              

7



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



| |  | ADVERTISING                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Advertising costs are expensed as incurred. Advertising costs were
$3,301 and $9,983 for the nine months ended September 30, 2003 and
2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | RESEARCH AND DEVELOPMENT EXPENSES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Software development costs are included in research and development
and are expensed as incurred. Statement of Financial Accounting
Standards No. 86 (SFAS 86) requires the capitalization of certain
development costs of software to be sold once technological
feasibility is established, which the Company defines as completion
to the point of marketability. The capitalized cost is then
amortized on a straight-line basis over the estimated product life.
To date, the period between achieving technological feasibility
and the general availability of such software has been short and
software development costs qualifying for capitalization have been
immaterial. Accordingly, the Company has not capitalized any
software development costs under SFAS 86. Research and development
expense was approximately $401,034 in 2003 and $366,615 in 2002 for
the nine months ended September 30, respectively.                                                                                                                                                                                                                                                                                                                                                             
|
| |  | STOCK BASED COMPENSATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Stock-based compensation is recognized using the intrinsic value
method in accordance with the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees
and, accordingly, does not recognize compensation expense for its
stock-based awards to employees in the Consolidated Statements of
Income. For disclosure purposes, pro forma net loss and loss per
common share are provided in accordance with Statement of Financial
Accounting Standards No. 123, Accounting for Stock Based
Compensation, as if the fair value method had been applied. See
Note 13 for pro forma information on the impact of the fair-value
method of accounting for stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per
Share. SFAS 128 replaced the previously reported primary and
fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants, and
convertible securities. The diluted earnings per share calculation
is very similar to the previously utilized fully diluted earnings
per share calculation method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Basic earnings per share were calculated using the weighted average
number of shares outstanding of 12,928,214 and 8,323,697 for the
nine-months ended September 30, 2003 and 2002, respectively; and
13,911,951 and 8,323,697 for the three-months ended September 30,
2003 and 2002 respectively. There were no differences between
basic and diluted earnings per share. Options to purchase
2,807,039 shares of common stock at prices ranging from $.15 to
$5.50 per
share were outstanding at September 30, 2003. Stock warrants to
purchase 16,564,896 shares of common stock at prices ranging from
$0.25 to $10.00 per share were outstanding at September 30 2003.
The Company granted a Unit Purchase Option (Agent Option) to the
Placement Agent of its Series B Convertible Preferred Stock that
provides the Placement Agent the ability to purchase 27,000 Series
B Preferred Shares with 1,080,000 detachable common stock warrants.
The exercise of the Agent Option would result in the issuance of
an aggregate of 2,160,000 shares of
common stock at an exercise price of $0.25 per share. The options,
warrants and Agent Options were not included in the computation of
diluted earnings per share because they have an anti-dilutive
effect on net loss per share.

8



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



| |  | The Company granted a Unit Purchase Option (Agent Option) to the
Placement Agent of its Series C Convertible Preferred Stock that
provides the Placement Agent the ability to purchase 24,848 Series
C Preferred Shares with 496,950 detachable common stock warrants.
The exercise of the Agent Option would result in the issuance of an
aggregate of 1,490,850 shares of common stock at an exercise price
of $0.25 per share. The options, warrants and Agent Options were
not included in the computation of diluted earnings per share
because they have an anti-dilutive effect on net loss per share.
The Companys convertible debt and convertible preferred stock have
an anti-dilutive effect on net loss per share.                                                                                                                                                                            
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, Accounting for Income
Taxes. SFAS 109 has as its basic objective the recognition of
current and deferred income tax assets and liabilities based upon
all events that have been recognized in the financial statements as
measured by the provisions of the enacted tax laws.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Valuation allowances are established when necessary to reduce
deferred tax assets to the estimated amount to be realized. Income
tax expense represents the tax payable for the current period and
the change during the period in the deferred tax assets and
liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | IMPACT OF NEW ACCOUNTING STANDARDS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | SFAS 142 addresses the financial accounting and reporting for
acquired goodwill and other intangible assets. Under the new
rules, the Company is no longer required to amortize goodwill and
other intangible assets with indefinite lives, but will be subject
to periodic testing for impairment. SFAS 142 supercedes APB
Opinion No. 17, Intangible Assets. The Company expects that
SFAS 142 will not have a material impact on its consolidated
results of operations and financial position upon adoption. The
Company adopted SFAS 142 on January 1, 2002.                                                                                                                                                                                                                                                                                                                                           
|
| |  | SFAS 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated
asset retirement cost. It also provides accounting guidance for
legal obligations associated with the retirement of tangible
long-lived assets. SFAS 143 is effective in fiscal years beginning
after September 15, 2002, with early adoption permitted. The
Company expects that the provisions of SFAS 143 will not have a
material impact on its consolidated results of operations and
financial position upon adoption. The Company adopted SFAS 143
effective January 1, 2002.                                                                                                                                                                                                                                                                                       
|
| |  | SFAS 144 establishes a single accounting model for the impairment
or disposal of long-lived assets, including discontinued
operations. SFAS 144, supersedes Statement of Financial Accounting
Standards No. 121, Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of (SFAS 121), and APB
Opinion No. 30, Reporting the Results of Operations  Reporting
the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. The provisions of SFAS 144 are effective in fiscal
years beginning after December 15, 2001, with early adoption
permitted, and in general are to be applied prospectively. The
Company adopted SFAS 144 effective January 1, 2002 and does not
expect that the adoption will have a material impact on its
consolidated results of operations and financial position.

9



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



| |  | In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. SFAS No. 145 eliminates SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, which
required all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item.
Under SFAS No. 145, such gains and losses should be classified as
extraordinary only if they meet the criteria of APB Opinion No. 30.
In addition, SFAS No. 145 amends SFAS No. 13, Accounting for
Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The
Company does not expect the adoption of SFAS No. 145, which will
become effective after May 2002 to have a material effect on its
financial condition or results of operations.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The standard requires
companies to recognize costs associated with exit or disposal

activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Previous accounting
guidance was provided by EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs incurred in a
Restructuring). SFAS No. 146 replaces Issue 94-3. The provisions
of SFAS No. 146 are to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Company does not
expect the adoption of this pronouncement to have a material effect
on the earnings or financial position of the Company.                                                                                                                                                                              
|
| |  | On December 31, 2002, the FASB issued SFAS No.148, Accounting for
Stock-Based CompensationTransition and Disclosurean amendment of
FAS 123. This statement amends SFAS 123, Accounting for
Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and amends the
disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and
the effect of the method used on reported results. The transition
and annual disclosure provisions of FAS 148 are effective for
fiscal years ending after December 15, 2002. The Company does not
expect the adoption to have a material effect on the earnings or
financial position of the Company.                                                                                                                                      
|
| |  | In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities(FIN 46). The
interpretation provides guidance for determining when a primary
beneficiary should consolidate a variable interest entity or
equivalent structure, that functions to support the activities of
the primary beneficiary. The interpretation is effective as of the
beginning of the Companys third quarter of 2003 for variable
interest entities created before February 1, 2003. The Company
holds no interest in any variable interest entities. Accordingly,
the adoption of this statement is currently not expected to have a
material impact on the consolidated financial statements.                                                                                                                                                                                                                                                                                                                        
|
| |  | In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 149 (SFAS 149), Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 is intended
to result in more consistent reporting of contracts as either
freestanding derivative instruments subject to Statement 133 in its
entirely, or as hybrid instruments with debt host contracts and
embedded derivative features. SFAS 149 is effective for contracts
entered into or modified after June 30, 2003. The adoption of SFAS
149 is not expected to have a material effect on the Companys
results of operations, liquidity, or financial condition.                                                                                                                                                                                                                                                                                                                                                                            

10



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



|        |  | In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150 (SFAS 150), Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity.
SFAS 150 requires certain financial instruments that embody
obligations of the issuer and have characteristics of both
liabilities and equity to be classified as liabilities. Many of
these instruments previously were classified as equity or temporary
equity and as such, SFAS 150 represents a significant change in
practice in the accounting for a number of mandatorily redeemable
equity instruments and certain equity derivatives that frequently
are used in connection with share repurchase programs. SFAS 150 is
effective for all financial instruments created or modified after
May 31, 2003, and to other instruments at the beginning of the
first interim period beginning after June 15, 2003. The adoption of
SFAS 150 is not expected to have a material effect on the Company#s
results of operations, liquidity, or financial condition.
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|NOTE 3: |  | OPERATIONS AND LIQUIDITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|        |  | We have experienced negative cash flow from operations since 1999
and have funded our activities to date primarily from debt and
equity financings. We will continue to require substantial funds
to continue our research and development activities and to market,
sell and commercialize our technology. We will need to raise
substantial additional capital to fund our future operations. Our
capital requirements will depend on many factors, including the
problems, delays, expenses and complications frequently encountered
by companies developing and commercializing new technologies; the
progress of our research and development activities; the rate of
technological advances; determinations as to the commercial
potential of our technology under development; the status of
competitive technology; the establishment of collaborative
relationships; the success of our sales and marketing programs; and
other changes in economic, regulatory or competitive conditions in
our planned business.                                        
|       
|        |  | Estimates about the adequacy of funding for our activities are
based upon certain assumptions, including assumptions that the
research and development programs relating to our technology can be
conducted at projected costs and that progress towards the
commercialization of our technology will be timely and successful.
There can be no assurance that changes in our research and
development plans, acquisitions or other events will not result in
accelerated or unexpected expenditures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       
|        |  | To satisfy our capital requirements, we will seek additional
financing through debt and equity financings. There can be no
assurance that any such funding will be available to us on
favorable terms or at all. If adequate funds are not available
when needed, we may be required to delay, scale back or eliminate
some or all of our research and product development and marketing
programs. If we are successful in obtaining additional financings,
the terms of such financings may have the effect of diluting or
adversely affecting the holdings or the rights of the holders of
our common and preferred stock.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       
|        |  | The ability of the Company to continue in existence is dependent on
its having sufficient financial resources to bring products and
services to market for marketplace acceptance. As a result of its
significant losses, negative cash flows from operations, and
accumulated deficits for the periods ending September 30, 2003
there is doubt about the Companys ability to continue as a going
concern.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

11



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



|NOTE 4: |  | INTANGIBLE ASSETS AND GOODWILL                         
|------- |  | -------------------------------------------------------
|       
|        |  | Included in Intangible Assets are the following assets:

|                           |  |                    |         |              |  |             |         | 
|-------------------------- |  | ------------------ | ------- | ------------ |  | ----------- | ------- | 
|                           |  | September 30, 2003
|                           |  |                   
|                           |  |                    |         |              |  | Accumulated
|                           |  | Cost               |         | Amortization
|                           |  |                    |         |             
|Covenant not to compete    |  | $                  | 120,000 |              |  | $           | 120,000 | 
|Software development costs |  |                    | 87,500  |              |  |             | 87,500  | 
|Organization costs         |  |                    | 539     |              |  |             | 539     | 
|Debt acquisition costs     |  |                    | 301,888 |              |  |             | 301,888 | 
|                           |  |                    |         |              |  |             |         | 
|                           |  | $                  | 509,927 |              |  | $           | 509,927 | 
|                           |  |                    |         |              |  |             |         | 

|                           |  |                   |         |              |  |             |         | 
|-------------------------- |  | ----------------- | ------- | ------------ |  | ----------- | ------- | 
|                           |  | December 31, 2002
|                           |  |                  
|                           |  |                   |         |              |  | Accumulated
|                           |  | Cost              |         | Amortization
|                           |  |                   |         |             
|Covenant not to compete    |  | $                 | 120,000 |              |  | $           | 120,000 | 
|Software development costs |  |                   | 87,500  |              |  |             | 87,500  | 
|Organization costs         |  |                   | 539     |              |  |             | 539     | 
|Debt acquisition costs     |  |                   | 301,888 |              |  |             | 301,888 | 
|                           |  |                   |         |              |  |             |         | 
|                           |  | $                 | 509,927 |              |  | $           | 509,927 | 
|                           |  |                   |         |              |  |             |         | 



