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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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[Mark One]

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended MARCH 31, 2005



| ̈ | 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



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OmniComm Systems, Inc.

(Name of Small Business Issuer in its Charter)



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



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Indicate by check mark whether the Issuer: (1) 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 common equity as of May 10, 2005: 25,365,972 common
stock $.001 par value.



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##### Table of Contents

TABLE OF CONTENTS TO THE QUARTERLY REPORT ON FORM 10-QSB FOR THE

PERIOD ENDED MARCH 31, 2005



|                                                                                                                                                            |  |   
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION                                                                                                                               |  |   
|Item 1. Unaudited Consolidated Financial Statements                                                                                                         |  |   
|Consolidated Balance Sheets                                                                                                                                 |  | 3 
|Consolidated Income Statements                                                                                                                              |  | 4 
|Consolidated Statement of Cash Flows                                                                                                                        |  | 5 
|Notes to Consolidated Financial Statements                                                                                                                  |  | 6 
|                                                                                                                                                            | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                                                               |  | 23
|Item 3. Controls and Procedures                                                                                                                             |  | 29
|                                                                                                                                                            | 
|PART II. OTHER INFORMATION                                                                                                                                  |  |   
|                                                                                                                                                            | 
|Item 6. Exhibits                                                                                                                                            |  | 30
|                                                                                                                                                            | 
|SIGNATURES                                                                                                                                                  |  | 31
|                                                                                                                                                            | 
|CERTIFICATIONS                                                                                                                                              |  |   
|Exhibit 10.13 Promissory Note between the Company and Cornelis Wit dated March 31, 2005                                                                     |  |   
|Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act OF 2002 CEO Cornelis F. Wit                        |  |   
|Exhibit 31.2 Certification 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 32.2 Certification 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 |  |   



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                                      |  |                |             |   |                  |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                                                                      |  | March 31, 2005 |             |   | December 31,2004 |  
|                                                                                                                                                                                                                      |  | (unaudited)    |             |   |                  |  
|ASSETS                                                                                                                                                                                                                |  |                |             |   |                  |   |             |  
|CURRENT ASSETS                                                                                                                                                                                                        |  |                |             |   |                  |   |             |  
|Cash                                                                                                                                                                                                                  |  | $              | 4,638       |   |                  | $ | 65,695      |  
|Accounts receivable                                                                                                                                                                                                   |  |                | 168,160     |   |                  |   | 148,128     |  
|Prepaid expenses                                                                                                                                                                                                      |  |                | 42,724      |   |                  |   | 7,754       |  
|                                                                                                                                                                                                                      |  |                |             |   |                  |   |             |  
|Total current assets                                                                                                                                                                                                  |  |                | 215,522     |   |                  |   | 221,577     |  
|                                                                                                                                                                                                                      |  |               
|PROPERTY AND EQUIPMENT, net                                                                                                                                                                                           |  |                | 32,525      |   |                  |   | 34,915      |  
|                                                                                                                                                                                                                      |  |               
|OTHER ASSETS                                                                                                                                                                                                          |  |                |             |   |                  |   |             |  
|Other assets                                                                                                                                                                                                          |  |                | 5,497       |   |                  |   | 5,497       |  
|                                                                                                                                                                                                                      |  |                |             |   |                  |   |             |  
|TOTAL ASSETS                                                                                                                                                                                                          |  | $              | 253,544     |   |                  | $ | 261,989     |  
|                                                                                                                                                                                                                      |  |                |             |   |                  |   |             |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                  |  |                |             |   |                  |   |             |  
|CURRENT LIABILITIES                                                                                                                                                                                                   |  |                |             |   |                  |   |             |  
|Accounts payable and accrued expenses                                                                                                                                                                                 |  | $              | 1,050,287   |   |                  | $ | 825,092     |  
|Accrued payroll taxes                                                                                                                                                                                                 |  |                | 274,264     |   |                  |   | 123,943     |  
|10% Convertible Notes                                                                                                                                                                                                 |  |                | 255,000     |   |                  |   | 255,000     |  
|Notes payable  current portion                                                                                                                                                                                       |  |                | -0-         |   |                  |   | 100,000     |  
|Notes payable, related party  current portion                                                                                                                                                                        |  |                | -0-         |   |                  |   | 6,000       |  
|Deferred revenue                                                                                                                                                                                                      |  |                | 410,587     |   |                  |   | 434,957     |  
|                                                                                                                                                                                                                      |  |                |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                                                             |  |                | 1,990,138   |   |                  |   | 1,744,992   |  
|                                                                                                                                                                                                                      |  |               
|NOTES PAYABLE, net of current portion                                                                                                                                                                                 |  |                | 1,613,187   |   |                  |   | 1,513,187   |  
|NOTES PAYABLE RELATED PARTY, net of current portion                                                                                                                                                                   |  |                | 876,742     |   |                  |   | 848,742     |  
|                                                                                                                                                                                                                      |  |                |             |   |                  |   |             |  
|TOTAL LIABILITIES                                                                                                                                                                                                     |  |                | 4,480,067   |   |                  |   | 4,106,921   |  
|                                                                                                                                                                                                                      |  |                |             |   |                  |   |             |  
|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, 65,000 and 97,500 issued and outstanding, respectively;
liquidation preference $650,000 and $975,000, respectively                |  |                | 65          |   |                  |   | 98          |  
|                                                                                                                                                                                                                      |  |               
|Series C convertible preferred stock, - $.001 par value. 747,500 shares authorized, 337,150 and 337,150 issued and outstanding, respectively;
liquidation preference $3,371,500 and $3,371,500, respectively          |  |                | 337         |   |                  |   | 337         |  
|                                                                                                                                                                                                                      |  |               
|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, 25,365,972 and 24,065,972 issued and outstanding, after deducting 669,777 and 669,777
shares of treasury stock, at $.001 par value, respectively                        |  |                | 25,991      |   |                  |   | 24,691      |  
|Additional paid in capital  preferred                                                                                                                                                                                |  |                | 7,853,487   |   |                  |   | 8,178,454   |  
|Additional paid in capital  common                                                                                                                                                                                   |  |                | 14,735,626  |   |                  |   | 14,411,926  |  
|Less: Treasury stock, cost method, 669,777 and 669,777 shares, respectively                                                                                                                                           |  |                | (299,861    | ) |                  |   | (299,861    | )
|Accumulated deficit                                                                                                                                                                                                   |  |                | (26,546,383 | ) |                  |   | (26,164,793 | )
|Deferred compensation                                                                                                                                                                                                 |  |                | -0-         |   |                  |   | -0-         |  
|                                                                                                                                                                                                                      |  |                |             |   |                  |   |             |  
|TOTAL SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                  |  |                | (4,226,523  | ) |                  |   | (3,844,932  | )
|                                                                                                                                                                                                                      |  |                |             |   |                  |   |             |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                  |  | $              | 253,544     |   |                  | $ | 261,989     |  
|                                                                                                                                                                                                                      |  |                |             |   |                  |   |             |  



