##### 



SECURITIES AND EXCHANGE COMISSION
Washington, D.C. 20549

FORM 10-QSB

Mark One}

|     |  |                                                                                                                                      
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------
|[X]  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended MARCH 31, 2002
|     |  |                                                                                                                                      
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from      to      

Commission file number: 0-25203

OMNICOMM SYSTEMS, INC.

(Name of small business issuer in its charter)

|                              |  |                          
|----------------------------- |  | -------------------------
|Delaware                      |  | 11-3349762               
|                              |  |                          
|(State of incorporation)      |  | (IRS employer Ident. No.)
|                              |  |                          
|2555 Davie Road, Suite 110-B  |  | 33133                    
|                              |  |                          
|(Address of principal office) |  | (Zip Code)               

Registrants telephone number: (954) 473-1254

Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] NO [  ]

The number of shares outstanding of each of the issuers classes of
equity as of March 31, 2002: 8,323,697 common stock $.001 par value,
4,215,224 Series A Preferred stock, $.001 par value, 200,000 Series B
Preferred Stock, $.001 par value, 22,450 Series C Preferred Stock, $.001
par value.





---



##### 



OMNICOMM SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS

|                                                     |                                                                                                                                                 |                                      |            |             |             |   |             |             |   |  | 
|---------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ---------- | ----------- | ----------- | - | ----------- | ----------- | - |  | 
|                                                     |                                                                                                                                                 |                                      |            |             | March 31,   |   | December 31
|                                                     |                                                                                                                                                 |                                      |            |             | 2002        |   | 2001       
|                                                     |                                                                                                                                                 |                                      |            |             |             |   |            
|                                                     |                                                                                                                                                 |                                      |            |             | (unaudited) |   |             |             |  
|                                                     |                                                                                                                                                 |                                      | ASSETS     |             |             |   |             |             |   |  | 
|CURRENT ASSETS                                       |                                                                                                                                                 |                                      |            |             |             |   |             |            
|                                                     | Cash                                                                                                                                            |                                      | $          | 1,146       |             |   | $           | 142,826     |  
|                                                     | Accounts receivable                                                                                                                             |                                      |            | 62,884      |             |   |             | 65,705      |  
|                                                     | Prepaid expenses                                                                                                                                |                                      |            | 9,266       |             |   |             | 2,095       |  
|                                                     |                                                                                                                                                 |                                      |            |             |             |   |             |            
|                                                     | Total current assets                                                                                                                            |                                      |            | 73,296      |             |   |             | 210,626     |  
|PROPERTY AND EQUIPMENT, net                          |                                                                                                                                                 |                                      | 381,492    |             |             |   | 421,512     |            
|OTHER ASSETS                                        
|                                                     | Intangible assets, net                                                                                                                          |                                      |            | 5,690       |             |   |             | 48,452      |  
|                                                     | Goodwill, net                                                                                                                                   |                                      |            | -0-         |             |   |             | -0-         |  
|                                                     | Other assets                                                                                                                                    |                                      |            | 5,500       |             |   |             | 5,500       |  
|                                                     |                                                                                                                                                 |                                      |            |             |             |   |             |            
|TOTAL ASSETS                                         |                                                                                                                                                 | $                                    | 465,978    |             |             | $ | 686,090     |            
|                                                     |                                                                                                                                                 |                                      |            |             |             |   |             |            
|                                                     |                                                                                                                                                 |                                      |            |             |             |   |             |            
|                                                     |                                                                                                                                                 | LIABILITIES AND SHAREHOLDERS EQUITY |            |             |             |   |             |             |   | 
|                                                     |                                                                                                                                                 |                                      |            |             |             |   |             |            
|CURRENT LIABILITIES                                  |                                                                                                                                                 |                                      |            |             |             |   |             |            
|                                                     | Accounts payable and accrued expenses                                                                                                           |                                      | $          | 1,617,725   |             |   | $           | 1,026,919   |  
|                                                     | Notes payable  current                                                                                                                         |                                      |            | 242,963     |             |   |             | 242,963     |  
|                                                     | Notes payable related party- current                                                                                                            |                                      |            | 100,664     |             |   |             | 98,322      |  
|                                                     | Deferred revenue                                                                                                                                |                                      |            | 65,567      |             |   |             | 83,085      |  
|                                                     |                                                                                                                                                 |                                      |            |             |             |   |             |            
|                                                     | Total current liabilities                                                                                                                       |                                      |            | 2,026,919   |             |   |             | 1,451,289   |  
|CONVERTIBLE DEBT                                     |                                                                                                                                                 |                                      | 2,065,000  |             |             |   | 2,065,000   |            
|NOTES PAYABLE, net of current portion                |                                                                                                                                                 |                                      | 242,963    |             |             |   | 242,963     |            
|NOTES PAYABLE RELATED PARTY, net of current portion  |                                                                                                                                                 |                                      | 98,322     |             |             |   | 98,322      |            
|                                                     |                                                                                                                                                 |                                      |            |             |             |   |             |            
|TOTAL LIABILITIES                                    |                                                                                                                                                 |                                      | 4,433,204  |             |             |   | 3,857,574   |            
|                                                     |                                                                                                                                                 |                                      |            |             |             |   |             |            
|COMMITMENTS AND CONTINGENCIES                        |                                                                                                                                                 |                                      |            |             |             |   |             |            
|SHAREHOLDERS EQUITY (DEFICIT)                       |                                                                                                                                                 |                                      |            |             |             |   |             |            
|                                                     | Undesignated preferred stock  $.001 par value. 4,022,500 shares                                                                                |                                      |            | -0-         |             |   |             | -0-         |  
|                                                     | authorized, no shares issued and outstanding                                                                                                    |                                      |            |             |             |   |             |             |  
|                                                     | 8% Series B convertible preferred stock,  $.001 par value. 230,000                                                                             |                                      |            | 200         |             |   |             | 200         |  
|                                                     | shares authorized, 200,000 and -0- issued and outstanding,
respectively; liquidation preference $2,000,000 and $-0-, respectively               |                                      |            |             |             |   |             |             |  
|                                                     | 8% Series C convertible preferred stock,  $.001 par value. 747,500                                                                             |                                      |            | 22          |             |   |             | -0-         |  
|                                                     | shares authorized, 22,450 and -0- issued and outstanding, respectively;
liquidation preference $224,500 and $-0-, respectively                  |                                      |            |             |             |   |             |             |  
|                                                     | 5% Series A convertible preferred stock  $.001 par value, 5,000,000                                                                            |                                      |            | 4,215       |             |   |             | 4,215       |  
|                                                     | shares authorized; 4,215,224 and 4,215,224 issued and outstanding,
respectively; liquidation preference $4,215,224 and $4,215,224,
respectively |                                      |            |             |             |   |             |             |  
|                                                     | Common stock - 20,000,000 shares authorized, 8,323,697 issued and                                                                               |                                      |            | 8,944       |             |   |             | 8,944       |  
|                                                     | outstanding, after deducting 620,951 shares of treasury stock, at $.001
par value                                                               |                                      |            |             |             |   |             |             |  
|                                                     | Additional paid in capital  preferred                                                                                                          |                                      |            | 5,562,284   |             |   |             | 5,519,282   |  
|                                                     | Additional paid in capital  common                                                                                                             |                                      |            | 8,716,800   |             |   |             | 8,613,635   |  
|                                                     | Less: Treasury stock, cost method, 620,951 and 620,951 - shares,                                                                                |                                      |            | (293,912    | )           |   |             | (293,912    | )
|                                                     | respectively                                                                                                                                   
|                                                     | Accumulated deficit                                                                                                                             |                                      |            | (17,878,232 | )           |   |             | (16,932,609 | )
|                                                     | Deferred compensation                                                                                                                           |                                      |            | (86,407     | )           |   |             | (90,099     | )
|                                                     | Subscriptions receivable                                                                                                                        |                                      |            | (1,140      | )           |   |             | (1,140      | )
|                                                     |                                                                                                                                                 |                                      |            |             |             |   |             |            
|TOTAL SHAREHOLDERS EQUITY (DEFICIT)                 |                                                                                                                                                 |                                      | (3,967,226 | )           |             |   | (3,171,484  | )          
|                                                     |                                                                                                                                                 |                                      |            |             |             |   |             |            
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT) |                                                                                                                                                 | $                                    | 465,978    |             |             | $ | 686,090     |            
|                                                     |                                                                                                                                                 |                                      |            |             |             |   |             |            

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

2



---



##### 







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

|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | - | -------------------------- | ------- | ---- | - | ---------- | ------- | 
|                                                                                                                                                                                            |                                                  |   | For the three months ended
|                                                                                                                                                                                            |                                                  |   | March 31,                 
|                                                                                                                                                                                            |                                                  |   |                           
|                                                                                                                                                                                            |                                                  |   | 2002                       |         | 2001
|                                                                                                                                                                                            |                                                  |   |                            |         |     
|REVENUES  SALES, Net                                                                                                                                                                       |                                                  | $ | 104,022                    |         |      | $ | 41,094     |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|COST OF SALES                                                                                                                                                                               |                                                  |   | 124,708                    |         |      |   | 16,484     |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|GROSS MARGIN                                                                                                                                                                                |                                                  |   | (20,686                    | )       |      |   | 24,610     |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|OTHER EXPENSES                                                                                                                                                                              |                                                  |   |                            |         |      |   |            |        
|                                                                                                                                                                                            | Salaries, employee benefits and related expenses |   |                            | 437,613 |      |   |            | 563,237 | 
|                                                                                                                                                                                            | Rent                                             |   |                            | 40,220  |      |   |            | 41,377  | 
|                                                                                                                                                                                            | Legal and professional fees                      |   |                            | 81,926  |      |   |            | 42,497  | 
|                                                                                                                                                                                            | Travel                                           |   |                            | 14,446  |      |   |            | 43,191  | 
|                                                                                                                                                                                            | Telephone and internet                           |   |                            | 23,525  |      |   |            | 34,439  | 
|                                                                                                                                                                                            | Selling, general and administrative              |   |                            | 18,745  |      |   |            | 25,907  | 
|                                                                                                                                                                                            | Interest expense, net                            |   |                            | 72,044  |      |   |            | 670,640 | 
|                                                                                                                                                                                            | Depreciation and amortization                    |   |                            | 82,782  |      |   |            | 87,325  | 
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|TOTAL OTHER EXPENSE                                                                                                                                                                         |                                                  |   | 771,301                    |         |      |   | 1,508,613  |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|INCOME (LOSS) BEFORE TAXES                                                                                                                                                                  |                                                  |   | (791,987                   | )       |      |   | (1,484,003 | )      
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|INCOME TAX EXPENSE (BENEFIT)                                                                                                                                                                |                                                  |   | -0-                        |         |      |   | -0-        |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|NET INCOME (LOSS)                                                                                                                                                                           |                                                  |   | (791,987                   | )       |      |   | (1,484,003 | )      
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|PREFERRED STOCK DIVIDENDS, including deemed dividends of $102,999 during
2002, and dividends in arrears of $39,452 and $2,031 on Series B and Series
C Preferred Stock respectively in 2002 |                                                  |   | (195,119                   | )       |      |   | (50,859    | )      
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS                                                                                                                                       |                                                  | $ | (987,106                   | )       |      | $ | (1,534,862 | )      
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|BASIC AND DILUTED NET INCOME (LOSS) PER SHARE                                                                                                                                               |                                                  | $ | (0.12                      | )       |      | $ | (0.20      | )      
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING  BASIC AND DILUTED                                                                                                                           |                                                  |   | 8,323,697                  |         |      |   | 7,588,891  |        
|                                                                                                                                                                                            |                                                  |   |                            |         |      |   |            |        