|        |  | The covenant not to compete and the software development costs were
acquired as a result of the acquisition of Education Navigator,
Inc. (EdNav) on September 26, 1998. The covenant was for a
two-year period and was being amortized ratably over that time.
The software development costs were capitalized and were amortized
ratably over a three-year period, as that was the expected life of
the various products.                                                                                                                                                                                                                                                                                                                                                                         
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|        |  | During the year ended December 31, 2001, the Company issued
Convertible Notes with gross proceeds totaling $1,615,000. The
Company recorded total debt acquisition fees of $218,440 of which
$70,250 were to be paid in cash and $148,190 were deemed additional
compensation derived from 323,000 stock warrants issued to the
placement agent as additional compensation. The debt acquisition
costs were amortized ratably over the term of the notes.
Amortization expense of the debt acquisition costs totaled $48,552
for the year ended December 31, 2002. Approximately $2,890 of the
debt acquisition costs were reclassified as stock issuance costs in
connection with the conversion of $12,500 (original cost) of the
convertible notes into common stock of the Company during 2001.
|       
|NOTE 5: |  | PROPERTY AND EQUIPMENT, AT COST                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        |  | Property and equipment consists of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                              |  |                    |         |                   |  |             |         |              |  |              |         |             |  |           |         |  |  |         |  | 
|----------------------------- |  | ------------------ | ------- | ----------------- |  | ----------- | ------- | ------------ |  | ------------ | ------- | ----------- |  | --------- | ------- |  |  | ------- |  | 
|                              |  | September 30, 2003 |         | December 31, 2002 |  |             |         |             
|                              |  |                    |         |                   |  |             |         |             
|                              |  |                    |         |                   |  | Accumulated |         |              |  |              |         | Accumulated |  | Estimated
|                              |  | Cost               |         | Depreciation      |  | Cost        |         | Depreciation |  | Useful Lives
|                              |  |                    |         |                   |  |             |         |              |  |             
|Computer and office
equipment |  | $                  | 421,265 |                   |  | $           | 316,509 |              |  | $            | 420,298 |             |  | $         | 253,416 |  |  | 5 years
|Leasehold
improvements        |  |                    | 3,299   |                   |  |             | 1,887   |              |  |              | 3,299   |             |  |           | 1,392   |  |  | 5 years
|Computer software             |  |                    | 269,869 |                   |  |             | 223,205 |              |  |              | 260,287 |             |  |           | 183,989 |  |  | 3 years
|Office furniture              |  |                    | 42,350  |                   |  |             | 32,054  |              |  |              | 42,350  |             |  |           | 25,701  |  |  | 5 years
|                              |  |                    |         |                   |  |             |         |              |  |              |         |             |  |           |         |  |  |         |  | 
|                              |  | $                  | 736,783 |                   |  | $           | 573,655 |              |  | $            | 726,234 |             |  | $         | 464,498 |  |  |         |  | 
|                              |  |                    |         |                   |  |             |         |              |  |              |         |             |  |           |         |  |  |         |  | 



| |  | Depreciation expense for the periods ended September 30, 2003 and
2002 was $109,157 and $119,859 respectively.
| |  | --------------------------------------------------------------------------------------------------------------

12



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



|NOTE 6: |  | ACCOUNTS PAYABLE AND ACCRUED EXPENSES                                                                      
|------- |  | -----------------------------------------------------------------------------------------------------------
|       
|        |  | Accounts payable and accrued expenses consist of the following at
September 30, 2003 and December 31, 2002:

|                                  |                                             |   |         |         |          |   |         |           | 
|--------------------------------- | ------------------------------------------- | - | ------- | ------- | -------- | - | ------- | --------- | 
|                                  |                                             |   | 9/30/03 |         | 12/31/02
|                                  |                                             |   |         |         |         
|Accounts payable                  |                                             | $ | 268,685 |         |          | $ | 431,736 |          
|Accrued payroll and related costs |                                             |   | 12,575  |         |          |   | 34,259  |          
|Other accrued expenses            |                                             |   | 208,882 |         |          |   | 293,233 |          
|Accrued interest                  |                                             |   | 210,809 |         |          |   | 120,578 |          
|Accrued expenses of OmniTrial BV  |                                             |   | 127,519 |         |          |   | 127,519 |          
|                                  |                                             |   |         |         |          |   |         |          
|                                  | Total accounts payable and accrued expenses |   | $       | 828,470 |          |   | $       | 1,007,325 | 
|                                  |                                             |   |         |         |          |   |         |          



|        |  | Other accrued expenses consist primarily of placement agent fees
and expenses due on private placements of our debt and equity
securities that occurred during 2000 to 2003 and accrued legal fees
associated with the sale of Series C Convertible Preferred Stock.                                                                                                                                                                                                                                                                                                 
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|NOTE 7: |  | EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|        |  | Basic earnings per shares (EPS) is computed by dividing income
available to common shareholders (which for the Company equals its
net loss) by the weighted average number of common shares
outstanding, and dilutive EPS adds the dilutive effect of stock
options and other common stock equivalents. Antidilutive shares
aggregating 47,880,934 have been omitted from the calculation of
dilutive EPS for the period ended September 30, 2003. A
reconciliation between numerators and denominators of the basic and
diluted earnings per shares is as follows:

|                                    |  |                                   |            |                                   |  |           |            |           |  |             |       |           |  |   |            |   |  |  |           |  |  |   |       |  
|----------------------------------- |  | --------------------------------- | ---------- | --------------------------------- |  | --------- | ---------- | --------- |  | ----------- | ----- | --------- |  | - | ---------- | - |  |  | --------- |  |  | - | ----- | -
|                                    |  | 9 Months Ended September 30, 2003 |            | 9 Months Ended September 30, 2002
|                                    |  |                                   |            |                                  
|                                    |  | Income                            |            | Shares                            |  | Per-Share |            | Income    |  | Shares      |       | Per-Share
|                                    |  | Numerator                         |            | Denominator                       |  | Amount    |            | Numerator |  | Denominator |       | Amount   
|                                    |  |                                   |            |                                   |  |           |            |           |  |             |       |          
|Basic EPS                           |  | $                                 | (2,324,452 | )                                 |  |           | 12,928,214 |           |  | $           | (0.18 | )         |  | $ | (3,025,787 | ) |  |  | 8,323,697 |  |  | $ | (0.36 | )
|Effect of Dilutive
Securities
None. |  |                                   | -0-        |                                   |  |           | -0-        |           |  |             | -0-   |           |  |   | -0-        |   |  |  | -0-       |  |  |   | -0-   |  
|                                    |  |                                   |            |                                   |  |           |            |           |  |             |       |           |  |   |            |   |  |  |           |  |  |   |       |  
|Diluted EPS                         |  | $                                 | (2,324,452 | )                                 |  |           | 12,928,214 |           |  | $           | (0.18 | )         |  | $ | (3,025,787 | ) |  |  | 8,323,697 |  |  | $ | (0.36 | )

|                                    |  |                                   |          |                                   |  |           |            |           |  |             |       |           |  |   |            |   |  |  |           |  |  |   |       |  
|----------------------------------- |  | --------------------------------- | -------- | --------------------------------- |  | --------- | ---------- | --------- |  | ----------- | ----- | --------- |  | - | ---------- | - |  |  | --------- |  |  | - | ----- | -
|                                    |  | 3 Months Ended September 30, 2003 |          | 3 Months Ended September 30, 2002
|                                    |  |                                   |          |                                  
|                                    |  | Income                            |          | Shares                            |  | Per-Share |            | Income    |  | Shares      |       | Per-Share
|                                    |  | Numerator                         |          | Denominator                       |  | Amount    |            | Numerator |  | Denominator |       | Amount   
|                                    |  |                                   |          |                                   |  |           |            |           |  |             |       |          
|Basic EPS                           |  | $                                 | (719,154 | )                                 |  |           | 13,911,951 |           |  | $           | (0.05 | )         |  | $ | (1,012,599 | ) |  |  | 8,323,697 |  |  | $ | (0.12 | )
|Effect of Dilutive
Securities
None. |  |                                   | -0-      |                                   |  |           | -0-        |           |  |             | -0-   |           |  |   | -0-        |   |  |  | -0-       |  |  |   | -0-   |  
|                                    |  |                                   |          |                                   |  |           |            |           |  |             |       |           |  |   |            |   |  |  |           |  |  |   |       |  
|Diluted EPS                         |  | $                                 | (719,154 | )                                 |  |           | 13,911,951 |           |  | $           | (0.05 | )         |  | $ | (1,012,599 | ) |  |  | 8,323,697 |  |  | $ | (0.12 | )

13



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



|NOTE 8: |  | NOTES PAYABLE                                                                                                                                            
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|        |  | At September 30 2003, the Company owed $1,374,570 in notes payable. The table
below provides details as to the terms and conditions of the notes payable.

|                      |  |             |            |      |  |          |            |        |  |      |     |       |  |      |           |  |  |   |         |  |  |   |           | 
|--------------------- |  | ----------- | ---------- | ---- |  | -------- | ---------- | ------ |  | ---- | --- | ----- |  | ---- | --------- |  |  | - | ------- |  |  | - | --------- | 
|                      |  | Origination |            | Due  |  | Interest |            |        |  |      |     | Short |  | Long
|Note Holder           |  | Date        |            | Date |  | Rate     |            | Amount |  | Term |     | Term 
|                      |  |             |            |      |  |          |            |        |  |      |     |      
|Guus van Kesteren     |  |             | 8/30/2001  |      |  |          | 10/31/2004 |        |  |      | 8.0 | %     |  | $    | 196,644   |  |  | $ | 0       |  |  | $ | 196,644   | 
|Magnolia Private Fnd. |  |             | 8/30/2001  |      |  |          | 10/31/2004 |        |  |      | 8.0 | %     |  |      | 209,534   |  |  |   | 0       |  |  |   | 209,534   | 
|Magnolia Private Fnd. |  |             | 8/30/2001  |      |  |          | 10/31/2004 |        |  |      | 8.0 | %     |  |      | 276,392   |  |  |   | 0       |  |  |   | 276,392   | 
|Nico Letschert        |  |             | 7/31/2002  |      |  |          | 10/31/2004 |        |  |      | 0.0 | %     |  |      | 10,000    |  |  |   | 0       |  |  |   | 10,000    | 
|Nico Letschert        |  |             | 9/3/2002   |      |  |          | 10/31/2004 |        |  |      | 0.0 | %     |  |      | 10,000    |  |  |   | 0       |  |  |   | 10,000    | 
|Randall Smith         |  |             | 11/25/2002 |      |  |          | 3/25/2003  |        |  |      | 0.0 | %     |  |      | 6,000     |  |  |   | 6,000   |  |  |   | 0         | 
|Guus van Kesteren     |  |             | 12/26/2002 |      |  |          | 10/31/2004 |        |  |      | 9.0 | %     |  |      | 50,000    |  |  |   | 0       |  |  |   | 50,000    | 
|Cornelis Wit          |  |             | 12/30/2002 |      |  |          | 10/31/2004 |        |  |      | 9.0 | %     |  |      | 50,000    |  |  |   | 0       |  |  |   | 50,000    | 
|Cornelis Wit          |  |             | 6/30/2003  |      |  |          | 1/31/2005  |        |  |      | 9.0 | %     |  |      | 100,000   |  |  |   | 0       |  |  |   | 100,000   | 
|Noesis Capital        |  |             | 6/30/2003  |      |  |          | 1/31/2005  |        |  |      | 9.0 | %     |  |      | 250,000   |  |  |   | 0       |  |  |   | 250,000   | 
|Cornelis Wit          |  |             | 8/31/2003  |      |  |          | 7/31/2005  |        |  |      | 9.0 | %     |  |      | 116,000   |  |  |   | 0       |  |  |   | 116,000   | 
|Guy Brissette         |  |             | 12/30/2002 |      |  |          | 3/30/2003  |        |  |      | 9.0 | %     |  |      | 100,000   |  |  |   | 100,000 |  |  |   | 0         | 
|                      |  |             |            |      |  |          |            |        |  |      |     |       |  |      |           |  |  |   |         |  |  |   |           | 
|                      |  |             |            |      |  |          |            |        |  |      |     |       |  | $    | 1,374,570 |  |  | $ | 106,000 |  |  | $ | 1,268,570 | 
|                      |  |             |            |      |  |          |            |        |  |      |     |       |  |      |           |  |  |   |         |  |  |   |           | 



| |  | Promissory notes totaling $682,570 were amended and restated on
December 31, 2002, with new terms which included an extension of
the maturity date to October 31, 2004 with one half of the
principal payable upon the closing of any financing by the Company
resulting in gross proceeds in excess of $2,000,000.                                      
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Promissory notes totaling $120,000 were amended and restated on
March 31, 2003, with new terms which included an extension of the
maturity date to October 31, 2004.                                                                                                                                                                                     
|
| |  | A promissory note in the amount of $250,000 was issued to Noesis
Capital Corp. on June 30, 2003 in exchange for accounts payable and
accrued expenses owed in connection with financial advisory
services rendered and for placement agent fees earned in four
private placements of the Companys debt and equity securities.                           
|
| |  | Related Party Notes Payable                                                                                                                                                                                                                                                                                                                              
|
| |  | Included in related party notes payables is a $196,644 promissory
note that was amended and restated on December 31, 2002 with new
terms which include an extension of the maturity date to October
31, 2004 with one half of the principal payable upon the closing of
any financing by the Company resulting in gross proceeds in excess
of $2,000,000.
|
| |  | During March 2002, the Company borrowed $2,341 from Randall Smith,
the Companys Chairman and Chief Technology Officer. This amount
was repaid without interest on April 12,
2002. In addition, the Company borrowed $6,000 from Mr. Smith on
November 25, 2002 and this amount remained outstanding as of
September 30, 2003.                           

