##### Table of Contents





SECURITIES AND EXCHANGE COMISSION

Washington, D.C. 20549





FORM 10-Q





[Mark One]

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2008
|- | -----------------------------------------------------------------------------------------------------------------------------------------



| ̈ | 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.

(Exact name of registrant as specified in its Charter)





No Changes

(Former name, former address and former fiscal year, if changed
since last report)



|                                                             |  |                                   
|------------------------------------------------------------ |  | ----------------------------------
|Delaware                                                     |  | 11-3349762                        
|State or other jurisdiction of Incorporation or organization |  | IRS Employer Identification Number
|                                                             | 
|2101 W. Commercial Blvd. Suite 4000, Ft. Lauderdale, FL      |  | 33309                             
|Address of principal executive offices                       |  | Zip Code                          

954.473.1254

Registrants Telephone Number (including area code)





Indicate by check mark whether the Issuer:
(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   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 under the Securities Exchange Act of 1934. (Check one):

Large Accelerated Filer   ̈    Accelerated Filer   ̈    Non-Accelerated Filer (Do not check if smaller reporting company)   ̈    Small Reporting Company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

The number of shares outstanding of each of the issuers classes of common equity as of November 13, 2008: 76,528,655 common stock $.001 par value.









---

##### Table of Contents

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

NINE MONTHS ENDED SEPTEMBER 30, 2008



|                                                                                                                                                                                       |  |                                                                                        |  |   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------- |  | --
|                                                                                                                                                                                       |  | Page No.                                                                              
|PART I. - FINANCIAL INFORMATION                                                                                                                                                       
|                                                                                                                                                                                       |  |                                                                                       
|Item 1.                                                                                                                                                                                |  | Financial Statements                                                                   |  | 3 
|                                                                                                                                                                                       |  |                                                                                       
|Item 2.                                                                                                                                                                                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations. |  | 21
|                                                                                                                                                                                       |  |                                                                                       
|Item 3.                                                                                                                                                                                |  | Quantitative and Qualitative Disclosures About Market Risk.                            |  | 36
|                                                                                                                                                                                       |  |                                                                                       
|Item 4T                                                                                                                                                                                |  | Controls and Procedures.                                                               |  | 36
|                                                                                                                                                                                      
|PART II - OTHER INFORMATION                                                                                                                                                           
|                                                                                                                                                                                       |  |                                                                                       
|Item 1.                                                                                                                                                                                |  | Legal Proceedings.                                                                     |  | 38
|                                                                                                                                                                                       |  |                                                                                       
|Item 1A.                                                                                                                                                                               |  | Risk Factors.                                                                          |  | 38
|                                                                                                                                                                                       |  |                                                                                       
|Item 2.                                                                                                                                                                                |  | Unregistered Sales of Equity Securities and Use of Proceeds.                           |  | 38
|                                                                                                                                                                                       |  |                                                                                       
|Item 3.                                                                                                                                                                                |  | Defaults Upon Senior Securities.                                                       |  | 38
|                                                                                                                                                                                       |  |                                                                                       
|Item 4.                                                                                                                                                                                |  | Submission of Matters to a Vote of Security Holders.                                   |  | 38
|                                                                                                                                                                                       |  |                                                                                       
|Item 5.                                                                                                                                                                                |  | Other Information.                                                                     |  | 38
|                                                                                                                                                                                       |  |                                                                                       
|Item 6.                                                                                                                                                                                |  | Exhibits.                                                                              |  | 39
|                                                                                                                                                                                       | 
|SIGNATURES                                                                                                                                                                             |  | 40                                                                                    
|                                                                                                                                                                                      
|Exhibit 31.1 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act OF 2002  CEO Cornelis F. Wit                                             
|                                                                                                                                                                                      
|Exhibit 31.2 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act OF 2002  CFO Ronald T. Linares                                           
|                                                                                                                                                                                      
|Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 
906 of the Sarbanes-Oxley Act OF 2002  Principal Executive Officer - Cornelis F. Wit  
|                                                                                                                                                                                      
|Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 
906 of the Sarbanes-Oxley Act OF 2002  Principal Financial Officer - Ronald T. Linares



2



---

##### Table of Contents

OMNICOMM SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                                      |  |                              |             |   |                  |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                                                                      |  | September 30,2008(unaudited) |             |   | December 31,2007 |  
|ASSETS                                                                                                                                                                                                                |  |                              |             |   |                  |   |             |  
|CURRENT ASSETS                                                                                                                                                                                                        |  |                              |             |   |                  |   |             |  
|Cash                                                                                                                                                                                                                  |  | $                            | 66,937      |   |                  | $ | 481,961     |  
|Accounts receivable, net of allowance for doubtful accounts of $31,277 and $2,586 in 2008 and 2007, respectively                                                                                                      |  |                              | 1,403,257   |   |                  |   | 769,325     |  
|Prepaid expenses and other assets                                                                                                                                                                                     |  |                              | 80,700      |   |                  |   | 37,628      |  
|                                                                                                                                                                                                                      |  |                              |             |   |                  |   |             |  
|Total current assets                                                                                                                                                                                                  |  |                              | 1,550,894   |   |                  |   | 1,288,914   |  
|                                                                                                                                                                                                                      |  |                             
|PROPERTY AND EQUIPMENT, net                                                                                                                                                                                           |  |                              | 759,563     |   |                  |   | 434,699     |  
|                                                                                                                                                                                                                      |  |                             
|OTHER ASSETS                                                                                                                                                                                                          |  |                              |             |   |                  |   |             |  
|Intangible assets                                                                                                                                                                                                     |  |                              | 2,282       |   |                  |   | 2,285       |  
|Other assets                                                                                                                                                                                                          |  |                              | 16,246      |   |                  |   | 16,229      |  
|                                                                                                                                                                                                                      |  |                              |             |   |                  |   |             |  
|TOTAL ASSETS                                                                                                                                                                                                          |  | $                            | 2,328,985   |   |                  | $ | 1,742,127   |  
|                                                                                                                                                                                                                      |  |                              |             |   |                  |   |             |  
|                                                                                                                                                                                                                      |  |                             
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                        |  |                              |             |   |                  |   |             |  
|CURRENT LIABILITIES                                                                                                                                                                                                   |  |                              |             |   |                  |   |             |  
|Accounts payable and accrued expenses                                                                                                                                                                                 |  | $                            | 887,673     |   |                  | $ | 696,281     |  
|Notes payable  current portion                                                                                                                                                                                       |  |                              | 111,800     |   |                  |   | -0-         |  
|Notes payable related party current portion                                                                                                                                                                          |  |                              | 185,000     |   |                  |   | -0-         |  
|Conversion feature liability                                                                                                                                                                                          |  |                              | 270,368     |   |                  |   | -0-         |  
|Convertible Notes payable, related parties, net of discount                                                                                                                                                           |  |                              | 124,709     |   |                  |   | -0-         |  
|Convertible Notes payable, net of discount                                                                                                                                                                            |  |                              | 277,533     |   |                  |   | 87,500      |  
|Deferred revenue  current                                                                                                                                                                                            |  |                              | 2,473,171   |   |                  |   | 2,632,274   |  
|                                                                                                                                                                                                                      |  |                              |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                                                             |  |                              | 4,330,254   |   |                  |   | 3,416,055   |  
|                                                                                                                                                                                                                      |  |                             
|Notes Payable, net of current portion                                                                                                                                                                                 |  |                              | -0-         |   |                  |   | 111,800     |  
|Notes Payable Related Party, net of current portion                                                                                                                                                                   |  |                              | 550,000     |   |                  |   | 185,000     |  
|Conversion feature liability, net of current portion                                                                                                                                                                  |  |                              | 434,502     |   |                  |   | -0-         |  
|Convertible notes payable, net of current portion                                                                                                                                                                     |  |                              | 83,140      |   |                  |   | -0-         |  
|Convertible notes payable, related parties, net of current portion                                                                                                                                                    |  |                              | 456,080     |   |                  |   | -0-         |  
|Warrant Liability                                                                                                                                                                                                     |  |                              | 1,932,502   |   |                  |   | -0-         |  
|Deferred revenue  long term                                                                                                                                                                                          |  |                              | 1,024,425   |   |                  |   | -0-         |  
|                                                                                                                                                                                                                      |  |                              |             |   |                  |   |             |  
|TOTAL LIABILITIES                                                                                                                                                                                                     |  |                              | 8,810,903   |   |                  |   | 3,712,855   |  
|                                                                                                                                                                                                                      |  |                              |             |   |                  |   |             |  
|COMMITMENTS AND CONTINGENCIES (see Note 6)                                                                                                                                                                            |  |                              |             |   |                  |   |             |  
|                                                                                                                                                                                                                      |  |                             
|SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                        |  |                              |             |   |                  |   |             |  
|Undesignated preferred stock - $.001 par value. 4,022,500 shares authorized, no shares issued and outstanding                                                                                                         |  |                              | -0-         |   |                  |   | -0-         |  
|                                                                                                                                                                                                                      |  |                             
|Series B convertible preferred stock, - $.001 par value. 230,000 shares authorized, -0- and 48,000 issued and outstanding, respectively;
liquidation preference $-0- and $480,000, respectively                       |  |                              | -0-         |   |                  |   | 48          |  
|                                                                                                                                                                                                                      |  |                             
|Series C convertible preferred stock, - $.001 par value. 747,500 shares authorized, -0- and 337,150 issued and outstanding, respectively;
liquidation preference $-0- and $3,371,500, respectively                    |  |                              | -0-         |   |                  |   | 337         |  
|                                                                                                                                                                                                                      |  |                             
|5% Series A convertible preferred stock - $0.001 par value, 5,000,000 shares authorized; 4,125,224 and 4,170,224 issued and outstanding,
respectively; liquidation preference $4,125,224 and $4,170,224, respectively |  |                              | 4,125       |   |                  |   | 4,170       |  
|                                                                                                                                                                                                                      |  |                             
|Common stock  150,000,000 shares authorized, 76,528,655 and 59,032,598 issued and outstanding, after deducting 1,014,830 and 802,612
shares of treasury stock, at $.001 par value, respectively                      |  |                              | 77,495      |   |                  |   | 59,786      |  
|Additional paid in capital  preferred                                                                                                                                                                                |  |                              | 3,718,054   |   |                  |   | 7,638,549   |  
|Additional paid in capital  common                                                                                                                                                                                   |  |                              | 33,080,661  |   |                  |   | 27,893,433  |  
|Stock subscription receivable                                                                                                                                                                                         |  |                              | (1,250      | ) |                  |   | -0-         |  
|Less: Treasury stock, cost method, 1,014,830 and 802,612 shares, respectively                                                                                                                                         |  |                              | (503,086    | ) |                  |   | (369,389    | )
|Accumulated other comprehensive income/(loss)                                                                                                                                                                         |  |                              | (1,779      | ) |                  |   | 7,957       |  
|Accumulated deficit                                                                                                                                                                                                   |  |                              | (42,856,138 | ) |                  |   | (37,205,619 | )
|                                                                                                                                                                                                                      |  |                              |             |   |                  |   |             |  
|TOTAL SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                  |  |                              | (6,481,918  | ) |                  |   | (1,970,728  | )
|                                                                                                                                                                                                                      |  |                              |             |   |                  |   |             |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                  |  | $                            | 2,328,985   |   |                  | $ | 1,742,127   |  
|                                                                                                                                                                                                                      |  |                              |             |   |                  |   |             |  

