##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K







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

For the fiscal year ended December 31, 2008



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

Commission File No. 0-25203





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.)

2101 West Commercial Blvd, Suite 4000

Ft. Lauderdale, FL 33309

(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

(Title of class)





Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act.    Yes   ̈    No  x

Indicate by check mark 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

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is
not contained herein, and will not 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-K or any amendment to this Form 10-K.  x

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



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈ |  | Accelerated Filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  | x

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of
the last business day of the registrants most recently completed second fiscal quarter.



|              |  |                                         |  |                       
|------------- |  | --------------------------------------- |  | ----------------------
|Date          |  | Non-Affiliate Voting Shares Outstanding |  | Aggregate Market Value
|April 8, 2009 |  | 59,834,663                              |  | $14,958,666           

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
|April 8, 2009 |  | Common Stock, $0.001 par value per share |  | 76,579,951        

DOCUMENTS INCORPORATED BY REFERENCE

Information to be set forth in our Proxy Statement to be filed by us pursuant to Regulation 14A relating to our 2009 Annual Meeting of Stockholders to be held on
July 10, 2009 is incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K.









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OMNICOMM SYSTEMS, INC.

ANNUAL REPORT ON

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2008

Table of Contents



|            |  |                                                                                                               |  |     
|----------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----
|            |  |                                                                                                               |  | Page
|            |  | Part I                                                                                                        |  |     
|            |  |                                                                                                              
|Item 1.     |  | Business.                                                                                                     |  | 1   
|            |  |                                                                                                              
|Item 1A.    |  | Risk Factors                                                                                                  |  | 12  
|            |  |                                                                                                              
|Item 1B.    |  | Unresolved Staff Comments                                                                                     |  | 19  
|            |  |                                                                                                              
|Item 2.     |  | Description of Property.                                                                                      |  | 19  
|            |  |                                                                                                              
|Item 3.     |  | Legal Proceedings.                                                                                            |  | 19  
|            |  |                                                                                                              
|Item 4.     |  | Submission of Matters to a Vote of Security Holders.                                                          |  | 20  
|            |  |                                                                                                              
|            |  | Part II                                                                                                       |  |     
|            |  |                                                                                                              
|Item 5.     |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |  | 20  
|            |  |                                                                                                              
|Item 6.     |  | Selected Financial Data                                                                                       |  | 21  
|            |  |                                                                                                              
|Item 7.     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 21  
|            |  |                                                                                                              
|Item 7A.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 31  
|            |  |                                                                                                              
|Item 8.     |  | Financial Statements and Supplementary Data.                                                                  |  | 31  
|            |  |                                                                                                              
|Item 9.     |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.                         |  | 31  
|            |  |                                                                                                              
|Item 9A(T). |  | Controls and Procedures.                                                                                      |  | 31  
|            |  |                                                                                                              
|Item 9B.    |  | Other Information.                                                                                            |  | 32  
|            |  |                                                                                                              
|            |  | Part III                                                                                                      |  |     
|            |  |                                                                                                              
|Item 10.    |  | Directors, Executive Officers and Corporate Governance                                                        |  | 32  
|            |  |                                                                                                              
|Item 11.    |  | Executive Compensation.                                                                                       |  | 32  
|            |  |                                                                                                              
|Item 12.    |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.               |  | 33  
|            |  |                                                                                                              
|Item 13.    |  | Certain Relationships and Related Transactions; and Director Independence.                                    |  | 33  
|            |  |                                                                                                              
|Item 14.    |  | Principal Accounting Fees and Services.                                                                       |  | 33  
|            |  |                                                                                                              
|            |  | Part IV                                                                                                       |  |     
|            |  |                                                                                                              
|Item 15.    |  | Exhibits, Financial Statement Schedules.                                                                      |  | 34  
|            |  |                                                                                                              
|Signatures  |  |                                                                                                               |  | 39  



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|Item 1. | BUSINESS
|------- | --------

This business section and other parts of this Annual
Report on Form 10-K (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 Systems, Inc. and its wholly owned subsidiary OmniComm Europe GmbH.

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 Web-based Electronic Data Capture
(EDC) software and services that streamline the clinical research process. TrialMaster is the core of our eClinical product offering. Trial Master is designed to allow clinical trial sponsors and investigative sites to easily and
securely collect, validate, transmit, and analyze clinical study data. TrialMaster is a 21 CFR Part 11 compliant solution and designed to offer clinical trial sponsors the ability to conduct clinical trials under multiple platforms, with significant
flexibility, ease-of-use and complete control over collected data. Developed using forward-looking technology based on Microsoft® .NET architecture, TrialMaster provides a simple drag
and drop design tool and a straightforward, logical build process that allows easy and rapid trial development. The systems GUI (user interface) has been designed to be clean, user friendly and intuitive. Sponsors have access to
on-demand importing of various industry import standards including CDISC, core labs and patient diary data. In addition, Trial Masters export feature allows output to client systems in various formats.

TrialMaster offers significant business benefits to our customers and 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 processes 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: We believe TrialMaster saves time at the back-end of a study by eliminating most of the time it takes for database
clean-up in studies involving paper-based Case Report Forms (CRFs). This is intended to be 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 clinical study monitors. A 2005 Life Science Insights report estimates that trial sponsors have experienced a 53.3% reduction in clinical trial queries through EDC use. 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 we believe 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. A 2005
report by Life Science Insights estimates that EDC users can expect a cost reduction of approximately 17.5% via the adoption of EDC.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

According to a 2008 EvaluatePharma report, global R & D expenditures by the pharmaceutical and BioTech industries were approximately $120 billion in 2008, with approximately 50% of that amount spent by North American-based
pharmaceutical,



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biotechnology and medical device companies. A 2007 report by Health Industry Insights states that by the end of 2007, nearly 45% of all new Phase I-III
studies were initiated using EDC. The report also states that the total addressable market for EDC and eClinical services is expected to grow from approximately $600MM currently to $1.8B in 2010.

Our Strategy

Our primary goal is to establish ourselves as a leading
EDC software and services provider by offering our customers the highest quality service with a differentiated, user-friendly product. TrialMaster is priced to provide a solid value, which we believe will stimulate customer demand. We maintain 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 a combination of continued high-quality 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 according to a CenterWatch report approximately 8.5% 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 believe we provide faster 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.

Increase Sales to our Existing Customers.We intend to increase the share of wallet we receive from our existing customers by continuing to increase the scope of services and eClinical products we offer.
By offering end-to-end eClinical solutions to our customers we believe we afford them the opportunity to experience seamless integration of the services and software products needed to bring their therapies to market. We believe a suite of
integrated eClinical products and services will diminish the total cost of ownership, increase the efficiency of the solutions provided to our customers and will allow us to capture revenues that are currently being deployed with other eClinical
solution providers.

Emphasize Low Operating Costs.We are committed to keeping our operating and general and administrative 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 believe 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 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 and Midsize Pharmaceutical, Bio-Technology, 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.

Penetrating the CRO market is an important component of our strategic plan. By emphasizing CRO partnerships we are able to add a significant number of potential users
for our products and services since outsourcing clinical trials in the US market is an established practice. From 2005 to 2008 we increased the percentage of our revenues coming from CROs by approximately 350%. 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 with our CRO partners and their existing client base. Our CRO partners gain the ability to manage the EDC decision making process proactively and add an extension to their line of products. We initiated the marketing of our
CRO Preferred Program in early 2007. The CRO Preferred Program offers fixed pricing and pay-as-you-go Hosted Services. To date we have entered into approximately 28 marketing partnerships with CROs as part of the CRO Preferred Program.



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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. Based on customer feedback, we believe our service is an important reason why our customers choose us over other EDC providers. In 2004, 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. During 2007, we began offering TrialMaster under a technology transfer (or licensed)
model (Technology Transfer). This type of business model allows our clients to license our technology and more effectively leverage their internal technology infrastructure. We believe that this model will allow us to more effectively
address the EDC needs of the largest pharmaceutical, bio-technology and CROs in the clinical trial industry. Also in 2007 we released our OC Connect TM solution (OC Connect). OC Connect integrates Oracles industry leading Clinical
Data Management System (CDMS), Oracle Clinical, with TrialMaster. Most of the industry leading pharmaceutical, bio-technology and CROs use Oracle Clinicals Global Library for storing all of their metadata standards for designing their clinical
databases and case report forms. We believe our OC Connect product will allow us to penetrate the market of firms using Oracle Clinical who are seeking a more robust, flexible and integratable EDC product.

Competitive Strengths

Low Operating Costs.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 in our opinion our employees are so productive, we are able to spread our fixed costs over a greater number of
clinical trials. We believe 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. We believe 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 by ensuring that we design our compensation policies and practices to derive long-term competitive advantages
operationally and financially.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TrialMaster is the Core of our product offerings. We believe our competitors have often added functionality to their products via acquisition or by
merger. We feel strongly 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: of quality, accountability, collegiality and a focus on the customer. The first step in building our culture 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.

Experienced 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 F. Wit, brings extensive worldwide pharmaceutical and general management experience to the Company. Randall G. Smith our Chairman and Chief Technology Officer is the
primary architect of TrialMaster. Our Chief Financial Officer, Ronald T. Linares, has worked for publicly held companies as a Chief Financial Officer since 1994. Stephen E. Johnson, our Chief Operating Officer brings more than 19 years of clinical
trials experience in sales management and business development to OmniComm. A. Kenneth Light, our Senior Vice President for Professional Services, has significant experience in implementing and managing large-scale software implementation and
consulting engagements. Sondra Smyrnios comes to OmniComm from the pharmaceutical industry with over 14 years of experience in clinical trial research. Ms. Smyrnios is our Senior Vice President of Clinical Services and Support. Thomas Wells is
our



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Senior Vice President of Technology. Mr. Wells has over 16 years of experience in the CRO and biotechnology industries and brings significant
information technology and EDC process design and implementation experience to our Company. We believe our management team provides us with a diversity of experience and talents with significant cross-functional industry experience. In addition to
our management team, two of our board members, Matthew Veatch and Guus van Kesteren, have extensive worldwide pharmaceutical, EDC and CRO industry experience.

Our Business Model

We understand that each customers clinical trial support service needs can be very different from trial to trial
and that each clinical teams comfort level with EDC and trial management is unique. Our approach to satisfying the diverse needs of our customers is a crawl, walk, run approach to web-based services adoption. TrialMaster has
historically been sold under an Application Service Provider (ASP) model, providing EDC and complementary services. TrialMaster V4.0 allows us to provide our customers with several business models including ASP, Technology
Transition, and Technology Transfer.

We offer a fully hosted ASP model designed to let the client bring study administration and set-up services in-house
yet continue to host the solution with us, and a complete Technology Transfer model for clients that want to bring their eClinical technology solution in-house. This methodology allows our customers to use our services at their own pace, allowing us
the flexibility to deliver eClinical solutions to a broader array of clinical trial sponsors.

Under our ASP and Technology Transition models, mission
critical data is housed in Cincinnati Bells e-business center, built within a hardened data center environment in Cincinnati, Ohio. For Technology Transfer engagements, OmniComm provides an array of implementation services such as
installation, configuration, training, and validation support to assist our customers during the migration in-house.

TrialMaster contracts provide for
flexible pricing that is based on both the size and duration of the clinical trial. Size parameters for ASP engagements include the number of case report forms (CRF) used to collect data and the number of sites utilizing TrialMaster. The client pays
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 updates, 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 are 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 is 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.

Pricing for Technology Transition and Technology Transfer is based on the transfer of a license for TrialMaster either on a perpetual or term license basis. Pricing is determined by the number of named users of the
licensee and the volume of CRF pages collected annually. Under our Technology Transfer model there is also an annual maintenance charge incurred for hosting and hosting related services. As part of our Technology Transition and Technology Transfer
model we offer Professional and Consulting services. The scope of services includes installation, implementation, validation and training services related to the purchase of a TrialMaster license. In addition, our professional services team provides
consulting services aimed at helping our clients adopt best practices related to eClinical use within their existing operations. Professional and consulting services are generally offered on a time-and-billing basis.

Our Software Products and Services

TrialMaster EDC Solution

Our core product is TrialMaster. TrialMaster, allows clinical trial Sponsors and investigative sites to easily and securely collect, validate, transmit and
analyze clinical study data including patient histories, patient dosing, adverse events and other clinical trial related information. TrialMaster uses Internet technologies to conduct and manage clinical trial data from geographically dispersed
sites. We provide eClinical solutions and related value-added services to pharmaceutical and biotechnology companies, medical device companies, clinical research organizations (CROs), academic research institutions and other clinical
trial sponsors. TrialMaster is designed to help 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,



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our customers can deploy customized electronic CRFs 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 has been designed using Microsofts .NET® architecture. Critical features of the application include: drag and drop trial building that
allows us to provide an efficient, easy to use trial building solution for internal and Technology Transfer or Technology Transition users; an extensive Library of re-usable forms allowing for more efficient and effective follow-on engagements;
real-time query management, reporting and resolution; on-demand importing of data using all of the leading industry standard formats; a robust randomization solution for patient enrollment and inventory tracking solutions for lot and drug shipment;
an integrated safety solution that allows for serious adverse event (SAE) tracking and reporting with MedWatch capabilities; integrated Ad-Hoc reporting is available through LogiXML and automated exports of data to client systems in various formats.

TrialMaster Archive (TMA) allows us to provide client data on a post database lock basis using the same TrialMaster browser view the client
utilizes while their clinical study is in production. TMA is delivered to the client via CD in a read-only format with the ability to export to study specific formats. TMA affords our clients and the FDA the ability to review clinical trial data by:
trial; site; patient; visit and by form parameters. TMA is available in read-only and print-friendly formats and with and without audit trails. 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 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.

TrialMaster Safety TrialMaster Safety is our Pharmacovigilance database. Integrated with TrialMaster, TrialMaster Safety accommodates both the MedDRA® and WHO-Drug dictionaries and is HIPAA and 21 CFR Part 11 compliant. TrialMaster Safety features include: the ability to code and store serious adverse event (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; inventory tracking of trial components and automatic notifications when certain trigger events occur; MEDWatch forms for US reporting or internationally; and electronic reporting of SAEs.

OC Connect

Our OC Connect solution integrates Oracles industry leading Clinical Data Management System (CDMS), Oracle Clinical, with OmniComms EDC solution, TrialMaster.
One of the biggest advantages that Oracle Clinical offers is its ability to scale and store large volumes of clinical and clinical related data. Many companies continue to use Oracle Clinicals Global Library for storing all of their metadata
standards for designing their clinical databases and case report forms. However, when these companies move to EDC, they typically have to rebuild their global library within their EDC system. With OC Connect, those companies can now load all or part
of their global library directly into TrialMaster. Standards can continue to be maintained in Oracle Clinical and more effectively and efficiently utilized in TrialMaster, thereby maintaining consistency across their clinical applications. Building
studies in TrialMaster can now be done using the same global library objects that exist in Oracle Clinical, simply by importing all or parts of the global library directly into TrialMaster. We believe this allows companies to significantly decrease
the amount of time it takes to set up a clinical trial in their TrialMaster EDC system by readily utilizing those standards that are defined in their Oracle Clinical global library.

Services

Our services include delivery of our hosted solutions and consulting services, customer support and
training and the delivery of implementation services for Technology Transfer, including installation, configuration, validation and training. The primary consulting services we offer for both ASP and Technology Transfer engagements 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Training. We provide extensive hands-on and eLearning-based TrialMaster training classes. Training classes can be conducted at a sponsor location, at an
investigator meeting, or at an investigator site and via Web-cast.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | System Integration. We help our clients integrate TrialMaster with existing systems or external systems (Patient Diaries, Medical Devices, and 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Installation. There are various architectures for deploying a secure EDC solution to remote investigator sites. This service explores different security,
performance and system management alternatives and helps the client design and install an optimal solution to meet your their needs.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Validation.We offer a validation test kit that includes test cases and documentation to completely validate the installation of TrialMaster against
regulatory requirements.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Industry Background

The eClinical industry is poised for widespread adoption over the next few years in both the domestic and international clinical trial market. Our research indicates that industry experts anticipate an enormous transition towards EDC in the
next 5 years with estimates from firms such as CenterWatch and Covance placing EDC use above 60% by the year 2010.

Furthermore, we believe that 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. We believe these trends have required companies to conduct increasingly
complex clinical trials and develop multinational clinical trial capability, while seeking to control costs. Concurrently, we believe demand for simplified integration and improved collaboration has driven EDC vendors to develop broader eClinical
trial suites to give sponsors shorter, less costly trials and give investigators easier ways to execute and manage them.

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.



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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.

Expansion of Approved Treatment Indications. There is substantial incentive on the part of the pharmaceutical and biotechnology drug and therapy owners to
expand the scope of FDA approved treatment indications for their already approved therapies. A significant benefit of developing new indications is the ability to extend patent protection for products already approved by the FDA.

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

Market Opportunity

Clinical trials are a 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. We believe 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. We believe 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 approximately 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 $32.9 million in potential revenue for each day a trial is delayed on a blockbuster drug
such as Lipitor®. Source: Pfizer, Inc. website.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Of 5,000 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. Source: Congressional Research Service, Library of Congress.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | According to a 2005 Tufts Center for Drug Development report, the average drug approved for sale by the FDA cost approximately $1.2 Billion 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 2005 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.

We believe that success in the EDC market is predicated on several criteria. As the industry grows and matures the ability of participants to fulfill the varied needs of clinical trial sponsors becomes more critical
to achieving operational and financial success. We believe these success criteria include:



| |  |  | Deployment options. Successful EDC vendors provide clinical trial sponsors flexibility in choosing whether to deploy EDC on an ASP, Technology Transfer or
Technology Transition basis. The ultimate criteria for selection of the means of technology delivery is often predicated on the size of the clinical trial sponsor.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interoperability. Most clinical trial sponsors have invested in other technology platforms to run their trials. These include clinical data management
systems, interactive voice response systems and Central Labs. The ability for an EDC solution to integrate with existing technology platforms is a key decision making factor.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Scalability. The ability to scale the EDC solutions to absorb additional projects seamlessly is important to trial sponsors. Scalable solutions will retain
their speed and performance metrics as projects and engagements increase in size.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Migration from hosted to technology transfer solutions. When clinical trial sponsors decide to bring the EDC services and solutions in-house it is vital that
they do not experience a degradation of speed, performance or system reliability.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Flexibility. The more robust EDC systems will be designed to provide the ability to increase functionality and guarantee interoperability with other industry
technology solutions. As the industry and technology matures clinical trial sponsors will demand new functionality without loss of performance or reliability.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Vendor stability. EDC vendors should be able to demonstrate a viable business model and financial structure that can sustain a long-term relationship with
clinical trial sponsors.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Systematic adoption of best practices. EDC vendors will be expected to assimilate best-practice workflows and process tools.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | Professional services. The adoption and implementation of EDC into a clinical trial environment requires significant financial, technical and human resource
investment on the part of clinical trial sponsors. A robust offering of professional services that fully integrate with the technological EDC offerings will be considered an integral part of any EDC purchase.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Market Trends

Industry analysts, including data from
Health Industry Insights on the EDC industry dated 2007, have identified several important issues driving the EDC marketplace. These issues include:



| |  |  | Spending on eClinical solutions is expected to increase at a 14.7% compound annual growth rate (CAGR) and total more than $6.0 billion from 2006  2010.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 2007 was expected to mark a tipping point, as the market we expected to experience a burst in acceleration, from 6.5% to 13.3% in the EDC adoption growth rate.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | By the end of 2007, nearly half (45%) of all new Phase I-III studies were be initiated using EDC.
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | In 2009, eClinical spending is expected to exceed $1.5 Billion.
| | - |  | ---------------------------------------------------------------



| |  |  | Starting in 2007, enterprise licensing and EDC subscription delivery models, as well as the rise of fierce competition enabled by data interchange standards such as
CDISC, will significantly decrease pricing in large Phase II and Phase III studies.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

License Agreement

On April 9, 2009, we entered into a Settlement and License Agreement with DataSci, LLC (DataSci) which relates to a lawsuit filed on June 18, 2008
in the United States District Court for the District of Maryland by DataSci against OmniComm alleging infringement of a U.S. Patent No. 6,496,827 B2 entitled Methods and Apparatus for the Centralized Collection and Validation of
Geographically Distributed Clinical Study Data with Verification of Input Data to the Distributed System (Licensed Patent) claimed to be owned by DataSci. Pursuant to the Settlement and License Agreement, the parties agreed to
enter into a Stipulated Order of Dismissal of the lawsuit filed by DataSci and DataSci granted us a worldwide, non-exclusive non-transferable right and license under the Licensed Patent the subject of the claim and the right to sublicense
TrialMaster on a technology Transfer and Technology Transition basis. The license expressly excludes the right to make, use, sell, import, market, distribute, oversee the operation of, or service systems covered by a claim (if any) of the Licensed
Patent to the extent such systems are used for creating and managing source documentation and conducting remote data validation in clinical trial studies using a tablet PC with stylus, touch screen device, digitizing tablet, digitizer pen, or
similar mobile processing device (Digitizing Device), wherein the source documentation is electronic and is completed using a Digitizing Device. Under the terms of the license, we are obligated to pay royalties quarterly for sales of
Licensed Products, as defined therein, from January 1, 2009 until the expiration of the Licensed Patent equal to two percent (2%) of OmniComms annual Gross Revenues or, alternatively, the annual minimum royalty payment(s), whichever
is greater, during any calendar year as follows: 2009$130,000; 2010$200,000; 2011$300,000; and 2012until expiration of the Licensed Patent$450,000 per year. In addition to the cash consideration the Company has issued a
warrant for 1,000,000 shares of our common stock with an exercise price of $.01 per share. The warrant has been granted for past use of the Licensed Patent. The warrant can be exercised by DataSci in month 24 or upon its sole discretion induce the
Company to pay $300,000 in cash in lieu of exercising the warrant.

