##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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

For the fiscal year ended December 31, 2005



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

Commission File No. 0-25203



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OmniComm Systems, Inc.

(Exact name
of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 11-3349762                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

2555 Davie Road, Suite 110-B

Davie, FL 33317

(Address of principal executive offices)

(954) 473-1254

(Registrants
telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $0.001 par value per share

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act. ̈

Check whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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.  x Yes ̈No

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained herein, and no disclosure will be contained,
to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ̈

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

State issuers revenues for its most recent fiscal year: $1,753,976 for the 12 months ended December 31, 2005.



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State the aggregate market value of the voting stock held by non-affiliates of the registrant.



|               |  |                                         |  |                       
|-------------- |  | --------------------------------------- |  | ----------------------
|Date           |  | Non-Affiliate Voting Shares Outstanding |  | Aggregate Market Value
|March 18, 2006 |  | 26,099,166                              |  | $11,222,641           

Our common stock trades on the Over-the-Counter Bulletin Board (OTCBB). Shares of voting stock held by each
officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such person may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination
for other purpose. The registrant has no shares of non-voting stock authorized or outstanding.

Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest practicable date.



|               |  |                                          |  |                   
|-------------- |  | ---------------------------------------- |  | ------------------
|Date           |  | Class                                    |  | Outstanding Shares
|March 18, 2006 |  | Common Stock, $0.001 par value per share |  | 29,025,915        

DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB into which the document is incorporated:
(1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) of the Securities Act of 1933 (Securities Act). Not Applicable.

Transitional Small Business Disclosure Form (check one): ̈Yes  x No



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OMNICOMM SYSTEMS, INC.

ANNUAL REPORT ON

FORM 10-KSB

FOR THE YEAR ENDED DECEMBER 31, 2005

Table of Contents



|           |  |                                                                                                                 |  |     
|---------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                 |  | Page
|           |  | Part I                                                                                                          |  |     
|           |  |                                                                                                                
|Item 1.    |  | Business                                                                                                        |  | 4   
|           |  |                                                                                                                
|Item 2.    |  | Properties                                                                                                      |  | 21  
|           |  |                                                                                                                
|Item 3.    |  | Legal Proceedings                                                                                               |  | 21  
|           |  |                                                                                                                
|Item 4.    |  | Submission of Matters to a Vote of Securities Holders                                                           |  | 21  
|           |  |                                                                                                                
|           |  | Part II                                                                                                         |  |     
|           |  |                                                                                                                
|Item 5.    |  | Market for Common Equity and Related Stockholder Matters                                                        |  | 22  
|           |  |                                                                                                                
|Item 6.    |  | Managements Discussion and Analysis or Plan of Operation                                                       |  | 23  
|           |  |                                                                                                                
|Item 7.    |  | Financial Statements                                                                                            |  | 29  
|           |  |                                                                                                                
|Item 8.    |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                            |  | 29  
|           |  |                                                                                                                
|Item 8A.   |  | Controls and Procedures                                                                                         |  | 29  
|           |  |                                                                                                                
|Item 8B.   |  | Other Information                                                                                               |  | 29  
|           |  |                                                                                                                
|           |  | Part III                                                                                                        |  |     
|           |  |                                                                                                                
|Item 9.    |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act |  | 29  
|           |  |                                                                                                                
|Item 10.   |  | Executive Compensation                                                                                          |  | 32  
|           |  |                                                                                                                
|Item 11.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters                 |  | 38  
|           |  |                                                                                                                
|Item 12.   |  | Certain Relationships and Related Transactions                                                                  |  | 40  
|           |  |                                                                                                                
|Item 13.   |  | Exhibits                                                                                                        |  | 42  
|           |  |                                                                                                                
|Item 14.   |  | Principal Accountant Fees and Services                                                                          |  | 45  
|           | 
|Signatures |  | 47                                                                                                             



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|Item 1. | Business
|------- | --------

This business section and other parts of this Annual
Report on Form 10-KSB (Annual Report) contain forward-looking statements that involve risk and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those set forth in Managements Discussion and Analysis of Financial Condition and Results of Operations  Certain Factors That May Affect Future Results and elsewhere in
this Annual Report. Reference to us we our the Company means OmniComm System, Inc.

Background and
History

OmniComm Systems, Inc. was originally organized as Coral Development Corp., under the laws of the State of Delaware, on November 19, 1996,
by Modern Technology Corp. (Modern). Modern originally completed a blind pool/blank check offer pursuant to Rule 419 by having Modern distribute Coral Development shares as a dividend to Modern shareholders. On
February 17, 1999, OmniComm Systems, Inc., a company organized under the laws of the State of Florida as the Premisys Group, Inc. on March 4, 1997, merged with Coral Development. Coral Development was the surviving entity post-merger. The
merged entity changed its name to OmniComm Systems, Inc.

Overview

OmniComm Systems, Inc provides Internet-based electronic data capture (EDC) applications and services that streamline the clinical research, data gathering and data management processes through its product
TrialMaster®. TrialMaster is used by the pharmaceutical, biotechnology and medical device
industries to collect and manage data from clinical trials that is used in the process of obtaining approval for their biopharma products or devices to be sold in the global marketplace. Our clients currently include pharmaceutical, biotechnology
and medical device companies, as well as academic research institutions, clinical research organizations, or CROs, and other entities engaged in clinical trials. TrialMaster, and its related components, automate the clinical trial data collection
process and allow our customers to more efficiently manage the data collection process. We believe TrialMaster allows our customers to accelerate the process of introducing new therapies, reduces the overall cost of conducting clinical research and
allows them to more rapidly commercialize viable, effective new therapies.

TrialMaster is a Web-enabled technology platform that is designed to help
clinical trial sponsors more efficiently conduct their clinical trials. This efficiency translates into more rapid initiation of data collection, less cost incurred in the data collection process and the ability to make more timely Go/No-Go
decisions. We also provide business process consulting services that aim at more effectively integrating EDC into the clinical trial process. Our goal is to provide our clients a data collection process that is streamlined, efficient and
cost-effective. We believe that TrialMaster is significantly more efficient than the traditional paper collection methods employed in the past. TrialMaster has been designed to make the trial building process more efficient than the technologies
deployed by our competitors. The benefits of managing a clinical trial using TrialMaster for EDC include:



| |  |  | Real-Time Access to the Data: All interested parties will have real-time access to study data over the internet as it is generated. This allows for the monitoring of patient
enrollments and related metrics, by site, at the earliest time point.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Faster Study Completion: TrialMaster saves time at the back-end of a study by precluding most of the time it takes for database clean-up in studies involving
paper-based CRFs. This is done by eliminating most incorrect or incomplete entries at the time of entry. Queries for non-automatic items can be handled shortly thereafter through electronic data review by the monitors. We estimate that 3 to 4 weeks
can be saved at the end of field work. This may be critical if there are any unanticipated future delays in either the commencement or conduct of the study.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cost Savings: EDC involves fixed upfront system development costs. The cost of TrialMaster is comparable to paper. The use of EDC can be even more cost effective when applied
to multiple studies, which is relatively easy to do in certain therapeutic areas, in which there are a few primary indications and the studies are relatively simple and similar in terms of data captured.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The U.S. clinical trial research and development (R & D) market is estimated to exceed $33 billion annually and is estimated to grow at 10% annually for the
next few years. Data capture costs currently account for approximately 10% of total R & D spending. Current estimates by CenterWatch place EDC use at 15 to 25% of existing clinical trials. We expect that we will see an enormous transition
towards EDC in the next 5 years with estimates from firms such as CenterWatch and Covance placing EDC use at 60 to 80% by the year 2010.



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Our Strategy

Our
primary goal is to establish OmniComm Systems as a leading EDC service provider by offering our customers high-quality service and a differentiated, user-friendly product. We believe that TrialMaster is priced to provide solid value, that stimulates
market demand, while maintaining a continuous focus on cost-containment and operating efficiencies. We intend to follow a controlled growth plan designed to take advantage of our competitive strengths. Our growth has occurred through continued
service to our existing clients and by adding new clients, often served by higher-cost EDC competitors or less effective home-grown EDC systems. The key elements of our strategy are:

Stimulate Demand by providing Clinical Trial Sponsors with High Value EDC.Deploying EDC can be an expensive proposition. Each trial is considered a
stand-alone project and can incur data collection costs that are approximately 10% of total drug development costs. Because TrialMaster has been designed to make the trial building process more efficient than the technologies deployed by our
competitors, we have been able to provide pricing that is in many cases substantially lower than that of the competition. We provide fast trial start-up times, excellent customer service including full project management and process improvement
consulting - while maintaining significant gross margins. The combination of our cost structure and use of technology allows us to compete both on quality and price.

Emphasize Low Operating Costs.We are committed to keeping our operating and G&A costs low. We have achieved our low operating costs primarily by designing a flexible, customizable EDC product that
does not require numerous hours of configuration time. TrialMaster has been developed in order to take advantage of several automated software tools. These tools make the trial building process more efficient and automate many tasks our competitors
complete manually. We use advanced technologies and employ a well incentivized, productive and highly professional workforce. We are continually focused on improvements in efficiency, and we believe that the newest version of TrialMaster, which will
be released during 2006, will enhance our ability to broaden our product line. As we grow, we expect some benefit from economies of scale by leveraging our current infrastructure over an expanded operation.

Provide EDC Services to Small & Midsize Pharma, Bio-Tech, Medical Device Companies and CROs (Clinical Research Organizations). In considering new
markets, we focus on service to markets that are underserved. In determining which markets to select, we analyzed the size of the potential market and concluded that providing service to small and mid-sized firms provides a substantial marketing
opportunity. These firms conduct many thousands of clinical trials annually. Most do not have the technological or financial wherewithal to develop a product like TrialMaster and often prefer working with small companies themselves. Yet, the
advantages of EDC, such as quick trial deployment, cost-savings and more rapid Go/No-Go decisions are just as crucial to this size firm as to their Fortune 500 competitors.

During 2004-2005 we made a strategic decision to begin emphasizing sales to the CRO market. This decision allows us to add a significant number of potential users since outsourcing clinical trials in the US market is
an established practice. During 2005 we increased the percentage of our revenues coming from CROs by approximately 30.9%. There is an industry-wide emphasis in establishing strategic relationships with CROs. In addition, CRO partnerships allow us to
leverage the selling and marketing capabilities of the CRO itself. Because of our relatively small sales force and limited resources, this strategy allowed us to augment our selling efforts in a cost-effective manner by forging long-term strategic
relationships. Our CRO partners gain the ability to manage the EDC decision making process proactively and add an extension to their line of products.

Differentiate Through Service. We believe that a key to our initial and long-term success is that we offer customers a robust EDC product and a distinctive experience that includes highly efficient integration with data
imports and exports, quick set-up times and a growing list of TrialMaster enhancements. We communicate openly and honestly with customers about their projects, especially when we believe that process improvements can be implemented to improve the
overall EDC experience. Unlike most EDC providers, we have a policy of not charging clients for small, incidental changes that should be part of the EDC service in the first place. Based on customer feedback, we believe our service is an important
reason why our customers choose us over other EDC providers. In 2003, we continued to improve our customers EDC experience by adding a Phase I version of TrialMaster. In 2005 we added TrialMaster Archive®, a self-contained program that allows our client to view all of its trial data in the format that it was captured in, and
TrialMaster Safety®, our pharmacovigilance database which accommodates both the
MedDRA®dictionary and customized client dictionaries and is HIPAA and 21 CFR Part 11
compliant.



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Competitive Strengths

Low Operating Costs.For the year ended December 31, 2005, our Cost of Goods Sold (COGS) as a percentage of revenues was 22.1%. Our low intrinsic costs allow us to offer prices low enough to stimulate new demand and to
attract customers away from higher-priced competitors.

Some of the factors that contribute to our low costs are:



| |  |  | Our employees are productive. Because our employees are so productive, we are able to spread our fixed costs over a greater number of clinical trials. We achieve high
employee productivity in several ways. Many of our employees are cross-trained to provide help in other functions when needed; our staff is tenured therefore avoiding the growing pains associated with new employment and as discussed, our software
has been designed to be flexible and customizable thereby reducing our COGS.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We emphasize our recruiting and training programs. We take great care to hire and train employees who are enthusiastic and committed to serving our customers and we
incentivize them to be productive. Our employee productivity is created through the effective use of advanced technology. For example, we have automated many of the trial building components that our competitors must still hard code for each
project. Our compensation packages are designed to align the interests of our employees with our stockholders.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TrialMaster is the Core of our product offerings. Our competitors have often added functionality to their products via acquisition or by merger. We feel that our core
product and programming methodology provide a flexible, customizable base for product and company expansion without the issues inherent in integrating products or software designed by other companies.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Strong Company Culture.We believe that we have created a strong and vibrant service-oriented company culture, which is built around our key values:
caring, integrity, innovation and passion. The first step is hiring people who are team-oriented and customer-focused. We reinforce our culture by communicating actively, on a regular basis, with all of our employees, keeping them informed about
events at the Company and soliciting feedback for ways to improve teamwork and their working environment.

Proven Management Team.We are led
by a management team with significant experience, including experience at international pharmaceutical companies and other EDC providers. Our President and Chief Executive Officer, Cornelis Wit, brings extensive worldwide pharmaceutical and general
management experience to the Company. Randall Smith our Chairman and Chief Technology Officer is the primary architect of TrialMaster. Our Executive Vice President of Commercial Development, Charles Beardsley, has extensive pharmaceutical industry
experience and is one of the most seasoned EDC marketing executives in the industry. Our Chief Financial Officer, Ron Linares, has worked for publicly held companies as a Chief Financial Officer since 1994. In addition, two of our board members,
Matthew Veatch and Guus van Kesteren, have extensive worldwide pharmaceutical, EDC and CRO industry experience.

Our Business Model

TrialMaster is currently being sold as an application service provider (ASP) that provides EDC and other services such as an enterprise management suite.
TrialMaster contracts provide for pricing that is based on both the size and duration of the clinical trial. Size parameters include the number of case report forms used to collect data and the number of sites utilizing TrialMaster. The client will
pay a trial setup fee based on the previously mentioned factors, and then pay an on-going maintenance fee for the duration of the clinical trial that provides software, network and site support during the trial. Generally, these contracts will range
in duration from three months to five 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. In the short-run this method of
revenue recognition diminishes the revenues recognized on a periodic basis on our financial statements and obliges us to record a liability. In the long-run, we believe this backlog of unrecognized revenue, which are recorded as deferred
revenues on our balance sheet, will provide our customers and investors revenue visibility and provide meaningful information on the size and scope of our selling efforts.



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Our Software Products and Services

TrialMaster.TrialMaster is our Web-based electronic data capture (EDC) software solution that uses Internet technologies to conduct and manage clinical trial data from geographically
dispersed sites. We provide EDC solutions and related value-added services to pharmaceutical and biotechnology companies, clinical research organizations (CROs), academic research institutions and other clinical trial sponsors.
TrialMaster helps reduce the inefficiencies, inaccuracies and costs associated with paper-based clinical data collection methodologies that are traditionally employed at the remote sites where clinical trial participants are monitored. Through
TrialMaster, our customers can deploy customized electronic case report forms for on-site clinical data input, which incorporate automated edit checking and deliver real-time data management capabilities previously unavailable through paper-based
clinical trial data collection approaches.

TrialMaster Features:



| |  |  | Pre-trial management and tracking or IRB and FDA documentation.
| | - |  | ---------------------------------------------------------------



| |  |  | Real-time automated query management.
| | - |  | -------------------------------------



| |  |  | Laboratory data tracking.
| | - |  | -------------------------



| |  |  | Medical terminology coding is fully integrated with standard medical terminology dictionaries including COSTART and MedDRA.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | Enhanced data import and export functions. Data export formats include XML, SAS data transport and CDISC, an industry data standard.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A robust communications/administration system that includes powerful query resolution, trial participant notification and an integrated e-mail system. These components improve
intra-project communications. The integrated administrative functions allow clinical trial sponsors to dynamically manage the clinical trial process including user maintenance, password management and report writing functions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A large selection of system generated reports. In addition, a robust custom report writing functions have been developed so that trial sponsors can create their own custom reports
and do basic analysis. On demand trial data is available via extracts downloaded to the users desktop.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

TrialMaster
includes an adverse event reporting solution that helps customers comply with the complex global safety regulations and reporting deadlines associated with clinical research, post-approval marketing and drug surveillance by expediting the clinical
evaluation and tracking of adverse events. Our customers can enter adverse event data from multiple sources, code, reconcile and analyze the data reports, and then submit required adverse event reports to regulatory authorities via electronic or
paper-based methods. TrialMaster provides customers with near real-time visibility of adverse event data, thereby facilitating compliance with regulatory reporting deadlines and more timely identification of therapeutics that may pose risks to
patients or not warrant further investment in research and development.

TrialMaster Phase ITrialMaster Phase I was designed
during 2003 in order to address the unique data capture requirements of Phase I clinical trials. The TrialMaster Phase I application allows the client to capitalize on the benefits of EDC without overhauling and disrupting their Phase I clinic work
flow processes. Unlike other applications, TrialMaster Phase I adapts to existing processes allowing clients to increase productivity, reduce trial time, and improve data quality while reducing overall costs.

TrialMaster Ph. I Application Features:



| |  |  | A flexible EDC application for Phase I Trial implementation that would allow you to implement EDC locally (bedside) without modifying work flow processes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provides direct data entry (bedside) creating its own source documentation verification.
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | Provides Simultaneous Data Entry (multiple form entries at the same time) capability, thus eliminating potential confusion/errors at bedside.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Easily configurable to meet specific work flow process requirements within required timeframes.
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Provides data extracts and reports available on demand without vendor involvement.
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Provides a built in email communication and notification system so participants and sponsors are always in touch real time with the trials important events.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provides remote Data Monitoring capabilityfor expedited query resolution, real time AE review and improved site relationships.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



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TrialMaster Phase I can be integrated into existing Phase I clinical work flows or can be used as a catalyst for change.
TrialMaster Phase I allows our clients to capitalize on the benefits of EDC without overhauling and disrupting their current work processes. TrialMaster Phase I can be adapted to current processes allowing our clients to increase productivity,
reduce trial time and improve data quality while reducing overall costs. TrialMaster Phase I benefits include:

Improved productivity



| |  |  | Monitors have access to the data in real time from any location via the internet.
| | - |  | ---------------------------------------------------------------------------------



| |  |  | Any data that is outside the normal range will have been flagged by the system and the study staff will have been asked to validate and explain the data.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The monitor can raise queries very quickly and these can be responded to by study staff in a rapid time frame using the EDC system.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Less time should be spent by the monitor on sites.
| | - |  | --------------------------------------------------



| |  |  | The time spent on sites will be more productive as routine queries have been raised and resolved before the visit.
| | - |  | --------------------------------------------------------------------------------------------------------------------

Improved responsiveness



| |  |  | Data available in close to real-time to all sponsor staff.
| | - |  | ----------------------------------------------------------



| |  |  | Better ability to report on and act on safety data during the trial.
| | - |  | --------------------------------------------------------------------



| |  |  | Data Managers can be checking data as the study progresses and working closely with Monitors to ensure data integrity at all times.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------

Improved data accuracy



| |  |  | Edit checks prevent gross errors.
| | - |  | ---------------------------------



| |  |  | Monitors can raise questions quickly, while the study staff are still available.
| | - |  | --------------------------------------------------------------------------------

Reduced end-to-end study time line



| |  |  | Reuse of standard components and enforced data standards will enable studies to be set up with less resources (and less time).
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Decisions during a study can be made on the basis of more accurate up-to-date information.
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Data base lock can be made within hours of last patient out.
| | - |  | ------------------------------------------------------------

TrialMaster
Phase I has enjoyed a significant amount of commercial success. We believe we are well positioned to bring value to our clients Phase I clinical trials. Because of the tight production cycles involved in Phase I clinical trials only flexible
software solutions will be able to provide software solutions on an affordable, efficient basis. TrialMaster Phase I has been successfully deployed into this market.

TrialMaster Archive (TMA) presents client data (post database lock) in TrialMaster browser view (tree configuration) delivered to the client via CD in a read-only format with the ability to export
to study specific formats. TMA does not require any software installation and affords our clients and the FDA the ability to review clinical trial data by: trial, site, patient, visit, and form parameters. Formats available are read-only and
print-friendly, with and without audit trails. A PDF version of the above data is also available. All completed forms are delivered on CD, sorted by site, subject, and visit, in the same configuration as the Browse tab within TrialMaster. The form
status icons are displayed in the same manner as a live EDC study.

The trial sponsor receives a CD with data for all sites, including final data exports
in the formats their TrialMaster study used. Each site is provided with a CD with just their site data. The program is self-contained,so no software is needed to view the CD, there are no minimum system requirements and no internet
connection is required.

In 2005 we developed a FDA Submission Module within TMA. This Module creates a Casebook containing PDF formatted copies of all
Case Report Forms (CRFs) in FDA submission format. This Casebook is fully tabbed and bookmarked making it easy to find and view particular CRFs. The Submission Module is an optional component used in conjunction with our TrialMaster Archive product.



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TrialMaster Safety As part of our clinical suite of clinical trial solutions, we offer TrialMaster
Safety as our Pharmacovigilance database. Linked to TrialMaster, TrialMaster Safety accommodates both the MedDRA®dictionary and customized client dictionaries and is HIPAA and 21 CFR Part 11 compliant.

TrialMaster Safety features include:



| |  |  | Provides for the coding and storing of serious adverse events, (SAE) information either in a manually entered mode directly into a web-based form or automatically from event-driven
information from a clinical study EDC System such as TrialMaster. The import module is vendor-independent and can be configured to accept sources of SAE information other than that from a clinical study or TrialMaster.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provides inventory tracking of trial components and automatic notifications when certain trigger events occur.
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | Generates electronic Data Clarification Forms (DCFs) / queries to assist faster case closure.
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | Generates client-requested reports, including investigator notification of expedited safety reports.
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Generates and pre-fills MEDWatch forms for US reporting or CIOMS form for reporting in the rest of the world.
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Allows electronic reporting of SUSARs and generates listing for annual safety reports in compliance with the European Union Clinical Trials Directive.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Allows for optional use of TrialMasters powerful Ad Hoc reporting tool that offers end-users the ability to develop custom analysis and reports. Ad Hoc can be integrated into
the TrialMaster Safety application, providing a powerful analysis tool for clinicians and or sponsors. By providing this functionality, the end-user is able to query any data variable or group of data contained in the database and can generate
and save custom reports, including charts and graphs, with little knowledge of the underlying databases.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Services

Our services include delivery of the hosted solutions of TrialMaster, consulting services, customer support and training. The primary consulting services we offer
include:



| |  |  | Custom Configuration. The TrialMaster EDC platform is flexible and allows for major reconfiguration. Each trial can be designed to suit specific client workflows and trial
design. TrialMaster includes a clinical trial management system (CTMS), Drug Supply, Safety and Randomization options that can simplify the trial management experience.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | System Integration. We help our clients integrate TrialMaster with existing systems or external systems (Patient Diaries, Medical Devices, Labs etc). We analyze their legacy
systems and data management needs in order to decide how to most efficiently integrate EDC.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SOPs and implementation assistance. Our Client Services and Support personnel can be engaged to write an implementation plan designed to effectively integrate with
TrialMaster. We can also write standard operating procedures (SOPs) to help client staff clearly understand their roles in using TrialMaster to conduct trial activities. We can also analyze and document business processes to determine where greater
operating efficiency may be gained.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Database setup. To get the most out of the TrialMaster system, it is necessary to set up basic information such as users, permissions, sites, study protocol definitions,
documents, dictionaries, integration and budgets. We provide personnel who support the implementation of TrialMaster.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Industry Background

According to a Covance presentation, global research and development (R&D) expenditures by the pharmaceutical industry reached an
estimated $66 billion in 2004, with approximately 50% of that amount spent by North American-based pharmaceutical, biotechnology and medical device companies. Based on a 2002 CenterWatch report approximately 8.5% of total R & D costs are spent
on data management.

We believe that certain industry and regulatory trends summarized below have led pharmaceutical, biotechnology and medical device
companies to increase R & D for proprietary new drugs and medical devices. These trends have required companies to conduct increasingly complex clinical trials, and develop multinational clinical trial capability, while seeking to control costs.



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Increasing Cost Containment Pressures. The increasing pressure to control rising health care costs, and the
penetration of managed health care and health care reform, have caused changes in the pharmaceutical, medical device and biotechnology industries.

Managed Care. Managed care providers and insurance carriers have become major participants in the delivery of pharmaceuticals along with pharmacy benefits organizations. These companies are seeking to lower and control the
prices of drugs and devices.

Generic Drug Effect. Competition from generic drugs following patent expiration has resulted in increasing
market pressure on profit margins.

Increasingly Complex and Stringent Regulation. Increasingly complex and stringent regulatory requirements
have increased the volume and quality of data required for regulatory filings and escalated the demand for real- time, high- accuracy data collection and analysis during the drug development process.

Reducing Drug Development Time Requirements. To reduce costs, maintain market share and speed revenue production, pharmaceutical, medical device and
biotechnology companies face increasing pressure to bring new drugs to market in the shortest possible time.

New Drug Development Pressures.
To respond to the demand for products for an aging population and for the treatment of chronic disorders and life-threatening conditions, research and development expenditures have increased as a result of the constant pressure to develop and patent
new therapies.

Growth of Biotechnology Industry. The biotechnology industry and the number of drugs produced by it which require U.S. Food
and Drug Administration (FDA) approval have grown substantially over the past decade.

These trends have created even greater competitive
demands on the industry to bring products to market efficiently and quickly.