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



3



---

##### Table of Contents

OMNICOMM SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                        |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------- |  | -------------------------------------- | ---------- | - | --------------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                        |  | For the nine months endedSeptember 30, |            |   | For the three months endedSeptember 30, |  
|                                                        |  | 2008                                   |            |   | 2007                                    |   |            | 2008 |  |   | 2007       |  
|Revenues                                                |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Net sales                                               |  | $                                      | 4,281,367  |   |                                         | $ | 2,741,631  |      |  |   | 1,629,783  |   |  | $ | 842,809    |  
|                                                        |  |                                        |            |  
|Cost of sales                                           |  |                                        | 980,845    |   |                                         |   | 770,879    |      |  |   | 322,409    |   |  |   | 294,858    |  
|                                                        |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Gross margin                                            |  |                                        | 3,300,522  |   |                                         |   | 1,970,752  |      |  |   | 1,307,374  |   |  |   | 547,951    |  
|                                                        |  |                                        |            |  
|Operating expenses                                      |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|                                                        |  |                                        |            |  
|Salaries, benefits and related taxes                    |  |                                        | 6,620,322  |   |                                         |   | 4,124,147  |      |  |   | 2,358,184  |   |  |   | 1,569,760  |  
|                                                        |  |                                        |            |  
|Rent & occupancy expenses                               |  |                                        | 410,090    |   |                                         |   | 238,402    |      |  |   | 145,247    |   |  |   | 86,222     |  
|Consulting                                              |  |                                        | 258,379    |   |                                         |   | 231,926    |      |  |   | 41,884     |   |  |   | 68,232     |  
|Legal and professional fees                             |  |                                        | 318,594    |   |                                         |   | 208,637    |      |  |   | 152,815    |   |  |   | 63,263     |  
|Travel                                                  |  |                                        | 326,320    |   |                                         |   | 195,800    |      |  |   | 108,389    |   |  |   | 84,944     |  
|Telephone and internet                                  |  |                                        | 114,725    |   |                                         |   | 83,551     |      |  |   | 33,452     |   |  |   | 35,192     |  
|                                                        |  |                                        |            |  
|Selling, general and administrative                     |  |                                        | 391,974    |   |                                         |   | 367,272    |      |  |   | 97,030     |   |  |   | 124,833    |  
|                                                        |  |                                        |            |  
|Bad Debt Expense                                        |  |                                        | 28,691     |   |                                         |   | -0-        |      |  |   | 28,691     |   |  |   | -0-        |  
|                                                        |  |                                        |            |  
|Depreciation and amortization                           |  |                                        | 403,582    |   |                                         |   | 67,476     |      |  |   | 182,058    |   |  |   | 25,346     |  
|                                                        |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Total operating expenses                                |  |                                        | 8,872,677  |   |                                         |   | 5,517,211  |      |  |   | 3,147,750  |   |  |   | 2,057,792  |  
|                                                        |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Operating income (loss)                                 |  |                                        | (5,572,155 | ) |                                         |   | (3,546,459 | )    |  |   | (1,840,376 | ) |  |   | (1,509,841 | )
|                                                        |  |                                        |            |  
|Other income (expense)                                  |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|                                                        |  |                                        |            |  
|Interest expense                                        |  |                                        | (1,994,009 | ) |                                         |   | (48,838    | )    |  |   | (794,754   | ) |  |   | (16,439    | )
|Interest income                                         |  |                                        | 6,594      |   |                                         |   | 17,637     |      |  |   | 1          |   |  |   | 4,617      |  
|Unrealized Gain/(Loss) on Derivative Liabilities        |  |                                        | 1,909,051  |   |                                         |   | -0-        |      |  |   | 1,681,435  |   |  |   | -0-        |  
|                                                        |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|(Loss) before taxes and preferred dividends             |  |                                        | (5,650,519 | ) |                                         |   | (3,577,660 | )    |  |   | (953,694   | ) |  |   | (1,521,663 | )
|                                                        |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss)                                       |  |                                        | (5,650,519 | ) |                                         |   | (3,577,660 | )    |  |   | (953,694   | ) |  |   | (1,521,663 | )
|                                                        |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Preferred stock dividends in arrears Series A Preferred |  |                                        | (148,870   | ) |                                         |   | (152,474   | )    |  |   | (49,940    | ) |  |   | (50,637    | )
|Preferred stock dividends in arrears Series B Preferred |  |                                        | (9,753     | ) |                                         |   | (29,480    | )    |  |   | -0-        |   |  |   | (9,644     | )
|Preferred stock dividends in arrears Series C Preferred |  |                                        | (67,245    | ) |                                         |   | (200,257   | )    |  |   | -0-        |   |  |   | (66,506    | )
|                                                        |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Total preferred stock dividends                         |  |                                        | (225,868   | ) |                                         |   | (382,211   | )    |  |   | (49,940    | ) |  |   | (126,787   | )
|                                                        |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss) attributable to common stockholders   |  |                                        | (5,876,387 | ) |                                         | $ | (3,959,871 | )    |  |   | (1,003,634 | ) |  | $ | (1,648,450 | )
|                                                        |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Net (loss) per share, basic and diluted                 |  | $                                      | (0.08      | ) |                                         | $ | (0.07      | )    |  | $ | (0.01      | ) |  | $ | (0.03      | )
|                                                        |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Weighted average number of shares outstanding           |  |                                        | 70,150,937 |   |                                         |   | 54,582,518 |      |  |   | 75,816,148 |   |  |   | 56,439,290 |  
|                                                        |  |                                        |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  

See accompanying summary of accounting policies and notes to financial statements



4



---

##### Table of Contents

OMNICOMM SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER
30, 2007

(unaudited)



|                                                                                           |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                           |  | 2008 |            |   | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                       |  |      |            |   |      |   |            |  
|Net income (loss)                                                                          |  | $    | (5,650,519 | ) |      | $ | (3,577,660 | )
|Adjustment to reconcile net income to net cash provided by (used in) operating activities: |  |      |            |   |      |   |            |  
|Depreciation and amortization                                                              |  |      | 403,582    |   |      |   | 67,476     |  
|Employee stock option wage expense                                                         |  |      | 986,733    |   |      |   | 651,666    |  
|Common stock issued for accrued interest                                                   |  |      | 28,130     |   |      |   | 76,052     |  
|Unrealized gain on derivative liabilities                                                  |  |      | (1,909,051 | ) |      |   | -0-        |  
|Common stock issued for services                                                           |  |      | 24,000     |   |      |   | 37,500     |  
|Common stock issued in cashless exercise of stock options                                  |  |      | (1,387     | ) |      |   | (6,210     | )
|Interest expense from derivative instruments                                               |  |      | 1,805,426  |   |      |   | -0-        |  
|Unrealized gain on subsidiary liabilities                                                  |  |      | (127,519   | ) |      |   | -0-        |  
|Change in assets and liabilities:                                                          |  |      |            |   |      |   |            |  
|                                                                                           |  |     
|Accounts receivable                                                                        |  |      | (633,932   | ) |      |   | (497,478   | )
|Prepaid expenses and other assets                                                          |  |      | (43,073    | ) |      |   | 26,770     |  
|Other assets                                                                               |  |      | (17        | ) |      |   | -0-        |  
|Accounts payable and accrued expenses                                                      |  |      | 319,632    |   |      |   | (242,037   | )
|Deferred revenue                                                                           |  |      | 865,321    |   |      |   | 431,701    |  
|                                                                                           |  |      |            |   |      |   |            |  
|Net cash provided by (used in) operating activities                                        |  |      | (3,932,674 | ) |      |   | (3,032,220 | )
|                                                                                           |  |      |            |   |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                       |  |      |            |   |      |   |            |  
|Purchase of property and equipment                                                         |  |      | (467,796   | ) |      |   | (138,012   | )
|                                                                                           |  |      |            |   |      |   |            |  
|Net cash provided by (used in) investing activities                                        |  |      | (467,796   | ) |      |   | (138,012   | )
|                                                                                           |  |      |            |   |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                       |  |      |            |   |      |   |            |  
|Proceeds from issuance of common stock, net of issuance costs                              |  |      | -0-        |   |      |   | 3,429,966  |  
|Proceeds from stock option exercise                                                        |  |      | 6,503      |   |      |   | 30,917     |  
|Proceeds from stock subscription receivable                                                |  |      | 2,500      |   |      |   | 1,250      |  
|Proceeds from issuance of convertible debt, net of issuance costs                          |  |      | 4,436,179  |   |      |   | -0-        |  
|Repayments of notes payable                                                                |  |      | (300,000   | ) |      |   | -0-        |  
|Repayments of convertible debt                                                             |  |      | (1,000,000 | ) |      |   | -0-        |  
|Proceeds from notes payable                                                                |  |      | 850,000    |   |      |   | 211,800    |  
|                                                                                           |  |      |            |   |      |   |            |  
|Net cash provided by (used in) financing activities                                        |  |      | 3,995,182  |   |      |   | 3,673,933  |  
|                                                                                           |  |      |            |   |      |   |            |  
|Effect of exchange rate change on cash and cash equivalents                                |  |      | (9,736     | ) |      |   | (25,107    | )
|                                                                                           |  |      |            |   |      |   |            |  
|Net increase (decrease) in cash and cash equivalents                                       |  |      | (415,024   | ) |      |   | 478,594    |  
|Cash and cash equivalents at beginning of period                                           |  |      | 481,961    |   |      |   | 38,254     |  
|                                                                                           |  |      |            |   |      |   |            |  
|Cash and cash equivalents at end of period                                                 |  | $    | 66,937     |   |      | $ | 516,848    |  
|                                                                                           |  |      |            |   |      |   |            |  



5



---

##### Table of Contents

OMNICOMM SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30 2008 AND SEPTEMBER 30
2007

(unaudited)

(continued)



|                                                             |  |                                       |           |      |   |        
|------------------------------------------------------------ |  | ------------------------------------- | --------- | ---- | - | -------
|                                                             |  | For the nine months endedSeptember 30
|                                                             |  | 2008                                  |           | 2007
|Supplemental Disclosure of Cash Flow Information:            |  |                                       |           |      |   |        
|Cash paid during the period for:                             |  |                                       |           |      |   |        
|                                                             |  |                                      
|Income tax                                                   |  | $                                     | -0-       |      | $ | -0-    
|                                                             |  |                                       |           |      |   |        
|Interest                                                     |  | $                                     | 66,444    |      | $ | 10,400 
|                                                             |  |                                       |           |      |   |        
|Non-cash Transactions                                        |  |                                       |           |      |   |        
|Common stock issued in exchange for Notes Payable            |  | $                                     | -0-       |      | $ | 858,230
|Common stock issued for accrued interest                     |  | $                                     | 28,130    |      | $ | 68,552 
|Conversion of Series B Preferred Stock into common stock     |  | $                                     | 191,518   |      | $ | 20,000 
|Conversion of Series C Preferred Stock into common stock     |  | $                                     | 3,684,407 |      | $ | -0-    
|Conversion of 10% Convertible Notes into common stock        |  | $                                     | -0-       |      | $ | 12,500 
|Conversion of Series A Preferred Stock into common stock     |  | $                                     | 45,000    |      | $ | -0-    
|Common Stock issued for services                             |  | $                                     | 24,000    |      | $ | -0-    
|Common Stock tendered in exercise of incentive stock options |  | $                                     | 133,697   |      | $ | 28,734 
|Cashless exercise of common stock warrant  Noesis           |  | $                                     | 589,681   |      | $ | -0-    
|Common stock issued for anti-dilution rights of shareholders |  | $                                     | 344,510   |      | $ | -0-    
|Common stock issued for accrued expenses                     |  | $                                     | -0-       |      | $ | 102,375

See accompanying summary of accounting policies and notes to financial statements



6



---

##### Table of Contents

|NOTE 1: | ORGANIZATION AND NATURE OF OPERATIONS
|------- | -------------------------------------

OmniComm Systems, Inc®.
(OmniComm or Company) is a healthcare technology company that provides Web-based electronic data capture (EDC) solutions and related value-added services to pharmaceutical and biotech companies, CRO
(CRO), and other clinical trial sponsors. TrialMaster, the Companys EDC software application, allows clinical trial sponsors and investigative sites to securely collect, validate, transmit and analyze clinical trial data.

Our ability to compete within the EDC industry is predicated on our ability to continue enhancing and broadening the scope of solutions
offered through TrialMaster. Our research and development (R & D) efforts are focused on developing new, complementary software solutions, as well as enhancing our existing software solutions through the addition of increased
functionality. During the first nine months of fiscal 2008, we spent approximately $664,000 on R & D activities, the majority of which represented salaries to our developers. During the first nine months of fiscal 2007 we spent approximately
$710,000 on R & D activities, which include costs associated with customization of the TrialMaster software for our clients projects.



|NOTE 2: | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|------- | ------------------------------------------

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The Companys accounts include those of all of its wholly
owned subsidiaries and have been prepared in conformity with (i) accounting principles generally accepted in the United States of America; and (ii) the rules and regulations of the United States Securities and Exchange Commission. All
significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.

UNAUDITED FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements of OmniComm Systems,
Inc. and its Subsidiaries (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and
Exchange Commission. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the consolidated financial statements have been condensed or omitted. The results for the periods indicated are
unaudited, but reflect all adjustments (consisting only of normally recurring adjustments) which management considers necessary for a fair presentation of operating results.

The operating results for the nine-month period ended September 30, 2008 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2008. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Companys Annual Report on Form 10-KSB for the
year ended December 31, 2007.

ESTIMATES IN FINANCIAL STATEMENTS

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ from those estimates.



7



---

##### Table of Contents

RECLASSIFICATIONS

Certain reclassifications have been made in the 2007 financial statements to conform to the 2008 presentation. These reclassifications did not have any
effect on net income (loss) or shareholders equity.

SEGMENT INFORMATION

The Company operates in one reportable segment which is the delivery of EDC services and products to clinical trial sponsors. The Company segregates its
revenues based on the activity cycle used to generate its revenues. Accordingly, revenues are currently generated through three main activities. These activities include:



| |  |  | the initial setup activities associated with building, implementing and inititiating clinical trial projects;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | change orders or change requests made by the clinical trial sponsor that require changes to the scope of the clinical trial project; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the maintenance fees paid by our customers for clinical trial projects that have been implemented. The services provided include application hosting and related
support services. Services for this offering are charged monthly as a fixed fee. Revenues are recognized ratably over the period of the service.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The fees associated with each business activity for the nine-months ended September 30, 2008 and September 30, 2007, respectively are:



|                     |  |      |           |      |   |          
|-------------------- |  | ---- | --------- | ---- | - | ---------
|Business Activity    |  | 2008 |           | 2007
|Clinical Trial Setup |  | $    | 3,053,654 |      | $ | 1,701,001
|Change Orders        |  |      | 320,618   |      |   | 236,632  
|Maintenance Fees     |  |      | 907,095   |      |   | 803,998  
|                     |  |      |           |      |   |          
|Total Revenues       |  | $    | 4,281,367 |      | $ | 2,741,631
|                     |  |      |           |      |   |          

CASH AND CASH EQUIVALENTS

Cash equivalents consist of highly liquid, short-term investments with maturities of 90 days or less. The carrying amount reported in the accompanying
consolidated balance sheets approximates fair value.

ACCOUNTS RECEIVABLE

Accounts receivable are judged as to collectibility by management and an allowance for bad debts is established as necessary. The Company had recorded an
allowance for uncollectible accounts receivable of $31,277 and $2,586 as of September 30, 2008 and December 31, 2007, respectively.