Our Customers

As of December 31, 2008, we had approximately 50 customers, including several Fortune 1000 companies and had entered into 60 new business transactions during fiscal 2008. Our representative customers include
pharmaceutical, biotechnology, medical device, academic research institutions, CROs and other clinical trial sponsors. A sample of our customers includes:



|                              |  |                               
|----------------------------- |  | ------------------------------
|Trial Sponsor                 |  | Sponsor Type                  
|W. L. Gore                    |  | Medical Device                
|Gilead Sciences               |  | Biopharmaceutical             
|Columbia University (InChoir) |  | Academic                      
|Pharmapros                    |  | Contract Research Organization
|Ventracor                     |  | International Medical Device  



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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 2009 will include: increasing the
number of sales personnel employed both in the U.S. and in Europe, which will include the expansion of our inside sales force, increasing our attendance and marketing efforts at industry conferences and increasing the number of consumer to customer
sponsored events including webinars, symposiums, and other marketing events. As of December 31, 2008 our sales and marketing function consisted of eleven field sales personnel and product marketing specialists. In addition, OmniComm will be
releasing several additional product lines including a clinical data hub and Interactive Voice Response (IVR) solution. The clinical data hub will allow our customers to aggregate and report on clinical data across multiple systems, including our
own TrialMaster application. It will also allow additional flexibility for data exporting and will include support for Serious Adverse Events (SAEs) including support for the e2b format, CDISC SDTM, additional SAS support, and will expand upon
our current capabilities for supporting industry standards such as CDISC ODM v1.3 and HL7. Our IVR solution will provide additional integrated capabilities to our TrialMaster EDC application to allow for telephony-based randomization, ePRO (Patient
Reported Outcomes) and Drug Supply Tracking. The expansion of our clinical suite will provide additional benefits to our existing customers and will provide an additional revenue stream to increase our top and bottom lines.

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 R & D efforts are focused on developing new, complementary software solutions, as well as enhancing our existing
software solutions through the addition of increased functionality. Our development of TrialMaster and its subsequent improvements and refinements have been handled by our in-house staff of developers. In the past our philosophy towards software
development has been to design and implement all of our solutions through in-house development. We currently partner with several eClinical applications in an effort to expand the scope of products and services we offer our customers. In the past,
integrating these platforms has required R & D time, effort and expenditures. We anticipate expending R & D funds on these efforts as we expand these relationships to include more formalized relationships which could include revenue sharing
or private label arrangements. We expect future R & D efforts to be aimed at broadening the scope of TrialMaster functionality. These efforts may include select strategic alliances with software and service partners possessing clinical trial
industry experience. During fiscal 2007, we spent approximately $917,000 on R & D activities, the majority of which represented salaries to our developers. In fiscal 2008 we spent approximately $897,000 on R & D activities, the majority of
which represents salaries to our programmers and developers.

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 license agreements and other 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 are in the process of registering several
trademarks in the United States. We cannot predict whether these trademark registrations will provide meaningful protection. Additionally, trademark applications have been filed for various key components of our TrialMaster products and services.
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.



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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 names 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.

In addition, since the software and Internet industries are characterized by the
existence of a large number of patents, trademarks and copyrights it also involves frequent litigation based on allegations of infringement or other violations of intellectual property rights. We, and other companies in our industry, have entered
into a settlement and obtained a license from a patent holder to license third-party technology and other intellectual property rights that are incorporated into some elements of our services and solutions. Our technologies may not be able to
withstand third-party claims or rights against their use. Any intellectual property claims against us, with or without merit, could be time-consuming and expensive to litigate or settle, could divert management attention from executing our business
plan or require us to enter into royalty or licensing agreements with third parties. Such royalty or licensing agreements, if required, might not be available on terms acceptable to us or at all, which would have a material adverse effect upon our
business and financial position. There is no assurance that we will not become subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments
overlaps. An adverse determination on such a claim would increase our costs and could also prevent us from offering our technologies and services to others.

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 EDC applications, clinical data management systems and adverse event reporting software, including:



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



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



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



| |  |  | CROs with internally developed EDC, 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 EDC, 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;
| | - |  | --------------------------------------------------------------------



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| |  |  | 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.

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.



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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 began operations in Europe through our wholly owned
subsidiary OmniComm Europe BV which has ceased operations. During 2007, we expanded our European operations by creating a subsidiary in Germany, OmniComm Europe, GmbH and merged the operations of our other OmniComm Europe BV into that unit. Our
European subsidiary, OmniComm Europe, GmbH, operates out of an office in Bonn, Germany. We currently employ 14 employees in that office spanning all areas of our operation including study development, project management, quality assurance and
clinical support and services. Our European sales and business development efforts are managed out of this location as well.

Employees

We currently have 82 full time employees of which four are executives, three are administrative, 67 are programmers, engineers or technology specialists, four are
technology and systems managers and eight are in sales and marketing. We employ 65 employees out of our headquarters in Fort Lauderdale, Florida and seven field sales and marketing employees in California, Illinois, Georgia, Pennsylvania, New York,
Texas and North Carolina. We also employ two of or professional consultants in New Jersey. Our wholly-owned subsidiary, OmniComm Europe, GmbH, employs 14 employees in Bonn, Germany. 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 an operating subsidiary in Bonn, Germany. Our Internet website address is http://www.omnicomm.com. Our Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, 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.



|Item 1A. | Risk Factors
|-------- | ------------

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.

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 $5,773,469 and $10,878,521 in fiscal 2007 and 2008, respectively. At December 31, 2008, we had an accumulated deficit of approximately $47,800,180 and a working capital deficit of approximately $629,792. 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 2009, 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.

IF OUR LICENSE TO USE THIRD-PARTY TECHNOLOGIES IN OUR PRODUCTS IS TERMINATED, WE MAY BE UNABLE TO DEVELOP, MARKET OR SELL OUR PRODUCTS.

We
are dependent on a license agreement relating to our current and possibly proposed products that give us rights under intellectual property rights of a third party. This agreement can be terminated on short notice by the licensor if we default on
our obligations under the license and fail to cure such default after notice is provided. The license imposes commercialization, certain sublicensing, royalty, insurance and other obligations on us. Our failure, or any third partys failure, to
comply with the terms of this license could result in our losing our rights to the license, which could result in our being unable to develop or sell our products.



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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 R & D 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 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.

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 $1,626,694 for the quarter ended December 31, 2008 to an operating loss of $381,590 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;
| | - |  | ------------------------------------------------------------------------



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| |  |  | 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 EDC 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.

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 45% of our revenues during 2007 and approximately 54% of our revenues during 2008. One customer accounted for 13% and
another customer accounted for 10% of our revenues during 2007 or approximately $470,000 and $373,000, respectively. One customer accounted for 36% of our revenues during 2008, or approximately $2,238,198. 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 or professional liability insurance coverages 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.



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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 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. 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, license agreements, trademarks and trade secret laws to
protect our proprietary rights. Although we intend to protect our rights vigorously, to the extent that our intellectual property and other proprietary rights are not adequately protected, third parties might gain access to our proprietary
information, develop and market products or services similar to ours, or use trademarks similar to ours, each of which could materially harm our business. If we resort to legal proceedings to enforce our intellectual property rights or to determine
the validity and scope of the intellectual property or other proprietary rights of others, the proceedings could be burdensome and expensive, even if we were to prevail. 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, which may have a
material adverse effect on our business, results of operations or financial condition.

CLAIMS THAT WE OR OUR TECHNOLOGIES INFRINGE UPON THE
INTELLECTUAL PROPERTY OR OTHER PROPRIETARY RIGHTS OF A THIRD PARTY MAY REQUIRE US TO INCUR SIGNIFICANT COSTS, TO ENTER INTO ROYALTY OR LICENSING AGREEMENTS OR TO DEVELOP OR LICENSE SUBSTITUTE TECHNOLOGY.



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We have been, and may in the future be, subject to claims that our technologies infringe upon the intellectual property
or other proprietary rights of a third party. For instance, in April 2009, we settled a lawsuit against us which alleged that we infringed a patent claimed to be owned by the plaintiff. We incurred substantial professional fees in connection with
this claim and agreed to enter into a license for the patent pursuant to which we issued warrants and agreed to pay royalties and future royalties in order to settle this litigation. In addition, this licensor could become subject to similar
infringement claims. Although we believe that our software solutions do not infringe the patents or other intellectual property rights of any third party, we cannot assure you that our technology does not infringe patents or other intellectual
property rights held or owned by others or that they will not in the future. Any future claims of infringement could cause us to incur substantial costs defending against such claims, even if the claims are without merit, and could distract our
management from our business. Moreover, any settlement or adverse judgment resulting from such claims could require us to pay substantial amounts or obtain a license to continue to use the technology that is the subject of the claim, or otherwise
restrict or prohibit our use of the technology. There can be no assurance that we would be able to obtain a license from the third party asserting the claim on commercially reasonable terms, if at all, that we would be able to successfully develop
alternative technology on a timely basis, if at all, or that we would be able to obtain a license from another provider of suitable alternative technology to permit us to continue offering, and our customers to continue using, the applicable
technology. In addition, we generally provide in our customer agreements that we will indemnify our customers against third-party infringement claims relating to our technology provided to the customer, which could obligate us to fund significant
amounts. Infringement claims asserted against us or our licensor may have a material adverse effect on our business, results of operations or financial condition

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

At December 31, 2008, we had outstanding borrowings of approximately $8,041,800 of which



| |  |  | approximately $87,500, at 10% interest, was due June 2004. We are n default in the payment of principal and interest;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | approximately $111,800, at 9% interest, is due in January 2011,
| | - |  | ---------------------------------------------------------------



| |  |  | approximately $300,000, at 12% interest, is due in January 2011,
| | - |  | ----------------------------------------------------------------



| |  |  | approximately $2,270,000 at 10% interest is due in August 2010,
| | - |  | ---------------------------------------------------------------



| |  |  | approximately $5,075,000 at 12% interest is due in December 2010, and
| | - |  | ---------------------------------------------------------------------



| |  |  | approximately $197,500 at 9% interest is due in January 2011.
| | - |  | -------------------------------------------------------------

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.

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, 2008 contained an explanatory paragraph indicating there is
substantial doubt about our ability to continue as a going concern.

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;
| | - |  | --------------------------------------------------



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



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



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



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

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
April 9, 2009 we had 76,579,951 shares of common stock issued and outstanding and 53,040,467 shares issuable upon the conversion of preferred stock or exercise of warrants or options. Of these shares, 41,327,289 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 six months, 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 April 9, 2009, we had a total of 50,290,318 shares of our common stock
underlying options, warrants and other convertible securities and 2,750,149 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.

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.



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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 4,125,224 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 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



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

Our principal executive offices are
located in commercial office space in approximately 10,200 square feet at 2101 West Commercial Blvd, Fort Lauderdale, Florida, and our telephone number is (954) 473-1254. We lease these offices under the terms of a lease expiring in July 2011.
Our annual rental payment under this lease is $296,400 plus sales tax.

Our European office is located in commercial office space in approximately 2,100
square feet at Graurheindorfer Strasse 35-39, Bonn, Germany. We lease these offices under the terms of a least expiring in December 2010. Our annual rental payment under this lease is 28,800 Euros or approximately $38,000.

Our secondary data site, which serves as our primary disaster recovery location, is located in Cincinnati, Ohio and is leased from Cincinnati Bell Technology Solutions.
We lease this space under the terms of a lease expiring in March 2011. We expect our annual lease payment to be approximately $53,000 plus sales tax.

We
maintain a business-continuity site for disaster recovery purposes in Ft. Lauderdale, Florida. We lease from our landlord, Gold Coast 1-Vault, an office suite and cubicles that will allow us to maintain operations in the event of a disaster. Our
annual rental payment is $90,000 plus sales tax. This lease expires in August 2011.

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 June 18, 2008 Datasci, LLC
(Datasci) filed Civil Action No. 8:08-cv-01583-MJG in the United States District Court for the District of Maryland (Northern Division) against us under the caption Datasci, LLC Plaintiff, vs. Covance Inc. and OmniComm Systems,
Inc., Defendants. Datasci asserted that our products and our services infringe a United States patent claimed to be owned by Datasci (Patent No. 6,496,827B2) entitled Methods and Apparatus for the Centralized Collection and Validation
of Geographically Distributed Clinical Study Data with Verification of Input Data to the Distributed System (Licensed Patent). Datasci sought a judgment permanently enjoining us from infringing on the described patent and an
unidentified amount of compensatory damages based on the alleged infringement, including lost profits, treble damages and attorneys fees, court costs and interest. We filed an Answer to Datascis complaint on September 8, 2008
denying that we infringe the patent which Datasci claimed to own. The Answer also challenged the validity of the patent and asserted numerous affirmative defenses.

On April 9, 2009, we entered into a Settlement and License Agreement with DataSci, LLC (DataSci) which relates to the lawsuit filed on June 18, 2008 in the United States District Court for the District of Maryland by
DataSci against OmniComm alleging infringement of the Licensed Patent. Pursuant to the Settlement and License Agreement, the parties agreed to enter into a Stipulated Order of Dismissal of the lawsuit filed by DataSci and DataSci granted us a
worldwide, non-exclusive non-transferable right and license under the Licensed Patent the subject of the claim and the right to sublicense TrialMaster on a technology Transfer and Technology Transition basis. The license expressly excludes the right
to make, use, sell, import, market, distribute, oversee the operation of, or service systems covered by a claim (if any) of the Licensed Patent to the extent such systems are used for creating and



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managing source documentation and conducting remote data validation in clinical trial studies using a tablet PC with stylus, touch screen device, digitizing
tablet, digitizer pen, or similar mobile processing device (Digitizing Device), wherein the source documentation is electronic and is completed using a Digitizing Device. Under the terms of the license, we are obligated to pay royalties
quarterly for sales of Licensed Products, as defined therein, from January 1, 2009 until the expiration of the Licensed Patent equal to two percent (2%) of OmniComms annual Gross Revenues or, alternatively, the annual minimum royalty
payment(s), whichever is greater, during any calendar year as follows: 2009 - $130,000; 2010 - $200,000; 2011 - $300,000; and 2012 - until expiration of the Licensed Patent - $450,000 per year. In addition to the cash consideration the Company has
issued a warrant for 1,000,000 shares of our common stock with an exercise price of $.01 per share. The warrant has been granted for past use of the Licensed Patent. The warrant can be exercised by DataSci in month 24 or upon its sole discretion
induce the Company to pay $300,000 in cash in lieu of exercising the warrant.

On March 31, 2008 Diane Strait filed an EEOC claim against OmniComm
involving allegations of age discrimination by the Company in violation of the Age Discrimination in Employment Act. The Company submitted a response to the EEOC Request for Information and Response to Supplemental Request for Information in
August, 2008. There has been no additional activity from the EEOC on this file.



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

None.

PART II



|ITEM 5. | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | -----------------------------------------------------------------------------------------------

Our common stock is traded on a limited basis on the OTC Bulletin Board under the symbol OMCM. The following table sets forth the range of high and low bid 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 2007 |  |      |      |     |   |     
|1stQuarter  |  | $    | 0.61 |     | $ | 0.48
|2ndQuarter  |  | $    | 0.66 |     | $ | 0.57
|3rdQuarter  |  | $    | 0.71 |     | $ | 0.66
|4thQuarter  |  | $    | 0.71 |     | $ | 0.64
|            |  |     
|Fiscal 2008 |  |      |      |     |   |     
|1stQuarter  |  | $    | 0.65 |     | $ | 0.53
|2ndQuarter  |  | $    | 0.63 |     | $ | 0.52
|3rdQuarter  |  | $    | 0.63 |     | $ | 0.35
|4thQuarter  |  | $    | 0.40 |     | $ | 0.24

On April 9, 2009, the closing price of our common stock as reported on the OTC Bulletin Board was $0.25. At
April 9, 2009 we had approximately 400 shareholders of record; however, we believe that we have in excess of approximately 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.



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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, 2008.



|                                                       |  |                                                                                         |  |                                                                          |      |                                                                                                                                       |          
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ---- | ------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                                                       |  | Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rights |  | Weighted averageexercise price ofoutstanding options,warrants and rights |      | Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding
securitiesreflected in column (a))
|Plan Category                                          |  | (a)                                                                                     |  | (b)                                                                      |      | (c)                                                                                                                                  
|Equity Compensation plans approved by stockholders:    |  |                                                                                         |  |                                                                          |      |                                                                                                                                       |          
|1998 Stock Incentive Plan                              |  | 10,997,700                                                                              |  | $                                                                        | 0.46 |                                                                                                                                       | 1,502,300
|                                                       |  |                                                                                         |  |                                                                          |      |                                                                                                                                       |          
|Equity compensation plans not approved by stockholders |  | None                                                                                    |  |                                                                          | n/a  |                                                                                                                                       | None     
|                                                       |  |                                                                                         |  |                                                                          |      |                                                                                                                                       |          
|Total                                                  |  | 10,997,700                                                                              |  | $                                                                        | 0.46 |                                                                                                                                       | 1,502,300
|                                                       |  |                                                                                         |  |                                                                          |      |                                                                                                                                       |          



|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

Not applicable to a
smaller reporting company.



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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-K 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-K 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



21



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

Overview

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

During fiscal 2008
we continued our efforts in executing its strategy. The primary focus of our strategy includes:



| |  |  | Stimulating demand by providing clinical trial Sponsors with high value eClinical applications and services;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | Emphasizing low operating costs;
| | - |  | --------------------------------



| |  |  | Expanding our business model by offering our software solution, TrialMaster, on a licensed basis in addition to our existing hosted-services solutions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

According to a
2008 EvaluatePharma report, global R & D expenditures by the pharmaceutical and BioTech industries were approximately $120 billion in 2008, with approximately 50% of that amount spent by North American-based pharmaceutical, biotechnology and
medical device companies. A 2007 report by Health Industry Insights states that by the end of 2007, approximately 45% of all new Phase I-III studies were initiated using EDC. The report also states that the total addressable market for EDC and
eClinical services is expected to grow from approximately $600MM currently to $1.8B in 2010. Our operating focus is first to increase our sales and marketing capabilities and penetration rate and secondly, to continue developing and improving
TrialMaster to ensure our services and products remain an attractive, high-value EDC choice. During 2009 we anticipate continuing to increasing our marketing and sales personnel and will look to aggressively expand the scope of our CRO Preferred
Program in order to increase our penetration of the domestic CRO market. Additionally, we believe we have established an effective presence in the European clinical trial market and will seek to aggressively expand the scope of our sales and
marketing operations there.

Our ability to compete within the EDC industry is predicated on our ability to continue enhancing and broadening the scope of
solutions offered through TrialMaster. Our R & D efforts are focused on developing new, complementary software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. During fiscal 2007
and 2008, we spent approximately $917,000 and $897,000 respectively, on R & D 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.



22



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##### Table of Contents

The Year-ended December 31, 2008 Compared With the Year-ended December 31, 2007

Results of Operations

A summarized version of our results of
operations for the years ended December 31, 2008 and December 31, 2007 is included in the table below.