Market Opportunity

Clinical trials are the critical component in bringing a drug or medical device to market. All prescription drug and medical device therapies must undergo extensive
testing as part of the regulatory approval process. Many clinical trials continue to be conducted in an antiquated manner and fail to optimize the resources available for a successful clinical trial. We believe that our solutions significantly
reduce costs, improve data quality and expedite results. The data integrity, system reliability, management control and auditable quality of TrialMaster will aid clinical trial sponsors that want to improve clinical trial efficiencies, speed-up
results and ensure regulatory compliance.

In order for a drug or medical device to be marketed in the United States, Europe or Japan, the drug or device
must undergo extensive testing and regulatory review to determine that it is safe and effective. The regulatory review process for new drugs and devices is time consuming and expensive. A new drug application (NDA) can take up to two
years before the FDA approves it. This is in addition to five to nine years of studies required to provide the data to support the NDA. The amount of money and time currently spent on clinical trials is enormous. The following points are
illustrative of clinical trial industry dynamics:



| |  |  | Drug companies lose as much as $11 million in potential revenue for each day a trial is delayed on a blockbuster drug such as Prilosec.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Of 10,000 screened chemical compounds approximately 250 enter preclinical testing, 5 enter clinical testing and only one is approved by the FDA to be marketed to consumers
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | According to a 2004 PhRMA report, the average drug approved for sale by the FDA cost approximately $800,000,000 to bring to market.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------

Included in the above cost analysis of bringing a new medicine to market are expenses of project failures and the impact that long development times have on investment
costs. The estimate also accounts for out-of-pocket discovery and preclinical development costs, post-approval marketing studies and the cost of capital. Lengthening development times caused by complex disease targets and a more intensive regulatory
process have more than tripled the cost of developing a drug over the past 15 years. The estimates which were published as part of a 2001 Tufts University study cite that many factors are driving up development costs, including a greater emphasis on
developing treatments for chronic diseases, the increasing size of trials and the rising cost of recruiting subjects.



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Our Customers

As of
December 31, 2005, we had over 25 customers, including several Fortune 1000 companies. Our representative customers include pharmaceutical, biotechnology, medical device, academic research institutions, CROs and other clinical trial sponsors.

Sales and Marketing

We sell our products through a
direct sales force and through our relationships with CROs. Our marketing efforts to-date have focused on increasing market awareness of our firm and products. These efforts have primarily been comprised of attendance and participation in industry
conferences and seminars. A primary focus of our future marketing efforts will be to continue increasing our market penetration and market awareness. Our efforts during 2006 will include: increasing the number of sales personnel employed; increasing
our attendance and marketing efforts at industry conferences and deploying a direct sales force in Europe. As of December 31, 2005 our sales and marketing function consisted of five field sales personnel. In addition, the efforts of our CEO and
Chairman are directed at both business development and strategic planning issues.

Research and Development

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 efforts are focused on developing new, complementary software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. Our development of TrialMaster and its subsequent
improvements and refinements have been handled by our in-house staff of developers. Our philosophy towards software development has been to design and implement all of our solutions through in-house development. We expect future research and
development efforts to be aimed at broadening the scope of TrialMaster functionality. These efforts may include select strategic alliances with best-in-class software and service partners possessing clinical trial industry experience. During fiscal
2005, we spent approximately $478,000 on research and development activities, the majority of which represented salaries to our developers. In fiscal 2004 we spent approximately $537,000 on research and development activities, the majority of which
represents salaries to our programmers and developers.

Technology and Systems

The technology incorporated into our products is designed to provide customers with ease of use, flexibility, data visibility and system scalability to handle high volume, global trials.

TrialMaster, our electronic data capture software product, which we have designed to support large numbers of users connecting to the system via the Internet, utilizes
three logical tiers: a user interface, a proprietary application server; and a database. Our clients can utilize a widely-available web-browser without the need to download or install any software on their computer. TrialBuilder,®our case report form building tool allows our programmers to design electronic case report forms
efficiently.

We have worked, and continue to work with, a number of vendors of complementary products, services and technology to develop integration
tools that allow third-party systems to interact with our software products. Our products run on most major versions of the Microsoft operating system.

We
provide application hosting services for our web-based clinical trial applications utilizing a secure, medical-grade network infrastructure. We maintain both a primary data center and a secondary disaster recovery site. These sites utilize identical
configurations with the secondary site located at our headquarters while the primary site is located on a HIPAA compliant floor of an IBM owned co-location facility in Atlanta, GA.

Internet communications to the data center is maintained via two high-speed digital data communication lines; a primary and a shadow line. The shadow monitors the primary line and automatically becomes
active should an interruption in communications occur to the primary line. These lines are connected to a Cisco high-speed dual line router. Data is then passed from the router to a Cisco PIX hardware firewall. The hardware firewall is capable of
providing 120 Mbps data throughput and up to 125,000 simultaneous sessions. The two Cisco PIX firewalls located at the primary data center and at the secondary disaster recovery site are linked via a secure, static, encrypted virtual private network
(VPN) connection. The PIX provides firewall, VPN, and intrusion detection functions to the network. Data from the PIX is passed to an HP high-speed data switch. The switch is capable of processing data at a rate of 36.6 Gbps. The switch is used to
connect all of our servers to the PIX.



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Our software applications were developed utilizing Microsofts Distributed Network Architecture (DNA). Thus, the
network was designed to accommodate the security and scalability of the DNA framework. Using this approach, servers are paired so that the production server is visible to the internet while the database server is not. Data from the database is made
available to authorized users via our proprietary software object module running on the production server. Communication between the servers is handled by the HP switch.

Compaq DL380 computers running Microsoft Windows 2000 are used in all production and database servers. The servers are configured with dual Intel Pentium class processors, dual power supplies, and hot-swappable RAID
disk storage for maximum availability and reliability. Database servers are configured with two gigabytes of RAM memory and 36 gigabytes of disk storage. Production servers are configured with two gigabytes of RAM memory and 27 gigabytes of disk
storage. All servers are capable of supporting up to eight gigabytes of RAM memory and one terabyte (1,099,511,627,776 bytes) of disk storage. Up-time of 100% has been experienced since the deployment of these servers.

The current production environment employs two production/database server pairs at the primary data center which is mirrored at our corporate headquarters. Database
synchronization between the primary data center and the co-location facility is accomplished utilizing transaction replication technology via the Virtual Private Network link established between the two locations.

Intellectual Property

Our success and ability to compete are
dependent on our efforts to develop and maintain the proprietary aspects of our technology. We rely upon a combination of trademark, trade secret, copyright and unfair competition laws, as well as contractual provisions, to protect our intellectual
property and other proprietary rights. In addition, we attempt to protect our intellectual property and proprietary information by requiring our employees and consultants to enter into confidentiality, non-competition and assignment of inventions
agreements. These legal protections afford only limited protection for our technology. We have registered trademarks in the United States. Our principal registered trademarks are our company name OmniComm Systems and our product name,
TrialMaster. We cannot predict whether these trademark registrations will provide meaningful protection. Our agreements with employees, consultants and others who participate in development activities could be breached. We may not have
adequate remedies for any breach, and our trade secrets may otherwise become known or independently developed by our competitors or other third parties. In addition, the laws of some foreign countries do not protect proprietary rights to the same
extent as the laws of the United States, and effective copyright, patent, trademark and trade secret protection may not be available in those jurisdictions.

Due to rapid technological change, we believe that factors such as the technological and creative skills of our personnel, new product and service developments and enhancements to existing products and services are more important than the
various legal protections of our technology to establish and maintain a technology leadership position.

We currently hold several domain names, including
the domain name omnicomm.com and trialmaster.com. Additionally, legislative proposals have been made by the U.S. federal government that would afford broad protection to owners of databases of information, such as stock quotes. The
protection of databases already exists in the European Union. The adoption of legislation protecting database owners could have a material adverse effect on our business, requiring us to develop additional, complex data protection features for our
software products.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our software solutions or to
obtain and use information that we regard as proprietary. The laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Litigation may be necessary in the future to enforce our
intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our business,
operating results or financial condition. There can be no assurance that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology. Any failure to meaningfully protect
our intellectual property and other proprietary rights could have a material adverse effect on our business, operating results or financial condition.



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Competition

The
market for electronic data collection, data management and adverse event reporting systems is highly competitive, rapidly evolving, fragmented and is subject to changing technology, shifting customer needs and frequent introductions of new products
and services. We compete with systems and paper-based processes utilized by existing or prospective customers, as well as other commercial vendors of electronic data capture applications, clinical data management systems and adverse event reporting
software, including:



| |  |  | systems developed internally by existing or prospective customers;
| | - |  | ------------------------------------------------------------------



| |  |  | vendors of electronic data capture, clinical trial management systems and adverse event reporting product suites, including Oracle Clinical, a business unit of Oracle Corporation
and PhaseForward, Inc.;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | vendors of stand-alone electronic data capture, data management and adverse event reporting products; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | CROs with internally developed electronic data capture, clinical data management systems or adverse event reporting systems.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

Our ability to remain competitive will depend to a great extent upon our ongoing performance in the areas of product development, customer support and service delivery.
We believe that the principal competitive factors in our market include the following:



| |  |  | product functionality and breadth of integration among the electronic data capture, clinical trial management systems and adverse event reporting solutions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reputation and financial stability of the vendor;
| | - |  | -------------------------------------------------



| |  |  | low total cost of ownership and demonstrable benefits for customers;
| | - |  | --------------------------------------------------------------------



| |  |  | depth of expertise and quality of consulting and training services;
| | - |  | -------------------------------------------------------------------



| |  |  | performance, security, scalability, flexibility and reliability of the solutions;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | speed and ease of implementation and integration; and
| | - |  | -----------------------------------------------------



| |  |  | sales and marketing capabilities, and the quality of customer support.
| | - |  | ----------------------------------------------------------------------

We believe that our technical expertise, the knowledge and experience of our principals in the industry, quality of service, responsiveness to client needs and speed in delivering solutions will allow us to compete favorably within this
market. Further, we believe that none of the aforementioned companies have developed an approach to the clinical trial process that is as flexible and customizable as TrialMaster. However, many of our competitors and potential competitors have
greater name recognition, longer operating histories and significantly greater resources. There can be no assurance that our current or prospective competitors will not offer or develop products or services that are superior to, or that achieve
greater market acceptance than, our products and services.

Government Regulation

The conduct of clinical trials is subject to regulation and regulatory guidance associated with the approval of new drugs, biological products and medical devices imposed upon the clinical trial process by the
U.S. federal government and related regulatory authorities such as the U.S. Food and Drug Administration, or FDA, and by foreign governments. Use of our software products, services and hosted solutions by entities engaged in clinical
trials must be done in a manner that is compliant with these regulations and regulatory guidance. Failure to do so could have an adverse impact on a clinical trial sponsors ability to obtain regulatory approval of new drugs, biological
products or medical devices. If our product and service offerings fail to allow our customers and potential customers to operate in a manner that is compliant with applicable regulations and regulatory guidance, clinical trial sponsors and other
entities conducting clinical research may be unwilling to use our software products, services and hosted solutions. Accordingly, we design our product and service offerings to allow our customers and potential customers to operate in a manner that
is compliant with applicable regulations and regulatory guidance. We also expend considerable time and effort monitoring regulatory developments that could impact the use of our products and services by our customers and use this information in
designing or modifying our product and service offerings.

The following is an overview of some of the regulations that our customers and potential
customers are required to comply with in the conduct of clinical trials.



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The clinical testing of drugs, biologics and medical devices is subject to regulation by the FDA and other governmental
authorities worldwide. The use of software during the clinical trial process must adhere to the regulations and regulatory guidance known as Good Clinical Practices, other various codified FDA regulations, the Consolidated Guidance for Industry from
the International Conference on Harmonization regarding Good Clinical Practice for Europe, Japan and the United States and other guidance documents. Our products, services and hosted solutions are developed using our domain expertise and are
designed to allow compliance with applicable rules or regulations.

In addition to the aforementioned regulations and regulatory guidance, the FDA has
developed regulations and regulatory guidance concerning electronic records and electronic signatures. The regulations, codified as 21 CFR Part 11, are interpreted for clinical trials in a guidance document titled Computerized Systems Used
in Clinical Trials. This regulatory guidance stipulates that computerized systems used to capture or manage clinical trial data must meet certain standards for attributability, accuracy, retrievability, traceability, inspectability, validity,
security and dependability. Other guidance documents have been issued that also help in the interpretation of 21 CFR Part 11.

Regulation of the
use and disclosure of personal medical information is complex and growing. Federal legislation in the United States, known as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes a number of requirements on the use and
disclosure of protected health information which is individually identifiable, including standards for the use and disclosure by the health care facilities and providers who are involved in clinical trials. HIPAA also imposes on these
healthcare facilities and providers standards to assure the confidentiality of health information stored or processed electronically, including a series of administrative, technical and physical security procedures. This may affect us in several
ways. Many users of our products and services are directly regulated under HIPAA and, to the extent our products cannot be utilized in a manner that is consistent with the users HIPAA compliance requirements, our products will likely not be
selected. In addition, we may be directly affected by HIPAA and similar state privacy laws. Under HIPAA, to the extent we perform functions or activities on behalf of customers that are directly regulated by such medical privacy laws, such customers
may be required to obtain satisfactory assurance, in the form of a written agreement, that we will comply with a number of the same HIPAA requirements.

Business Segments and Geographic Information

We view our operations and manage our business as one operating segment. Our sales to date
have been generated almost exclusively from U.S. based clients. TrialMaster has been deployed in clinical trials conducted both domestically in the U.S. and internationally in Europe, Asia, Africa and Australia. We have entered into a strategic
alliance with a Clinical Research Organization in the Pacific Rim and expect to develop a wholly-owned subsidiary for European sales and operations during the first quarter of fiscal 2006.

Employees

We currently have 30 full time employees of which four are
executives, one is administrative, 19 are programmers, one is a technology and systems manager and five are in sales and marketing. We employ 24 employees out of our headquarters in Davie, Florida and six field sales and marketing employees in
California; Pennsylvania; New Jersey; Massachusetts and North Carolina. We believe that relations with our employees are good. None of our employees is represented by a collective bargaining agreement.

Available Information

We were incorporated in Delaware in 1997. We
currently have no operating subsidiaries. Our Internet website address is http://www.omnicomm.com. Our Annual Report on Form 10-KSB, Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available either via a link on our website or on the Securities and Exchange Commission website, http://www.sec.gov.

RISK FACTORS

An investment in our securities is
speculative in nature and involves a high degree of risk. In addition to the other information contained in this prospectus, the following material risk factors should be considered carefully in evaluating us and our business before purchasing our
securities.



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WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES. WE MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY.

We incurred net losses attributable to common stockholders of $2,224,933 and $2,502,170 in fiscal 2005 and 2004, respectively. At December 31,
2005, we had an accumulated deficit of approximately $27,859,203 and a working capital deficit of approximately $1,765,015. We expect net losses and negative cash flow for the foreseeable future until such time as we can generate sufficient revenues
to achieve profitability. We expect our operating cash flows to improve in fiscal 2006, but we have little control over the timing of contracted projects. We expect our client and contract base to expand and diversify to the point where it meets our
on-going operating needs, but this may not happen in the short-term or at all. While we expect to achieve additional revenue through the growth of our business, we cannot assure you that we will generate sufficient revenue to fund our expenses and
achieve and maintain profitability in any period.

WE DEPEND PRIMARILY ON THE PHARMACEUTICAL, BIOTECHNOLOGY AND MEDICAL DEVICE INDUSTRIES AND ARE
THEREFORE SUBJECT TO RISKS RELATING TO CHANGES IN THESE INDUSTRIES.

Our business depends on the clinical trials conducted or sponsored by
pharmaceutical, biotechnology and medical device companies and other entities conducting clinical research. General economic downturns, increased consolidation or decreased competition in the industries in which these companies operate could result
in fewer products under development or decreased pressure to accelerate product approval which, in turn, could materially adversely impact our revenues. Our operating results may also be adversely impacted by other developments that affect these
industries generally, including:



| |  |  | the introduction or adoption of new technologies or products;
| | - |  | -------------------------------------------------------------



| |  |  | changes in third-party reimbursement practices;
| | - |  | -----------------------------------------------



| |  |  | changes in government regulation or governmental price controls;
| | - |  | ----------------------------------------------------------------



| |  |  | changes in medical practices;
| | - |  | -----------------------------



| |  |  | the assertion of product liability claims; and
| | - |  | ----------------------------------------------



| |  |  | changes in general business conditions.
| | - |  | ---------------------------------------

Any decrease in research and
development expenditures or in the size, scope or frequency of clinical trials conducted or sponsored by pharmaceutical, biotechnology or medical device companies or other entities as a result of the foregoing or other factors could materially
adversely affect our operations or financial condition.

CHANGES IN REGULATIONS AND REGULATORY GUIDANCE APPLICABLE TO OUR CUSTOMERS OR POTENTIAL
CUSTOMERS AND THE APPROVAL PROCESS FOR THEIR PRODUCTS MAY RESULT IN OUR INABILITY TO CONTINUE TO DO BUSINESS.

Demand for our software products,
services and hosted solutions is largely a function of regulation and regulatory guidance associated with the approval of new drugs, biological products and medical devices imposed upon the clinical trial process by the U.S. federal government and
related regulatory authorities such as the U.S. Food and Drug Administration, or FDA, and by foreign governments. In recent years, efforts have been made to streamline the FDA approval process and coordinate U.S. standards with those of other
developed countries. Any change in the scope of applicable regulations and regulatory guidance could alter the type or amount of clinical trial spending or negatively impact interest in our software products, services and hosted solutions. Any
regulatory reform that limits or reduces the research and development spending of entities conducting clinical research upon which our business depends could have a material adverse effect on our revenues or gross margins.

In addition, any failure to conform our software products, services and hosted solutions to domestic or international changes in regulations and regulatory guidance
applicable to our customers or potential customers and the approval process for their products may result in our inability to continue to do business. Changing our software products, services and hosted solutions to allow our customers to comply
with future changes in regulation or regulatory guidance, either domestically or internationally, could cause us to incur substantial costs. We cannot assure you that our product and service offerings will allow our customers and potential customers
to stay in compliance with regulations and regulatory guidance as they develop. If our product and service offerings fail to allow our customers and potential customers to operate in a manner that is compliant with applicable regulations and
regulatory guidance, clinical trial sponsors and other entities conducting clinical research may be unwilling to use our software products, services and hosted solutions.



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IF ENTITIES ENGAGED IN CLINICAL TRIALS DO NOT SHIFT FROM TRADITIONAL PAPER-BASED METHODS OF COLLECTING CLINICAL TRIAL
DATA TO ELECTRONIC SYSTEMS, WE MAY NOT ACHIEVE THE MARKET PENETRATION NECESSARY TO OBTAIN OR MAINTAIN PROFITABILITY.

If entities engaged in clinical
trials are unwilling to use our electronic data capture solutions or to change the way of collecting clinical trial data, our future growth and market share may be limited. Most clinical trials today rely on pre-printed, three-part paper case report
forms for data collection. Our efforts to establish an electronic process to capture clinical trial data are a significant departure from the traditional paper-based methods of collecting clinical trial data. As is typical for new and rapidly
evolving industries, customer demand for recently introduced technology is highly uncertain. We may not be successful in persuading entities engaged in clinical trials to change the manner in which they have traditionally collected clinical trial
data and to accept our software products, services and hosted solutions. If we fail to convince entities engaged in clinical trials to use our methods of capturing clinical trial data, our revenues may be limited and we may fail to be profitable.

OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO FALL RAPIDLY AND WITHOUT NOTICE.

Our revenues and operating results are difficult to predict and may fluctuate significantly from quarter to quarter, particularly because of the
rapidly evolving market in which we operate and our term license model. For instance, our quarterly results ranged from an operating loss of $688,000 for the quarter ended March 31, 2003 to an operating loss of $382,000 for the quarter ended
March 31, 2005. Our results of operations in any given quarter will be based on a number of factors, including:



| |  |  | the extent to which TrialMaster achieves or maintains market acceptance;
| | - |  | ------------------------------------------------------------------------



| |  |  | our ability to introduce new products and services and enhancements to our existing products and services on a timely basis;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | the competitive environment in which we operate;
| | - |  | ------------------------------------------------



| |  |  | the timing of our product sales and the length of our sales and implementation cycles;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | changes in our operating expenses;
| | - |  | ----------------------------------



| |  |  | our ability to hire and retain qualified personnel;
| | - |  | ---------------------------------------------------



| |  |  | changes in the regulatory environment related to the clinical trial market;
| | - |  | ---------------------------------------------------------------------------



| |  |  | the financial condition of our current and potential customers.
| | - |  | ---------------------------------------------------------------

A
significant portion of our operating expense is relatively fixed in nature and planned expenditures are based in part on expectations regarding future revenues. Accordingly, unexpected revenue shortfalls may decrease our gross margins and could
cause significant changes in our operating results from quarter to quarter. Results of operations in any quarterly period should not be considered indicative of the results to be expected for any future period. In addition, our future quarterly
operating results may fluctuate and may not meet the expectations of securities analysts or investors. If this occurs, the trading price of our common stock could fall substantially either suddenly or over time.

WE MAY BE REQUIRED TO SPEND SUBSTANTIAL TIME AND EXPENSE BEFORE WE RECOGNIZE A SIGNIFICANT PORTION OF THE REVENUES, IF ANY, ATTRIBUTABLE TO OUR CUSTOMER CONTRACTS.

The sales cycle for some of our software solutions frequently takes six months to a year or longer from initial customer contact to contract
execution. During this time, we may expend substantial time, effort and financial resources without realizing any revenue with respect to the potential sale. In addition, in the case of our hosted electronic data capture solutions, we do not begin
recognizing revenue until implementation cycles are complete. Moreover, while we begin recognizing revenue upon completion of the scope of work detailed in our contracts, it may be difficult for us to rapidly increase our revenue through additional
sales in any period, as revenue from new customers is recognized over the applicable license term, typically three months to five years. As a result, we may not recognize significant revenues, if any, from some customers despite incurring
considerable expense related to our sales and implementation process. Even if we do realize revenues from a contract, our pricing model may keep us from recognizing a significant portion of these revenues during the same period in which sales and
implementation expenses were incurred. Those timing differences could cause our gross margins and profitability to fluctuate significantly from quarter to quarter. Similarly, a decline in new or renewed client contracts in any one quarter will not
necessarily be fully reflected in the revenue in that quarter and may negatively affect our revenue in future quarters. This could cause our operating results to fluctuate significantly from quarter to quarter.



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THE LOSS OF ONE OR MORE MAJOR CUSTOMERS COULD MATERIALLY AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.

Our top five customers accounted for approximately 54% of our revenues during 2005 and approximately 56% of our revenues during 2004. Three
customers accounted individually for 10% or more of our revenues during 2005. Four customers accounted individually for 10% or more of our revenues during 2004. These customers can terminate our services at any time. The loss of any of our major
customers could have a material adverse effect on our results of operations or financial condition. We may not be able to maintain our customer relationships, and our customers may not renew their agreements with us, which could adversely affect our
results of operations or financial condition. A significant change in the liquidity or financial position of any of these customers could also have a material adverse effect on the collectibility of our accounts receivables, our liquidity and our
future operating results.

WE COULD INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS RELATING TO OUR PRODUCTS OR SERVICES OR OUR
CUSTOMERS USE OF OUR PRODUCTS OR SERVICES.

Any failure or errors in a customers clinical trial or adverse event reporting obligations
caused or allegedly caused by our products or services could result in a claim for substantial damages against us by our customers or the clinical trial participants, regardless of our responsibility for the failure. Although we are entitled to
indemnification under our customer contracts against claims brought against us by third parties arising out of our customers use of our products, we might find ourselves entangled in lawsuits against us that, even if unsuccessful, divert our
resources and energy and adversely affect our business. Further, in the event we seek indemnification from a customer, we cannot assure you that a court will enforce our indemnification right if challenged by the customer obligated to indemnify us
or that the customer will be able to fund any amounts for indemnification owed to us. We also cannot assure you that our existing general liability insurance coverage will continue to be available on reasonable terms or will be available in amounts
sufficient to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim.

WE AND OUR PRODUCTS AND SERVICES
COULD BE SUBJECTED TO GOVERNMENTAL REGULATION, REQUIRING US TO INCUR SIGNIFICANT COMPLIANCE COSTS OR TO CEASE OFFERING OUR PRODUCTS AND SERVICES.

The
clinical trial process is subject to extensive and strict regulation by the FDA, as well as other regulatory authorities worldwide. Our electronic data capture, management and adverse event reporting products and services could be subjected to
state, federal and foreign regulations. We cannot assure you that our products and service offerings will comply with applicable regulations and regulatory guidelines as they develop. If our products or services fail to comply with any applicable
government regulations or guidelines, we could incur significant liability or be forced to cease offering our applicable products or services. Also, conforming our products and services to any applicable regulations and guidelines could
substantially increase our operating expenses.

IF WE ARE UNABLE TO RETAIN OUR PERSONNEL AND HIRE ADDITIONAL SKILLED PERSONNEL, WE MAY BE UNABLE TO
ACHIEVE OUR GOALS.

Our future success depends upon our ability to attract, train and retain highly skilled employees and contract workers,
particularly our management team, sales and marketing personnel, professional services personnel and software engineers. Each of our executive officers and other employees could terminate his or her relationship with us at any time. The loss of any
member of our management team might significantly delay or prevent the achievement of our business or development objectives and could materially harm our business. In addition, because of the technical nature of our software products, services and
hosted solutions and the dynamic market in which we compete, any failure to attract and retain qualified direct sales, professional services and product development personnel, as well as our contract workers, could have a material adverse affect on
our ability to generate sales or successfully develop new software products, services and hosted solutions or software enhancements.