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



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIODS ENDED MARCH 31, 2005 AND MARCH 31, 2004

(unaudited)



|                                                        |  |      |            |   |      |   |            |  
|------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                        |  | 2005 |            |   | 2004 |  
|Revenues                                                |  | $    | 410,231    |   |      | $ | 266,561    |  
|                                                        |  |     
|Cost of sales                                           |  |      | 76,450     |   |      |   | 70,188     |  
|                                                        |  |      |            |   |      |   |            |  
|Gross margin                                            |  |      | 333,781    |   |      |   | 196,373    |  
|                                                        |  |     
|Other expenses                                          |  |      |            |   |      |   |            |  
|                                                        |  |     
|Salaries, benefits and related taxes                    |  |      | 464,662    |   |      |   | 441,980    |  
|Rent & occupancy expenses                               |  |      | 37,635     |   |      |   | 37,936     |  
|Legal and professional fees                             |  |      | 42,441     |   |      |   | 34,254     |  
|Travel                                                  |  |      | 31,506     |   |      |   | 10,992     |  
|Telephone and internet                                  |  |      | 16,911     |   |      |   | 15,536     |  
|Selling, general and administrative                     |  |      | 47,611     |   |      |   | 38,961     |  
|Interest expense, net                                   |  |      | 60,535     |   |      |   | 42,587     |  
|Depreciation and amortization                           |  |      | 14,070     |   |      |   | 35,963     |  
|                                                        |  |      |            |   |      |   |            |  
|Total other expenses                                    |  |      | 715,371    |   |      |   | 658,209    |  
|                                                        |  |      |            |   |      |   |            |  
|(Loss) before taxes and preferred dividends             |  |      | (381,590   | ) |      |   | (461,836   | )
|                                                        |  |     
|Income tax expense (benefit)                            |  |      | -0-        |   |      |   | -0-        |  
|                                                        |  |      |            |   |      |   |            |  
|Net income (loss)                                       |  |      | (381,590   | ) |      |   | (461,836   | )
|                                                        |  |     
|Preferred stock dividends in arrears Series A Preferred |  |      | (50,637    | ) |      |   | (51,200    | )
|Preferred stock dividends in arrears Series B Preferred |  |      | (16,263    | ) |      |   | (27,674    | )
|Preferred stock dividends in arrears Series C Preferred |  |      | (66,506    | ) |      |   | (67,245    | )
|                                                        |  |      |            |   |      |   |            |  
|Total preferred stock dividends                         |  |      | (133,406   | ) |      |   | (146,119   | )
|                                                        |  |      |            |   |      |   |            |  
|Net income (loss) attributable to common stockholders   |  | $    | (514,996   | ) |      | $ | (607,955   | )
|                                                        |  |      |            |   |      |   |            |  
|Net (loss) per share                                    |  | $    | (0.02      | ) |      | $ | (0.03      | )
|                                                        |  |      |            |   |      |   |            |  
|Weighted average number of shares outstanding           |  |      | 24,668,194 |   |      |   | 18,699,277 |  
|                                                        |  |      |            |   |      |   |            |  



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 PERIODS ENDED MARCH 31, 2005 AND MARCH 31, 2004

(unaudited)



|                                                                                           |  |      |          |   |      |   |          |  
|------------------------------------------------------------------------------------------ |  | ---- | -------- | - | ---- | - | -------- | -
|                                                                                           |  | 2005 |          |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                       |  |      |          |   |      |   |          |  
|Net income (loss)                                                                          |  | $    | (381,590 | ) |      | $ | (461,836 | )
|Adjustment to reconcile net income to net cash provided by (used in) operating activities: |  |      |          |   |      |   |          |  
|Depreciation and amortization                                                              |  |      | 14,070   |   |      |   | 35,963   |  
|Amortization of deferred compensation                                                      |  |      | -0-      |   |      |   | 8,700    |  
|Change in assets and liabilities:                                                          |  |      |          |   |      |   |          |  
|Accounts receivable                                                                        |  |      | (20,031  | ) |      |   | 65,620   |  
|Prepaid expenses                                                                           |  |      | (34,968  | ) |      |   | (3,377   | )
|Accounts payable and accrued expenses                                                      |  |      | 375,514  |   |      |   | 189,531  |  
|Deferred revenue                                                                           |  |      | (24,372  | ) |      |   | (106,937 | )
|                                                                                           |  |      |          |   |      |   |          |  
|Net cash provided by (used in) operating activities                                        |  |      | (71,377  | ) |      |   | (272,336 | )
|                                                                                           |  |      |          |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                       |  |      |          |   |      |   |          |  
|Purchase of property and equipment                                                         |  |      | (11,680  | ) |      |   | -0-      |  
|                                                                                           |  |      |          |   |      |   |          |  
|Net cash provided by (used in) investing activities                                        |  |      | (11,680  | ) |      |   | -0-      |  
|                                                                                           |  |      |          |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                       |  |      |          |   |      |   |          |  
|Proceeds from notes payable                                                                |  |      | 22,000   |   |      |   | 276,000  |  
|                                                                                           |  |      |          |   |      |   |          |  
|Net cash provided by (used in) financing activities                                        |  |      | 22,000   |   |      |   | 276,000  |  
|                                                                                           |  |      |          |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents                                       |  |      | (61,057  | ) |      |   | 3,664    |  
|Cash and cash equivalents at beginning of period                                           |  |      | 65,695   |   |      |   | 1,977    |  
|                                                                                           |  |      |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                                 |  | $    | 4,638    |   |      | $ | 5,641    |  
|                                                                                           |  |      |          |   |      |   |          |  