See accompanying summary of accounting policies and notes to financial statements

3



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##### 



OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

|                                                                           |                                                                                            |   |                            |          |      |   |          |            |  
|-------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | - | -------------------------- | -------- | ---- | - | -------- | ---------- | -
|                                                                           |                                                                                            |   | For the three months ended
|                                                                           |                                                                                            |   | March 31,                 
|                                                                           |                                                                                            |   |                           
|                                                                           |                                                                                            |   | 2002                       |          | 2001
|                                                                           |                                                                                            |   |                            |          |     
|CASH FLOWS FROM OPERATING ACTIVITIES                                       |                                                                                            |   |                            |          |      |   |          |           
|                                                                           | Net income (loss)                                                                          |   | $                          | (791,987 | )    |   | $        | (1,484,003 | )
|                                                                           | Adjustment to reconcile net income to net cash
provided by (used in) operating activities: |   |                            |          |      |   |          |            |  
|                                                                           | Depreciation and amortization                                                              |   |                            | 82,782   |      |   |          | 87,325     |  
|                                                                           | Common stock issued for services                                                           |   |                            | -0-      |      |   |          | 97,858     |  
|                                                                           | Preferred stock issued for services                                                        |   |                            | -0-      |      |   |          | -0-        |  
|                                                                           | Interest expense from beneficial conversion feature
on 12% convertible note                |   |                            | -0-      |      |   |          | 508,835    |  
|                                                                           | Amortization of deferred compensation                                                      |   |                            | 3,692    |      |   |          | 1,386      |  
|                                                                           | Interest expense on detachable warrants                                                    |   |                            | 165      |      |   |          | 105,300    |  
|                                                                           | Change in assets and liabilities:                                                          |   |                            |          |      |   |          |            |  
|                                                                           | Accounts receivable                                                                        |   |                            | 2,821    |      |   |          | (2,332     | )
|                                                                           | Prepaid expenses                                                                           |   |                            | (7,171   | )    |   |          | (3,862     | )
|                                                                           | Intangible assets                                                                          |   |                            | -0-      |      |   |          | (113,500   | )
|                                                                           | Accounts payable and accrued expenses                                                      |   |                            | 540,170  |      |   |          | 145,466    |  
|                                                                           | Deferred revenue                                                                           |   |                            | (17,518  | )    |   |          | (12,498    | )
|                                                                           |                                                                                            |   |                            |          |      |   |          |           
|Net cash provided by (used in) operating activities                        |                                                                                            |   | (187,046                   | )        |      |   | (670,025 | )         
|                                                                           |                                                                                            |   |                            |          |      |   |          |           
|CASH FLOWS FROM INVESTING ACTIVITIES                                       |                                                                                            |   |                            |          |      |   |          |           
|                                                                           | Purchase of property and equipment                                                         |   |                            | -0-      |      |   |          | (848       | )
|                                                                           |                                                                                            |   |                            |          |      |   |          |           
|Net cash provided by (used in) operating activities                        |                                                                                            |   | -0-                        |          |      |   | (848     | )         
|                                                                           |                                                                                            |   |                            |          |      |   |          |           
|CASH FLOWS FROM FINANCING ACTIVITIES                                       |                                                                                            |   |                            |          |      |   |          |           
|Net proceeds from convertible notes, net of issuance costs                 |                                                                                            |   | -0-                        |          |      |   | 524,900  |           
|Payments on notes payable                                                  |                                                                                            |   | -0-                        |          |      |   | (10,000  | )         
|Proceeds from notes payable                                                |                                                                                            |   | 2,341                      |          |      |   | 60,000   |           
|Issuance of 8% Series C convertible preferred stock, net of issuance costs |                                                                                            |   | 43,025                     |          |      |   | -0-      |           
|Proceeds from stock option exercise                                        |                                                                                            |   | -0-                        |          |      |   | 16,000   |           
|                                                                           |                                                                                            |   |                            |          |      |   |          |           
|Net cash provided by (used in) financing activities                        |                                                                                            |   | 45,366                     |          |      |   | 590,900  |           
|                                                                           |                                                                                            |   |                            |          |      |   |          |           
|Net increase (decrease) in cash and cash equivalents                       |                                                                                            |   | (141,680                   | )        |      |   | (79,973  | )         
|Cash and cash equivalents at beginning of period                           |                                                                                            |   | 142,826                    |          |      |   | 90,958   |           
|                                                                           |                                                                                            |   |                            |          |      |   |          |           
|Cash and cash equivalents at end of period                                 |                                                                                            | $ | 1,146                      |          |      | $ | 10,985   |           
|                                                                           |                                                                                            |   |                            |          |      |   |          |           

4



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##### 



OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Continued)

|                                                                       |  |                       |        |      |  |   |         | 
|---------------------------------------------------------------------- |  | --------------------- | ------ | ---- |  | - | ------- | 
|                                                                       |  | For the periods ended
|                                                                       |  | March 31,            
|                                                                       |  |                      
|                                                                       |  | 2002                  |        | 2001
|                                                                       |  |                       |        |     
|Supplemental Disclosure of Cash Flow Information:                      |  |                       |        |      |  |   |         | 
|Cash paid during the period for:                                       |  |                       |        |      |  |   |         | 
|Income tax paid                                                        |  | $                     | -0-    |      |  | $ | -0-     | 
|                                                                       |  |                       |        |      |  |   |         | 
|Interest paid                                                          |  | $                     | 22,560 |      |  | $ | 23,657  | 
|                                                                       |  |                       |        |      |  |   |         | 
|Non-cash Transactions                                                  |  |                       |        |      |  |   |         | 
|Conversion of convertible notes payable into shares of common stock    |  | $                     | -0-    |      |  | $ | 37,500  | 
|Common stock issued in exchange for notes payable and accrued interest |  | $                     | -0-    |      |  | $ | 112,329 | 
|Conversion of notes payable into 12% convertible notes                 |  | $                     | -0-    |      |  | $ | 760,000 | 
|Shares issued as collateral for a note payable                         |  | $                     | -0-    |      |  | $ | 75,000  | 
|Conversion of Series A preferred stock into shares of common stock     |  | $                     | -0-    |      |  | $ | 45,000  | 

See accompanying summary of accounting policies and notes to financial statements

5



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##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1: |  | ORGANIZATION AND NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | OmniComm Systems, Inc. is an Internet-based 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. Our Internet-based TrialMaster® software
allows clinical trial sponsors and investigative sites to securely
collect, validate, transmit, and analyze clinical study data.
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|NOTE 2: |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | The Companys accounts include those of its two wholly owned
subsidiaries, OmniCommerce and OmniTrial B.V and have been prepared
in conformity with (i) generally accepted accounting principles; and
(ii) the rules and regulations of the United States Securities and
Exchange Commission. All significant intercompany accounts and
transactions between the Company and its subsidiaries have been
eliminated in consolidation.                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | ESTIMATES IN FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and footnotes thereto. Actual results may differ from
those estimates.                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | RECLASSIFICATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | Certain reclassifications have been made in the 2001 financial
statements to conform to the 2002 presentation. These
reclassifications did not have any effect on net income (loss) or
shareholders equity.                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | SEGMENT INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | The Company operates in one reportable segment.                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | Cash equivalents consist of highly liquid, short-term investments
with maturities of 90 days or less. The carrying amount reported in
the accompanying balance sheets approximates fair value.                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | ACCOUNTS RECEIVABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | Accounts receivable are judged as to collectibility by management
and an allowance for bad debts is established as necessary. As of
each balance sheet date, no reserve was considered necessary.                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | CONCENTRATION OF CREDIT RISK                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | Accounts receivable subject the Company to its highest potential
concentration of credit risk. The Company reserves for credit
losses. The Company does not require collateral on trade accounts
receivables.                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | 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.                                                                  

6



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | INTANGIBLE AND OTHER ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Intangible assets are amortized on a straight-line basis over
periods ranging from one to five years. The Company continually
reviews the recoverability of the carrying value of these assets
using the methodology prescribed in SFAS 121. The Company also
reviews long-lived assets and the related intangible assets for
impairment whenever events or changes in circumstances indicate the
carrying amounts of such assets may not be recoverable. If it is
determined the carrying amount of the assets is permanently impaired
then intangible assets are written down to fair value and the useful
life of the asset may be changed prospectively. Fair value is
determined based on discounted cash flows, appraised values or
managements estimates, depending upon the nature of the assets. As
of March 31, 2002, management believes no revision to the remaining
useful lives or write-down of intangible assets is required.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | DEFERRED REVENUE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Deferred revenue represents cash advances received in excess of
revenue earned on on-going contracts. Payment terms vary with each
contract but may include an initial payment at the time the contract
is executed, with future payments dependent upon the completion of
certain contract phases or targeted milestones. In the event of
contract cancellation, the Company is entitled to payment for all
work performed through the point of cancellation. The Company had
$65,567 in deferred revenues relating to contracts for services to
be performed over the next six to nine months.                                                                                                                                                                                                                                                                                                                                              
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | 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 4 months
to several years. Most of the fees associated with our product
including post-setup customer support in the form of maintenance
charges are recognized ratably over the term of the clinical trial.
Cost of sales is primarily comprised of programmer salaries and
taxes and is expensed as incurred.                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | The Company recognizes sales, for both financial statement and tax
purposes in accordance with SEC Staff Accounting Bulletin No. 101
Revenue Recognition in Financial Statements (SAB 101). SAB 101
requires that revenues be recognized ratably over the life of a
contract. In accordance with SAB 101 the Company will periodically
record deferred revenues relating to advance payments in contracts.
The Company had $65,567 in deferred revenue relating to contracts
for services to be performed over the next six to nine months.                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ADVERTISING                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Advertising costs are expenses as incurred. Advertising costs were
$2,025 and $0 for the periods ended March 31, 2002 and 2001,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | RESEARCH AND DEVELOPMENT EXPENSES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Software development costs are included in research and development
and are expensed as incurred. Statement of Financial Accounting
Standards No. 86 (SFAS 86) requires the capitalization of certain
development costs of software to be sold once technological
feasibility is established, which the Company defines as completion
to the point of marketability. The capitalized cost is then
amortized on a straight-line basis over the estimated product life.
To date, the period between achieving technological feasibility and
the general availability of such software has been short and
software development costs qualifying for capitalization have been
immaterial. Accordingly, the Company has not capitalized any
software development costs under SFAS 86. Research and development
expense was approximately $115,193 in 2002 and $157,195 in 2001 for
the periods ended March 31.                                   