WE FACE INTENSE
COMPETITION AND WILL HAVE TO COMPETE FOR MARKET SHARE.

There can be no assurance that our products will achieve or maintain a competitive advantage.
There are currently a number of companies who market services and products for Web-based clinical trial data collection. Barriers to entry on the Internet are relatively low, and we expect competition to increase significantly in the future. We face
competitive pressures from numerous actual and potential competitors, both online and offline, many of which have



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longer operating histories, greater brand name recognition, larger customer bases and significantly greater financial, technical and marketing resources than
we do. We cannot assure you that the Web-based clinical trials maintained by our existing and potential competitors will not be perceived by clinical trial sponsors as being superior to ours.

WE MAY BE UNABLE TO PREVENT COMPETITORS FROM USING OUR INTELLECTUAL PROPERTY, AND WE WOULD FACE POTENTIALLY EXPENSIVE LITIGATION TO ASSERT OUR RIGHTS AND TO DEFEND
OURSELVES AGAINST PATENT OR OTHER INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS ASSERTED BY OTHERS. IF WE CANNOT PROTECT OUR PROPRIETARY INFORMATION, WE MAY LOSE A COMPETITIVE ADVANTAGE AND SUFFER DECREASED REVENUES AND CASH FLOW.

We are dependent, in part, on proprietary data, analytical computer programs and methods and related know-how for our day-to-day operations. We rely on a combination of
confidentiality agreements, contract provisions and trade secret laws to protect our proprietary rights. Although we intend to protect our rights vigorously, there can be no assurance we will be successful in protecting our proprietary rights. If we
are unable to protect our proprietary rights, or if our proprietary information and methods become widely available, we may lose any ability to obtain or maintain a competitive advantage within our market niche.

FAILURE TO ADAPT TO EVOLVING TECHNOLOGIES AND USER DEMANDS COULD RESULT IN THE LOSS OF USERS.

To be successful, we must adapt to rapidly changing technologies and user demands by continuously enhancing our products and services and introducing new products and services. If we need to modify our products and
services or infrastructure to adapt to changes affecting clinical trials, we could incur substantial development or acquisition costs. As described below, we will be dependent upon the availability of additional financing to fund these development
and acquisition costs. If these funds are not available to us, and if we cannot adapt to these changes, or do not sufficiently increase the features and functionality of our products and services, our users may switch to the product and service
offerings of our competitors.

A SYSTEM FAILURE COULD RESULT IN SIGNIFICANTLY REDUCED REVENUES.

Any system failure, including network, software or hardware failure that causes an interruption in our service could affect the performance of our TrialMaster software
and result in reduced revenues. The servers that host our software are backed-up by remote servers, but we cannot be certain that the back-up servers will not fail or cause an interruption in our service. Clinical trial data could also be affected
by computer viruses, electronic break-ins or other similar disruptions. Our users will depend on Internet service providers, online service providers and other web site operators for access to our products. Each of these providers may have
experienced significant outages in the past and could experience outages, delays and other difficulties due to system failures unrelated to our systems. Further, our systems are vulnerable to damage or interruption from fire, flood, power loss,
telecommunications and/or power failure, break-ins, hurricanes, earthquake and similar events. Regionalized power loss caused by hurricanes or other storms if occurring over a long period of time could adversely impact our ability to service our
clients. Our insurance policies have low coverage limits and may not adequately compensate us for any such losses that may occur due to interruptions in our service.

WE MAY BE UNABLE TO ADEQUATELY DEVELOP OUR SYSTEMS, PROCESSES AND SUPPORT IN A MANNER THAT WILL ENABLE US TO MEET THE DEMAND FOR OUR SERVICES.

Our future success will depend on our ability to develop effectively the infrastructure, including additional hardware and software, and implement the services, including customer support, necessary to meet the demand
for our services. In the event we are not successful in developing the necessary systems and implementing the necessary services on a timely basis, our revenues could be adversely affected, which would have a material adverse affect on our financial
condition.

FAILURE TO MANAGE OUR RAPID GROWTH EFFECTIVELY COULD HARM OUR BUSINESS.

We have been experiencing a period of growth that has placed a significant strain on our operational and financial resources and our personnel. To manage our anticipated future growth effectively, we must continue to
maintain and may need to enhance our information technology infrastructure, financial and accounting systems and controls and manage expanded operations in geographically distributed locations. We also must attract, integrate, train and retain a
significant number of qualified sales and marketing personnel, professional services personnel, software engineers and other management personnel. Our failure to manage our rapid growth effectively could have a material adverse effect on our
business, operating results or financial condition.



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IN THE COURSE OF CONDUCTING OUR BUSINESS, WE POSSESS OR COULD BE DEEMED TO POSSESS PERSONAL MEDICAL INFORMATION IN
CONNECTION WITH THE CONDUCT OF CLINICAL TRIALS, WHICH IF WE FAIL TO KEEP PROPERLY PROTECTED, COULD SUBJECT US TO SIGNIFICANT LIABILITY.

Our software
solutions are used to collect, manage and report information in connection with the conduct of clinical trails. This information is or could be considered to be personal medical information of the clinical trial participants. Regulation of the use
and disclosure of personal medical information is complex and growing. Increased focus on individuals rights to confidentiality of their personal information, including personal medical information, could lead to an increase of existing and
future legislative or regulatory initiatives giving direct legal remedies to individuals, including rights to damages, against entities deemed responsible for not adequately securing such personal information. In addition, courts may look to
regulatory standards in identifying or applying a common law theory of liability, whether or not that law affords a private right of action. Since we receive and process personal information of clinical trial participants from our customers, there
is a risk that we could be liable if there were a breach of any obligation to a protected person under contract, standard of practice or regulatory requirement. If we fail to properly protect this personal information that is in our possession or
deemed to be in our possession, we could be subjected to significant liability.

OUR FINANCIAL STATEMENTS CONTAIN A GOING CONCERN QUALIFICATION.

Because of our significant operating losses, accumulated deficit and the uncertainty as to our ability to secure additional financing, the report of
our independent auditors on our consolidated financial statements for the year ended December 31, 2005 contained an explanatory paragraph indicating there is substantial doubt about our ability to continue as a going concern.

OUR ABILITY TO CONDUCT OUR BUSINESS WOULD BE MATERIALLY AFFECTED IF WE WERE UNABLE TO PAY OUR OUTSTANDING INDEBTEDNESS.

At December 31, 2005, we had outstanding borrowings of approximately $3,319,560 of which



| |  |  | approximately $125,000, at 10% interest, was due June 2004. We are also in default in the payment of interest;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | approximately $397,300, at 9% interest, is due January 31, 2007,
| | - |  | ----------------------------------------------------------------



| |  |  | approximately $150,000 at 9% interest, is due May 31, 2007, and
| | - |  | ---------------------------------------------------------------



| |  |  | approximately $2,647,260 at 9% interest is due April 1, 2008.
| | - |  | -------------------------------------------------------------

No
assurance can be given that the holders of the 10% Convertible Notes will not seek immediate collection of the amounts due and owing. Further, no assurance can be given that faced with future principal repayment and interest obligations, our cash
flow from operations or external financing will be available or sufficient to enable us to meet our financial obligations. If we are unable to meet our financial obligations, the lenders could obtain a judgment against us in the amount of the notes
and foreclose on our assets. Such foreclosure would materially and adversely affect our ability to conduct our business.

WE WILL LIKELY NEED ADDITIONAL
FINANCING, THE TERMS OF WHICH MAY BE UNFAVORABLE TO OUR THEN EXISTING STOCKHOLDERS.

Our plan of operations will require us to raise additional working
capital if our revenue projections are not realized, and even if our projections are realized, we may need to raise additional financing to meet our ongoing obligations. In addition, we may also need to raise additional funds to meet known needs or
to respond to future business contingencies, which may include the need to:



| |  |  | fund more rapid expansion;
| | - |  | --------------------------



| |  |  | fund additional capital or marketing expenditures;
| | - |  | --------------------------------------------------



| |  |  | develop new or enhanced features, services and products;
| | - |  | --------------------------------------------------------



| |  |  | enhance our operating infrastructure;
| | - |  | -------------------------------------



| |  |  | respond to competitive pressures; or
| | - |  | ------------------------------------



| |  |  | acquire complementary businesses or necessary technologies.
| | - |  | -----------------------------------------------------------



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If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of
our stockholders will be reduced, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders or debt holders. We cannot assure you that additional financing will be available on terms
favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, repay our outstanding debt obligations and remain in business may be significantly limited.

FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS AS WELL AS THE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK COULD RESULT IN A DECLINE IN THE MARKET PRICE OF THE
STOCK.

At March 18, 2006, we had 29,025,915 shares of common stock issued and outstanding and 44,984,169 shares issuable upon the conversion of
preferred stock or exercise of warrants or options. Of these shares, 27,781,049 are, or will be upon issuance, eligible for resale pursuant to Rule 144. In general, Rule 144 permits a shareholder who has owned restricted shares for at least one
year, to sell without registration, within a three-month period, up to one percent of our then outstanding common stock. In addition, shareholders other than our officers, directors or 5% or greater shareholders who have owned their shares for at
least two years may sell them without volume limitation or the need for our reports to be current.

We cannot predict the effect, if any, that market sales
of common stock or the availability of these shares for sale will have on the market price of the shares from time to time. Nevertheless, the possibility that substantial amounts of common stock may be sold in the public market could adversely
affect market prices for the common stock and could damage our ability to raise capital through the sale of our equity securities.

THE EXERCISE OF
OUTSTANDING OPTIONS AND WARRANTS AND THE CONVERSION OF OUTSTANDING SHARES OF PREFERRED STOCK AND CONVERTIBLE PROMISSORY NOTES WILL BE DILUTIVE TO OUR EXISTING STOCKHOLDERS.

As of March 18, 2006, we had a total of 26,088,020 shares of our common stock underlying options, warrants and other convertible securities and 18,896,149 shares of common stock underlying convertible preferred
stock. The exercise of these warrants and options and/or the conversion of these convertible securities will have a dilutive effect on our existing stockholders.

THERE IS ONLY A LIMITED TRADING MARKET FOR OUR COMMON STOCK.

There is a limited trading market for our common stock. We cannot predict the
extent to which investor interest in us will lead to the development of an active trading market or how liquid that trading market might become. If a liquid trading market does not develop or is not sustained, investors may find it difficult to
dispose of shares of our common stock and may suffer a loss of all or a substantial portion of their investment in our common stock.

FLUCTUATIONS IN
OUR OPERATING RESULTS MAY ADVERSELY AFFECT OUR STOCK PRICE.

Historically, there has been volatility in the market price for our common stock. Our
quarterly operating results, changes in general conditions in the economy, the financial markets or our industry segment, or other developments affecting us or our competitors, could cause the market price of our common stock to fluctuate
substantially. We expect to experience significant fluctuations in our future quarterly operating results due to a variety of factors. Factors that may adversely affect our quarterly operating results include:



| |  |  | the announcement or introduction of new products by us and our competitors;
| | - |  | ---------------------------------------------------------------------------



| |  |  | our ability to retain existing clients and attract new clients at a steady rate, and maintain client satisfaction;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | the amount and timing of operating costs and capital expenditures relating to expansion of our business and operations;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | government regulation; and
| | - |  | --------------------------



| |  |  | general economic conditions and economic conditions specific to the clinical trials industry.
| | - |  | ---------------------------------------------------------------------------------------------

As a result of these factors, in one or more future quarters, our operating results may fall below the expectations of securities analysts and investors, which could result in a decrease in the trading price of our
common stock.



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BECAUSE OUR STOCK CURRENTLY TRADES BELOW $5.00 PER SHARE, AND IS QUOTED ON THE OTC BULLETIN BOARD, OUR COMMON STOCK IS
CONSIDERED A PENNY STOCK WHICH CAN ADVERSELY EFFECT ITS LIQUIDITY.

If our common stock continues to be quoted on the OTC Bulletin Board,
and the trading price of our common stock remains less than $5.00 per share, our common stock is considered a penny stock, and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of
1934. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written
suitability determination for the purchaser and receive the purchasers written consent prior to the transaction.

The Securities and Exchange
Commission regulations also require additional disclosure in connection with any trades involving a penny stock, including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and
its associated risks. These requirements severely limit the liquidity of securities in the secondary market because few broker or dealers are likely to undertake these compliance activities. In addition to the applicability of the penny stock rules,
other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.

PROVISIONS OF OUR ARTICLES OF
INCORPORATION AND BY-LAWS MAY DELAY OR PREVENT A TAKE-OVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR COMMON STOCKHOLDERS.

Provisions of our
articles of incorporation and by-laws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, our articles of
incorporation authorize the issuance of up to 10,000,000 shares of preferred stock with such rights and preferences as may be determined from time to time by our board of directors, of which 4,617,374 shares are currently issued and outstanding. Our
board of directors may, without stockholder approval, issue additional series of preferred stock with dividends, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of our
common stock.



|ITEM 2. | DESCRIPTION OF PROPERTY
|------- | -----------------------

Our principal executive offices are
located in commercial office space in approximately 5,500 square feet at 2555 Davie Road, Suite 110B, Fort Lauderdale, Florida, and our telephone number is (954) 473-1254. We lease these offices under the terms of a lease expiring in May 2006.
Our annual rental payment under this sublease is $61,500 plus sales tax.

Our secondary data site, which serves as our disaster recovery location, is
located in Atlanta, Georgia and is leased from IBM. We lease this space under the terms of a lease expiring in October 2006. Our annual lease payment is approximately $62,280.

We believe these facilities and additional or alternative space available to us will be adequate to meet our needs for the foreseeable future.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

On November 16, 2005, Lawton Jackson,
(Jackson) filed suit (Civil Action No. 05-14582 CA 01) in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida against OmniComm Systems, Inc. In his suit Jackson alleges that we breached two
employment agreements by not paying him the salary set forth in the agreements. Jackson is seeking $128,098 as damages. We filed a Motion to Dismiss, on December 5, 2005, to Jacksons claim of breach of contract. The Court denied our
Motion to Dismiss but responded that it found issues with Jacksons claims based on the statute of limitations regarding the employment contracts. Jackson filed a First Amended Complaint in January, 2006, alleging certain oral agreements
amended the original employment agreements. We filed an Answer and Affirmative Defenses in January, 2006. This matter is ongoing and we are prepared to vigorously defend against the claim.



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

None.



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PART II



|ITEM 5. | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------- | --------------------------------------------------------

Our
common stock is traded on a limited basis on the OTC Bulletin Board under the symbol OMCM. The following table sets forth the high and low closing prices for our common stock as reported by the OTC Bulletin Board for the periods indicated. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. The quotation of our common stock on the OTC Bulletin Board does not assure that a meaningful, consistent and liquid
market for such securities currently exists.



|            |  |      |      |     |   |     
|----------- |  | ---- | ---- | --- | - | ----
|            |  | High |      | low
|Fiscal 2005 |  |      |      |     |   |     
|1stQuarter  |  | $    | 0.26 |     | $ | 0.18
|2ndQuarter  |  | $    | 0.27 |     | $ | 0.24
|3rdQuarter  |  | $    | 0.35 |     | $ | 0.24
|4thQuarter  |  | $    | 0.40 |     | $ | 0.29
|Fiscal 2004 |  |      |      |     |   |     
|1stQuarter  |  | $    | 0.26 |     | $ | 0.24
|2ndQuarter  |  | $    | 0.26 |     | $ | 0.24
|3rdQuarter  |  | $    | 0.25 |     | $ | 0.20
|4thQuarter  |  | $    | 0.21 |     | $ | 0.15

On March 18, 2006, the closing price of our common stock as reported on the OTC Bulletin Board was $0.43. At
March 18, 2006, we had approximately 400 shareholders of record; however, we believe that we have in excess of 1,000 beneficial owners of our common stock.

Dividend Policy

Holders of our common stock are entitled to cash dividends when, and as may be declared by the board of directors. We have
never declared or paid any cash dividends on our common stock. We currently expect to retain future earnings, if any, to finance the growth and development of our business and we do not anticipate that any cash dividends will be paid in the
foreseeable future. Our future payment of dividends will be subject to the discretion of our board of directors and will depend on our earnings, capital requirements, expansion plans, financial condition and other relevant factors. We are currently
restricted under Delaware corporate law from declaring any cash dividends due to our current working capital and stockholders deficit. There can be no assurance that cash dividends of any kind will ever be paid.

A special note about penny stock rules

The Securities and Exchange
Commission has adopted regulations which generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Our common stock should be considered to be a penny
stock. A penny stock is subject to rules that impose additional sales practice requirements on broker/dealers who sell these securities to persons other than established customers and accredited investors. For transactions covered by these rules,
the broker-dealer must make a special suitability determination for the purchase of these securities. In addition, he must receive the purchasers written consent to the transaction prior to the purchase. He must also provide certain written
disclosures to the purchaser. Consequently, the penny stock rules may restrict the ability of broker-dealers to sell our securities, and may negatively affect the ability of holders of shares of our common stock to sell them.

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth securities authorized for issuance under equity compensation plans, including individual compensation arrangements, under our 1998 Incentive Stock Plan as of December 31, 2005.



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|                          |  |                                                                                                |  |                                                                                |      |                                                                                                                                          |       
|------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ | ---- | ---------------------------------------------------------------------------------------------------------------------------------------- | ------
|Plan Category             |  | Number of securities to be issued upon exercise
of outstanding options, warrants and rights(a) |  | Weighted average exercise price of outstanding options, warrants and rights(b) |      | Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding
securitiesreflected in column(a)) (c)
|1998 Stock Incentive Plan |  | 7,442,770                                                                                      |  | $                                                                              | 0.50 |                                                                                                                                          | 57,230
|                          |  |                                                                                                |  |                                                                                |      |                                                                                                                                          |       
|Total                     |  | 7,442,770                                                                                      |  | $                                                                              | 0.50 |                                                                                                                                          | 57,230
|                          |  |                                                                                                |  |                                                                                |      |                                                                                                                                          |       



|ITEM 6. | 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-KSB 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-KSB 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-KSB. 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.

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 efforts are focused on developing new, complementary software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. During fiscal 2005 and 2004, we
spent approximately $478,000 and $537,000 respectively, on research and development activities, the majority of which represented salaries to our developers which include costs associated with customization of the TrialMaster software for our
clients projects.



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The Year Ended December 31, 2005 Compared With the Year Ended December 31, 2004

Results of Operations

Revenues for the year ended December 31,
2005 were $1,753,976 compared to $1,108,711 for the same period in 2004, an increase of 58.2%. The revenue increase can be attributed to a 60% increase in projects under management. Additionally, the average trial currently being conducted is
approximately 64% larger than the trials being managed in fiscal 2004. Industry acceptance of EDC continues to increase and we believe that currently approximately 20% of clinical trials use Web-based EDC services. 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. 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. During 2005 approximately 69.6% of revenues was generated by trial setup
activities, 21.3% was generated from on-going maintenance fees and approximately 9.1% was generated from fees charged for changes to on-going clinical trial engagements. During fiscal 2004 we generated 66.1% of revenues from setup fees, 27.2% from
on-going maintenance fees and 6.7% from project change orders. Generally, these 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.

Our top five customers accounted for approximately 54% of our revenues during
the year 2005 and approximately 56% of our revenues during the year ended December 31, 2004. Three customers accounted individually for 10% or more of our revenues during 2005. 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 $387,262 in 2005 compared to $252,037 in 2004, an increase of 53.6%.
Cost of goods sold were approximately 22.1% of sales in 2005 compared to 22.7% in fiscal 2004. Cost of goods sold relates primarily to salaries and related benefits associated with the programmers, developers and systems analysts producing clinical
trials on behalf of our clients. Salaries increased during 2005 due to the addition of one additional programmer and a training specialist as part of our trial operations. We used the services of a third party vendor on a European clinical trial
conducted during 2004.

We expect to increase development programming labor costs on an absolute basis as our trial revenues increase. We expect our cost
of goods sold to remain in the 20-25% of sales range during 2006 as 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. TrialMaster V3.0, the current
release of our trial-building software has improved our ability to reduce trial production related costs since it automates many of the trial building functions that were manually performed in prior releases of our software. We expect the next
release of TrialMaster, (V4.0), anticipated during 2006, to increase the efficiency of trial building operations by 20 to 25%. V4.0 is being designed using Microsofts .Net framework. Microsoft® .NET is described by Microsoft as a set of software technologies for connecting
information, people, systems, and devices. This new generation of technology is based on Web servicessmall building-block applications that can connect to each other as well as to other, larger applications over the Internet.

Salaries and related expenses are our biggest expense at 69.4% of total Operating Expenses for 2005. Salaries and related expenses totaled $1,871,508 in 2005 compared to
$1,782,321 in 2004, an increase of 5.0%. We currently employ approximately 21 employees out of our Davie, Florida corporate office and have five out-of-state employees. We expect to increase headcount within our production function in concert with
anticipated increases in TrialMaster clients during fiscal 2006. We will look to selectively add experienced sales and marketing personnel in 2006 in an effort to increase our market penetration and to continue broadening our client base.



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Rent and related expenses increased by $1,293 during the year ended December 31, 2005 compared to the same period in
2004. Our corporate office lease was extended through April 2006. In December 2001, we established a disaster recovery site at an IBM owned Co-Location facility in Atlanta, Georgia and will continue utilizing this facility for the foreseeable future
since it is designed to ensure 100% production system up-time and to provide system redundancy. The Companys corporate office lease expires in April 2006. The Company is seeking office space within the same geographic area and believes it will
find suitable office accommodations at terms favorable to the Company.

Legal and professional fees totaled $178,219 in 2005 compared with $182,972 in
fiscal 2004. A decrease of approximately $4,753. We expect legal and professional fees to increase during 2006 in connection with our project aimed at ensuring timely compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

Selling, general and administrative expenses (SGA) were $275,802 during 2005 compared to $149,246 in 2004, an increase of 84.8%. 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 $41,910 in fiscal 2005 from $31,459 to $73,369, an increase of approximately 133.2%. During 2005 the
Company incurred $67,334 in penalties and late fees associated with federal and state payroll tax returns that were not filed on a timely basis. We expect SGA expenses to continue increasing as we intensify and extend our selling and marketing
efforts.

Interest expense was $365,397, including $104,000 in interest expense related to the beneficial conversion offered to certain holders of our 10%
Convertible Notes that were converted during 2005 versus $288,487 in fiscal 2004, including $76,800 in interest expense related to the beneficial conversion offered to certain holders of 10% convertible notes that were converted in 2004, an increase
of $76,910 or 26.7% that can be attributed to the interest expense incurred on notes issued during 2005 and the increase in interest expense associated with notes issued throughout fiscal 2004. 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 fiscal 2005 we issued $708,300 in promissory notes. During fiscal 2004, we issued $1,024,099 in promissory notes.

There were arrearages of $205,363 in 5% Series A Preferred Stock dividends, $55,441 in Series B Preferred Stock dividends and $269,270 in Series C
Preferred Stock dividends for fiscal 2005, compared with arrearages of $205,925 in 5% Series A Preferred Stock dividends, $96,649 in Series B Preferred Stock dividends and $270,459 in Series C Preferred Stock dividends for fiscal 2004. We deducted
$530,523 and $573,033 from Net Income (Loss) Attributable to Common Stockholders for the year ended December 31, 2005 and December 31, 2004, respectively, relating to undeclared Series A, B and C Convertible Preferred Stock
dividends.

Liquidity and Capital Resources

We have
historically experienced negative cash flows and have relied on the proceeds from the sale of debt and equity securities to fund our operations. In addition, we have utilized stock-based compensation as a means of paying for consulting and salary
related expenses.

Cash and cash equivalents decreased by $55,764 from $65,695 to $9,931 at December 31, 2005. This was the result of cash provided by
financing activities of $778,800 offset by cash used in operating activities of approximately $809,926 and $24,368 used in investing activities. The significant components of the activity include a loss from operations of approximately $1,694,410
offset by non-cash expenses of $132,332 and approximately $778,800 we raised through the issuance of debt and equity securities offset by $24,368 used in investing activities and increases in cash of $752,152 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.



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Contractual Obligations

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



|                             |  |                        |           |                 |   |         |           |  |           |           |            |   |           |  |   |    
|---------------------------- |  | ---------------------- | --------- | --------------- | - | ------- | --------- |  | --------- | --------- | ---------- | - | --------- |  | - | ---
|Contractual Obligations      |  | Payments Due by Period
|                             |  | Total                  |           | Less than1 year |   |         | 1-2 Years |  | 2-3 Years |           | 3- 5 Years
|Long Term Debt (1)           |  | $                      | 3,319,560 |                 | $ | 125,000 | (2)       |  | $         | 547,300   |            | $ | 2,647,260 |  | $ | -0-
|Operating Lease Obligations  |  |                        | 128,194   |                 |   | 76,214  |           |  |           | 52,700    |            |   | -0-       |  |   | -0-
|Financial Advisory Agreement |  |                        | 90,000    |                 |   | 90,000  |           |  |           | -0-       |            |   | -0-       |  |   | -0-
|                             |  |                        |           |                 |   |         |           |  |           |           |            |   |           |  |   |    
|Total                        |  | $                      | 3,538,474 |                 | $ | 291,214 |           |  | $         | 3,247,559 |            | $ | -0-       |  | $ | -0-
|                             |  |                        |           |                 |   |         |           |  |           |           |            |   |           |  |   |    



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



|2. | Comprised of $125,000 of convertible notes 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.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 $186,308 on our 10% Convertible Notes. We were in default effective January 30, 2002.