|                                                         |  |                                |         |      |   |        
|-------------------------------------------------------- |  | ------------------------------ | ------- | ---- | - | -------
|                                                         |  | For the periods endedMarch 31,
|                                                         |  | 2005                           |         | 2004
|Supplemental Disclosure of Cash Flow Information:        |  |                                |         |      |   |        
|Cash paid during the period for:                         |  |                                |         |      |   |        
|                                                         |  |                               
|Income tax                                               |  | $                              | -0-     |      | $ | -0-    
|                                                         |  |                                |         |      |   |        
|Interest                                                 |  | $                              | 2,500   |      | $ | -0-    
|                                                         |  |                                |         |      |   |        
|Non-cash Transactions                                    |  |                                |         |      |   |        
|Conversion of Series B Preferred Stock into common stock |  | $                              | 325,000 |      | $ | 262,500



See accompanying
summary of accounting policies and notes to financial statements



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS



OmniComm Systems, Inc. is a healthcare technology company that provides Web-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 trial data.



NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION



The Companys accounts include those of its three wholly
owned subsidiaries, OmniCommerce, WebIPA, Inc. and OmniTrial B.V and have been prepared in conformity with (i) accounting principles generally accepted in the United States of America; 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 the consolidated 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 2004 financial statements to conform to the 2005 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 consolidated 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. Our top five customers accounted for approximately 64% of our revenues
during 2005 and approximately 66% of our revenues during 2004. Three customers accounted individually for 10% or more of our revenues during 2005.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



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.



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 March 31, 2005 the Company had $410,585 in deferred revenues
relating to contracts for services to be performed over periods ranging from 1 month 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. The Company will periodically record deferred revenues relating to advance payments in contracts.



ADVERTISING



Advertising costs are expensed as incurred. Advertising costs were $515 and
$(1,015) for the three months ended March 31, 2005 and 2004, 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 Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed, (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 $126,899 and $182,385 for the three
months ended March 31, 2005 and 2004 respectively.



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



EMPLOYEE EQUITY INCENTIVE PLANS



The company has an employee equity incentive plan, which is more fully
described in Note 13: Employee Equity Incentive Plans. The company accounts for its equity incentive plan under the intrinsic value recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees and related interpretations. The exercise price of options is equal to the market price of OmniComm Systems common stock (defined as the closing bid price reported on the NASDAQ OTC Bulletin-Board) on the date of
grant. Accordingly, no stock-based compensation is recognized in the Consolidated Statements of Operations. The following table illustrates the effect on net income and earnings per share as if the company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, as amended, SFAS 123, to options granted under the stock options plan. For purpose of this pro-forma disclosure, the
value of the options is estimated using a Black-Scholes option pricing model. Because the estimated value is determined as of the date of grant, the actual value ultimately realized by the employee may be significantly different.



|                                                                                                                                            |  |                         |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                                            |  | Periods Ended March 31, |       
|(in thousands, except for per share data)                                                                                                   |  | 2005                    |        |   | 2004 |  
|Net loss available to common stockholders as reported                                                                                       |  | $                       | (515   | ) |      | $ | (608   | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                         | (23    | ) |      |   | (17    | )
|                                                                                                                                            |  |                         |        |   |      |   |        |  
|Pro forma net loss available to common stockholders                                                                                         |  | $                       | (538   | ) |      | $ | (625   | )
|                                                                                                                                            |  |                         |        |   |      |   |        |  
|Weighted average number of common shares outstanding used to compute net income (loss) per common sharebasic and diluted                   |  |                         | 24,668 |   |      |   | 18,699 |  
|                                                                                                                                            |  |                         |        |   |      |   |        |  
|Reported basic and diluted net loss per common share                                                                                        |  | $                       | (0.02  | ) |      | $ | (0.03  | )
|                                                                                                                                            |  |                         |        |   |      |   |        |  
|Pro forma basic and diluted net loss per common share                                                                                       |  | $                       | (0.02  | ) |      | $ | (0.03  | )
|                                                                                                                                            |  |                         |        |   |      |   |        |  



SFAS No. 123 requires
the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option pricing model was developed for use in estimating the fair value of short-lived exchange-traded options that have no vesting
restrictions and are fully transferable. The companys employee stock options have characteristics significantly different from those of traded options. In addition, option pricing models require the input of highly subjective assumptions,
including the options expected life and the price volatility of the underlying stock, and changes in the subjective input assumptions can materially affect the fair value estimate of employee stock options.



The estimated value of employee stock options granted during the period
ended March 31, 2005 was $-0- ($-0- for the period ended March 31, 2004). The value of options granted in 2005 and 2004 was estimated at the date of grant using the following assumptions:



|                              |  |         |   |  |         |  
|----------------------------- |  | ------- | - |  | ------- | -
|                              |  | 2005    |   |  | 2004    |  
|Risk-free interest rate       |  | 2.07    | % |  | 2.90    | %
|Expected years until exercise |  | 6 Years |   |  | 6 Years |  
|Expected stock volatility     |  | 107.3   | % |  | 113.8   | %
|Dividend yield                |  | 0       | % |  | 0       | %



An analysis of
historical information is used to determine the companys assumptions, to the extent historical information is relevant based on the terms of the grants being issued in any given period.