Summarized Statement of
Operations



|                                               |  |                                 |             |   |              |        |   |      |   |            |              |  |        |         |  |   |            |   |  |        |  
|---------------------------------------------- |  | ------------------------------- | ----------- | - | ------------ | ------ | - | ---- | - | ---------- | ------------ |  | ------ | ------- |  | - | ---------- | - |  | ------ | -
|                                               |  | For the years endedDecember 31, |             |   |              |        |   |      |  
|                                               |  | 2008                            |             |   | % ofRevenues |        |   | 2007 |   |            | % ofRevenues |  |        | $Change |  |   | %Change    |  
|Total revenues                                 |  | $                               | 6,269,614   |   |              |        |   |      | $ | 3,723,841  |              |  |        |         |  | $ | 2,545,773  |   |  | 68.4   | %
|                                               |  |                                 |             |   |              |       
|Cost of sales                                  |  |                                 | 1,351,564   |   |              | 21.6   | % |      |   | 1,033,824  |              |  | 27.8   | %       |  |   | 317,740    |   |  | 30.7   | %
|                                               |  |                                 |             |   |              |        |   |      |   |            |              |  |        |         |  |   |            |   |  |        |  
|                                               |  |                                 |             |   |              |       
|Gross margin                                   |  |                                 | 4,918,050   |   |              | 78.4   | % |      |   | 2,690,017  |              |  | 72.2   | %       |  |   | 2,228,033  |   |  | 82.8   | %
|                                               |  |                                 |             |   |              |       
|Salaries, benefits and related taxes           |  |                                 | 8,825,032   |   |              | 140.8  | % |      |   | 5,886,663  |              |  | 158.1  | %       |  |   | 2,938,369  |   |  | 49.9   | %
|Rent                                           |  |                                 | 554,475     |   |              | 8.8    | % |      |   | 342,255    |              |  | 9.2    | %       |  |   | 212,220    |   |  | 62.0   | %
|Consulting                                     |  |                                 | 302,502     |   |              | 4.8    | % |      |   | 320,360    |              |  | 8.6    | %       |  |   | (17,858    | ) |  | -5.6   | %
|                                               |  |                                 |             |   |              |       
|Legal and professional fees                    |  |                                 | 612,634     |   |              | 9.8    | % |      |   | 291,959    |              |  | 7.8    | %       |  |   | 320,675    |   |  | 109.8  | %
|                                               |  |                                 |             |   |              |       
|Selling, general and administrative            |  |                                 | 544,012     |   |              | 8.7    | % |      |   | 522,565    |              |  | 14.0   | %       |  |   | 21,447     |   |  | 4.1    | %
|                                               |  |                                 |             |   |              |        |   |      |   |            |              |  |        |         |  |   |            |   |  |        |  
|                                               |  |                                 |             |   |              |       
|Total Operating Expenses                       |  |                                 | 12,116,899  |   |              | 193.3  | % |      |   | 7,906,033  |              |  | 212.3  | %       |  |   | 4,210,866  |   |  | 53.3   | %
|                                               |  |                                 |             |   |              |        |   |      |   |            |              |  |        |         |  |   |            |   |  |        |  
|                                               |  |                                 |             |   |              |       
|Operating income (loss)                        |  |                                 | (7,198,849  | ) |              | -114.8 | % |      |   | (5,216,016 | )            |  | -140.1 | %       |  |   | (1,982,833 | ) |  | 38.0   | %
|                                               |  |                                 |             |   |              |       
|Interest Expense                               |  |                                 | (3,300,654  | ) |              | -52.6  | % |      |   | (57,777    | )            |  | -1.6   | %       |  |   | (3,242,877 | ) |  | 5612.7 | %
|Interest income                                |  |                                 | 7,112       |   |              | 0.1    | % |      |   | 20,085     |              |  | 0.5    | %       |  |   | (12,973    | ) |  | -64.6  | %
|Patent litigation settlement                   |  |                                 | (2,170,483  | ) |              | -34.6  | % |      |   |           |              |  | 0.0    | %       |  |   | (2,170,483 | ) |  | n/m    |  
|Unrealized Gain on Derivatives                 |  |                                 | 2,114,194   |   |              | 33.7   | % |      |   |           |              |  | 0.0    | %       |  |   | 2,114,194  |   |  | n/m    |  
|                                               |  |                                 |             |   |              |        |   |      |   |            |              |  |        |         |  |   |            |   |  |        |  
|                                               |  |                                 |             |   |              |       
|Net (loss)                                     |  |                                 | (10,594,561 | ) |              | -169.0 | % |      |   | (5,253,708 | )            |  | -141.1 | %       |  |   | (5,340,853 | ) |  | 101.7  | %
|Total preferred stock dividends                |  |                                 | (283,960    | ) |              | -4.5   | % |      |   | (519,761   | )            |  | -14.0  | %       |  |   | 235,801    |   |  | -45.4  | %
|                                               |  |                                 |             |   |              |        |   |      |   |            |              |  |        |         |  |   |            |   |  |        |  
|Net (loss) attributable to common stockholders |  | $                               | (10,878,521 | ) |              | -173.5 | % |      | $ | (5,773,469 | )            |  | -155.0 | %       |  | $ | (5,105,052 | ) |  | 88.4   | %
|                                               |  |                                 |             |   |              |        |   |      |   |            |              |  |        |         |  |   |            |   |  |        |  

Results of Operations

Revenues for the year-ended December 31, 2008 were $6,269,614 compared to $3,723,841 for the year-ended December 31, 2007, an increase of 68.4%. Industry acceptance of EDC continues to increase. Industry estimates from Health
Industry Insights are that EDC was a $500 million market in 2008, with an annualized 15% growth rate for the next three-to-five years. 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



23



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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 the year-ended 2007
approximately 63.2% of revenues were generated by trial setup activities, 27.9% were generated from on-going maintenance fees and approximately 8.9% was generated from fees charged for changes to on-going clinical trial engagements. During the
year-ended 2008 we generated 74.0% of revenues from setup fees, 19.2% from on-going maintenance fees and 6.8% 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 45% of our revenues during the year-ended December 31, 2007 and approximately 54% of our revenues during the year-ended December 31, 2008. One customer accounted for 13% and another accounted for
10% of our revenues during fiscal 2007. One customer accounted individually for 36% of our revenues during fiscal 2008. 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 from $1,033,824 for the year-ended December 31, 2007 to $1,351,564 for the year-ended December 31, 2008, an increase of 30.7%.
Cost of goods sold were approximately 27.8% of sales for the year-ended December 31, 2007 compared to 21.6% for the year-ended December 31, 2008. 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 2008 due to the addition of four additional programmers and two additional quality analysts as part of our clinical trial
operations.

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 approximate 25% of sales during fiscal 2009. 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. In addition, we expect the cost of service for our licensing business to approximate 25% of revenues. TrialMaster, (V4.0) increased the efficiency of our trial building operations by approximately 20% through the use of additional automated
tools, the ability to use our library of pre-existing CRFs and through the use of our drag and drop clinical trial building too. V4.0 was 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 74.5% of total Operating Expenses for the year-ended December 31, 2007 compared with 72.8% of total Operating Expenses for the year-ended December 31, 2008. Salaries and related expenses totaled $5,886,663 for the year-ended
December 31, 2007 compared to $8,825,032 for the year-ended December 31, 2008, an increase of 49.9%. We currently employ approximately 61 employees out of our Ft. Lauderdale, Florida corporate office, 12 out-of-state employees and 14
employees out of a wholly-owned subsidiary in Bonn, Germany. We expect to increase personnel within our production and quality analysis functions in concert with anticipated increases in TrialMaster engagements during fiscal 2009. We will look to
selectively add experienced sales and marketing personnel in fiscal 2009 in an effort to increase our market penetration, particularly in Europe, and to continue broadening our client base domestically. During the years ended December 31, 2007
and December 31, 2008 we incurred $980,823 and $1,321,004, respectively, in salary expense in connection with our adoption of SFAS No. 123(R), Share-Based Payment, which establishes standards for transactions in which an entity exchanges
its equity instruments for goods or services. This standard requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. We expect that the
adoption of SFAS 123R will continue to have an impact on our results of operations in the future.

Rent and related expenses increased by $212,220 during
the year-ended December 31, 2008 when compared to the year-ended December 31, 2007. We expanded our corporate office lease that runs through July 2011 to include a total of approximately 10,000 square feet. We established a disaster
recovery site at a Cincinnati Bell owned Co-Location facility in Cincinnati, Ohio and will continue utilizing this facility for the foreseeable future since it is designed to ensure 100% production system up-time and to provide system redundancy. We
lease co-location and disaster recovery space and services from Gold Coast 1-Vault in the Ft. Lauderdale, Florida area. This facility provides us with disaster recovery and business continuity services for our operations. This lease expires in
August 2011. We currently lease office space in Bonn, Germany for our European subsidiary, OmniComm Europe, GmbH. That lease expires in December 2010.



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Consulting services expense was $320,360 for the year ended December 31, 2007 compared with $302,502 for the year
ended December 31, 2008. Consulting services were comprised of fees paid to consultants for help with developing our computer applications and for fees incurred as part of our employee recruiting programs.

Legal and professional fees totaled $291,959 for the year-ended December 31, 2007 compared with $612,634 for the year-ended December 31, 2008, an increase of
approximately $320,675. Professional fees include fees paid to our auditors for services rendered on a quarterly and annual basis in connection with our SEC filings and fees paid to our attorneys in connection with representation in matters
involving litigation or for services rendered to us related to securities and SEC related matters. During 2008, we spent approximately $171,250 on legal fees associated with our defense in an alleged patent infringement lawsuit.

Selling, general and administrative expenses (SGA) were $522,565 for the year-ended December 31, 2007 compared to $544,012 for the year-ended
December 31, 2008, an increase of 4.1%. These expenses relate primarily to costs incurred in running our offices in Fort Lauderdale and Bonn, Germany on a day-to-day basis 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 $133,974 from $150,139 for the year-ended December 31, 2007 to $284,113 for the year-ended December 31, 2008, an increase of approximately 89.2%. We expect SGA expenses to continue increasing as we intensify and extend our
selling and marketing efforts.

Interest expense was $3,300,654 during the year ended December 31, 2008 compared to $57,777 for the year ended
December 31, 2007, an increase of $3,242,877. Interest incurred to related parties was $216,810 during the year ended December 31, 2008 and $16,650 for the year ended December 31, 2007. The increase in interest expense can be
attributed to debt financings that were completed during fiscal 2008. Included in interest expense during fiscal 2008 is the accretion of discounts recorded related to financial instrument derivatives that were deemed a part of those financings. The
table below provides detail on the amounts of interest attributed to each of the financings.



|                                         |  |                       |           |                       |   |                     |  |   |          
|---------------------------------------- |  | --------------------- | --------- | --------------------- | - | ------------------- |  | - | ---------
|Debt Description                         |  | 2008 Interest Expense |           | 2007 Interest Expense |   | Change 2008vs. 2007
|Accretion of Discount from Derivatives   |  | $                     | 2,937,497 |                       | $ | -0-                 |  | $ | 2,937,497
|Feb. 2008 Secured Convertible Debentures |  |                       | 155,808   |                       |   | -0-                 |  |   | 155,808  
|August 2008 Convertible Notes            |  |                       | 77,117    |                       |   | -0-                 |  |   | 77,117   
|December 2008 Convertible Notes          |  |                       | 26,695    |                       |   | -0-                 |  |   | 26,695   
|                                         |  |                       |           |                       |   |                     |  |   |          
|Total                                    |  | $                     | 3,197,117 |                       | $ | -0-                 |  | $ | 3,197,117
|                                         |  |                       |           |                       |   |                     |  |   |          

We evaluate the cost of capital available to us in combination with our overall capital structure and the
prevailing market conditions in deciding what financing best fulfills our short and long-term capital needs. Given the difficult overall economic climate and in particular the difficulties micro-cap firms have experienced in obtaining financing, we
believe the structure and terms of the transactions we entered into during 2008 were obtained at the best terms available to the Company. During the year ended December 31, 2008 we issued $9,340,000 in notes payable and Convertible Debt,
including $7,070,000 to members of our Board of Directors and Officers of the Company. During the year ended December 31, 2007, we issued $211,800 in promissory notes.

We recorded unrealized gains on derivative liabilities associated with the issuance of convertible debt that occurred during fiscal 2008. We recorded $2,114,194 during the year ended December 31, 2008 compared
with $0 during the year ended December 31, 2007. The unrealized gains can be attributed to fair value calculations undertaken periodically on the warrant and conversion feature liabilities (discounts) recorded by us at the time the convertible
debt was issued. Accordingly the warrant and conversion feature liabilities are increased or decreased based on the fair value calculation made.

There
were arrearages of $210,574 in 5% Series A Preferred Stock dividends, $39,467 in Series B Preferred Stock dividends and $269,720 in Series C Preferred Stock dividends for the year-ended December 31, 2007, compared with arrearages of $206,692 in
5% Series A Preferred Stock dividends, $9,753 in Series B Preferred Stock dividends and $67,245 in Series C Preferred Stock dividends for the year-ended December 31, 2008. We deducted $519,761 and $283,960 from Net Income (Loss) Attributable to
Common Stockholders for the year-ended December 31, 2007 and December 31, 2008, respectively, relating to undeclared Series A, B and C Convertible Preferred Stock dividends.



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Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. We have historically experienced negative cash
flows and have relied on the proceeds from the sale of debt and equity securities to fund our operations. In addition, we have utilized stock-based compensation as a means of paying for consulting and salary related expenses.

The table provided below summarizes key measures of our liquidity and capital resources:

Liquidity and Capital Resources



|                                                            |  |                               |   |  |                   |   |  |          
|----------------------------------------------------------- |  | ----------------------------- | - |  | ----------------- | - |  | ---------
|                                                            |  | December 31, 2008             |   |  | December 31, 2007 |   |  | Change   
|Cash                                                        |  | 2,035,818                     |   |  | 481,961           |   |  | 1,553,857
|                                                            |  |                               |  
|Accounts Receivable, net of allowance for doubtful accounts |  | 2,607,893                     |   |  | 769,325           |   |  | 1,838,568
|Current Assets                                              |  | 4,742,273                     |   |  | 1,288,914         |   |  | 3,453,359
|                                                            |  |                               |  
|Accounts Payable and accrued expenses                       |  | 1,085,700                     |   |  | 696,281           |   |  | 389,419  
|Notes payable, current portion                              |  | 111,800                       |   |  |                  |   |  | 111,800  
|Patent litigation settlement liability, current portion     |  | 241,464                       |   |  |                  |   |  | 241,464  
|Deferred revenue, current portion                           |  | 3,549,058                     |   |  | 1,560,370         |   |  | 1,988,688
|Convertible notes payable, current portion                  |  | 384,043                       |   |  | 87,500            |   |  | 296,543  
|Current Liabilities                                         |  | 5,372,065                     |   |  | 2,344,151         |   |  | 3,027,914
|                                                            |  |                               |  
|Working Capital (Deficit)                                   |  | (629,792                      | ) |  | (1,055,237        | ) |  | 425,445  
|                                                            |  |                              
|                                                            |  | Disclosure for theyears ended |   |  |                  
|                                                            |  | December 31, 2008             |   |  | December 31, 2007 |   |  |          
|Net cash provided by (used in) operating activities         |  | (5,293,720                    | ) |  | (3,594,090        | ) |  |          
|Net cash provided by (used in) investing activities         |  | (539,428                      | ) |  | (322,483          | ) |  |          
|Net cash provided by financing activities                   |  | 7,393,973                     |   |  | 4,350,282         |   |  |          
|                                                            |  |                               |  
|Net increase (decrease) in cash and cash equivalents        |  | 1,553,857                     |   |  | 443,707           |   |  |          

Cash and cash equivalents increased by $1,553,857 to $2,035,818 at December 31, 2008 from $481,961 at
December 31, 2007. This was the result of cash provided by financing activities of $7,393,973 offset by cash used in operating activities of approximately $5,293,720 and $539,428 used in investing activities. The significant components of the
activity include a loss from operations of approximately $10,594,561 offset by non-cash items of $4,893,069 and a net amount after repayments of debt of $7,393,973 we raised through the issuance of debt and equity securities offset by $539,428 used
in investing activities and increases in cash of $407,773 from changes in working capital accounts.

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

Presently, we have
approximately $650,000 planned for capital expenditures to further the Companys growth during fiscal 2009 which will be funded through cash from operations.



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##### Table of Contents

Contractual Obligations

The following table sets forth our contractual obligations during the next five years as of December 31, 2008:



|                             |  |                        |  |                 |     |  |           |     |  |           |     |  |         
|---------------------------- |  | ---------------------- |  | --------------- | --- |  | --------- | --- |  | --------- | --- |  | --------
|Contractual Obligations      |  | Payments Due by Period
|                             |  | Total                  |  | Less than1 year |     |  | 1-2Years  |     |  | 2-3 Years |     |  | 3-5Years
|Long Term Debt (1)           |  | 309,300                |  | 111,800         | (2) |  | 0         |     |  | 197,500   | (3) |  | 0       
|Secured Convertible Debt (1) |  | 300,000                |  | 300,000         | (4) |  | 0         |     |  | 0         |     |  | 0       
|Convertible Notes (1)        |  | 7,432,500              |  | 87,500          | (5) |  | 7,345,000 | (6) |  |           |     |  |         
|Operating Lease Obligations  |  | 1,162,167              |  | 450,596         |     |  | 463,471   |     |  | 248,100   |     |  |        
|Patent Litigation Settlement |  | 1,955,392              |  | 255,392         | (7) |  | 500,000   |     |  | 300,000   |     |  | 900,000 
|Financial Advisory Agreement |  | 90,000                 |  | 90,000          | (8) |  | 0         |     |  | 0         |     |  | 0       
|                             |  |                        |  |                 |     |  |           |     |  |           |     |  |         
|                             |  |                        |  |                 |    
|Total                        |  | 11,249,359             |  | 1,295,288       |     |  | 8,308,471 |     |  | 745,600   |     |  | 900,000 
|                             |  |                        |  |                 |     |  |           |     |  |           |     |  |         



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

|2. | Includes $111,800 of 9% notes payable that mature in January 2009.
|-- | ------------------------------------------------------------------

|3. | Includes $197,500 of 9% notes payable that mature in January 2011.
|-- | ------------------------------------------------------------------

|4. | Includes $300,000 of 12% Convertible Notes that mature in January 2009.
|-- | -----------------------------------------------------------------------

|5. | Includes $87,500 of 10% 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.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Includes $2,270,000 in 10% Convertible Notes that mature in August 2010 and $5,075,000 in 12% Convertible Notes that mature in December 2010.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------

|7. | Relates to guaranteed minimum payments owed in connection with our settlement of a patent infringement lawsuit brought against the Company by Datasci, LLC.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | Relates to Financial Advisory fees paid to Noesis Capital Corp., our Placement Agent and a 5% shareholder in our Company.
|-- | -------------------------------------------------------------------------------------------------------------------------

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

We are
currently in arrears on principal and interest payments owed totaling $159,752 on our 10% Convertible Notes. We were in default effective January 30, 2002.

On February 29, 2008, we sold an aggregate of $2,325,000 principal amount 10% Secured Convertible Debentures and common stock purchase warrants to purchase an aggregate of 2,930,675 shares of our common stock, which debentures bear
interest at 10% per annum, and matured on August 29, 2008. All of our assets serve as collateral under the outstanding Secured Convertible Debentures. On August 29, 2008, the Company repaid $1,000,000 of the Debentures. The remaining
$1,325,000 was extended pursuant to an Extension Agreement (the Extension). The maturity date was changed to December 1, 2008. In accordance with the Extension, the conversion price of the Debentures was changed from $0.595 per share to
$0.50 per share. Additionally, the investors who agreed to the Extension were granted one warrant (the Extension Warrants) for each share of stock issuable upon conversion of the Debentures at $0.50 per share conversion price. The
exercise price of the Warrants was changed from $0.75 per share to $0.60 per share pursuant to the Extension. The exercise price of the Extension Warrants is $0.60 per share. On December 1, 2008 we repaid $500,000 of Debentures and on
December 16, 2008 $525,000 of the Debentures were converted by four investors including two of our directors and one of our officers into a private placement of Convertible Notes. The remaining $300,000 was extended and the maturity date was
changed to January 31, 2009. If we should default on these obligations, the holders could foreclose on our assets and we would be unable to continue our business and operations.

In May, 2008, we sold an aggregate of $210,000 principal amount Convertible Note and Common Stock Purchase Warrants to purchase an aggregate of 264,706 shares of our Common Stock, which note carried interest at
10% per year and was due on September 30, 2010. This note was convertible at the option of the holder into any securities we issue (New Securities) before



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maturity of the Convertible Note on the same terms and conditions of the sale of the New Securities. On June 10, 2008, we issued a promissory note with
a principal amount of $300,000 to Cornelis Wit, our Chief Executive Officer and a Director. This note was convertible at the option of the holder into any securities we issue (New Securities) before maturity of the Convertible Note on
the same terms and conditions of the sale of the New Securities. The promissory note carried interest at 10% per annum and was due on September 30, 2010. On August 29, 2008 the Convertible Note and promissory notes were converted as
part of a private placement of Convertible Notes that was closed on August 29, 2008.