We have been operating with a cash burn rate since beginning our EDC operations. In order to manage cash flows, we have issued preferred stock, common stock and debt to
satisfy operating expenses and obligations. From April 2004 through November 2004 we sold an aggregate of 3,000,000 shares of our common stock for gross proceeds of $750,000. We accrued $67,500 in transaction fees leaving net proceeds to us of
$682,500. From April 2005 through July 2005, we sold an aggregate of 850,000 shares of our common stock resulting in gross proceeds of $212,500. We accrued $20,000 in transaction fees leaving net proceeds to us of $192,500.

Our selling efforts include marketing our products to several Fortune 1000 pharmaceutical and medical device manufacturers and several of the largest CROs. We
began providing services to some of these entities during 2003 and we have experienced success in broadening our client roster over the past two 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 fiscal 2005. We entered into approximately $4.1 million in
contracts for trials to be serviced over the next five years. These contracts included ten engagements with 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. 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 also 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 2006. We expect to continue increasing the level of resources deployed in our sales
and marketing efforts. We embarked on a cost cutting program during fiscal 2000. That program became part of our organizations identity and remains ingrained in our culture today. We feel that a combination of our lean operating environment
and increased success in new client acquisition, coupled with our ability to retain our existing clients will allow us to compete effectively within the EDC market.



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Because of the losses experienced since 1999 we have needed to continue utilizing the proceeds from the sale of debt and
equity securities to fund our working capital needs. When available, capital has been expensive relative to the valuations that were afforded during the expansion of the Internet sector in 1999 and 2000. The softness in the capital markets coupled
with the losses experienced have caused working capital shortfalls. We have used a combination of equity financing and short-term bridge loans to fund our working capital needs. Other than our current capital and capital we may raise from future
debt or equity offerings or short-term bridge loans, we do not have any additional sources of working capital.

We 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 December 31, 2005, 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 10, 2006.

CRITICAL ACCOUNTING POLICIES

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

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

Estimates
and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These
estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they
became known. In addition, our Management is periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time. Based on a critical assessment of its accounting policies and
the underlying judgments and uncertainties



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affecting the application of those policies, our Management believes that our consolidated financial statements are fairly stated in accordance with
accounting principles generally accepted in the United States (GAAP), and present a meaningful presentation of our financial condition and results of operations.

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

Deferred Revenue

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

Revenue Recognition Policy

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

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

Stock Based Compensation.

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

EFFECT OF RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS

In March 2005, the FASB issued Financial Interpretation 47, Accounting for Conditional Asset Retirement Obligations
(FIN 47). FIN 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement
activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty
exists about the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset
retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective
no later than the end of fiscal years ending after December 15, 2005. We do not expect the adoption of this statement will have a material impact on our results of operations or financial position.

In June 2005, the FASB issued Statement 154, Accounting Changes and Error Corrections, (FAS 154), which replaces APB Opinion 20 and FASB Statement 3.
FAS 154 changes the requirements for the accounting and reporting of a change in accounting principle. APB Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including the cumulative effect of the new
accounting principle in net income of the period of the change. Statement 154 now requires retrospective application of changes in accounting



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principle to prior period financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the
change. FAS 154 is effective for fiscal years beginning after December 15, 2005. We do not expect the adoption of this statement will have a material impact on our results of operations or financial position.

In December 2004, the FASB issued 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. This eliminates the exception to account
for such awards using the intrinsic method previously allowable under APB Opinion No. 25. SFAS No. 123(R) will be effective for interim or annual reporting periods beginning on or after December 15, 2005. We previously adopted the fair value
recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation and have accounted for all awards granted to employees in recent years using the optional intrinsic value method. Accordingly we believe SFAS No. 123(R) will have a
material impact on financial statement at such time as options are granted.



|ITEM 7. | FINANCIAL STATEMENTS
|------- | --------------------

Our financial statements are set forth on
Pages F-1 through F-22 attached hereto.



|ITEM 8. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.



|ITEM 8A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

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

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

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



|ITEM 8B. | OTHER INFORMATION
|-------- | -----------------

None.

PART III



|ITEM 9. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
|------- | ---------------------------------------------------------------------------------------------------------------

The following individuals are our executive officers and the members of our board of directors. Each director is elected at our annual meeting of stockholders and holds
office until the next annual meeting of stockholders, or until his or her successor is elected and qualified. Our by-laws permit the board of directors to fill any vacancy and such director may serve until the next annual meeting of stockholders or
until his or her successor is elected and qualified. The board of directors elects officers annually and their terms of office are at the discretion of the board.



|                   |  |     |  |                                                
|------------------ |  | --- |  | -----------------------------------------------
|Person             |  | Age |  | Position                                       
|Cornelis F. Wit    |  | 59  |  | Chief Executive Officer, President and Director
|Randall G. Smith   |  | 48  |  | Chairman and Chief Technology Officer          
|Ronald T. Linares  |  | 43  |  | Chief Financial and Accounting Officer         
|Charles Beardsley  |  | 60  |  | Executive Vice President Commercial Development
|Guus van Kesteren  |  | 65  |  | Director                                       
|Matthew D. Veatch  |  | 35  |  | Director                                       
|Charles E. Leonard |  | 71  |  | Director                                       



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Cornelis F. Wit. Mr. Wit has been a member of our board of directors since November 1999, and CEO and
President since June of 2002. Mr. Wit was interim CEO from June to July 2000. Mr. Wit was the President of Corporate Finance at Noesis Capital Corp, Boca Raton, Florida, an NASD member firm, from March 1995 until September 2000. Prior to
1994, Mr. Wit was the CEO for DMV, USA, the American subsidiary for Campina Melkunie, a Dutch multi-billion dollar food and pharmaceutical ingredient company, and he also served as Vice President International Operations for Duphar, a
pharmaceutical company in Holland. Mr. Wit graduated from Nijenrode, a business university in Holland.

Randall G. Smith. Mr. Smith has
been an executive officer and member of our board of directors since 1997, serving as President and Chief Technology Officer from May 1997 until August 2000 and thereafter as our Chief Technology Officer. From December 1995 to May 1997,
Mr. Smith was Director of Operations for Global Communications Group. Mr. Smith received a B.S. from Purdue University.

Ronald T.
Linares. Mr. Linares has served as our Chief Financial Officer since April 2000. Prior to joining us, from 1996 until 1999, Mr. Linares was Chief Financial Officer of First Performance Corp., a financial consulting firm, and from 1992
to 1996, Mr. Linares served in various senior financial positions within the Kenny Rogers Roasters Company including Chief Financial Officer of Foodquest, Inc. from 1994 to 1996. Mr. Linares received a B.S. from the University of Florida
and a Masters in Public Accountancy from Barry University.

Charles Beardsley. Mr. Beardsley has served as Executive Vice President, Commercial
Development since October 2005. Prior to that Mr. Beardsley served as Senior Vice President of Marketing and Sales from January 2003 to October 2005. Prior to joining us, from 1974 to 1995, Mr. Beardsley spent most of his career at
Rhone-Poulenc Rorer (RPR, now Aventis Pharmaceuticals), where he served as Vice President of U.S. Marketing and Sales and later as President and General Manager of RPR Canada. More recently, he has served in senior level leadership roles with ASI
Business Solutions, from 1997 to 1999, CB Technologies, from 2001 to 2002, and Quintiles Transnational, from 2000 to 2001, companies involved in information technology to include electronic data capture, business intelligence, decision-support and
sales force automation and optimization. Mr. Beardsley received his B.S from San Jose State University and his M.B.A. from Golden Gate University.

Guus van Kesteren. Mr. van Kesteren has been a member of our board of directors since November 1999. Since 1996, Mr. van Kesteren has been a consultant to Noesis Capital Corp., a NASD member firm. Prior thereto, he was
employed from 1972 until 1996 by Johnson & Johnson in various capacities, holding the position of Vice President International from 1985 until 1996 with responsibility for the Australasian subsidiaries. Mr. van Kesteren graduated from
Nijenrode, a business university in Holland.

Matthew D. Veatch.Mr. Veatch has been a member of our board of directors since February 2004.
Since 1999, Mr. Veatch has been employed as a Director for Quintiles Transnational, a global leader in contract product development and commercialization services. From 1997 to 1999 Mr. Veatch was employed as a Director for Affiliated
Research Centers. During 1999 Mr. Veatch was employed as a Director for CB Technologies, an EDC provider to pharmaceutical, medical device and bio-technology companies. Mr. Veatch graduated from the University of Colorado at Boulder and
earned his MBA from California State University, Dominguez Hills.

Charles E. Leonard. Mr. Leonard has been a member of our board of directors
since May 2004. Since December 1999, Mr. Leonard has served on the board of directors of Solucient LLC. Mr. Leonard served as Chief Executive Officer and Executive Chairman of Solucient from March 2001 until March 2004. Prior to joining
Solucient, Mr. Leonard worked for VNU Marketing Information Services, Dun & Bradstreet Corporation, E.I. DuPont, and the management consulting firm William E. Hill & Co. In addition to OmniComm Systems and Solucient,
Mr. Leonard serves on the Board of Directors for Allrecipes.com, and Innovative Systems. He also serves on the advisory board for the National Science Foundation. Mr. Leonard graduated from the Massachusetts Institute of Technology with a
Bachelors degree and earned a Bachelors of Arts degree from Middlebury College. He received his Masters degree in business administration from the Wharton School at the University of Pennsylvania.

There are no family relationships among any of the Companys Directors or Executive Officers.



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Committees of our Board of Directors

Our board of directors established a Governance Committee, Compensation Committee and an Audit Committee. The Governance Committee, established during 2002, assists the board of directors in fulfilling its
responsibility relating to compliance with all Securities and Exchange Commission rules and regulations. Its primary tasks during 2005 were the implementation of the various requirements of the Sarbanes-Oxley Act of 2002. Mr. Veatch chairs this
committee, but all of the directors in concert with our Chief Financial Officer are involved in integrating the requirements of the various regulatory agencies dictating public company rules and regulations into our operating structure.

The Compensation Committee administers our stock option plan and makes recommendations to the board of directors concerning compensation, including incentive
arrangements, for our officers and key employees. The members of the Compensation Committee are Mr. van Kesteren, who serves as Chairman of the committee and Mr. Wit.

The Audit Committee assists the board of directors in fulfilling its oversight responsibility relating to our financial statements and financial reporting process, the qualifications, independence, engagement and
performance of our independent auditors, and the performance of our internal control functions. The audit committee also reviews all non-audit fees and services to be rendered to us by the independent auditors. Mr. van Kesteren and
Mr. Leonard are members of the Audit Committee.

None of our directors is a audit committee financial expert within the meaning of
Item 401(e) of Regulation S-B. In general, an audit committee financial expert is an individual member of the audit committee or Board of Directors who:



| |  |  | understands generally accepted accounting principles and financial statements,
| | - |  | ------------------------------------------------------------------------------



| |  |  | is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves,
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial statements,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | is independent within the meaning of the SEC rules,
| | - |  | -----------------------------------------------------



| |  |  | understands internal controls over financial reporting, and
| | - |  | -----------------------------------------------------------



| |  |  | understands audit committee functions.
| | - |  | --------------------------------------

Like many small companies with
limited revenues we have had difficulty in attracting independent members to our Board of Directors. Our three independent directors were selected to join our Board of Directors as they brought additional industry background and general
business skills to our Board which our management believes is necessary to assist us to grow our company. At such time as we add one or more additional independent directors, we will seek to add a director who meets the definition of
audit committee financial expert.

Right to Designate Members to our Board of Directors

In connection with our private placement of Series A Preferred Stock in July 1999, in which Noesis Capital Corp. acted as placement agent, we granted Noesis Capital Corp.
the right to designate through July 2004 two directors to our board of directors pursuant to which Mr. Wit and Mr. van Kesteren were appointed to our board of directors.

In connection with our private placement of Series B Preferred Stock in August and September 2001, in which Commonwealth Associates, L.P. acted as placement agent, we granted Commonwealth Associates and the Series B
investors the right to designate one director. Our officers, directors and certain of our principal stockholders have delivered an irrevocable proxy to Commonwealth Associates agreeing that until the later of August 31, 2006 or such time as
less than 25% of certain currently issued and outstanding securities are then issued and outstanding such individuals will vote for, or continue to vote for, Commonwealth Associates designee as a member of our board of directors. As of the
date of this report Commonwealth had not yet exercised its right to designate a director.

We also agreed that all committees of our board of directors
would include a proportionate number of directors designated by Commonwealth Associates. Finally, Commonwealth Associates is also entitled to appoint an observer to attend all meetings of our board of directors.



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In connection with our private placement of our Series C Preferred Stock in 2002, in which Noesis Capital Corp. acted as
placement agent, we granted Noesis Capital Corp. the right to designate two directors to our board of directors. As of the date of this report, Noesis Capital Corp. had not yet exercised the right to name either director.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended, (the Exchange Act) requires the Companys Directors and executive officers, and persons who own more than ten percent of a registered class of the
Companys equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, Directors and greater than ten percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

Based solely upon a review of Forms 3 and 4 and
amendments thereto furnished to us under Rule 16a-3 (d) of the Exchange Act during the fiscal year ended December 31, 2005, we are not aware of any person that failed to file on a timely basis, as disclosed in the aforementioned Forms,
reports required by Section 16(a) of the Exchange Act during the fiscal year ended December 31, 2005.

Code of Ethics

Effective March 1, 2003, our board of directors adopted a Code of Business Conduct and Ethics that applies to, all of our employees and member of our board of
directors. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:



| |  |  | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public
communications made by us;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | compliance with applicable governmental laws, rules and regulations;
| | - |  | --------------------------------------------------------------------



| |  |  | the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | accountability for adherence to the Code of Business Conduct and Ethics.
| | - |  | ------------------------------------------------------------------------

Our Code of Business Conduct and Ethics requires, among other things, that all of our companys personnel shall be accorded full access to our President with respect to any matter that may arise relating to the Code of Business Conduct
and Ethics. Further, all of our companys personnel are to be accorded full access to our companys board of directors if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our President.

In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for
maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting
manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our companys President. If the incident involves an alleged breach of the Code of Business
Conduct and Ethics by the President, the incident must be reported to any member of our board of directors. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our
company policy to retaliate against any individual who reports in good faith the violation or potential violation of our companys Code of Business Conduct and Ethics by another.

Our Code of Business Conduct and Ethics was filed as Exhibit D to our Proxy Statement dated June 4, 2003 with the Securities and Exchange Commission. We will provide a copy of the Code of Business Conduct and
Ethics to any person without charge, upon request. Requests can be sent to: OmniComm Systems, Inc., 2555 Davie Road, Suite 110-B, Davie, Florida 33317.



|ITEM 10. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The following table sets forth certain
information relating to the compensation of (i) our Chief Executive Officer; and (ii) each of our executive officers who earned more than $100,000 during the three most recent fiscal years (collectively, the Named Executive
Officers).



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|                                |  |         |  |                     |         |        |             |         |                                 |  |                              |       |                                          |   |                   |  |                               |  |   |     |  |   |    
|------------------------------- |  | ------- |  | ------------------- | ------- | ------ | ----------- | ------- | ------------------------------- |  | ---------------------------- | ----- | ---------------------------------------- | - | ----------------- |  | ----------------------------- |  | - | --- |  | - | ---
|                                |  |         |  |                     |         |        |             |         |                                 |  | Long term Compensation       |       |                                         
|                                |  |         |  | Annual Compensation |         | Awards |             | Payouts |                                 | 
|(a) Name And Principal Position |  | (b)Year |  | (c) Salary ($)      |         |        | (d)Bonus($) |         | (e) OtherAnnualCompen-Sation($) |  | (f) RestrictedStockAwards($) |       | (g) SecuritiesUnder-LyingOptionsSARs (#) |   | (h) LTIPPayout($) |  | (i) All otherCompen-sation($)
|                                |  |         |  |                     |         |        |            
|                                |  |         |  |                     |         |        |            
|                                |  |         |  |                     |         |        |            
|                                |  |         |  |                     |         |        |            
|Cornelis F. Wit, CEO/Director   |  | 2005    |  | $                   | 205,700 |        |             | $       | -0-                             |  | $                            | -0-   |                                          | $ | -0-               |  | 850,000                       |  | $ | -0- |  | $ | -0-
|                                |  | 2004    |  | $                   | 186,987 |        |             | $       | -0-                             |  | $                            | -0-   |                                          | $ | -0-               |  | 175,000                       |  | $ | -0- |  | $ | -0-
|                                |  | 2003    |  | $                   | 176,538 |        |             | $       | -0-                             |  | $                            | -0-   |                                          | $ | -0-               |  | 180,000                       |  | $ | -0- |  | $ | -0-
|Randall Smith                   |  | 2005    |  | $                   | 200,000 |        |             | $       | -0-                             |  | $                            | -0-   |                                          | $ | -0-               |  | 750,000                       |  | $ | -0- |  | $ | -0-
|CTO/Director                    |  | 2004    |  | $                   | 181,500 |        |             | $       | -0-                             |  | $                            | -0-   |                                          | $ | -0-               |  | 317,270                       |  | $ | -0- |  | $ | -0-
|                                |  | 2003    |  | $                   | 171,346 |        |             | $       | -0-                             |  | $                            | -0-   |                                          | $ | -0-               |  | 155,000                       |  | $ | -0- |  | $ | -0-
|Ronald T. Linares               |  | 2005    |  | $                   | 167,440 |        |             | $       | -0-                             |  | $                            | -0-   |                                          | $ | -0-               |  | 145,000                       |  | $ | -0- |  | $ | -0-
|CFO                             |  | 2004    |  | $                   | 161,000 |        |             | $       | -0-                             |  | $                            | -0-   |                                          | $ | -0-               |  | 75,000                        |  | $ | -0- |  | $ | -0-
|                                |  | 2003    |  | $                   | 155,769 |        |             | $       | -0-                             |  | $                            | -0-   |                                          | $ | -0-               |  | 75,000                        |  | $ | -0- |  | $ | -0-
|Charles Beardsley               |  | 2005    |  | $                   | 171,600 |        |             | $       | -0-                             |  | $                            | -0-   |                                          | $ | -0-               |  | 600,000                       |  | $ | -0- |  | $ | -0 
|Executive Vice President        |  | 2004    |  | $                   | 165,000 |        |             | $       | -0-                             |  | $                            | 8,050 |                                          | $ | -0-               |  | 150,000                       |  | $ | -0- |  | $ | -0 
|                                |  | 2003    |  | $                   | 150,000 | (1)    |             | $       | -0-                             |  | $                            | -0-   |                                          | $ | 25,000            |  | 155,000                       |  | $ | -0- |  | $ | -0 



|(1) | Mr. Beardsley joined our company on January 7, 2003.
|--- | ----------------------------------------------------

OPTION/SAR GRANTS IN LAST FISCAL YEAR



|                  |  |                                                          |  |                                                             |   |  |                                     |      |                    |         
|----------------- |  | -------------------------------------------------------- |  | ----------------------------------------------------------- | - |  | ----------------------------------- | ---- | ------------------ | --------
|Individual Grants
|                  |  |                                                          |  |                                                            
|(a) Name          |  | (b) Number ofSecuritiesUnderlyingOptions/SARsGranted (#) |  | (c) % of TotalOptions/SARsGranted toEmployees inFiscal Year |   |  | (d) Exercise or BasePrice ($/Share) |      | (e) ExpirationDate
|                  |  |                                                          | 
|                  |  |                                                          | 
|                  |  |                                                          | 
|                  |  |                                                          | 
|                  |  |                                                          | 
|Cornelis F. Wit   |  | 175,000                                                  |  | 5.2                                                         | % |  | $                                   | 0.25 |                    | 12/31/12
|Cornelis F. Wit   |  | 75,000                                                   |  | 2.2                                                         | % |  | $                                   | 0.25 |                    | 6/21/10 
|Cornelis F. Wit   |  | 600,000                                                  |  | 17.8                                                        | % |  | $                                   | 0.28 |                    | 2/1/13  
|Randall Smith     |  | 75,000                                                   |  | 2.2                                                         | % |  | $                                   | 0.25 |                    | 6/21/10 
|Randall Smith     |  | 525,000                                                  |  | 15.6                                                        | % |  | $                                   | 0.28 |                    | 2/1/13  
|Randall Smith     |  | 150,000                                                  |  | 4.5                                                         | % |  | $                                   | 0.25 |                    | 12/31/12
|Ronald Linares    |  | 70,000                                                   |  | 2.1                                                         | % |  | $                                   | 0.38 |                    | 12/23/14
|Ronald Linares    |  | 75,000                                                   |  | 2.2                                                         | % |  | $                                   | 0.25 |                    | 12/31/10
|Charles Beardsley |  | 450,000                                                  |  | 13.4                                                        | % |  | $                                   | 0.28 |                    | 2/1/13  
|Charles Beardsley |  | 150,000                                                  |  | 4.5                                                         | % |  | $                                   | 0.25 |                    | 12/31/12



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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES



|                  |  |                                   |                       |   |             |                                                                            |               |                                                                  |             |  |               |         |  |   |       
|----------------- |  | --------------------------------- | --------------------- | - | ----------- | -------------------------------------------------------------------------- | ------------- | ---------------------------------------------------------------- | ----------- |  | ------------- | ------- |  | - | ------
|                  |  | (b) SharesAcquired OnExercise (#) |                       |   |             | (d) Number of Securities
Underlying Unexercised Options/SARs at FY End (#) |               | (e) Value of Unexercised
In-the-money Options/SARs
at FY End ($)
|                  |  |                                   |                      
|                  |  |                                   |                      
|                  |  |                                   |                      
|                  |  |                                   |                      
|                  |  |                                   |                      
|(a) Name          |  |                                   | (c) ValueRealized ($) |   | Exercisable |                                                                            | Unexercisable |                                                                  | Exercisable |  | Unexercisable
|Cornelis Wit      |  | -0-                               |                       | $ | -0-         |                                                                            | 845,000       |                                                                  | 600,000     |  | $             | 127,200 |  | $ | 78,000
|Randall Smith     |  | -0-                               |                       | $ | -0-         |                                                                            | 1,034,270     |                                                                  | 525,000     |  | $             | 144,763 |  | $ | 68,250
|Ronald Linares    |  | -0-                               |                       | $ | -0-         |                                                                            | 710,333       |                                                                  | 46,667      |  | $             | 71,100  |  | $ | 1,400 
|Charles Beardsley |  | -0-                               |                       | $ | -0-         |                                                                            | 605,000       |                                                                  | 450,000     |  | $             | 96,800  |  | $ | 58,500

Compensation of Directors

Non-management directors receive options under the 1998 Stock Option Plan. Under the 1998 Plan, grants to purchase 375,000 shares of common stock were granted in 2005 at an exercise price equal to the market value of
one share on the date of grant, or $.25 per share, whichever was higher. Such options were immediately exercisable upon grant and will expire five years after the date of grant. In addition, non-management directors are reimbursed for ordinary
expenses incurred in connection with attendance at meetings.

EMPLOYMENT AGREEMENTS

In December 2005, we renewed an employment agreement with Mr. Cornelis F. Wit to serve as our Chief Executive Officer and President through December 31,
2006. As part of the renewal the employment agreement will renew for successive one-year terms unless the employment agreement is expressly cancelled by either Mr. Wit or the Company ninety days prior to the end of the term. Mr. Wit
receives an annual salary of $226,270 payable in cash and/or stock plus a bonus tied to our operating results. As part of the agreement incentive options are awardable under the agreement based upon sales and cash flow objectives. In the event that
the we consummate a transaction with a third party resulting in the sale, merger, consolidation, reorganization or other business combination involving all or a majority of our business, assets or stock, whether effected in one transaction or a
series of transactions due to the initiative of Mr. Wit (whether or not during the term of the agreement), Mr. Wit will receive a fee equal to 2% of the aggregate consideration. The agreement also provides, among other things, for
participation in employee benefits available to employees and executives. Under the terms of the agreement, we may terminate Mr. Wits employment upon 30 days notice of a material breach and Mr. Wit may terminate the agreement under
the same terms and conditions. The employment agreement contains customary non-disclosure provisions, as well as a one year non-compete clause if Mr. Wit leaves the company voluntarily or a six month non-compete clause following his termination
by us.

In September 2005, we renewed our employment agreement with Mr. Randall Smith to serve as our Chief Technology Officer. As part of the renewal
the employment agreement will renew for successive one-year terms unless the employment agreement is expressly cancelled by either Mr. Smith or the Company ninety days prior to the end of the term. Under the terms of the agreement, as
compensation for his services, Mr. Smith receives an annual salary of $220,000 to be paid in the form of cash and/or stock, as agreed upon by the parties, and he is eligible to receive a bonus based upon achieving technology related milestones.
The agreement also provides, among other things, for participation in employee benefit plans or programs applicable to employees and executives. Under the terms of the agreement, we may terminate the employment of Mr. Smith upon 30 days notice
of a material breach and Mr. Smith may terminate the agreement under the same terms and conditions. If Mr. Smith is terminated by us for any reason other than for cause, we must pay him severance benefits equal to six months salary.