14



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



|        |  | During April 2002, the Company borrowed $1,500 from Ronald Linares,
the Companys Chief Financial Officer. This amount was repaid
without interest on May 1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|        |  | During December 2002, the Company borrowed $50,000 from Cornelis
Wit, the Companys President and Chief Executive Officer and a
Director. This amount was borrowed under a promissory note bearing
interest at a rate of 9% per annum, payable on March 31, 2003.
This note was amended and restated on March 31, 2003 extending the
maturity date of the note to October 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                              
|       
|        |  | During December 2002, the Company borrowed $50,000 from Guus van
Kesteren, a Director of the Company. This amount was borrowed
under a promissory note bearing interest at a rate of 9% per annum,
payable on March 31, 2003. This note was amended and restated on
March 31, 2003 extending the maturity date of the note to October
31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       
|        |  | During March 2003, the Company borrowed $2,600 from Cornelis Wit,
the Companys President and Chief Executive Officer and a Director.
This amount was repaid without interest on April 3, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       
|        |  | During June 2003, the Company borrowed $100,000 from Cornelis Wit,
the Companys President and Chief Executive Officer and a Director.
This amount was borrowed under a promissory note bearing interest
at a rate of 9% per annum, payable on January 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        |  | During August 2003, the Company borrowed $116,000 from Cornelis
Wit, the Companys President and Chief Executive Officer and a
Director. This amount was borrowed under a promissory note bearing
interest at a rate of 9% per annum, payable on July 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       
|NOTE 9: |  | CONVERTIBLE NOTES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       
|        |  | During the first quarter of 1999, the Company issued 10%
Convertible Notes Payable in the amount of $862,500 pursuant to a
Confidential Private Placement Memorandum. There were costs of
$119,625 associated with this offering. The Company also granted
the agent the option to purchase 250,000 common shares at $.001 per
share. The agent exercised the option. The net proceeds to the
Company were $742,875. The notes bear interest at ten percent
annually, payable semi-annually. The notes are convertible after
maturity, which is five years, into shares of common stock of the
Company at $1.25 per share. As of March 31, 2003 approximately
$412,500 of the Convertible Notes had been converted into 330,000
shares of common stock of the Company leaving an outstanding
balance of $450,000.
|       
|        |  | The Company is currently in default on interest payments owed
totaling $78,026 on its 10% Convertible Notes. The terms of the
notes provide a payment grace period of thirty days in which to
make required semi-annual interest payments. The company has been
in default since January
30, 2002. At the option of the note holders the full amount of the
convertible notes could be declared in default.                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|        |  | During the first six months of 2001, the Company issued 12%
Convertible Notes Payable in the amount of $1,615,000 pursuant to a
Confidential Private Placement Memorandum. There were costs of
$218,440 associated with the offering of which $148,190 is
attributable to warrants issued to the placement agent as
additional compensation that were valued using the Black-Scholes
method. The net proceeds to the Company were $1,484,750 with the
cash compensation costs of $70,250 accrued at December 31, 2002,
and $60,000 of accrued expenses due to the placement agent
converted as part of the private placement of the 12% Convertible
Notes Payable. The notes bear interest at twelve percent annually,
payable at maturity. The notes are convertible after                                      

15



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



|         |  | maturity, which is January 31, 2002, into shares of common stock of
the Company at $0.50 per share. EITF 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios, requires Companys to
record interest expense on convertible debt that is issued with an
embedded beneficial conversion feature, or in the money at the date
the investor is committed to purchase the convertible securities.
The Company valued the 12% Convertible Notes Payable utilizing the
intrinsic value method and recorded $508,835 in interest expense
with a corresponding credit to additional paid-in capital.
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        
|         |  | The Company completed a conversion of its 12% Convertible Notes on
December 31, 2002. The Company converted the principal amount
outstanding of $1,615,000 into Units of its Series C Convertible
Preferred Stock resulting in the issuance of 161,500 shares of the
Series C Preferred with 3,230,000 attached common stock warrants
providing the shareholder the right to purchase additional shares
at $0.25 per share. In addition, the outstanding accrued interest
on the 12% Convertible Notes, which totaled $361,576 on December
31, 2002, resulted in the issuance of 1,446,306 shares of common
stock.                                                    
|        
|NOTE 10: |  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        
|         |  | The Company currently leases office space under an operating lease.
The minimum future lease payments required under the Companys
operating leases at September 30, 2003 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|      |  |   |         | 
|----- |  | - | ------- | 
|2003  |  | $ | 31,539  | 
|2004  |  |   | 117,246 | 
|2005  |  |   | 54,522  | 
|2006  |  |   | 0       | 
|2007  |  |   | 0       | 
|      |  |   |         | 
|Total |  | $ | 203,307 | 
|      |  |   |         | 



| |  | In addition, to annual base rental payments, the Company pays for
the operating expenses associated with its leased office space and
is responsible for any escalation in operating expenses as
determined in the lease. Rental expense was $108,455 and $119,391
for the nine months ended September 30, 2003 and 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | CONTINGENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | On or about September 6, 2000, the Companys wholly owned
subsidiary, OmniTrial B.V. (OmniTrial) submitted a petition for
bankruptcy protection from the bankruptcy court of the Netherlands.
The court appointed a liquidating trustee. The Company claimed
that certain assets in the possession of OmniTrial were paid for by
the Company and therefore should not be part of the liquidating
assets of OmniTrial. The bankruptcy trustee rejected that claim
and told the Company that as part of the OmniTrial bankruptcy
estate the assets would be sold to diminish any deficiency of the
estate. On July 5, 2001 the Company signed a settlement agreement
providing for the return of the assets to the Company in exchange
for a payment of $10,000 that was made on or about July 5, 2001.
The Company does not expect to incur any additional liability in
this bankruptcy proceeding.
|
| |  | In January 2001, a former employee, Eugene A. Gordon, filed a
lawsuit in Dade County, Florida alleging breach of his employment
contract with us. The plaintiff alleged we owed him more than
$100,000 for back payment of salary according to the terms of his
employment contract. We disputed Mr. Gordons allegations and
vigorously defended this lawsuit. As part of its defense, the
Company filed a counterclaim against Mr. Gordon and a counter-suit
against his wife. The parties entered into a settlement agreement
on August 19, 2002. The parties subsequently filed and the court
accepted a Joint Stipulation for Dismissal With Prejudice on
September 6, 2002.                                                                                                                                                                                                                   

16



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



| |  | EMPLOYMENT AGREEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In August 2003, we entered into an employment agreement with
Cornelis F. Wit to serve as our Chief Executive Officer and
President through December 31, 2004. Mr. Wit receives an annual
salary of $175,000 payable in cash and/or stock plus a bonus tied
to our operating results. As part of the agreement incentive
options are awardable based upon sales and cash
flow objectives. In the event that the we consummate a transaction
with a third party resulting in the sale, merger, consolidation,
reorganization or other business combination involving all or a
majority of our business, assets or stock, whether effected in one
transaction or a series of transactions due to the initiative of
Mr. Wit (whether or not during the term of the agreement) Mr. Wit
will receive a fee equal to 2% of the aggregate consideration.
The agreement also provides, among other things, for participation
in employee benefits available to employees and executives. Under
the terms of the agreement, we may terminate Mr. Wits employment
upon 30 days notice of a material breach and Mr. Wit may terminate
the agreement under the same terms and conditions. The employment
agreement contains customary non-disclosure provisions, as well as
a one year non-compete clause if Mr. Wit leaves the company
voluntarily or a six month non-compete clause following his
termination by us.                                                                    
|
| |  | In September 2001, we entered into a three-year employment
agreement with Mr. Randall Smith to serve as our Chief Technology
Officer. Under the terms of the agreement, as compensation for his
services, Mr. Smith receives an annual salary of $165,000 as of
January 1, 2003 to be paid in the form of cash and/or stock, as
agreed upon by the parties, and he is eligible to receive a bonus
based upon achieving technology related milestones. Mr. Smith was
granted an aggregate of 210,000 options under our 1998 Stock
Incentive Plan. The options, which vest 70,000 on the date of the
employment agreement, 70,000 on September 30, 2002, and 70,000 on
September 30, 2003, are exercisable at the market price plus 10%
per share, or $0.43 per share for five years from the date of
vesting. The agreement also provides, among other things, for
participation in employee benefit plans or programs applicable to
employees and executives. Under the terms of the agreement, we may
terminate the employment of Mr. Smith upon 30 days notice of a
material
breach and Mr. Smith may terminate the agreement under the same
terms and conditions. If Mr. Smith is terminated by us for any
reason other than for cause, we must pay him severance benefits
equal to six months salary. The employment agreement contains
customary non-disclosure provisions, as well as a one year
non-competition restriction following the termination of the
agreement.
|
| |  | In September 2001, we entered into a three-year employment
agreement with Mr. Ronald Linares to serve as our Chief Financial
Officer. Under the terms of this agreement, Mr. Linares receives
an annual salary of $150,000 as of January 1, 2003 to be paid in
the form of cash and/or stock, as agreed upon by the parties, and
he is eligible to receive additional incentive compensation based
upon achieving financial milestones. Mr. Linares was granted an
aggregate of 210,000 options under our 1998 Stock Incentive Plan.
The options, which vest 70,000 on the date of the employment
agreement, 70,000 on September 30, 2002, and 70,000 on September
30, 2003, are exercisable at the market price plus 10% per share or
$0.43 per share, for five years from the date of vesting. The
agreement also provides, among other things, for participation in
employee benefit plans or programs applicable to employees and
executives. Under the terms of the agreement, we may terminate the
employment of Mr. Linares upon 30 days notice of a material breach
and Mr. Linares may terminate the agreement under the same terms
and conditions. If Mr. Linares is terminated by us for any reason
other than for cause, we must pay him severance benefits equal to
six months salary. The employment agreement contains customary
non-disclosure provisions, as well as a one year non-competition
restriction following the termination of the agreement.      

17



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



|         |  | In January 2003, we entered into a three-year employment agreement
with Mr. Charles Beardsley to serve as our Senior Vice President
for Sales and Marketing. Under the terms of this agreement, Mr.
Beardsley receives an annual salary of $150,000 to be paid in the
form of cash and/or stock, as agreed upon by the parties, and he is
eligible to receive additional incentive compensation based upon
achieving financial milestones. Mr. Beardsley is eligible for a
commission, payable on a quarterly basis, equal to 2% of the
Companys Net Operating Income as defined in an exhibit to his
employment contract. Mr. Beardsley was granted an aggregate of
150,000 options under our 1998 Stock Incentive Plan. The options,
which vest 50,000 annually beginning with January 2, 2004, are
exercisable at a price of $0.25 per share, for five years from the
date of vesting. Mr. Beardsley received a grant of 100,000 shares
of restricted common stock upon execution of his employment
agreement. The agreement also provides, among other things, for
participation in employee benefit plans or programs applicable to
employees and executives. Under the terms of the agreement, we may
terminate the employment of Mr. Beardsley upon 30 days notice of a
material breach and Mr. Beardsley may terminate the agreement under
the same terms and conditions. If Mr. Beardsley is terminated by
us for any reason other than for cause, we must pay him severance
benefits equal to twelve months salary. The employment agreement
contains customary non-disclosure provisions.
     .
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        
|         |  | FINANCIAL ADVISORY AGREEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        
|         |  | During March 2002, the Company entered into a one-year financial
advisory agreement with Noesis Capital to assist the Company in
performing certain financial advisory services including the sale
of securities, and the possible sale, merger or other business
combination involving the Company.
Pursuant to this agreement, the Company is obligated to pay $90,000
in professional fees during the one-year term of the agreement.
The advisory agreement was extended for a twelve month term
effective June 15, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        
|NOTE 11: |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        
|         |  | Cornelis F. Wit, our President and Chief Executive Officer and a
member of our board of directors served as President of Corporate
Finance of Noesis Capital Corp. from March 1995 to September 2000.
Noesis Capital Corp., a NASD member firm, has served as placement
agent for us in six private placements of securities which occurred
between September 1999 and March 2003, and is a 7.97% stockholder.
Guus van Kesteren, a member of our board of directors, is a
consultant to Noesis Capital Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        
|         |  | In December 1999, we entered into a consulting agreement with
Messrs. van Kesteren and Wit, each of whom is a member of our board
of directors, providing that we will compensate each of these
individuals for sales leads or contacts developed by them in
connection with TrialMaster. For the periods ended December 30,
2001 and 2002, no compensation was earned by either Mr. van
Kesteren or Mr. Wit under this agreement. This agreement was
terminated upon mutual agreement of the parties effective June 30,
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        
|         |  | On April 5, 2002, Cornelis F. Wit, our President and Chief
Executive Officer and a member of our board of directors, invested
$10,000 in a private placement of our Series C Preferred Stock and
warrants. Mr. Wit purchased 1,000 shares of our Series C Preferred
Stock, which is convertible into shares of our common stock at a
conversion price of $0.25 per share and carries a stated dividend
rate of 8% per annum, and 20,000 warrants for the purchase of our
common stock at an exercise price of $0.25 per share expiring March
29, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