7



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | STOCK OPTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | The Company uses the intrinsic-value method of accounting for
stock-based awards granted to employees and, accordingly, does not
recognize compensation expense for its stock-based awards to
employees in the Consolidated Statements of Income. See Note 15 for
pro forma information on the impact of the fair-value method of
accounting for stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | STOCK BASED COMPENSATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Stock-based compensation is recognized using the intrinsic value
method in accordance with the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees.
For disclosure purposes, pro forma net loss and loss per common
share are provided in accordance with Statement of Financial
Accounting Standards No. 123, Accounting for Stock Based
Compensation, as if the fair value method had been applied.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per
Share. SFAS 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and convertible
securities. The diluted earnings per share calculation is very
similar to the previously fully diluted earnings per share
calculation method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Basic earnings per share were calculated using the weighted average
number of shares outstanding of 8,323,697 and 7,588,891 for the
periods ended March 31, 2002 and 2001, respectively. There were no
differences between basic and diluted earnings per share. Options
to purchase 3,467,039 shares of common stock at prices ranging from
$.25 to $5.50 per share were outstanding at March 31, 2002. Stock
warrants to purchase 12,044,428 shares of common stock at prices
ranging from $0.25 to $10.00 per share were outstanding at March 31,
2002. The Company granted a Unit Purchase Option (Agent Option)
to the Placement Agent of its 8% Series B Convertible Preferred
Stock that provide 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.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, Accounting for Income
Taxes. SFAS 109 has as its basic objective the recognition of
current and deferred income tax assets and liabilities based upon
all events that have been recognized in the financial statements as
measured by the provisions of the enacted tax laws.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Valuation allowances are established when necessary to reduce
deferred tax assets to the estimated amount to be realized. Income
tax expense represents the tax payable for the current period and
the change during the period in the deferred tax assets and
liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

8



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  | IMPACT OF NEW ACCOUNTING STANDARDS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  | In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141 Accounting for
Derivative Instruments and Hedging Activities (SFAS 141), and
Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142). They also issued Statement of
Financial Accounting Standards No. 143, Accounting for Obligations
Associated with the Retirement of Long Lived Assets (SFAS 143),
and Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets (SFAS 144),
in August and October 2001, respectively.                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  | SFAS 141 requires all business combinations initiated after June 30,
2001 be accounted for under the purchase method. SFAS 141
supersedes APB Opinion No. 16, Business Combinations", and
Statement of Financial Accounting Standards No. 38, Accounting for
Preacquisition Contingencies of purchased Enterprises, and is
effective for all business combinations initiated after June 30,
2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  | SFAS 142 addresses the financial accounting and reporting for
acquired goodwill and other intangible assets. Under the new rules,
the Company is no longer required to amortize goodwill and other
intangible assets with indefinite lives, but will be subject to
periodic testing for impairment. SFAS 142 supercedes APB Opinion
No. 17, Intangible Assets. The Company expects that SFAS 142
will not have a material impact on its consolidated results of
operations and financial position upon adoption. The Company
adopted SFAS 142 on January 1, 2002.                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  | SFAS 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated
asset retirement cost. It also provides accounting guidance for
legal obligations associated with the retirement of tangible
long-lived assets. SFAS 143 is effective in fiscal years beginning
after June 15, 2002, with early adoption permitted. The Company
expects that the provisions of SFAS 143 will not have a material
impact on its consolidated results of operations and financial
position upon adoption. The Company adopted SFAS 143 effective
January 1, 2002.                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  | SFAS 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations.
SFAS 144, supersedes Statement of Financial Accounting Standards No.
121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of (SFAS 121), and APB Opinion
No. 30, Reporting the Results of Operations  Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. The provisions
of SFAS 144 are effective in fiscal years beginning after December
15, 2001, with early adoption permitted, and in general are to be
applied prospectively. The Company adopted SFAS 144 effective
January 1, 2002 and does not expect that the adoption will have a
material impact on its consolidated results of operations and
financial position.
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|NOTE 3: |  | RESTATEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  | Management determined that warrants issued during 2001 by the
Company should have been valued in accordance with Statement of
Financial Accounting Standards No. 123 Accounting for Stock
Compensation (SFAS 123). SFAS 123 requires businesses to value
stock based compensation utilizing a fair value approach. Upon
review, management determined that the Black-Scholes option pricing
model should have been used to estimate the respective fair value of
warrants that had been issued in connection with certain bridge
loans the Company entered into in 2001.                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  | As a result, the financial statements of OmniComm Systems as of
March 31, 2001 and for the period then ended have been restated to
reflect the utilization of the Black-Scholes pricing model where
applicable. The effect of the restatement was to increase
additional paid in capital by $506,575 and increase accumulated
deficit by $506,575 resulting in no change to the total
stockholders equity as of December 31, 2001; and to increase the
net loss attributable to common stockholders by $506,575, a non-cash
charge, for the year ended December 31, 2001.                                                                                                                                                                                                                                                                                                                                    

9



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In addition, the Company issued $950,000 in 12% Convertible Notes
during the first quarter of 2001. A portion of the notes were
issued at prices below market value. EITF 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios, requires the recording
of interest expense on convertible debt that is issued with an
embedded beneficial conversion feature, or in the money, at the date
the investor is committed to purchase the convertible securities.
The Company valued the 12% Convertible Notes Payable utilizing the
intrinsic value method and recorded $508,835 in interest expense
with a corresponding credit to additional paid-in capital.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | During 2001 we issued 170,000 detachable common stock warrants as
additional compensation in connection with short-term bridge loans
that were used for working capital purposes. We valued the warrants
utilizing the Black-Scholes model and recorded $105,300 as interest
expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | A summary of the effects of the restatement is as follows;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                       |  |                        |            |             |  |   |             |  
|-------------------------------------- |  | ---------------------- | ---------- | ----------- |  | - | ----------- | -
|At March 31, 2001                      |  | As Previously Reported |            | As Restated
|                                       |  |                        |            |            
|Series A preferred stock               |  | $                      | 4,215      |             |  | $ | 4,215       |  
|Common stock                           |  |                        | 8,497      |             |  |   | 8,497       |  
|Additional paid in
capital  common    |  |                        | 3,641,375  |             |  |   | 4,308,512   |  
|Additional paid in
capital  preferred |  |                        | 3,807,964  |             |  |   | 3,807,964   |  
|Accumulated deficit                    |  |                        | (9,847,036 | )           |  |   | (10,462,557 | )
|Treasury stock                         |  |                        | (293,912   | )           |  |   | (293,912    | )
|Deferred compensation                  |  |                        | -0-        |             |  |   | (51,616     | )
|Subscriptions receivable               |  |                        | (1,140     | )           |  |   | (1,140      | )
|                                       |  |                        |            |             |  |   |             |  
|Stockholders equity                   |  | $                      | (2,680,037 | )           |  | $ | (2,680,037  | )
|                                       |  |                        |            |             |  |   |             |  

|                                             |  |                        |          |             |  |   |            |  
|-------------------------------------------- |  | ---------------------- | -------- | ----------- |  | - | ---------- | -
|For the period ended March 31, 2001          |  | As Previously Reported |          | As Restated
|                                             |  |                        |          |            
|Salaries, benefits and related taxes         |  | $                      | 561,851  |             |  | $ | 563,237    |  
|Interest expense                             |  |                        | 56,505   |             |  |   | 670,640    |  
|Net loss                                     |  |                        | (868,482 | )           |  |   | (1,484,003 | )
|Net loss attributable to common stockholders |  |                        | (919,341 | )           |  |   | (1,534,862 | )
|Basic and diluted net loss per common share  |  | $                      | (0.12    | )           |  | $ | (0.20      | )

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 4: |  | 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.

10



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  | To satisfy our capital requirements, we will seek additional
financing through debt and equity financings. There can be no
assurance that any such fundings 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, 2002, there is
doubt about the Companys ability to continue as a going concern.                                                                                                                                                                                                                    
|       
|NOTE 5: |  | INTANGIBLE ASSETS AND GOODWILL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  | Included in Intangible Assets are the following assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                           |  |                |         |              |  |             |         | 
|-------------------------- |  | -------------- | ------- | ------------ |  | ----------- | ------- | 
|                           |  | March 31, 2002
|                           |  |               
|                           |  |                |         |              |  | Accumulated
|                           |  | Cost           |         | Amortization
|                           |  |                |         |             
|Covenant not to compete    |  | $              | 120,000 |              |  | $           | 120,000 | 
|Software development costs |  |                | 87,500  |              |  |             | 87,500  | 
|Organization costs         |  |                | 539     |              |  |             | 539     | 
|Debt acquisition costs     |  |                | 301,888 |              |  |             | 296,198 | 
|                           |  |                |         |              |  |             |         | 
|                           |  | $              | 509,927 |              |  | $           | 504,237 | 
|                           |  |                |         |              |  |             |         | 

|                           |  |                   |         |              |  |             |         | 
|-------------------------- |  | ----------------- | ------- | ------------ |  | ----------- | ------- | 
|                           |  | December 31, 2001
|                           |  |                  
|                           |  |                   |         |              |  | Accumulated
|                           |  | Cost              |         | Amortization
|                           |  |                   |         |             
|Covenant not to compete    |  | $                 | 120,000 |              |  | $           | 120,000 | 
|Software development costs |  |                   | 87,500  |              |  |             | 87,500  | 
|Organization costs         |  |                   | 539     |              |  |             | 539     | 
|Debt acquisition costs     |  |                   | 301,888 |              |  |             | 253,436 | 
|                           |  |                   |         |              |  |             |         | 
|                           |  | $                 | 509,927 |              |  | $           | 461,475 | 
|                           |  |                   |         |              |  |             |         | 

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | The covenant not to compete and the software development costs were
acquired as a result of the acquisition of Education Navigator, Inc.
(EdNav) on June 26, 1998. The covenant was for a two-year period
and was being amortized ratably over that time. The software
development costs were capitalized and were amortized ratably over a
three-year period, as that was the expected life of the various
products.                                                                                                                                                                                                                                                                                                                                                                             
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | During the year ended December 31, 2001, the Company issued
Convertible Notes with gross proceeds totaling $1,615,000. The
Company recorded total debt acquisition fees of $218,440 of which
$70,250 were to be paid in cash and $148,190 were deemed additional
compensation derived from 323,000 stock warrants issued to the
placement agent as additional compensation. The debt acquisition
costs were amortized ratably over the term of the notes.
Amortization expense of the debt acquisition costs totaled $42,762
for the period ended March 31, 2002. Approximately $2,890 of the
debt acquisition costs were reclassified as stock issuance costs in
connection with the conversion of $12,500 (original cost) of the
convertible notes into common stock of the Company during 2001.