CONCENTRATION OF CREDIT RISK

Except as follows, the Company has no significant off-balance-sheet risk or credit risk
concentrations. Financial instruments that subject the Company to potential credit risks are principally cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with credit worthy financial institutions,
however, the Company does maintain cash in its accounts from time-to-time that exceed the maximum federally insured limits. Concentrated credit risk with respect to accounts receivable is limited to creditworthy customers. The Companys
customers are principally located in the United States. Although the Company is directly affected by the overall financial condition of the pharmaceutical, biotechnology and medical device industries, management does not believe significant credit
risk exists as of September 30, 2008. The Company has not experienced significant losses related to receivables from individual customers or groups of customers in any specific industry



8



---

##### Table of Contents

or geographic area. The Company maintains an allowance for doubtful accounts based on accounts past due according to contractual terms and historical
collection experience. Actual losses when incurred are charged to the allowance. The Companys losses related to collection of accounts receivable have consistently been within managements expectations. Due to these factors, no additional
credit risk beyond amounts provided for collection losses, which the Company reevaluates on a monthly basis based on specific review of receivable ageings and the period that any receivables are beyond the standard payment terms, is believed by
management to be probable in the Companys accounts receivable. The Company does not require collateral to mitigate credit risk.

One
customer accounted for 30% of our revenues during the nine-month period ended September 30, 2008 or approximately $1,285,209. Two customers accounted for more than 10% of our revenues during the nine-month period ended September 30, 2007.
These customers accounted for 13% and 10% of our revenues respectively, or approximately $470,000 and $373,000 in revenues during the first nine-months of 2007. The following table summarizes the number of customers who individually comprise greater
than 10% of total revenue and their aggregate percentage of the Companys total revenue.



|                                |  |               |  |                            |  
|------------------------------- |  | ------------- |  | -------------------------- | -
|                                |  | Revenues      | 
|Nine-months Ended September 30, |  | # ofCustomers |  | Percentageof TotalRevenues |  
|2007                            |  | 2             |  | 23                         | %
|2008                            |  | 1             |  | 30                         | %

The Company serves all of its hosting customers from third-party web hosting facilities located in
the United States. The Company does not control the operation of these facilities and they are vulnerable to damage or interruption. The Company maintains redundant systems that can be used to provide service in the event third-party web hosting
facilities become unavailable, although in such circumstances, the Companys service may be interrupted during the transition.

The
following table summarizes activity in the Companys allowance for doubtful accounts.



|                    |  |                                 |        |      |   |       
|------------------- |  | ------------------------------- | ------ | ---- | - | ------
|                    |  | Nine-months Ended September 30,
|                    |  | 2008                            |        | 2007
|Beginning of period |  | $                               | 2,586  |      | $ | 58,539
|Bad debt expense    |  |                                 | 28,691 |      |   | -0-   
|Write-offs          |  |                                 | -0-    |      |   | -0-   
|                    |  |                                 |        |      |   |       
|End of period       |  | $                               | 31,277 |      | $ | 58,539
|                    |  |                                 |        |      |   |       

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.



9



---

##### Table of Contents

DEFERRED REVENUE

Deferred revenue represents cash advances received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may
include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is entitled to payment for all
work performed through the point of cancellation. As of September 30 2008, the Company had $3,497,596 in deferred revenues relating to contracts for services to be performed over periods ranging from 1 month to 5 years. The Company had $
2,473,171 in deferred revenues that are expected to be recognized in the next twelve 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 project
change orders. The clinical trials that are conducted using TrialMaster can last from one month 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. 104 Revenue Recognition, corrected copy and 101 Revenue Recognition in Financial
Statements (SAB 101). SAB 101 and 104 require that revenues be recognized ratably over the life of a contract. The Company will periodically record deferred revenues relating to advance payments in contracts.

ADVERTISING

Advertising costs
are expensed as incurred. Advertising costs were $241,924 and $131,995 for the nine months ended September 30, 2008 and September 30, 2007, respectively. Advertising costs consist primarily of amounts we spend in industry trade
publications, in attending or presenting at industry conferences and in developing our public relations and marketing materials.

RESEARCH AND DEVELOPMENT EXPENSES

Software development costs are included in R & D and are expensed as incurred.
Statement of Financial Accounting Standards No. 86 Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, (SFAS 86), requires the capitalization of certain development costs of software
to be sold once technological feasibility is established, which the Company defines as completion to the point of marketability. The capitalized cost is then amortized on a straight-line basis over the estimated product life. To date, the period
between achieving technological feasibility and the general availability of such software has been short and software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software
development costs under SFAS 86. R & D expense was approximately $664,000 and $638,000 for the nine months ended September 30, 2008 and September 30, 2007 respectively.



10



---

##### Table of Contents

EMPLOYEE EQUITY INCENTIVE PLANS

The Company has an employee equity incentive plan, which is more fully described below. Until December 31, 2005, the Company accounted for its equity
incentive plan under the intrinsic value recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. Effective with the quarter ended
March 31, 2006, the Company began accounting for employee stock options using the fair-value method. The exercise price of options granted is equal to the market price of OmniComm Systems common stock (defined as the closing bid price reported
on the OTC Bulletin-Board) on the date of grant. The value of the granted options is estimated using a Binomial option pricing model. Because the estimated value is determined as of the date of grant, the actual value ultimately realized by the
employee may be significantly different.

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

The estimated value of employee stock options granted during the nine months ended September 30, 2008 was $1,156,648 ($741,760 for the nine months ended September 30 2007). The value of options granted in 2008 and 2007 was
estimated at the date of grant using the following assumptions:



|                              |  |         |   |  |         |  
|----------------------------- |  | ------- | - |  | ------- | -
|                              |  | 2008    |   |  | 2007    |  
|Risk-free interest rate       |  | 1.72    | % |  | 4.67    | %
|Expected years until exercise |  | 5 Years |   |  | 5 Years |  
|Expected stock volatility     |  | 83.8    | % |  | 92.9    | %
|Dividend yield                |  | 0       | % |  | 0       | %

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

Description of Stock
Option Plan

In 1998, the Companys Board of Directors approved the 1998 Stock Incentive Plan of OmniComm Systems, (the 1998
Plan). The 1998 Plan is administered by the Companys Compensation Committee. 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 12,500,000 shares of the Companys common stock. The term of each option may not exceed ten years from the date of grant, and options
vest in accordance with a vesting schedule established by the Companys Compensation Committee. As of September 30, 2008, substantially all of the Companys employees were either participating or expected to participate in the 1998
Plan and approximately 11,682,770 options were outstanding. Options granted under the 1998 Plan will generally expire five to seven years from the date of grant for most employees and five to seven years from the date of grant for officers and
directors of the Company.



11



---

##### Table of Contents

EARNINGS PER SHARE

The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, Earnings per
Share, (SFAS 128). SFAS 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. The diluted earnings per share calculation is very similar to the previously utilized fully diluted earnings per share calculation method.

Basic earnings per share were calculated using the weighted average number of shares outstanding of 70,150,937 and 54,582,518 for the nine-month periods
ended September 30, 2008 and September 30, 2007, respectively. There were no differences between basic and diluted earnings per share. Options to purchase 11,682,770 shares of common stock at prices ranging from $.25 to $2.75 per share
were outstanding at September 30, 2008. Warrants to purchase 12,517,757 shares of common stock at prices ranging from $0.25 to $0.75 per share were outstanding at September 30, 2008.

Basic earnings per share were calculated using the weighted average number of shares outstanding of 75,816,148 and 56,439,290 for the three-month periods
ended September 30, 2008 and September 30, 2007, respectively. There were no differences between basic and diluted earnings per share.

The Companys convertible debt which equal 7,260,000 shares of common stock on a converted basis and our Series A convertible preferred stock which equal 2,780,149 shares of common stock on a converted basis have an anti-dilutive
effect on net loss per share and were not included in the computation of diluted earnings per share.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes., (SFAS 109). SFAS 109 has as its basic objective the recognition of current and deferred income tax assets and liabilities based upon all events that have been recognized in the financial statements as measured by
the provisions of the enacted tax laws.

Valuation allowances are established when necessary to reduce deferred tax assets to the estimated
amount to be realized. Income tax expense represents the tax payable for the current period and the change during the period in the deferred tax assets and liabilities.

IMPACT OF NEW ACCOUNTING STANDARDS

In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133 (SFAS No. 161). SFAS No. 161 requires enhanced disclosure related to derivatives and hedging activities and
thereby seeks to improve the transparency of financial reporting. Under SFAS No. 161, entities are required to provide enhanced disclosures relating to: (a) how and why an entity uses derivative instruments; (b) how derivative
instruments and related hedge items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), and its related interpretations; and (c) how derivative
instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. SFAS No. 161 must be applied prospectively to all derivative instruments and non-derivative instruments that are designated
and qualify as hedging instruments and related hedged items accounted for under SFAS No. 133 for all financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. The
Company does not expect the adoption of SFAS No. 161 to significantly impact its financial position, results of operations or cash flows.



12



---

##### Table of Contents

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. This Statement is effective 60 days following the SECs approval of
the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company is currently evaluating the potential impact the new
pronouncement will have on its consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (FSP) FAS
142-3, Determination of the Useful Life of Intangible Assets. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under
FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of
expected cash flows used to measure the fair value of the asset under SFAS 141R, and other GAAP. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal
years. Early adoption is prohibited. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.



|NOTE 3: | OPERATIONS AND LIQUIDITY
|------- | ------------------------

We have
experienced negative cash flow from operations and have funded our activities to date primarily from debt and equity financings. We will continue to require substantial funds to continue our R & D activities and to market, sell and commercialize
our technology. We may 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 R & D 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 R & D 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 R & D plans, acquisitions or other events will
not result in accelerated or unexpected expenditures.

To satisfy our capital requirements, we may seek additional financing through debt
and equity financings. There can be no assurance that any such funding will be available to us on favorable terms or at all. If adequate funds are not available when needed, we may be required to delay, scale back or eliminate some or all of our
research and product development and marketing programs. If we are successful in obtaining additional financings, the terms of such financings may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our
common and preferred stock.

The ability of the Company to continue in existence is dependent on its having sufficient financial resources
to bring products and services to market for marketplace acceptance. As a result of its significant losses, negative cash flows from operations, and accumulated deficits for the period ending September 30, 2008 there is doubt about the
Companys ability to continue as a going concern.



13



---

##### Table of Contents

|NOTE 4: | NOTES PAYABLE
|------- | -------------

At September 30 2008,
the Company owed $846,800 in notes payable. The table below provides details as to the terms and conditions of the notes payable.



|                 |  |          |  |              |   |  |        |         |           |   |          |  |   |        
|---------------- |  | -------- |  | ------------ | - |  | ------ | ------- | --------- | - | -------- |  | - | -------
|Origination Date |  | DueDate  |  | InterestRate |   |  | Amount |         | ShortTerm |   | LongTerm
|01/16/07         |  | 01/01/09 |  | 9.00         | % |  | $      | 51,800  |           | $ | 51,800   |  | $ | -0-    
|01/16/07         |  | 01/01/09 |  | 9.00         | % |  |        | 60,000  |           |   | 60,000   |  |   | -0-    
|12/31/06         |  | 01/31/09 |  | 9.00         | % |  |        | 185,000 |           |   | 185,000  |  |   | -0-    
|09/17/08         |  | 12/31/09 |  | 12.00        | % |  |        | 150,000 |           |   | -0-      |  |   | 150,000
|09/29/08         |  | 12/31/09 |  | 12.00        | % |  |        | 400,000 |           |   | -0-      |  |   | 400,000
|                 |  |          |  |              |   |  |        |         |           |   |          |  |   |        
|                 |  |          |  |              |   |  | $      | 846,800 |           | $ | 296,800  |  | $ | 550,000
|                 |  |          |  |              |   |  |        |         |           |   |          |  |   |        

The notes payable dated September 17, 2008 in the amount of $150,000 and the note payable
dated September 29, 2008 in the amount of $400,000 are convertible at the discretion of the note holder into any subsequent offering prior to the notes maturity date upon the same terms and conditions of such subsequent offering.

10% 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 net
proceeds to the Company were $742,875. The notes bear interest at ten percent annually, payable semi-annually. The notes are convertible after maturity, which was June 30, 2004, into shares of common stock of the Company at $1.25 per
share. As of December 31, 2007, approximately $775,000 of the Convertible Notes had been converted into 1,495,179 shares of common stock of the Company leaving an outstanding principal balance of $87,500.

The Company is currently in default on interest payments owed totaling $70,046 on its 10% Convertible Notes. The terms of the notes provide a payment
grace period of thirty days in which to make required semi-annual interest payments. The Company has been in default since January 30, 2002. At the option of the note holders the full amount of the convertible notes could be declared in
default. For the nine months ended September 30, 2008, we incurred and recorded $6,569 in interest expense on the 10% Convertible Notes.

SECURED CONVERTIBLE DEBENTURES

On February 29, 2008 we sold an aggregate of $2,325,000 principal amount 10%
Secured Convertible Debentures (the Debentures) and common stock purchase warrants (the Warrants) to purchase an aggregate of 2,930,675 shares of our common stock to 12 accredited investors. After paying certain fees and
expenses of $181,280 in the aggregate (including payment to Emerging Growth Equities, Ltd., a broker dealer and member of FINRA who acted as the placement for this offering, of a commission and expense reimbursement aggregating $143,750), we
received net proceeds of $2,156,220. We recorded debt acquisition costs of $261,365. We amortized the debt acquisition costs over the six month maturity of the Debentures. Emerging Growth Equities, Ltd., a broker dealer and member of FINRA acted as
placement agent in the offering and as compensation therefore received a commission of $143,750. EGE also received a warrant to purchase at $0.75 per share 222,458 shares of our common stock, an estimated fair value of $80,085 was calculated for the
warrants granted to EGE using the Binomial option pricing model.

The Debentures, which bear interest at 10% per annum, were due 6
months from the issuance date on August 29, 2008. The Debentures were convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.595 per share (the Conversion Price),
subject to adjustment as provided in the transaction documents (the Conversion



14



---

##### Table of Contents

Feature). Interest is convertible as provided in the Debentures. We were not permitted to prepay the Debentures without the prior written consent of
the holders. We granted the holders a security interest in all of our assets to secure performance of our obligations under the Debentures and the other transaction agreements.