18



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



| |  | On April 5, 2002, Guus van Kesteren a member of our board of
directors, invested $10,000 in a private placement of our Series C
Preferred Stock and warrants. Mr. van Kesteren purchased 1,000
shares of our Series C Preferred Stock, which is convertible into
shares of our common stock at a conversion price of $0.25 per share
and carries a stated dividend rate of 8% per annum, and warrants to
purchase 20,000 shares of common stock at an exercise price of
$0.25 per share and expiring March 29, 2009.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On January 30, 2002, Noesis N.V., one of our principal stockholders,
invested $90,000 in a private placement of our Series C Preferred
Stock and warrants. Noesis NV purchased 9,000 shares of our Series
C Preferred Stock, which is convertible into shares of our common
stock at a conversion price of $0.25 per share and carries a stated
dividend rate of 8% per annum, and warrants to purchase 180,000
shares of common stock at an exercise price of $0.25 per share
expiring March 29, 2009.             
|
| |  | From time to time we have borrowed funds from Mr. van Kesteren, a
member of our board of directors, including:                                                                                                                                                                                                                                                                                                                                                                                                      



| |  |  | between July 2000 and December 2000,
we borrowed an aggregate of $110,000 from him under two
promissory notes, one of which bore interest at a rate
of 12% per
annum and the other at 5% per annum. These notes were converted into a 12%
convertible note issued as part of a private placement of our 12% Convertible
Notes in January 2001. The note accrues interest at 12% per annum and is
convertible into shares of our common stock at the holders option at a rate of
$0.50 per share commencing on January 31, 2002. This note was converted on
December 31, 2002 into 11,000 shares of our Series C Preferred Stock, which are
convertible into shares of our common stock at a conversion price of $0.25 per
share, and warrants to purchase 220,000 shares of our common stock at an
exercise price of $0.25 per share and expiring March 29, 2009.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | between February 2001 and July 2001,
we borrowed an aggregate of $190,000 from him under
promissory notes which bore interest of 12% per annum.
These promissory notes were amended and restated on
August 30, 2001 in the amount of $196,644 with new terms
which included an interest rate of 8% per annum, and
with one half of the principal payable upon the closing
of any financing by us resulting in gross proceeds in
excess of $2,000,000, and the balance of the principal
together with accrued interest payable no later than
August 30, 2003. These notes were amended and restated
on December 31, 2002 extending the maturity date of the
notes to October 31, 2004. This note remained
outstanding as of September 30, 2003.                                                                                                                    
|
| |  |  | in September 2001, we borrowed an
aggregate of $25,000 from him under promissory notes
which bore interest at a rate of 12% per annum and had a
maturity date of December 22, 2001. These notes were
converted on August 2001 into 2,500 shares of our Series
B Preferred Stock, which are convertible into shares of
our common stock at a conversion price of $0.25 per
share, and warrants to purchase 100,000 shares of our
common stock at an exercise price of $0.25 per share
expiring August 31, 2006.                                                                                                                                                                                                                                                                                                                                                    



| |  | In conjunction with these various loans, we granted Mr. van
Kesteren warrants to purchase an aggregate of 70,700 shares of our
common stock at exercise prices ranging from $.30 to $2.25 per
share. All of these warrants have expired.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)



| |  | In July 2001, Noesis Capital Corp., the placement agent for our 12%
Convertible Notes, assigned $60,000 of accrued fees that we owed to
Noesis Capital Corp. to Cornelis Wit, a member of our board of
directors at the time. Mr. Wit converted that accrued expense into
our 12% Convertible Notes. The 12% Convertible Notes were
subsequently converted on December 31, 2002 into 6,000 shares of
our Series C Preferred Stock and warrants to purchase 120,000
shares of our common stock at an exercise price of $0.25 expiring
March 29, 2009.                                                                                                                                                                                                                                                                                                                                                 
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | We granted Randall G. Smith, our Chairman of the board and Chief
Technology Officer, warrants to purchase 20,000 shares of our
common stock at an exercise price of $0.41 per share in connection
with a pledge of real property he made in securing a loan made to
us by Mr. van Kesteren, a member of our board of directors in July
2001, in the amount of $100,000. These warrants have expired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | On August 17, 2000, we borrowed $100,000 from Noesis N.V., one of
our principal stockholders. The promissory note bore interest at a
rate of 8% per annum and had a maturity date of January 1, 2001.
At our request, Noesis N.V. agreed to convert this promissory note
into a 12% convertible note issued as part of a private placement
of our 12% Convertible Notes in January 2001. The note accrues
interest at 12% per annum, is convertible into shares of our common
stock at the holders option at a rate of $0.50 per share
commencing on January 31, 2002. This note was converted on
December 31, 2002 into 10,000 shares of our Series C Preferred
Stock, which are convertible into shares of our common stock at a
conversion price of $0.25 per share, and warrants to purchase
200,000 shares of our common stock at an exercise price of $0.25
per share expiring March 29, 2009.
|
| |  | During March 2002, we borrowed $2,341 from Randall G. Smith, our
Chairman of the board and Chief Technology Officer. This amount
was repaid without interest on April 12, 2002. In addition, we
borrowed $6,000 without interest from Mr. Smith on November 25,
2002. In March 2003 this note was amended and restated extending
the maturity date to January 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | In April 2002, we borrowed $1,500 from Ronald Linares, our Chief
Financial Officer. This amount was repaid without interest on May
1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | In September and July of 2002, we borrowed an aggregate of $20,000
without interest from Nico Letschert, officer, director and
principal shareholder of Noesis Capital Corp., one of our principal
stockholders. This amount is due and payable January 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | In December 2002, we borrowed $50,000 from Cornelis Wit, our
President and Chief Executive Officer and a member of our board of
directors. This amount was borrowed under a promissory note
bearing interest at a rate of 9% per annum, payable on March 31,
2003. This note was amended and restated on March 31, 2003
extending the maturity date of the note to October 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | In December 2002, we borrowed $50,000 from Guus van Kesteren a
member of our board of directors. This amount was borrowed under
a promissory note bearing interest at a rate of 9% per annum,
payable on March 31, 2003. This note was amended and restated on
March 31, 2003 extending the maturity date of the note to October
31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | In March 2003, we borrowed $2,600 from Cornelis Wit, our Chief
Executive Officer and President and a member of our board of
directors. This amount was repaid without interest on April 3,
2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | In June 2003, we borrowed $100,000 from Cornelis Wit, our President
and Chief Executive Officer and a member of our board of
directors. This amount was borrowed under a promissory note
bearing interest at a rate of 9% per annum, payable on January 31,
2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

20



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)

|         |  |                                                                                                                                                                                                                                                                                                                                                                                           
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  | In July and August 2003, we borrowed $116,000 from Cornelis Wit,
our President and Chief Executive Officer and a member of our
board of directors. This amount was borrowed under promissory
notes bearing interest at a rate of 9% per annum, payable on July
31, 2005.                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                                           
|NOTE 12: |  | POST-RETIREMENT EMPLOYEE BENEFITS                                                                                                                                                                                                                                                                                                                                                         
|         |  |                                                                                                                                                                                                                                                                                                                                                                                           
|         |  | The Company does not have a policy to cover employees for any
health care or other welfare benefits that are incurred after
employment (post-retirement). Therefore, no provision is required
under SFASs 106 or 112.                                                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                                                           
|NOTE 13: |  | STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                                                           
|         |  | Our authorized capital stock consists of 150,000,000 shares of
common stock, $.001 par value per share, and 10,000,000 shares of
preferred stock, par value $.001 per share, of which 5,000,000
shares have been designated as 5% Series A Preferred, 230,000
shares have been designated as Series B Preferred Stock and 747,500
shares have been designated as Series C Preferred Stock.
|         |  |                                                                                                                                                                                                                                                                                                                                                                                           
|         |  | As of September 30, 2003 we had the following outstanding
securities:                                                                                                                                                                                                                                                                                                                     



| |  |  | 14,534,618 shares of common stock issued and outstanding;                         
| | - |  | ----------------------------------------------------------------------------------
|
| |  |  | 16,564,896 warrants issued and outstanding to purchase shares of our common stock;
|
| |  |  | 4,215,224 shares of our
Series A Preferred Stock issued and outstanding;          
|
| |  |  | 200,000 shares of our Series B Preferred Stock issued and outstanding;            
|
| |  |  | 337,150 shares of our Series C Preferred Stock issued and outstanding;            
|
| |  |  | a Series B Placement Agent Unit Option;                                           
|
| |  |  | a Series C Placement Agent Unit Option; and                                       
|
| |  |  | 10% Convertible Notes.                                                            

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Holders of common stock are entitled to one vote for each share on
all matters submitted to a stockholder vote. Holders of our voting
securities do not have cumulative voting rights. Holders of common
stock are entitled to share in all dividends that the board of
directors, in its discretion, declares from legally available
funds. In the event of our liquidation, dissolution or winding up,
subject to the preferences of the Series A Preferred Stockholders,
Series B Preferred Stock holders and Series C Preferred
Stockholders, each outstanding share of common stock entitles its
holder to participate in all assets that remain after payment of
liabilities and after providing for each class of stock, if any,
having preference over the common stock.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Holders of common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions for the
common stock. The rights of the holders of common stock are
subject to any rights that may be fixed for holders of preferred
stock, when and if any preferred stock is outstanding. All
outstanding shares of common stock, other than with regard to an
outstanding balance of $1,140 for subscriptions receivable, are
duly authorized, validly issued, fully paid and non-assessable.                                                                                                                                                                                                                                                    

21



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Preferred stock                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Our board of directors, without further stockholder approval, may
issue preferred stock in one or more series from time to time and
fix or alter the designations, relative rights, priorities,
preferences, qualifications, limitations and restrictions of the
shares of each series. In addition, the board of directors may fix
and determine all privileges and rights of the authorized preferred
stock series including:



| |  |  | dividend and liquidation preferences,
| | - |  | -------------------------------------
|
| |  |  | voting rights,                       
|
| |  |  | conversion privileges, and           
|
| |  |  | redemption terms.                    

| |  |                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our board of directors may authorize the issuance of preferred
stock which ranks senior to our common stock for the payment of
dividends and the distribution of assets on liquidation. In
addition, our board of directors can fix limitations and
restrictions, if any, upon the payment of dividends on our common
stock to be effective while any shares of preferred stock are
outstanding.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Series A Preferred Stock                                                                                                                                                                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | In 1999, our board of directors designated 5,000,000 shares of our
preferred stock as 5% Series A Convertible Preferred Stock (Series
A Preferred Stock), of which 4,215,224 shares are issued and
outstanding.                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | The designations, rights and preferences of the Series A Preferred
include:                                                                                                                                                                                                                                                                                                                     



| |  |  | the shares are not redeemable,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | each share of Series A Preferred Stock is
convertible into shares of our common stock at any time at
the option of the holder at a conversion price of $1.50 per
share, or if not so converted after one year from issuance,
at any time at our option if the closing bid price of our
common stock has exceeded $3.00 for 20 consecutive trading
days, our common stock is listed on The Nasdaq Stock Market
or other national stock exchange, and the shares of common
stock issuable upon conversion of the Series A Preferred
Stock are registered under a registration statement .
|
| |  |  | the conversion price has certain
anti-dilution protections for any stock splits, stock
dividends, and corporate reorganizations, and certain other
corporate transactions and issuances of securities at below
the applicable conversion price per share. The Series A
Preferred Stockholders have waived their rights to an
anti-dilution adjustment reducing their conversion price as
a result of the issuance of the Series B Preferred Stock
and Series C Preferred Stock.                                                                                                        
|
| |  |  | the shares of Series A Preferred Stock pay
a cumulative dividend at a rate of 5% per annum based on
the stated value of $1.00 per share, payable when and as
declared by the board of directors, or upon conversion or
liquidation. Dividends on the Series A Preferred Stock
have priority to our common stock and are junior to Series B
Preferred Stock and Series C Preferred Stock. At our
option, dividends can be paid in cash or shares of common
stock valued at the conversion price of the Series A
Preferred Stock.                                                        
|
| |  |  | in the event of our liquidation or winding
up, each share of Series A Preferred Stock has a
liquidation preference equal to $1.00 per share,                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | the holders of the Series A Preferred Stock
are entitled to vote together with the holders of our
common stock, on the basis of one vote for each share of
common stock issuable upon the conversion of the Series A
Preferred Stock.                                                                                                                                                                                                                                                                                                                                                  