11



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

|        |  |                                                  
|------- |  | -------------------------------------------------
|NOTE 6: |  | PROPERTY AND EQUIPMENT, AT COST                  
|        |  |                                                  
|        |  | Property and equipment consists of the following:

|                              |  |                |         |                   |  |             |         |              |  |              |         |             |  |           |         |  |  |         |  | 
|----------------------------- |  | -------------- | ------- | ----------------- |  | ----------- | ------- | ------------ |  | ------------ | ------- | ----------- |  | --------- | ------- |  |  | ------- |  | 
|                              |  | March 31, 2002 |         | December 31, 2001 |  |             |         |             
|                              |  |                |         |                   |  |             |         |             
|                              |  |                |         |                   |  | Accumulated |         |              |  |              |         | Accumulated |  | Estimated
|                              |  | Cost           |         | Depreciation      |  | Cost        |         | Depreciation |  | Useful Lives
|                              |  |                |         |                   |  |             |         |              |  |             
|Computer and office
equipment |  | $              | 420,298 |                   |  | $           | 190,371 |              |  | $            | 420,298 |             |  | $         | 169,408 |  |  | 5 years
|Leasehold
improvements        |  |                | 3,299   |                   |  |             | 897     |              |  |              | 3,299   |             |  |           | 732     |  |  | 5 years
|Computer software             |  |                | 260,287 |                   |  |             | 134,125 |              |  |              | 260,287 |             |  |           | 117,349 |  |  | 3 years
|Office furniture              |  |                | 42,350  |                   |  |             | 19,349  |              |  |              | 42,350  |             |  |           | 17,231  |  |  | 5 years
|                              |  |                |         |                   |  |             |         |              |  |              |         |             |  |           |         |  |  |         |  | 
|                              |  | $              | 726,234 |                   |  | $           | 344,742 |              |  | $            | 726,234 |             |  | $         | 304,720 |  |  |         |  | 
|                              |  |                |         |                   |  |             |         |              |  |              |         |             |  |           |         |  |  |         |  | 

|        |  |                                                                                                         
|------- |  | --------------------------------------------------------------------------------------------------------
|        |  | Depreciation expense for the periods ended March 31, 2002 and 2001
was $40,022 and $34,414 respectively.
|        |  |                                                                                                         
|NOTE 7: |  | ACCOUNTS PAYABLE AND ACCRUED EXPENSES                                                                   
|        |  |                                                                                                         
|        |  | Accounts payable and accrued expenses consists of the following at
March 31, 2002 and December 31, 2001:

|                                  |                                             |   |         |           |          |   |         |           | 
|--------------------------------- | ------------------------------------------- | - | ------- | --------- | -------- | - | ------- | --------- | 
|                                  |                                             |   | 3/31/02 |           | 12/31/01
|                                  |                                             |   |         |           |         
|Accounts payable                  |                                             | $ | 431,033 |           |          | $ | 155,531 |          
|Accrued payroll and related costs |                                             |   | 77,664  |           |          |   | 41,818  |          
|Other accrued expenses            |                                             |   | 256,533 |           |          |   | 77,083  |          
|Accrued interest                  |                                             |   | 261,460 |           |          |   | 212,089 |          
|Accrued dividends                 |                                             |   | 463,516 |           |          |   | 412,879 |          
|Accrued expenses of OmniTrial BV  |                                             |   | 127,519 |           |          |   | 127,519 |          
|                                  |                                             |   |         |           |          |   |         |          
|                                  | Total accounts payable and accrued expenses |   | $       | 1,617,725 |          |   | $       | 1,026,919 | 
|                                  |                                             |   |         |           |          |   |         |          

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  | 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, 2001 and 2002 and accrued legal fees
associated with the sale of Series C Convertible Preferred Stock.                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|NOTE 8: |  | EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  | Basic earnings per shares (EPS) is computed by dividing income
available to common shareholders (which for the Company equals its
net loss) by the weighted average number of common shares
outstanding, and dilutive EPS adds the dilutive effect of stock
options and other common stock equivalents. Antidilutive shares
aggregating 28,481,616 have been omitted from the calculation of
dilutive EPS for the period ended March 31, 2002. A reconciliation
between numerators and denominators of the basic and diluted
earnings per shares is as follows:

|                                   |  |                             |          |                             |  |           |           |           |  |             |       |           |  |   |             |   |  |  |           |  |  |   |       |  
|---------------------------------- |  | --------------------------- | -------- | --------------------------- |  | --------- | --------- | --------- |  | ----------- | ----- | --------- |  | - | ----------- | - |  |  | --------- |  |  | - | ----- | -
|                                   |  | Period Ended March 31, 2002 |          | Period Ended March 31, 2001
|                                   |  |                             |          |                            
|                                   |  | Income                      |          | Shares                      |  | Per-Share |           | Income    |  | Shares      |       | Per-Share
|                                   |  | Numerator                   |          | Denominator                 |  | Amount    |           | Numerator |  | Denominator |       | Amount   
|                                   |  |                             |          |                             |  |           |           |           |  |             |       |          
|Basic EPS                          |  | $                           | (987,106 | )                           |  |           | 8,323,697 |           |  | $           | (0.12 | )         |  | $ | (1,534,862  | ) |  |  | 7,588,891 |  |  | $ | (0.20 | )
|Effect of Dilutive
Securities
None |  |                             | -0-      |                             |  |           | -0-       |           |  |             | -0-   |           |  |   | -0-         |   |  |  | -0-       |  |  |   | -0-   |  
|                                   |  |                             |          |                             |  |           |           |           |  |             |       |           |  |   |             |   |  |  |           |  |  |   |       |  
|Diluted EPS                        |  | $                           | (987,106 | )                           |  |           | 8,323,697 |           |  | $           | (0.12 | )         |  | $ | (1,534,862) | ) |  |  | 7,588,891 |  |  | $ | (0.20 | )

12



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 9:  |  | EQUITY INVESTMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |  | European Medical Network (EMN) Investment, at cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |  | On March 20, 2000 the Company entered into a stock purchase
agreement under which it agreed to purchase a 25% interest in
Medical Network AG EMN, a Swiss company (EMN). The agreement, set
to close on April 20, 2000, provided that the purchase price for 25%
of EMNs stock equity was $838,500 to be paid partly in cash and
stock. Two cash payments totaling US $645,000 were to be paid in
installments as follows: $335,000 on March 20, 2000, upon which EMN
would deliver 10% of its stock equity, and $310,000 on April 20,
2000, upon which EMN would deliver the remaining 15% of its stock
equity. In addition, the Company was to provide 41,883 shares of
restricted common stock to EMN. Pursuant to the terms of the stock
purchase agreement, on March 20, 2000, EMNs shareholders entered
into an agreement that provided for the Company to have one seat on
EMNs board of directors and the right to veto any sale of equity in
excess of 49% of the total issued and outstanding equity of EMN.
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |  | On March 20, 2000, the Company paid EMN $335,000, received 10% of
EMNs equity and a seat on EMNs board. On April 20, 2000, the
Company did not make the second payment of $310,000 or the stock
payment of 41,883 shares to EMN and the stock purchase agreement did
not close. On July 11, 2000, the Company and EMN agreed to
renegotiate the terms of their agreement subject to the Companys
success in finding adequate financing. As part of the renegotiation
the Company resigned its seat on EMNs board and offered to sell its
10% interest back to EMN. The Company accounts for its investment
in EMN under the cost method of accounting. The Company has
established a valuation allowance of $335,000 against its investment
in EMN to reflect the uncertainty of the fair market value of the
investment as of March 31, 2002 and 2001.                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|NOTE 10: |  | NOTES PAYABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |  | Long-Term Borrowings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |  | At March 31, 2002, the Company owed $485,926 in long-term notes
payable, of which $242,963 was classified as the current portion due
of notes payable. These promissory notes were amended and restated
on August 31, 2001, in connection with the private placement of the
Companys 8% Series B Preferred Stock, with new terms which include
an interest rate of 8% per annum, and with one half of the principal
payable upon the closing of any financing by the Company resulting
in gross proceeds in excess of $2,000,000, and the balance of the
principal together with accrued interest payable no later than
August 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |  | Related Party Notes Payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |  | At March 31, 2002, the Company owed $198,986 in related party notes
payable. Approximately $196,645 of the promissory notes were
amended and restated on August 31, 2001 with new terms which include
an interest rate of 8% per annum, and with one half of the principal
payable upon the closing of any financing by the Company resulting
in gross proceeds in excess of $2,000,000, and the balance of the
principal together with accrued interest payable no later than
August 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |  | During March 2002, the company borrowed $2,341 from Randall Smith,
the Companys Chairman and Chief Technology Officer. This amount
was repaid without interest on April 12, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|NOTE 11: |  | CONVERTIBLE NOTES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |  | During the first quarter of 1999, the Company issued 10% Convertible
Notes Payable in the amount of $862,500 pursuant to a Confidential
Private Placement Memorandum. There were costs of $119,625
associated with this offering. The Company also granted the agent
the option to purchase 250,000 common shares at $.001 per share.
The agent exercised the option. The net proceeds to the Company were $742,875. The notes bear interest at ten percent
annually, payable semi-annually. The notes are convertible after
maturity, which is five years, into shares of common stock of the
Company at $1.25 per share. As of March 31, 2002 approximately
$412,500 of the Convertible Notes had been converted into 330,000
shares of common stock of the Company leaving an outstanding balance
of $450,000.                                                                                                                                                                                                          