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The employment agreement contains customary non-disclosure provisions, as well as a one year non-competition restriction
following the termination of the agreement. The agreement renews automatically for one-year terms unless expressly cancelled by either Mr. Smith or the Company in writing ninety (90) days prior to termination of the term. The Company
extended its employment agreement with Mr. Smith in September 2005 for one year under the terms of the existing employment agreement

In September
2005, we renewed our employment agreement with Mr. Ronald Linares to serve as our Chief Financial Officer. As part of the renewal the employment agreement will renew for successive one-year terms unless the employment agreement is expressly
cancelled by either Mr. Linares or the Company ninety days prior to the end of the term. Under the terms of this agreement, Mr. Linares receives an annual salary of $174,138 to be paid in the form of cash and/or stock, as agreed upon by
the parties, and he is eligible to receive additional incentive compensation based upon achieving financial milestones. The agreement also provides, among other things, for participation in employee benefit plans or programs applicable to employees
and executives. Under the terms of the agreement, we may terminate the employment of Mr. Linares upon 30 days notice of a material breach and Mr. Linares may terminate the agreement under the same terms and conditions. If Mr. Linares
is terminated by us for any reason other than for cause, we must pay him severance benefits equal to twelve months salary. The employment agreement contains customary non-disclosure provisions, as well as a one year non-competition restriction
following the termination of the agreement. The agreement renews automatically for one-year terms unless expressly cancelled by either Mr. Linares or the Company in writing ninety (90) days prior to termination of the term. The Company
extended its employment agreement with Mr. Linares in September 2005 for one year under the terms of the existing employment agreement.

In January
2006, we renewed our employment agreement with Mr. Charles Beardsley to serve as our Executive Vice President Commercial Development. As part of the renewal the employment agreement will renew for successive one-year terms unless the employment
agreement is expressly cancelled by either Mr. Beardsley or the Company ninety days prior to the end of the term. Under the terms of this agreement, Mr. Beardsley receives an annual salary of $188,760 to be paid in the form of cash and/or
stock, as agreed upon by the parties, and he is eligible to receive additional incentive compensation based upon achieving financial milestones. Mr. Beardsley is eligible for a commission, payable on a quarterly basis, equal to 2% of the
Companys Net Operating Income as defined in an exhibit to his employment contract. The agreement also provides, among other things, for participation in employee benefit plans or programs applicable to employees and executives. Under the terms
of the agreement, we may terminate the employment of Mr. Beardsley upon 30 days notice of a material breach and Mr. Beardsley may terminate the agreement under the same terms and conditions. If Mr. Beardsley is terminated by us for
any reason other than for cause, we must pay him severance benefits equal to twelve months salary. The employment agreement contains customary non-disclosure provisions.

Stock Option Plan

Our 1998 Stock Incentive Plan (the 1998 Plan) was adopted in January 1998, and was
amended in July 2001 by our board of directors to increase the number of shares available under the 1998 Plan to 7,500,000. This increase was approved by our stockholders at the shareholder meeting held on November 16, 2001. As of
December 31, 2005 we have outstanding options under the 1998 Plan to purchase an aggregate of 7,442,770 shares of our common stock at exercise prices ranging from $0.15 to $2.75 per share.

The purpose of the 1998 Plan is to provide a means through which we can attract able persons to enter and remain in our employ, and to provide a means whereby those key
persons upon whom the responsibilities of our successful administration and management rest, and whose present and potential contributions to our welfare are of importance, can acquire and maintain stock ownership, thereby strengthening their
commitment to our welfare and promoting an identity of interest between stockholders and these key persons.

A further purpose of the 1998 Plan is to
provide such key persons with additional incentive and reward opportunities designed to enhance our profitable growth. So that the appropriate incentive can be provided, the 1998 Plan provides for granting incentive stock options, non-qualified
stock options, stock appreciation rights, restricted stock awards, phantom stock unit awards and performance share units, or any combination of the foregoing.

We believe that the 1998 Plan encourages the participants to contribute materially to our growth and will align the economic interests of the participants with those of our stockholders.



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##### Table of Contents

General

We have
reserved 7,500,000 shares of our common stock for issuance upon the exercise of options granted under the 1998 Plan. These shares may be authorized but unissued shares of our common stock or may be shares that we have reacquired, including shares we
may purchase on the open market. If any options or stock appreciation rights granted under the 1998 Plan expire or are terminated for any reason without being exercised or restricted shares or performance shares are forfeited, the shares of common
stock underlying that award will again be available for grant under the 1998 Plan.

Administration of the 1998 Plan

The Compensation Committee of our board of directors administers and interprets the 1998 Plan. The Compensation Committee has the sole authority to designate
participants, grant awards and determine the terms of all grants, subject to the terms of the 1998 Plan. The Compensation Committee has the full authority to interpret the 1998 Plan and to make rules, regulations, agreements and instruments for
implementing the 1998 Plan.

Eligibility

Grants may be
made to any of our employees and to any non-employee member of the board of directors. Key advisors who perform services for us or any of our subsidiaries are eligible if they render bona fide services, not as part of the offer or sale of securities
in a capital-raising transaction.

Options

Incentive
stock options may be granted to employees, directors and key advisors. Non-qualified stock options may be granted to employees, key advisors and non-employee directors. The exercise price of common stock underlying an option is determined by the
Compensation Committee at the time the option is granted, and may be equal to, greater than, or less than the fair market value of such stock on the date the option is granted; provided, that the exercise price of an incentive stock option must be
equal to or greater than the fair market value of a share of common stock on the date the incentive stock option is granted, and the exercise price of an incentive stock option granted to an employee who owns more than 10% of our common stock, or
who is an officer or director, cannot be less than 110% of the fair market value. Unless the applicable option agreement provides otherwise, a participant can exercise an option award after the option has fully vested, by paying the applicable
exercise price in cash, or, with the approval of the Compensation Committee, by delivering shares of common stock owned by the grantee and having a fair market value on the date of exercise equal to the exercise price of the grants, or by such other
method as the Compensation Committee approves, including payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board.

Options vest according to the terms and conditions determined by the Compensation Committee and specified in the grant instrument. The Compensation Committee determines the term of each option up to a maximum of 10
years from the date of grant except that the term of an incentive stock option granted to an employee who owns more than 10% of our common stock, or who is an officer or director, may not exceed five years from the date of grant. The Compensation
Committee may accelerate the exercisability of any or all outstanding options at any time for any reason.

Restricted Stock

The Compensation Committee determines the number of restricted shares granted to a participant, subject to the maximum plan limit described above. Grants of restricted
shares will be conditioned on such performance requirements, vesting provisions, transfer restrictions or other restrictions and conditions as the Compensation Committee may determine in its sole discretion. The restrictions will remain in force
during a restriction period set by the Compensation Committee. If the grantee is no longer employed by us during the restriction period or if any other conditions are not met, the restricted shares grant will terminate as to all shares covered by
the grant for which the restrictions are still applicable, and those shares must be immediately returned to us.



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##### Table of Contents

Stock Appreciation Rights

The Compensation Committee can grant stock appreciation rights (SARs) to any participant, subject to the maximum plan limit described above. At any time, the Compensation Committee may grant an SAR award, either separately or in connection
with any option; provided, that, if an SAR is granted in connection with an incentive stock option, it must be granted at the same time that as underlying option is granted. The Compensation Committee will determine the base amount of the SAR at the
time that it is granted and will establish any applicable vesting provisions, transfer restrictions or other restrictions as it may determine is appropriate in its sole discretion. When a participant exercises an SAR, he or she will receive the
amount by which the value of the stock has appreciated since the SAR was granted, which may be payable to the participant in cash, shares, or a combination of cash and shares, as determined by the Compensation Committee.

Performance Share Awards

The Compensation Committee can grant
performance share awards to any employee or key advisor. A performance share award represents the right to receive an amount based on the value of our common stock, but may be payable only if certain performance goals that are established by the
Compensation Committee are met. If the Compensation Committee determines that the applicable performance goals have been met, a performance share award will be payable to the participant in cash, shares or a combination of cash and shares, as
determined by the Compensation Committee.

Amendment and Termination of the 1998 Plan

Our board of directors can at any time terminate the 1998 Plan. With the express written consent of an individual participant, the board may cancel or reduce or otherwise alter the outstanding awards thereunder if, in
its judgment, the tax, accounting, or other effects of the 1998 Plan or potential payouts thereunder would not be in our best interest. The board may, at any time, or from time to time, amend or suspend and, if suspended, reinstate, the 1998 Plan in
whole or in part, provided, however, that without further stockholder approval the board shall not:



| |  |  | Increase the maximum number of shares of our common stock which may be issued on exercise of awards under the 1998 Plan;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Change the maximum option price;
| | - |  | --------------------------------



| |  |  | Extend the maximum option term;
| | - |  | -------------------------------



| |  |  | Extend the termination date of the 1998 Plan; or
| | - |  | ------------------------------------------------



| |  |  | Change the class of persons eligible to receive awards under the Plan.
| | - |  | ----------------------------------------------------------------------

Adjustment Provisions

In the event that certain reorganizations of our company or similar transactions or events occur, the maximum number
of shares of stock available for grant, the maximum number of shares that any participant in the 1998 Plan may be granted, the number of shares covered by outstanding grants, the kind of shares issued under the 1998 Plan and the price per share or
the applicable market value of such grants shall be adjusted by the committee to reflect changes to our common stock as a result of such occurrence to prevent the dilution or enlargement of rights of any individual under the 1998 Plan.

Change of Control and Reorganization

Upon a change of control, as
defined in the 1998 Plan, the Compensation Committee may:



| |  |  | determine that the outstanding grants, whether in the form of options and stock appreciation rights, shall immediately vest and become exercisable;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | determine that the restrictions and conditions on all outstanding restricted stock or performance share awards shall immediately lapse;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | require that grantees surrender their outstanding options and stock appreciation rights in exchange for payment by us, in cash or common stock, in an amount equal to the amount by
which the then fair market value of the shares of our common stock subject to the grantees unexercised options or stock appreciation rights exceeds the exercise price of those options; and/or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | after giving grantees an opportunity to exercise their outstanding options and stock appreciation rights, terminate any or all unexercised options and stock appreciation rights.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Upon a reorganization, as defined in the 1998 Plan, where we are not the surviving entity or where we survive only as a
subsidiary of another entity, unless the Compensation Committee determines otherwise, all outstanding option or SAR grants shall be assumed by or replaced with comparable options or rights by the surviving corporation. In addition, the Compensation
Committee may require that grantees surrender their outstanding options in exchange for payment by us, in cash or common stock, at an amount equal to the amount by which the then fair market value of the shares of common stock subject to the
grantees unexercised options exceeds the exercise price of those options and/or after accelerating all vesting and giving grantees an opportunity to exercise their outstanding options or SARs, terminate any or all unexercised options and SARs.

Limitation on Liability and Indemnification Matters

Our Articles of Incorporation, as amended and restated, provide to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, that our directors or officers shall not be personally liable to us
or our shareholders for damages for breach of such directors or officers fiduciary duty. The effect of this provision of our Articles of Incorporation, as amended and restated, is to eliminate our rights and our shareholders (through
shareholders derivative suits on behalf of our company) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent
behavior), except under certain situations defined by statute. We believe that the indemnification provisions in our Articles of Incorporation, as amended, are necessary to attract and retain qualified persons as directors and officers.

Our By-Laws also provide that the board of directors may also authorize us to indemnify our employees or agents, and to advance the reasonable expenses of such
persons, to the same extent, following the same determinations and upon the same conditions as are required for the indemnification of and advancement of expenses to our directors and officers. As of the date of this prospectus, the board of
directors has not extended indemnification rights to persons other than directors and officers.

Insofar as indemnification for liabilities arising under
the Securities Act of 1933, as amended (Securities Act) may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.



|ITEM 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

At March 18, 2006 there were an aggregate of:



| |  |  | 29,025,915 shares of common stock,
| | - |  | ----------------------------------



| |  |  | 4,215,224 shares of 5% Series A Preferred Stock,
| | - |  | ------------------------------------------------



| |  |  | 65,000 shares of Series B Preferred Stock, and
| | - |  | ----------------------------------------------



| |  |  | 337,150 shares of Series C Preferred Stock
| | - |  | ------------------------------------------

issued and outstanding. These
securities comprise our Voting Securities. The holders of our shares of common stock are entitled to one vote for each outstanding share on all matters submitted to our stockholders. The holders of the 5% Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock are also entitled to vote on matters submitted to our stockholders, with one vote for each share of common stock into which these series of our preferred stock are convertible. Based upon the
current conversion price for each of the 5% Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock on March 15, 2005, these holders would be entitled to 18,896,149 votes at a meeting of our stockholders, and the
common stockholders would be entitled to 29,025,915 votes, for an aggregate of 47,922,064 votes for all currently outstanding Voting Securities.

The
following table sets forth, as of March 18, 2006 information known to us relating to the beneficial ownership of shares of our Voting Securities by:



| |  |  | each person who is the beneficial owner of more than 5% of the outstanding shares of Voting Securities, aggregate all three classes together;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | each director;
| | - |  | --------------



| |  |  | each executive officer; and
| | - |  | ---------------------------



| |  |  | all executive officers and directors as a group.
| | - |  | ------------------------------------------------



38



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##### Table of Contents

Under securities laws, a person is considered to be the beneficial owner of securities he owns and that can be acquired
by him within 60 days from March 18, 2006 upon the exercise of options, warrants, convertible securities or other understandings. We determine a beneficial owners percentage ownership by assuming that options, warrants or convertible
securities that are held by him, but not those held by any other person and which are exercisable within 60 days of March 18, 2006 have been exercised or converted.

The following table, however, gives no effect to the exercise of any outstanding options or warrants unless specifically set forth therein. We believe that all persons named in the table have sole voting and
investment power with respect to all shares of Voting Securities beneficially owned by them. Unless otherwise noted, the address for each person is 2555 Davie Road, Suite 110-B, Davie, Florida 33317.



|                                                           |  |                                |  |                               |  
|---------------------------------------------------------- |  | ------------------------------ |  | ----------------------------- | -
|Name of Beneficial Owner                                   |  | No. of SharesBeneficiallyOwned |  | Percentageof VotingSecurities |  
|Cornelis Wit (1) (12)                                      |  | 2,723,603                      |  | 5.62                          | %
|Randall G. Smith (2) (12)                                  |  | 2,185,986                      |  | 4.51                          | %
|Ronald T. Linares (3) (12)                                 |  | 789,862                        |  | 1.65                          | %
|Charles R. Beardsley (4) (12)                              |  | 855,000                        |  | 1.78                          | %
|Guus van Kesteren (5) (12)                                 |  | 1,698,901                      |  | 3.55                          | %
|Matthew D. Veatch (6) (12)                                 |  | 225,000                        |  | 0.47                          | %
|Charles E. Leonard (7)                                     |  | 225,000                        |  | 0.47                          | %
|ComVest Venture Partners LP (8)                            |  | 3,904,000                      |  | 7.63                          | %
|Noesis Capital Corp. (9)                                   |  | 3,505,850                      |  | 7.01                          | %
|Noesis N.V. (10)                                           |  | 5,690,000                      |  | 11.72                         | %
|Magnolia Private Foundation (11)                           |  | 2,472,504                      |  | 5.15                          | %
|                                                           |  |                                |  |                               |  
|All Directors and Officers as a group (seven persons) (12) |  | 8,703,352                      |  | 16.70                         | %
|                                                           |  |                                |  |                               |  



|(1) | Includes vested options to purchase an aggregate of 1,045,000 shares of our common stock at prices ranging from $0.25 to $0.45 per share with expiration dates ranging from July 2006
to December 2012, 304,000 shares of our common stock issuable upon conversion of our Series C Preferred Stock, and 152,000 shares of our common stock issuable upon conversion of warrants.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes vested options to purchase an aggregate of 1,209,270 shares of our common stock at prices ranging from $0.25 to $2.75 per share with expiration dates ranging from May 2006
to December 2012.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes vested options to purchase an aggregate of 710,333 shares of our common stock at prices ranging from $0.25 to $2.75 per share with expiration dates ranging from March 2006
to December 2014.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Includes vested options to purchase an aggregate of 755,000 shares of our common stock at $0.25 per share with expiration dates ranging from January 2008 to December 2012.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Includes vested options to purchase an aggregate of 295,000 shares of our common stock at prices ranging from $0.25 to $0.45 per shares with expiration dates ranging from July 2006
to December 2010, 252,000 shares of our common stock issuable upon conversion of warrants, 100,000 shares of our common stock issuable upon conversion of our Series B Preferred Stock and 504,000 shares of our common stock issuable upon conversion of
our Series C Preferred Stock.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Includes vested options to purchase an aggregate of 225,000 shares of our common stock at $0.25 per share with expiration dates ranging from December 2010 to January 2011.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Includes vested options to purchase an aggregate of 225,000 shares of our common stock at $0.25 per share with expiration dates ranging from December 2010 to January 2011.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(8) | Includes 3,000,000 shares of our common stock issuable upon the conversion of warrants at an exercise price of $.25 per share. Also includes 452,000 shares of our common stock
issuable upon the conversion of our Series B Preferred Stock and 452,000 shares of our common stock issuable upon the conversion of warrants at an exercise price of $.25 per share pursuant to a Placement Agent Unit Option that ComVest Venture
Partners LP received from Commonwealth Associates. ComVest Venture Partners, LP is an affiliate of the Commonwealth Associates, L.P., the placement agent for our private offering of our Series B Preferred Stock. The information presented for ComVest
Venture Partners, LP, however, does not include any holdings of Commonwealth Associates, L.P., or its affiliates. ComVest Venture Partners address is 830 Third Avenue, Fourth Floor, New York, NY 10022.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | Includes 400,000 shares of our common stock issuable upon the conversion of our Series C Preferred Stock and 1,318,233 shares of our common stock issuable upon the conversion of
warrants at exercise prices ranging of $.25 to $0.50 per share, including 323,000 warrants held by Noesis International Holding, the parent company of Noesis Capital Corp. Also includes 993,900 shares of our common stock issuable upon the conversion
of shares of our Series C Preferred Stock and 496,950 shares of our common stock issuable upon the conversion of warrants at an exercise price of $.25 per share pursuant to a Placement Agent Unit Option. Noesis Capital Corp.s address is 1801
Clint Moore Road, Suite 100, Boca Raton, FL 33487.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | Includes 1,500,000 shares of our common stock issuable upon the conversion of shares of our Series B Preferred Stock, 530,000 shares of our common stock issuable upon the conversion
of warrants and 960,000 shares of our common stock issuable upon conversion of our Series C Preferred Stock. Noesis, N.V.s address is Landhuis Joonchi, Kaya Richard J. Beaujon z/n, Curacao, Netherlands Antilles.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(11) | Includes 1,220,000 shares of our common stock issuable upon the conversion of our Series C Preferred stock and 760,000 shares of our common stock issuable upon the conversion of
warrants at an exercise price of $0.25 per share. Magnolia Private Foundations address is c/o Jan Vandamme, Grote Moerstraat 44, 8200 Brugge, Belgium
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(12) | Includes footnotes (1) through (7) above.
|---- | -----------------------------------------



|ITEM 12. | CERTAIN RELATIONSHIPS AND RELATED 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.

Between February 2001 and July 2001, we borrowed an aggregate of $190,000 from Guus van Kesteren under promissory notes which bore interest of 12% per annum. These
promissory notes were amended and restated on August 30, 2001 in the amount of $196,644 with new terms which included an interest rate of 8% per annum with accrued interest payable no later than August 30, 2003. This note was amended
in September 2004 extending the maturity date to October 2006.

In December 2002, we borrowed $50,000 from Guus van Kesteren a member of our board of
directors. This amount was borrowed under a promissory note bearing interest at a rate of 9% per annum, payable on March 31, 2003. This note was amended in September 2004 extending the maturity date to October 31, 2006.

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

The above referenced notes payable to Guus van Kesteren, which were originally amended and restated on June 30, 2004 into one
promissory note with a principal amount of $364,758.38 bearing interest at 9% per annum and payable on October 31, 2006, was amended and restated on December 31, 2005, under the terms of a new note bearing interest at 9% payable on
April 1, 2008. The principal amount of the new note is $414,135.75 which includes accrued and unpaid interest of $49,337.37.

During November 2002, we
borrowed $6,000 from Randall G. Smith, our Chairman of the board and Chief Technology Officer. In March 2003 this note was amended and restated extending the maturity date to January 31, 2005. This note was amended and restated on
March 31, 2005 extending the maturity date to January 31, 2007.



40



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##### Table of Contents

In December 2002, we borrowed $50,000 from Cornelis Wit, our President and Chief Executive Officer and a member of our
board of directors. This amount was borrowed under a promissory note bearing interest at a rate of 9% per annum, payable on March 31, 2003. This note was amended in September 2004 extending the maturity date to October 31, 2006.

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

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

The above referenced notes payable to Cornelis Wit, which were originally amended and restated on June 30, 2004 into one promissory note with a principal amount of $483,984.00 bearing interest at 9% per
annum and payable on October 31, 2006, was amended and restated on December 31, 2005, under the terms of a new note bearing interest at 9% payable on April 1, 2008. The principal amount of the new note is $549,500.85 which includes
accrued and unpaid interest of $65,516.85.

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

In
April 2005, the Company borrowed $25,000 from Guus van Kesteren, a company Director. These amounts were borrowed under a promissory note bearing interest at 9% per annum payable on January 31, 2007.

In June 2005, the Company borrowed $120,000 from Cornelis Wit, the Companys President and Chief Executive Officer and a Director. These amounts were borrowed under
a promissory note bearing interest at 9% per annum payable on January 31, 2007.

From June to September 2005, the Company borrowed $14,300 from
Ronald Linares, the Companys Vice President and Chief Financial Officer. These amounts were borrowed under a promissory note bearing interest at 9% per annum payable on January 31, 2007.

In October 2005, the Company borrowed $215,000 from Cornelis Wit, the Companys President and Chief Executive Officer and a Director. These amounts were borrowed
under a promissory note bearing interest at 9% per annum payable with a maturity date of December 31, 2006. Under the terms of the note Mr. Wit had the right to convert any unpaid principal into shares of common stock at a conversion
price of $0.28 per share in the event the note was not repaid by December 31, 2005. On November 11, 2005 the Company repaid $50,000 of principal on the note. On December 31, 2005 Mr. Wit converted the remaining $165,000 of
outstanding principal and $3,000 in accrued interest into 600,000 shares of common stock.