22



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | There were arrearages of $238,599 and $33,196 on the Series A
Preferred Stock for undeclared dividends as of September 30, 2003
and September 30, 2002.                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | In addition, the holders of the Series A Preferred Stock were
granted certain demand and piggy-back registration rights for the
shares of our common stock issuable upon the conversion of the
Series A Preferred Stock.                                                                                                                                                                                              
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | Series B Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                              
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | In August 2001, our board of directors designated 200,000 shares of
our preferred stock as Series B Convertible Preferred Stock
(Series B Preferred Stock). A Corrected Certificate of
Designations was filed on February 7, 2002 with the Delaware
Secretary of State increasing the number of shares authorized as
Series B Preferred Stock to 230,000 shares, of which 200,000 shares
are issued and outstanding.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | The designations, rights and preferences of the Series B Preferred
Stock include:                                                                                                                                                                                                                                                                                                                                     



| |  |  | the stated value of each share is $10.00 per share,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the shares are not redeemable,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | each share of Series B Preferred Stock is
convertible into shares of our common stock at the option
of the holder at any time commencing January 31, 2002 at
the option of the holder at $0.25 per share, as adjusted,
and the shares automatically convert, subject to
limitations based on trading volume, into shares of our
common stock at $0.25 per share at such time as we complete
a public offering raising proceeds in excess of $25 million
at an offering price of at least $0.75 per share. We may
require all outstanding shares of the Series B Preferred
Stock to convert in the event the closing bid price of our
common stock exceeds $0.50 for 20 consecutive trading days,
and our common stock has been listed on The Nasdaq Stock
Market or other comparable national stock exchange or the
OTC Bulletin board and a registration statement registering
the shares of common stock issuable upon conversion of the
Series B Preferred Stock has been declared effective,
|
| |  |  | the conversion price has certain
anti-dilution protections for any stock splits, stock
dividends, and corporate reorganizations, and certain other
corporate transactions and issuances of securities at below
the applicable conversion price per share or market value
of the common stock,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  |  | the shares of Series B Preferred Stock pay
a cumulative dividend at a rate of 8% per annum based on
the stated value of $10.00 per share, payable when and as
declared by the board of directors, or upon conversion or
liquidation. At our option, dividends can be paid in cash
or shares of common stock valued at the conversion price of
the Series B Preferred Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | each share of Series B Preferred Stock will
rank senior to our Series A Preferred and pari passu with
our Series C Preferred Stock,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | in the event of our liquidation or winding
up, each share of Series B Preferred Stock has a
liquidation preference equal to $10.00 per share plus
accrued and unpaid dividends, and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | the holders of the Series B Preferred Stock
are entitled to vote, together with the holders of our
common stock, on the basis of one vote for each share of
common stock issuable upon the conversion of the Series B
Preferred Stock,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |  |                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | There were arrearages of $279,671 and $119,671 on the Series B
Preferred Stock for undeclared dividends as of September 30, 2003
and September 30, 2002.

23



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)

| |  |                                                                                                                                                                                                                                                                                          
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In addition, the holders of the Series B Preferred Stock were
granted certain mandatory and piggy-back registration rights for
the shares of our common stock issuable upon the conversion of the
Series B Preferred Stock and are entitled to vote one member to our
board of directors.
| |  |                                                                                                                                                                                                                                                                                          
| |  | Series C Preferred Stock                                                                                                                                                                                                                                                                 
| |  |                                                                                                                                                                                                                                                                                          
| |  | In March 2002, our board of directors designated 747,500 shares of
our preferred stock as Series C Convertible Preferred Stock. of
which 337,150 shares are issued and outstanding.                                                                                                      
| |  |                                                                                                                                                                                                                                                                                          
| |  | The designations, rights and preferences of the Series C Preferred
Stock include:                                                                                                                                                                                                        



| |  |  | the stated value of each share is $10.00 per share,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the shares are not redeemable,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  |  | each share of Series C Preferred Stock is
convertible at any time, at the option of the holder, into
a number of shares of common stock determined by dividing
the stated value per share of the Series C Preferred Stock
by $0.25, which is the Series C Conversion Price. The
Series C Preferred Stock will automatically convert,
subject to limitations based on trading volume, into shares
of our common stock upon a public offering of our
securities raising gross proceeds in excess of $25,000,000
at a per share price greater than 2.5 times the Series C
Conversion Price per share, as adjusted for any stock
split, stock dividend, recapitalization, or other similar
transaction. In addition, the Series C Preferred Stock
will automatically convert into shares of our common stock
at the Series C Conversion Price at such time as the
closing bid price for our common stock has traded at two
times the then prevailing Series C Conversion Price for a
period of 20 consecutive trading days, provided that (i) a
public trading market exists for our common stock on a
national securities exchange, the Nasdaq Stock Market, or
the over the counter market; and (ii) the Conversion Shares
have been registered for resale and are not subject to any
lock-up and the number of shares of the Series C Preferred
Stock which can be converted in any 30-day period will be
limited to the number of shares of common stock underlying
the Series C Preferred Stock equal to 10 times the average
daily trading volume during the 20-day look-back period set
forth above,
|
| |  |  | the conversion price has certain
anti-dilution protections for any stock splits, stock
dividends, and corporate reorganizations, and certain other
corporate transactions and issuances of securities at below
the applicable conversion price per share or market value
of the common stock,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | the shares of Series C Preferred Stock pay
a cumulative dividend at a rate of 8% per annum based on
the stated value of $10.00 per share, payable when and as
declared by the board of directors, or upon conversion or
liquidation. At our option, dividends can be paid in cash
or shares of common stock valued at the conversion price of
the Series C Preferred Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  |  | each share of Series C Preferred Stock will
rank pari passu with our Series B Preferred Stock and
senior to our Series A Preferred Stock,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  |  | in the event of our liquidation or winding
up, each share of Series C Preferred Stock has a
liquidation preference equal to $10.00 per share plus
accrued and unpaid dividends, and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | the holders of the Series C Preferred Stock
are entitled to vote, together with the holders of our
common stock, on the basis of one vote for each share of
common stock issuable upon the conversion of the Series C
Preferred Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |  |                                                                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | There were arrearages of $254,746 and $30,392 on the Series C
Preferred Stock for undeclared dividends as of September 30, 2003
and September 30, 2002.

24



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)

| |  |                                                                                                                                                                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In addition, the holders of the Series C Preferred Stock were
granted certain mandatory and piggy-back registration rights
covering the shares of our common stock issuable upon the
conversion of the Series C Preferred Stock.
| |  |                                                                                                                                                                                                                                 
| |  | Warrants                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                 
| |  | We have issued and outstanding warrants to purchase
a total of 16,564,896 shares of our common stock,
including:                                                                                                                



| |  |  | warrants to purchase 8,000,000 shares of
our common stock at an exercise price of $.25 per share
expiring September 2006 which were issued by us in
connection with the Series B Preferred Stock offering,
which warrants contain a cashless exercise provision. The
holders of the warrants were granted certain mandatory and
piggy-back registration rights covering the shares of our
common stock issuable upon the exercise of the warrants.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | warrants to purchase 919,896 shares of our
common stock at exercise prices ranging from $.50 to $10.00
per share expiring periodically through July 2006.                                                                                                                                                                                                                                                                                         
|
| |  |  | warrants to purchase 6,743,000 shares of
our common stock at an exercise price of $.25 per share
expiring May 2007 which were issued by us in connection
with the Series C Preferred Stock offering, which warrants
contain a cashless exercise provision. The holders of the
warrants were granted certain mandatory and piggy-back
registration rights covering the shares of our common stock
issuable upon the exercise of the warrants.      
|
| |  |  | warrants to purchase 700,000 shares of our
common stock at an exercise price of $.25 per share
expiring May 2008 which were issued by us in connection
with a private placement of common stock, which warrants
contain a cashless exercise provision.                                                                                                                                                                                            
|
| |  |  | warrants to purchase 202,000 shares of our
common stock at an exercise price of $.25 per share
expiring December 2008 which were issued by us to the
placement agent of two offerings of our common stock that
were conducted during 2003.                                                                                                                                                                                                        

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Series B Placement Agent Unit Option                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | In connection with our September 2001 private placement of Series B
Preferred Stock, we issued the placement agent an option to
purchase 2.7 units. Each unit is exercisable at $100,000 per unit
and consists of 10,000 shares of Series B Preferred Stock and
5-year warrants to purchase 400,000 shares of common stock at an
exercise price of $0.25 per share. The Placement Agent Unit Option
contains a cashless exercise provision. The holder of the
Placement Agent Unit Option was granted certain mandatory and
piggy-back registration rights covering the shares of our common
stock issuable upon conversion of the Series B Preferred Stock and
exercise of the warrants underlying the Placement Agent Unit
Option.. The Placement Agent Unit Option expires August 31, 2006.

25



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Series C Placement Agent Unit Option                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | In connection with our March 2002 to March 2003 private placement
of Series C Preferred Stock, we issued the placement agent an
option to purchase 2.48 units. Each unit is exercisable at
$100,000 per unit and consists of 10,000 shares of Series C
Preferred Stock and 5-year warrants to purchase 200,000 shares of
common stock at an exercise price of $0.25 per share. The Placement
Agent Unit Option contains a cashless exercise provision. The
holder of the Placement Agent Unit Option was granted certain
mandatory and piggy-back registration rights covering the shares of
our common stock issuable upon conversion of the Series C Preferred
Stock and exercise of the warrants underlying Placement Agent Unit
Option. The Placement Agent Unit Option expires March 31, 2008.                                                                                                                
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | 10% Convertible Note                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | From February 1999 to May 1999, we issued 10% convertible notes
(10% Convertible Notes) in the aggregate principal amount of
$862,500. The 10% Convertible Notes pay 10.00% interest and are due
and payable on June 2004. The holders have the right to convert
the principal and interest amount into shares of our common stock
at a rate of $1.25 per share. We have the right to prepay the
principal amount at any time with 60 days prior written notice.
During 2000 and 2001, certain of the note holders converted an
aggregate of $412,500 principal amount of the notes according to
their terms into 330,000 shares of our common stock at a conversion
price of $1.25 per share. In addition, the holders of the 10%
Convertible Notes were granted certain demand and piggy-back
registration rights for the shares of our common stock issuable
upon the conversion of the 10% Convertible Notes.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | In 1998, the Companys Board of Directors approved the OmniComm
Systems 1998 Stock Option Plan, (the 1998 Plan). The 1998 Plan
provides for granting Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Restricted Stock Awards,
Phantom Stock Unit Awards and Performance Share Units. Pursuant to
the 1998 Plan the Company may grant options to purchase up to
5,000,000 shares of the Companys common stock. The term of each
option may not exceed ten years from the date of grant, and options
vest in accordance with a vesting schedule established by the Plan
administrator.                                                                                                                                                                                                                                                                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | The Companys share option activity and related information is
summarized below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                   |           |  |                         |           |                              |   |          |      |       |  |           |         |          |   |      |      | 
|---------------------------------- | --------- |  | ----------------------- | --------- | ---------------------------- | - | -------- | ---- | ----- |  | --------- | ------- | -------- | - | ---- | ---- | 
|                                   |           |  | Year ended December 31, |           | 9 Months ended September 30,
|                                   |           |  | 2002                    |           | 2003                        
|                                   |           |  |                         |           |                             
|                                   |           |  |                         |           |                              |   | Weighted |      |       |  |           |         | Weighted
|                                   |           |  |                         |           |                              |   | Average  |      |       |  |           |         | Average 
|                                   |           |  |                         |           |                              |   | Exercise |      |       |  |           |         | Exercise
|                                   |           |  | Options                 |           | Price                        |   | Options  |      | Price
|                                   |           |  |                         |           |                              |   |          |      |      
|Outstanding at beginning of period |           |  | 3,584,039               |           |                              | $ | 1.33     |      |       |  | 2,785,039 |         |          | $ | 1.00 |     
|                                   | Granted   |  |                         | 811,000   |                              |   | $        | 0.25 |       |  |           | 310,000 |          |   | $    | 0.25 | 
|                                   | Exercised |  |                         | -0-       |                              |   | $        | 0.00 |       |  |           | -0-     |          |   | $    | 0.00 | 
|                                   | Cancelled |  |                         | 1,610,000 |                              |   | $        | 1.36 |       |  |           | 288,000 |          |   | $    | 0.59 | 
|                                   |           |  |                         |           |                              |   |          |      |       |  |           |         |          |   |      |     
|Outstanding at end of period       |           |  | 2,785,039               |           |                              | $ | 1.00     |      |       |  | 2,807,039 |         |          | $ | 0.96 |     
|                                   |           |  |                         |           |                              |   |          |      |       |  |           |         |          |   |      |     
|Exercisable at end of period       |           |  | 2,761,705               |           |                              | $ | 0.82     |      |       |  | 2,593,705 |         |          | $ | 0.80 |     
|                                   |           |  |                         |           |                              |   |          |      |       |  |           |         |          |   |      |     