13



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |  | The Company is currently in default on interest payments owed
totaling $22,560 on its 10% Convertible Notes. The terms of the
notes provides a payment grace period of thirty days in which to
make required semi-annual interest payments. The company was in
default effective January 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |  | During the first six months of 2001, the Company issued 12%
Convertible Notes Payable in the amount of $1,615,000 pursuant to a
Confidential Private Placement Memorandum. There were costs of
$218,440 associated with the offering of which $148,190 is
attributable to warrants issued to the placement agent as additional
compensation that were valued using the Black-Scholes method. The
net proceeds to the Company were $1,484,750 with the cash
compensation costs of $70,250 accrued at December 31, 2001, and
$60,000 of accrued expenses due to the placement agent converted as
part of the private placement of the 12% Convertible Notes Payable.
The notes bear interest at twelve percent annually, payable at
maturity. The notes are convertible after maturity, which is
January 31, 2002, into shares of common stock of the Company at
$0.50 per share. EITF 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios, requires Companys to
record interest expense on convertible debt that is issued with an
embedded beneficial conversion feature, or in the money at the date
the investor is committed to purchase the convertible securities.
The Company valued the 12% Convertible Notes Payable utilizing the
intrinsic value method and recorded $508,835 in interest expense
with a corresponding credit to additional paid-in capital.
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |  | The Company is currently in default in the repayment of principal
and interest due on its 12% Convertible Notes. The terms of the
notes provides a payment grace period of thirty days in which to
make any required monetary payments. Principal of $1,615,000
together with accrued interest of $184,236 was in default effective
March 3, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|NOTE 12: |  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |  | The Company currently leases office space under operating leases.
The minimum future lease payments required under the Companys
operating leases at March 31, 2002 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| |  |       |      |   |        |   |        | 
| |  | ----- | ---- | - | ------ | - | ------ | 
| |  |       | 2002 |   |        | $ | 50,175 | 
| |  |       | 2003 |   |        |   | 44,600 | 
| |  |       | 2004 |   |        |   | 0      | 
| |  |       | 2005 |   |        |   | 0      | 
| |  |       | 2006 |   |        |   | 0      | 
| |  |       |      |   |        |   |        | 
| |  | Total |      | $ | 94,775 |  
| |  |       |      |   |        |   |        | 

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | 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 $40,220 and $41,377 for
the periods ended March 31, 2002 and 2001.                                                                                                                                                                                                                                                                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | CONTINGENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | On or about September 6, 2000, the Companys wholly owned
subsidiary, OmniTrial B.V. (OmniTrial) submitted a petition for
bankruptcy protection from the bankruptcy court of the Netherlands.
The court appointed a liquidating trustee. The Company claimed that
certain assets in the possession of OmniTrial were paid for by the
Company and therefore should not be part of the liquidating assets
of OmniTrial. The bankruptcy trustee rejected that claim and told
the Company that as part of the OmniTrial bankruptcy estate the
assets would be sold to diminish any deficiency of the estate.

14



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | On July 5, 2001 the Company signed a settlement agreement providing
for the return of the assets to the Company in exchange for a
payment of $10,000 that was made on or about July 5, 2001. The
Company does expect to incur any additional liability in this
bankruptcy proceeding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | In January 2001, a former employee, Eugene A. Gordon, filed a
lawsuit in Dade County, Florida alleging breach of his employment
contract with us. The plaintiff alleges we owe him more than
$100,000 for back payment of salary according to the terms of his
employment contract. We dispute Mr. Gordons allegations and are
vigorously defending this lawsuit. As part of its defense, the
Company recently filed a counterclaim against Mr. Gordon and a
counter-suit against his wife. This matter remains pending.                                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | On February 2, 2001, an advertising firm, Wray Ward Laseter filed a
lawsuit in the Superior Court of North Carolina against the Company.
The plaintiff alleged claims totaling approximately $84,160 against
the Company for fees associated with advertising, marketing and
public relations services provided between March and September 2000.
On or about April 27, 2001, the Company and Wray Ward Laseter
entered into a settlement agreement which provided that the
plaintiff dismiss the lawsuit with prejudice and release its claims
against the Company in return for a series of payments totaling
$66,000. The Company made all required payments under the
settlement agreement. Wray Ward Laseter filed and the Superior
Court accepted on November 30, 2001 a Stipulation of Dismissal.

15



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  | On February 16, 2001, a staffing agency, Temp Art, Inc. filed a
lawsuit in the County Court in and for Miami-Dade County, Florida.
The plaintiff alleged the Company breached its contract and owed
approximately $13,126 for back payment of services rendered plus
interest and costs. On September 25, 2001, the Company and Temp Art
entered into a settlement agreement that provided that the plaintiff
dismiss the lawsuit with prejudice and release its claims against
the Company in return for a payment of $15,700. The Company made
the required payment on September 25, 2001 and a Voluntary Dismissal
was entered by the County Court on October 5, 2001.                        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  | EMPLOYMENT AGREEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  | During 2001, the Company entered into three-year employment
agreements with its President/Chief Executive Officer,
Chairman/Chief Technology Officer and Chief Financial Officer with
compensation for up to six months if terminated under certain
conditions. Under separate stock option agreements entered into
concurrently with their employment agreements, the President/Chief
Executive Officer was granted incentive stock options to purchase
500,000 shares of common stock at $0.43 per share and the
Chairman/Chief Technology Officer and Chief Financial Officer were
granted incentive stock options to purchase 210,000 shares of common
stock at $0.43 per share respectively.
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  | FINANCIAL ADVISORY AGREEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  | During March 2002, the Company entered into a one-year financial
advisory agreement with Noesis Capital to assist the Company in
performing certain financial advisory services including the sale of
securities, and the possible sale, merger or other business
combination involving the Company. Pursuant to this agreement, the
Company is obligated to pay $90,000 in professional fees.                                                                                                                                                                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|NOTE 13: |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  | During March 2002, the company borrowed $2,341 from Randall Smith,
the Companys Chairman and Chief Technology Officer. This amount
was repaid without interest on April 12, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  | Cornelis F. Wit, a member of our Board of Directors, is a consultant
to Noesis Capital Corp. and served as President of Corporate Finance
of Noesis Capital Corp. from March 1995 to September 2000. Noesis
Capital Corp. has served as placement agent for us in three private
placements of securities which were closed between June 1999 and
January 2001. Guus van Kesteren, a member of our Board of
Directors, is a consultant for Noesis Capital Corp.                                                                                                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  | In December 1999, we entered into a consulting agreement with
Messrs. van Kesteren and Wit, each of whom is a member of our Board
of Directors, providing that we will compensate each of these
individuals for sales leads or contacts developed by them in
connection with our TrialMaster system. For the periods ended March
31, 2001 and 2002, no compensation was earned by either Mr. van
Kesteren or Mr. Wit under this agreement.                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  | From time to time we have borrowed funds from Mr. van Kesteren,
including:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  | between July 2000 and December 2000, we borrowed an aggregate of
$110,000 from him under two promissory notes, one of which bore
interest at a rate of 12% per annum and the other at 5% per annum.
These notes were converted into debt issued as part of a private
placement of our debt in January 2000. The private placement debt
accrues interest at 12% per annum and is convertible into shares of
our Common Stock at the holders option at a rate of $0.50 per share
commencing on January 31, 2002.                                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  | between February 2001 and July 2001, we borrowed an aggregate of
$190,000 from him under promissory notes which bore interest of 12%
per annum. These promissory notes were amended and restated on
August 30, 2001 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.                                                                                                                                                               

16



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  | in June 2001, we borrowed an aggregate of $25,000 from him under
promissory notes which bore interest at a rate of 12% per annum and
had a maturity date of December 22, 2001. These notes were
converted into the Units sold in our private placement of Series B
Convertible Preferred Stock in August 2001.                                                                                                                                                                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |  | in conjunction with these various loans, we have granted Mr. van
Kesteren warrants to purchase an aggregate of 70,700 shares of our
Common Stock at exercise prices ranging from $.30 to $2.25 per
share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |  | The Company granted Randall G. Smith, Chairman of the Board and
Chief Technology Officer, warrants to purchase 20,000 shares of our
Common stock at an exercise price of $0.41 per share in connection
with a pledge of real property he made in securing a loan made to
the Company by Mr. van Kesteren in July 2001, in the amount of
$100,000                                                                                                                                                                                                                                                                                                                                                                        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |  | On August 17, 2000, we borrowed $100,000 from Noesis N.V., our
stockholder. One of our directors, Mr. Wit, at that time, was
President of Corporate Finance of Noesis Capital Corp., an affiliate
of Noesis N.V., and remains a consultant to the firm. The
promissory note bore interest rate at a rate of 8% per annum and had
a maturity date of January 1, 2001. At our request, Noesis N.V.
agreed to convert this promissory note into debt issued as part of a
private placement of our debt in January 2001. The private
placement debt accrues interest at 12% per annum and is convertible
into shares of our Common Stock at the holders option at a rate of
$0.50 per share commencing on January 31, 2002.
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|NOTE 14: |  | POST-RETIREMENT EMPLOYEE BENEFITS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |  | The Company does not have a policy to cover employees for any health
care or other welfare benefits that are incurred after employment
(post-retirement). Therefore, no provision is required under SFASs
106 or 112.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|NOTE 15: |  | STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |  | The authorized capital stock of the Company consists of 20,000,000
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 Series A Convertible
Preferred Stock, 230,000 shares have been designated as Series B
Convertible Preferred Stock and 747,500 shares have been designated
as Series C Convertible Preferred Stock.                                                                                                                                                                                                                                                                         
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |  | As of March 31, 2002 the Company had the following outstanding
securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |  |  |  |   |  |                                                                                            
| |  |  |  | - |  | -------------------------------------------------------------------------------------------
| |  |  |  | o |  | 8,323,697 shares of Common Stock issued and outstanding;                                   
| |  |  |  |   |  |                                                                                            
| |  |  |  | o |  | 12,044,428 warrants issued and outstanding to purchase shares of our common stock;         
| |  |  |  |   |  |                                                                                            
| |  |  |  | o |  | 4,215,224 shares of our 5% Series A Convertible Preferred Stock issued and outstanding, and
| |  |  |  |   |  |                                                                                            
| |  |  |  | o |  | 200,000 shares of our 8% Series B Convertible Preferred Stock issued and outstanding       
| |  |  |  |   |  |                                                                                            
| |  |  |  | o |  | 22,450 shares of 8% Series C Convertible Preferred Stock issued and outstanding            

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 and holders of a
majority of our voting securities voting for the election of
directors can elect all of the directors. Holders of Common Stock
are entitled to share in all dividends that the board of directors,
in its discretion, declares from legally available funds.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | 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.                                 