41



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##### Table of Contents

|ITEM 13. | EXHIBITS
|-------- | --------

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



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



|            |  |                                                                                                                                        
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                            
|            | 
|2.1         |  | Agreement and Plan of Reorganization dated July 22, 1998 (1)                                                                           
|            | 
|2.2         |  | Amendment to Agreement and Plan of Reorganization (2)                                                                                  
|            | 
|2.3         |  | Plan of Merger (3)                                                                                                                     
|            | 
|2.4         |  | Agreement and Plan of Acquisition of WebIPA dated January 26, 2000 (4)                                                                 
|            | 
|3.1         |  | Certificate of Incorporation (5)                                                                                                       
|            | 
|3.2         |  | Certificate of Designation  Series A Preferred Stock (6)                                                                              
|            | 
|3.3         |  | Certificate of Increase  Series A Preferred Stock (7)                                                                                 
|            | 
|3.4         |  | Certificate of Designation Series B Preferred Stock (8)                                                                               
|            | 
|3.5         |  | Amendment to Certificate of Incorporation (9)                                                                                          
|            | 
|3.6         |  | By-laws (10)                                                                                                                           
|            | 
|3.7         |  | Certificate of Amendment  Certificate of Designation  Series A Preferred Stock (11)                                                  
|            | 
|3.8         |  | Certificate of Amendment  Certificate of Incorporation (12)                                                                           
|            | 
|3.9         |  | Certificate of Designation  Series C Preferred Stock (13)                                                                             
|            | 
|4.1         |  | Form of Warrant Agreement including the Form of Warrant issued in connection with the Series B Preferred Stock offering (24)           
|            | 
|4.2         |  | Form of Warrant Agreement including the Form of Warrant issued in connection with the Series C Preferred Stock offering (25)           
|            | 
|4.3         |  | Form of 10% Convertible Note (26)                                                                                                      
|            | 
|4.4         |  | Form of Placement Agent Unit Option issued to Commonwealth Associates, LP in connection with the Series B Preferred Stock offering (27)
|            | 
|4.5         |  | Form of Placement Agent Unit Option issued to Noesis Capital Corp. in connection with the Series C Preferred Stock offering (28)       
|            | 
|10.1        |  | Employment Agreement and Stock Option Agreement between the Company and Randall G. Smith (14)                                          
|            | 
|10.2        |  | Employment Agreement and Stock Option Agreement between the Company and Ronald T. Linares (15)                                         
|            | 
|10.3        |  | 1998 Stock Incentive Plan (16)                                                                                                         
|            | 
|10.4        |  | Medical Advisory Board Agreement (17)                                                                                                  
|            | 
|10.5        |  | Standard Agreement  Proprietary Protection (18)                                                                                       



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##### Table of Contents

|      |  |                                                                                                                                                                           
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6  |  | Employment Agreement and Stock Option Agreement between the Company and Cornelis F. Wit (19)                                                                              
|      | 
|10.7  |  | Employment Agreement and Stock Option Agreement between the Company and Charles Beardsley (20)                                                                            
|      | 
|10.8  |  | Amendment to Employment Agreement between the Company and Cornelis F. Wit (21)                                                                                            
|      | 
|10.9  |  | Amendment to Employment Agreement between the Company and Randall G. Smith (29)                                                                                           
|      | 
|10.10 |  | Amendment to Employment Agreement between the Company and Ronald T. Linares (30)                                                                                          
|      | 
|10.11 |  | Promissory Note issued to Guus van Kesteren (31)                                                                                                                          
|      | 
|10.12 |  | Promissory Note issued to Cornelis F. With (32)                                                                                                                           
|      | 
|10.13 |  | Amended and Restated Promissory Note between the Company and Cornelis F. Wit, dated March 31, 2005 (33)                                                                   
|      | 
|10.14 |  | Promissory Note between the Company and Cornelis F. Wit, dated June 30, 2005 (34)                                                                                         
|      | 
|10.15 |  | Promissory Note between the Company and Guus van Kesteren, dated June 30, 2005 (35)                                                                                       
|      | 
|10.16 |  | Promissory Note between the Company and Ronald T. Linares, dated June 30, 2005 (36)                                                                                       
|      | 
|10.17 |  | Amended and Restated Promissory Note between the Company and Cornelis F. Wit, dated December 31, 2005                                                                     
|      | 
|10.18 |  | Amended and Restated Promissory Note between the Company and Guus van Kesteren, dated December 31, 2005                                                                   
|      | 
|10.19 |  | Promissory Note between the Company and Cornelis F. Wit, dated October 11, 2005                                                                                           
|      | 
|14    |  | OmniComm Systems, Inc. Code of Ethics (22)                                                                                                                                
|      | 
|21    |  | Subsidiaries of the Company                                                                                                                                               
|      | 
|31.1  |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities and Exchange Act of 1934, as amended.
|      | 
|31.2  |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities and Exchange Act of 1934, as amended.
|      | 
|32.1  |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002                         
|      | 
|32.2  |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002                         
|      | 
|99.1  |  | OmniComm Systems, Inc. Audit Committee Charter (23)                                                                                                                       



|(1) | Incorporated by reference to Exhibit 2 filed with our Report on Form 8-K dated March 3, 1999.
|--- | ---------------------------------------------------------------------------------------------



43



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##### Table of Contents

|(2) | Incorporated by reference to Exhibit 2(c) filed with our Registration Statement on Form 10-SB dated December 22, 1998.
|--- | ----------------------------------------------------------------------------------------------------------------------



|(3) | Incorporated by reference to Exhibit 2(c) filed with our amended Registration Statement on Form 10-SB dated July 27, 1999.
|--- | --------------------------------------------------------------------------------------------------------------------------



|(4) | Incorporated by reference to Exhibit 2 filed with our Report on Form 8-K dated February 9, 2000.
|--- | ------------------------------------------------------------------------------------------------



|(5) | Incorporated by reference to Exhibit 3(a) filed with our Registration Statement on Form SB-2 dated February 6, 1997.
|--- | --------------------------------------------------------------------------------------------------------------------



|(6) | Incorporated by reference to Exhibit 4(b) filed with our amended Registration Statement on Form 10-SB dated August 25, 1999.
|--- | ----------------------------------------------------------------------------------------------------------------------------



|(7) | Incorporated by reference to Exhibit 4(c) filed with our Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



|(8) | Incorporated by reference to Exhibit 4(D) filed with our amended Registration Statement on Form SB-2 dated September 17, 2001.
|--- | ------------------------------------------------------------------------------------------------------------------------------



|(9) | Incorporated by reference to Exhibit 4(E) filed with our Registration Statement on Form SB-2 dated December 27, 2001.
|--- | ---------------------------------------------------------------------------------------------------------------------



|(10) | Incorporated by reference to Exhibit 3(b) filed with our Registration Statement on Form SB-2 dated February 6, 1997.
|---- | --------------------------------------------------------------------------------------------------------------------



|(11) | Incorporated by reference to Exhibit 3.7 filed with our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002.
|---- | ---------------------------------------------------------------------------------------------------------------------------------



|(12) | Incorporated by reference to Exhibit 3.8 filed with our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002.
|---- | ---------------------------------------------------------------------------------------------------------------------------------



|(13) | Incorporated by reference to Exhibit 3.9 filed with our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002.
|---- | ---------------------------------------------------------------------------------------------------------------------------------



|(14) | Incorporated by reference to Exhibit 10(a)(i) filed with our amended Registration Statement on Form SB-2 dated September 17, 2001.
|---- | ----------------------------------------------------------------------------------------------------------------------------------



|(15) | Incorporated by reference to Exhibit 10(a)(iii) filed with our amended Registration Statement on Form SB-2 dated September 17, 2001.
|---- | ------------------------------------------------------------------------------------------------------------------------------------



|(16) | Incorporated by reference to Exhibit 10(c) filed with our amended Registration Statement on Form 10-SB dated July 27, 1999.
|---- | ---------------------------------------------------------------------------------------------------------------------------



|(17) | Incorporated by reference to Exhibit 10(e) filed with our amended Registration Statement on Form 10-SB dated July 27, 1999.
|---- | ---------------------------------------------------------------------------------------------------------------------------



|(18) | Incorporated by reference to Exhibit 10(f) filed with our amended Registration Statement on Form 10-SB dated August 25, 1999.
|---- | -----------------------------------------------------------------------------------------------------------------------------



|(19) | Incorporated by reference to Exhibit 10.7 filed with our Form 10-QSB for the period ended June 30, 2002.
|---- | --------------------------------------------------------------------------------------------------------



|(20) | Incorporated by reference to Exhibit 10.8 filed with our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002.
|---- | ----------------------------------------------------------------------------------------------------------------------------------



|(21) | Incorporated by reference to Exhibit 10.8 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003
|---- | ---------------------------------------------------------------------------------------------------------------------------



44



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##### Table of Contents

|(22) | Incorporated by reference to our Proxy Statement filed on June 9, 2003.
|---- | -----------------------------------------------------------------------



|(23) | Incorporated by reference to our Proxy Statement filed on June 9, 2003.
|---- | -----------------------------------------------------------------------



|(24) | Incorporated by reference to Exhibit 4.1 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003
|---- | --------------------------------------------------------------------------------------------------------------------------



|(25) | Incorporated by reference to Exhibit 4.2 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003
|---- | --------------------------------------------------------------------------------------------------------------------------



|(26) | Incorporated by reference to Exhibit 4.3 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003
|---- | --------------------------------------------------------------------------------------------------------------------------



|(27) | Incorporated by reference to Exhibit 4.4 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003
|---- | --------------------------------------------------------------------------------------------------------------------------



|(28) | Incorporated by reference to Exhibit 4.5 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003
|---- | --------------------------------------------------------------------------------------------------------------------------



|(29) | Incorporated by reference to Exhibit 10.9 filed with our Form 10-QSB for the period ended September 30, 2004.
|---- | -------------------------------------------------------------------------------------------------------------



|(30) | Incorporated by reference to Exhibit 10.10 filed with our Form 10-QSB for the period ended September 30, 2004.
|---- | --------------------------------------------------------------------------------------------------------------



|(31) | Incorporated by reference to Exhibit 10.11 filed with our Form 10-QSB for the period ended September 30, 2004.
|---- | --------------------------------------------------------------------------------------------------------------



|(32) | Incorporated by reference to Exhibit 10.12 filed with our Form 10-QSB for the period ended September 30, 2004.
|---- | --------------------------------------------------------------------------------------------------------------



|(33) | Incorporated by reference to Exhibit 10.13 filed with our Form 10-QSB for the period ended March 31, 2005.
|---- | ----------------------------------------------------------------------------------------------------------



|(34) | Incorporated by reference to Exhibit 10.14 filed with our Form 10-QSB for the period ended June 30, 2005.
|---- | ---------------------------------------------------------------------------------------------------------



|(35) | Incorporated by reference to Exhibit 10.15 filed with our Form 10-QSB for the period ended June 30, 2005.
|---- | ---------------------------------------------------------------------------------------------------------



|(36) | Incorporated by reference to Exhibit 10.16 filed with our Form 10-QSB for the period ended September 30, 2005.
|---- | --------------------------------------------------------------------------------------------------------------



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES.
|-------- | ---------------------------------------

Audit Fees

The aggregate audit fees billed by Greenberg and Company, LLC for professional services rendered for the audit of our annual financial statements
included in our annual report on Form 10-KSB during the fiscal year ended December 31, 2005 were $45,000. The aggregate audit fees billed to us by Greenberg and Company, LLC during the fiscal year ended December 31, 2004 were approximately
$45,000. The aggregate audit fees billed to us by Greenberg and Company, LLC for the review of quarterly financial statements included in our quarterly reports on Form 10-QSB for the quarters ending March 31, June 30 and
September 30, 2005 were approximately $15,000.

Audit Related Fees

For the fiscal year ended December 31, 2005 the aggregate fees billed for assurance and related services by Greenberg and Company, LLC relating to the performance of the audit of our financial statements which
are not reported under the caption Audit Fees above was $0. For the fiscal year ended December 31, 2004 the aggregate fees billed for assurance and related services by Greenberg and Company, LLC relating to the performance of the
audit of our financial statements which are not reported under the caption Audit Fees above was $5,000.



45



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##### Table of Contents

Tax Fees

For the
fiscal year ended December 31, 2005 the aggregate fees bill for tax compliance, tax advice or tax planning was $0. For the fiscal year ended December 31, 2004 the aggregate fees billed for tax related services was $0.

All Other Fees

Other than fees relating to the services described
above under Audit Fees, Audit-Related Fees and Tax Fees, there were no additional fees billed by our principal accountant for services rendered to us for the fiscal years ended December 31, 2005 or 2004.



46



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##### Table of Contents

SIGNATURES

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



OMNICOMM SYSTEMS, INC.By:

/s/ Cornelis F. WitCornelis F. Wit, Chief Executive OfficerBy:

/s/ Ronald T. LinaresRonald T. Linares, Chief Accounting and Financial Officer


In accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                          |  |                                                             |  |               
|----------------------------------------- |  | ----------------------------------------------------------- |  | --------------
|Signature                                 |  | Title                                                       |  | Date          
|                                          |  |                                                            
|/s/ Cornelis F. Wit Cornelis F.
Wit       |  | Chief (Principal) Executive Officer, President and Director |  | March 31, 2006
|                                          |  |                                                            
|/s/ Randall G. Smith Randall G.
Smith     |  | Chairman, Chief Technology Officer                          |  | March 31, 2006
|                                          |  |                                                            
|/s/ Ronald T. Linares Ronald T.
Linares   |  | Chief (Principal) Accounting and Financial Officer          |  | March 31, 2006
|                                          |  |                                                            
|/s/ Guus van Kesteren Guus van
Kesteren   |  | Director                                                    |  | March 31, 2006
|                                          |  |                                                            
|/s/ Matthew D. Veatch Matthew D.
Veatch   |  | Director                                                    |  | March 31, 2006
|                                          |  |                                                            
|/s/ Charles E. Leonard Charles E.
Leonard |  | Director                                                    |  | March 31, 2006



47



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

OmniComm Systems, Inc.

Fort Lauderdale, Florida

We have audited the accompanying consolidated balance sheets of OmniComm Systems, Inc. as of
December 31, 2005 and 2004, and the related consolidated statements of operations, changes in shareholders equity (deficit) and cash flows for each of the two years in the period ended December 31, 2005. These financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based upon our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis of designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the Companys internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements presented above present fairly, in all material respects, the financial position of OmniComm Systems, Inc. at December 31, 2005 and 2004, and the results of its operations and cash
flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has incurred losses and has a net capital deficiency that raise substantial doubt about the Companys ability to
continue as a going concern. Managements plans in regard to these matters are also discussed in Note 3. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

GREENBERG & COMPANY LLC

Springfield, New Jersey

February 10, 2006



F-1



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                                                                      |  | December 31,2005 |             |   | December 31,2004 |  
|ASSETS                                                                                                                                                                                                                |  |                  |             |   |                  |   |             |  
|CURRENT ASSETS                                                                                                                                                                                                        |  |                  |             |   |                  |   |             |  
|Cash                                                                                                                                                                                                                  |  | $                | 9,931       |   |                  | $ | 65,695      |  
|Accounts receivable, net of allowance for doubtful accounts of $58,539 and $0 in 2005 and 2004, respectively                                                                                                          |  |                  | 234,565     |   |                  |   | 148,128     |  
|Prepaid expenses                                                                                                                                                                                                      |  |                  | 2,394       |   |                  |   | 7,754       |  
|                                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|Total current assets                                                                                                                                                                                                  |  |                  | 246,890     |   |                  |   | 221,577     |  
|PROPERTY AND EQUIPMENT, net                                                                                                                                                                                           |  |                  | 31,222      |   |                  |   | 34,915      |  
|OTHER ASSETS                                                                                                                                                                                                          |  |                  |             |   |                  |   |             |  
|Other assets                                                                                                                                                                                                          |  |                  | 5,497       |   |                  |   | 5,497       |  
|                                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|TOTAL ASSETS                                                                                                                                                                                                          |  | $                | 283,609     |   |                  | $ | 261,989     |  
|                                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                  |  |                  |             |   |                  |   |             |  
|CURRENT LIABILITIES                                                                                                                                                                                                   |  |                  |             |   |                  |   |             |  
|Accounts payable and accrued expenses                                                                                                                                                                                 |  | $                | 779,456     |   |                  | $ | 825,092     |  
|Accrued payroll taxes                                                                                                                                                                                                 |  |                  | 58,742      |   |                  |   | 123,943     |  
|10% Convertible Notes                                                                                                                                                                                                 |  |                  | 125,000     |   |                  |   | 255,000     |  
|Notes payable  current portion                                                                                                                                                                                       |  |                  | -0-         |   |                  |   | 100,000     |  
|Notes payable, related party  current portion                                                                                                                                                                        |  |                  | -0-         |   |                  |   | 6,000       |  
|Deferred revenue                                                                                                                                                                                                      |  |                  | 1,048,707   |   |                  |   | 434,957     |  
|                                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                                                             |  |                  | 2,011,905   |   |                  |   | 1,744,992   |  
|NOTES PAYABLE, net of current portion                                                                                                                                                                                 |  |                  | 2,043,623   |   |                  |   | 1,513,187   |  
|NOTES PAYABLE RELATED PARTY, net of current portion                                                                                                                                                                   |  |                  | 1,150,937   |   |                  |   | 848,742     |  
|                                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|TOTAL LIABILITIES                                                                                                                                                                                                     |  |                  | 5,206,465   |   |                  |   | 4,106,921   |  
|                                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                         |  |                  |             |   |                  |   |             |  
|SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                        |  |                  |             |   |                  |   |             |  
|Undesignated preferred stock - $.001 par value. 4,022,500 shares authorized, no shares issued and outstanding                                                                                                         |  |                  | -0-         |   |                  |   | -0-         |  
|Series B convertible preferred stock, - $.001 par value. 230,000 shares authorized, 65,000 and 97,500 issued and outstanding, respectively;
liquidation preference $650,000 and $975,000, respectively                |  |                  | 65          |   |                  |   | 98          |  
|Series C convertible preferred stock, - $.001 par value. 747,500 shares authorized, 337,150 and 337,150 issued and outstanding, respectively;
liquidation preference $3,371,500 and $3,371,500, respectively          |  |                  | 337         |   |                  |   | 337         |  
|5% Series A convertible preferred stock - $0.001 par value, 5,000,000 shares authorized; 4,215,224 and 4,215,224 issued and outstanding,
respectively; liquidation preference $4,215,224 and $4,215,224, respectively |  |                  | 4,215       |   |                  |   | 4,215       |  
|Common stock  150,000,000 shares authorized, 27,425,915 and 24,065,972 issued and outstanding, after deducting 673,878 and 673,878
shares of treasury stock, at $.001 par value, respectively                        |  |                  | 28,051      |   |                  |   | 24,691      |  
|Additional paid in capital  preferred                                                                                                                                                                                |  |                  | 7,853,488   |   |                  |   | 8,178,454   |  
|Additional paid in capital  common                                                                                                                                                                                   |  |                  | 15,201,406  |   |                  |   | 14,263,281  |  
|Less: Treasury stock, cost method, 673,878 and 673,878 shares, respectively                                                                                                                                           |  |                  | (299,861    | ) |                  |   | (299,861    | )
|Accumulated deficit                                                                                                                                                                                                   |  |                  | (27,710,557 | ) |                  |   | (26,016,147 | )
|                                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|TOTAL SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                  |  |                  | (4,922,856  | ) |                  |   | (3,844,932  | )
|                                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                  |  | $                | 283,609     |   |                  | $ | 261,989     |  
|                                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  

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



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                        |  |                                 |            |   |      |   |            |  
|------------------------------------------------------- |  | ------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                        |  | For the years endedDecember 31, |           
|                                                        |  | 2005                            |            |   | 2004 |  
|Revenues                                                |  |                                 |            |   |      |   |            |  
|Net sales                                               |  | $                               | 1,753,976  |   |      | $ | 1,108,711  |  
|Other income                                            |  |                                 | -0-        |   |      |   | 20,000     |  
|                                                        |  |                                 |            |   |      |   |            |  
|Total revenues                                          |  |                                 | 1,753,976  |   |      |   | 1,128,711  |  
|                                                        |  |                                 |            |   |      |   |            |  
|Cost of sales                                           |  |                                 | 387,262    |   |      |   | 252,037    |  
|                                                        |  |                                 |            |   |      |   |            |  
|Gross margin                                            |  |                                 | 1,366,714  |   |      |   | 876,674    |  
|Operating expenses                                      |  |                                 |            |   |      |   |            |  
|Salaries, benefits and related taxes                    |  |                                 | 1,871,508  |   |      |   | 1,782,321  |  
|Rent & occupancy expenses                               |  |                                 | 154,048    |   |      |   | 152,755    |  
|Legal and professional fees                             |  |                                 | 178,219    |   |      |   | 182,972    |  
|Travel                                                  |  |                                 | 107,101    |   |      |   | 57,372     |  
|Telephone and internet                                  |  |                                 | 71,992     |   |      |   | 67,848     |  
|Selling, general and administrative                     |  |                                 | 275,802    |   |      |   | 149,246    |  
|Bad debt expense                                        |  |                                 | 9,201      |   |      |   | -0-        |  
|Depreciation and amortization                           |  |                                 | 28,332     |   |      |   | 125,698    |  
|                                                        |  |                                 |            |   |      |   |            |  
|Total operating expenses                                |  |                                 | 2,696,203  |   |      |   | 2,518,212  |  
|                                                        |  |                                 |            |   |      |   |            |  
|Operating income (loss)                                 |  |                                 | (1,329,489 | ) |      |   | (1,641,538 | )
|Other income (expense)                                  |  |                                 |            |   |      |   |            |  
|Interest expense                                        |  |                                 | (365,397   | ) |      |   | (288,487   | )
|Interest income                                         |  |                                 | 476        |   |      |   | 888        |  
|(Loss) before taxes and preferred dividends             |  |                                 | (1,694,410 | ) |      |   | (1,929,137 | )
|                                                        |  |                                 |            |   |      |   |            |  
|Net income (loss)                                       |  |                                 | (1,694,410 | ) |      |   | (1,929,137 | )
|                                                        |  |                                 |            |   |      |   |            |  
|Preferred stock dividends in arrears Series A Preferred |  |                                 | (205,363   | ) |      |   | (205,925   | )
|Preferred stock dividends in arrears Series B Preferred |  |                                 | (55,440    | ) |      |   | (96,649    | )
|Preferred stock dividends in arrears Series C Preferred |  |                                 | (269,720   | ) |      |   | (270,459   | )
|                                                        |  |                                 |            |   |      |   |            |  
|Total preferred stock dividends                         |  |                                 | (530,523   | ) |      |   | (573,033   | )
|                                                        |  |                                 |            |   |      |   |            |  
|Net income (loss) attributable to common stockholders   |  | $                               | (2,224,933 | ) |      | $ | (2,502,170 | )
|                                                        |  |                                 |            |   |      |   |            |  
|Net (loss) per share                                    |  | $                               | (0.09      | ) |      | $ | (0.15      | )
|                                                        |  |                                 |            |   |      |   |            |  
|Weighted average number of shares outstanding           |  |                                 | 26,122,694 |   |      |   | 16,246,500 |  
|                                                        |  |                                 |            |   |      |   |            |  

See accompanying summary of accounting policies and notes to financial statements



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##### Table of Contents

OMNICOMM SYSTEM, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2005 AND DECEMBER 31, 2004



|                                                                                           |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                           |  | 2005 |            |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                       |  |      |            |   |      |   |            |  
|Net income (loss)                                                                          |  | $    | (1,694,410 | ) |      | $ | (1,929,137 | )
|Adjustment to reconcile net income to net cash provided by (used in) operating activities: |  |      |            |   |      |   |            |  
|Depreciation and amortization                                                              |  |      | 28,332     |   |      |   | 125,698    |  
|Interest expense from beneficial conversion of 10% Convertible Notes                       |  |      | 104,000    |   |      |   | 76,800     |  
|Amortization of deferred compensation                                                      |  |      | -0-        |   |      |   | 42,572     |  
|Change in assets and liabilities:                                                          |  |      |            |   |      |   |            |  
|Accounts receivable                                                                        |  |      | (86,437    | ) |      |   | (36,102    | )
|Prepaid expenses                                                                           |  |      | 5,360      |   |      |   | 13,045     |  
|Other assets                                                                               |  |      | -0-        |   |      |   | 7,500      |  
|Accounts payable and accrued expenses                                                      |  |      | 219,478    |   |      |   | 59,161     |  
|Deferred revenue                                                                           |  |      | 613,751    |   |      |   | 18,366     |  
|                                                                                           |  |      |            |   |      |   |            |  
|Net cash provided by (used in) operating activities                                        |  |      | (809,926   | ) |      |   | (1,622,097 | )
|                                                                                           |  |      |            |   |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                       |  |      |            |   |      |   |            |  
|Purchase of property and equipment                                                         |  |      | (24,638    | ) |      |   | (20,784    | )
|                                                                                           |  |      |            |   |      |   |            |  
|Net cash provided by (used in) investing activities                                        |  |      | (24,638    | ) |      |   | (20,784    | )
|                                                                                           |  |      |            |   |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                       |  |      |            |   |      |   |            |  
|Proceeds from issuance of common stock, net of issuance costs                              |  |      | 192,500    |   |      |   | 682,500    |  
|Repayments of notes payable                                                                |  |      | (122,000   | ) |      |   | -0-        |  
|Proceeds from notes payable                                                                |  |      | 708,300    |   |      |   | 1,024,099  |  
|                                                                                           |  |      |            |   |      |   |            |  
|Net cash provided by (used in) financing activities                                        |  |      | 778,800    |   |      |   | 1,706,599  |  
|                                                                                           |  |      |            |   |      |   |            |  
|Net increase (decrease) in cash and cash equivalents                                       |  |      | (55,764    | ) |      |   | 63,718     |  
|Cash and cash equivalents at beginning of period                                           |  |      | 65,695     |   |      |   | 1,977      |  
|                                                                                           |  |      |            |   |      |   |            |  
|Cash and cash equivalents at end of period                                                 |  | $    | 9,931      |   |      | $ | 65,695     |  
|                                                                                           |  |      |            |   |      |   |            |  



|                                                         |  |                                 |           |      |   |          
|-------------------------------------------------------- |  | ------------------------------- | --------- | ---- | - | ---------
|                                                         |  | For the years endedDecember 31,
|                                                         |  | 2005                            |           | 2004
|Supplemental Disclosure of Cash Flow Information:        |  |                                 |           |      |   |          
|Cash paid during the period for:                         |  |                                 |           |      |   |          
|Income tax                                               |  | $                               | -0-       |      | $ | -0-      
|                                                         |  |                                 |           |      |   |          
|Interest                                                 |  | $                               | 15,175    |      | $ | 2,475    
|                                                         |  |                                 |           |      |   |          
|Non-cash Transactions                                    |  |                                 |           |      |   |          
|Conversion of 10% Notes Payable into common stock        |  | $                               | 234,000   |      | $ | 120,000  
|Accrued interest converted into common stock             |  | $                               | 24,986    |      | $ | 64,173   
|Common stock issued in exchange for notes payable        |  | $                               | 165,000   |      | $ | -0-      
|Amended notes payable  extended maturity date           |  | $                               | 2,341,930 |      | $ | 1,079,250
|Conversion of Series B Preferred Stock into common stock |  | $                               | 325,000   |      | $ | 600,000  

See accompanying summary of accounting policies and notes to financial statements



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)