26



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)

| |  |                                                                                                  
| |  | -------------------------------------------------------------------------------------------------
| |  | The following table summarizes information about stock options
outstanding at September 30, 2003:

|                |  |             |           |             |  |           |      |           |  |          |      |  |  |          |           |  |  |   |      | 
|--------------- |  | ----------- | --------- | ----------- |  | --------- | ---- | --------- |  | -------- | ---- |  |  | -------- | --------- |  |  | - | ---- | 
|                |  | Outstanding |           | Exercisable
|                |  |             |           |            
|                |  |             |           |             |  | Weighted  |      |           |  |          |      |  |  |          |           |  |  |  
|                |  |             |           |             |  | Average   |      |           |  |          |      |  |  |          |           |  |  |  
|                |  |             |           |             |  | Remaining |      | Weighted  |  |          |      |  |  | Weighted
|                |  |             |           |             |  | Years of  |      | Average   |  |          |      |  |  | Average 
|Range of        |  | Number of   |           | Contractual |  | Exercise  |      | Number of |  | Exercise
|Exercise Prices |  | Options     |           | Life        |  | Price     |      | Options   |  | Price   
|                |  |             |           |             |  |           |      |           |  |         
|$0.25 - $0.47   |  |             | 1,862,500 |             |  |           | 3.86 |           |  | $        | 0.33 |  |  |          | 1,662,500 |  |  | $ | 0.34 | 
|$0.50 - $0.80   |  |             | 282,000   |             |  |           | 6.07 |           |  | $        | 0.55 |  |  |          | 268,666   |  |  | $ | 0.54 | 
|$1.00 - $2.75   |  |             | 662,539   |             |  |           | 1.98 |           |  | $        | 1.79 |  |  |          | 662,539   |  |  | $ | 1.79 | 

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Accounting for Stock Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | At September 30, 2003, the Company has one stock-based compensation
plan which is described more fully below. The Company accounts for
its plan under the recognition and measurement principles of APB
Opinion No 25, Accounting for Stock Issued to Employees, (APB
25) and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options
granted under the plan had an exercise price equal to or above the
market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and
earnings per share if the company had applied the fair value
recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensationto stock-based employee compensation.

|                                                                                                                                            |           |      |                   |       |                    |      |        |       |   |   |       |       |   |   |        |       |  
|------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---- | ----------------- | ----- | ------------------ | ---- | ------ | ----- | - | - | ----- | ----- | - | - | ------ | ----- | -
|                                                                                                                                            |           |      | Nine Months Ended |       | Three Months Ended
|                                                                                                                                            |           |      | September 30,     |       | September 30,     
|                                                                                                                                            |           |      |                   |       |                   
|(in thousands, except for per share data)                                                                                                   |           | 2003 |                   | 2002  |                    | 2003 |        | 2002 
|                                                                                                                                            |           |      |                   |       |                    |      |        |      
|Net loss available to common stockholders                                                                                                   |           |      |                   |       |                    |      |        |       |   |   |       |       |   |   |        |      
|As reported                                                                                                                                 |           | $    | (2,324            | )     |                    | $    | (3,026 | )     |   | $ | (719  | )     |   | $ | (1,013 | )    
|Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects |           |      | (65               | )     |                    |      | (56    | )     |   |   | (20   | )     |   |   | (51    | )    
|                                                                                                                                            |           |      |                   |       |                    |      |        |       |   |   |       |       |   |   |        |      
|Pro forma net loss available to common
stockholders                                                                                         |           | $    | (2,389            | )     |                    | $    | (3,082 | )     |   | $ | (739  | )     |   | $ | (1.064 | )    
|                                                                                                                                            |           |      |                   |       |                    |      |        |       |   |   |       |       |   |   |        |      
|Basic and diluted net loss per share                                                                                                        |           |      |                   |       |                    |      |        |       |   |   |       |       |   |   |        |      
|As reported                                                                                                                                 |           | $    | (0.18             | )     |                    | $    | (0.36  | )     |   | $ | (0.05 | )     |   | $ | (0.12  | )    
|                                                                                                                                            |           |      |                   |       |                    |      |        |       |   |   |       |       |   |   |        |      
|                                                                                                                                            | Pro forma |      | $                 | (0.18 | )                  |      | $      | (0.37 | ) |   | $     | (0.05 | ) |   | $      | (0.13 | )
|                                                                                                                                            |           |      |                   |       |                    |      |        |       |   |   |       |       |   |   |        |      

| |  |                                                                                                                                                                                  
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The estimated fair value of each OmniComm option granted is
calculated using the Black-Scholes pricing model. The weighted
average assumptions used in the model were as follows:

|                              |  |                   |       |                    |  |         |       |         |  |  |       |   |  |  |       |  
|----------------------------- |  | ----------------- | ----- | ------------------ |  | ------- | ----- | ------- |  |  | ----- | - |  |  | ----- | -
|                              |  | Nine Months Ended |       | Three Months Ended
|                              |  | September 30,     |       | September 30,     
|                              |  |                   |       |                   
|                              |  | 2003              |       | 2002               |  | 2003    |       | 2002   
|                              |  |                   |       |                    |  |         |       |        
|Risk-free interest rate       |  |                   | 2.90  | %                  |  |         | 5.00  | %       |  |  | 2.90  | % |  |  | 5.00  | %
|Expected years until exercise |  | 6 Years           |       | 6 Years            |  | 6 Years |       | 6 Years
|Expected stock volatility     |  |                   | 125.0 | %                  |  |         | 150.0 | %       |  |  | 125.0 | % |  |  | 150.0 | %
|Dividend yield                |  |                   | 0     | %                  |  |         | 0     | %       |  |  | 0     | % |  |  | 0     | %

27



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  | Other Stock Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |  | During 2001, the Company issued an aggregate of 126,340 shares of
common stock to employees and advisors with a fair market value of
$97,858 for services rendered under employment and consulting
agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |  | During 2001, the Company issued 50,000 warrants to advisors as
compensation for services to be rendered over periods ranging from
3 to 5 years. The Company valued the warrants in accordance with
SFAS 123 utilizing the Black-Scholes Model. The Company recorded
$95,689 in deferred compensation and is amortizing the amounts over
the expected life of the consulting services to be rendered. The
Company recognized non-cash compensation expense totaling $17,571
during the year ended December 31, 2002 in connection with the
warrant grants.                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |  | During 2002, the Company issued an aggregate of 113,100 shares of
restricted common stock to employees including three of its
officers. The stock issued had a fair market value of $22,288 and
was issued for employment services rendered in lieu of cash
payments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|NOTE 14: |  | OMNITRIAL B.V. BANKRUPTCY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |  | On or about September 6, 2000, the Companys wholly owned
subsidiary, OmniTrial B.V. (OmniTrial) submitted a petition for
bankruptcy protection from the bankruptcy court of the Netherlands.
The court appointed a liquidating trustee. The Company claimed
that certain assets in the possession of OmniTrial were paid for by
the Company and therefore should not be part of the liquidating
assets of OmniTrial. The bankruptcy trustee rejected that claim
and told the Company that as part of the OmniTrial bankruptcy
estate the assets would be sold to diminish any deficiency of the
estate. On July 5, 2001 the Company signed a settlement agreement
providing for the return of the assets to the Company in exchange
for a payment of $10,000.
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|NOTE 15: |  | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |  | Income taxes are accrued at statutory US and state income tax
rates. Income tax expense is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                |                                       |   |          |          |         |   |          |          |  
|------------------------------- | ------------------------------------- | - | -------- | -------- | ------- | - | -------- | -------- | -
|                                |                                       |   | 9/30/03  |          | 9/30/02
|                                |                                       |   |          |          |        
|Current tax expense (benefit):  |                                       |   |          |          |         |   |          |         
|                                | Income tax at statutory rates         |   | $        | -0-      |         |   | $        | -0-      |  
|                                |                                       |   |          |          |         |   |          |         
|Deferred tax expense (benefit): |                                       |   |          |          |         |   |          |         
|                                | Amortization of goodwill and covenant |   |          | -0-      |         |   |          | -0-      |  
|                                | Operating loss carryforward           |   |          | (543,122 | )       |   |          | (546,806 | )
|                                |                                       |   |          |          |         |   |          |         
|                                |                                       |   | (543,122 | )        |         |   | (546,806 | )       
|                                |                                       |   |          |          |         |   |          |         
|Valuation allowance             |                                       |   | 543,122  |          |         |   | 546,806  |         
|                                |                                       |   |          |          |         |   |          |         
|Total tax expense (benefit)     |                                       | $ | -0-      |          |         | $ | -0-      |         
|                                |                                       |   |          |          |         |   |          |         

| |  |                                                                                                              
| |  | -------------------------------------------------------------------------------------------------------------
| |  | The tax effects of significant temporary differences, which
comprise the deferred tax assets, are as follows:

|                             |                           |   |           |            |          |   |           |            |  
|---------------------------- | ------------------------- | - | --------- | ---------- | -------- | - | --------- | ---------- | -
|                             |                           |   | 9/30/03   |            | 12/31/02
|                             |                           |   |           |            |         
|Deferred tax assets:         |                           |   |           |            |          |   |           |           
|Amortization of intangibles  |                           | $ | 283,698   |            |          | $ | 283,698   |           
|Operating loss carryforwards |                           |   | 6,092,453 |            |          |   | 5,549,331 |           
|                             |                           |   |           |            |          |   |           |           
|                             | Gross deferred tax assets |   |           | 6,376,151  |          |   |           | 5,833,029  |  
|                             |                           |   |           |            |          |   |           |           
|                             | Valuation allowance       |   |           | (6,376,151 | )        |   |           | (5,833,029 | )
|                             |                           |   |           |            |          |   |           |           
|                             | Net deferred tax asset    |   | $         | -0-        |          |   | $         | -0-        |  
|                             |                           |   |           |            |          |   |           |           

28



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##### Table of Contents



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)
(continued)

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  | The Company has net operating loss carryforwards (NOL) for income
tax purposes of approximately $16,178,321. This loss is allowed to
be offset against future income until the year 2023 when the NOLs will expire. Other timing differences relate
to depreciation and amortization for the stock acquisition of
Education Navigator in 1998. The tax benefits relating to all
timing differences have been fully reserved for in the valuation
allowance account due to the lack of operating history and the
substantial losses incurred through September 30, 2003.
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|NOTE 16: |  | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |  | The Company had a recorded liability of $246,265 at September 30,
2003 for federal employment taxes. The Company had not fully
satisfied the liability as of November 14, 2003.                                                                                                                                                                                                                                                                                                                                                                                         
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |  | The Company is currently in default on interest payments owed
totaling $78,026 on 10% Convertible Notes. The terms of the notes
provide a payment grace period of thirty days in which to make the
required semi-annual interest payments. The Company has been in
default since January 30, 2002 in the payment of accrued interest
and at the option of the note holder the full amount of the
convertible notes could be declared in default.                                                                                                                        

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

General

The following information should be read in conjunction with the Consolidated
Interim Financial Statements and Notes thereto and other information set forth
in this report.

Forward Looking Statements

Statements contained in this Form 10-QSB that are not historical fact are
forward looking statements. These statements can often be identified by the
use of forward-looking terminology such as estimate, project, believe,
expect, may, will, should, intends, or anticipates or the negative
thereof or other variations thereon or comparable terminology, or by
discussions of strategy that involve risks and uncertainties. We wish to
caution the reader that these forward-looking statements, such as statements
relating to expectations as to operations and operational improvements;
expectations as to revenue growth and earnings; the time by which certain
objectives will be achieved; estimates of costs; and other matters contained in
this Form 10-QSB regarding matters that are not historical facts, are only
predictions. No assurance can be given that plans for the future will be
consummated or that the future results indicated, whether expressed or implied,
will be achieved. While sometimes presented with numerical specificity, these
plans and projections and other forward-looking statements are based upon a
variety of assumptions, which we consider reasonable, but which nevertheless
may not be realized. Because of the number and range of the assumptions
underlying our projections and forward-looking statements, many of which are
subject to significant uncertainties and contingencies that are beyond our
reasonable control, some of the assumptions inevitably will not materialize,
and unanticipated events and circumstances may occur subsequent to the date of
this Form 10-QSB. Therefore, our actual experience and results achieved during
the period covered by any particular projections or forward-looking statements
may differ substantially from those projected. Consequently, the inclusion of
projections and other forward- looking statements should not be regarded as a
representation by us or any other person that these plans will be consummated
or that estimates and projections will be realized, and actual results may vary
materially. There can be no assurance that any of these expectations will be
realized or that any of the forward-looking statements contained herein will
prove to be accurate. Except as may be required under federal securities laws
we assume no obligation to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise, and no
inference should be drawn that we will make any updates with respect thereto.
For any forward-looking statements contained in this Form 10-QSB, we claim
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.

Overview

We are an Internet-based healthcare technology company that provides Web-based
electronic data capture (EDC) solutions and related value-added services to
pharmaceutical and biotechnology companies, clinical research organizations,
and other clinical trial sponsors. Our Internet-based TrialMaster® software
allows clinical trial sponsors and investigative sites to securely collect,
validate, transmit, and analyze clinical study data including patient
histories, patient dosing, adverse events, and other clinical trial
information. We phased out the systems integration segment of our business
during 2001. All of our personnel are involved in the development and
marketing of TrialMaster.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States requires
management to make judgments, assumptions and estimates that affect the amounts
reported. Note 2 of Notes to the Consolidated Interim Financial Statements
describes the significant accounting policies used in the preparation of the
consolidated financial statements. Certain of these significant accounting
policies are considered to be critical accounting policies, as defined below.