8



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



EARNINGS PER SHARE



The Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 128, Earnings per Share, (SFAS 128) 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 24,668,194 and 18,699,277 for the periods ended March 31, 2005 and 2004, respectively. There were no differences between basic and diluted earnings per share. Options to purchase 4,562,770
shares of common stock at prices ranging from $.15 to $5.50 per share were outstanding at March 31, 2005. Stock warrants to purchase 16,996,296 shares of common stock at prices ranging from $0.25 to $10.00 per share were outstanding at March 31,
2005. 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. The Companys convertible debt and convertible preferred stock have an anti-dilutive effect on net loss per share.



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 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.



INCOME TAXES



The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes., SFAS 109. 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



In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R requires employee stock options and rights to purchase
shares under stock participation plans to be accounted for under the fair value method, and eliminates the ability to account for these instruments under the intrinsic value method prescribed by APB Opinion No. 25, and allowed under the original
provisions of SFAS No. 123. SFAS No. 123R requires the use of an option pricing model for estimating fair value, which is amortized to expense over the service periods.



9



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



The requirements of SFAS No. 123R are effective for fiscal periods beginning
after June 15, 2005. If the company had applied the provisions of SFAS No. 123R to the financial statements for the period ending March 31, 2005, net income would have been reduced by approximately $23,000. SFAS No. 123R allows for either
prospective recognition of compensation expense or retrospective recognition, which may be back to the original issuance of SFAS No. 123 or only to interim periods in the year of adoption. The company is currently evaluating these transition
methods.



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 may 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 March 31, 2005
there is doubt about the Companys ability to continue as a going concern.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



NOTE 4: PROPERTY AND EQUIPMENT, AT COST



Property and equipment consists of the following:



|                              |  |                |         |                         |   |                       |  |                         |         |  |   |         |  |        
|----------------------------- |  | -------------- | ------- | ----------------------- | - | --------------------- |  | ----------------------- | ------- |  | - | ------- |  | -------
|                              |  | March 31, 2005 |         | December 31, 2004       |   | EstimatedUseful Lives
|                              |  | Cost           |         | AccumulatedDepreciation |   | Cost                  |  | AccumulatedDepreciation |        
|Computer and office equipment |  | $              | 446,395 |                         | $ | 431,229               |  | $                       | 443,960 |  | $ | 419,773 |  | 5 years
|Leasehold improvements        |  |                | 3,299   |                         |   | 2,877                 |  |                         | 3,299   |  |   | 2,712   |  | 5 years
|Computer software             |  |                | 279,114 |                         |   | 268,714               |  |                         | 269,869 |  |   | 267,475 |  | 3 years
|Office furniture              |  |                | 52,950  |                         |   | 46,413                |  |                         | 52,950  |  |   | 45,203  |  | 5 years
|                              |  |                |         |                         |   |                       |  |                         |         |  |   |         |  |        
|                              |  | $              | 781,758 |                         | $ | 749,233               |  | $                       | 770,078 |  | $ | 735,163 |  |        
|                              |  |                |         |                         |   |                       |  |                         |         |  |   |         |  |        



Depreciation expense
for the periods ended March 31, 2005 and 2004 was $14,070 and $35,963 respectively.



NOTE 5: ACCOUNTS PAYABLE AND ACCRUED EXPENSES



Accounts payable and accrued expenses consist of the following:



|                                            |  |                |           |                   |   |        
|------------------------------------------- |  | -------------- | --------- | ----------------- | - | -------
|                                            |  | March 31, 2005 |           | December 31, 2004
|Accounts payable                            |  | $              | 413,122   |                   | $ | 258,909
|Accrued payroll and related costs           |  |                | 47,674    |                   |   | 34,808 
|Other accrued expenses                      |  |                | 216,427   |                   |   | 216,427
|Accrued interest                            |  |                | 245,545   |                   |   | 187,429
|Accrued expenses of OmniTrial BV            |  |                | 127,519   |                   |   | 127,519
|                                            |  |                |           |                   |   |        
|Total accounts payable and accrued expenses |  | $              | 1,050,287 |                   | $ | 825,092
|                                            |  |                |           |                   |   |        



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 2004 and accrued legal fees associated with the sale of Series C Convertible Preferred Stock.



NOTE 6: EARNINGS PER SHARE



Basic earnings per share (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 45,981,065 and 46,891,795 have been omitted from the calculation of dilutive EPS for the periods ended March 31, 2005 and March 31, 2004, respectively. A reconciliation between numerators and denominators of the basic and diluted
earnings per shares is as follows:



|                                    |  |                 |          |   |                   |            |                 |   |       |                 |  |   |                   |   |                 |            |  |   |       |  
|----------------------------------- |  | --------------- | -------- | - | ----------------- | ---------- | --------------- | - | ----- | --------------- |  | - | ----------------- | - | --------------- | ---------- |  | - | ----- | -
|                                    |  | March 31, 2005  |          |   | March 31, 2004    |           
|                                    |  | IncomeNumerator |          |   | SharesDenominator |            | Per-ShareAmount |   |       | IncomeNumerator |  |   | SharesDenominator |   | Per-ShareAmount |           
|Basic EPS                           |  | $               | (514,996 | ) |                   | 24,668,194 |                 | $ | (0.02 | )               |  | $ | (607,955          | ) |                 | 18,699,277 |  | $ | (0.03 | )
|Effect of Dilutive Securities None. |  |                 | -0-      |   |                   | -0-        |                 |   | -0-   |                 |  |   | -0-               |   |                 | -0-        |  |   | -0-   |  
|                                    |  |                 |          |   |                   |            |                 |   |       |                 |  |   |                   |   |                 |            |  |   |       |  
|Diluted EPS                         |  | $               | (514,996 | ) |                   | 24,668,194 |                 | $ | (0.02 | )               |  | $ | (607,955          | ) |                 | 18,699,277 |  | $ | (0.03 | )



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



NOTE 7: NOTES PAYABLE



At March 31, 2005, the Company owed $2,489,929 in notes payable. The table
below provides details as to the terms and conditions of the notes payable.