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

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

On December 16, 2008, we sold, $5,075,000 principal amount Convertible Notes (the
Convertible Notes) and common stock purchase warrants (the Convertible Note Warrants) to purchase an aggregate of 10,150,000 shares of our common stock to eleven accredited investors including our Chief Executive Officer,
Chief Operation Officer, Chief Technology Officer, Chief Financial Officer and four of our Directors. We received net proceeds of $5,075,000. The Convertible Notes, which bear interest at 12% per annum, are due on December 16, 2010. The
Convertible Notes are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share (the Conversion Price), subject to adjustment as provided in the transaction
documents (the Conversion Feature). Interest is convertible as provided in the Convertible Notes.

From February 2007 to March 2007, an
aggregate of 5,000,000 shares of common stock were sold in connection with a private placement of our common stock. The gross proceeds of the private placement were $2,500,000 and we incurred no transaction fees in connection with the private
placement. From September 2007 to December 2007, an aggregate of 2,081,773 shares of our common stock were sold in connection with a private placement of our common stock to accredited investors resulting in gross proceeds of
$1,394,788. We incurred approximately $95,873 in fees in connection with the private placement.

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

We experienced
increased success in marketing TrialMaster during fiscal 2008. We entered into approximately $18.1 million in contracts during the year for trials to be serviced over the next five years. These contracts included 54 clinical trial engagements with
18 new clients. These contracts may however, be terminated by our clients at any time. Our focus continues to include increasing our penetration of all phases of the clinical trial market with a continued emphasis on becoming the market leader in
Phase I EDC services. We believe this market is an operating and strategic strength of the Company due to the inherent flexibility that our Phase I TrialMaster product provides us. We believe we have the ability to produce trials more quickly and
economically than our competitors for this specialized and large market. During fiscal 2009, we will continue commercializing our products on a licensed basis and expect to experience increased success in penetrating the market for larger
pharmaceutical, bio-technology and medical device clinical trial sponsors. Our clients will be able to partially or completely license TrialMaster. This business model provides our clients a more cost efficient means of deploying our EDC solutions
on a large-scale basis. Our licensed products, falling under the auspices of either a Tech Transition (partial transfer with some services performed by OmniComm) or Tech Transfer, will allow us to broaden our potential client base, provides us with
a high-margin revenue source and affords us the ability to improve our competitive position within the EDC industry. Additionally, we continue to focus on adding CROs as strategic and marketing partners. There is an



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industry-wide emphasis in establishing strategic relationships with CROs. These relationships provide marketing leverage in the form of joint marketing and
sales efforts and provide an installed base of trained TrialMaster users. This installed base of users increases our ability to provide rapidly developed, cost effective solutions for our clients. Additionally, we believe we have established an
effective presence in the European clinical trial market and will seek to aggressively expand the scope of our sales and marketing operations there.

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

Because of the losses we have experienced from operations we have needed to continue utilizing the proceeds from the sale of debt and equity
securities to fund our working capital needs. We have used a combination of equity financing and short-term bridge loans to fund our working capital needs. Other than our current capital and capital we may raise from future debt or equity offerings
or short-term bridge loans, we do not have any additional sources of working capital.

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

During the year ended December 31,
2008, we raised an aggregate of $6,420,000 in principal amount of convertible debentures from Cornelis Wit, our Chief Executive Officer and a director of which $6,120,000 is outstanding as of December 31, 2008. Additionally, Guus van
Kesteren, Director, and Atlantic Balanced Fund, a fund managed by Mentor Capital of which Fernando Montero, a director of OmniComm, is president, director and sole shareholder, purchased $160,000 and $200,000, respectively in principal amounts of
convertible debentures during the fiscal year ended December 31, 2008. During the year ended December 31, 2007 Atlantic Balanced Fund, a fund managed by Mentor Capital of which Fernando Montero, a director of OmniComm, is president,
director and sole shareholder participated in a private placement of our common stock and invested $1,250,000, Atlantic Security Bank, an entity in which Fernando Montero is a director and pursuant to an agreement with Atlantic Security Bank holds
voting an dispositive control of shares in the Company, invested $1,000,000 and Fernando Montero invested $250,000 personally. While several of our directors have historically, either personally or through funds with which they are affiliated,
provided substantial capital either in the form of debt or equity financing there can be no assurance that they will continue to provide any such funding to us on favorable term or at all.

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, 2008, there is doubt about our ability to continue as a going concern. In addition, our auditors Greenberg and Company, LLC, included
language which qualified their opinion regarding our ability to continue as a going concern in their report dated February 12, 2009.



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CRITICAL ACCOUNTING POLICIES

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

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

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

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

Deferred Revenue

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

Revenue Recognition Policy

OmniComms revenue model is transaction-based and can be implemented either as an ASP (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; licensing arrangements, 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) and AICPA Statement of Position 97-2 (SOP 97-2) Software Revenue Recognition as amended by SOP 98-9. 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. Under its licensing arrangement the Company recognizes revenue pursuant to SOP 97-2. Under these arrangements the Company recognizes revenue when all of the following
conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer and/or delivery has occurred; (3) the collection of fees is probable; and (4) the fee is fixed or
determinable. SOP 97-2, as amended, requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. We have analyzed each element in our multiple element
arrangements and determined that we have sufficient vendor-specific objective evidence (VSOE) to allocate revenues to license updates and product support. License revenues are recognized on delivery if the other conditions of SOP 97-2
are satisfied. License updates and product support revenue is recognized ratably over the term of the arrangement. In arrangements where term licenses are bundled with license updates and



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product support and such revenue is recognized ratably over the term of the arrangement, we allocate the revenue to license revenue and to license updates
and product support revenue based on the VSOE of fair value for license updates and product support revenue on perpetual licenses of similar products.

Stock Based Compensation.

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

EFFECT OF RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS

In May 2008, the FASB issued FASB Staff Position (FSP) Financial Accounting Standard (FAS) 142-3, Determination of the
Useful Life of Intangible Assets, which is effective for fiscal years beginning after December 15, 2008 and for interim periods within those years. FSP FAS 142-3 provides guidance on the renewal or extension assumptions used in the
determination of the useful life of a recognized intangible asset. The intent of FSP FAS 142-3 is to better match the useful life of the recognized intangible asset to the period of the expected cash flows used to measure its fair value. The Company
does not expect FSP FAS 142-3 to have a material effect on its consolidated financial statements.

In March 2008, the FASB released FAS 161,
Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. This statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation, in order to better convey the purpose of derivative use in terms of the risks that
the Company is intending to manage. Management is currently assessing and evaluating the new disclosure requirements for our derivative instruments.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007) Business Combinations (SFAS No. 141(R). SFAS No. 141(R) retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all
business combinations. SFAS No. 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires
the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. SFAS No. 141(R) also requires that acquisition-related costs be recognized separately from the
acquisition. SFAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. The Company does not expect FSP FAS 142-3 to have a material effect on its consolidated financial statements.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|-------- | -----------------------------------------------------------

Not
applicable to smaller reporting companies.



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

Our financial
statements are set forth on Pages F-1 through F-39 attached hereto.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.



|ITEM 9A(T). | CONTROLS AND PROCEDURES
|----------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, being December 31, 2008, the
Companys principal executive officer and principal financial officer have concluded that the Companys disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the under the Securities Exchange Act of 1934 (the
Exchange Act) are



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effective such that the information relating to OmniComm, including our consolidating subsidiaries, required to be disclosed by the Company in reports that
it files or submits under the Exchange Act (1) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) is accumulated and communicated to our
management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Managements Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of OmniComms internal control over financial reporting as of December 31, 2008. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on the assessment using those criteria, management concluded that the internal
control over financial reporting was effective as of December 31, 2008.

This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting. Our managements report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission
that permit us to provide only managements report in this annual report.

Changes in Internal Controls over Financial Reporting

There were no significant changes in the Companys internal controls over financial reporting or in other factors that could significantly affect these controls over
financial reporting that occurred subsequent to the ate of their evaluation and up to the filing date of this annual report on Form 10-K. 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 9B. | OTHER INFORMATION
|-------- | -----------------

None.

PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

The
information required in response to this item is incorporated by reference from the information contained in the sections Nominees for the Board of Directors, Management, Compliance with Section 16(a) of the
Exchange Act , and Stock Option Plan, in our Proxy Statement for our 2009 Annual Meeting of Stockholders to be held on July 10, 2009 (the Proxy Statement).



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The information required in response to
this item is incorporated by reference from the information contained in the section captioned Executive Compensation in the Proxy Statement.



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|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The information required in response to this item is incorporated by reference from the information contained in the section captioned Security Ownership of Certain Beneficial Owners and Management in the
Proxy Statement. The information required by Item 201(d) of Regulation S-B is incorporated by reference from the information contained in the section captioned 1998 Stock Incentive Plan in the Proxy Statement.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

The information required in response to this item is incorporated by reference from the information contained in the section captioned Certain Relationships and Related Transactions in the Proxy Statement.



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

The information required
in response to this item is incorporated by reference from the information contained in the section captioned Ratification of the Appointment of Greenberg & Co., LLC as Independent Auditors for OmniComm Systems in the Proxy
Statement.



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PART IV



|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|-------- | ---------------------------------------

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)       
|            | 
|4.6         |  | Form of Debenture dated February 29, 2008 (40)                                                                                         
|            | 
|4.7         |  | Form of Warrant February 29, 2008 (41)                                                                                                 



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|      |  |                                                                                                             
|----- |  | ------------------------------------------------------------------------------------------------------------
|      | 
|4.8   |  | Form of Debenture dated August 29, 2008 *                                                                   
|      | 
|4.9   |  | Form of Warrant dated August 29, 2008*                                                                      
|      | 
|4.10  |  | Form of Debenture dated December 16, 2008 (47)                                                              
|      | 
|4.11  |  | Form of Warrant December 16, 2008 (48)                                                                      
|      | 
|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)                                                            
|      | 
|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 (43)  
|      | 
|10.18 |  | Amended and Restated Promissory Note between the Company and Guus van Kesteren dated December 31, 2005. (44)



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|      |  |                                                                                                                                                                                              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.19 |  | Promissory Note between the Company and Cornelis F. Wit, dated October 11, 2005. (45)                                                                                                        
|      | 
|10.20 |  | Lease Agreement for principal offices dated March 24, 2006 between OmniComm Systems, Inc. and RFP Mainstreet 2101 Commercial, LLC (37)                                                       
|      | 
|10.21 |  | Employment Agreement and Stock Option Agreement between the Company and Stephen E. Johnson dated September 4, 2006 (38)                                                                      
|      | 
|10.22 |  | Securities Purchase Agreement dated February 29, 2008 by and between OmniComm Systems, Inc. and each individual or entity named on an executed counterpart of the signature page thereto (39)
|      | 
|10.23 |  | Security Interest Agreement dated February 29, 2008 by and between OmniComm System, Inc. and the investors set forth on Schedule 1 thereto (42)                                              
|      | 
|10.24 |  | Amendment dated August 29, 2008 by and between OmniComm Systems, Inc. and Gemini Master Fund, Ltd. *                                                                                         
|      | 
|10.25 |  | Securities Purchase Agreement dated December 16, 2008 by and between OmniComm Systems, Inc. and each individual or entity named on an executed counterpart of the signature page thereto (46)
|      | 
|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.
|--- | ---------------------------------------------------------------------------------------------



|(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.
|--- | --------------------------------------------------------------------------------------------------------------------



36



---

##### Table of Contents

|(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-K 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-K for the fiscal year ended December 31, 2002.
|---- | -------------------------------------------------------------------------------------------------------------------------------



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



|(13) | Incorporated by reference to Exhibit 3.9 filed with our Annual Report on Form 10-K 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-Q for the period ended June 30, 2002.
|---- | ------------------------------------------------------------------------------------------------------



|(20) | Incorporated by reference to Exhibit 10.8 filed with our Annual Report on Form 10-K 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
|---- | ---------------------------------------------------------------------------------------------------------------------------



|(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
|---- | --------------------------------------------------------------------------------------------------------------------------



37



---

##### Table of Contents

|(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-Q for the period ended September 30, 2004.
|---- | -----------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



|(37) | Incorporated by reference to Exhibit 10.1 filed with our Form 10-Q for the period ended June 30, 2006.
|---- | ------------------------------------------------------------------------------------------------------



|(38) | Incorporated by reference to Exhibit 10.1 filed with our Form 10-Q for the period ended September 30, 2006.
|---- | -----------------------------------------------------------------------------------------------------------



|(39) | Incorporated by reference to Exhibit 10.1 filed with our Form 8-K dated March 5, 2008.
|---- | --------------------------------------------------------------------------------------



|(40) | Incorporated by reference to Exhibit 10.2 filed with our Form 8-K dated March 5, 2008.
|---- | --------------------------------------------------------------------------------------



|(41) | Incorporated by reference to Exhibit 10.3 filed with our Form 8-K dated March 5, 2008.
|---- | --------------------------------------------------------------------------------------



|(42) | Incorporated by reference to Exhibit 10.4 filed with our Form 8-K dated March 5, 2008.
|---- | --------------------------------------------------------------------------------------



|(43) | Incorporated by reference to Exhibit 10.17 filed with our Form 10-K dated December 31, 2005.
|---- | --------------------------------------------------------------------------------------------



|(44) | Incorporated by reference to Exhibit 10.18 filed with our Form 10-K dated December 31, 2005.
|---- | --------------------------------------------------------------------------------------------



|(45) | Incorporated by reference to Exhibit 10.19 filed with our form 10-K dated December 31, 2007.
|---- | --------------------------------------------------------------------------------------------



|(46) | Incorporated by reference to Exhibit 10.1 filed with our Form 8-K dated December 17, 2008
|---- | -----------------------------------------------------------------------------------------



|(47) | Incorporated by reference to Exhibit 10.2 filed with our Form 8-K dated December 17, 2008
|---- | -----------------------------------------------------------------------------------------



|(48) | Incorporated by reference to Exhibit 10.3 filed with our Form 8-K dated December 17, 2008
|---- | -----------------------------------------------------------------------------------------



|* | Filed herewith
|- | --------------

|** | Furnished herewith
|-- | ------------------



38



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

Dated: April 14, 2009



OMNICOMM SYSTEMS, INC.By:

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

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


Pursuant to the requirements of the Securities Exchange Act of 1934, 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   |  | Chief (Principal) Executive Officer,
President and Director |  | April 14, 2009
|Cornelis F. Wit       |  |                                                             | 
|                      |  |                                                            
|/s/ Randall G. Smith  |  | Chairman, Chief Technology
Officer                          |  | April 14, 2009
|Randall G. Smith      |  |                                                             | 
|                      |  |                                                            
|/s/ Ronald T. Linares |  | Chief (Principal) Accounting and
Financial Officer          |  | April 14, 2009
|Ronald T. Linares     |  |                                                             | 
|                      |  |                                                            
|/s/ Guus van Kesteren |  | Director                                                    |  | April 14, 2009
|Guus van Kesteren     |  |                                                             |  |               
|                      |  |                                                            
|/s/ Matthew D. Veatch |  | Director                                                    |  | April 14, 2009
|Matthew D. Veatch     |  |                                                             |  |               
|                      |  |                                                            
|/s/ Fernando Montero  |  | Director                                                    |  | April 14, 2009
|Fernando Montero      |  |                                                             |  |               



39



---

##### 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, 2008 and 2007, 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, 2008. 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 referred to above present fairly, in all material respects, the financial position of OmniComm Systems, Inc. at
December 31, 2008 and 2007, 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 12, 2009, except for Note 17, which
is dated April 9, 2009



F - 1



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                                                                    |  | December 31,2008 |             |   | December 31,2007 |  
|                                                                                                                                                                                                                    |  |                 
|ASSETS                                                                                                                                                                                                              |  |                  |             |   |                  |   |             |  
|CURRENT ASSETS                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|Cash                                                                                                                                                                                                                |  | $                | 2,035,818   |   |                  | $ | 481,961     |  
|Accounts receivable, net of allowance for doubtful accounts of $150,933 and $2,586 in 2008 and 2007, respectively                                                                                                   |  |                  | 2,607,893   |   |                  |   | 769,325     |  
|Prepaid expenses                                                                                                                                                                                                    |  |                  | 98,562      |   |                  |   | 37,628      |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|Total current assets                                                                                                                                                                                                |  |                  | 4,742,273   |   |                  |   | 1,288,914   |  
|                                                                                                                                                                                                                    |  |                 
|PROPERTY AND EQUIPMENT, net                                                                                                                                                                                         |  |                  | 769,228     |   |                  |   | 434,699     |  
|                                                                                                                                                                                                                    |  |                 
|OTHER ASSETS                                                                                                                                                                                                        |  |                  |             |   |                  |   |             |  
|Intangible assets                                                                                                                                                                                                   |  |                  | -0-         |   |                  |   | 2,285       |  
|Other assets                                                                                                                                                                                                        |  |                  | 17,641      |   |                  |   | 16,229      |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|                                                                                                                                                                                                                    |  |                 
|TOTAL ASSETS                                                                                                                                                                                                        |  | $                | 5,529,142   |   |                  | $ | 1,742,127   |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|                                                                                                                                                                                                                    |  |                 
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|CURRENT LIABILITIES                                                                                                                                                                                                 |  |                  |             |   |                  |   |             |  
|Accounts payable and accrued expenses                                                                                                                                                                               |  | $                | 1,085,700   |   |                  | $ | 696,281     |  
|Notes payable, current portion                                                                                                                                                                                      |  |                  | 111,800     |   |                  |   | -0-         |  
|Deferred revenue, current portion                                                                                                                                                                                   |  |                  | 3,549,058   |   |                  |   | 1,560,370   |  
|Patent litigation settlement liability, current portion                                                                                                                                                             |  |                  | 241,464     |   |                  |   | -0-         |  
|Convertible notes payable, current portion                                                                                                                                                                          |  |                  | 384,043     |   |                  |   | 87,500      |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                                                           |  |                  | 5,372,065   |   |                  |   | 2,344,151   |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|                                                                                                                                                                                                                    |  |                 
|Notes payablelong term                                                                                                                                                                                             |  |                  | -0-         |   |                  |   | 111,800     |  
|Notes payable related partieslong term                                                                                                                                                                             |  |                  | 197,500     |   |                  |   | 185,000     |  
|Deferred revenue  long term                                                                                                                                                                                        |  |                  | 885,200     |   |                  |   | 1,071,904   |  
|Convertible notes payable, related parties, net of current portion                                                                                                                                                  |  |                  | 4,165,025   |   |                  |   | -0-         |  
|Convertible notes payable, net of current portion                                                                                                                                                                   |  |                  | 156,752     |   |                  |   | -0-         |  
|Patent litigation settlement liability                                                                                                                                                                              |  |                  | 1,929,019   |   |                  |   | -0-         |  
|Conversion feature liability, related parties, net of current portion                                                                                                                                               |  |                  | 1,185,960   |   |                  |   | -0-         |  
|Conversion feature liability, net of current portion                                                                                                                                                                |  |                  | 71,942      |   |                  |   | -0-         |  
|Warrant liability, related parties                                                                                                                                                                                  |  |                  | 2,017,160   |   |                  |   | -0-         |  
|Warrant liability                                                                                                                                                                                                   |  |                  | 620,801     |   |                  |   | -0-         |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|TOTAL LIABILITIES                                                                                                                                                                                                   |  |                  | 16,601,424  |   |                  |   | 3,712,855   |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|                                                                                                                                                                                                                    |  |                 
|COMMITMENTS AND CONTINGENCIES (See Note 11)                                                                                                                                                                         |  |                  |             |   |                  |   |             |  
|                                                                                                                                                                                                                    |  |                 
|SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|Undesignated preferred stock$.001 par value. 4,022,500 shares authorized, no shares issued and outstanding                                                                                                         |  |                  | -0-         |   |                  |   | -0-         |  
|                                                                                                                                                                                                                    |  |                 
|Series B convertible preferred stock,$.001 par value. 230,000 shares authorized, -0- and 48,000 issued and outstanding, respectively;
liquidation preference $-0- and $480,000, respectively                       |  |                  | -0-         |   |                  |   | 48          |  
|                                                                                                                                                                                                                    |  |                 
|Series C convertible preferred stock,$.001 par value. 747,500 shares authorized, -0- and 337,150 issued and outstanding, respectively;
liquidation preference $-0- and $3,371,500, respectively                    |  |                  | -0-         |   |                  |   | 337         |  
|                                                                                                                                                                                                                    |  |                 
|5% Series A convertible preferred stock$0.001 par value, 5,000,000 shares authorized; 4,125,224 and 4,170,224 issued and outstanding,
respectively; liquidation preference $4,125,224 and $4,170,224, respectively |  |                  | 4,125       |   |                  |   | 4,170       |  
|Common stock  150,000,000 shares authorized, 76,579,951 and 59,032,598 issued and outstanding, respectively, at $.001 par
value                                                                                    |  |                  | 77,546      |   |                  |   | 59,786      |  
|Additional paid in capital  preferred                                                                                                                                                                              |  |                  | 3,718,054   |   |                  |   | 7,638,549   |  
|Additional paid in capital  common                                                                                                                                                                                 |  |                  | 33,430,270  |   |                  |   | 27,893,433  |  
|Accumulated other comprehensive income/(loss)                                                                                                                                                                       |  |                  | 989         |   |                  |   | 7,957       |  
|Less: Treasury stock, cost method, 1,014,830 and 802,612 shares, respectively                                                                                                                                       |  |                  | (503,086    | ) |                  |   | (369,389    | )
|Accumulated deficit                                                                                                                                                                                                 |  |                  | (47,800,180 | ) |                  |   | (37,205,619 | )
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|TOTAL SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                |  |                  | (11,072,282 | ) |                  |   | (1,970,728  | )
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                |  | $                | 5,529,142   |   |                  | $ | 1,742,127   |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  