The Warrants, which have a cashless exercise provision, are exercisable until approximately four years after the closing at an exercise price of $0.75 per
share. The number of shares covered by the Warrants and the Warrant exercise price are subject to adjustment as provided in the transaction documents. The Warrants carry an anti-dilution provision that is tied to financings the Company conducts at
any time prior to the exercise of the Warrants. That anti-dilution feature has caused the Warrants to be treated as a derivative liability and accounted for in accordance with FAS 133. The Warrants were valued using a Binomial option pricing model.
A value of $1,055,043 was calculated and allocated to the Warrants and recorded as a liability to the issuance of the Debentures. The Warrant liability will be amortized over the 48 month exercise period of the Warrants. In addition, a fair value
calculation is undertaken periodically on the Warrant liability and accordingly the Warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain
or loss on derivative liabilities.

The Debentures carry an anti-dilution provision or Conversion Feature that is tied to financings the
Company conducts at any time prior to the satisfaction of the Debentures or before the expiration date of the Warrants. In the event the Company issues common stock or any other security that is convertible into the Companys common stock at a
price below the Conversion Price of the Debentures the holders of the Debentures would be entitled to additional shares upon conversion. The additional shares issuable are equal to the ratio of the price of the subsequent financing divided by the
Conversion Price. That anti-dilution feature has caused the Conversion Feature to be treated as a derivative liability and accounted for in accordance with FAS 133. The Conversion Feature was valued using a Binomial option pricing model. A value of
$593,950 was calculated and allocated to the Conversion Feature and recorded as a liability (or discount) to the issuance of the Debentures. The Conversion Feature liability (discount) was amortized over the six month maturity of the Debentures. In
addition, a fair value calculation is undertaken periodically on the Conversion Feature liability and accordingly the Conversion Feature liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is
reflected in operations as an unrealized gain or loss on derivative liabilities. On the maturity date of August 29, 2008, $398,572 was recorded as unrealized gain and the value of the original conversion feature became zero.

On August 29, 2008 the Company repaid $1,000,000 of the Debentures. The remaining $1,325,000 was extended pursuant to an Extension Agreement (the
Extension). The maturity date was changed to December 1, 2008. In accordance with the Extension the conversion price of the Debentures was changed from $0.595 per share to $0.50 per share. Additionally, the investors who agreed to the
Extension were granted one warrant (the Extension Warrants) for each share of stock issuable upon conversion of the Debentures at the $0.50 per share conversion price stipulated in the Extension. The exercise price of the Warrants was
changed from $0.75 per share to $0.60 per share pursuant to the Extension. The change of the exercise price increased the number of shares issuable upon exercise of Warrants from 2,930,672 to 3,563,130. The exercise price of the Extension Warrants
is $0.60 per share. The security interest we granted the holders in all of our assets to secure performance of our obligations under the Debentures remains in effect. Accordingly, if we should default under the repayment provisions of these
obligations, the holders could seek to foreclose on all our assets in an effort to seek repayment under the obligations. If the holders were successful, we would be unable to conduct our business as it is presently conducted and we would be forced
to discontinue our operations. We currently do not have the funds to repay these obligations.

The Extension Warrants were valued using a
Binomial option pricing model. A value of $673,100 was calculated and allocated to the Extension Warrants and recorded as a liability to the issuance of the Debentures. The Warrant liability will be amortized over the 48 month exercise period of the
Extension Warrants. In addition, a fair value calculation is undertaken periodically on



15



---

##### Table of Contents

the Warrant liability and accordingly the Warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease
is reflected in operations as an unrealized gain or loss on derivative liabilities.

The Conversion Feature pursuant to the Extension was
valued using a Binomial option pricing model. A value of $172,250 was calculated and allocated to the Conversion Feature and recorded as a liability (or discount) to the issuance of the Debentures. The Conversion Feature liability (discount) will be
amortized over the remaining three month maturity of the Debentures. In addition, a fair value calculation is undertaken periodically on the Conversion Feature liability and accordingly the Conversion Feature liability is increased or decreased
based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on derivative liabilities.

CONVERTIBLE NOTES

On August 29, 2008, we sold, $2,270,000 principal amount Convertible
Notes (the Convertible Notes) and common stock purchase warrants (the Convertible Note Warrants) to purchase an aggregate of 4,540,000 shares of our common stock to four accredited investors including our Chief Executive
Officer and one of our Directors. We received net proceeds of $2,270,000.

The Convertible Notes, which bear interest at 10% per annum,
are due on August 29, 2010. The Convertible Notes are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share (the Conversion Price), subject to adjustment
as provided in the transaction documents (the Conversion Feature). Interest is convertible as provided in the Convertible Notes. We are not permitted to prepay the Convertible Notes without the prior written consent of the holders.

The Warrants, which have a cashless exercise provision, are exercisable until approximately four years after the closing at an exercise
price of $0.60 per share. The number of shares covered by the Warrants and the Warrant exercise price are subject to adjustment as provided in the transaction documents. The Warrants carry an anti-dilution provision that is tied to financings the
Company conducts at any time prior to the exercise of the Warrants. That anti-dilution feature has caused the Warrants to be treated as a derivative liability and accounted for in accordance with FAS 133. The Warrants were valued using a Binomial
option pricing model. A value of $1,153,160 was calculated and allocated to the Warrants and recorded as a liability to the issuance of the Convertible Notes. The Warrant liability will be amortized over the 48 month exercise period of the Warrants.
In addition, a fair value calculation is undertaken periodically on the Warrant liability and accordingly the Warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in
operations as an unrealized gain or loss on derivative liabilities.

The Convertible Note carries an anti-dilution provision or Conversion
Feature that is tied to financings the Company conducts at any time prior to the satisfaction of the Convertible Note or before the expiration date of the Warrants. In the event the Company issues common stock or any other security that is
convertible into the Companys common stock at a price below the Conversion Price of the Convertible Note the holder of the Convertible Note would be entitled to additional shares upon conversion. The additional shares issuable are equal to the
ratio of the price of the subsequent financing divided by the Conversion Price. That anti-dilution feature has caused the Conversion Feature to be treated as a derivative liability and accounted for in accordance with FAS 133. The Conversion Feature
was valued using a Binomial option pricing model. A value of $898,920 was calculated and allocated to the Conversion Feature and recorded as a liability (or discount) to the issuance of the Convertible Note. The Conversion Feature liability
(discount) will be amortized over the 24 month maturity of the Convertible Note. In addition, a fair



16



---

##### Table of Contents

value calculation is undertaken periodically on the Conversion Feature liability and accordingly the Conversion Feature liability is increased or decreased
based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on derivative liabilities.



|NOTE 5: | FAIR VALUE MEASUREMENT
|------- | ----------------------

A summary of the fair value of assets and
liabilities measured at fair value on a recurring basis follows:



|            |  |           |           |                                                               |   |          
|----------- |  | --------- | --------- | ------------------------------------------------------------- | - | ---------
|            |  | 9/30/2008 |           | Quoted prices in active marketsfor identical assets (Level 1)
|Derivatives |  | $         | 2,637,372 |                                                               | $ | 2,637,372

The Income approach was used as a valuation technique.



|                                                                                                                                                                                                                |  |                                                         |          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------- | ---------
|                                                                                                                                                                                                                |  | For the nine months endedSeptember 30, 2008Other Income
|The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized
gains or losses relating to assets still held at the reporting date |  | $                                                       | 1,909,051
|                                                                                                                                                                                                                | 
|Total gains or losses included in earnings                                                                                                                                                                      |  | $                                                       | 1,909,051



|NOTE 6: | COMMITMENTS AND CONTINGENCIES
|------- | -----------------------------

The Company
currently leases office space under an operating lease. The minimum future annual lease payments required under the Companys operating leases at September 30, 2008 are as follows:



|      |  |   |        
|----- |  | - | -------
|2008  |  | $ | 77,684 
|2009  |  |   | 314,458
|2010  |  |   | 320,149
|2011  |  |   | 154,994
|2012  |  |   | -0-    
|      |  |   |        
|Total |  | $ | 867,285
|      |  |   |        

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. Rent expense was $410,090 and $238,402 for the nine-months ended September 30, 2008 and September 30, 2007, respectively.



17



---

##### Table of Contents

|NOTE 7: | RELATED PARTY TRANSACTIONS
|------- | --------------------------

Guus van
Kesteren, a member of our Board of Directors, is a consultant to Noesis Capital Corp. Noesis Capital Corp. has acted as a placement agent for the sale of our securities in various offerings since 1999.

During March 2007, Fernando Montero, who was appointed as a member of our Board of Directors on July 27, 2007, purchased 500,000 shares of our common
stock at a price of $0.50 per share, resulting in gross proceeds to the Company of $250,000. In addition, Atlantic Balanced Fund, a corporation formed under the laws of the British Virgin Islands (ABF) purchased 2,500,000 shares of our
common stock resulting in gross proceeds to the Company of $1,250,000. Mentor Capital Corporation is the fund manager for ABF and has voting and dispositive control over the shares held by ABF. Mr. Montero is the president, director and
sole owner of Mentor Capital Corporation and may be considered the beneficial owner of the 2,500,000 shares held by ABF.

In December 2007,
Noesis Capital Corp., the Companys Placement Agent for several equity and debt transactions since 1999 converted amounts owed to it for accrued financial advisory fees and for fees earned as Placement Agent in offerings completed in March 2007
and December 2007. A total of $37,500 in financial advisory fees and $160,748 in Placement Agent fees were converted into common stock of the Company at a price of $0.67 per share. Noesis Capital Corp. was issued a total of 295,893 shares of common
stock of the Company.

On February 29, 2008, we sold, an aggregate of $2,325,000 principal amount 10% Secured Convertible Debentures
and common stock purchase warrants to purchase an aggregate of 2,930,675 shares of our common stock to 12 accredited investors. As part of the transaction Cornelis Wit, Chief Executive Officer and Director, Guus van Kesteren, Director, Ronald T.
Linares, Chief Financial Officer, and Atlantic Balanced Fund, a fund managed by Mentor Capital of which Fernando Montero, a director of OmniComm, is president, director and sole shareholder, purchased $150,000, $150,000, $25,000 and $200,000,
respectively, principal amount of debentures and received 189,076, 189,076, 31,513 and 252,101 warrants, respectively. Interest expense incurred and payable to Directors and Officers of the Company in connection with the Secured Convertible
Debenture totaled $30,925 through September 30, 2008. The Debentures matured originally on August 29, 2008. On August 29 2008, the Company repaid $1,000,000 of the Debentures. The remaining $1,325,000 in principal was extended
pursuant to an Extension Agreement that included: an extension of the maturity date to December 1, 2008; reduced the conversion price of the Debenture from $0.595 per share to $0.50 per share; reduced the exercise price of the warrants attached
to the Debenture from $0.75 per share to $0.60 per share; and resulted in the issuance of 2,650,000 warrants to the investors agreeing to the extension of the Debentures.

As of September 30, 2008, we have an aggregate of $2,320,000 principal amount of convertible debentures and promissory notes outstanding to Cornelis Wit, our Chief Executive Officer and directors, and have issued
certain warrants to Mr. Wit, as follows:



| |  |  | On May 30, 2008, $210,000 principal amount Convertible Note and common stock purchase warrants (the Warrants) to purchase an aggregate of 264,706
shares of our common stock. We received net proceeds of $210,000. This note is convertible at the option of the holder into any securities we issue (New Securities) before maturity of the Convertible Note on the same terms and conditions
of the sale of the New Securities. This Convertible Note, which bear interest at 10% per annum, was due on June 10, 2009. On August 29, 2008 Mr. Wit agreed to convert this Convertible Note into a private placement of Convertible
Notes that expire on August 29, 2010.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18



---

##### Table of Contents

| |  |  | On June 10, 2008, $300,000 principal amount Convertible Note. This note is convertible at the option of the holder into any New Securities we issue before
maturity of this promissory note on the same terms and conditions of the sale of the New Securities. This Convertible Note bears interest at 10% per annum and was due on June 30, 2010. On August 29, 2008 Mr. Wit agreed to convert
this Convertible Note into a private placement of Convertible Notes, which Convertible Note is due on August 29, 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On June 27, 2008, $300,000 principal amount Convertible Note . This note is convertible at the option of the holder into any New Securities we issue before
maturity of this Convertible Note on the same terms and conditions of the sale of the New Securities. This Convertible Note bears interest at 10% per annum and was due on June 30, 2010. This note was repaid on July 8, 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During August 2008, $1,260,000 principal amount Convertible Notes that are part of a private placement of Convertible Notes that expire on August 29, 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On September 17, 2008, $150,000 principal amount Convertible Note. This note is convertible at the option of the holder into any New Securities we issue before
maturity of the Convertible Note on the same terms and conditions of the sale of the New Securities. This Convertible Note bears interest at 12% per annum and is due on December 31, 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On September 29, 2008, $400,000 principal amount Convertible Note. This note is convertible at the option of the holder into any New Securities we issue before
maturity of the Convertible Note on the same terms and conditions of the sale of the New Securities. This Convertible Note bears interest at 12% per annum and is due on December 31, 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On August 29, 2008, we sold, $2,270,000 principal amount Convertible Notes (the Convertible Notes) and common stock purchase warrants
(the Convertible Note Warrants) to purchase an aggregate of 4,540,000 shares of our common stock to four accredited investors including Mr. Wit our Chief Executive Officer as discussed above, and one of our Directors. The
Convertible Notes bear interest at 10% and are due on August 29, 2010. As part of the transaction Cornelis Wit, Chief Executive Officer and Director and Guus van Kesteren, Director, purchased $1,770,000 and $150,000, respectively, principal
amount of notes, which are convertible into 3,540,000 shares and 300,000 shares, respectively, and received 3,540,000 and 300,000 warrants, respectively. As a result, Mr. Wit and Mr. van Kesteren are considered to be beneficial owners of
approximately 15% and 5%, respectively, of our issued and outstanding shares of common stock.