A critical accounting policy is defined as one that is both material to the
presentation of our financial statements and requires management to make
difficult, subjective or complex judgments that could have a material effect on
our financial condition and results of operations. Specifically, critical
accounting estimates have the following attributes: 1) we are required to make
assumptions about matters that are highly uncertain at the time of the
estimate; and 2)

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different estimates we could reasonably have used, or changes in the estimate
that are reasonably likely to occur, would have a material effect on our
financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be
determined with certainty. We base our estimates on historical experience and
on various other assumptions believed to be applicable and reasonable under the
circumstances. These estimates may change as new events occur, as additional
information is obtained and as our operating environment changes. These changes
have historically been minor and have been included in the consolidated
financial statements as soon as they became known. In addition, our Management
is periodically faced with uncertainties, the outcomes of which are not within
our control and will not be known for prolonged periods of time. Based on a
critical assessment of its accounting policies and the underlying judgments and
uncertainties affecting the application of those policies, our Management
believes that our consolidated financial statements are fairly stated in
accordance with accounting principles generally accepted in the United States
(GAAP), and present a meaningful presentation of our financial condition and
results of operations.

We believe that the following are our critical accounting policies:

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, we are entitled to payment
for all work performed through the point of cancellation.

REVENUE RECOGNITION POLICY

OmniComms revenue model is transaction-based and can be implemented either as
an ASP (application service provider) or licensed for implementation by a
customer such as a pharmaceutical company. Revenues are derived from the
set-up of clinical trial engagements; on-going maintenance fees incurred
throughout the duration of an engagement; fees for report writing and change
orders. The clinical trials that are conducted using TrialMaster can last from
a few months to several years. Most of the fees associated with our product
including post-setup customer support in the form of maintenance charges are
recognized ratably over the term of the clinical trial. Cost of sales is
primarily comprised of programmer salaries and taxes and is expensed as
incurred.

The Company recognizes sales, for both financial statement and tax purposes in
accordance with SEC Staff Accounting Bulletin No. 101 Revenue Recognition in
Financial Statements (SAB 101). SAB 101 requires that revenues be recognized
ratably over the life of a contract. In accordance with SAB 101 the Company
will periodically record deferred revenues relating to advance payments in
contracts.

STOCK BASED COMPENSATION.

Options granted to employees under our Stock Option Plan are accounted for by
using the intrinsic value method under APB Opinion 25, Accounting for Stock
Issued to Employees (APB 25). In October 1995, the Financial Accounting
Standards Board issued Statement No.123, Accounting for Stock-Based
Compensation (SFAS 123), which defines a fair value based method of accounting
for stock options. The accounting standards prescribed by SFAS 123 are
optional and we have continued to account for stock options under the intrinsic
value method specified in APB 25.

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The Nine Months Ended September 30, 2003 Compared With the Nine Months Ended
September 30, 2002

Results of Operations

Revenues

Revenues for the nine-months ended September 30, 2003 were $539,549 compared to
$319,351 for the same period in 2002, an increase of approximately 69.0%. The
increase can be attributed to increased success we experienced in marketing
TrialMaster. While industry growth estimates vary, most predictions indicate
that EDC is anticipated to become widely accepted within the next three to five
years. Web-based EDC has been around for approximately four years and between
10% and 15% of all clinical trials are currently conducted using Web-based EDC.
Incremental growth within the industry should continue as competitive
pressures mount in the pharmaceutical industry to replace existing prescription
drugs losing their patent protection.

We changed our marketing focus to include clinical research organizations
(CROs) approximately one year ago. CROs generally market to and service a
broad range of pharmaceutical and medical device manufacturers and consequently
provide us the opportunity to market to a broader, bigger and more diverse
end-user base. We have recently found CROs to be more receptive to the use of
EDC. This is likely in response to pressure from clinical trial sponsors for
more rapid and cost-efficient clinical trials, a result that EDC use can
impact. We expect to continue increasing the number of CROs using TrialMaster
by continuing to focus a substantial part of our direct sales efforts on this
segment of the clinical trial industry. TrialMaster supplements the
traditional CROs basket of products and services and would be sold as integral
part of the outsource package offered to their trial sponsor clients. This
should provide us the opportunity to leverage their sales force thereby
increasing new clients with only modest increases in our sales and marketing
expenditures.

Our TrialMaster product is currently being sold as an application service
provider (ASP) that provides EDC and other services such as an enterprise
management suite which assists its clients in the pharmaceutical, biotechnology
and medical device industries in accelerating the completion of clinical
trials.

TrialMaster contracts provide for pricing that is based on both the size and
duration of the clinical trial. Size parameters include the number of patients
participating in the trial and the number of data points being collected per
patient. The client will pay a trial setup fee based on the previously
mentioned factors, and then pay an on-going maintenance fee for the duration of
the clinical trial that provides software, network and site support during the
trial. Generally, these contracts will range in duration from four months to
several years. Setup fees are generally earned prior to the inception of a
trial, however, the revenues will be recognized in accordance with SEC Staff
Accounting Bulletin No. 101 Revenue Recognition in Financial Statements which
requires that the revenues be recognized ratably over the life of the contract.
The maintenance fee revenues are earned and recognized monthly. Costs
associated with contract revenues are recognized as incurred.

Cost of Sales

Cost of sales decreased to $151,613 in 2003 compared to $249,104 during the
comparable nine-month period in 2002. Cost of sales relates primarily to
salaries and benefits associated with the programmers, developers and systems
analysts producing clinical trials on behalf of our clients. In addition,
during the second quarter of 2003 we entered into a strategic alliance with a
non-affiliated company based in Holland to provide help-desk services for our
clients located in Europe. Although the agreement is important to our
international operations, we do not expect the costs associated with this
relationship to materially affect our results of operations.

Our gross margins during the nine-months of 2003 were approximately 71.9%.
TrialMaster V3.0 automates many of the manual programming functions inherent in
earlier versions of the product. This combined with the experience gained from
serving our existing client base has allowed us to decrease the time and cost
involved in producing clinical trials. We expect gross margins to contract
during the fourth quarter as we transition our business to providing
TrialMaster on both an ASP and licensed basis. We expect margins to return to
the 70-75% range during the first quarter of 2004 after these design efforts
have been completed.

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Other Expenses

Salaries, Benefits and Related Taxes

Salaries and related expenses are our biggest expense at 71.1% of total Other
Expenses for the first nine months of 2003 as compared to 58.4% in the nine
month period ended September 30, 2002. Salaries and related expenses totaled
$1,301,348 in 2003 compared to $1,299,588 in 2002. Total salaries declined
relative to 2002 since a portion of total payroll is accounted for in cost of
goods sold. We currently employ 15 employees out of our Davie, Florida
corporate office and two out-of-state sales executives. We expect to increase
headcount within our technology and sales and marketing functions in concert
with anticipated increases in TrialMaster clients during fiscal 2004.

Rent

Rent expense was $108,455 for fiscal 2003 compared with $119,391 for fiscal
2002. Rent expense remained relatively constant with the components of our
cost structure fairly well entrenched. Rent expense will increase by
approximately 2% in 2004 in connection with negotiated cost of living
increases. We extended the lease for our corporate offices through September
2005. In December 2001, we established a disaster recovery site at an
IBM owned Co-Location facility in Atlanta, Georgia. This site allows 100% system
up-time and provides us with redundant data storage capabilities.

Legal and Professional Fees

Legal and professional fees totaled $92,594 in 2003 compared with $153,567
during fiscal 2002. Key components of the 2003 amounts include $67,500 paid to
our placement agent for financial advisory services, $42,500 in audit related
fees, $(39,207) in legal fees which includes a credit of $(52,023) for a
settlement of accrued legal fees associated with a private placement of our
Series C Convertible Preferred Stock and $21,801 that relate to accounting and
legal services associated with our obligations as a public company. Except for
the above referenced credit we expect on-going legal and professional fees to
fall in-line with what has been experienced during 2003.

Travel

We incurred $33,756 in travel expenses during fiscal 2003 compared to $29,486
during 2002. We expect travel to increase as we experience more success in
penetrating the marketplace with our sales efforts. These increases are not
expected to materially affect total costs since we have developed the ability
to conduct a significant portion of our sales efforts via Internet hosted
web-meetings. These web-based demonstrations allow us to expose a broader
segment of our potential clients employees to our product. Web-based
demonstrations have proven to be a cost-effective means of selling to
prospective clients and are an integral part of the on-going training offered
to existing clients.

Telephone and Internet

Telephone and Internet related costs were reduced by $7,113, or approximately
12.5%, due to decreased telephone and Internet access costs associated with the
change of our telecom provider from MCI to AT&T. We do not anticipate
increases in access charges during fiscal 2004 based on our own existing
communications infrastructure and our projected 2004 clinical trial workload.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SGA) were $97,106 during the
first nine months of 2003. These expenses relate primarily to costs incurred
in running our office day-to-day and other costs not directly related to other
captioned items in our income statement, and include the cost of office
equipment and supplies, the costs of attending conferences and seminars and
other expenses incurred in the normal course of business. We expect to
increase the overall dollar volume spent on SGA as we increase our revenue base
and step-up our overall activity, however, SGA costs on a year-to-date basis
are approximately equal to those from the first nine-months of 2002. We do not
expect SGA expenses to materially increase in the next twelve months.

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Interest Expense

Interest expense was $90,232 during 2003 versus $218,781 in fiscal 2002. The
holders of the 12% Convertible Notes converted their holdings into shares of
our Series C Convertible Preferred Stock on December 31, 2002 This conversion
reduced annualized interest expense by approximately $190,000.

Preferred Stock Dividends

In March 2003 we issued 590,000 warrants to investors in a private placement of
our Series C Convertible Preferred Stock.. The warrants were valued at
$135,344 utilizing the Black-Scholes model. The net proceeds received in the
Series C Convertible Preferred Stock Unit offering were allocated to the Series
C Preferred Stock and we recognized a deemed dividend on preferred stock of
$135,344 resulting in a charge to retained earnings and a credit to additional
paid-in capital within our stockholders equity as of September 30, 2003. In
August 2003 we issued 496,950 warrants to the Placement Agent for the Series C
Preferred Stock offering pursuant to the Placement Agent agreement. The
warrants were valued at $113,998 utilizing the Black-Scholes model and we
recognized a deemed dividend on preferred stock of $113,998 resulting in a
charge to retained earnings and a credit to additional paid-in capital within
our stockholders equity as of September 30, 2003. In June 2003 we issued
700,000 warrants to investors in a private placement of our Common Stock. The
warrants were valued at $160,577 utilizing the Black-Scholes model. The net
proceeds received in the Common Stock offering were allocated to the Common
Stock and we recognized a deemed dividend on common stock of $160,577 resulting
in a charge to retained earnings and a credit to additional paid-in capital
within our stockholders equity as of September 30, 2003. Dividends on our
Series A Preferred Stock totaled $0 in 2003 compared to $108,934 for the
comparable period in 2002. There were arrearages of $153,600 in Series A
Convertible Preferred Stock $119,671 in Series B Convertible Preferred Stock
dividends and $197,941 in Series C Convertible Preferred Stock dividends at
September 30, 2003 and we therefore deducted $471,212 from Net Income (Loss).

The Three Months Ended September 30, 2003 Compared With the Three Months Ended
September 30, 2002

Results of Operations

Revenues

Revenues for the three-months ended September 30, 2003 were $205,999 compared
to $93,378 for the same period in 2002, an increase of 120.6%. The increase
can be attributed to increased success we experienced in marketing TrialMaster.
We expect revenues to increase as we experience continued success in marketing
TrialMaster to larger entities. These clients will afford us a higher
likelihood of multiple trial engagements. In addition, the trials conducted
will characteristically encompass more locations and therefore provide us
incremental revenues.

Cost of Sales

Cost of sales decreased to $56,279 for the three months ended September 30,
2003 compared to $46,170 during the comparable period in 2002. Cost of sales
relates primarily to salaries and benefits associated with the programmers,
developers and systems analysts producing clinical trials on behalf of our
clients. In addition, during the second quarter of 2003 we entered into a
strategic alliance with a non-affiliated company based in Holland to provide
help-desk services for our clients located in Europe. Although the agreement
is important to our international operations, we do not expect the costs
associated with this relationship to materially affect our results of
operations.

Our gross margins during the third quarter of 2003 were approximately 72.7%.
The slight decrease in gross margins versus the first and second quarters of
2003 is a result of smaller than expected revenues combined with significant
amounts of labor expended on producing a new version of TrialMaster focused
primarily on companies conducting Phase I clinical trials.

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Other Expenses

Salaries, Benefits and Related Taxes

Salaries and related expenses were our biggest expense at 64.6% of total Other
Expenses for the third quarter of 2003 compared to 56.5% for the comparable
period in fiscal 2002. Salaries and related expenses totaled $384,405 for the
three-months ended September 30, 2003 compared to $423,023 for the comparable
period in 2002. Total salaries declined relative to 2002 since a portion of
total payroll is accounted for in cost of goods sold. We currently employ 15
employees out of our Davie, Florida corporate office and two out-of-state sales
executives. We expect to increase headcount within our technology and sales
and marketing functions in concert with anticipated increases in TrialMaster
clients during fiscal 2004.