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



F - 2



---

##### Table of Contents

OMNICOMM SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                 |  |                                 |             |   |      |   |            |  
|---------------------------------------------------------------- |  | ------------------------------- | ----------- | - | ---- | - | ---------- | -
|                                                                 |  | For the years endedDecember 31, |            
|                                                                 |  | 2008                            |             |   | 2007 |  
|Total revenues                                                   |  | $                               | 6,269,614   |   |      | $ | 3,723,841  |  
|                                                                 |  |                                 |             |   |      |   |            |  
|                                                                 |  |                                
|Cost of sales                                                    |  |                                 | 1,351,564   |   |      |   | 1,033,824  |  
|                                                                 |  |                                 |             |   |      |   |            |  
|                                                                 |  |                                
|Gross margin                                                     |  |                                 | 4,918,050   |   |      |   | 2,690,017  |  
|                                                                 |  |                                
|Operating expenses                                               |  |                                 |             |   |      |   |            |  
|Salaries, benefits and related taxes                             |  |                                 | 8,825,032   |   |      |   | 5,886,663  |  
|Rent & occupancy expenses                                        |  |                                 | 554,475     |   |      |   | 342,255    |  
|Consulting services                                              |  |                                 | 302,502     |   |      |   | 320,360    |  
|Legal and professional fees                                      |  |                                 | 612,634     |   |      |   | 291,959    |  
|Travel                                                           |  |                                 | 501,816     |   |      |   | 324,676    |  
|Telephone and internet                                           |  |                                 | 161,817     |   |      |   | 131,786    |  
|Selling, general and administrative                              |  |                                 | 544,012     |   |      |   | 522,565    |  
|Bad Debt Expense                                                 |  |                                 | 148,347     |   |      |   | -0-        |  
|Depreciation and amortization                                    |  |                                 | 466,264     |   |      |   | 85,769     |  
|                                                                 |  |                                 |             |   |      |   |            |  
|Total operating expenses                                         |  |                                 | 12,116,899  |   |      |   | 7,906,033  |  
|                                                                 |  |                                 |             |   |      |   |            |  
|                                                                 |  |                                
|Operating income (loss)                                          |  |                                 | (7,198,849  | ) |      |   | (5,216,016 | )
|Other income (expense)                                           |  |                                 |             |   |      |   |            |  
|Interest expense                                                 |  |                                 | (3,300,654  | ) |      |   | (57,777    | )
|Interest income                                                  |  |                                 | 7,112       |   |      |   | 20,085     |  
|Loss on Extinguishment of Debt                                   |  |                                 | (45,883     | ) |      |   | -0-        |  
|Patent litigation settlement                                     |  |                                 | (2,170,481  | ) |      |   | -0-        |  
|Unrealized Gain on Derivative Liabilities                        |  |                                 | 2,114,194   |   |      |   | -0-        |  
|                                                                 |  |                                 |             |   |      |   |            |  
|                                                                 |  |                                
|(Loss) before taxes and preferred dividends                      |  |                                 | (10,594,561 | ) |      |   | (5,253,708 | )
|                                                                 |  |                                 |             |   |      |   |            |  
|                                                                 |  |                                
|Net income (loss)                                                |  |                                 | (10,594,561 | ) |      |   | (5,253,708 | )
|                                                                 |  |                                 |             |   |      |   |            |  
|Preferred stock dividends in arrears Series A Preferred          |  |                                 | (206,962    | ) |      |   | (210,574   | )
|Preferred stock dividends in arrears Series B Preferred          |  |                                 | (9,753      | ) |      |   | (39,467    | )
|Preferred stock dividends in arrears Series C Preferred          |  |                                 | (67,245     | ) |      |   | (269,720   | )
|                                                                 |  |                                 |             |   |      |   |            |  
|Total preferred stock dividends                                  |  |                                 | (283,960    | ) |      |   | (519,761   | )
|                                                                 |  |                                 |             |   |      |   |            |  
|                                                                 |  |                                
|Net income (loss) attributable to common stockholders            |  | $                               | (10,878,521 | ) |      | $ | (5,773,469 | )
|                                                                 |  |                                 |             |   |      |   |            |  
|Net (loss) per share, basic and diluted                          |  | $                               | (0.15       | ) |      | $ | (0.10      | )
|                                                                 |  |                                 |             |   |      |   |            |  
|Weighted average number of shares outstanding, basic and diluted |  |                                 | 71,789,073  |   |      |   | 55,545,968 |  
|                                                                 |  |                                 |             |   |      |   |            |  

See accompanying summary of accounting policies and notes to financial statements



F - 3



---

##### Table of Contents

OMNICOMM SYSTEM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007



|                                                                                           |  |      |             |   |      |   |            |  
|------------------------------------------------------------------------------------------ |  | ---- | ----------- | - | ---- | - | ---------- | -
|                                                                                           |  | 2008 |             |   | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                       |  |      |             |   |      |   |            |  
|Net income (loss)                                                                          |  | $    | (10,594,561 | ) |      | $ | (5,253,708 | )
|Adjustment to reconcile net income to net cash provided by (used in) operating activities: |  |      |             |   |      |   |            |  
|Common stock issued on cashless exercise of options                                        |  |      | (1,387      | ) |      |   | (6,311     | )
|Common stock issued for services                                                           |  |      | 24,000      |   |      |   | 37,500     |  
|Common stock issued for accrued interest                                                   |  |      | 28,130      |   |      |   | 76,051     |  
|Common stock issued in lieu of salary                                                      |  |      | 15,389      |   |      |   | -0-        |  
|Unrealized loss on conversion of debt                                                      |  |      | 45,883      |   |      |   | -0-        |  
|Patent litigation settlement                                                               |  |      | 2,170,481   |   |      |   | -0-        |  
|Unrealized gain on warranty liability                                                      |  |      | (2,114,194  | ) |      |   | -0-        |  
|Interest expense from derivative instruments                                               |  |      | 2,937,497   |   |      |   | -0-        |  
|Employee stock option expense                                                              |  |      | 1,321,004   |   |      |   | 980,823    |  
|Depreciation and amortization                                                              |  |      | 466,264     |   |      |   | 85,769     |  
|Interest expense from beneficial conversion of 10% Convertible Notes                       |  |      | -0-         |   |      |   | 7,500      |  
|Change in assets and liabilities:                                                          |  |      |             |   |      |   |            |  
|Accounts receivable                                                                        |  |      | (1,838,568  | ) |      |   | (482,617   | )
|Prepaid expenses                                                                           |  |      | (60,934     | ) |      |   | 4,398      |  
|Other assets                                                                               |  |      | 873         |   |      |   | (2,891     | )
|Accounts payable and accrued expenses                                                      |  |      | 504,419     |   |      |   | (29,312    | )
|Deferred revenue                                                                           |  |      | 1,801,984   |   |      |   | 988,708    |  
|                                                                                           |  |      |             |   |      |   |            |  
|Net cash provided by (used in) operating activities                                        |  |      | (5,293,720  | ) |      |   | (3,594,090 | )
|                                                                                           |  |      |             |   |      |   |            |  
|                                                                                           |  |     
|CASH FLOWS FROM INVESTING ACTIVITIES                                                       |  |      |             |   |      |   |            |  
|Purchase of property and equipment                                                         |  |      | (539,428    | ) |      |   | (322,483   | )
|                                                                                           |  |      |             |   |      |   |            |  
|Net cash provided by (used in) investing activities                                        |  |      | (539,428    | ) |      |   | (322,483   | )
|                                                                                           |  |      |             |   |      |   |            |  
|                                                                                           |  |     
|CASH FLOWS FROM FINANCING ACTIVITIES                                                       |  |      |             |   |      |   |            |  
|Proceeds from issuance of common stock, net of issuance costs                              |  |      | -0-         |   |      |   | 4,023,965  |  
|Proceeds from exercise of employee stock options                                           |  |      | 7,753       |   |      |   | 113,267    |  
|Stock subscription receivable                                                              |  |      | -0-         |   |      |   | 1,250      |  
|Repayments of notes payable                                                                |  |      | (300,000    | ) |      |   | -0-        |  
|Proceeds from convertible notes payable                                                    |  |      | 2,245,000   |   |      |   | -0-        |  
|Proceeds from convertible notes payable, related party                                     |  |      | 6,641,220   |   |      |   | -0-        |  
|Payments on convertible notes payable                                                      |  |      | (1,500,000  | ) |      |   | -0-        |  
|Proceeds from notes payable                                                                |  |      | 300,000     |   |      |   | 211,800    |  
|                                                                                           |  |      |             |   |      |   |            |  
|Net cash provided by (used in) financing activities                                        |  |      | 7,393,973   |   |      |   | 4,350,282  |  
|                                                                                           |  |      |             |   |      |   |            |  
|                                                                                           |  |     
|Effect of exchange rate change on cash and cash equivalents                                |  |      | (6,968      | ) |      |   | 9,998      |  
|Net increase (decrease) in cash and cash equivalents                                       |  |      | 1,553,857   |   |      |   | 443,707    |  
|Cash and cash equivalents at beginning of period                                           |  |      | 481,961     |   |      |   | 38,254     |  
|                                                                                           |  |      |             |   |      |   |            |  
|Cash and cash equivalents at end of period                                                 |  | $    | 2,035,818   |   |      | $ | 481,961    |  
|                                                                                           |  |      |             |   |      |   |            |  



F - 4



---

##### Table of Contents

OMNICOMM SYSTEM, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

(continued)



|                                                                   |  |                                 |           |      |   |        
|------------------------------------------------------------------ |  | ------------------------------- | --------- | ---- | - | -------
|                                                                   |  | For the years endedDecember 31,
|                                                                   |  | 2008                            |           | 2007
|Supplemental Disclosure of Cash Flow Information:                  |  |                                 |           |      |   |        
|Cash paid during the period for:                                   |  |                                 |           |      |   |        
|                                                                   |  |                                
|Income tax                                                         |  | $                               | -0-       |      | $ | -0-    
|                                                                   |  |                                 |           |      |   |        
|Interest                                                           |  | $                               | 151,245   |      | $ | 10,400 
|                                                                   |  |                                 |           |      |   |        
|                                                                   |  |                                
|Non-cash Transactions                                              |  |                                 |           |      |   |        
|Conversion of 10% Notes Payable into common stock                  |  | $                               | -0-       |      | $ | 12,500 
|Common stock issued for accrued interest                           |  | $                               | 28,130    |      | $ | 68,552 
|Common stock issued in exchange on lieu of pay for services        |  | $                               | 24,000    |      | $ | -0-    
|Common stock issued in exchange for notes payable                  |  | $                               | -0-       |      | $ | 926,782
|Conversion of Series B Preferred Stock into common stock           |  | $                               | 191,518   |      | $ | 20,000 
|Common stock tendered in exercise of incentive stock options       |  | $                               | 133,697   |      | $ | 17,528 
|Cashless exercise of warrants                                      |  | $                               | 589,681   |      | $ | -0-    
|Common stock issued for accrued expenses and placement agent fees  |  | $                               | -0-       |      | $ | 205,747
|Common stock issued pursuant to anti-dilution provision            |  | $                               | 344,510   |      | $ | -0-    
|Conversion of series C preferred stock into shares of common stock |  | $                               | 3,684,407 |      | $ | -0-    
|Common stock issued in lieu of salary                              |  | $                               | 15,389    |      | $ | -0-    
|Conversion of Series A preferred stock into shares of common stock |  | $                               | 45,000    |      | $ | 45,000 

See accompanying summary of accounting policies and notes to financial statements



F - 5



---

##### Table of Contents

OMNICOMM SYSTEMS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)

FOR THE PERIOD JANUARY 1, 2007 TO
DECEMBER 31, 2008



|                                                                   |  |                |   |                          |                 |        |                |   |            |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |             |  
|------------------------------------------------------------------ |  | -------------- | - | ------------------------ | --------------- | ------ | -------------- | - | ---------- | ----------------------- |  | --------- | ------------------------ |  | - | ----------------------- | - |  | ------------------- | --------- | - | ------------------------ | ------- | ------------------------- | -------------- | - | ------------------------------------- | --------------- |  | ------------- | ------------------------ | - | ---------------------------------- | -------- | - |  | - | ---- | - |  | - | ---------- | - |  | - | ----------- | - |  | - | - |  | - | ------ | - |  | - | ------ | - |  | - | -------- | - |  | - | ----------- | -
|                                                                   |  |                |   |                          |                 |        |                |   |            | Preferred Stock         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                
|                                                                   |  |                |   |                          |                 |        |                |   |            | 5% Series A Convertible |  |           | 8% Series B Convertible  |  |   | 8% Series C Convertible |   |  | Accu-mulatedDeficit |           |   | DeferredCom-pensa-tion   |         | Subs-crip-tionRecei-vable |                |   | Accu-mulatedOtherCompre-hensiveIncome |                 |  | TreasuryStock |                          |   | TotalShare-holdersEquity(Deficit) |         
|                                                                   |  | Common Stock   |   | Addi-tionalPaidInCapital |                 |        | NumberofShares |   |            | $ 0.001ParValue         |  |           | Addi-tionalPaidInCapital |  |   | NumberofShares          |   |  | $ 0.001ParValue     |           |   | Addi-tionalPaidInCapital |         |                           | NumberofShares |   |                                       | $ 0.001ParValue |  |               | Addi-tionalPaidInCapital |   |                                    |          |   |  |   |     
|                                                                   |  | NumberofShares |   |                          | $ 0.001ParValue |        |                |   |            |                         |  |           |                          |  |   |                         |   |  |                     |           |  
|Balances at December 31, 2006                                      |  | 47,972,091     |   |                          | $               | 48,697 |                |   | 21,719,097 |                         |  | 4,215,224 |                          |  | $ | 4,215                   |   |  | $                   | 3,807,964 |   |                          | 50,000  |                           |                | $ | 50                                    |                 |  | $             | 211,468                  |   |                                    | 337,150  |   |  | $ | 337  |   |  | $ | 3,684,070  |   |  | $ | (31,951,911 | ) |  | $ | 0 |  | $ | (1,250 | ) |  | $ | (2,041 | ) |  | $ | (351,861 | ) |  | $ | (2,831,165  | )
|                                                                   |  |                |   |                          |                 |        |                |   |            |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |             |  
|Conversion of Warrants                                             |  | 1,410,000      |   |                          |                 | 1,410  |                |   | 351,056    |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 352,466     |  
|Issuance of common stock                                           |  | 6,785,881      |   |                          |                 | 6,786  |                |   | 3,729,589  |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 3,736,375   |  
|Exercise of employee stock options                                 |  | 595,364        |   |                          |                 | 595    |                |   | 123,989    |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 124,584     |  
|Common stock issued for notes payable and accrued interest         |  | 1,853,563      |   |                          |                 | 1,854  |                |   | 860,053    |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 861,907     |  
|Common stock tendered in exercise of incentive stock options       |  | (28,734        | ) |                          |                 |        |                |   |            |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   | (17,528  | ) |  |   | (17,528     | )
|Common stock issued in conversion of 10% Convertible Notes Payable |  | 38,541         |   |                          |                 | 39     |                |   | 26,732     |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 26,771      |  
|Employee stock option expense                                      |  |                |   |                          |                 |        |                |   | 980,823    |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 980,823     |  
|Foreign currency translation adjustment                            |  |                |   |                          |                 |        |                |   |            |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   | 9,998  |   |  |   |          |   |  |   | 9,998       |  
|Collection on subscription receivable                              |  |                |   |                          |                 |        |                |   |            |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   | 1,250  |   |  |   |        |   |  |   |          |   |  |   | 1,250       |  
|Conversion of Series B Preferred Stock                             |  | 80,000         |   |                          |                 | 80     |                |   | 19,920     |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          | (2,000  | )                         |                |   | (2                                    | )               |  |               | (19,998                  | ) |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |            |  
|Common stock issued for accrued expenses                           |  | 295,893        |   |                          |                 | 296    |                |   | 37,204     |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 37,500      |  
|Conversion of Series A Preferred stock into common stock           |  | 30,000         |   |                          |                 | 30     |                |   | 44,970     |                         |  | (45,000   | )                        |  |   | (45                     | ) |  |                     | (44,955   | ) |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |             |  
|Net loss for the period ended December 31, 2007                    |  |               |   |                          |                 |       |                |   |           |                         |  |          |                          |  |   |                        |   |  |                     |          |   |                          |        |                           |                |   |                                      |                 |  |               |                         |   |                                    |         |   |  |   |     |   |  |   |           |   |  |   | (5,253,708  | ) |  |   |  |  |   |       |   |  |   |       |   |  |   |         |   |  |   | (5,253,708  | )
|                                                                   |  |                |   |                          |                 |        |                |   |            |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |             |  
|Balances at December 31, 2007                                      |  | 59,032,598     |   |                          |                 | 59,786 |                |   | 27,893,433 |                         |  | 4,170,224 |                          |  |   | 4,170                   |   |  |                     | 3,763,009 |   |                          | 48,000  |                           |                |   | 48                                    |                 |  |               | 191,470                  |   |                                    | 337,150  |   |  |   | 337  |   |  |   | 3,684,070  |   |  |   | (37,205,619 | ) |  |   | 0 |  |   | (0     | ) |  |   | 7,957  |   |  |   | (369,389 | ) |  |   | (1,970,728  | )
|                                                                   |  |                |   |                          |                 |        |                |   |            |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |             |  
|Conversion of Series A Preferred stock into common stock           |  | 30,000         |   |                          |                 | 30     |                |   | 44,970     |                         |  | (45,000   | )                        |  |   | (45                     | ) |  |                     | (44,955   | ) |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |            |  
|Conversion of Series B Preferred stock into common stock           |  | 1,920,000      |   |                          |                 | 1,920  |                |   | 189,598    |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          | (48,000 | )                         |                |   | (48                                   | )               |  |               | (191,470                 | ) |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |            |  
|Conversion of Series C Preferred stock into common stock           |  | 13,486,000     |   |                          |                 | 13,486 |                |   | 3,670,921  |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    | (337,150 | ) |  |   | (337 | ) |  |   | (3,684,070 | ) |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |            |  
|Issuance of common stock for antidilution rights                   |  | 707,802        |   |                          |                 | 708    |                |   | (708       | )                       |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |            |  
|Foreign currency translation adjustment                            |  |                |   |                          |                 |        |                |   |            |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   | (6,968 | ) |  |   |          |   |  |   | (6,968      | )
|Issuance of common stock for services                              |  | 40,000         |   |                          |                 | 40     |                |   | 23,960     |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 24,000      |  
|Issuance of common stock for accrued interest                      |  | 50,100         |   |                          |                 | 50     |                |   | 28,080     |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 28,130      |  
|Employee stock option expense                                      |  |                |   |                          |                 |        |                |   | 1,321,004  |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 1,321,004   |  
|Issuance of common stock in warrant exercise                       |  | 982,802        |   |                          |                 | 983    |                |   | (983       | )                       |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |            |  
|Adjustment for placement agent fees paid in 2007                   |  |                |   |                          |                 |        |                |   | 25,000     |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 25,000      |  
|Placement agent warrant expense                                    |  |                |   |                          |                 |        |                |   | 80,085     |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 80,085      |  
|Common stock tendered for stock options                            |  | (212,218       | ) |                          |                 |        |                |   |            |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   | (133,697 | ) |  |   | (133,697    | )
|Exercise of employee stock options                                 |  | 491,570        |   |                          |                 | 492    |                |   | 139,572    |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |       |   |  |   |        |   |  |   |          |   |  |   | 140,063     |  
|Common stock issued in lieu of wages                               |  | 51,296         |   |                          |                 | 51     |                |   | 15,338     |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   | 15,390      |  
|Net loss for the year ended December 31, 2008                      |  |               |   |                          |                 |       |                |   |           |                         |  |          |                          |  |   |                        |   |  |                     |          |   |                          |        |                           |                |   |                                      |                 |  |               |                         |   |                                    |         |   |  |   |     |   |  |   |           |   |  |   | (10,594,561 | ) |  |   |  |  |   |       |   |  |   |       |   |  |   |         |   |  |   | (10,594,561 | )
|                                                                   |  |                |   |                          |                 |        |                |   |            |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |             |  
|Balances at December 31, 2008                                      |  | 76,579,951     |   |                          | $               | 77,546 |                | $ | 33,430,270 |                         |  | 4,125,224 |                          |  | $ | 4,125                   |   |  | $                   | 3,718,054 |   |                          |        |                           |                | $ | 0                                     |                 |  | $             | 0                        |   |                                    | 0        |   |  | $ | 0    |   |  | $ | 0          |   |  | $ | (47,800,180 | ) |  | $ | 0 |  | $ | 0      |   |  | $ | 989    |   |  | $ | (503,086 | ) |  | $ | (11,072,282 | )
|                                                                   |  |                |   |                          |                 |        |                |   |            |                         |  |           |                          |  |   |                         |   |  |                     |           |   |                          |         |                           |                |   |                                       |                 |  |               |                          |   |                                    |          |   |  |   |      |   |  |   |            |   |  |   |             |   |  |   |   |  |   |        |   |  |   |        |   |  |   |          |   |  |   |             |  

See accompanying summary of accounting policies and notes to 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 located in the United States. 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 2008, we spent
approximately $897,000 on research and development activities, the majority of which represented salaries to our developers. In fiscal 2007 we spent approximately $917,000 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 all its wholly
owned subsidiaries and have been prepared in conformity with (i) accounting principles generally accepted in the United States of America; and (ii) the rules and regulations of the United States Securities and Exchange Commission. All
significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.