FOR THE PERIOD JANUARY 1, 2004 TO
DECEMBER 31, 2005



|                                                                 |  |                  |  |                            |        |                  |   |                         |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   |            |  
|---------------------------------------------------------------- |  | ---------------- |  | -------------------------- | ------ | ---------------- | - | ----------------------- |  | -------------------------- |  | ---------------- | ----------------------- |  | ---------------- | --------- |  | -------------------------- | - |  | --------------- | --- | ----------------- |  | -------------------------- | --------- | --------------------- |  | ------- | ----------------------- | - | --- | --------------------------- | - | --------- | -------------- | - | ----------- | ------------------------------------- |  | - | ------- | - |  | - | -- | - |  | - | -------- | - |  | - | ---------- | -
|                                                                 |  |                  |  |                            |        |                  |   | Preferred Stock         |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                  
|                                                                 |  |                  |  |                            |        |                  |   | 5% Series A Convertible |  | 8% Series B Convertible    |  |                  | 8% Series C Convertible |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       | 
|                                                                 |  | Common Stock     |  | Additional Paid In Capital |        | Number of Shares |   | $0.001 Par Value        |  | Additional Paid In Capital |  | Number of Shares |                         |  | $0.001 Par Value |           |  | Additional Paid In Capital |   |  | Number ofShares |     | $ 0.001 Par Value |  | Additional Paid In Capital |           | Accumu- lated Deficit |  |         | Deferred Compen- sation |   |     | Subscrip- tion Recei- vable |   |           | Treasury Stock |   |             | Total Shareh-olders Equity (Deficit) | 
|                                                                 |  | Number of Shares |  | $0.001 Par Value           |        |                  |   |                         |  |                            |  |                  |                         |  |                  |           |  |                            |  
|                                                                 |  |                  |  |                            |        |                  |   |                         |  |                            |  |                  |                         |  |                  |           | 
|Balances at December 31, 2003                                    |  | 17,929,277       |  | $                          | 18,554 |                  | $ | 12,671,494.56           |  | 4,215,224                  |  | $                | 4,215                   |  | $                | 3,807,964 |  | 157,500                    |   |  | $               | 158 |                   |  | $                          | 1,286,360 |                       |  | 337,150 |                         | $ | 337 |                             | $ | 3,684,070 |                | $ | (24,032,562 | )                                     |  | $ | (42,572 | ) |  | $ | (0 | ) |  | $ | (299,861 | ) |  | $ | (2,901,842 | )
|                                                                 |  |                  |  |                            |        |                  |   |                         |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   |            |  
|Conversion of preferred stock to common stock                    |  | 2,400,000        |  |                            | 2,400  |                  |   | 597,600                 |  |                            |  |                  |                         |  |                  |           |  | (60,000                    | ) |  |                 | (60 | )                 |  |                            | (599,940  | )                     |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   |           |  
|Amortization of deferred compensation                            |  |                  |  |                            |        |                  |   |                         |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   | 42,572  |   |  |   |    |   |  |   |          |   |  |   | 42,572     |  
|Issuance of common stock, net of issuance costs of $67,500       |  | 3,000,000        |  |                            | 3,000  |                  |   | 679,500                 |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   | 682,500    |  
|Conversion of 10% notes payable to common stock                  |  | 736,695          |  |                            | 737    |                  |   | 260,237                 |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   | 260,974    |  
|Dividends on preferred stock including                           |  |                  |  |                            |        |                  |   |                         |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   |            |  
|$54,449 in deemed dividends                                      |  |                  |  |                            |        |                  |   | 54,449                  |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   | (54,449     | )                                     |  |   |         |   |  |   |    |   |  |   |          |   |  |   |           |  
|Net loss for the period ended December 31, 2004                  |  |                  |  |                            |        |                  |   |                         |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   | (1,929,136  | )                                     |  |   |         |   |  |   |    |   |  |   |          |   |  |   | (1,929,136 | )
|Balances at December 31, 2004                                    |  | 24,065,972       |  | $                          | 24,691 |                  |   | 14,263,281              |  | 4,215,224                  |  | $                | 4,215                   |  | $                | 3,807,964 |  | 97,500                     |   |  |                 | 98  |                   |  |                            | 686,420   |                       |  | 337,150 |                         |   | 337 |                             |   | 3,684,070 |                |   | (26,016,147 | )                                     |  |   | (0      | ) |  |   | (0 | ) |  |   | (299,861 | ) |  |   | (3,844,932 | )
|                                                                 |  |                  |  |                            |        |                  |   |                         |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   |            |  
|Conversion of preferred stock to common stock                    |  | 1,300,000        |  |                            | 1,300  |                  |   | 323,700                 |  |                            |  |                  |                         |  |                  |           |  | (32,500                    | ) |  |                 | (33 | )                 |  |                            | (324,967  | )                     |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   |           |  
|Conversion of 10% notes payable to common stock                  |  | 609,943          |  |                            | 610    |                  |   | 255,376                 |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   | 255,986    |  
|Conversion of notes payable and accrued interest to common stock |  | 600,000          |  | $                          | 600    |                  | $ | 167,400                 |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   | 168,000    |  
|Issuance of common stock, net of issuance costs of $20,000       |  | 850,000          |  |                            | 850    |                  |   | 191,650                 |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   | 192,500    |  
|Net loss for the period ended December 31, 2005                  |  |                 |  | $                          |       |                  | $ |                        |  |                           |  | $                |                        |  | $                |          |  |                           |   |  |                 |    |                   |  |                            |          |                       |  |        |                         |   |    |                             |   |          |                |   | (1,694,410  | )                                     |  |   |        |   |  |   |   |   |  |   |         |   |  |   | (1,694,410 | )
|                                                                 |  |                  |  |                            |        |                  |   |                         |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   |            |  
|Balances at December 31, 2005                                    |  | 27,425,915       |  | $                          | 28,051 |                  | $ | 15,201,406              |  | 4,215,224                  |  | $                | 4,215                   |  | $                | 3,807,964 |  | 65,000                     |   |  | $               | 65  |                   |  | $                          | 361,453   |                       |  | 337,150 |                         | $ | 337 |                             | $ | 3,684,070 |                | $ | (27,710,557 | )                                     |  | $ | (0      | ) |  | $ | (0 | ) |  | $ | (299,861 | ) |  | $ | (4,922,856 | )
|                                                                 |  |                  |  |                            |        |                  |   |                         |  |                            |  |                  |                         |  |                  |           |  |                            |   |  |                 |     |                   |  |                            |           |                       |  |         |                         |   |     |                             |   |           |                |   |             |                                       |  |   |         |   |  |   |    |   |  |   |          |   |  |   |            |  

The accompanying notes are an integral part of these financial statements.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



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

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

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 efforts are focused on developing new, complementary
software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. During fiscal 2005, we spent approximately $478,000 on research and development activities, the majority of which represented
salaries to our developers. In fiscal 2004 we spent approximately $537,000 on research and development 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 its three wholly
owned subsidiaries, OmniCommerce, WebIPA, Inc. and OmniTrial B.V and have been prepared in conformity with (i) accounting principles generally accepted in the United States of America; and (ii) the rules and regulations of the United
States Securities and Exchange Commission. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.

ESTIMATES IN FINANCIAL STATEMENTS

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

RECLASSIFICATIONS

Certain reclassifications have been made in the 2004 financial statements to conform to the 2005 presentation. These reclassifications did not have any
effect on net income (loss) or shareholders equity.

SEGMENT INFORMATION

The Company operates in one reportable segment.

CASH AND CASH EQUIVALENTS

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

ACCOUNTS
RECEIVABLE

Accounts receivable are judged as to collectibility by management and an allowance for bad debts is established as
necessary. The Company had recorded an allowance for uncollectible accounts receivable of $58,539 and $-0- as of December 31, 2005 and December 31, 2004, respectively.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



CONCENTRATION OF CREDIT RISK

Accounts receivable subject the Company to its highest potential concentration of credit risk. The Company reserves for credit losses. The Company does
not require collateral on trade accounts receivables. Our top five customers accounted for approximately 54% of our revenues during 2005 and approximately 56% of our revenues during 2004. Three customers accounted individually for 10% or more of our
revenues during 2005.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Additions and betterments are capitalized; maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the assets
estimated useful life, which is 5 years for leasehold improvements, equipment and furniture and 3 years for software. Gains or losses on disposal are charged to operations.

DEFERRED REVENUE

Deferred
revenue represents cash advances received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the
completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is entitled to payment for all work performed through the point of cancellation. As of December 31, 2005 the Company had $1,048,707
in deferred revenues relating to contracts for services to be performed over periods ranging from 1 month to 5 years.

REVENUE
RECOGNITION POLICY

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

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

ADVERTISING

Advertising costs
are expensed as incurred. Advertising costs were $10,256 and $(680) for the years ended December 31, 2005 and 2004, respectively.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



RESEARCH AND DEVELOPMENT EXPENSES

Software development costs are included in research and development and are expensed as incurred. Statement of Financial Accounting Standards No. 86
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, (SFAS 86), requires the capitalization of certain development costs of software to be sold once technological feasibility is
established, which the Company defines as completion to the point of marketability. The capitalized cost is then amortized on a straight-line basis over the estimated product life. To date, the period between achieving technological feasibility and
the general availability of such software has been short and software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs under SFAS 86. Research and
development expense was approximately $478,463 and $537,565 for the years ended December 31, 2005 and 2004 respectively.

EMPLOYEE EQUITY INCENTIVE PLANS

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



|                                                                                                                                            |  |                         |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                                            |  | Years EndedDecember 31, |       
|(in thousands, except for per share data)                                                                                                   |  | 2005                    |        |   | 2004 |  
|Net loss available to common stockholders as reported                                                                                       |  | $                       | (2,225 | ) |      | $ | (2,502 | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                         | (403   | ) |      |   | (258   | )
|                                                                                                                                            |  |                         |        |   |      |   |        |  
|Pro forma net loss available to common stockholders                                                                                         |  | $                       | (2,628 | ) |      | $ | (2,760 | )
|                                                                                                                                            |  |                         |        |   |      |   |        |  
|Weighted average number of common shares outstanding used to compute net income (loss) per common share  basic and
diluted                 |  |                         | 26,122 |   |      |   | 16,247 |  
|                                                                                                                                            |  |                         |        |   |      |   |        |  
|Reported basic and diluted net loss per common share                                                                                        |  | $                       | (0.09  | ) |      | $ | (0.15  | )
|                                                                                                                                            |  |                         |        |   |      |   |        |  
|Pro forma basic and diluted net loss per common share                                                                                       |  | $                       | (0.10  | ) |      | $ | (0.17  | )
|                                                                                                                                            |  |                         |        |   |      |   |        |  



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



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

The estimated value of employee stock options granted during the year December 31, 2005 was $793,384 ($207,881 for the year ended December 31, 2004). The value of options granted in 2005 and 2004 was
estimated at the date of grant using the following assumptions:



|                              |  |         |   |  |         |  
|----------------------------- |  | ------- | - |  | ------- | -
|                              |  | 2005    |   |  | 2004    |  
|Risk-free interest rate       |  | 2.50    | % |  | 2.07    | %
|Expected years until exercise |  | 6 Years |   |  | 6 Years |  
|Expected stock volatility     |  | 104.4   | % |  | 113.8   | %
|Dividend yield                |  | 0       | % |  | 0       | %

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

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 26,122,694 and 16,246,500 for the years ended
December 31, 2005 and 2004, respectively. There were no differences between basic and diluted earnings per share. Options to purchase 7,442,770 shares of common stock at prices ranging from $.15 to $2.75 per share were outstanding at
December 31, 2005. Stock warrants to purchase 16,644,400 shares of common stock at prices ranging from $0.25 to $0.75 per share were outstanding at December 31, 2005.

The Company granted a Unit Purchase Option (Agent Option) to the Placement Agent of its Series B Convertible Preferred Stock that provides the
Placement Agent the ability to purchase 27,000 Series B Preferred Shares with 1,080,000 detachable common stock warrants. The exercise of the Agent Option would result in the issuance of an aggregate of 2,160,000 shares of common stock at an
exercise price of $0.25 per share. The options, warrants and Agent Options were not included in the computation of diluted earnings per share because they have an anti-dilutive effect on net loss per share.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



The Company granted a Unit Purchase Option (Agent Option) to the Placement Agent of its
Series C Convertible Preferred Stock that provides the Placement Agent the ability to purchase 24,848 Series C Preferred Shares with 496,950 detachable common stock warrants. The exercise of the Agent Option would result in the issuance of an
aggregate of 1,490,850 shares of common stock at an exercise price of $0.25 per share. The warrants and Agent Options were not included in the computation of diluted earnings per share because they have an anti-dilutive effect on net loss per share.

The Companys convertible debt and convertible preferred stock have an anti-dilutive effect on net loss per share 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 2005, the FASB issued Financial Interpretation
47, Accounting for Conditional Asset Retirement Obligations (FIN 47). FIN 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, Accounting for Asset Retirement
Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to
perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event. Accordingly, an entity is
required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 also clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. We do not expect the adoption of this statement will have a material impact on our results of
operations or financial position.

In June 2005, the FASB issued Statement 154, Accounting Changes and Error Corrections, (FAS
154), which replaces APB Opinion 20 and FASB Statement 3. FAS 154 changes the requirements for the accounting and reporting of a change in accounting principle. APB Opinion 20 previously required that most voluntary changes in accounting
principle be recognized by including the cumulative effect of the new accounting principle in net income of the period of the change. Statement 154 now requires retrospective application of changes in accounting principle to prior period financial
statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. FAS 154 is effective for fiscal years beginning after December 15, 2005. We do not expect the adoption of this
statement will have a material impact on our results of operations or financial position.

In December 2004, the FASB issued 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. This eliminates the exception to account for such awards using the intrinsic method previously allowable under APB Opinion No. 25. SFAS No. 123(R) will be effective
for interim or annual reporting periods beginning on or after December 15, 2005. We previously adopted the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation and have accounted for all awards granted to
employees in recent years using the optional intrinsic value method. Accordingly we believe SFAS No. 123(R) will have a material impact on financial statement at such time as options are granted.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|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 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; and other changes in economic, regulatory or competitive conditions in our planned business.

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

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

The ability of the Company to continue in existence is dependent on its having
sufficient financial resources to bring products and services to market for marketplace acceptance. As a result of its significant losses, negative cash flows from operations, and accumulated deficits for the year ending December 31, 2005 there
is doubt about the Companys ability to continue as a going concern.



|NOTE  4: | PROPERTY AND EQUIPMENT, AT COST
|-------- | -------------------------------

Property
and equipment consists of the following:



|                              |  |                   |         |                          |   |         |  |                          |         |                        |   |         |  |        
|----------------------------- |  | ----------------- | ------- | ------------------------ | - | ------- |  | ------------------------ | ------- | ---------------------- | - | ------- |  | -------
|                              |  | December 31, 2005 |         | December 31, 2004        |   |        
|                              |  | Cost              |         | Accumulated Depreciation |   | Cost    |  | Accumulated Depreciation |         | Estimated Useful Lives
|                              |  |                   |         |                         
|Computer and office equipment |  | $                 | 457,827 |                          | $ | 439,789 |  | $                        | 443,960 |                        | $ | 419,773 |  | 5 years
|Leasehold improvements        |  |                   | 3,299   |                          |   | 3,172   |  |                          | 3,299   |                        |   | 2,712   |  | 5 years
|Computer software             |  |                   | 280,640 |                          |   | 272,181 |  |                          | 269,869 |                        |   | 267,475 |  | 3 years
|Office furniture              |  |                   | 52,950  |                          |   | 48,353  |  |                          | 52,950  |                        |   | 45,203  |  | 5 years
|                              |  |                   |         |                          |   |         |  |                          |         |                        |   |         |  |        
|                              |  | $                 | 794,716 |                          | $ | 763,495 |  | $                        | 770,078 |                        | $ | 735,163 |  |        
|                              |  |                   |         |                          |   |         |  |                          |         |                        |   |         |  |        

Depreciation expense for the years ended December 31, 2005 and 2004 was $28,332 and $125,698
respectively.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|NOTE 5: | ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|------- | -------------------------------------

Accounts payable and accrued expenses consist of the following:



|                                            |  |                  |         |                  |   |        
|------------------------------------------- |  | ---------------- | ------- | ---------------- | - | -------
|                                            |  | December 31,2005 |         | December 31,2004
|Accounts payable                            |  | $                | 466,353 |                  | $ | 258,909
|Accrued payroll and related costs           |  |                  | 2,248   |                  |   | 34,808 
|Other accrued expenses                      |  |                  | 80,000  |                  |   | 216,427
|Accrued interest                            |  |                  | 103,336 |                  |   | 187,429
|Accrued expenses of OmniTrial BV            |  |                  | 127,519 |                  |   | 127,519
|                                            |  |                  |         |                  |   |        
|Total accounts payable and accrued expenses |  | $                | 779,456 |                  | $ | 825,092
|                                            |  |                  |         |                  |   |        

Other accrued expenses consist primarily of placement agent fees and expenses due on private
placements of our debt and equity securities that occurred from 2000 to 2005.



|NOTE 6: | EARNINGS PER SHARE
|------- | ------------------

Basic earnings per share
(EPS) is computed by dividing income available to common shareholders (which for the Company equals its net loss) by the weighted average number of common shares outstanding, and dilutive EPS adds the dilutive effect of stock options and
other common stock equivalents. Antidilutive shares aggregating 46,734,169 and 45,981,065 have been omitted from the calculation of dilutive EPS for the years December 31, 2005 and December 31, 2004, respectively. Provided below is
reconciliation between numerators and denominators of the basic and diluted earnings per shares:



|                              |  |                   |            |   |                   |            |                 |   |       |                 |  |   |                   |   |                 |            |  |   |       |  
|----------------------------- |  | ----------------- | ---------- | - | ----------------- | ---------- | --------------- | - | ----- | --------------- |  | - | ----------------- | - | --------------- | ---------- |  | - | ----- | -
|                              |  | Years Ended       |           
|                              |  | December 31, 2005 |            |   | December 31, 2004 |           
|                              |  | IncomeNumerator   |            |   | SharesDenominator |            | Per-ShareAmount |   |       | IncomeNumerator |  |   | SharesDenominator |   | Per-ShareAmount |           
|Basic EPS                     |  | $                 | (2,224,933 | ) |                   | 26,122,694 |                 | $ | (0.09 | )               |  | $ | (2,502,170        | ) |                 | 16,246,500 |  | $ | (0.15 | )
|Effect of Dilutive Securities |  |                   |            |   |                   |            |                 |   |       |                 |  |   |                   |   |                 |            |  |   |       |  
|None                          |  |                   | -0-        |   |                   | -0-        |                 |   | -0-   |                 |  |   | -0-               |   |                 | -0-        |  |   | -0-   |  
|                              |  |                   |            |   |                   |            |                 |   |       |                 |  |   |                   |   |                 |            |  |   |       |  
|Diluted EPS                   |  | $                 | (2,224,933 | ) |                   | 26,122,694 |                 | $ | (0.09 | )               |  | $ | (2,502,170        | ) |                 | 16,246,500 |  | $ | (0.15 | )



|NOTE 7: | NOTES PAYABLE
|------- | -------------

At December 31, 2005,
the Company owed $3,194,560 in notes payable. The table below provides details as to the terms and conditions of the notes payable.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|                 |  |          |  |               |   |  |        |           |            |   |           |  |   |          
|---------------- |  | -------- |  | ------------- | - |  | ------ | --------- | ---------- | - | --------- |  | - | ---------
|Origination Date |  | Due Date |  | Interest Rate |   |  | Amount |           | Short Term |   | Long Term
|12/31/05         |  | 04/01/08 |  | 9.00          | % |  |        | 414,136   |            | $ | 0         |  | $ | 414,136  
|12/31/05         |  | 04/01/08 |  | 9.00          | % |  |        | 676,740   |            |   | 0         |  |   | 676,740  
|12/31/03         |  | 01/31/07 |  | 9.00          | % |  |        | 20,000    |            |   | 0         |  |   | 20,000   
|11/25/02         |  | 01/31/07 |  | 9.00          | % |  |        | 6,000     |            |   | 0         |  |   | 6,000    
|12/31/05         |  | 04/01/08 |  | 9.00          | % |  |        | 549,501   |            |   | 0         |  |   | 549,501  
|08/15/03         |  | 01/31/07 |  | 9.00          | % |  |        | 100,000   |            |   | 0         |  |   | 100,000  
|12/31/05         |  | 04/01/08 |  | 9.00          | % |  |        | 511,910   |            |   | 0         |  |   | 511,910  
|12/31/05         |  | 04/01/08 |  | 9.00          | % |  |        | 117,665   |            |   | 0         |  |   | 117,665  
|12/31/05         |  | 04/01/08 |  | 9.00          | % |  |        | 117,550   |            |   | 0         |  |   | 117,550  
|12/31/05         |  | 04/01/08 |  | 9.00          | % |  |        | 259,758   |            |   | 0         |  |   | 259,758  
|03/31/05         |  | 01/31/07 |  | 9.00          | % |  |        | 22,000    |            |   | 0         |  |   | 22,000   
|04/07/05         |  | 01/31/07 |  | 9.00          | % |  |        | 25,000    |            |   | 0         |  |   | 25,000   
|04/07/05         |  | 01/31/07 |  | 9.00          | % |  |        | 50,000    |            |   | 0         |  |   | 50,000   
|05/12/05         |  | 01/31/07 |  | 9.00          | % |  |        | 40,000    |            |   | 0         |  |   | 40,000   
|06/30/05         |  | 01/31/07 |  | 9.00          | % |  |        | 120,000   |            |   | 0         |  |   | 120,000  
|09/09/05         |  | 01/31/07 |  | 9.00          | % |  |        | 14,300    |            |   | 0         |  |   | 14,300   
|11/08/05         |  | 05/31/07 |  | 9.00          | % |  |        | 50,000    |            |   | 0         |  |   | 50,000   
|11/30/05         |  | 05/31/07 |  | 9.00          | % |  |        | 50,000    |            |   | 0         |  |   | 50,000   
|12/05/05         |  | 05/31/07 |  | 9.00          | % |  |        | 50,000    |            |   | 0         |  |   | 50,000   
|                 |  |          |  |               |   |  |        |           |            |   |           |  |   |          
|                 |  |          |  |               |   |  | $      | 3,194,560 |            | $ | 0         |  | $ | 3,194,560
|                 |  |          |  |               |   |  |        |           |            |   |           |  |   |          



|NOTE 8: | CONVERTIBLE NOTES
|------- | -----------------

During the first quarter
of 1999, the Company issued 10% Convertible Notes payable in the amount of $862,500 pursuant to a Confidential Private Placement Memorandum. There were costs of $119,625 associated with this offering. The net proceeds to the Company were $742,875.
The notes bear interest at ten percent annually, payable semi-annually. The notes are convertible after maturity, which was June 30, 2004, into shares of common stock of the Company at $1.25 per share. As of December 31, 2005,
approximately $737,500 of the Convertible Notes had been converted into 1,406,638 shares of common stock of the Company leaving an outstanding principal balance of $125,000.

The Company is currently in default on interest payments owed totaling $61,308 on its 10% Convertible Notes. The terms of the notes provide a payment
grace period of thirty days in which to make required semi-annual interest payments. The company has been in default since January 30, 2002. At the option of the note holders the full amount of the convertible notes could be declared in
default.



|NOTE 9: | COMMITMENTS AND CONTINGENCIES
|------- | -----------------------------

The Company
currently leases office space under an operating lease. The minimum future lease payments required under the Companys operating leases at December 31, 2005 are as follows:



|      |  |   |        
|----- |  | - | -------
|2006  |  |   | 76,214 
|2007  |  |   | 52,700 
|2008  |  |   | 0      
|2009  |  |   | 0      
|2010  |  |   | 0      
|      |  |   |        
|Total |  | $ | 128,914
|      |  |   |        



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



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 $154,048 and $152,755 for the years ended December 31, 2005 and 2004, respectively.

The Companys corporate office lease expires in February 2006. The Company is currently seeking office space within the same geographic area and
believes it will find suitable office accommodations at terms favorable to the Company.

EMPLOYMENT AGREEMENTS

In December 2005, we renewed an employment agreement with Mr. Cornelis F. Wit to serve as our Chief Executive Officer and President through
December 31, 2006. As part of the renewal the employment agreement will renew for successive one-year terms unless the employment agreement is expressly cancelled by either Mr. Wit or the Company ninety days prior to the end of the term.
Mr. Wit receives an annual salary of $226,270 payable in cash and/or stock plus a bonus tied to our operating results. As part of the agreement incentive options are awardable under the agreement based upon sales and cash flow objectives. In
the event that the we consummate a transaction with a third party resulting in the sale, merger, consolidation, reorganization or other business combination involving all or a majority of our business, assets or stock, whether effected in one
transaction or a series of transactions due to the initiative of Mr. Wit (whether or not during the term of the agreement), Mr. Wit will receive a fee equal to 2% of the aggregate consideration. The agreement also provides, among other
things, for participation in employee benefits available to employees and executives. Under the terms of the agreement, we may terminate Mr. Wits employment upon 30 days notice of a material breach and Mr. Wit may terminate the
agreement under the same terms and conditions. The employment agreement contains customary non-disclosure provisions, as well as a one year non-compete clause if Mr. Wit leaves the company voluntarily or a six month non-compete clause following
his termination by us.

In September 2005, we renewed our employment agreement with Mr. Randall Smith to serve as our Chief Technology
Officer. As part of the renewal the employment agreement will renew for successive one-year terms unless the employment agreement is expressly cancelled by either Mr. Smith or the Company ninety days prior to the end of the term. Under the
terms of the agreement, as compensation for his services, Mr. Smith receives an annual salary of $220,000 to be paid in the form of cash and/or stock, as agreed upon by the parties, and he is eligible to receive a bonus based upon achieving
technology related milestones. The agreement also provides, among other things, for participation in employee benefit plans or programs applicable to employees and executives. Under the terms of the agreement, we may terminate the employment of
Mr. Smith upon 30 days notice of a material breach and Mr. Smith may terminate the agreement under the same terms and conditions. If Mr. Smith is terminated by us for any reason other than for cause, we must pay him severance benefits
equal to six months salary. The employment agreement contains customary non-disclosure provisions, as well as a one year non-competition restriction following the termination of the agreement.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



The agreement renews automatically for one-year terms unless expressly cancelled by either
Mr. Smith or the Company in writing ninety (90) days prior to termination of the term. The Company extended its employment agreement with Mr. Smith in September 2005 for one year under the terms of the existing employment agreement

In September 2005, we renewed our employment agreement with Mr. Ronald Linares to serve as our Chief Financial Officer. As part of the
renewal the employment agreement will renew for successive one-year terms unless the employment agreement is expressly cancelled by either Mr. Linares or the Company ninety days prior to the end of the term. Under the terms of this agreement,
Mr. Linares receives an annual salary of $174,138 to be paid in the form of cash and/or stock, as agreed upon by the parties, and he is eligible to receive additional incentive compensation based upon achieving financial milestones. The
agreement also provides, among other things, for participation in employee benefit plans or programs applicable to employees and executives. Under the terms of the agreement, we may terminate the employment of Mr. Linares upon 30 days notice of
a material breach and Mr. Linares may terminate the agreement under the same terms and conditions. If Mr. Linares is terminated by us for any reason other than for cause, we must pay him severance benefits equal to twelve months salary.
The employment agreement contains customary non-disclosure provisions, as well as a one year non-competition restriction following the termination of the agreement. The agreement renews automatically for one-year terms unless expressly cancelled by
either Mr. Linares or the Company in writing ninety (90) days prior to termination of the term. The Company extended its employment agreement with Mr. Linares in September 2005 for one year under the terms of the existing employment
agreement.