During the nine-month period ended
September 30, 2008 we have incurred $74,081 in interest expense payable to related parties.



|NOTE 8: | STOCKHOLDERS EQUITY
|------- | --------------------

As of
September 30, 2008, the Company had converted 48,000 shares of its Series B Preferred Stock into 1,920,000 shares of its par value $0.001 common stock. As of September 30, 2008 there were 0 shares outstanding of the Series B Preferred
Stock.

As of September 30, 2008, the Company had converted 337,150 shares of its Series C Preferred Stock into 13,486,000 shares of
its par value $0.001 common stock. As of September 30, 2008 there were 0 shares outstanding of the Series C Preferred Stock.



|NOTE 9: | LEGAL PROCEEDINGS
|------- | -----------------

On July 18, 2008, OmniComm
Systems, Inc. (the Company) was served with a complaint in a purported patent infringement lawsuit filed by Datasci LLC (Datasci) against the Company in the U.S. District Court for the District of Maryland. The complaint
alleges that the Company and another company, Covance Inc., have infringed United States Patent No. 6,496,827 allegedly owned by Datasci. The Company has reviewed the complaint and believes that the claims are unfounded and that the lawsuit is
without merit.



19



---

##### Table of Contents

|NOTE 10: | SUBSEQUENT EVENTS
|-------- | -----------------

On October 17, 2008
we issued a promissory note with a principal amount of $1,000,000 to Cornelis Wit, our Chief Executive Officer and a Director. This note is convertible at the option of the holder into any securities we issue (New Securities) before
maturity of the Convertible Note on the same terms and conditions of the sale of the New Securities. The promissory note bears interest at 12% per annum and is due on December 31, 2010.



20



---

##### Table of Contents

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

General

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

Forward-Looking Statements

Statements contained in this Form 10-Q 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, contained in this Form 10-Q 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-Q. Therefore, our actual experience and results achieved during the period covered by any
particular projections or forward-looking statements may differ substantially from those projected. Consequently, the inclusion of projections and other forward- looking statements should not be regarded as a representation by us or any other person
that these plans will be consummated or that estimates and projections will be realized, and actual results may vary materially. There can be no assurance that any of these expectations will be realized or that any of the forward-looking statements
contained herein will prove to be accurate. The Company does not undertake any obligation to update or revise any forward-looking statement made by it or on its behalf, whether as a result of new information, future events or otherwise.

Overview

We are a healthcare technology company that provides
Electronic Data Capture (EDC) solutions and related value-added services to pharmaceutical and biotechnology companies, Clinical Research Organizations (CRO), and other clinical trial sponsors via our Web-based software,
TrialMaster. TrialMaster allows clinical trial sponsors and investigative sites to securely collect, validate, transmit, and analyze clinical study data including patient histories, patient dosing, adverse events, and other clinical trial
information. All of our personnel are involved in the development and marketing of TrialMaster and its related products.

During fiscal 2008, the Company
has continued its efforts in executing its strategy. The primary focus of our strategy includes:



| |  |  | Stimulating demand by providing clinical trial Sponsors with high value EDC;
| | - |  | ----------------------------------------------------------------------------



| |  |  | Expanding our business model by offering our software solution, TrialMaster, on a licensed and enterprise-wide, hosted services basis in addition to our existing
hosted-services solutions which have historically been deployed on a project-by-project basis;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Providing EDC services to small and midsize Pharma, Bio-Tech, Medical Device Companies and CROs (Clinical Research Organizations); and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Differentiation through service.
| | - |  | --------------------------------

According to a
2008 PriceWaterhouseCoopers report, global R & D expenditures by the pharmaceutical and BioTech industries were approximately $102.6 billion in 2006, with approximately 53% of that amount spent by North American-based pharmaceutical,



21



---

##### Table of Contents

biotechnology and medical device companies. Based on a 2002 CenterWatch report approximately 8.5% of total R & D costs are spent on data management. An
April 2007 report by Health Industry Insights states that by the end of 2007, an estimated 45% of all new Phase I-III studies were initiated using EDC. The report also states that the total addressable market for EDC and eClinical services is
expected to grow from approximately $600MM currently to $1.8B in 2010. Our operating focus is first to increase our sales and marketing capabilities and penetration rate and secondly, to continue developing and improving TrialMaster to ensure our
services and products remain an attractive, high-value EDC choice. During the fourth quarter of 2008 and during fiscal 2009 we anticipate increasing our marketing and sales personnel by an additional two full-time equivalent personnel
(FTE) and will look to aggressively expand the scope of our CRO Preferred Program through a direct sales and marketing campaign aimed at increasing CRO awareness in order to increase our penetration of the domestic CRO market. During the
second half of fiscal 2007 we established an operation in Germany under a wholly-owned subsidiary. During the second half of 2008 we have attempted to increase our overall marketing and sales presence in Europe through a more concerted direct sales
effort on the part of our sales and marketing team and through an increased presence in European based trade shows as part of our strategic plan.

Our
ability to compete within the EDC industry is predicated on our ability to continue enhancing and broadening the scope of solutions offered through TrialMaster. Our R & D efforts are focused on developing new, complementary software solutions,
as well as enhancing our existing software solutions through the addition of increased functionality. During the nine months ended September 30, 2008 we spent approximately $664,000 on R & D activities, this is in addition to $917,000 and
$742,000 we spent during fiscal 2007 and 2006, respectively, the majority of which represented salaries to our developers which includes the costs associated with customization of the TrialMaster software for our clients projects.

The nine-months ended September 30, 2008 compared with the nine-months ended September 30, 2007

Results of Operations

A summarized version of our results of
operations for the nine-month periods ended September 30, 2008 and September 30, 2007 is included in the table below.

Summarized Statement of
Operations



|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |            |   |  |        |  
|------------------------------------------------ |  | --------------------------------------- | ---------- | - | ------------ | ------ | - | ------- | - | ---------- | ------------ |  | ------ | - |  | - | ---------- | - |  | ------ | -
|                                                 |  | For the nine months ended September 30, |            |   | $Change      |        |   | %Change |  
|                                                 |  | 2008                                    |            |   | % ofRevenues |        |   | 2007    |   |            | % ofRevenues |  |        |  
|Total revenues                                   |  | $                                       | 4,281,367  |   |              |        |   |         | $ | 2,741,631  |              |  |        |   |  | $ | 1,539,736  |   |  | 56.2   | %
|                                                 |  |                                         |            |   |              |       
|Cost of sales                                    |  |                                         | 980,845    |   |              | 22.9   | % |         |   | 770,879    |              |  | 28.1   | % |  |   | 209,966    |   |  | 27.2   | %
|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |            |   |  |        |  
|Gross margin                                     |  |                                         | 3,300,522  |   |              | 77.1   | % |         |   | 1,970,752  |              |  | 71.9   | % |  |   | 1,329,770  |   |  | 67.5   | %
|Salaries, benefits and related taxes             |  |                                         | 6,620,322  |   |              | 154.6  | % |         |   | 4,124,147  |              |  | 150.4  | % |  |   | 2,496,175  |   |  | 60.5   | %
|Rent                                             |  |                                         | 410,090    |   |              | 9.6    | % |         |   | 238,402    |              |  | 8.7    | % |  |   | 171,688    |   |  | 72.0   | %
|Consulting                                       |  |                                         | 258,379    |   |              | 6.0    | % |         |   | 231,926    |              |  | 8.5    | % |  |   | 26,453     |   |  | 11.4   | %
|Selling, general and administrative              |  |                                         | 391,974    |   |              | 9.2    | % |         |   | 367,272    |              |  | 13.4   | % |  |   | 24,702     |   |  | 6.7    | %
|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |            |   |  |        |  
|Total Operating Expenses                         |  |                                         | 8,872,677  |   |              | 207.2  | % |         |   | 5,517,211  |              |  | 201.2  | % |  |   | 3,355,466  |   |  | 60.8   | %
|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |            |   |  |        |  
|Operating income (loss)                          |  |                                         | (5,572,155 | ) |              | -130.1 | % |         |   | (3,546,459 | )            |  | -129.4 | % |  |   | (2,025,696 | ) |  | 57.1   | %
|Interest Expense                                 |  |                                         | (1,994,009 | ) |              | -46.6  | % |         |   | (48,838    | )            |  | -1.8   | % |  |   | (1,945,171 | ) |  | 3982.9 | %
|                                                 |  |                                         |            |   |              |       
|Interest income                                  |  |                                         | 6,594      |   |              | 0.2    | % |         |   | 17,637     |              |  | 0.6    | % |  |   | (11,043    | ) |  | -62.6  | %
|Unrealized Gain/(Loss) on Derivative Liabilities |  |                                         | 1,909,051  |   |              | 44.6   | % |         |   |           |              |  | 0.0    | % |  |   | 1,909,051  |   |  | 0.0    | %
|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |            |   |  |        |  
|Net (loss)                                       |  |                                         | (5,650,519 | ) |              | -132.0 | % |         |   | (3,577,660 | )            |  | -130.5 | % |  |   | (2,072,859 | ) |  | 57.9   | %
|Total preferred stock dividends                  |  |                                         | (225,868   | ) |              | -5.3   | % |         |   | (382,211   | )            |  | -13.9  | % |  |   | 156,343    |   |  | -40.9  | %
|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |            |   |  |        |  
|Net (loss) attributable to common stockholders   |  | $                                       | (5,876,388 | ) |              | -137.3 | % |         | $ | (3,959,871 | )            |  | -144.4 | % |  | $ | (1,916,517 | ) |  | 48.4   | %
|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |            |   |  |        |  



22



---

##### Table of Contents

Operating Income and Expenses

Revenues for the nine-month period ended September 30, 2008 were $4,281,367 compared to $2,741,631 for the nine-month period ended September 30, 2007, an increase of 56.2%. We believe industry acceptance of EDC continues to
increase. TrialMaster is currently sold primarily 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. During 2008, we began offering TrialMaster under an Enterprise hosted-services model (Enterprise). Under our Enterprise Model our larger clients have the
ability to deploy TrialMaster on a larger-scale basis. The Enterprise model allows us to provide the client with a more customized deployment solution that includes a dedicated service team. A typical Enterprise agreement will have a three to five
year term commitment for a specified number of concurrent clinical trial projects with a guaranteed minimum annual payment structure. We believe that Enterprise agreements provide the Company with an excellent valued-added relationship structure
that provides our clients with an opportunity to leverage the TrialMaster suite of products and services on a cost-effective means while providing the Company with a more structured revenue stream during the course of the Enterprise agreement. To
date, we have entered into one Enterprise agreement. As we continue developing TrialMaster and our client relationships mature we expect some of our clients to deploy TrialMaster on a licensed, rather than ASP hosted basis. TrialMaster contracts
provide for pricing that is based on both the size and duration of the clinical trial. Size parameters include the number of case report forms used to collect data and the number of sites utilizing TrialMaster. The client will pay a trial setup fee
based on the previously mentioned factors, and then pay an on-going maintenance fee for the duration of the clinical trial that provides software, network and site support during the trial. We expect the revenue recognition time frame to be more
condensed under our licensing model based on the expected time needed to deploy our product on a licensed basis and the underlying revenue recognition standards currently in place. To date, we have entered into two licensing agreements that call for
the transfer of our license with annual licensing and maintenance payments indexed to overall TrialMaster usage. As of September 30, 2008 one of the licenses had been fully deployed and was in use by one of our clients.

During the nine-month periods ended September 30, 2008 and September 30, 2007 our revenues were generated from the following operating activities:



|                     |  |       |   |  |       |  
|-------------------- |  | ----- | - |  | ----- | -
|Business Activity    |  | 2008  |   |  | 2007  |  
|Clinical Trial Setup |  | 71.3  | % |  | 62.1  | %
|Change Orders        |  | 21.2  | % |  | 29.3  | %
|Maintenance Fees     |  | 7.5   | % |  | 8.6   | %
|                     |  |       |   |  |       |  
|Total Revenues       |  | 100.0 | % |  | 100.0 | %
|                     |  |       |   |  |       |  

Generally, our contracts will range in duration from one month to several years. Setup fees are generally earned
prior to the inception of a trial, however, the revenues will be recognized in accordance with SEC Staff Accounting Bulletin No. 104 Revenue Recognition which requires that the revenues be recognized ratably over the life of the
contract. The maintenance fee revenues are earned and recognized monthly. Costs associated with contract revenues are recognized as incurred.



23



---

##### Table of Contents

One customer accounted for 30% of our revenues during the nine-month period ended September 30, 2008 or
approximately $1,285,209. Two customers accounted for more than 10% of our revenues during the nine-month period ended September 30, 2007. These customers accounted for 13% and 10% of our revenues respectively, or approximately $470,000 and
$373,000 in revenues during the first nine-months of 2007. The following table summarizes the number of customers who individually comprise greater than 10% of total revenue and their aggregate percentage of the Companys total revenue.



|                                |  |               |  |                            |  
|------------------------------- |  | ------------- |  | -------------------------- | -
|                                |  | Revenues      | 
|Nine-months Ended September 30, |  | # ofCustomers |  | Percentageof TotalRevenues |  
|2007                            |  | 2             |  | 23                         | %
|2008                            |  | 1             |  | 30                         | %

The loss of any of these contracts or these customers in the future could adversely affect our results of
operations.