The
Company ceased operations in the Netherlands through its subsidiary OmniTrial, BV (OmniTrial) in September 2000. At that time, OmniTrial B.V. (OmniTrial) submitted a petition for bankruptcy protection from the bankruptcy
court of the Netherlands. The court has granted the Companys petition for bankruptcy. Consequently, OmniTrials liabilities are not consolidated in the Companys Balance Sheet.

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.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



RECLASSIFICATIONS

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

SEGMENT INFORMATION

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



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



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



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

The fees associated with each business activity for the years ended December 31, 2008 and December 31, 2007, respectively are:



|                     |  |      |           |      |   |          
|-------------------- |  | ---- | --------- | ---- | - | ---------
|Business Activity    |  | 2007 |           | 2008
|Clinical Trial Setup |  | $    | 2,352,719 |      | $ | 4,642,914
|Change Orders        |  |      | 332,511   |      |   | 432,488  
|Maintenance Fees     |  |      | 1,038,611 |      |   | 1,194,212
|                     |  |      |           |      |   |          
|Total Revenues       |  | $    | 3,723,841 |      | $ | 6,269,614
|                     |  |      |           |      |   |          

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 $150,933 and $2,586 as of December 31, 2008 and December 31, 2007, respectively.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



CONCENTRATION OF CREDIT RISK

Except as follows, the Company has no significant off-balance-sheet risk or credit risk concentrations. Financial instruments that subject the Company to
potential credit risks are principally cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with credit worthy financial institutions, however, the Company does maintain cash in its accounts from time-to-time
that exceed the maximum federally insured limits. Concentrated credit risk with respect to accounts receivable is limited to creditworthy customers. The Companys customers are principally located in the United States. The Company is directly
affected by the overall financial condition of the pharmaceutical, biotechnology and medical device industries and management believes that credit risk exists and that any credit risk the Company faces has been adequately reserved for as of
December 31, 2008. Prior to 2008 the Company has not historically experienced significant losses related to receivables from individual customers or groups of customers in any specific industry or geographic area. During fiscal 2008 the
biotechnology industry experienced liquidity and funding difficulties. Several of the Companys clients operate in this segment. The Company maintains an allowance for doubtful accounts based on accounts past due according to contractual terms
and historical collection experience. Actual losses when incurred are charged to the allowance. The Companys losses related to collection of accounts receivable prior to fiscal 2008 were consistently within managements expectations. The
overall downturn in the U.S. economy impacted several of the Companys clients during 2008. Due to these factors, no additional credit risk beyond amounts provided for collection losses, which the Company reevaluates on a monthly basis based on
specific review of receivable agings and the period that any receivables are beyond the standard payment terms, is believed by management to be probable in the Companys accounts receivable. The Company does not require collateral to mitigate
credit risk.

One customer accounted for 13% and another customer accounted for 10% of our revenues during 2007 or approximately $470,000
and $373,000, respectively. One customer accounted for 36% of our revenues during 2008, or approximately $2,238,000. The following table summarizes the number of customers who individually comprise greater than 10% of total revenue and/or total
accounts receivable and their aggregate percentage of the Companys total revenue and gross accounts receivable.



|                        |  |               |  |                            |                     |  |               |  |                                      |  
|----------------------- |  | ------------- |  | -------------------------- | ------------------- |  | ------------- |  | ------------------------------------ | -
|                        |  | Revenues      |  |                            | Accounts Receivable | 
|Year ended December 31, |  | # ofCustomers |  | Percentageof TotalRevenues |                     |  | # ofCustomers |  | Percentageof TotalAccountsReceivable |  
|2008                    |  | 1             |  | 36                         | %                   |  | 2             |  | 71                                   | %
|2007                    |  | 2             |  | 23                         | %                   |  | 3             |  | 64                                   | %

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

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



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|                    |  |                         |         |      |   |       
|------------------- |  | ----------------------- | ------- | ---- | - | ------
|                    |  | Year ended December 31,
|                    |  | 2008                    |         | 2007
|Beginning of period |  | $                       | 2,586   |      | $ | 58,539
|Bad debt expense    |  |                         | 148,347 |      |   | -0-   
|Write-offs          |  |                         | -0-     |      |   | 55,953
|                    |  |                         |         |      |   |       
|End of period       |  | $                       | 150,933 |      | $ | 2,586 
|                    |  |                         |         |      |   |       

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, computers, 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, 2008, the
Company had $4,434,258 in deferred revenues relating to contracts for services to be performed over periods ranging from 1 month to 5 years. The Company had $3,549,058 in deferred revenues that are expected to be recognized in the next twelve fiscal
months.

REVENUE RECOGNITION POLICY

OmniComms revenue model is transaction-based and can be implemented either as an ASP (application service provider) or licensed for implementation by a customer such as a pharmaceutical company. Revenues are
derived from the set-up of clinical trial engagements; licensing arrangements, 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) and AICPA Statement of Position 97-2 (SOP 97-2) Software Revenue
Recognition as amended by SOP 98-9. 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. Under its licensing
arrangement the Company recognizes revenue pursuant to SOP 97-2. Under these arrangements the Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the
service has been provided to the customer and/or delivery has occurred; (3) the collection of fees is probable; and (4) the fee is fixed or determinable. SOP 97-2, as amended, requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on the relative fair values of the elements. We have analyzed each element in our multiple element arrangements and determined that we have sufficient vendor-specific objective evidence
(VSOE) to allocate revenues to license updates and product support. License revenues are recognized on delivery if the other conditions of SOP 97-2 are satisfied. License updates and product support revenue is recognized ratably
over the term of the arrangement. In arrangements where term licenses are bundled with license updates and product support and such revenue is recognized ratably over the term of the



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



arrangement, we allocate the revenue to license revenue and to license updates and product support revenue based on the VSOE of fair value for license
updates and product support revenue on perpetual licenses of similar products.

ADVERTISING

Advertising costs are expensed as incurred. Advertising costs were $284,113 and $150,139 for the years ended December 31, 2008 and 2007,
respectively.

RESEARCH AND DEVELOPMENT EXPENSES

Software development costs are included in research and development and are expensed as incurred. Statement of Financial Accounting Standards No. 86
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, (SFAS 86), requires the capitalization of certain development costs of software to be sold once technological feasibility is
established, which the Company defines as completion to the point of marketability. The capitalized cost is then amortized on a straight-line basis over the estimated product life. To date, the period between achieving technological feasibility and
the general availability of such software has been short and software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs under SFAS 86. Research and
development expense was approximately $897,000 and $917,000 for the years ended December 31, 2008 and 2007 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. On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment, which addresses the accounting for transactions in which an entity exchanges its
equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) is a revision to SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS No. 123(R) requires
measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of
awards after the grant date must be recognized.

The Company adopted SFAS No. 123(R) using the modified prospective transition method,
which requires the application of the accounting standard as of January 1, 2006, the first day of the Companys fiscal year. The Companys Consolidated Financial Statements as of and for the years ended December 31, 2007 and
December 31, 2008 reflect the impact of SFAS No. 123(R). In accordance with the modified prospective transition method, the Companys Consolidated Financial Statements for prior periods have not been restated to reflect, and do not
include, the impact of SFAS No. 123(R).

SFAS No. 123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Companys Consolidated Statements of Income.
Stock-based compensation recognized in the Companys Consolidated Statements of Income for the years ended December 31, 2007 and December 31, 2008 includes compensation expense for share-based awards granted prior to, but not fully
vested as of January 1, 2006 based on the grant date fair value estimated in accordance with SFAS No. 123 as well as



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



compensation expense for share-based awards granted from January 1, 2006 to December 31, 2008 in accordance with SFAS No. 123(R). The Company
currently uses the American Binomial option pricing model to determine grant date fair value.

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 71,789,073 and 55,545,968 for the years ended
December 31, 2008 and 2007, respectively. There were no differences between basic and diluted earnings per share. Options to purchase 10,997,770 shares of common stock at prices ranging from $.25 to $2.75 per share were outstanding at
December 31, 2008. Stock warrants to purchase 22,717,757 shares of common stock at exercise prices ranging from $0.25 to $0.60 per share were outstanding at December 31, 2008.

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 2008, the FASB released FAS 161,
Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. This statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation, in order to better convey the purpose of derivative use in terms of the risks that
the Company is intending to manage. Management is currently assessing and evaluating the new disclosure requirements for our derivative instruments.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) Business Combinations (SFAS No. 141(R). SFAS No. 141(R) retains the fundamental requirements of the original pronouncement requiring that
the purchase method be used for all business combinations. SFAS No. 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the
acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. SFAS No. 141(R) also requires that acquisition-related
costs be recognized separately from the acquisition. SFAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. The Company does not expect FSP FAS 142-3 to have a material effect on its consolidated financial
statements.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



In May 2008, the FASB issued FASB Staff Position (FSP) Financial Accounting Standard (FAS) 142-3,
Determination of the Useful Life of Intangible Assets, which is effective for fiscal years beginning after December 15, 2008 and for interim periods within those years. FSP FAS 142-3 provides guidance on the renewal or extension assumptions
used in the determination of the useful life of a recognized intangible asset. The intent of FSP FAS 142-3 is to better match the useful life of the recognized intangible asset to the period of the expected cash flows used to measure its fair value.
The Company does not expect FSP FAS 142-3 to have a material effect on its consolidated financial statements.



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

We have
experienced negative cash flow from operations and have funded our activities to date primarily from debt and equity financings. We will continue to require substantial funds to continue our 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, 2008 there
is doubt about the Companys ability to continue as a going concern.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



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

Property
and equipment consists of the following:



|                              |  |                   |           |                         |   |         |  |                         |           |                       |   |           |  |        
|----------------------------- |  | ----------------- | --------- | ----------------------- | - | ------- |  | ----------------------- | --------- | --------------------- | - | --------- |  | -------
|                              |  | December 31, 2007 |           | December 31, 2008       |   |        
|                              |  | Cost              |           | AccumulatedDepreciation |   | Cost    |  | AccumulatedDepreciation |           | EstimatedUseful Lives
|Computer and office equipment |  | $                 | 733,121   |                         | $ | 480,747 |  | $                       | 1,053,805 |                       | $ | 574,963   |  | 5 years
|Leasehold improvements        |  |                   | 46,871    |                         |   | 17,348  |  |                         | 55,751    |                       |   | 26,698    |  | 5 years
|Computer software             |  |                   | 473,537   |                         |   | 350,559 |  |                         | 675,392   |                       |   | 449,123   |  | 3 years
|Office furniture              |  |                   | 85,333    |                         |   | 55,508  |  |                         | 93,342    |                       |   | 58,279    |  | 5 years
|                              |  |                   |           |                         |   |         |  |                         |           |                       |   |           |  |        
|                              |  | $                 | 1,338,862 |                         | $ | 904,162 |  | $                       | 1,878,290 |                       | $ | 1,109,063 |  |        
|                              |  |                   |           |                         |   |         |  |                         |           |                       |   |           |  |        

Depreciation expense for the years ended December 31, 2008 and 2007 was $204,900 and $85,769
respectively.



|NOTE 5: | ACCOUNTS PAYABLE, ACCRUED EXPENSES AND ACCRUED PAYROLL TAXES
|------- | ------------------------------------------------------------

Accounts payable and accrued expenses consist of the following:



|                                            |  |                   |         |                   |   |          
|------------------------------------------- |  | ----------------- | ------- | ----------------- | - | ---------
|                                            |  | December 31, 2007 |         | December 31, 2008
|Accounts payable                            |  | $                 | 405,849 |                   | $ | 652,124  
|Accrued payroll and related costs           |  |                   | 50,510  |                   |   | 148,748  
|Other accrued expenses                      |  |                   | 17,544  |                   |   | 19,470   
|Accrued interest                            |  |                   | 94,859  |                   |   | 265,358  
|Accrued expenses of OmniTrial BV            |  |                   | 127,519 |                   |   | -0-      
|                                            |  |                   |         |                   |   |          
|Total accounts payable and accrued expenses |  | $                 | 696,281 |                   | $ | 1,085,700
|                                            |  |                   |         |                   |   |          



|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 52,040,467 and 30,473,460 have been omitted from the calculation of dilutive EPS for the years December 31, 2008 and December 31, 2007, respectively. Provided
below is reconciliation between numerators and denominators of the basic and diluted earnings per shares:



|                              |  |                   |            |   |                   |            |                 |   |       |                 |  |   |                   |   |                 |            |  |   |       |  
|----------------------------- |  | ----------------- | ---------- | - | ----------------- | ---------- | --------------- | - | ----- | --------------- |  | - | ----------------- | - | --------------- | ---------- |  | - | ----- | -
|                              |  | Years Ended       |           
|                              |  | December 31, 2007 |            |   | December 31, 2008 |           
|                              |  | IncomeNumerator   |            |   | SharesDenominator |            | Per-ShareAmount |   |       | IncomeNumerator |  |   | SharesDenominator |   | Per-ShareAmount |           
|Basic EPS                     |  | $                 | (5,773,469 | ) |                   | 55,545,968 |                 | $ | (0.10 | )               |  | $ | (10,878,521       | ) |                 | 71,789,073 |  | $ | (0.15 | )
|                              |  |                   |            |   |                   |           
|Effect of Dilutive Securities |  |                   |            |   |                   |            |                 |   |       |                 |  |   |                   |   |                 |            |  |   |       |  
|                              |  |                   |            |   |                   |           
|None.                         |  |                   | -0-        |   |                   | -0-        |                 |   | -0-   |                 |  |   | -0-               |   |                 | -0-        |  |   | -0-   |  
|                              |  |                   |            |   |                   |            |                 |   |       |                 |  |   |                   |   |                 |            |  |   |       |  
|Diluted EPS                   |  | $                 | (5,773,469 | ) |                   | 55,545,968 |                 | $ | (0.10 | )               |  | $ | (10,878,521       | ) |                 | 71,789,073 |  | $ | (0.15 | )



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|NOTE 7: | SHORT TERM OBLIGATIONS
|------- | ----------------------

At
December 31, 2008, the following information summarizes the Companys short-term obligations.



|                                                    |  |                     |        |   |                   |   |           |  
|--------------------------------------------------- |  | ------------------- | ------ | - | ----------------- | - | --------- | -
|                                                    |  | For the years ended |       
|                                                    |  | December 31, 2007   |        |   | December 31, 2008 |  
|Weighted average interest rate                      |  |                     | 10.00  | % |                   |   | 10.44     | %
|Weighted average short-term borrowings              |  | $                   | 87,500 |   |                   | $ | 1,911,185 |  
|Short-term debt discount amortization               |  | $                   | -0-    |   |                   | $ | 2,497,800 |  
|Interest expense on short-term debt                 |  | $                   | 8,750  |   |                   | $ | 188,647   |  
|Debt acquisition costs amortized on short-term debt |  | $                   | -0-    |   |                   | $ | 261,365   |  



|NOTE 8: | NOTES PAYABLE
|------- | -------------

At December 31, 2008,
the Company owed $309,300 in notes payable. The table below provides details as to the terms and conditions of the notes payable.



|                 |  |          |  |              |   |  |        |         |           |   |          |  |   |        
|---------------- |  | -------- |  | ------------ | - |  | ------ | ------- | --------- | - | -------- |  | - | -------
|Origination Date |  | DueDate  |  | InterestRate |   |  | Amount |         | ShortTerm |   | LongTerm
|12/31/08         |  | 01/31/11 |  | 9.00         | % |  | $      | 197,500 |           | $ | -0-      |  | $ | 197,500
|                 |  |          |  |              |  
|01/16/07         |  | 01/01/09 |  | 9.00         | % |  |        | 51,800  |           |   | 51,800   |  |   | -0-    
|                 |  |          |  |              |  
|01/16/07         |  | 01/01/09 |  | 9.00         | % |  |        | 60,000  |           |   | 60,000   |  |   | -0-    
|                 |  |          |  |              |   |  |        |         |           |   |          |  |   |        
|                 |  |          |  |              |  
|                 |  |          |  |              |   |  | $      | 309,300 |           | $ | 111,800  |  | $ | 197,500
|                 |  |          |  |              |   |  |        |         |           |   |          |  |   |        



|NOTE 9: | CONVERTIBLE NOTES
|------- | -----------------

During the first quarter
of 1999, the Company issued 10% Convertible Notes payable in the amount of $862,500 pursuant to a Confidential Private Placement Memorandum. There were costs of $119,625 associated with this offering. The 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, 2008,
approximately $775,000 of the Convertible Notes had been converted into 1,495,179 shares of common stock of the Company leaving an outstanding principal balance of $87,500.

As of December 31, 2008 the Company is in default on interest payments owed totaling $72,252 on its 10% Convertible Notes. The terms of the notes
provide a payment grace period of thirty days in which to make required semi-annual interest payments. The Company has been in default since January 30, 2002. At the option of the note holders the full amount of the convertible notes could be
declared in default. For the year ended December 31, 2008, we incurred and recorded $8,774 in interest expense on the 10% Convertible Notes.

SECURED CONVERTIBLE DEBENTURES

On February 29, 2008, we sold an aggregate of $2,325,000 principal amount 10%
Secured Convertible Debentures (the Debentures) and common stock purchase warrants (the Warrants) to purchase an aggregate of 2,930,675 shares of our common stock to 12 accredited investors. After paying certain fees and
expenses of $181,280 in the aggregate



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



(including payment to Emerging Growth Equities, Ltd., a broker dealer and member of FINRA who acted as the placement agent for this offering, of a commission
and expense reimbursement aggregating $143,750), we received net proceeds of $2,156,220. We recorded debt acquisition costs of $261,365. We amortized the debt acquisition costs over the six month maturity of the Debentures. Emerging Growth Equities,
Ltd., a broker dealer and member of FINRA acted as placement agent in the offering and as compensation therefore received a commission of $143,750. EGE also received a warrant to purchase at $0.75 per share 222,458 shares of our common stock, an
estimated fair value of $80,085 was calculated for the warrants granted to EGE using the Binomial option pricing model.