| |  |                 |  |            |  |              |   |  |        |           |           |   |           |  |   |          
| |  | --------------- |  | ---------- |  | ------------ | - |  | ------ | --------- | --------- | - | --------- |  | - | ---------
| |  | OriginationDate |  | Due Date   |  | InterestRate |   |  | Amount |           | ShortTerm |   | Long Term
| |  | 6/30/2004       |  | 10/31/2006 |  | 9.0          | % |  | $      | 364,758   |           | $ | 0         |  | $ | 364,758  
| |  | 6/30/2004       |  | 10/31/2006 |  | 9.0          | % |  |        | 596,052   |           |   | 0         |  |   | 596,052  
| |  | 7/31/2002       |  | 10/31/2005 |  | 9.0          | % |  |        | 20,000    |           |   | 0         |  |   | 20,000   
| |  | 11/25/2002      |  | 1/31/2007  |  | 9.0          | % |  |        | 6,000     |           |   | 0         |  |   | 6,000    
| |  | 6/30/2004       |  | 10/31/2006 |  | 9.0          | % |  |        | 483,984   |           |   | 0         |  |   | 483,984  
| |  | 8/15/2003       |  | 1/31/2007  |  | 9.0          | % |  |        | 100,000   |           |   | 0         |  |   | 100,000  
| |  | 6/30/2004       |  | 10/31/2006 |  | 9.0          | % |  |        | 450,875   |           |   | 0         |  |   | 450,875  
| |  | 12/31/2004      |  | 10/31/2006 |  | 9.0          | % |  |        | 107,950   |           |   | 0         |  |   | 107,950  
| |  | 1/30/2004       |  | 10/31/2006 |  | 9.0          | % |  |        | 100,000   |           |   | 0         |  |   | 100,000  
| |  | 11/7/2003       |  | 10/31/2006 |  | 9.0          | % |  |        | 238,310   |           |   | 0         |  |   | 238,310  
| |  | 3/31/2005       |  | 1/31/2007  |  | 9.00         | % |  |        | 22,000    |           |   | 0         |  |   | 22,000   
| |  |                 |  |            |  |              |   |  |        |           |           |   |           |  |   |          
| |  |                 |  |            |  |              |   |  | $      | 2,489,929 |           | $ | 0         |  | $ | 2,489,929
| |  |                 |  |            |  |              |   |  |        |           |           |   |           |  |   |          



NOTE 8: 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 was June 30, 2004, into shares
of common stock of the Company at $1.25 per share. As of March 31, 2005 approximately $607,500 of the Convertible Notes had been converted into 816,000 shares of common stock of the Company leaving an outstanding principal balance of $255,000.



The Company is currently in default on interest payments owed
totaling $74,972 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.



NOTE 9: 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 March 31, 2005 are as follows:



|      |  |   |        
|----- |  | - | -------
|2005  |  | $ | 83,058 
|2006  |  |   | 62,280 
|2007  |  |   | 51,900 
|2008  |  |   | 0      
|2009  |  |   | 0      
|      |  |   |        
|Total |  | $ | 197,238
|      |  |   |        



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



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 $37,635 and $37,936 for the periods ended March 31, 2005 and 2004, respectively.



EMPLOYMENT AGREEMENTS



In December 2004, we entered into an employment agreement with Mr. Cornelis
F. Wit to serve as our Chief Executive Officer and President through December 31, 2005. Mr. Wit receives an annual salary of $205,700 payable in cash and/or stock plus a bonus tied to our operating results. As part of the agreement incentive options
are awardable under the agreement 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 2004, we entered into a one-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 $200,000 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. 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. The agreement renews automatically for one-year terms unless expressly cancelled by either Mr. Smith or the Company in writing ninety (90) days prior to termination of the term.



In September 2004, we entered into a one-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 $167,440 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. 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.
The agreement renews automatically for one-year terms unless expressly cancelled by either Mr. Linares or the Company in writing ninety (90) days prior to termination of the term.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



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 $171,600 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 May 2004, the Company extended its financial advisory agreement with
Noesis Capital. Under the agreement Noesis Capital will 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 annually. The advisory amendment changed the termination date to December 31, 2005.



NOTE 10: RELATED PARTY TRANSACTIONS



Guus van Kesteren, a member of our board of directors, is a consultant to Noesis Capital Corp.



Between February 2001 and July 2001, we borrowed an aggregate of $190,000
from Guus van Kesteren 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. This note was
amended in September 2004 extending the maturity date to October 2006.



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. This note was amended and restated extending the maturity date to January 31, 2007.



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 in September 2004 extending the maturity
date to October 31, 2006.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



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 in September 2004 extending the maturity date to October 31, 2006.



From September to November 2003 we borrowed $262,000 from Cornelis Wit, our
President and Chief Executive Officer, and a member of our board of directors. These amounts were borrowed under promissory notes bearing interest at 9% per annum with maturity dates ranging from January 31, 2005 to October 31, 2005. These notes
were amended and restated on September 30, 2004 under the terms of a new note bearing interest at 9% interest payable on October 31, 2006.



From February to June 2004, the Company borrowed $106,000 from Guus van Kesteren, a Company Director. These amounts were borrowed under promissory notes
bearing interest at 9% per annum with maturity dates ranging from January 31, 2006 to October 31, 2006. These notes were amended and restated on June 30, 2004 under the terms of a new note bearing interest at 9% interest payable on October 31, 2006.



From January to June 2004, the Company borrowed $153,500 from
Cornelis Wit, the Companys President and Chief Executive Officer and a Director. These amounts were borrowed under promissory notes bearing interest at 9% per annum with maturity dates ranging from January 31, 2006 to October 31, 2006. These
notes were amended and restated on June 30, 2004 under the terms of a new note bearing interest at 9% interest payable on October 31, 2006.



In March 2005, the Company borrowed $22,000 from Cornelis Wit, the Companys President and Chief Executive Officer and a Director. These amounts were
borrowed under a promissory note bearing interest at 9% per annum payable on January 31, 2007.



NOTE 11: 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 Statement of
Financial Accounting Standards No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions or Statement of Financial Accounting Standards No. 112, Employers Accounting for Post-employment Benefits
 an Amendment of FASB Statements No. 5 and 43.