Cost of goods sold increased to $980,845 for the nine-month period ended September 30, 2008 compared to $770,879 for the nine-month
period ended September 30, 2007, an increase of 27.2%. Cost of goods sold were approximately 22.9% of sales for the nine-month period ended September 30, 2008 compared to 28.1% for the nine-month period ended September 30, 2007. Cost
of goods sold relates primarily to salaries and related benefits associated with the programmers, developers and systems analysts producing clinical trials on behalf of our clients. Salaries increased during the first nine months of 2008 due to the
addition of approximately three additional programmers and two additional quality analysts as part of our clinical trial operations. Our full-time equivalent (FTE) personnel increased by approximately 20%, or five persons, at September 30, 2008
compared to September 30, 2007. In addition, we have begun transitioning the skill-set of the employees participating in the study development process to include a stronger clinical background to more closely mirror the personnel our clients
involve in the clinical trial development process. In the short-run this may cause slightly increased cost of goods sold due to an increase in total FTE. In the long-run we anticipate this will improve our margins by reducing the total personnel
needed to successfully deploy projects and will serve to improve the value structure of our products and services by providing an increased level of clinical expertise versus what we believe our competitors are able to deliver. We believe this
value-added level of service will result in increased follow-on engagements and may provide us the ability to improve our margins by allowing us to increase our revenue levels via the follow-on engagements and a concomitant ability to exert pricing
efficiencies.

We expect to increase development programming labor costs on an absolute basis as our
trial revenues increase. We expect our cost of goods sold to remain in the 25% of sales range during the remainder of fiscal 2008 and during fiscal 2009. We expect to continue to increase follow-on engagements from existing clients and expect to
increase the CRO portion of our client base. We expect the release of TrialMaster, (V4.0), which occurred during 2007, to increase the efficiency of our trial building operations. V4.0 is being designed using Microsofts .NET framework.
Microsoft®.NET is described by Microsoft as a set of software technologies for connecting information, people, systems and devices. This new generation of technology is based on Web
servicessmall building-block applications that can connect to each other as well as to other, larger applications over the Internet.

Salaries and
related expenses were our biggest expense at 74.6% of total Operating Expenses for the nine month period ended September 30, 2008 compared with 74.8% of total Operating Expenses for the nine-month period ended September 30, 2007. Salaries
and related expenses totaled $6,620,322 for the nine-month period ended September 30, 2008 compared to $4,124,147 for the nine-month period ended September 30, 2007, an increase of 60.5%. The increase of $2,496,175 in salaries and related
expenses is comprised of several key components including; approximately $1,082,000 in salaries due to the addition of approximately 25 employees including: 2 administrative, 20 technical, clinical or project management personnel, one employees in
our consulting and professional services division and two employee in our business development function, and $335,067 related to the issuance of stock



24



---

##### Table of Contents

options to employees and our directors due to our adoption of SFAS No. 123(R) discussed below offset by decreases in salaries and related expenses from
employees who have left our employ. We currently employ approximately 63 employees out of our Ft. Lauderdale, Florida corporate office, nine out-of-state employees and nine FTE out of a wholly-owned subsidiary in Bonn, Germany. We expect to increase
personnel within our production, project management and quality analysis functions in concert with anticipated increases in TrialMaster clients during the remainder of fiscal 2008. We will look to selectively add experienced sales and marketing
personnel in fiscal 2008 in an effort to increase our market penetration and to continue broadening our client base. During the nine-month periods ended September 30, 2008 and September 30, 2007, we incurred $986,733 and $651,666,
respectively, in salary expense in connection with our adoption of SFAS No. 123(R), Share-Based Payment, which establishes standards for transactions in which an entity exchanges its equity instruments for goods or services. This standard
requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. We expect that the adoption of SFAS 123R will continue to have an impact on
our results of operations in the future.

Rent and related expenses increased by $171,688 during the nine-month period ended September 30, 2008 when
compared to the nine-month period ended September 30, 2007. We expanded our corporate office lease that runs through July 2011 to include a total of approximately 10,000 square feet. In February 2008, we established a disaster recovery site at
a Cincinnati Bell owned Co-Location facility in Cincinnati, Ohio and will continue utilizing this facility for the foreseeable future since it is designed to ensure 100% production system up-time and to provide system redundancy. In August 2006, we
entered into a lease with Gold Coast 1-Vault in the Ft. Lauderdale, Florida area. This facility provides us with disaster recovery and business continuity services for our operations. This lease expires in August 2011.

Consulting services expense was $258,379 for the nine-month period ended September 30, 2008 compared with $231,926 for the nine-month period ended
September 30, 2007. Consulting services were comprised of fees paid to consultants for help with developing our R & D and sales and marketing recruiting programs and in helping us recruit employees in those two functions.

Legal and professional fees totaled $318,594 for the nine-month period ended September 30, 2008 compared with $208,637 for the nine-month period ended
September 30, 2007, an increase of approximately $109,957. Professional fees represent fees paid to our auditors for services rendered on a quarterly and annual basis in connection with our SEC filings and fees paid to our attorneys in
connection with representation in matters involving litigation or for services rendered to us related to securities and SEC related matters. We expect legal and professional fees to increase during the remainder of fiscal 2008 and during fiscal 2009
in connection with our defense of alleged patent infringement suit brought against us by Datasci and our project aimed at ensuring timely compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

Selling, general and administrative expenses (SGA) were $391,974 for the nine-month period ended September 30, 2008 compared to $367,272 for the
nine-month period ended September 30, 2007, an increase of 6.7%. 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. The Company increased its marketing, sales and advertising expenditures by $109,929 for
the nine-month period ended September 30, 2008 from $131,995 for the nine-month period ended September 30, 2007 to $241,929 in the period ended September 30, 2008, an increase of approximately 83.3%. We expect SGA expenses to increase
during fiscal 2009 as we continue to intensify and extend our selling and marketing efforts and increase the total expenditures we incur related primarily to industry-related conferences.

Interest expense was $1,994,009 during the nine-month period ended September 30, 2008 compared to $48,838 for the nine-month period ended September 30, 2007,
an increase of $1,945,171. Interest incurred to related parties was $74,081 during the nine-month period ended September 30, 2008 and $12,453 for the nine-month period ended September 30, 2007. The increase in interest expense can be
attributed to $128,185 in interest accrued in connection with our issuance of Secured Convertible Debentures that occurred during February 2008, $19,901 in interest expense attributable to convertible debt issued during August 2008 and $1,805,427 in
interest attributable to the accretion of amounts allocated to the warrants and conversion feature that were included as terms on the



25



---

##### Table of Contents

secured Convertible Debentures issued in February 2008, offset by a decrease in interest expense of $12,875 associated with the conversion of $865,000 in
notes payable into shares of our common stock in March 2007. In addition, we recorded $805 in interest expense attributable to convertible notes and promissory notes issued during September 2008. We evaluate the cost of capital available to us in
combination with our overall capital structure in deciding what financing best fulfills our short and long-term capital needs. During the nine-month period ended September 30, 2008 we issued $4,436,200 in Convertible Debt, including $2,445,000
to members of our Board of Directors and Officers of the Company. In addition, we issued $550,000 in promissory notes to our Chief Executive Officer. During the nine-month period ended September 30, 2007, we issued $211,800 in promissory notes.

There were arrearages of $148,870 in 5% Series A Preferred Stock dividends, $9,753 in Series B Preferred Stock dividends and $67,245 in Series C Preferred
Stock dividends for the nine-month period ended September 30, 2008, compared with arrearages of $152,474 in 5% Series A Preferred Stock dividends, $29,480 in Series B Preferred Stock dividends and $200,257 in Series C Preferred Stock dividends
for the nine-month period ended September 30, 2007. We deducted $225,868 and $382,211 from Net Income (Loss) Attributable to Common Stockholders for the nine-month periods ended September 30, 2008 and September 30, 2007,
respectively, relating to undeclared Series A, B and C Convertible Preferred Stock dividends.

The three-months ended September 30, 2008
compared with the three-months ended September 30, 2007

Results of Operations

A summarized version of our results of operations for the three-month periods ended September 30, 2008 and September 30, 2007 is included in the table below.

Summarized Statement of Operations



|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |           |   |  |        |  
|------------------------------------------------ |  | --------------------------------------- | ---------- | - | ------------ | ------ | - | ------- | - | ---------- | ------------ |  | ------ | - |  | - | --------- | - |  | ------ | -
|                                                 |  | For the three months endedSeptember 30, |            |   | $Change      |        |   | %Change |  
|                                                 |  | 2008                                    |            |   | % ofRevenues |        |   | 2007    |   |            | % ofRevenues |  |        |  
|Total revenues                                   |  | $                                       | 1,629,783  |   |              |        |   |         | $ | 842,809    |              |  |        |   |  | $ | 786,974   |   |  | 93.4   | %
|Cost of sales                                    |  |                                         | 322,409    |   |              | 19.8   | % |         |   | 294,858    |              |  | 35.0   | % |  |   | 27,551    |   |  | 9.3    | %
|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |           |   |  |        |  
|Gross margin                                     |  |                                         | 1,307,374  |   |              | 80.2   | % |         |   | 547,951    |              |  | 65.0   | % |  |   | 759,423   |   |  | 138.6  | %
|Salaries, benefits and related taxes             |  |                                         | 2,358,184  |   |              | 144.7  | % |         |   | 1,569,760  |              |  | 186.3  | % |  |   | 788,424   |   |  | 50.2   | %
|Rent                                             |  |                                         | 145,247    |   |              | 8.9    | % |         |   | 86,222     |              |  | 10.2   | % |  |   | 59,025    |   |  | 68.5   | %
|Consulting                                       |  |                                         | 41,884     |   |              | 2.6    | % |         |   | 68,232     |              |  | 8.1    | % |  |   | (26,348   | ) |  | -38.6  | %
|Selling, general and administrative              |  |                                         | 97,030     |   |              | 6.0    | % |         |   | 124,833    |              |  | 14.8   | % |  |   | (27,803   | ) |  | -22.3  | %
|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |           |   |  |        |  
|Total Operating Expenses                         |  |                                         | 3,147,750  |   |              | 193.1  | % |         |   | 2,057,792  |              |  | 244.2  | % |  |   | 1,089,958 |   |  | 53.0   | %
|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |           |   |  |        |  
|Operating income (loss)                          |  |                                         | (1,840,376 | ) |              | -112.9 | % |         |   | (1,509,841 | )            |  | -179.1 | % |  |   | (330,535  | ) |  | 21.9   | %
|Interest Expense                                 |  |                                         | (794,754   | ) |              | -48.8  | % |         |   | (16,439    | )            |  | -2.0   | % |  |   | (778,315  | ) |  | 4734.6 | %
|Interest income                                  |  |                                         | 1          |   |              | 0.0    | % |         |   | 4,617      |              |  | 0.5    | % |  |   | (4,616    | ) |  | -100.0 | %
|Unrealized Gain/(Loss) on Derivative Liabilities |  |                                         | 1,681,435  |   |              | 103.2  | % |         |   |           |              |  | 0.0    | % |  |   | 1,681,435 |   |  | 0.0    | %
|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |           |   |  |        |  
|Net (loss)                                       |  |                                         | (953,694   | ) |              | -58.5  | % |         |   | (1,521,663 | )            |  | -180.5 | % |  |   | 567,969   |   |  | -37.3  | %
|Total preferred stock dividends                  |  |                                         | (49,940    | ) |              | -3.1   | % |         |   | (126,787   | )            |  | -15.0  | % |  |   | 76,847    |   |  | -60.6  | %
|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |           |   |  |        |  
|Net (loss) attributable to common stockholders   |  | $                                       | (1,003,634 | ) |              | -61.6  | % |         | $ | (1,648,450 | )            |  | -195.6 | % |  | $ | 644,816   |   |  | -39.1  | %
|                                                 |  |                                         |            |   |              |        |   |         |   |            |              |  |        |   |  |   |           |   |  |        |  



26



---

##### Table of Contents

Operating Income and Expenses

Revenues for the three-month period ended September 30, 2008 were $1,629,783 compared to $842,809 for the three-month period ended September 30, 2007, an increase of 93.4%. We believe industry acceptance of EDC continues to
increase. TrialMaster is currently sold primarily 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. During 2008, we began offering TrialMaster under an Enterprise hosted-services model (Enterprise). Under our Enterprise Model our larger clients have the
ability to deploy TrialMaster on a larger-scale basis. The Enterprise model allows us to provide the client with a more customized deployment solution that includes a dedicated service team. A typical Enterprise agreement will have a 3 to 5 year
term commitment for a specified number of concurrent clinical trial projects with a guaranteed minimum annual payment structure. We believe that Enterprise agreements provide the Company with an excellent valued-added relationship structure that
provides our clients with an opportunity to leverage the TrialMaster suite of products and services on a cost-effective means while providing the Company with a more structured revenue stream during the course of the Enterprise agreement. To date,
we have entered into one Enterprise agreement. As we continue developing TrialMaster and our client relationships mature we expect some of our clients to deploy TrialMaster on a licensed, rather than ASP hosted basis. TrialMaster contracts provide
for pricing that is based on both the size and duration of the clinical trial. Size parameters include the number of case report forms used to collect data and the number of sites utilizing TrialMaster. The client will pay a trial setup fee based on
the previously mentioned factors, and then pay an on-going maintenance fee for the duration of the clinical trial that provides software, network and site support during the trial. We expect the revenue recognition time frame to be more condensed
under our licensing model based on the expected time needed to deploy our product on a licensed basis and the underlying revenue recognition standards currently in place.

During the nine-month periods ended September 30, 2008 and September 30, 2007 our revenues were generated from the following operating activities:



|                     |  |       |   |  |       |  
|-------------------- |  | ----- | - |  | ----- | -
|Business Activity    |  | 2008  |   |  | 2007  |  
|Clinical Trial Setup |  | 71.6  | % |  | 73.3  | %
|Change Orders        |  | 19.7  | % |  | 16.5  | %
|Maintenance Fees     |  | 8.7   | % |  | 10.2  | %
|                     |  |       |   |  |       |  
|Total Revenues       |  | 100.0 | % |  | 100.0 | %
|                     |  |       |   |  |       |  

Generally, our contracts will range in duration from one month to several years. Setup fees are generally earned
prior to the inception of a trial, however, the revenues will be recognized in accordance with SEC Staff Accounting Bulletin No. 104 Revenue Recognition which requires that the revenues be recognized ratably over the life of the
contract. The maintenance fee revenues are earned and recognized monthly. Costs associated with contract revenues are recognized as incurred.