The Debentures,
which bear interest at 10% per annum, were originally due 6 months from their issuance date or on August 29, 2008. The Debentures were convertible at any time at the option of the holder into shares of our common stock based upon a
conversion rate of $0.595 per share (the Conversion Price), subject to adjustment as provided in the transaction documents (the Conversion Feature). Interest was convertible as provided in the Debentures. We were not
permitted to prepay the Debentures without the prior written consent of the holders. We granted the holders a security interest in all of our assets to secure performance of our obligations under the Debentures and the other transaction agreements.

The Warrants, which have a cashless exercise provision, were exercisable until approximately four years after the closing at an exercise
price of $0.75 per share before they were adjusted as part of the August 29, 2008 Extension Agreement that is more completely described in the disclosure below. The number of shares covered by the Warrants and the Warrant exercise price are
subject to adjustment as provided in the transaction documents. The Warrants carry an anti-dilution provision that is tied to financings the Company conducts at any time prior to the exercise of the Warrants. That anti-dilution feature has caused
the Warrants to be treated as a derivative liability and accounted for in accordance with FAS 133. The Warrants were valued using a Binomial option pricing model. A value of $1,055,043 was calculated and allocated to the Warrants and recorded as a
liability to the issuance of the Debentures. The Warrant liability was amortized over the 6 month exercise period of the Debentures. In addition, a fair value calculation is undertaken periodically on the Warrant liability and accordingly the
Warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on derivative liabilities.

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



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



On August 29, 2008 the Company repaid $1,000,000 of the Debentures. The remaining $1,325,000
was extended pursuant to an Extension Agreement (the Extension). The maturity date was changed to December 1, 2008. The Debentures continued to bear interest at a rate of 10% per annum. In accordance with the Extension the conversion
price of the Debentures was changed from $0.595 per share to $0.50 per share. Additionally, the investors who agreed to the Extension were granted one warrant (the Extension Warrants) for each share of stock issuable upon conversion of
the Debentures at the $0.50 per share conversion price stipulated in the Extension. The exercise price of the Warrants was changed from $0.75 per share to $0.60 per share pursuant to the Extension. The change of the exercise price of the Warrants
increased the number of shares issuable upon exercise of the Warrants from 2,930,672 to 3,563,130. The amended exercise price of the Extension Warrants is $0.60 per share. On December 1, 2008 the Company repaid $500,000 of the Debentures. Four
investors agreed to convert the principal amounts due under the Debentures into a round of financing that was consummated on December 16, 2008. The principal amount converted by these four investors was $525,000. The remaining six investors
agreed to extend the maturity date of their Debentures to January 31, 2009. The principal amount extended to January 31, 2009 was $300,000. The Debentures will bear interest at a rate of 12% per annum until their January 31, 2009
maturity date. In exchange for granting the Company the extension to January 31, 2009 the group of six investors were granted a total of 50,000 four-year warrants at an exercise price of $0.60 per share with an expiration date of
December 1, 2012. The security interest we granted the holders in all of our assets to secure our performance of our obligations under the Debentures remained in effect. Accordingly, if we should default under the repayment provisions of these
obligations, the holders could seek to foreclose on all our assets in an effort to seek repayment under the obligations. If the holders were successful, we would be unable to conduct our business as it is presently conducted and we would be forced
to discontinue our operations.

The Extension Warrants were valued using a Binomial option pricing model. A value of $673,100 was
calculated and allocated to the Extension Warrants and recorded as a liability to the issuance of the Debentures. The Warrant liability was amortized over the three month maturity period of the Debentures. In addition, a fair value calculation is
undertaken periodically on the Warrant liability and accordingly the Warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on
derivative liabilities.

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

CONVERTIBLE DEBENTURES

On June 10, 2008, we sold, $210,000 principal amount in a Convertible Note (the Convertible Note) and common stock
purchase warrants (the Convertible Note Warrants) to purchase an aggregate of 264,706 shares of our common stock to our Chief Executive Officer. We received net proceeds of $210,000.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



The Convertible Note, which carried an interest of 10% per annum was due on June 10, 2009.
The Convertible Note was convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.595 per share (the Conversion Price), subject to adjustment as provided in the transaction
documents (the Conversion Feature). Interest is convertible as provided in the Convertible Note. On August 29, 2008, the noteholder agreed to convert the Convertible Note (the Conversion) into a private placement of
Convertible Debentures that expire on August 29, 2010.

The Warrants, which have a cashless exercise provision, are exercisable until
approximately four years after the closing at an exercise price of $0.75 per share before they were adjusted to $0.60 per share on August 29, 2008. The number of shares covered by the Warrants and the Warrant exercise price are subject to
adjustment as provided in the transaction documents. The Warrants carry an anti-dilution provision that is tied to financings the Company conducts at any time prior to the exercise of the Warrants. That anti-dilution feature has caused the Warrants
to be treated as a derivative liability and accounted for in accordance with FAS 133. The Warrants were valued using a Binomial option pricing model. A value of $91,059 was calculated and allocated to the Warrants and recorded as a liability to the
issuance of the Debentures. The Warrant liability (discount) was originally being amortized over the 12 month exercise period of the Debentures. When the Convertible Note was converted to another Convertible Note on 8/29/08, loss on extinguishment
of debt was recognized. In addition, a fair value calculation is undertaken periodically on the Warrant liability and accordingly the Warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease
is reflected in operations as an unrealized gain or loss on derivative liabilities.

The Convertible Note carried an anti-dilution
provision or Conversion Feature that is tied to financings the Company conducts at any time prior to the satisfaction of the Convertible Note or before the expiration date of the Warrants. In the event the Company issued common stock or any other
security that is convertible into the Companys common stock at a price below the Conversion Price of the Convertible Note, the holder of the Convertible Note would be entitled to additional shares upon conversion. The additional shares
issuable are equal to the ratio of the price of the subsequent financing divided by the Conversion Price. That anti-dilution feature has caused the Conversion Feature to be treated as a derivative liability and accounted for in accordance with FAS
133. The Conversion Feature was valued using a Binomial option pricing model. A value of $71,294 was calculated and allocated to the Conversion Feature and recorded as a liability (or discount) to the issuance of the Convertible Note. The Conversion
Feature liability (discount) was originally being amortized over the 12 month maturity of the Convertible Note. When the Convertible Note was converted to another Convertible Note on 8/29/08, loss on extinguishment of debt was recognized. In
addition, a fair value calculation is undertaken periodically on the Conversion Feature liability and accordingly the Conversion Feature liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is
reflected in operations as an unrealized gain or loss on derivative liabilities. As part of the Conversion transaction, the Conversion Feature liability (discount) was eliminated.

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



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



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

The Warrants, which have a cashless exercise provision, are exercisable until approximately four years after the closing at an
exercise price of $0.60 per share. The number of shares covered by the Warrants and the Warrant exercise price are subject to adjustment as provided in the transaction documents. The Warrants carry an anti-dilution provision that is tied to
financings the Company conducts at any time prior to the exercise of the Warrants. That anti-dilution feature has caused the Warrants to be treated as a derivative liability and accounted for in accordance with FAS 133. The Warrants were valued
using a Binomial option pricing model. A value of $1,153,160 was calculated and allocated to the Warrants and recorded as a liability to the issuance of the Convertible Notes. The Warrant liability will be amortized over the 24 month maturity of the
Convertible Notes. In addition, a fair value calculation is undertaken periodically on the Warrant liability and accordingly the Warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is
reflected in operations as an unrealized gain or loss on derivative liabilities.

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

On December 16, 2008, we sold, $5,075,000 principal amount Convertible Notes (the Convertible Notes) and common stock purchase warrants
(the Convertible Note Warrants) to purchase an aggregate of 10,150,000 shares of our common stock to eleven accredited investors including our Chief Executive Officer, Chief Operation Officer, Chief Technology Officer, Chief Financial
Officer and four of our Directors. We received net proceeds of $5,075,000.

The Convertible Notes, which bear interest at 12% per
annum with interest payable every three months, are due on December 16, 2010. The Convertible Notes are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share (the
Conversion Price), subject to adjustment as provided in the transaction documents (the Conversion Feature). Interest is convertible as provided in the Convertible Notes. We are not permitted to prepay the Convertible Notes
without the prior written consent of the holders.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



The Warrants, which have a cashless exercise provision, are exercisable until approximately four
years after the closing at an exercise price of $0.60 per share. The number of shares covered by the Warrants and the Warrant exercise price are subject to adjustment as provided in the transaction documents. The Warrants carry an anti-dilution
provision that is tied to financings the Company conducts at any time prior to the exercise of the Warrants. That anti-dilution feature has caused the Warrants to be treated as a derivative liability and accounted for in accordance with FAS 133. The
Warrants were valued using a Binomial option pricing model. A value of $852,600 was calculated and allocated to the Warrants and recorded as a liability to the issuance of the Convertible Notes. The Warrant liability will be amortized over the 24
month maturity of the Convertible Notes. In addition, a fair value calculation is undertaken periodically on the Warrant liability and accordingly the Warrant liability is increased or decreased based on the fair value calculation. The resulting
increase or decrease is reflected in operations as an unrealized gain or loss on derivative liabilities.

The Convertible Note carries an
anti-dilution provision or Conversion Feature that is tied to financings the Company conducts at any time prior to the satisfaction of the Convertible Note or before the expiration date of the Warrants. In the event the Company issues common stock
or any other security that is convertible into the Companys common stock at a price below the Conversion Price of the Convertible Note the holder of the Convertible Note would be entitled to additional shares upon conversion. The additional
shares issuable are equal to the ratio of the price of the subsequent financing divided by the Conversion Price. That anti-dilution feature has caused the Conversion Feature to be treated as a derivative liability and accounted for in accordance
with FAS 133. The Conversion Feature was valued using a Binomial option pricing model. A value of $517,650 was calculated and allocated to the Conversion Feature and recorded as a liability (or discount) to the issuance of the Convertible Note. The
Conversion Feature liability (discount) will be amortized over the 24 month maturity of the Convertible Note. In addition, a fair value calculation is undertaken periodically on the Conversion Feature liability and accordingly the Conversion Feature
liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on derivative liabilities.

The following table summarizes the convertible debt activity the Company undertook during fiscal 2008.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|                 |  |              |   |  |                   |            |                   |   |                        |  |                     |           |  |   |          
|---------------- |  | ------------ | - |  | ----------------- | ---------- | ----------------- | - | ---------------------- |  | ------------------- | --------- |  | - | ---------
|Origination Date |  | InterestRate |   |  | OriginalPrincipal |            | AllocatedDiscount |   | TotalDiscountAmortized |  | Discount at12/31/08
|2/29/2008        |  | 10           | % |  | $                 | 2,325,000  |                   | $ | 1,648,993              |  | $                   | 1,648,993 |  | $ | -0-      
|                 |  |              |   |  |                  
|6/10/2008        |  | 10           | % |  |                   | 210,000    |                   |   | 162,352                |  |                     | 40,588    |  |   | -0-      
|                 |  |              |   |  |                  
|8/29/2008        |  | 10           | % |  |                   | 1,325,000  |                   |   | 845,350                |  |                     | 845,350   |  |   | -0-      
|                 |  |              |   |  |                  
|8/29/2008        |  | 10           | % |  |                   | 2,270,000  |                   |   | 2,052,080              |  |                     | 342,013   |  |   | 1,710,067
|                 |  |              |   |  |                  
|12/1/2008        |  | 12           | % |  |                   | 300,000    |                   |   | 6,914                  |  |                     | 3,457     |  |   | 3,457    
|                 |  |              |   |  |                  
|12/16/2008       |  | 12           | % |  |                   | 5,075,000  |                   |   | 1,370,250              |  |                     | 57,094    |  |   | 1,313,156
|                 |  |              |   |  |                   |            |                   |   |                        |  |                     |           |  |   |          
|                 |  |              |   |  |                  
|                 |  | TOTALS       |   |  | $                 | 11,505,000 |                   | $ | 6,085,939              |  | $                   | 2,937,495 |  | $ | 3,026,680
|                 |  |              |   |  |                   |            |                   |   |                        |  |                     |           |  |   |          



|NOTE 10: | FAIR VALUE MEASUREMENT
|-------- | ----------------------

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



|                              |  |            |           |                                                                    |   |          
|----------------------------- |  | ---------- | --------- | ------------------------------------------------------------------ | - | ---------
|                              |  | 12/31/2008 |           | Quoted prices in active marketsfor identical
liabilities (Level 1)
|Derivatives:                  |  |            |           |                                                                    |   |          
|Convertible feature liability |  | $          | 1,257,902 |                                                                    | $ | 1,257,902
|Warrant liability             |  |            | 2,637,961 |                                                                    |   | 2,637,961
|                              |  |            |           |                                                                    |   |          
|Total of Derivatives          |  | $          | 3,895,863 |                                                                    | $ | 3,895,863
|                              |  |            |           |                                                                    |   |          

The Income approach was used as a valuation technique.



|                                                                                                                                                                                                                |  |                                                  |          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | ---------
|                                                                                                                                                                                                                |  | For the year ended December 31, 2008Other Income
|The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized
gains or losses relating to assets still held at the reporting date |  | $                                                | 2,114,194
|                                                                                                                                                                                                                |  |                                                  |          
|                                                                                                                                                                                                                | 
|Total gains or losses included in earnings                                                                                                                                                                      |  | $                                                | 2,114,194
|                                                                                                                                                                                                                |  |                                                  |          



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



Derivatives are more fully disclosed in Note 9 to the Consolidated Financial Statements.



|NOTE 11: | 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, 2008 are as follows:



|      |  |   |          
|----- |  | - | ---------
|2009  |  | $ | 450,596  
|2010  |  |   | 463,471  
|2011  |  |   | 248,100  
|2012  |  |   | -0-      
|2013  |  |   | -0-      
|      |  |   |          
|Total |  | $ | 1,162,167
|      |  |   |          

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 $554,475 and $342,255 for the years ended December 31, 2008 and 2007, respectively.

The Companys corporate office lease expires in July 2011.

PATENT LITIGATION SETTLEMENT

On April 9, 2009, we entered into a Settlement and License
Agreement with DataSci, LLC (DataSci) which relates to a lawsuit filed on June 18, 2008 in the United States District Court for the District of Maryland by DataSci against OmniComm alleging infringement of a U.S. Patent
No. 6,496,827 B2 entitled Methods and Apparatus for the Centralized Collection and Validation of Geographically Distributed Clinical Study Data with Verification of Input Data to the Distributed System (Licensed Patent)
claimed to be owned by DataSci. Pursuant to the agreement, the parties agreed to enter into a Stipulated Order of Dismissal of the lawsuit filed by DataSci and DataSci granted us a worldwide, non-exclusive non-transferable right and license under
the Licensed Patent the subject of the claim and the right to sublicense TrialMaster on a technology Transfer and Technology Transition basis. The license expressly excludes the right to make, use, sell, import, market, distribute, oversee the
operation of, or service systems covered by a claim (if any) of the Licensed Patent to the extent such systems are used for creating and managing source documentation and conducting remote data validation in clinical trial studies using a tablet PC
with stylus, touch screen device, digitizing tablet, digitizer pen, or similar mobile processing device (Digitizing Device), wherein the source documentation is electronic and is completed using a Digitizing Device. Under the terms of
the license, we are obligated to pay royalties quarterly for sales of Licensed Products, as defined therein, from January 1, 2009 until the expiration of the Licensed Patent equal to two percent (2%) of OmniComms annual Gross
Revenues or, alternatively, the annual minimum royalty payment(s), whichever is greater. The annual minimum royalty payments per year are as follows:



|          |  |   |          
|--------- |  | - | ---------
|2009      |  | $ | 255,392  
|2010      |  |   | 500,000  
|2011      |  |   | 300,000  
|2012      |  |   | 450,000  
|2013      |  |   | 450,000  
|2014-2017 |  |   | 1,800,000
|          |  |   |          
|Total     |  | $ | 3,755,392
|          |  |   |          



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



EMPLOYMENT AGREEMENTS

In December 2008, we renewed an employment agreement with Mr. Cornelis F. Wit to serve as our Chief Executive Officer and President through
December 31, 2009. 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 $300,000 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 December 2008, 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 $260,000 to be paid in the form of cash and/or stock, as agreed upon by the parties, and he is eligible to receive a bonus based upon achieving
technology related milestones. The agreement also provides, among other things, for participation in employee benefit plans or programs applicable to employees and executives. Under the terms of the agreement, we may terminate the employment of
Mr. Smith upon 30 days notice of a material breach and Mr. Smith may terminate the agreement under the same terms and conditions. If Mr. Smith is terminated by us for any reason other than for cause, we must pay him severance benefits
equal to six months salary. The employment agreement contains customary non-disclosure provisions, as well as a one year non-competition restriction following the termination of the agreement. The agreement renews automatically for one-year terms
unless expressly cancelled by either Mr. Smith or the Company in writing ninety (90) days prior to termination of the term. The Company extended its employment agreement with Mr. Smith in December 2008 for one year under the terms of
the existing employment agreement

In December 2008, 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 $205,000 to be paid in the form of cash and/or stock, as agreed upon by the parties, and he is eligible to receive additional incentive compensation based upon
achieving financial milestones. 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 December 2008 for one year
under the terms of the existing employment agreement



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



In September 2006, we entered into an employment agreement with Mr. Stephen Johnson to serve as
our Senior Vice President for Sales and Marketing. The employment agreement is for a three-year term. Under the terms of this agreement, Mr. Johnson receives an annual salary of $285,000 subject to annual adjustment for cost of living
increases. Mr. Johnson is eligible for a bonus, payable on an annual basis, equal to 5% of the Companys earnings before interest, taxes, depreciation and amortization (EBITDA). 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. Johnson upon 30 days notice of a material breach and Mr. Johnson may
terminate the agreement under the same terms and conditions. If Mr. Johnson is terminated by us for any reason other than for cause, we must pay him severance benefits equal to three months salary for every year of service up to a maximum of
twelve months. The employment agreement contains customary non-disclosure provisions.



|NOTE 12: | 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.

In December 2008, the Company issued a promissory note for $197,500 that included $112,500 in accrued expenses associated with financial services
provided by Noesis Capital Corp., the Companys Placement Agent for several equity and debt transactions since 1999. The amount was borrowed under a promissory note bearing interest at 9% per annum payable with a maturity date of
January 31, 2011. Included in the principal amount due under this promissory note is $85,000 that was originally owed under a $185,000 principal amount promissory note with a maturity date of January 1, 2009. The remaining $100,000 in
principal amount owed was converted into a Convertible Note dated December 16, 2008.

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

In September 2007, Cornelis Wit, the Companys President and Chief Executive Officer and a Director, invested $100,500 in private placement of our
common stock at a price of $0.67 per share and was issued 150,000 shares of our common stock.

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

We incurred $16,650 in interest expense on a note payable to Noesis Capital Corp., the Placement Agent for the Company during the years
ended December 31, 2008 and December 31, 2007, respectively.

On February 29, 2008, we sold an aggregate of $2,325,000
principal amount 10% Secured Convertible Debentures and common stock purchase warrants to purchase an aggregate of 2,930,675 shares of our common stock to 12 accredited



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



investors. As part of the transaction Cornelis Wit, Chief Executive Officer and Director, Guus van Kesteren, Director, Ronald T. Linares, Chief Financial
Officer, and Atlantic Balanced Fund, a fund managed by Mentor Capital of which Fernando Montero, a director of OmniComm, is president, director and sole shareholder, purchased $150,000, $150,000, $25,000 and $200,000, respectively, principal amount
of debentures and received 189,076, 189,076, 31,513 and 252,101 warrants, respectively. Interest expense incurred and payable to Directors and Officers of the Company in connection with the Secured Convertible Debenture totaled $42,000 through
December 31, 2008. The Debentures matured originally on August 29, 2008. On August 29 2008, the Company repaid $1,000,000 of the Debentures. The remaining $1,325,000 in principal was extended pursuant to an Extension Agreement that
included: an extension of the maturity date to December 1, 2008; reduced the conversion price of the Debenture from $0.595 per share to $0.50 per share; reduced the exercise price of the warrants attached to the Debenture from $0.75 per share
to $0.60 per share; and resulted in the issuance of 2,650,000 warrants to the investors agreeing to the extension of the Debentures including warrants to our officers and directors as follows: Cornelis F. Wit, 300,000 warrants, Guus van Kesteren,
300,000 warrants, Ronald T. Linares, 50,000 warrants and .Atlantic Balanced Fund, 400,000 warrants.