17



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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. The rights, preferences, limitations and
restrictions of different series of preferred stock may differ with
respect to dividend rates, amounts payable on liquidation, voting
rights, conversion rights, redemption provisions, sinking fund
provisions and other matters. 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.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | 5% Series A Convertible Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | In 1999, our Board of Directors designated 5,000,000 shares of our
preferred stock as 5% Series A Convertible Preferred Stock. The 5%
Series A Preferred Stock was created pursuant to a Certificate of
Designations filed with the Delaware Secretary of State on July 19,
1999. Between June 1999 and January 2000 the Company issued
4,263,500 shares of the 5% Series A Convertible Preferred Stock with
net proceeds of $4,018,843.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | The designations, rights and preferences of the Series A Convertible
Preferred Stock include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| |  |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |  |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | o |  | the shares are not redeemable,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |  |  | o |  | each share of Series A Convertible 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. The conversion price will be further adjusted
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 Convertible
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 Convertible
Preferred Stock,
| |  |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |  |  | o |  | the shares of Series A Convertible Preferred Stock
currently pay a dividend at a rate of 5.00% per annum,
payable semi-annually, on January 1 and July 1 of each year,                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |  |  | o |  | in the event of our liquidation or winding up, each
share of Series A Convertible Preferred Stock carries a
liquidation preference equal to $1.50 per share,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |  |  | o |  | each share of Series A Convertible Preferred Stock
has full voting rights, share for share, with the then
outstanding Common Stock on the basis of one vote for each
share of Common Stock issuable upon the conversion of the
Series A Convertible Preferred Stock.                                                                                                                                                                                                                                                                                                                                                                             
| |  |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |  |  | o |  | the holders of the Series A Convertible Preferred
Stock were granted certain demand and piggy-back
registration rights covering the shares of our Common Stock
issuable upon the conversion of the Series A Convertible
Preferred Stock into Common Stock of the Company.                                                                                                                                                                                                                                                                                                                                                                        
| |  |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |  |  | o |  | the holders of the 5% Series A Convertible Preferred
Stock are entitled to vote two of the five members of the
Companys Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| |  |                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                       
| |  | There were $463,516 and $258,154 of accrued and unpaid dividends on
the Series A Convertible Preferred Stock at March 31, 2002 and 2001,
respectively.

18



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Series B Convertible Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | In August 2001, our Board of Directors designated 200,000 shares of
our preferred stock as Series B Convertible Preferred Stock. The 8%
Series B Preferred Stock was created pursuant to a Certificate of
Designations filed with the Delaware Secretary of State on August
31, 2001. 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 Convertible Stock to
230,000. During September 2001 the Company issued 200,000 shares of
the 8% Series B Convertible Preferred Stock with net proceeds of
$1,711,518.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | The designations, rights and preferences of the Series B Convertible
Preferred Stock include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | o |  | the stated value of each share is $10.00 per share,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | o |  | the shares are not redeemable,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | o |  | each share of Series B Convertible 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 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 Convertible
Preferred Stock to convert in the event the closing bid
price of our Common Stock exceeds $0.50 for 20 consecutive
trading days, and our Common Stock has been listed on The
Nasdaq Stock Market or other comparable national stock
exchange or the OTC Bulletin Board and a registration
statement registering the shares of Common Stock issuable
upon conversion of the Series B Convertible Preferred Stock
has been declared effective,
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | o |  | The conversion price will be further adjusted 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,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | o |  | the shares of Series B Convertible Preferred Stock
pay a dividend at a rate of 8% per annum, 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. Dividends are cumulative,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | o |  | each share of Series B Convertible Preferred Stock
will rank senior to our Series A Convertible Preferred
Stock,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | o |  | in the event of our liquidation or winding up, each
share of Series B Convertible Preferred Stock carries a
liquidation preference equal to $10.00 per share plus
accrued and unpaid dividends, and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | o |  | the holders of the Series B Convertible 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
Convertible Stock,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | o |  | the holders of the Series B Convertible Preferred
Stock were granted certain registration rights covering the
shares of our Common Stock issuable upon the conversion of
the Series B Convertible Preferred Stock,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | o |  | the holders of the 8% Series B Convertible Preferred
Stock are entitled to vote one of the five members of the
Companys Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

19



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | There were arrearages of $90,722 and $-0- on the Series B
Convertible Preferred Stock for undeclared dividends as of March 31,
2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Series C Convertible Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | In March 2002, our Board of Directors designated 747,500 shares of
our preferred stock as Series C Convertible Preferred Stock. The 8%
Series C Preferred Stock was created pursuant to a Certificate of
Designations filed with the Delaware Secretary of State on March 31,
2002. During March 2002 the Company issued 22,450 shares of the 8%
Series C Convertible Preferred Stock with net proceeds of
approximately $43,025. At March 31, 2002 the Company was still
actively marketing the Series C Preferred Stock Private Placement to
accredited investors.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | The designations, rights and preferences of the Series C Convertible
Preferred Stock include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | o |  | the stated value of each share is $10.00 per share,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | o |  | the shares are not redeemable,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | o |  | each share of Series C Convertible 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
Convertible Preferred Stock by $0.25, which is the Series C
Conversion Price. The Series C Convertible Preferred Stock
will automatically convert 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 Convertible 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 Convertible 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
Convertible Preferred Stock equal to 10 times the average
daily trading volume during the 20-day look-back period set
forth above,
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | o |  | The conversion price will be further adjusted 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,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | o |  | the shares of Series C Convertible Preferred Stock
pay a dividend at a rate of 8% per annum, 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. Dividends are cumulative,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | o |  | each share of Series C Convertible Preferred Stock
will rank pari passu with our Series B Convertible Preferred
Stock and senior to our Series A Convertible Preferred
Stock,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | o |  | in the event of our liquidation or winding up, each
share of Series C Convertible Preferred Stock carries a
liquidation preference equal to $10.00 per share plus
accrued and unpaid dividends, and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

20



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##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

| |  |   |  |                                                                                                                                                                                                                                                     
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | o |  | the holders of the Series C Convertible 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
Convertible Stock,
| |  |   |  |                                                                                                                                                                                                                                                     
| |  | o |  | the holders of the Series C Convertible Preferred
Stock were granted certain registration rights covering the
shares of our Common Stock issuable upon the conversion of
the Series C Convertible Preferred Stock,                                  
| |  |   |  |                                                                                                                                                                                                                                                     
| |  | o |  | the holders of the 8% Series C Convertible Preferred
Stock are entitled to vote two of the seven members of the
Companys Board of Directors.                                                                                                       

| |  |                                                                                                                                                                                                          
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | There were arrearages of $2,031 and $-0- on the Series B Convertible
Preferred Stock for undeclared dividends as of March 31, 2002 and
2001. The per share arrearage as of March 31, 2002 was immaterial.
| |  |                                                                                                                                                                                                          
| |  | Warrants                                                                                                                                                                                                 
| |  |                                                                                                                                                                                                          
| |  | We have issued and outstanding warrants to purchase a total of
12,044,428 shares of our Common Stock, including:                                                                                         

| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                     
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | o |  | warrants to purchase 2,359,832 shares of our Series
A Preferred Stock at an exercise price of $2.00 per share
expiring in December 2002 which were issued by us in
connection with the offering of the Series A Preferred Stock
offering.                                                                                                                                           
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                     
| |  | o |  | 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 Convertible Preferred Stock offering, which
warrants contain a cashless exercise provision.                                                                                                        
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                     
| |  | o |  | warrants to purchase 1,235,596 shares of our Common
Stock at exercise prices ranging from $.30 to $10.00 per
share expiring through July 2006 which were issued by us to
various individuals for a variety of reasons including
consulting services, advisory services, settlement of a
long-term lease obligation, and in connection with the
issuance of certain promissory notes.
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                     
| |  | o |  | warrants to purchase 449,000 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
Convertible Preferred Stock offering, which warrants contain
a cashless exercise provision.                                                                                                                

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Placement Agents Unit Purchase Option                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Commonwealth Associates, L.P. acted as our placement agent in
connection with the September 2001 private placement of units which
included our 8% Series B Convertible Preferred Stock. We issued
Commonwealth Associates a seven year option to purchase 2.7 units,
each unit consisting of 10,000 shares of Series B Convertible
Preferred Stock and warrants to purchase 400,000 shares of Common
Stock, exercisable at $100,000 per unit, as additional compensation.                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Accounting for Stock Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | The Company has adopted Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, (SFAS No. 123)
and as permitted under SFAS 123 applies Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, (APB
25) and related interpretations in accounting for stock-based
compensation plans. If the Company had elected to adopt optional
recognition provisions of SFAS 123 for its stock option plans, net
loss and net loss per share would have been changed to pro forma
amounts indicated below:

21



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##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

|                                          |             |      |   |       |   |  |   |        |  
|----------------------------------------- | ----------- | ---- | - | ----- | - |  | - | ------ | -
|(in thousands, except for per share data) |             | 2002 |   | 2001 
|                                          |             |      |   |      
|Net loss available to common stockholders |             |      |   |       |   |  |   |       
|                                          | As reported |      | $ | (987  | ) |  | $ | (1,535 | )
|                                          | Pro forma   |      | $ | (995  | ) |  | $ | (1,757 | )
|Basic and diluted net loss per share      |             |      |   |       |   |  |   |       
|                                          | As reported |      | $ | (0.12 | ) |  | $ | (0.20  | )
|                                          | Pro forma   |      | $ | (0.12 | ) |  | $ | (0.23  | )

| |  |                                                                                                                                                                                                                                
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | These pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is
amortized to expense over the vesting period, and additional options
may be granted in future years.
| |  |                                                                                                                                                                                                                                
| |  | The estimated fair value of each OmniComm option granted is
calculated using the Black-Scholes pricing model. The weighted
average assumptions used in the model were as follows:                                              

|                              |  |         |       |         |  |  |       |  
|----------------------------- |  | ------- | ----- | ------- |  |  | ----- | -
|                              |  | 2002    |       | 2001   
|                              |  |         |       |        
|Risk-free interest rate       |  |         | 5.00  | %       |  |  | 5.00  | %
|Expected years until exercise |  | 6 Years |       | 6 Years
|Expected stock volatility     |  |         | 150.0 | %       |  |  | 150.0 | %
|Dividend yield                |  |         | 0     | %       |  |  | 0     | %