One customer
accounted for approximately 44% of our revenues during the three-month period ended September 30, 2008 or approximately $718,000. Two customers accounted for more than 10% of our revenues during the three-month period ended September 30,
2007. These customers accounted for approximately 11% and 10% of our revenues respectively, or approximately $96,000 and $85,000 in revenues, respectively, during the first three-months of 2007. The following table summarizes the number of customers
who individually comprise greater than 10% of total revenue and their aggregate percentage of the Companys total revenue.



27



---

##### Table of Contents

|                                 |  |               |  |                            |  
|-------------------------------- |  | ------------- |  | -------------------------- | -
|                                 |  | Revenues      | 
|Three-Months Ended September 30, |  | # ofCustomers |  | Percentageof TotalRevenues |  
|2007                             |  | 2             |  | 21                         | %
|2008                             |  | 1             |  | 44                         | %

The loss of any of these contracts or these customers in the future could adversely affect our results of
operations.

Cost of goods sold increased to $322,409 for the three-month period ended September 30, 2008 compared to $294,858 for the three-month
period ended September 30, 2007, an increase of 9.3%. Cost of goods sold were approximately 19.8% of sales for the three-month period ended September 30, 2008 compared to 35.0% for the three-month period ended September 30, 2007. Cost
of goods sold relates primarily to salaries and related benefits associated with the programmers, developers and systems analysts producing clinical trials on behalf of our clients. Salaries increased during the three months ended September 30,
2008 due to the addition of one additional programmer as part of our clinical trial operations. In addition, we have begun transitioning the skills-set of the employees participating in the study development process to include a stronger clinical
background to more closely mirror the personnel our clients involve in the clinical trial development process. In the short-run this may cause slightly increased cost of goods sold due to an increase in total FTE. In the long-run we anticipate this
will improve our margins by reducing the total personnel needed to successfully deploy projects and will serve to improve the value structure of our products and services by providing an increased level of clinical expertise versus what we believe
our competitors are able to deliver. We believe this value-added level of service will result in increased follow-on engagements and may provide us the ability to improve our margins by allowing us to increase our revenue levels via the follow-on
engagements and a concomitant ability to exert pricing efficiencies.

We expect to increase
development programming labor costs on an absolute basis as our trial revenues increase. We expect our cost of goods sold to return to the 25% of sales range during fiscal 2008. We expect to continue to increase follow-on engagements from existing
clients and expect to increase the phase I and CRO portions of our client base. We expect the release of TrialMaster, (V4.0), which occurred in 2007, to increase the efficiency of our trial building operations. V4.0 is being designed using
Microsofts .NET framework. Microsoft®.NET is described by Microsoft as a set of software technologies for connecting information, people, systems and devices. This new generation of
technology is based on Web servicessmall building-block applications that can connect to each other as well as to other, larger applications over the Internet.

Salaries and related expenses were our biggest expense at 74.9% of total Operating Expenses for the three month period ended September 30, 2008 compared with 76.3% of total Operating Expenses for the three-month
period ended September 30, 2007. Salaries and related expenses totaled $2,358,184 for the three-month period ended September 30, 2008 compared to $1,569,760 for the three-month period ended September 30, 2007, an increase of 50.2%.
The increase of $788,424 in salaries and related expenses consisted of approximately $544,941 in salaries due to the addition of 25 employees including: two administrative, 20 technical, clinical or project management personnel, one employees in our
consulting and professional services division and two employee in our business development function, and $75,258 in salary expense due to our issuing stock options to employees and our directors due to our adoption of SFAS No. 123(R) discussed
below offset by decreases in salaries and related expenses from employees who have left our employ. We currently employ approximately 63 employees out of our Ft. Lauderdale, Florida corporate office, nine out-of-state employees and nine FTE out of a
wholly-owned subsidiary in Bonn, Germany. We expect to increase personnel within our production, project management and quality analysis functions in concert with anticipated increases in TrialMaster clients during the remainder of fiscal 2008. We
will look to selectively add experienced sales and marketing personnel in fiscal 2008 in an effort to increase our market penetration and to continue broadening our client base. During the three-month periods ended September 30,



28



---

##### Table of Contents

2008 and September 30, 2007, we incurred $420,906 and $345,648, respectively, in salary expense in connection with our adoption of SFAS No. 123(R),
Share-Based Payment, which establishes standards for transactions in which an entity exchanges its equity instruments for goods or services. This standard requires a public entity to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award. We expect that the adoption of SFAS 123R will continue to have an impact on our results of operations in the future.

Rent and related expenses increased by $59,025 during the three-month period ended September 30, 2008 when compared to the three-month period ended
September 30, 2007. We expanded our corporate office lease that runs through July 2011 to include a total of approximately 10,000 square feet. In February 2008, we established a disaster recovery site at a Cincinnati Bell owned Co-Location
facility in Cincinnati, Ohio and will continue utilizing this facility for the foreseeable future since it is designed to ensure 100% production system up-time and to provide system redundancy. In August 2006, we entered into a lease with Gold Coast
1-Vault in the Ft. Lauderdale, Florida area. This facility provides us with disaster recovery and business continuity services for our operations. This lease expires in August 2011.

Consulting services expense was $41,884 for the three-month period ended September 30, 2008 compared with $68,232 for the three-month period ended September 30, 2007. Consulting services were comprised of
fees paid to consultants for help with developing our R & D and sales and marketing recruiting programs and in helping us recruit employees in those two functions.

Legal and professional fees totaled $152,815 for the three-month period ended September 30, 2008 compared with $63,263 for the three-month period ended September 30, 2007, an increase of approximately
$89,552. Professional fees represent fees paid to our auditors for services rendered on a quarterly and annual basis in connection with our SEC filings and fees paid to our attorneys in connection with representation in matters involving litigation
or for services rendered to us related to securities and SEC related matters. We expect legal and professional fees to increase during the remainder of fiscal 2008 and during fiscal 2009 in connection with our defense of alleged patent infringement
suit brought against us by Datasci and our project aimed at ensuring timely compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

Selling,
general and administrative expenses (SGA) were $97,030 for the three-month period ended September 30, 2008 compared to $124,833 for the three-month period ended September 30, 2007, a decrease of 22.3%. 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. The Company increased its marketing, sales and advertising expenditures by $68,275 for the three-month period ended September 30, 2008 from $38,317 for the three-month
period ended September 30, 2007 to $106,592 in the period ended September 30, 2008, an increase of approximately 178% that was associated with our increased expenditures on industry trade shows. We expect SGA expenses to continue
increasing during fiscal 2009 as we seek to intensify and extend our selling and marketing efforts and increase the total expenditures we incur related primarily to industry-related conferences.

Interest expense was $794,754 during the three-month period ended September 30, 2008 compared to $16,439 for the three-month period ended September 30, 2007,
an increase of $778,315. Interest incurred to related parties was $44,191 during the three-month period ended September 30, 2008 and $4,197 for the three-month period ended September 30, 2007. The increase in interest expense can be
attributed to $78,860 in interest accrued in connection with our issuance of Secured Convertible Debentures that occurred during February 2008 and $706,098 in interest attributable to the accretion of amounts allocated to the warrants and conversion
feature that were included as contractual terms on the secured convertible debentures issued in February 2008 and the convertible notes issued during August 2008. In addition, we recorded $805 in interest expense attributable to convertible notes
and promissory notes issued during September 2008. We evaluate the cost of capital available to us in combination with our overall capital structure in deciding what financing best fulfills our short and long-term capital needs. During the
three-month period ended September 30, 2008 we issued $2,270,000 in Convertible Debt to accredited investors that include our Chief Executive Officer and one of our Directors. We issued Promissory Notes totaling $550,000 to our Chief Executive
Officer during the three months ended September 30, 2008.



29



---

##### Table of Contents

There were arrearages of $49,940 in 5% Series A Preferred Stock dividends for the three-month period ended
September 30, 2008, compared with arrearages of $50,637 in 5% Series A Preferred Stock dividends, $9,644 in Series B Preferred Stock dividends and $66,506 in Series C Preferred Stock dividends for the three-month period ended September 30,
2007. We deducted $49,940 and $126,787 from Net Income (Loss) Attributable to Common Stockholders for the three-month periods ended September 30, 2008 and September 30, 2007, respectively, relating to undeclared Series A, B and C
Convertible Preferred Stock dividends.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. We have historically experienced negative cash
flows and have relied 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.

The table provided below summarizes key measures of our liquidity and capital resources as of September 30, 2008 and December 31, 2007:

Liquidity and Capital Resources



|                                                            |  |                   |   |  |                  |   |  |          |  
|----------------------------------------------------------- |  | ----------------- | - |  | ---------------- | - |  | -------- | -
|                                                            |  | September 30,2008 |   |  | December 31,2007 |   |  | Change   |  
|Cash                                                        |  | 66,937            |   |  | 481,961          |   |  | (415,024 | )
|Accounts Receivable, net of allowance for doubtful accounts |  | 1,403,257         |   |  | 769,325          |   |  | 633,932  |  
|Current Assets                                              |  | 1,550,895         |   |  | 1,288,914        |   |  | 261,980  |  
|Accounts Payable and accrued expenses                       |  | 887,673           |   |  | 696,281          |   |  | 191,392  |  
|Notes payable, current portion                              |  | 111,800           |   |  |                 |   |  | 111,800  |  
|Notes payable, related parties, current portion             |  | 185,000           |   |  |                 |   |  | 185,000  |  
|Deferred revenue, current portion                           |  | 2,473,171         |   |  | 2,632,274        |   |  | (159,103 | )
|Convertible notes payable, related party, current portion   |  | 124,709           |   |  | 0                |   |  | 124,709  |  
|Convertible notes payable, current portion                  |  | 277,533           |   |  | 87,500           |   |  | 190,033  |  
|Current Liabilities                                         |  | 4,330,254         |   |  | 3,416,055        |   |  | 914,199  |  
|Working Capital (Deficit)                                   |  | (2,779,359        | ) |  | (2,127,141       | ) |  | (652,218 | )



30



---

##### Table of Contents

|                                                     |  |                                           |   |  |                    |  
|---------------------------------------------------- |  | ----------------------------------------- | - |  | ------------------ | -
|                                                     |  | Disclosure for thenine month period ended |  
|                                                     |  | September 30, 2008                        |   |  | September 30, 2007 |  
|Net cash provided by (used in) operating activities  |  | (3,932,673                                | ) |  | (3,032,220         | )
|Net cash provided by (used in) investing activities  |  | (467,796                                  | ) |  | (138,012           | )
|Net cash provided by financing activities            |  | 3,995,182                                 |   |  | 3,673,933          |  
|Net increase (decrease) in cash and cash equivalents |  | (415,023                                  | ) |  | 478,594            |  

Cash and cash equivalents decreased by $415,023 from $481,961 at year ended December 31, 2007 to $66,937 at
September 30, 2008. This was the result of cash provided by financing activities of $3,995,182 offset by cash used in operating activities of approximately $3,932,673 and $467,796 used in investing activities. The significant components of the
activity include a loss from operations of approximately $5,650,519 offset by non-cash expenses of $1,209,914 and approximately $3,995,182 we raised through the issuance of debt and equity securities offset by $467,796 used in investing activities
and increases in cash of $507,932 from changes in working capital accounts.

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

Presently, we have approximately
$450,000 planned for capital expenditures to further the Companys growth during fiscal 2009 which will be funded through cash from operations.

Contractual Obligations

The following table sets forth our contractual obligations during the next five years as of September 30,
2008:



|                             |  |                        |  |                 |     |  |           |     |  |          |  |         
|---------------------------- |  | ---------------------- |  | --------------- | --- |  | --------- | --- |  | -------- |  | --------
|                             |  | Payments Due by Period
|Contractual Obligations      |  | Total                  |  | Less than1 year |     |  | 1-2Years  |     |  | 2-3Years |  | 3-5Years
|Long Term Debt (1)           |  | 846,800                |  | 296,800         | (2) |  | 550,000   | (3) |  | 0        |  | 0       
|Secured Convertible Debt (1) |  | 1,325,000              |  | 1,325,000       | (4) |  | 0         |     |  | 0        |  | 0       
|Convertible Notes(1)         |  | 2,357,500              |  | 87,500          | (5) |  | 2,270,000 | (6) |  |          |  |         
|Operating Lease Obligations  |  | 867,283                |  | 313,061         |     |  | 318,712   |     |  | 235,510  |  | 0       
|Financial Advisory Agreement |  | 112,500                |  | 90,000          | (7) |  | 22,500    |     |  | 0        |  | 0       
|                             |  |                        |  |                 |     |  |           |     |  |          |  |         
|Total                        |  | 5,509,083              |  | 2,112,361       |     |  | 3,161,212 |     |  | 235,510  |  | 0       
|                             |  |                        |  |                 |     |  |           |     |  |          |  |         



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

|2. | Includes $296,800 in promissory notes bearing interest at 9% annually that mature in January 2009.
|-- | --------------------------------------------------------------------------------------------------

|3. | Includes $550,000 in promissory notes bearing interest at 12% annually that mature in June 2010.
|-- | ------------------------------------------------------------------------------------------------

|4. | Includes $1,325,000 in secured convertible debentures bearing interest at 10% and maturing on December 1, 2008, that are convertible into shares of common stock at the option
of the debenture holder at a conversion rate of $0.50 per share.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31



---

##### Table of Contents

|5. | Includes $87,500 of convertible notes bearing interest at 10% that matured in June 2004, currently in default and due that are convertible into shares of common stock at the option
of the debenture holder at a conversion rate of $1.25 per share.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Includes $2,270,000 in Convertible Notes bearing interest at 10%, that is convertible into shares of common stock at a conversion rate of $0.50 per share that matures in August
2010.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | Relates to Financial Advisory fees paid to Noesis Capital Corp., our Placement Agent and a 5% shareholder in our Company.
|-- | -------------------------------------------------------------------------------------------------------------------------

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

We are
currently in arrears on principal and interest payments owed totaling $157,546 on our 10% Convertible Notes. We were in default effective January 30, 2002.