NOTE 12:
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 May 10, 2005 we had the following outstanding securities:



| |  |  | 25,365,972 shares of common stock issued and outstanding;
| | - |  | ---------------------------------------------------------



| |  |  | 16,996,296 warrants issued and outstanding to purchase shares of our common stock;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | 4,215,224 shares of our Series A Preferred Stock issued and outstanding,
| | - |  | ------------------------------------------------------------------------



| |  |  | 65,000 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.
| | - |  | ----------------------



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



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 are duly authorized, validly issued, fully paid and non-assessable.



From January 2004 through October 2004, we sold an aggregate of 3,000,000 shares of our common stock resulting in gross proceeds of $750,000. None of
these investors, other than Cornelis Wit our CEO, President and a Director and Guus van Kesteren, a Director, were our affiliates. Noesis Capital Corp., an NASD member firm, acted as placement agent in the offering and as compensation therefore
received a commission equal to 8% of the sales made by it, or an aggregate of $54,000, a non-accountable expense allowance equal to 2% of the sales made by it, or an aggregate of $13,500 and a warrant to purchase at $0.25 per share, 10% of the
shares sold, or 270,000 shares of our common stock. An estimated fair value of $54,449 was calculated for the warrants granted to Noesis Capital utilizing the Black-Scholes option pricing model.



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.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



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 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There were arrearages of $546,884 and $496,247 on the Series A Preferred Stock for undeclared dividends as of March 31, 2005 and December 31, 2004, respectively.



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 65,000 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
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



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 $478,842 and $462,579 on the Series B Preferred Stock for undeclared dividends as of March 31, 2005 and December 31, 2004, respectively.



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,
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



| |  |  | 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 $659,695 and $593,189 on the Series C Preferred Stock for undeclared dividends as of March 31, 2005 and December 31, 2004, respectively.



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 16,996,296 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 894,896 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 388,400 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | warrants to purchase 270,000 shares of our common stock at an exercise price of $.25 per share expiring December 2009 which were issued by us in connection with a private placement
of common stock that occurred during 2004, which warrants contain a cashless exercise provision and piggyback registration rights.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



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.



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 were 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. From 2000 to 2004, certain of the note holders converted an aggregate of $607,500 principal amount of the notes according to their terms into 816,000 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.



NOTE 13: EMPLOYEE EQUITY INCENTIVE PLANS



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 7,500,000 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. As of March 31, 2005, substantially all of the companys employees were participating in the 1998 Plan. Options granted under the 1998 Plan will generally expire seven years from the date of grant
for most employees and five years from the date of grant for officers and directors of the company.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



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



|                                   |  |                              |  |                              |      |         |           |                              |   |     
|---------------------------------- |  | ---------------------------- |  | ---------------------------- | ---- | ------- | --------- | ---------------------------- | - | ----
|                                   |  | Quarter Ended March 31, 2005 |  | Quarter Ended March 31, 2004
|                                   |  | Options                      |  | WeightedAverageExercisePrice |      | Options |           | WeightedAverageExercisePrice
|Outstanding at beginning of period |  | 4,562,770                    |  | $                            | 0.59 |         | 3,593,500 |                              | $ | 0.83
|Granted                            |  | -0-                          |  | $                            | 0.00 |         | 1,192,270 |                              | $ | 0.25
|Exercised                          |  | -0-                          |  | $                            | 0.00 |         | -0-       |                              | $ | 0.00
|Cancelled                          |  | -0-                          |  | $                            | 0.00 |         | 223,000   |                              | $ | 0.41
|                                   |  |                              |  |                              |      |         |           |                              |   |     
|Outstanding at end of period       |  | 4,562,770                    |  | $                            | 0.59 |         | 4,562,770 |                              | $ | 0.59
|                                   |  |                              |  |                              |      |         |           |                              |   |     
|Exercisable at end of period       |  | 4,226,770                    |  | $                            | 0.49 |         | 4,076,770 |                              | $ | 0.50
|                                   |  |                              |  |                              |      |         |           |                              |   |     



The following table
summarizes information about stock options outstanding at March 31, 2005:



|                         |  |                  |  |                                                 |  |                              |      |                  |           |                              |   |     
|------------------------ |  | ---------------- |  | ----------------------------------------------- |  | ---------------------------- | ---- | ---------------- | --------- | ---------------------------- | - | ----
|                         |  | Outstanding      |  | Exercisable                                    
|Range of Exercise Prices |  | Number ofOptions |  | WeightedAverageRemainingYears ofContractualLife |  | WeightedAverageExercisePrice |      | Number ofOptions |           | WeightedAverageExercisePrice
|$0.25 - $0.47            |  | 3,977,770        |  | 3,90                                            |  | $                            | 0.29 |                  | 3,641,770 |                              | $ | 0.29
|$0.50 - $0.80            |  | 257,000          |  | 5.02                                            |  | $                            | 0.54 |                  | 257,000   |                              | $ | 0.54
|$1.00 - $2.75            |  | 328,000          |  | 0.38                                            |  | $                            | 2.09 |                  | 328,000   |                              | $ | 2.09



NOTE 14: INCOME TAXES



The tax expense (benefit) for income taxes differs from
the amount computed by applying the statutory federal income tax rate of 34% to income (loss) before provision (benefit) for income taxes as follows:



|                                      |  |          |          |   |          |   |          |  
|------------------------------------- |  | -------- | -------- | - | -------- | - | -------- | -
|                                      |  | 03/31/05 |          |   | 03/31/04 |  
|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           |  |          | (143,593 | ) |          |   | (173,789 | )
|                                      |  |          |          |   |          |   |          |  
|                                      |  |          | (143,593 | ) |          |   | (173,789 | )
|                                      |  |          |          |   |          |   |          |  
|Valuation allowance                   |  |          | 143,593  |   |          |   | 173,789  |  
|                                      |  |          |          |   |          |   |          |  
|Total tax expense (benefit)           |  | $        | -0-      |   |          | $ | -0-      |  
|                                      |  |          |          |   |          |   |          |  