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 3,000,000
shares of the Companys common stock. The term of each option may
not exceed ten years from the date of grant, and options vest in
accordance with a vesting schedule established by the Plan
administrator.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | The Companys share option activity and related information is
summarized below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                   |           |  |                        |         |                         |   |          |      |       |  |           |           |          |   |      |      | 
|---------------------------------- | --------- |  | ---------------------- | ------- | ----------------------- | - | -------- | ---- | ----- |  | --------- | --------- | -------- | - | ---- | ---- | 
|                                   |           |  | Period ended March 31, |         | Year ended December 31,
|                                   |           |  | 2002                   |         | 2001                   
|                                   |           |  |                        |         |                        
|                                   |           |  |                        |         |                         |   | Weighted |      |       |  |           |           | Weighted
|                                   |           |  |                        |         |                         |   | Average  |      |       |  |           |           | Average 
|                                   |           |  |                        |         |                         |   | Exercise |      |       |  |           |           | Exercise
|                                   |           |  | Options                |         | Price                   |   | Options  |      | Price
|                                   |           |  |                        |         |                         |   |          |      |      
|Outstanding at beginning of period |           |  | 3,584,039              |         |                         | $ | 1.33     |      |       |  | 3,316,006 |           |          | $ | 2.28 |     
|                                   | Granted   |  |                        | 25,000  |                         |   | $        | 0.35 |       |  |           | 2,089,500 |          |   | $    | 3.46 | 
|                                   | Exercised |  |                        | -0-     |                         |   | $        | 0.00 |       |  |           | 20,000    |          |   | $    | 0.30 | 
|                                   | Cancelled |  |                        | 142,000 |                         |   | $        | 0.57 |       |  |           | 1,801,467 |          |   | $    | 1.97 | 
|                                   |           |  |                        |         |                         |   |          |      |       |  |           |           |          |   |      |     
|Outstanding at end of period       |           |  | 3,467,039              |         |                         | $ | 0.74     |      |       |  | 3,584,039 |           |          | $ | 1.33 |     
|                                   |           |  |                        |         |                         |   |          |      |       |  |           |           |          |   |      |     
|Exercisable at end of period       |           |  | 2,542,705              |         |                         | $ | 1.47     |      |       |  | 2,636,372 |           |          | $ | 1.47 |     
|                                   |           |  |                        |         |                         |   |          |      |       |  |           |           |          |   |      |     

| |  |                                                                                              
| |  | ---------------------------------------------------------------------------------------------
| |  | The following table summarizes information about stock options
outstanding at March 31, 2002:

|                |  |             |           |             |  |           |      |           |  |          |      |  |  |          |         |  |  |   |      | 
|--------------- |  | ----------- | --------- | ----------- |  | --------- | ---- | --------- |  | -------- | ---- |  |  | -------- | ------- |  |  | - | ---- | 
|                |  | Outstanding |           | Exercisable
|                |  |             |           |            
|                |  |             |           |             |  | Weighted  |      |           |  |          |      |  |  |          |         |  |  |  
|                |  |             |           |             |  | Average   |      |           |  |          |      |  |  |          |         |  |  |  
|                |  |             |           |             |  | Remaining |      | Weighted  |  |          |      |  |  | Weighted
|                |  |             |           |             |  | Years of  |      | Average   |  |          |      |  |  | Average 
|Range of        |  | Number of   |           | Contractual |  | Exercise  |      | Number of |  | Exercise
|Exercise Prices |  | Options     |           | Life        |  | Price     |      | Options   |  | Price   
|                |  |             |           |             |  |           |      |           |  |         
|$0.25 - $0.47   |  |             | 1,606,500 |             |  |           | 5.26 |           |  | $        | 0.41 |  |  |          | 834,833 |  |  | $ | 0.40 | 
|$0.50 - $0.83   |  |             | 827,333   |             |  |           | 7.08 |           |  | $        | 0.58 |  |  |          | 674,666 |  |  | $ | 0.59 | 
|$1.00 - $2.50   |  |             | 789,206   |             |  |           | 3.81 |           |  | $        | 1.73 |  |  |          | 829,206 |  |  | $ | 1.75 | 
|$2.61 - $5.50   |  |             | 244,000   |             |  |           | 5.39 |           |  | $        | 4.98 |  |  |          | 204,000 |  |  | $ | 5.45 | 

22



---



##### 



OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2002
(unaudited)

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  | Other Stock Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |  | During 2001, the Company issued an aggregate of 126,340 shares of
common stock to employees and advisors with a fair market value of
$97,858 for services rendered under employment and consulting
agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |  | During 2001, the Company issued 50,000 warrants to advisors as
compensation for services to be rendered over periods ranging from 3
to 5 years. The Company valued the warrants in accordance with SFAS
123 utilizing the Black-Scholes Model. The Company recorded $95,689
in deferred compensation and is amortizing the amounts over the
expected life of the consulting services to be rendered. The
Company recognized non-cash compensation expense totaling $3,692
during the three months ended March 31, 2002 in connection with the
warrant grants.                                                                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|NOTE 16: |  | OMNITRIAL, B.V. BANKRUPTCY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |  | On or about September 6, 2000, the Companys wholly owned
subsidiary, OmniTrial B.V. (OmniTrial) submitted a petition for
bankruptcy protection from the bankruptcy court of the Netherlands.
The court appointed a liquidating trustee. The Company claimed that
certain assets in the possession of OmniTrial were paid for by the
Company and therefore should not be part of the liquidating assets
of OmniTrial. The bankruptcy trustee rejected that claim and told
the Company that as part of the OmniTrial bankruptcy estate the
assets would be sold to diminish any deficiency of the estate. On
July 5, 2001 the Company signed a settlement agreement providing for
the return of the assets to the Company in exchange for a payment of
$10,000.
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|NOTE 17: |  | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |  | Income taxes are accrued at statutory US and state income tax rates.
Income tax expense is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                |                                       |   |          |          |         |   |          |          |  
|------------------------------- | ------------------------------------- | - | -------- | -------- | ------- | - | -------- | -------- | -
|                                |                                       |   | 3/31/02  |          | 3/31/01
|                                |                                       |   |          |          |        
|Current tax expense (benefit):  |                                       |   |          |          |         |   |          |         
|                                | Income tax at statutory rates         |   | $        | -0-      |         |   | $        | -0-      |  
|                                |                                       |   |          |          |         |   |          |         
|Deferred tax expense (benefit): |                                       |   |          |          |         |   |          |         
|                                | Amortization of goodwill and covenant |   |          | -0-      |         |   |          | (17,660  | )
|                                | Operating loss carryforward           |   |          | (298,025 | )       |   |          | (309,150 | )
|                                |                                       |   |          |          |         |   |          |         
|                                |                                       |   | (298,025 | )        |         |   | (326,810 | )       
|Valuation allowance             |                                       |   | 298,025  |          |         |   | 326,810  |         
|                                |                                       |   |          |          |         |   |          |         
|Total tax expense (benefit)     |                                       | $ | -0-      |          |         | $ | -0-      |         
|                                |                                       |   |          |          |         |   |          |         

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

|                             |                           |   |           |            |          |   |           |            |  
|---------------------------- | ------------------------- | - | --------- | ---------- | -------- | - | --------- | ---------- | -
|                             |                           |   | 3/31/02   |            | 12/31/01
|                             |                           |   |           |            |         
|Deferred tax assets:         |                           |   |           |            |          |   |           |           
|Amortization of intangibles  |                           | $ | 283,698   |            |          | $ | 241,962   |           
|Operating loss carryforwards |                           |   | 4,839,591 |            |          |   | 3,445,239 |           
|                             |                           |   |           |            |          |   |           |           
|                             | Gross deferred tax assets |   |           | 5,123,289  |          |   |           | 3,687,201  |  
|                             | Valuation allowance       |   |           | (5,123,289 | )        |   |           | (3,687,201 | )
|                             |                           |   |           |            |          |   |           |           
|                             | Net deferred tax asset    |   | $         | -0-        |          |   | $         | -0-        |  
|                             |                           |   |           |            |          |   |           |           

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company has net operating loss carryforwards (NOL) for income
tax purposes of approximately $11,601,000. This loss is allowed to
be offset against future income until the year 2021 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 in
2001.

23



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##### 



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

General

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

Forward-Looking Statements

Statements contained in this Form 10-QSB that are not historical fact are
forward looking statements. These statements can often be identified by the
use of forward-looking terminology such as estimate, project, believe,
expect, may, will, should, intends, or anticipates or the negative
thereof or other variations thereon or comparable terminology, or by
discussions of strategy that involve risks and uncertainties. We wish to
caution the reader that these forward-looking statements, such as statements
relating to 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 an Internet-based healthcare technology company that provides Web-based
electronic data capture (EDC) solutions and related value-added services to
pharmaceutical and biotechnology companies, clinical research organizations,
and other clinical trial sponsors. Our Internet-based TrialMaster® software
allows clinical trial sponsors and investigative sites to securely collect,
validate, transmit, and analyze clinical study data including patient
histories, patient dosing, adverse events, and other clinical trial
information. We phased out the systems integration segment of our business
during 2001. All of our personnel are involved in the development and
marketing of TrialMaster.

The Period Ended March 31, 2002 Compared With the Period Ended March 31, 2001

Results of Operations

Revenues

Revenues for the period ended March 31, 2002 were $104,022 compared to $41,094
for the same period in 2001. The increase can be attributed to increased
success we experienced in marketing TrialMaster. In particular, we found the
markets increasingly receptive to utilizing EDC services during the second half
of 2001 and we have continued building upon this momentum both through the
acquisition of new clients and more importantly via repeat engagements with
existing clients. This is consistent with our expectation that the market will
begin adopting EDC services more rapidly as early adopters bring increasing
credibility to the market. While industry growth estimates vary, most
predictions indicate that EDC is anticipated to become widely accepted. For
example, Forrester Research

24



---



##### 



and Frost & Sullivan each predict annual double-digit growth in the use of EDC
technologies between 2001 and 2006. Web-based EDC has been around for
approximately four years and between 5% and 10% of all clinical trials are
currently conducted using Web-based EDC. Incremental growth within the
industry should continue as competitive pressures mount in the pharmaceutical
industry to replace existing prescription drugs losing their patent protection.
Revenues associated with our Internet-based clinical trial products were
approximately $104,022 and $18,348 for 2002 and 2001 respectively. Systems
integration revenues in 2001 were approximately $22,746 compared to $0 in 2002.
We do not expect any systems integration revenues in 2002.

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

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

Cost of Goods Sold

Cost of goods sold increased to $124,708 in 2002 compared to $16,484. The
expenses incurred in 2001 relate to our systems integration business and these
expenses were eliminated in 2002 as we continued phasing out that line of our
business. Cost of goods sold now relates primarily to salaries and benefits
associated with the programmers, developers and systems analysts producing
clinical trials on behalf of our clients. Cost of goods sold will continue to
exceed recognized revenues for the short-term based on the fact that we expense
salaries as incurred and are compelled to record our revenues over the expected
length of the contracts that we are servicing. As we build the number of
clinical trials either in development or in production that trend will reverse.

We expect to increase development programming labor costs on an absolute basis
as our trial revenues increase. We expect labor costs to decrease on a
relative percentage basis as we increase our trial base and develop economies
of scale with regard to trial production.

Other Expenses

Salaries, Benefits and Related Taxes

Salaries and related expenses are our biggest expense at 57% of total Other
Expenses for the first quarter of 2002. Salaries and related expenses totaled
$437,613 in 2002 compared to $563,237 in 2001. Total salaries remained
relatively stable versus 2001 since a portion of total payroll is now accounted
for in cost of goods sold. We currently employ approximately 22 employees out
of our Davie, Florida corporate office. We expect to increase headcount within
our technology and sales and marketing functions in concert with anticipated
increases in TrialMaster clients during fiscal 2002.

Rent

Rent expense was $40,220 for fiscal 2002 compared with $41,377 for fiscal 2001.
Although rent expense remained relatively constant, the components of the
costs have changed. Our development office in Tampa was closed in March 2001
and that function was relocated to the corporate office to provide a more
effective synthesis of workflows between our R & D function and our operations
and marketing departments. During November 2001 our corporate offices were
relocated to the Ft. Lauderdale, Florida area. We believe this market provides
a better environment for technical personnel recruiting. We were also able to
reduce our rent obligations by approximately $3,300 per month. In December
2001, we established a disaster recovery site at a Bell South Co-Location
facility in Atlanta, Georgia. This is designed to ensure 100% system up-time.