On February 29, 2008, we sold an aggregate of $2,325,000 principal amount 10% Secured Convertible Debentures and common stock purchase warrants to purchase an aggregate of 2,930,675 shares of our common stock, which debentures bear
interest at 10% per annum, was due 6 months from the issuance date on August 29, 2008. All of our assets serve as collateral under the outstanding Secured Convertible Debentures. On August 29, 2008 the Company repaid $1,000,000 of the
Debentures. The remaining $1,325,000 was extended pursuant to an Extension Agreement (the Extension). The maturity date was changed to December 1, 2008. In accordance with the Extension the conversion price of the Debentures was changed
from $0.595 per share to $0.50 per share. Additionally, the investors who agreed to the Extension were granted one warrant (the Extension Warrants) for each share of stock issuable upon conversion of the Debentures at $0.50 per share
conversion price. The exercise price of the Warrants was changed from $0.75 per share to $0.60 per share pursuant to the Extension. The exercise price of the Extension Warrants is $0.60 per share. If we should default on these obligations, the
holders could foreclose on our assets and we would be unable to continue our business and operations. We presently do not have funds sufficient to repay these debentures and will need to raise additional capital to repay the debentures.

In May, 2008, we sold an aggregate of $210,000 principal amount Convertible Note and Common Stock Purchase Warrants to purchase an aggregate of 264,706 shares of our
Common Stock, which note bears interest at 10% per year and is due on September 30, 2010. This note is convertible at the option of the holder into any securities we issue (New Securities) before maturity of the Convertible
Note on the same terms and conditions of the sale of the New Securities. On June 10, 2008, we issued a promissory note with a principal amount of $300,000 to Cornelis Wit, our Chief Executive Officer and a Director. This note is convertible at
the option of the holder into any securities we issue (New Securities) before maturity of the Convertible Note on the same terms and conditions of the sale of the New Securities. The promissory note bears interest at 10% per annum
and is due on September 30, 2010. On August 29, 2008 the Convertible Note and promissory notes were converted as part of a private placement of Convertible Notes that was closed on August 29, 2008.

On June 27, 2008, we issued a promissory note with a principal amount of $300,000 to Cornelis Wit, our Chief Executive Officer and a Director. This note is
convertible at the option of the holder into any securities we issue (New Securities) before maturity of the Convertible Note on the same terms and conditions of the sale of the New Securities. The promissory note bears interest at
10% per annum and is due on September 30, 2010. The promissory note dated June 27, 2008 was repaid on July 8, 2008.

On August 29,
2008, we sold, a $2,270,000 principal amount Convertible Notes (the Convertible Notes) and common stock purchase warrants (the Convertible Note Warrants) to purchase an aggregate of 4,540,000 shares of our common stock to
four accredited investors including our Chief Executive Officer and one of our Directors. We received net proceeds of $2,270,000. The Convertible Notes, which bear interest at 10% per annum, are due on August 29, 2010. The Convertible
Notes are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share (the Conversion Price), subject to adjustment as provided in the transaction documents (the
Conversion Feature). Interest is convertible as provided in the Convertible Notes. We are not permitted to prepay the Convertible Notes without the prior written consent of the holders. We presently do not have funds sufficient to repay
these debentures and will need to raise additional capital to repay the debentures.



32



---

##### Table of Contents

In September 2008, we issued $550,000 in promissory notes for amounts borrowed from our Chief Executive Officer.

On July 18, 2008, the Company was served with a complaint in a purported patent infringement lawsuit filed by Datasci LLC (Datasci) in
the U.S. District Court for the District of Maryland. The complaint alleges that the Company and another company, Covance Inc., have infringed United States Patent No. 6,496,827 allegedly owned by Datasci. If we should be unsuccessful in our
defense we may be subject to pay damages and or may lose our rights to use our TrialMaster software and would be unable to continue our business and operations. The Company has reviewed the complaint and believes that the claims are unfounded and
that the lawsuit is without merit.

Our selling efforts include marketing our products to several Fortune 1000 pharmaceutical and medical device
manufacturers and several of the largest CROs. We began providing services to some of these entities during 2003 and we have experienced success in broadening our client roster over the past three fiscal years. Continued success in broadening our
existing client relationships and forging new relationships should provide us the opportunity to limit our need for funding our operations via debt and equity capital. Continuing to obtain contracts with clients of this size and reputation will also
increase the credibility of the Company to the clinical trial market.

We experienced increased success in marketing TrialMaster during the nine-months
ended September 30, 2008. We entered into approximately $16 million in contracts during that period for trials to be serviced over the next five years. These contracts included 39 clinical trial engagements with 14 new clients. These contracts
may however, be terminated by our clients at any time. Our focus continues to include increasing our penetration of all phases of the clinical trial market with a continued emphasis on becoming the market leader in Phase I EDC services. We believe
this market is an operating and strategic strength of the Company due to the inherent flexibility that our Phase I TrialMaster product provides us. We believe we have the ability to produce trials more quickly and economically than our competitors
for this specialized and large market. During the remainder of fiscal 2008 and during fiscal 2009, we will continue commercializing our products on a licensed basis and expect to experience increased success in penetrating the market for larger
pharmaceutical, bio-technology and medical device clinical trial sponsors. Our clients will be able to partially or completely license TrialMaster. This business model provides our clients a more cost efficient means of deploying our EDC solutions
on a large-scale basis. Our licensed products, falling under the auspices of either a Tech Transition (partial transfer with some services performed by OmniComm) or Tech Transfer, will allow us to broaden our potential client base, provides us with
a high-margin revenue source and affords us the ability to improve our competitive position within the EDC industry. During 2008, we began offering TrialMaster under an Enterprise hosted-services model (Enterprise). Under our Enterprise
Model our larger clients have the ability to deploy TrialMaster on a larger-scale basis. The Enterprise model allows us to provide the client with a more customized deployment solution that includes a dedicated service team. A typical Enterprise
agreement will have a 3 to 5 year term commitment for a specified number of concurrent clinical trial projects with a guaranteed minimum annual payment structure. We believe that Enterprise agreements provide the Company with an excellent
valued-added relationship structure that provides our clients with an opportunity to leverage the TrialMaster suite of products and services on a cost-effective means while providing the Company with a more structured revenue stream during the
course of the Enterprise agreement. Additionally, we continue to focus on adding CROs as strategic and marketing partners. There is an industry-wide emphasis in establishing strategic relationships with CROs. These relationships provide marketing
leverage in the form of joint marketing and sales efforts and provide an installed base of trained TrialMaster users. This installed base of users increases our ability to provide rapidly developed, cost effective solutions for our clients.

We feel that the momentum established from new client acquisitions and our ability to retain clients for repeat engagements provide a good operating base
from which to build during 2009. We expect to continue increasing the level of resources deployed in our sales and marketing efforts. We feel that a combination of our lean operating environment and increased success in new client acquisition,
coupled with our ability to retain our existing clients will allow us to compete effectively within the EDC market.



33



---

##### Table of Contents

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

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

Our ability to continue in
existence is dependent on our having sufficient financial resources to bring products and services to market. As a result of our significant losses, negative cash flows from operations, and accumulated deficits for the periods ending
September 30, 2008 there is doubt about our ability to continue as a going concern. In addition, our auditors Greenberg and Company, LLC, included language which qualified their opinion regarding our ability to continue as a going concern in
their report dated February 8, 2008.

CRITICAL ACCOUNTING POLICIES

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

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

Estimates and assumptions about future events and their
effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as
additional information is obtained and as our operating environment changes. These



34



---

##### Table of Contents

changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. In addition, our
Management is periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time. Based on a critical assessment of its accounting policies and the underlying judgments and
uncertainties affecting the application of those policies, our Management believes that our consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States (GAAP), and present a
meaningful presentation of our financial condition and results of operations.

Our Management believes that the following are our critical accounting
policies:

Deferred Revenue

Deferred revenue
represents cash advances received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the completion of
certain contract phases or targeted milestones. In the event of contract cancellation, we are entitled to payment for all work performed through the point of cancellation. Generally, deferred revenues that are expected to be recognized within 12
months of the balance sheet date are considered short-term in nature and are thus classified as short-term liabilities.

Revenue Recognition Policy

OmniComms revenue model is transaction-based and can be implemented either as an ASP or licensed for implementation by a customer such as a
pharmaceutical company. Revenues are derived from the set-up of clinical trial engagements; on-going maintenance fees incurred throughout the duration of an engagement; fees for report writing and change orders. The clinical trials that are
conducted using TrialMaster can last from one month 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 payroll 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. 104 Revenue Recognition, corrected copy and No. 101 Revenue Recognition in Financial Statements (SAB 101). SAB
101 and 104 require that revenues be recognized ratably over the life of a contract. In accordance with SAB 101 the Company will record revenues over the estimated lives of the contracts.

Stock Based Compensation.

Beginning on January 1, 2006 we began
accounting for stock options under the provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payments (SFAS 123(R)), which requires the recognition of the fair value of equity-based compensation.
The fair value of stock options on the date of grant was estimated using a Binomial option valuation model. This model requires the input of subjective assumptions in implementing SFAS 123(R), including expected stock price volatility, estimated
life and estimated forfeitures of each award. The fair value of equity-based awards is amortized over the vesting period of the award, and we have elected to use the straight-line method of amortization. Prior to the implementation of SFAS 123(R),
we accounted for stock options and ESPP shares under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.



35



---

##### Table of Contents

EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133
(SFAS No. 161). SFAS No. 161 requires enhanced disclosure related to derivatives and hedging activities and thereby seeks to improve the transparency of financial reporting. Under SFAS No. 161, entities are required to
provide enhanced disclosures relating to: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge items are accounted for under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133), and its related interpretations; and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. SFAS
No. 161 must be applied prospectively to all derivative instruments and non-derivative instruments that are designated and qualify as hedging instruments and related hedged items accounted for under SFAS No. 133 for all financial
statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. The Company does not expect the adoption of SFAS No. 161 to significantly impact its financial position, results of
operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. This
Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. This Statement is effective 60 days following the SECs approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company is currently evaluating the potential impact the new pronouncement will
have on its consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the
Useful Life of Intangible Assets. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other Intangible Assets (SFAS 142). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS 141R, and other GAAP. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is
prohibited. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------- | -----------------------------------------------------------

Not applicable for a smaller reporting company.



|ITEM 4T. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of Disclosure Controls and
Procedures. Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, being September 30 2008, the Companys principal executive officer and principal financial and accounting officer have
concluded that the Companys disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act) are designed to provide reasonable assurance of achieving their
objectives and were effective at the reasonable assurance level for which they were designed to ensure (i) that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) that information required to be disclosed in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

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



36



---

##### Table of Contents

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.



37



---

##### Table of Contents

PART II OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS.
|------- | ------------------

Reference is made to our
current report on Form 8-K filed with the SEC on July 23, 2008.



|ITEM 1A. | RISK FACTORS.
|-------- | -------------

Not applicable for a smaller
reporting company.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|------- | ------------------------------------------------------------

On
September 17, 2008, we issued a promissory note with a principal amount of $150,000 to Cornelis Wit, our Chief Executive Officer and a Director. We received net proceeds of $150,000. The promissory note bears interest at 10% per annum and
is due on December 31, 2009. The issuance of the Note was exempt from the registration requirements of the Act by reason of Section 4(2) and/or the rules and regulations thereunder including Rule 506 of Regulation D. This note is
convertible at the option of the holder into any New Securities we issue before maturity of this Convertible Note on the same terms and conditions of the sale of the New Securities.

On September 29, 2008, we issued a promissory note with a principal amount of $400,000 to Cornelis Wit, our Chief Executive Officer and a Director. We received net proceeds of $400,000. The promissory note bears
interest at 10% per annum and is due on December 31, 2009. The issuance of the Note was exempt from the registration requirements of the Act by reason of Section 4(2) and/or the rules and regulations thereunder including Rule 506 of
Regulation D. This note is convertible at the option of the holder into any New Securities we issue before maturity of this Convertible Note on the same terms and conditions of the sale of the New Securities.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES.
|------- | --------------------------------

None.



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

None.



|ITEM 5. | OTHER INFORMATION.
|------- | ------------------

None.



38



---

##### Table of Contents

|ITEM 6. | EXHIBITS
|------- | --------

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



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



39



---

##### Table of Contents

SIGNATURES

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



|                       |  |                                                                                                                                            
|---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|OmniComm Systems, Inc.
|                       | 
|By:                    |  | /s/ Cornelis F. Wit                                                                                                                        
|                       |  | Cornelis F. Wit, Director, Chief Executive Officer
and President (Principal Executive Officer)                                             
|                       | 
|Date:                  |  | November 14, 2008                                                                                                                          
|                       | 
|By:                    |  | /s/ Ronald T. Linares                                                                                                                      
|                       |  | Ronald T. Linares, Executive Vice President of Finance, Chief Financial and Accounting Officer (Principal Financial and Accounting
Officer)
|                       | 
|Date:                  |  | November 14, 2008                                                                                                                          



40



---

##### Table of Contents

EXHIBIT INDEX



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



41