In January 2006, we renewed our employment agreement with Mr. Charles Beardsley to serve as our Executive Vice President
for Sales and Marketing. As part of the renewal the employment agreement will renew for successive one-year terms unless the employment agreement is expressly cancelled by either Mr. Beardsley or the Company ninety days prior to the end of the
term. Under the terms of this agreement, Mr. Beardsley receives an annual salary of $188,760 to be paid in the form of cash and/or stock, as agreed upon by the parties, and he is eligible to receive additional incentive compensation based upon
achieving financial milestones. Mr. Beardsley is eligible for a commission, payable on a quarterly basis, equal to 2% of the Companys Net Operating Income as defined in an exhibit to his employment contract. The agreement also provides,
among other things, for participation in employee benefit plans or programs applicable to employees and executives. Under the terms of the agreement, we may terminate the employment of Mr. Beardsley upon 30 days notice of a material breach and
Mr. Beardsley may terminate the agreement under the same terms and conditions. If Mr. Beardsley is terminated by us for any reason other than for cause, we must pay him severance benefits equal to twelve months salary. The employment
agreement contains customary non-disclosure provisions.

FINANCIAL ADVISORY AGREEMENT

During December 2005, the Company extended its financial advisory agreement with Noesis Capital. Under the agreement Noesis Capital will assist the
Company in performing certain financial advisory services including the sale of securities, and the possible sale, merger or other business combination involving the Company. Pursuant to this agreement, the Company is obligated to pay $90,000 in
professional fees annually. The amendment changed the termination date of the agreement to December 31, 2006.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|NOTE 10: | 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.

Between February 2001 and July 2001, we borrowed an aggregate of $190,000 from Guus van Kesteren under promissory notes which bore interest of
12% per annum. These promissory notes were amended and restated on August 30, 2001 in the amount of $196,644 with new terms which included an interest rate of 8% per annum with accrued interest payable no later than August 30,
2003. This note was amended in September 2004 extending the maturity date to October 2006.

In December 2002, we borrowed $50,000 from Guus
van Kesteren a member of our board of directors. This amount was borrowed under a promissory note bearing interest at a rate of 9% per annum, payable on March 31, 2003. This note was amended in September 2004 extending the maturity date to
October 31, 2006.

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

The above referenced notes payable to Guus van Kesteren,
which were originally amended and restated on June 30, 2004 into one promissory note with a principal amount of $364,758.38 bearing interest at 9% per annum and payable on October 31, 2006, was amended and restated on
December 31, 2005, under the terms of a new note bearing interest at 9% payable on April 1, 2008. The principal amount of the new note is $414,135.75 which includes accrued and unpaid interest of $49,337.37.

During November 2002, we borrowed $6,000 from Randall G. Smith, our Chairman of the board and Chief Technology Officer. n March 2003 this note was amended
and restated extending the maturity date to January 31, 2005. This note was amended and restated on March 31, 2005 extending the maturity date to January 31, 2007.

In December 2002, we borrowed $50,000 from Cornelis Wit, our President and Chief Executive Officer and a member of our board of directors. This amount was
borrowed under a promissory note bearing interest at a rate of 9% per annum, payable on March 31, 2003. This note was amended in September 2004 extending the maturity date to October 31, 2006.

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

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



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



The above referenced notes payable to Cornelis Wit, which were originally amended and restated on
June 30, 2004 into one promissory note with a principal amount of $483,984.00 bearing interest at 9% per annum and payable on October 31, 2006, was amended and restated on December 31, 2005, under the terms of a new note bearing
interest at 9% payable on April 1, 2008. The principal amount of the new note is $549,500.85 which includes accrued and unpaid interest of $65,516.85.

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

In April 2005, the Company borrowed $25,000 from Guus van Kesteren, a company Director.
These amounts were borrowed under a promissory note bearing interest at 9% per annum payable on January 31, 2007.

In June 2005,
the Company borrowed $120,000 from Cornelis Wit, the Companys President and Chief Executive Officer and a Director. These amounts were borrowed under a promissory note bearing interest at 9% per annum payable on January 31, 2007.

From June to September 2005, the Company borrowed $14,300 from Ronald Linares, the Companys Vice President and Chief Financial
Officer. These amounts were borrowed under a promissory note bearing interest at 9% per annum payable on January 31, 2007.

In
October 2005, the Company borrowed $215,000 from Cornelis Wit, the Companys President and Chief Executive Officer and a Director. These amounts were borrowed under a promissory note bearing interest at 9% per annum payable with a maturity
date of December 31, 2006. Under the terms of the note Mr. Wit had the right to convert any unpaid principal into shares of common stock at a conversion price of $0.28 per share in the event the note was not repaid by December 31,
2005. On November 11, 2005 the Company repaid $50,000 of principal on the note. On December 31, 2005 Mr. Wit converted the remaining $165,000 of outstanding principal and $3,000 in accrued interest into 600,000 shares of common stock.



|NOTE 11: | POST-RETIREMENT EMPLOYEE BENEFITS
|-------- | ---------------------------------

The
Company does not have a policy to cover employees for any health care or other welfare benefits that are incurred after employment (post-retirement). Therefore, no provision is required under Statement of Financial Accounting Standards No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions or Statement of Financial Accounting Standards No. 112, Employers Accounting for Post-employment Benefits  an Amendment of FASB Statements
No. 5 and 43.



|NOTE 12: | STOCKHOLDERS EQUITY (DEFICIT)
|-------- | ------------------------------

Our
authorized capital stock consists of 150,000,000 shares of common stock, $.001 par value per share, and 10,000,000 shares of preferred stock, par value $.001 per share, of which 5,000,000 shares have been designated as 5% Series A Preferred, 230,000
shares have been designated as Series B Preferred Stock and 747,500 shares have been designated as Series C Preferred Stock.

As of
December 31, 2005 we had the following outstanding securities:



| |  |  | 27,425,915 shares of common stock issued and outstanding;
| | - |  | ---------------------------------------------------------



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



| |  |  | 16,644,400 warrants issued and outstanding to purchase shares of our common stock;
| | - |  | ----------------------------------------------------------------------------------



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



| |  |  | 65,000 shares of our Series B Preferred Stock issued and outstanding;
| | - |  | ---------------------------------------------------------------------



| |  |  | 337,150 shares of our Series C Preferred Stock issued and outstanding;
| | - |  | ----------------------------------------------------------------------



| |  |  | a Series B Placement Agent Unit Option;
| | - |  | ---------------------------------------



| |  |  | a Series C Placement Agent Unit Option; and
| | - |  | -------------------------------------------



| |  |  | 10% Convertible Notes.
| | - |  | ----------------------

Common Stock

Holders of common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of our voting
securities do not have cumulative voting rights. Holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of our liquidation, dissolution or
winding up, subject to the preferences of the Series A Preferred Stockholders, Series B Preferred Stock holders and Series C Preferred Stockholders, each outstanding share of common stock entitles its holder to participate in all assets that remain
after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock.

Holders of
common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions for the common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred
stock, when and if any preferred stock is outstanding. All outstanding shares of common stock are duly authorized, validly issued, fully paid and non-assessable.

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

From April
2005 through July 2005, we sold an aggregate of 850,000 shares of our common stock resulting in gross proceeds of $212,500. None of these investors were our affiliates. Noesis Capital Corp., an NASD member firm, acted as placement agent in the
offering and as compensation therefore received a commission equal to 8% of the sales made by it, or an aggregate of $16,000, a non-accountable expense allowance equal to 2% of the sales made by it, or an aggregate of $4,000 and a warrant to
purchase at $0.25 per share, 10% of the shares sold, or 80,000 shares of our common stock. An estimated fair value of $15,760 was calculated for the warrants granted to Noesis Capital utilizing the Binomial option pricing method.

Preferred stock

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



| |  |  | dividend and liquidation preferences,
| | - |  | -------------------------------------



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



| |  |  | voting rights,
| | - |  | --------------



| |  |  | conversion privileges, and
| | - |  | --------------------------



| |  |  | redemption terms.
| | - |  | -----------------

Our board of directors may authorize
the issuance of preferred stock which ranks senior to our common stock for the payment of dividends and the distribution of assets on liquidation. In addition, our board of directors can fix limitations and restrictions, if any, upon the payment of
dividends on our common stock to be effective while any shares of preferred stock are outstanding.

Series A Preferred Stock

In 1999, our board of directors designated 5,000,000 shares of our preferred stock as 5% Series A Convertible Preferred Stock
(Series A Preferred Stock), of which 4,215,224 shares are issued and outstanding.

The designations, rights and preferences of
the Series A Preferred include:



| |  |  | the shares are not redeemable,
| | - |  | ------------------------------



| |  |  | each share of Series A Preferred Stock is convertible into shares of our common stock at any time at the option of the holder at a conversion price of $1.50 per share, or if not so
converted after one year from issuance, at any time at our option if the closing bid price of our common stock has exceeded $3.00 for 20 consecutive trading days, our common stock is listed on The Nasdaq Stock Market or other national stock
exchange, and the shares of common stock issuable upon conversion of the Series A Preferred Stock are registered under a registration statement,
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the conversion price has certain anti-dilution protections for any stock splits, stock dividends, and corporate reorganizations, and certain other corporate transactions and
issuances of securities at below the applicable conversion price per share. The Series A Preferred Stockholders have waived their rights to an anti-dilution adjustment reducing their conversion price as a result of the issuance of the Series B
Preferred Stock and Series C Preferred Stock,
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the shares of Series A Preferred Stock pay a cumulative dividend at a rate of 5% per annum based on the stated value of $1.00 per share, payable when and as declared by the
board of directors, or upon conversion or liquidation. Dividends on the Series A Preferred Stock have priority to our common stock and junior to Series B Preferred Stock and Series C Preferred Stock. At our option, dividends can be paid in cash or
shares of common stock valued at the conversion price of the Series A Preferred Stock,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in the event of our liquidation or winding up, each share of Series A Preferred Stock has a liquidation preference equal to $1.00 per share,
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the holders of the Series A Preferred Stock are entitled to vote together with the holders of our common stock, on the basis of one vote for each share of common stock issuable upon
the conversion of the Series A Preferred Stock.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There were arrearages of $701,609 and $496,247 on the Series A Preferred
Stock for undeclared dividends as of December 31, 2005 and December 31, 2004, respectively.

In addition, the holders of the
Series A Preferred Stock were granted certain demand and piggy-back registration rights for the shares of our common stock issuable upon the conversion of the Series A Preferred Stock.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



Series B Preferred Stock

In August 2001, our board of directors designated 200,000 shares of our preferred stock as Series B Convertible Preferred Stock (Series B Preferred
Stock). A Corrected Certificate of Designations was filed on February 7, 2002 with the Delaware Secretary of State increasing the number of shares authorized as Series B Preferred Stock to 230,000 shares, of which 65,000 shares are issued
and outstanding.

The designations, rights and preferences of the Series B Preferred Stock include:



| |  |  | the stated value of each share is $10.00 per share,
| | - |  | ---------------------------------------------------



| |  |  | the shares are not redeemable,
| | - |  | ------------------------------



| |  |  | each share of Series B Preferred Stock is convertible into shares of our common stock at the option of the holder at any time commencing January 31, 2002 at the option of the
holder at $0.25 per share, as adjusted, and the shares automatically convert, subject to limitations based on trading volume, into shares of our common stock at $0.25 per share at such time as we complete a public offering raising proceeds in excess
of $25 million at an offering price of at least $0.75 per share. We may require all outstanding shares of the Series B Preferred Stock to convert in the event the closing bid price of our common stock exceeds $0.50 for 20 consecutive trading days,
and our common stock has been listed on The Nasdaq Stock Market or other comparable national stock exchange or the OTC Bulletin board and a registration statement registering the shares of common stock issuable upon conversion of the Series B
Preferred Stock has been declared effective,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the conversion price has certain anti-dilution protections for any stock splits, stock dividends, and corporate reorganizations, and certain other corporate transactions and
issuances of securities at below the applicable conversion price per share or market value of the common stock,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the shares of Series B Preferred Stock pay a cumulative dividend at a rate of 8% per annum based on the stated value of $10.00 per share, payable when and as declared by the
board of directors, or upon conversion or liquidation. At our option, dividends can be paid in cash or shares of common stock valued at the conversion price of the Series B Preferred Stock,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | each share of Series B Preferred Stock will rank senior to our Series A Preferred and pari passu with our Series C Preferred Stock,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | in the event of our liquidation or winding up, each share of Series B Preferred Stock has a liquidation preference equal to $10.00 per share plus accrued and unpaid dividends, and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the holders of the Series B Preferred Stock are entitled to vote, together with the holders of our common stock, on the basis of one vote for each share of common stock issuable
upon the conversion of the Series B Preferred Stock,
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There were arrearages of $518,021 and $462,579 on the Series B Preferred
Stock dividends as of December 31, 2005 and December 31, 2004, respectively.

In addition, the holders of the Series B Preferred
Stock were granted certain mandatory and piggy-back registration rights for the shares of our common stock issuable upon the conversion of the Series B Preferred Stock and are entitled to vote one member to our board of directors.

Series C Preferred Stock

In
March 2002, our board of directors designated 747,500 shares of our preferred stock as Series C Convertible Preferred Stock. of which 337,150 shares are issued and outstanding.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



The designations, rights and preferences of the Series C Preferred Stock include:



| |  |  | the stated value of each share is $10.00 per share,
| | - |  | ---------------------------------------------------



| |  |  | the shares are not redeemable,
| | - |  | ------------------------------



| |  |  | each share of Series C Preferred Stock is convertible at any time, at the option of the holder, into a number of shares of common stock determined by dividing the stated value per
share of the Series C Preferred Stock by $0.25, which is the Series C Conversion Price. The Series C Preferred Stock will automatically convert, subject to limitations based on trading volume, into shares of our common stock upon a public offering
of our securities raising gross proceeds in excess of $25,000,000 at a per share price greater than 2.5 times the Series C Conversion Price per share, as adjusted for any stock split, stock dividend, recapitalization, or other similar transaction.
In addition, the Series C Preferred Stock will automatically convert into shares of our common stock at the Series C Conversion Price at such time as the closing bid price for our common stock has traded at two times the then prevailing Series C
Conversion Price for a period of 20 consecutive trading days, provided that (i) a public trading market exists for our common stock on a national securities exchange, the Nasdaq Stock Market, or the over the counter market; and (ii) the
Conversion Shares have been registered for resale and are not subject to any lock-up and the number of shares of the Series C Preferred Stock which can be converted in any 30-day period will be limited to the number of shares of common stock
underlying the Series C Preferred Stock equal to 10 times the average daily trading volume during the 20-day look-back period set forth above,
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the conversion price has certain anti-dilution protections for any stock splits, stock dividends, and corporate reorganizations, and certain other corporate transactions and
issuances of securities at below the applicable conversion price per share or market value of the common stock,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the shares of Series C Preferred Stock pay a cumulative dividend at a rate of 8% per annum based on the stated value of $10.00 per share, payable when and as declared by the
board of directors, or upon conversion or liquidation. At our option, dividends can be paid in cash or shares of common stock valued at the conversion price of the Series C Preferred Stock.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | each share of Series C Preferred Stock will rank pari passu with our Series B Preferred Stock and senior to our Series A Preferred Stock,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in the event of our liquidation or winding up, each share of Series C Preferred Stock has a liquidation preference equal to $10.00 per share plus accrued and unpaid dividends, and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the holders of the Series C Preferred Stock are entitled to vote, together with the holders of our common stock, on the basis of one vote for each share of common stock issuable
upon the conversion of the Series C Preferred Stock.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There were arrearages of $862,908 and $593,189 on the Series C Preferred
Stock for undeclared dividends as of December 31, 2005 and December 31, 2004, respectively.

In addition, the holders of the
Series C Preferred Stock were granted certain mandatory and piggy-back registration rights covering the shares of our common stock issuable upon the conversion of the Series C Preferred Stock and are entitled to vote two members to our board of
directors.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



Warrants

We have issued and outstanding warrants to purchase a total of 16,644,400 shares of our common stock, including:



| |  |  | warrants to purchase 8,000,000 shares of our common stock at an exercise price of $.25 per share expiring September 2006 which were issued by us in connection with the Series B
Preferred Stock offering, which warrants contain a cashless exercise provision. The holders of the warrants were granted certain mandatory and piggy-back registration rights covering the shares of our common stock issuable upon the exercise of the
warrants.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | warrants to purchase 473,000 shares of our common stock at exercise prices ranging from $.50 to $0.75 per share expiring periodically through July 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | warrants to purchase 6,743,000 shares of our common stock at an exercise price of $.25 per share expiring May 2007 which were issued by us in connection with the Series C Preferred
Stock offering, which warrants contain a cashless exercise provision. The holders of the warrants were granted certain mandatory and piggy-back registration rights covering the shares of our common stock issuable upon the exercise of the warrants.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | warrants to purchase 700,000 shares of our common stock at an exercise price of $.25 per share expiring May 2008 which were issued by us in connection with a private placement of
common stock, which warrants contain a cashless exercise provision.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | warrants to purchase 458,400 shares of our common stock at an exercise price of $.25 per share expiring December 2008 which were issued by us to the placement agent of two offerings
of our common stock that were conducted during 2003.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Series B Placement Agent Unit Option

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

Series C Placement Agent Unit Option

In connection with our March 2002 to March 2003 private placement of Series C Preferred Stock, we issued the placement agent an option to purchase 2.48 units. Each unit is exercisable at $100,000 per unit and consists of 10,000 shares of
Series C Preferred Stock and 5-year warrants to purchase 200,000 shares of common stock at an exercise price of $0.25 per share. The Placement Agent Unit Option contains a cashless exercise provision. The holder of the Placement Agent Unit Option
was granted certain mandatory and piggy-back registration rights covering the shares of our common stock issuable upon conversion of the Series C Preferred Stock and exercise of the warrants underlying Placement Agent Unit Option. The Placement
Agent Unit Option expires March 31, 2008.

10% Convertible Note

From February 1999 to May 1999, we issued 10% convertible notes (10% Convertible Notes) in the aggregate principal amount of $862,500. The 10%
Convertible Notes pay 10% interest and were due and payable on June 2004. The holders have the right to convert the principal and



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



interest amount into shares of our common stock at a rate of $1.25 per share. From 2000 to 2005, certain of the note holders converted an aggregate of
$737,500 principal amount of the notes according to their terms into 1,406,638 shares of our common stock. In addition, the holders of the 10% Convertible Notes were granted certain demand and piggy-back registration rights for the shares of our
common stock issuable upon the conversion of the 10% Convertible Notes.



|NOTE 13: | EMPLOYEE EQUITY INCENTIVE PLANS
|-------- | -------------------------------

Stock
Option Plan

In 1998, the Companys Board of Directors approved the OmniComm Systems 1998 Stock Option Plan, (the 1998
Plan). The 1998 Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards and Performance Share Units. Pursuant to the 1998 Plan the Company
may grant options to purchase up to 7,500,000 shares of the Companys common stock. The term of each option may not exceed ten years from the date of grant, and options vest in accordance with a vesting schedule established by the Plan
administrator. As of December 31, 2005, substantially all of the companys employees were participating in the 1998 Plan. Options granted under the 1998 Plan will generally expire seven years from the date of grant for most employees and
five years from the date of grant for officers and directors of the company.

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



|                                   |  |                   |  |                              |      |         |           |                              |   |     
|---------------------------------- |  | ----------------- |  | ---------------------------- | ---- | ------- | --------- | ---------------------------- | - | ----
|                                   |  | December 31, 2005 |  | December 31, 2004           
|                                   |  | Options           |  | WeightedAverageExercisePrice |      | Options |           | WeightedAverageExercisePrice
|Outstanding at beginning of period |  | 4,562,770         |  | $                            | 0.59 |         | 3,593,500 |                              | $ | 0.83
|Granted                            |  | 3,370,000         |  | $                            | 0.30 |         | 1,192,270 |                              | $ | 0.25
|Exercised                          |  | -0-               |  | $                            | 0.00 |         | -0-       |                              | $ | 0.00
|Cancelled                          |  | 490,000           |  | $                            | 1.48 |         | 223,000   |                              | $ | 0.41
|                                   |  |                   |  |                              |      |         |           |                              |   |     
|Outstanding at end of period       |  | 7,442,770         |  | $                            | 0.50 |         | 4,562,770 |                              | $ | 0.59
|                                   |  |                   |  |                              |      |         |           |                              |   |     
|Exercisable at end of period       |  | 5,155,260         |  | $                            | 0.30 |         | 4,076,770 |                              | $ | 0.50
|                                   |  |                   |  |                              |      |         |           |                              |   |     

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



|                         |  |                  |  |                                                 |  |                              |      |                  |           |                              |   |     
|------------------------ |  | ---------------- |  | ----------------------------------------------- |  | ---------------------------- | ---- | ---------------- | --------- | ---------------------------- | - | ----
|                         |  | Outstanding      |  | Exercisable                                    
|Range of Exercise Prices |  | Number ofOptions |  | WeightedAverageRemainingYears ofContractualLife |  | WeightedAverageExercisePrice |      | Number ofOptions |           | WeightedAverageExercisePrice
|$0.25 - $0.47            |  | 7,202,770        |  | 4.84                                            |  | $                            | 0.29 |                  | 4,915,260 |                              | $ | 0.28
|$0.50 - $0.80            |  | 232,000          |  | 4.11                                            |  | $                            | 0.54 |                  | 232,000   |                              | $ | 0.54
|$1.00 - $2.75            |  | 8,000            |  | 3.58                                            |  | $                            | 2.63 |                  | 8,000     |                              | $ | 2.63



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|NOTE 14: | INCOME TAXES
|-------- | ------------

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



|                                      |  |          |          |   |          |   |          |  
|------------------------------------- |  | -------- | -------- | - | -------- | - | -------- | -
|                                      |  | 12/31/05 |          |   | 12/31/04 |  
|Current tax expense (benefit):        |  |          |          |   |          |   |          |  
|Income tax at statutory rates         |  | $        | -0-      |   |          | $ | -0-      |  
|                                      |  |          |          |   |          |   |          |  
|Deferred tax expense (benefit):       |  |          |          |   |          |   |          |  
|Amortization of goodwill and covenant |  |          | -0-      |   |          |   | -0-      |  
|Operating loss carryforward           |  |          | (637,606 | ) |          |   | (725,934 | )
|                                      |  |          |          |   |          |   |          |  
|                                      |  |          | (637,606 | ) |          |   | (725,934 | )
|                                      |  |          |          |   |          |   |          |  
|Valuation allowance                   |  |          | 637,606  |   |          |   | 725,934  |  
|                                      |  |          |          |   |          |   |          |  
|Total tax expense (benefit)           |  | $        | -0-      |   |          | $ | -0-      |  
|                                      |  |          |          |   |          |   |          |  

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



|                             |  |          |            |   |          |   |            |  
|---------------------------- |  | -------- | ---------- | - | -------- | - | ---------- | -
|                             |  | 12/31/05 |            |   | 12/31/04 |  
|Deferred tax assets:         |  |          |            |   |          |   |            |  
|Amortization of intangibles  |  | $        | 283,698    |   |          | $ | 283,698    |  
|Operating loss carryforwards |  |          | 7,605,086  |   |          |   | 6,967,480  |  
|                             |  |          |            |   |          |   |            |  
|Gross deferred tax assets    |  |          | 7,888,784  |   |          |   | 7,251,178  |  
|                             |  |          |            |   |          |   |            |  
|Valuation allowance          |  |          | (7,888,784 | ) |          |   | (7,251,178 | )
|                             |  |          |            |   |          |   |            |  
|Net deferred tax asset       |  | $        | -0-        |   |          | $ | -0-        |  
|                             |  |          |            |   |          |   |            |  

The Company has net operating loss carryforwards (NOL) for income tax purposes of approximately
$20,198,076. This loss is allowed to be offset against future income until the year 2023 when the NOLs will expire. Other timing differences relate to depreciation and amortization for the stock acquisition of Education Navigator in 1998. The
tax benefits relating to all timing differences have been fully reserved for in the valuation allowance account due to the lack of operating history and the substantial losses incurred through December 31, 2005.



F-24



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##### Table of Contents

Exhibit Index



|               |  |                                                                                                                                                                           
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                               
|               | 
|10.17          |  | Amended and Restated Promissory Note between the Company and Cornelis F. Wit, dated December 31, 2005                                                                     
|               | 
|10.18          |  | Amended and Restated Promissory Note between the Company and Guus van Kesteren, dated December 31, 2005                                                                   
|               | 
|10.19          |  | Promissory Note between the Company and Cornelis F. Wit, dated October 11, 2005                                                                                           
|               | 
|21             |  | Subsidiaries of the Company                                                                                                                                               
|               | 
|31.1           |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities and Exchange Act of 1934, as amended.
|               | 
|31.2           |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities and Exchange Act of 1934, as amended.
|               | 
|32.1           |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002                         
|               | 
|32.2           |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002