25



---



##### 



Legal and Professional Fees

Legal and professional fees totaled $81,926 in 2002 compared with $42,497
during fiscal 2001. Key components of the 2002 amounts include $22,500 paid to
our former placement agent for financial advisory services, $37,383 to our
accountants for audit and tax related services, $12,992 in legal expenses
related to various matters and $9,051 that relate to accounting and legal
services associated with our obligations as a public company. We expect
on-going legal and professional fees to fall in-line with what was experienced
during 2001.

Travel

We incurred $14,446 in travel expenses during fiscal 2002 compared to $43,191
during 2001. We began reducing travel expenses during mid-2000 as a result of
the on-going working capital difficulties that we have been experiencing.
Those cost-cutting measures continued in 2001 and during the first quarter of
2002. We expect travel to increase as we experience more success in
penetrating the marketplace with our sales efforts. We expect this increase to
be offset by the increase in accompanying revenues.

Telephone and Internet

Telephone and Internet related costs were reduced by $10,914 due to decreased
telephone and Internet access costs associated with the closing of our office
in Tampa, Florida, and a decrease in overall long-distance charges associated
with the closed facilities. We do not anticipate increases in access charges
during fiscal 2002 based on our own existing communications infrastructure and
our projected 2002 clinical trial workload.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SGA) were $18,745 during the
first quarter of 2002. These expenses relate primarily to costs incurred in
running our office day-to-day and other costs not directly related to other
captioned items in our income statement, and include the cost of office
equipment and supplies, the costs of attending conferences and seminars and
other expenses incurred in the normal course of business. We made a concerted
effort during the second half of 2000 to eliminate or reduce SGA expenses not
crucial to the efficient operation of our company. This effort continued
during 2001 and is now culturally ingrained. We do expect to increase the
overall dollar volume spent on SGA as we increase our revenue base and step-up
our overall activity.

Interest Expense

Interest expense was $72,044 during 2002 versus $670,640 in fiscal 2001.
During 2001 we entered into a private placement of 12% Convertible Notes. We
recorded interest expense of $508,835 in connection with a beneficial
conversion feature that was deemed to exist when the conversion price of some
of the 12% Notes was issued at a discount to the prevailing market price of the
stock. This expense is non-cash and we recorded a corresponding increase to
our additional paid-in capital.

During 2001 we issued 170,000 detachable common stock warrants as additional
compensation in connection with short-term bridge loans that were used for
working capital purposes. We valued the warrants utilizing the Black-Scholes
model and recorded $105,300 as interest expense.

Preferred Stock Dividends

In March 2002 we issued 449,000 warrants to investors in a private placement of
our Series C Convertible Preferred Stock. The warrants were valued at $102,999
utilizing the Black-Scholes model. The net proceeds received in the Series C
Convertible Preferred Stock Unit offering were allocated to the Series C
Preferred Stock and we recognized a deemed dividend on preferred stock of
$102,999 resulting in a charge to retained earnings and a credit to additional
paid-in capital within our stockholders equity as of March 31, 2002.
Dividends on our Series A Preferred Stock totaled $50,637 in 2002 compared to
$50,859 for the comparable period in 2001. There were arrearages of $39,452 in
Series B Preferred Stock dividends and $2,031 in Series C Preferred Stock
dividends at March 31, 2002 and we therefore deducted $41,483 from Net Income
(Loss).

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Liquidity and Capital Resources

We changed our primary focus to providing Internet based database applications
to the clinical trial industry in mid-1998. At that time we began phasing out
our systems integration business segment and we effectively completed that
transition during the first half of 2001. Since we made TrialMaster and its
related components our primary business we have 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 $141,680 to $1,146 at March 31, 2002.
This was the result of cash provided by financing activities of $45,366 offset
by cash used in operating activities of approximately $187,046. The
significant components of the activity include a loss from operations of
approximately $791,987 offset by non-cash expenses of 86,639, increases in cash
of $518,302 from changes in working capital accounts and approximately $45,000
we raised through the sale of debt and equity securities.

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

The Company is currently in default on interest payments owed totaling $22,560
on its 10% Convertible Notes. The terms of the notes provides a payment grace
period of thirty days in which to make required semi-annual interest payments.
The company was in default effective January 30, 2002.

The Company is currently in default in the repayment of principal and interest
due on its 12% Convertible Notes. The terms of the notes provides a payment
grace period of thirty days in which to make any required monetary payments.
Principal of $1,615,000 together with accrued interest of $199,103 was in
default effective March 3, 2002.

On March 28, 2002 our Placement Agent, Noesis Capital, began the distribution
of a Confidential Private Placement Memorandum for the sale to accredited
investors of our 8% Series C Convertible Preferred Stock. Gross proceeds
totaled $224,500 and we accrued $181,475 in transaction related fees leaving
net proceeds of approximately $43,025. In September 2001 we completed a
private placement of our 8% Series B Preferred Stock that resulted in
$2,000,000 in gross proceeds.

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

We will continue to require substantial funds to continue our research and
development activities and to market, sell and commercialize our technology. We
will need to raise substantial additional capital to fund our future
operations. Our capital requirements will depend on many factors, including
the problems, delays, expenses and complications frequently encountered by
companies developing and commercializing new technologies; the progress of our
research and development activities; the rate of technological advances;
determinations as to the commercial potential of our technology under
development; the status of competitive technology; the establishment of
collaborative relationships; the success of our sales and marketing programs;
the cost of filing, prosecuting and defending and enforcing patents and
intellectual property rights; and other changes in economic, regulatory or
competitive conditions in our planned business. Estimates about the adequacy
of funding for our activities are based

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upon certain assumptions, including assumptions that the research and
development programs relating to our technology can be conducted at projected
costs and that progress towards the commercialization of our technology will be
timely and successful. There can be no assurance that changes in our research
and development plans, acquisitions or other events will not result in
accelerated or unexpected expenditures.

To satisfy our capital requirements, we will seek additional financing through
debt and equity financings. There can be no assurance that any such fundings
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. 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, 2002, there is doubt about the Companys ability to continue as a going
concern.

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ITEM 5. OTHER INFORMATION

Private Placement

On March 28, 2002, Noesis Capital Corp., as placement agent, began the
distribution of a Confidential Private Placement Memorandum to accredited
investors on behalf of the Company. The terms of the offering are as follows:

|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Amount            |  | $3,000,000  Best Efforts Basis                                                                                                                                                                                                                                                                                                                                                                                                       
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Offering          |  | 30 Units Maximum. Each Unit consists of 10,000 shares of our Series C Convertible Preferred Stock and
warrants to purchase 50% of the shares of Common Stock issuable upon conversion of the Series C Preferred
Shares, subject to customary anti-dilution provisions.                                                                                                                                                                  
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Price             |  | $100,000 per Unit. The Company will accept partial subscriptions.                                                                                                                                                                                                                                                                                                                                                                       
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Stated Value      |  | $10.00 per share.                                                                                                                                                                                                                                                                                                                                                                                                                       
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Liquidation Value |  | $10.00 per share plus accrued and unpaid dividends.                                                                                                                                                                                                                                                                                                                                                                                     
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Voting Rights     |  | One vote for each share of Common Stock issuable upon
conversion of the Series C Convertible Preferred Stock
voting as a single class with the holders of Common
Stock on all matters, except as otherwise required by
law.                                                                                                                                                                                                             
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Dividends         |  | 8% per annum, 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 Series C Conversion Price.
Dividends are cumulative.                                                                                                                                                                                      
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Ranking           |  | The Series C Convertible Preferred Stock ranks pari
passu with our outstanding Series B Convertible
Preferred Stock and senior to our Series A Convertible
Preferred Stock.                                                                                                                                                                                                                                                             
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Conversion        |  | Each share of Series C Convertible 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
Convertible Preferred Stock by $0.25, which is the
Series C Conversion Price.                                                                                                                                     
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                  |  | The Series C Convertible Preferred Stock will
automatically convert 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) (a
Qualified Public Offering)                      
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                  |  | In addition, the Series C Convertible 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,

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|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                         |  | 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 Convertible 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 Convertible Preferred Stock
equal to 10 times the average daily trading volume
during the 20-day look-back period set forth above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Anti Dilution Provisions |  | Subject to certain exceptions, the Series C Conversion
Price will be adjusted pursuant to a customary weighted
average anti-dilution calculation in the event we issue
or sell any shares of Common Stock, preferred stock,
options, warrants or convertible securities at a price
per share less than the then fair market value of our
Common Stock. No adjustment will be made if the issuance
or sale price per share exceeds three times the Series C
Conversion Price. In the event, however, that we issue
or sell any shares of Common Stock, preferred stock,
options, warrants or convertible securities at a price
per share less than the Series C Conversion Price in
effect immediately prior to such issuance or sale, then
the Series C Conversion Price will be adjusted to such
lower price per share. The Series C Conversion Price is
also subject to pro rata adjustment for structural
changes such as stock splits and stock dividends.
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Registration Rights      |  | The Company has agreed to file not later than five
months from the closing of the Series C Preferred Stock
offering a registration statement with the SEC under the
Securities Act with respect to the shares of our Common
Stock issuable upon the conversion of the Series C
Convertible Preferred Stock to permit the public resale
of such securities within nine months following the
close of the offering. The Company will use its
reasonable best efforts to cause such registration
statement to become effective. Includes unlimited
piggyback registration rights.                                                                                                                                                                                                                                                                                                                                                                              
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Use of Proceeds:         |  | Operating and Marketing Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Conditions:              |  | (1) Regulation D of the Securities Act of 1933, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                         |  | (2) Suitability Standards; Accredited Investors
Only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                         |  | (3) Board of Directors: Noesis Capital Corp.,
placement agent, shall have the right to
designate two members of the Board of Directors
upon closing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                         |  | (4) Termination Date: May 28, 2002, unless
earlier terminated or extended by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                         |  | (5) Placement Fee: 10% Commission (cash);
warrants to purchase a number of shares equal to
15% of the number of shares issuable upon
conversion of the Notes sold in the offering, at
an exercise price of $.25 per share, exercisable
for a period of five (5) years, commencing on the
final closing date of the offering.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits.

None.

(b)  Reports on Form 8-K.

None.

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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:   |  | David Ginsberg, D.O., Director, Chief Executive Officer and President               
|      |  |                                                                                     
|      |  |                                                                                     
|Date: |  | May 15, 2002                                                                        
|      |  |                                                                                     
|      |  |                                                                                     
|By:   |  | Ronald T. Linares, Vice President of Finance, Chief Financial and Accounting Officer
|      |  |                                                                                     
|      |  |                                                                                     
|Date: |  | May 15, 2002                                                                        
|      |  |                                                                                     

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