Rent

Rent expense was $33,173 for the three-months ended September 30, 2003 compared
with $40,827 for the comparable period in fiscal 2002. In December 2001, we
established a disaster recovery site at an IBM owned Co-Location facility in
Atlanta, Georgia. This is designed to ensure 100% system up-time. We do not
anticipate significant changes to rent expense in the next twelve months.

Legal and Professional Fees

Legal and professional fees totaled $61,077 for the three-months ended
September 30, 2003 compared with $34,772 during the comparable period in fiscal
2002. Key components of the 2003 amounts include $22,500 paid to our placement
agent for financial advisory services, $17,500 for audit related fees, $10,810
in legal fees and $10,267 that relate to accounting and legal services
associated with our obligations as a public company. We expect on-going legal
and professional fees to fall in-line with what was experienced during 2003.

Travel

We incurred $4,899 in travel expenses during the three-months ended September
30, 2003 compared to $9,226 during the comparable period in fiscal 2002. We
expect travel to increase as we experience more success in penetrating the
marketplace with our sales efforts. We expect this increase to be offset by
the increase in accompanying revenues.

Telephone and Internet

Telephone and Internet related costs decreased by $2,475. We do not anticipate
significant increases in access charges during fiscal 2003 based on our own
existing communications infrastructure and our projected 2004 clinical trial
workload.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SGA) were $29,643 during the
third quarter of 2003. These expenses relate primarily to costs incurred in
running our office day-to-day and other costs not directly related to other
captioned items in our income statement, and include the cost of office
equipment and supplies, the costs of attending conferences and seminars and
other expenses incurred in the normal course of business.

Interest Expense

Interest expense was $31,810 during the three-months ended September 30, 2003
versus $73,755 in the comparable period in fiscal 2002. The Company converted
its 12% Convertible Notes during December 2002 into shares of its Series C
Convertible Preferred Stock. This conversion reduced annualized interest
expense by approximately $190,000.

Preferred Stock Dividends

In August 2003 we issued 496,950 warrants to the Placement Agent for the Series
C Preferred Stock offering pursuant to the Placement Agent agreement. The
warrants were valued at $113,998 utilizing the Black-Scholes

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model and we recognized a deemed dividend on preferred stock of $113,998
resulting in a charge to retained earnings and a credit to additional paid-in
capital within our stockholders equity as of September 30, 2003. Dividends on
our Series A Preferred Stock totaled $0 in 2003 compared to $18,567 for the
comparable period in 2002. There were arrearages of $51,763 in Series A
Convertible Preferred Stock of $40,329; in Series B Convertible Preferred Stock
dividends and $67,985 in Series C Convertible Preferred Stock dividends at
September 30, 2003 and we therefore deducted $160,077 from Net Income (Loss).

Liquidity and Capital Resources

We have historically experienced negative cash flows and have relied primarily
on the proceeds from the sale of debt and equity securities to fund our
operations. In addition, we have utilized stock-based compensation as a means
of paying for consulting and salary related expenses. Our working capital
deficit as of September 30, 2003 was $1,872,171 compared to $1,516,794 on
September 30, 2002.

Cash and cash equivalents decreased by $179,575 from $194,677 to $15,102 at
September 30, 2003. This was the result of cash provided by financing
activities of $1,048,265 offset by cash used in operating activities of
approximately $1,217,290. The significant components of the activity include a
loss from operations of approximately $1,443,321 offset by non-cash expenses of
131,294, increases in cash of $94,736 from changes in working capital accounts
and approximately $1,048,265 we raised through the sale of debt and equity
securities.

We are not currently bound by any long or short-term agreements for the
purchase or lease of capital expenditures. Any amounts expended for capital
expenditures would be the result of an increase in the capacity needed to
adequately service any increase in our business. To date we have paid for any
needed additions to our capital equipment infrastructure from working capital
funds and anticipate this being the case in the future. We do not presently
have any commitment for capital expenditures.

We are currently in default on interest payments owed totaling $78,026 on our
unsecured 10% Convertible Notes. The terms of the notes provide a payment
grace period of thirty days in which to make required semi-annual interest
payments. We were in default effective January 30, 2002 and at the option of
the note holders the full amount of the convertible notes could be declared in
default.

We had a recorded liability of $246,265 at September 30, 2003 for federal
employment taxes. We had not fully satisfied the liability as of November 14,
2003.

We have been operating with a cash burn rate. In order to manage cash flows, we
have issued preferred stock and common stock to satisfy operating expenses and
obligations. Between March 28, 2002 and March 2003 we sold 165,650 shares of
our Series C Preferred Stock and warrants to purchase 3,513,000 shares of our
common stock. Gross cash proceeds from this offering totaled $1,656,500. We
accrued $333,077 in transaction related fees leaving net proceeds of
approximately $1,423,423.

From April 2003 through May 31, 2003 we sold an aggregate of 1,400,000 shares
of our Common Stock and warrants to purchase 700,000 shares of our common stock
for gross proceeds of $350,000. We accrued $35,000 in transaction fees leaving
net proceeds to us of $315,000.

From July 2003 through September 30, 2003 we sold an aggregate of 1,120,000
shares of our common stock for gross proceeds of $280,000. We accrued $28,000
in transaction fees leaving net proceeds to us of $252,000.

During the second half of fiscal 2002 and nine months of 2003, we entered into
contracts for EDC services worth approximately $1.8 million in value. During
this period we added eight new clients, including three clinical research
organizations (CRO) and an academic research institution. These clients in
particular are deemed vital to our long-term growth since these two areas have
become a point of emphasis for our sales and marketing activities. One of the
CROs is based in Holland and operates primarily in the European market
providing us additional exposure in a market that we have only lightly
penetrated to date. In addition, two of the pharmaceutical clients have
indicated their intent to utilize TrialMaster for EDC on trials that will be
conducted during calendar years 2004 and 2005.

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Our selling efforts now include marketing our products to several Fortune 500
pharmaceutical and medical device manufacturers and two of the largest CROs.
We began providing services to some of these entities during the first half of
2003. These contracts should provide us the opportunity to limit our need for
funding our operations via debt and equity capital. Obtaining contracts with
clients of this size and reputation would also increase the credibility of the
company.

We feel that the momentum established from new client acquisitions; the
development of a new EDC product  MERS-TH; and our ability to retain clients
for repeat engagements provide a good operating base from which to build during
2003. We improved our sales staff during the latter half of fiscal 2002 and
expect to increase the level of resources utilized in the sales and marketing
areas. We embarked on a cost cutting program during fiscal 2000. That program
became part of our organizations identity and remains ingrained in our culture
today. We feel that a combination of our lean operating environment and
increased success in new client acquisition, coupled with our ability to retain
our existing clients will allow us to compete effectively within the EDC
market.

Because of the losses experienced since 1999 we have needed to continue
utilizing the proceeds from the sale of debt and equity securities to fund our
working capital needs. The capital markets since mid-2000 have provided a
difficult climate for raising capital due to the decline in value of publicly
held technology stocks and the resultant apprehension on the part of investors
to invest in technology oriented firms. In addition, when available, capital
has been expensive relative to the valuations that were afforded during the
expansion of the Internet sector in 1999 and 2000. The softness in the capital
markets coupled with the losses experienced have caused working capital
shortfalls. We have used a combination of equity financing and short-term
bridge loans to fund our working capital needs. Other than our current capital
and capital we may raise from future debt or equity offerings or short-term
bridge loans, we do not have any additional sources of working capital.

We will continue to require substantial funds to continue our research and
development activities and to market, sell and commercialize our technology. We
will need to raise substantial additional capital to fund our future
operations. Our capital requirements will depend on many factors, including
the problems, delays, expenses and complications frequently encountered by
companies developing and commercializing new technologies; the progress of our
research and development activities; the rate of technological advances;
determinations as to the commercial potential of our technology under
development; the status of competitive technology; the establishment of
collaborative relationships; the success of our sales and marketing programs;
the cost of filing, prosecuting and defending and enforcing patents and
intellectual property rights; and other changes in economic, regulatory or
competitive conditions in our planned business. Estimates about the adequacy
of funding for our activities are based upon certain assumptions, including
assumptions that the research and development programs relating to our
technology can be conducted at projected costs and that progress towards
broader commercialization of our technology will be timely and successful.
There can be no assurance that changes in our research and development plans or
other events will not result in accelerated or unexpected expenditures.

To satisfy our capital requirements, including ongoing future operations, we
will seek to raise additional financing through debt and equity financings.
There can be no assurance that any such findings will be available to us on
favorable terms or at all. If adequate funds are not available when needed, we
may be required to delay, scale back or eliminate some or all of our research
and product development programs, and our business operations. If we are
successful in obtaining additional financings, the terms of such financings may
have the effect of diluting or adversely affecting the holdings or the rights
of the holders of our common and preferred stock. Further, there can be no
assurance that even if such additional capital is obtained or the planned cost
reductions are implemented, that we will achieve positive cash flow or
profitability or be able to continue as a business.

Our ability to continue in existence is dependent on our having sufficient
financial resources to bring products and services to market. As a result of
its significant losses, negative cash flows from operations, and accumulated
deficits for the periods ending September 30, 2003, there is doubt about the
Companys ability to continue as a going concern. In addition, the report of
our independent certified public accountants dated March 21,
2003, for the year-ended December 31, 2003, contained
a qualification as to their doubt concerning our ability to continue as a
going-concern.

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ITEM 3. CONTROLS AND PROCEDURES

The Companys management, including our Chief Executive Officer and Chief
Financial Officer, have conducted an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as
amended) as of the quarter ended September 30, 2003, the end of the period
covered by this report (the Evaluation Date). Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded, that
our disclosure controls and procedures are effective for timely gathering,
analyzing and disclosing the information we are required to disclose in our
reports filed under the Securities Exchange Act of 1934, as amended. There
have been no significant changes made in our internal controls or in other
factors that could significantly affect our internal controls subsequent to the
Evaluation Date.




PART II OTHER INFORMATION




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

At the Annual Meeting of Shareholders held on July 25, 2003 (the Annual
Meeting), the Companys shareholders voted to approve the ratification of
Greenberg and Company, LLC as the Companys auditors for the year-ended
December 31, 2003. The following is a summary of the vote:

|                                                     |  |  |            | 
|---------------------------------------------------- |  |  | ---------- | 
|Ratification of Greenberg & Company, LLC as Auditors
|Votes                                                |  |  |            | 
|                                                     |  |  |            | 
|For                                                  |  |  | 18,927,631 | 
|Against                                              |  |  | 920        | 
|Abstain                                              |  |  | 110        | 

Also at the Annual Meeting, the Companys shareholders voted to elect Cornelis
F. Wit, Randall G. Smith and Guus van Kesteren each to an additional one-year
term as a director of the Company.

The following is a summary of the vote:

|        |  |                 |            |                  |  |                   |            |  |  |  |            | 
|------- |  | --------------- | ---------- | ---------------- |  | ----------------- | ---------- |  |  |  | ---------- | 
|Votes   |  | Cornelis F. Wit |            | Randall G. Smith |  | Guus van Kesteren
|        |  |                 |            |                  |  |                  
|For     |  |                 | 18,919,161 |                  |  |                   | 18,919,161 |  |  |  | 18,919,161 | 
|Against |  |                 | 20,135     |                  |  |                   | 20,135     |  |  |  | 20,135     | 
|Abstain |  |                 | 10,120     |                  |  |                   | 9,600      |  |  |  | 10,020     | 




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits.
| | --- |  | ---------

The following documents are filed as a part of this report or are incorporated
by reference to previous filings, if so indicated:

|            |  |                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                               
|            |  |                                                                                                                                                                           
|31.1        |  | Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, promulgated under the Securities and Exchange
Act of 1934, as amended.
|            |  |                                                                                                                                                                           
|31.2        |  | Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, promulgated under the Securities and Exchange
Act of 1934, as amended.
|            |  |                                                                                                                                                                           
|32.1        |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of
2002.                        
|            |  |                                                                                                                                                                           
|32.2        |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of
2002.                        



| | (b) |  | Reports on Form 8-K.
| | --- |  | --------------------
|
| |     |  | None.               

38



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##### Table of Contents






SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

OmniComm Systems, Inc.
Registrant

|      |  |                                                                                     
|----- |  | ------------------------------------------------------------------------------------
|By:   |  | /s/ Cornelis F. Wit                                                                 
|      |  |                                                                                     
|      |  | Cornelis F. Wit, Director, Chief Executive Officer and President                    
|Date: |  | November 14, 2003                                                                   
|      |  |                                                                                     
|By:   |  | /s/ Ronald T. Linares                                                               
|      |  |                                                                                     
|      |  | Ronald T. Linares, Vice President of Finance, Chief Financial and Accounting Officer
|Date: |  | November 14, 2003                                                                   

39