Deferred income taxes
reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and
liabilities are as follows:



|                             |  |          |            |   |          |   |            |  
|---------------------------- |  | -------- | ---------- | - | -------- | - | ---------- | -
|                             |  | 03/31/05 |            |   | 12/31/04 |  
|Deferred tax assets:         |  |          |            |   |          |   |            |  
|Amortization of intangibles  |  | $        | 283,698    |   |          | $ | 283,698    |  
|Operating loss carryforwards |  |          | 7,111,073  |   |          |   | 6,967,480  |  
|                             |  |          |            |   |          |   |            |  
|Gross deferred tax assets    |  |          | 7,394,771  |   |          |   | 7,251,178  |  
|                             |  |          |            |   |          |   |            |  
|Valuation allowance          |  |          | (7,394,771 | ) |          |   | (7,251,178 | )
|                             |  |          |            |   |          |   |            |  
|Net deferred tax asset       |  | $        | -0-        |   |          | $ | -0-        |  
|                             |  |          |            |   |          |   |            |  



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)



The Company has net operating loss carryforwards (NOL) for income tax
purposes of approximately $18,885,257. 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 March 31, 2005.



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##### Table of Contents

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



General



The following information
should be read in conjunction with the Consolidated Unaudited 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 timing, costs and of the
acquisition of, or investments in, existing business, the revenue or profitability levels of such businesses, 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. The Company does not undertake any obligation to update or revise any forward-looking statement made
by it or on its behalf, whether as a result of new information, future events or otherwise.



Overview



We are a healthcare
technology company that provides electronic data capture (EDC) solutions and related value-added services to pharmaceutical and biotechnology companies, clinical research organizations (CRO), and other clinical trial sponsors via our
Web-based software, TrialMaster. TrialMaster 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. Medical Error Reporting System (MERS-TH) is being co-developed with Columbia University. MERS-TH has been designed to provide U.S. and European hospitals and medical centers, a standardized system for
collecting data on medical errors, adverse events and near misses. All of our personnel are involved in the development and marketing of TrialMaster and MERS-TH.



The Period Ended March 31, 2005 Compared With the Period Ended March 31, 2004



Results of Operations



Revenues for the period ended March 31, 2005 were $410,231 compared to $266,561 for the same period in 2004, an increase of 53.9%. The
revenue increase can be attributed to an incremental increase in per project revenue. We have found EDC users receptive to our products and believe our mix of technology and customer oriented design approach allow us to compete favorably. The
combination of a flexible design architecture, robust features and competitive pricing of TrialMaster provide an attractive alternative to potential clients when compared to the products offered by our competitors. TrialMaster 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



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##### Table of Contents

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 case report forms used to collect data and the number of sites utilizing TrialMaster. 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 three 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. 104 Revenue Recognition 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 goods sold increased to $76,450 in 2005 compared to $70,188 in 2004. Cost of goods sold were approximately 18.6% of sales in 2005
compared to 26.3% in fiscal 2004. Salaries have increased during 2005 due to the addition of one additional programmer as part of our trial operations. We used the services of a third party vendor on a European clinical trial conducted during 2004.
Cost of goods sold relates primarily to salaries and related benefits associated with the programmers, developers and systems analysts producing clinical trials on behalf of our clients.



We expect to increase development programming labor costs on an absolute basis as our trial revenues increase. We expect our cost of goods
sold to remain in the 20-30% range during 2005 as we continue to increase follow-on engagements from existing clients and continue to increase the phase I and CRO portions of our client base. TrialMaster V3.0, the latest release of our
trial-building software has improved our ability to reduce trial production related costs since it automates many of the trial building functions that were manually performed in prior releases of our software. We expect the next release of
TrialMaster, V4.0, to increase the efficiency of trial building operations by 20 to 25%. V4.0 is being designed using Microsofts .Net framework. Microsoft® .NET is described by Microsoft as a set of software technologies for connecting information, people, systems, and
devices. This new generation of technology is based on Web servicessmall building-block applications that can connect to each other as well as to other, larger applications over the Internet.



Salaries and related expenses are our biggest expense at 65.0% of total Other Expenses for
2005. Salaries and related expenses totaled $464,662 in 2005 compared to $441,880 in 2004, an increase of 5.1%. We currently employ approximately 14 employees out of our Davie, Florida corporate office and have four out-of-state employees. We expect
to increase headcount by about 25% within our production function in concert with anticipated increases in TrialMaster clients during fiscal 2005. We will look to selectively add experienced sales and marketing personnel in 2005 in an effort to
increase our market penetration and to continue broadening our client base.



Rent and related expenses decreased by $301 during the three months ended March 31, 2005 compared to the same period in 2004. Our corporate office lease was extended through September 2005. In December 2001, we established a disaster
recovery site at an IBM owned Co-Location facility in Atlanta, Georgia and will continue utilizing this facility for the foreseeable future since it is designed to ensure 100% system up-time and to provide system redundancy.



Legal and professional fees totaled $42,441 in 2005 compared with $34,254 in fiscal 2004. An
increase of approximately $8,187.



Selling, general and administrative expenses
(SGA) were $47,611 during 2005 compared to $38,961 in 2004, an increase of 22.2%. 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.



Net interest expense was $60,535 for the first three months of 2005 versus $42,587 in fiscal 2004, an increase of $17,948 or 42.1%. We
evaluate the cost of capital available to us in combination with our overall capital structure in deciding what financing best fulfills our short and long-term capital needs. During the first three months of fiscal 2005 we issued a $22,000
promissory note. During fiscal 2004, we issued $1,024,099 in promissory notes. The increase in interest expense can primarily be attributed to the increase in debt incurred in fiscal 2004.



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##### Table of Contents

There were arrearages of $50,637 in 5% Series A Preferred Stock dividends, $16,263 in Series B Preferred Stock dividends
and $66,506 in Series C Preferred Stock dividends at March 31, 2005, compared with arrearages of $51,200 in 5% Series A Preferred Stock dividends, $27,674 in Series B Preferred Stock dividends and $67,245 in Series C Preferred Stock dividends at
March 31, 2004. We deducted $133,406 and $146,119 from Net Income (Loss) Attributable to Common Stockholders for the periods ended March 31, 2005 and March 31 2004, respectively, relating to undeclared Series A, B and C Convertible Preferred
Stock dividends.



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.



Cash and cash equivalents decreased by $61,057 from $65,695 to $4,368 at March 31, 2005. This
was the result of cash provided by financing activities of $22,000 offset by cash used in operating activities of approximately $71,377 and $11,680 used in investing activities. The significant components of the activity include a loss from
operations of approximately $381,590 offset by non-cash expenses of $310,214 and approximately $22,000 we raised through the issuance of debt and equity securities offset by $11,680 used in investing activities and increases in cash of $296,144 from
changes in working capital accounts.



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 commitments for capital expenditures.



Contractual Obligations



The following table sets forth our contractual obligations as of March 31, 2005:



|                             |  |                 |           |                        |           |         |          |  |                |           |  |   |     |  |   |    
|---------------------------- |  | --------------- | --------- | ---------------------- | --------- | ------- | -------- |  | -------------- | --------- |  | - | --- |  | - | ---
|Contractual Obligations      |  | Total           |           | Payments Due by Period
|                             |  | Less than 1year |           |                        | 1-3 Years |         | 3-5Years |  | Morethan5Years
|Long Term Debt (1)           |  | $               | 2,744,930 |                        | $         | 255,000 | (2)      |  |                | 2,489,930 |  | $ | -0- |  | $ | -0-
|Operating Lease Obligations  |  |                 | 192,048   |                        |           | 98,628  |          |  |                | 93,420    |  |   | -0- |  |   | -0-
|Financial Advisory Agreement |  |                 | 67,500    |                        |           | 67,500  |          |  |                | -0-       |  |   | -0- |  |   | -0-
|                             |  |                 |           |                        |           |         |          |  |                |           |  |   |     |  |   |    
|Total                        |  | $               | 3,004,478 |                        | $         | 421,128 |          |  | $              | 2,583,350 |  | $ | -0- |  | $ | -0-
|                             |  |                 |           |                        |           |         |          |  |                |           |  |   |     |  |   |    

---

|1. | Amounts do not include interest to be paid.
|-- | -------------------------------------------

|2. | Includes $255,000 of convertible notes that are convertible into shares of common stock at the option of the debenture holder at a conversion rates $1.25 per share.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.



We are currently in arrears on principal and interest payments owed totaling
$329,972 on our 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.



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We have been operating with a cash burn rate since beginning our EDC operations. In order to manage cash flows, we have
issued preferred stock, common stock and debt to satisfy operating expenses and obligations. From April 2004 through November 2004 we sold an aggregate of 3,000,000 shares of our common stock for gross proceeds of $750,000. We accrued $67,500 in
transaction fees leaving net proceeds to us of $682,500.



Our selling efforts
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 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 will also increase the credibility of the company.



We feel that the momentum established from new client acquisitions and our ability to retain
clients for repeat engagements provide a good operating base from which to build during 2005. We expect to continue increasing the level of resources deployed in our sales and marketing efforts. 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 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 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 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 our significant losses, negative cash flows from operations,



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and accumulated deficits for the periods ending March 31, 2005, there is doubt about our ability to continue as a going
concern. In addition, our auditors Greenberg and Company, included language which qualified their opinion regarding our ability to continue as a going concern in their report dated February 11, 2005.



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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 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) 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.



Our Management believes 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 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 record revenues over the estimated lives of the contracts.



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STOCK BASED COMPENSATION.



Options granted to employees under our Stock Option Plan are accounted for by using the intrinsic value method under APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). In October 1995, the Financial Accounting Standards Board (FASB) issued Statement No.123, Accounting for Stock-Based Compensation (SFAS No. 123), which defines a fair value
based method of accounting for stock options. All stock based compensation issued to individuals, other than employees and directors such compensation which is accounted for in accordance with APB Opinion No. 25, are accounted for in accordance with
SFAS No. 123, as amended by SFAS No.148.



EFFECT OF RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS



In December 2004, the FASB issued SFAS No.
123R, Share-Based Payment. SFAS No. 123R requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair value method, and eliminates the ability to account for these
instruments under the intrinsic value method prescribed by APB Opinion No. 25, and allowed under the original provisions of SFAS No. 123. SFAS No. 123R requires the use of an option pricing model for estimating fair value, which is amortized to
expense over the service periods. The requirements of SFAS No. 123R are effective for fiscal periods beginning after June 15, 2005. If the company had applied the provisions of SFAS No. 123R to the financial statements for the period ending December
31, 2004, net income would have been reduced by approximately $258 thousand. SFAS No. 123R allows for either prospective recognition of compensation expense or retrospective recognition, which may be back to the original issuance of SFAS No. 123 or
only to interim periods in the year of adoption. The company is currently evaluating these transition methods.



ITEM 3. CONTROLS AND PROCEDURES



Based on their
evaluation as of the end of the period covered by this Quarterly Report on Form 10-QSB, being March 31, 2005, the Companys principal executive officer and principal financial officer have concluded that the Companys disclosure controls
and procedures as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.



There were no significant changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the date of
their evaluation and up to the filing date of this Quarterly Report on Form 10-QSB. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken.



It should be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other
inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.



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PART II OTHER INFORMATION



ITEM 6. 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                                                                                                                                                               
|10.13       |  | Amended and Restated Promissory Note between the Company and Cornelis F. Wit, dated March 31, 2005                                                                        
|            | 
|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.                        



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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: |  | May 19, 2005                                                                        
|      | 
|By:   |  | /s/ Ronald T. Linares                                                               
|      |  | Ronald T. Linares, Vice President of Finance, Chief Financial and Accounting Officer
|Date: |  | May 19, 2005                                                                        



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Exhibit Index



|            |  |                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                               
|10.13       |  | Amended and Restated Promissory Note between the Company and Cornelis F. Wit, dated March 31, 2005                                                                        
|            | 
|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.                        



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