As of December 31, 2008, we have
an aggregate of $6,120,000 principal amount of convertible debentures and promissory notes outstanding to Cornelis Wit, our Chief Executive Officer and a director, and have issued certain warrants to Mr. Wit, as follows:



| |  |  | On February 14, 2008, $150,000 principal amount promissory note. This note was convertible at the option of the holder into any New Securities we issue before
maturity of this promissory note on the same terms and conditions of the sale of the New Securities. This Convertible Note carried an interest rate of 10% per annum and was due on December 31, 2009. On December 16, 2008 Mr. Wit
agreed to convert this Convertible Note into a private placement of Convertible Debentures, which Convertible Debentures are due on December 16, 2010.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



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



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



| |  |  | On September 17, 2008, $150,000 principal amount Convertible Note. This note was convertible at the option of the holder into any New Securities we issue
before maturity of the Convertible Note on the same terms and conditions of the sale of the New Securities. This Convertible Note carried an interest rate of 12% per annum and was due on December 31, 2009. On December 16, 2008
Mr. Wit agreed to convert this Convertible Note into a private placement of Convertible Debentures, which Convertible Debentures are due on December 16, 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On September 29, 2008, $400,000 principal amount Convertible Note. This note was convertible at the option of the holder into any New Securities we issue
before maturity of the Convertible Note on the same terms and conditions of the sale of the New Securities. This Convertible Note carried an interest rate of 12% per annum and was due on December 31, 2009. On December 16, 2008
Mr. Wit agreed to convert this Convertible Note into a private placement of Convertible Debentures, which Convertible Debentures are due on December 16, 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On October 17, 2008, $1,000,000 principal amount Convertible Note. This note was convertible at the option of the holder into any New Securities we issue
before maturity of this promissory note on the same terms and conditions of the sale of the New Securities. This Convertible Note carried an interest rate of 12% per annum and was due on December 31, 2009. On December 16, 2008
Mr. Wit agreed to convert this Convertible Note into a private placement of Convertible Debentures, which Convertible Debentures are due on December 16, 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On November 17, 2008, $1,450,000 principal amount Convertible Note. This note was convertible at the option of the holder into any New Securities we issue
before maturity of this promissory note on the same terms and conditions of the sale of the New Securities. This Convertible Note carried an interest rate of 12% per annum and was due on December 31, 2009. On December 16, 2008
Mr. Wit agreed to convert this Convertible Note into a private placement of Convertible Debentures, which Convertible Debentures are due on December 16, 2010.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On December 8, 2008, $1,200,000 principal amount Convertible Note. This note was convertible at the option of the holder into any New Securities we issue
before maturity of this promissory note on the same terms and conditions of the sale of the New Securities. This Convertible Note carried an interest rate of 12% per annum and was due on December 31, 2009. On December 16, 2008
Mr. Wit agreed to convert this Convertible Note into a private placement of Convertible Debentures, which Convertible Debentures are due on December 16, 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



Directors. The Convertible Notes bear interest at 10% and are due on August 29, 2010. As part of the transaction Cornelis Wit, Chief Executive Officer
and Director and Guus van Kesteren, Director, purchased $1,770,000 and $150,000, respectively, principal amount of notes, which are convertible into 3,540,000 shares and 300,000 shares, respectively, and received 3,540,000 and 300,000 warrants,
respectively. Interest expense incurred and payable to Directors and Officers of the Company in connection with the Convertible Note totaled $65,753 through December 31, 2008.

On December 16, 2008, we sold, $5,075,000 principal amount Convertible Debentures (the Convertible Debentures) and common stock purchase
warrants (the Convertible Debenture Warrants) to purchase an aggregate of 10,150,000 shares of our common stock to eleven accredited investors including Mr. Wit our Chief Executive Officer, as discussed above, and Mr. Smith our
Chairman and Chief Technology Officer, Mr. Johnson our Chief Operating Officer, Mr. Linares our Chief Financial Officer and two members of our Board of Directors, Mr. Veatch and Mr. van Kesteren. The Convertible Debentures bear
interest at 12% and are due on December 16, 2010. As part of the transaction Cornelis Wit, Chief Executive Officer and Director and Guus van Kesteren, Director, purchased $4,350,000 and $160,000, respectively, principal amount of Debentures,
which are convertible into 8,700,000 shares and 320,000 shares, respectively, and received 8,700,000 and 320,000 warrants, respectively. As a result, Mr. Wit and Mr. van Kesteren are considered to be beneficial owners of approximately 30%
and 5%, respectively, of our issued and outstanding and issuable upon conversion shares of common stock. Noesis Capital Corp. placement agent for the sale of our securities in various offerings since 1999 converted $100,000 in promissory notes and
received 200,000 warrants to purchase common stock of the Company. Atlantic Balanced Fund, a fund managed by Mentor Capital of which Fernando Montero, a director of OmniComm, is president, director and sole shareholder, converted $200,000 that was
originally invested into a round of financing of Secured Convertible Debentures in February 2008 and received 400,000 warrants to purchase common stock of the Company. Mr. Montero is considered to be the beneficial owner of approximately 10% of
our issued and outstanding and issuable upon conversion shares of our common stock. Additionally the following officers and directors invested in the Convertible Debentures: Mr. Smith $5,000, Mr. Johnson, $25,000, Mr. Veatch $15,000
and Mr. Linares $125,000. The officers and directors received 10,000, 50,000, 30,000 and 250,000 warrants to purchase shares of our common stock, respectively Interest expense incurred and payable to Directors and Officers of the Company in
connection with the Convertible Note totaled $26,196 through December 31, 2008.

During the year ended December 31, 2008 we have
incurred $216,810 in interest expense payable to related parties.

FINANCIAL ADVISORY AGREEMENT

During December 2006, 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, 2009.



|NOTE 13: | 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.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|NOTE 14: | 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, 2008 we had the following outstanding securities:



| |  |  | 76,579,951 shares of common stock issued and outstanding;
| | - |  | ---------------------------------------------------------



| |  |  | 22,717,757 warrants issued and outstanding to purchase shares of our common stock;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | 4,125,224 shares of our Series A Preferred Stock issued and outstanding,
| | - |  | ------------------------------------------------------------------------



| |  |  | -0- shares of our Series B Preferred Stock issued and outstanding;
| | - |  | ------------------------------------------------------------------



| |  |  | -0- shares of our Series C Preferred Stock issued and outstanding;
| | - |  | ------------------------------------------------------------------



| |  |  | 12% Convertible Debentures; 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 February 2007 through March 2007, we sold an aggregate of 5,000,000 shares of our common stock to three accredited investors resulting in gross
proceeds of $2,500,000. This private placement was exempt from registration under the Securities Act of 1933, as amended, in reliance on Rule 506 of Regulation D. Fernando Montero, who was appointed as a member of our Board of Directors on
July 27, 2007, purchased 500,000 shares of our common stock at a price of $0.50 per share, resulting in gross proceeds to the Company of $250,000. In addition, Atlantic Balanced Fund, a corporation formed under the laws of the British Virgin
Islands (ABF) purchased 2,500,000 shares of our common stock resulting in gross proceeds to the Company of $1,250,000. Mentor Capital Corporation is the fund manager for ABF and has voting and dispositive control over the shares held by
ABF. Mr. Montero is the president, director and sole owner of Mentor Capital Corporation and may be considered the beneficial owner of the 2,500,000 shares held by ABF. The Company did not use a placement agent for this offering and
accordingly no financial advisory or placement commissions were paid.

From September 2007 through December 2007, we sold an aggregate of
2,081,773 shares of our common stock resulting in gross proceeds of $1,394,788. Other than Cornelis Wit, our President and Chief Executive Officer and a



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



Director, and Noesis Capital Corp., placement agent for various offerings of our common stock since 1999, none of the investors were our affiliates. Noesis
Capital Corp. converted financial advisory fees of $37,500 and placement agent fees totaling $160,748 into shares of our common stock as part of this private placement. 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 for an aggregate fee of $95,873. Noesis also received a warrant to purchase at $0.67 per share, 5% of the shares sold, or 89,434 shares of our common stock,
an estimated fair value of $40,749 was calculated for the warrants granted to Noesis Capital Corp. using the Binomial option pricing model.

Preferred stock

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



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



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



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



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

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

Series
A Preferred Stock

In 1999, our Board of Directors designated 5,000,000 shares of our preferred stock as 5% Series A Convertible
Preferred Stock (Series A Preferred Stock), of which 4,125,224 shares are issued and outstanding.

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



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



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



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



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



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



| |  |  | 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 cumulative arrearages of $1,329,906 and
$1,122,944, or $0.31 and $0.26 per share, on the Series A Preferred Stock for undeclared dividends as of December 31, 2008 and December 31, 2007, respectively.

The Company has 135,000 shares of its 5% Series A Preferred stock that have been converted by the shareholders into shares of our common stock. Pursuant to Delaware General Corporate Law, once the Company has a
positive net worth, the cumulative dividends would be payable in either cash or in shares of our common stock upon the declaration of dividends by our board of directors.

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

Series B Preferred Stock

In August 2001, our Board of Directors designated 200,000 shares of our preferred stock as Series B Convertible Preferred Stock (Series B Preferred Stock). A Corrected Certificate of Designations was filed
on February 7, 2002 with the Delaware Secretary of State increasing the number of shares authorized as Series B Preferred Stock to 230,000 shares, of which -0- 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
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



| |  |  | 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 cumulative arrearages of $609,904 and
$600,151, or $3.05 and $3.00 per share, on the Series B Preferred Stock dividends as of December 31, 2008 and December 31, 2007, respectively.

The Company has 200,000 shares of its Series B Preferred stock that have been converted by the shareholders into shares of our common stock. Pursuant to Delaware General Corporate Law, once the Company has a positive
net worth, the cumulative dividends would be payable in either cash or in shares of our common stock upon the declaration of dividends by our board of directors.

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 -0- shares are
issued and outstanding.

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



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



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



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



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



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



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



F - 31



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



| |  |  | 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 cumulative arrearages of $1,469,593 and
$1,402,348, or $4.36 and $4.16 per share, on the Series C Preferred Stock for undeclared dividends as of December 31, 2008 and December 31, 2007, respectively.

The Company has 337,150 shares of its Series C Preferred stock that have been converted by the shareholders into shares of our common stock. Pursuant to Delaware General Corporate Law, once the Company has a positive
net worth, the cumulative dividends would be payable in either cash or in shares of our common stock upon the declaration of dividends by our board of directors.

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.

The following table presents preferred dividends accreted for the
years ended December 31, 2008 and December 31, 2007, respectively, and the per share effect of the preferred dividends if their effect was not anti-dilutive.



|                                              |  |                                 |         |                          |   |         |  |      |      |  |   |     
|--------------------------------------------- |  | ------------------------------- | ------- | ------------------------ | - | ------- |  | ---- | ---- |  | - | ----
|                                              |  | Dividends Accreted in (dollars) |         | Dividends per share     
|                                              |  | Years ended December 31,        |         | Years ended December 31,
|                                              |  | 2007                            |         | 2008                     |   | 2007    |  | 2008
|Preferred stock dividends in arrears Series A |  | $                               | 210,574 |                          | $ | 206,962 |  | $    | 0.05 |  | $ | 0.05
|                                              |  |                                 |         |                         
|Preferred stock dividends in arrears Series B |  | $                               | 39,467  |                          | $ | 9,753   |  | $    | 0.80 |  | $ | 0.81
|                                              |  |                                 |         |                         
|Preferred stock dividends in arrears Series C |  | $                               | 269,720 |                          | $ | 67,245  |  | $    | 0.80 |  | $ | 0.79

Warrants

We have issued and outstanding warrants to purchase a total of 22,717,757 shares of our common stock, including:



| |  |  | warrants to purchase 393,000 shares of our common stock at an exercise price of $.25 per share expiring May 2009 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 328,400 shares of our common stock at an exercise price of $.25 per share expiring on dates ranging from May 2009 to September 2010 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F - 32



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



| |  |  | Warrants to purchase 185,356 shares of our common stock at an exercise price of $0.50 per share expiring in March 2014 which were issued in connection with a
private placement of common stock that was conducted in 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 100,707 shares of our common stock at an exercise price of $0.50 per share expiring in December 2012 which were issued in connection with a
private placement of common stock that was conducted in 2007.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 222,458 shares of our common stock at an exercise price of $0.60 per share expiring in February 2012 which were issued by us to the placement
agent of an offering of our Secured Convertible Debentures in February 2008.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 264,706 shares of our common stock at an exercise price of $0.60 per share expiring in June 2012 which were by us in connection with a private
placement of our Convertible Notes in June 2008.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 3,563,130 shares of our common stock at an exercise price of $0.60 per share expiring in February 2012 which were issued by us in connection
with a private placement of our Secured Convertible Debentures in February 2008.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 2,650,000 shares of our common stock at an exercise price of $0.60 per share expiring in August 2012 which were issued by us in connection with
an extension of Secured Convertible Debentures which occurred in August 2008.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 4,540,000 shares of our common stock at an exercise price of $0.60 per share expiring in August 2012 which were issued by us in connection with
a private placement of our Convertible Debentures in August 2008.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 10,200,000 shares of our common stock at an exercise price of $0.60 per share expiring in December 2012 which were issued by us in connection
with a private placement of our Secured Convertible Debentures in December 2008.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10% Convertible Notes

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 interest amount into shares of our common stock at a rate of $1.25 per share. From 2000 to 2007,
certain of the note holders converted an aggregate of $775,000 principal amount of the notes according to their terms into 1,456,638 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.

Secured Convertible Debentures

On February 29, 2008, we sold an aggregate of $2,325,000 principal amount 10%
Secured Convertible Debentures (the Debentures) and common stock purchase warrants (the Warrants) to purchase an aggregate of 2,930,675 shares of our common stock exercisable at a price of $0.75 per share for four years
subsequent to the closing of the transaction to 12 accredited investors. After paying certain fees and expenses of $181,280 in the aggregate (including payment to Emerging Growth Equities, Ltd., a broker dealer and member of FINRA who acted as the
placement agent for this offering, of a commission and expense reimbursement aggregating $143,750), we received net proceeds of $2,156,220. We recorded debt acquisition costs of $261,365. The Debentures, which bear interest at 10% per annum,
were due 6 months from their issuance date. The Debentures were convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.595 per share.

On August 29, 2008 the Company repaid $1,000,000 of the Debentures. The remaining $1,325,000 was extended pursuant to an Extension Agreement (the
Extension). The maturity date was changed to December 1, 2008. The



F - 33



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



Debentures continued to bear interest at a rate of 10% per annum. In accordance with the Extension the conversion price of the Debentures was changed
from $0.595 per share to $0.50 per share. Additionally, the exercise price on the Warrants was lowered from $0.75 per share to $0.60 per share. In conjunction with the lowering of the exercise price and the Extension the investors received an
additional 3,282,455 warrants to purchase shares of our common stock at an exercise price of $0.60 per share for a period of four years after their extension. On December 1, 2008 the Company repaid $500,000 of the Debentures. Four investors
agreed to convert the principal amounts due under the Debentures into a round of financing that was consummated on December 16, 2008. The principal amount converted by these four investors was $525,000. The remaining six investors agreed to
extend the maturity date of their Debentures to January 31, 2009. The principal amount extended to January 31, 2009 was $300,000. The Debentures will bear interest at a rate of 12% per annum until their January 31, 2009 maturity
date. The six investors received an additional 50,000 warrants to purchase shares of our common stock at an exercise price of $0.60 per share for a period of four years after their extension.

Convertible Debentures

On
August 29, 2008, we sold, $2,270,000 principal amount Convertible Notes (the Convertible Notes) and common stock purchase warrants (the Convertible Note Warrants) to purchase an aggregate of 4,540,000 shares of our
common stock at an exercise price of $0.60 per share before August 31, 2012 to four accredited investors including our Chief Executive Officer and one of our Directors. We received net proceeds of $2,270,000. The Convertible Notes, which bear
interest at 10% per annum, are due on August 29, 2010. The Convertible Notes are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share.

On December 16, 2008, we sold, $5,075,000 principal amount Convertible Notes (the Convertible Notes) and common stock purchase warrants
(the Convertible Note Warrants) to purchase an aggregate of 10,150,000 shares of our common stock at an exercise price of $0.60 per share before August 31, 2012 to eleven accredited investors including our Chief Executive Officer,
Chief Operation Officer, Chief Technology Officer, Chief Financial Officer and four of our Directors. We received net proceeds of $5,075,000. The Convertible Notes, which bear interest at 12% per annum, are due on December 16, 2010. The
Convertible Notes are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share.

Other Comprehensive Gain (Loss)

Due to the availability of net operating losses and related
deferred tax valuations, there is no tax effect associated with any component of other comprehensive gain (loss). The following table lists the beginning balance, yearly activity and ending balance of the components of accumulated other
comprehensive gain (loss).



|                          |  |                             |        |   |                                           |   |        |  
|------------------------- |  | --------------------------- | ------ | - | ----------------------------------------- | - | ------ | -
|                          |  | Foreign CurrencyTranslation |        |   | Accumulated OtherComprehensiveGain (Loss) |  
|Balance January 1, 2007   |  | $                           | (2,041 | ) |                                           | $ | (2,041 | )
|2007 Activity             |  |                             | 9,998  |   |                                           |   | 9,998  |  
|                          |  |                             |        |   |                                           |   |        |  
|Balance December 31, 2007 |  |                             | 7,957  |   |                                           |   | 7,957  |  
|2008 Activity             |  |                             | (6,968 | ) |                                           |   | (6,968 | )
|                          |  |                             |        |   |                                           |   |        |  
|Balance December 31, 2008 |  | $                           | 989    |   |                                           | $ | 989    |  
|                          |  |                             |        |   |                                           |   |        |  



F - 34



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|NOTE 15: | EMPLOYEE EQUITY INCENTIVE PLANS
|-------- | -------------------------------

Stock Option Plan

Description of Stock Option Plan

In 1998, the Companys Board of Directors and shareholders approved the 1998 Stock Incentive Plan of OmniComm Systems, Inc. (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 12,500,000 shares of the Companys common stock. The term of each option may not exceed ten years from the date of grant, and options vest in accordance with a vesting schedule established by the Plan
administrator. As of December 31, 2008, substantially all of the Companys employees were participating in the 1998 Plan.

The
maximum term for any option grant under the 1998 Plan is ten years from the date of the grant; however, options granted under the 1998 Plan will generally expire ten years from the date of grant for most employees and seven years from the date of
grant for officers and directors of the company. Options granted to employees generally vest either upon grant or in two installments with the first installment vesting 50% upon completion of one full year from date of grant and on an annual basis
over the next year of the employees employment. The vesting period typically begins on the date of hire for new employees and on the date of grant for existing employees.

At December 31, 2008, there were 1,502,230 shares available for grant as options or other forms of share-based compensation under the 1998 Plan.

The following table summarizes the stock option activity for the 1998 Plan:



|                                            |  |                 |   |  |                                          |       |   |                                                    |      |                                    |   |    
|------------------------------------------- |  | --------------- | - |  | ---------------------------------------- | ----- | - | -------------------------------------------------- | ---- | ---------------------------------- | - | ---
|                                            |  | Numberof Shares |   |  | WeightedAverageExercise Price(per share) |       |   | WeightedAverageRemainingContractual Term(in Years) |      | AggregateIntrinsic Valuein (000s)
|Outstanding at December 31, 2007            |  | 9,320,270       |   |  | $                                        | 0.43  |   |                                                    |      |                                    |   |    
|Granted                                     |  | 3,472,500       |   |  |                                          | 0.55  |   |                                                    |      |                                    |   |    
|Exercised                                   |  | (602,500        | ) |  |                                          | (0.35 | ) |                                                    |      |                                    |   |    
|Forfeited/cancelled/expired                 |  | (1,192,500      | ) |  |                                          | (0.55 | ) |                                                    |      |                                    |   |    
|                                            |  |                 |   |  |                                          |       |   |                                                    |      |                                    |   |    
|                                            |  |                 |   | 
|Outstanding at December 31, 2008            |  | 10,997,770      |   |  | $                                        | 0.46  |   |                                                    | 4.18 |                                    | $ | 247
|                                            |  |                 |   |  |                                          |       |   |                                                    |      |                                    |   |    
|                                            |  |                 |   | 
|Vested and exercisable at December 31, 2008 |  | 6,909,270       |   |  | $                                        | 0.39  |   |                                                    | 2.53 |                                    | $ | 155
|                                            |  |                 |   |  |                                          |       |   |                                                    |      |                                    |   |    

The aggregate intrinsic value in the table above represents the total intrinsic value (the
difference between the Companys closing stock price at fiscal year end and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options
on December 31, 2008. The total intrinsic value of stock options exercised, the difference between the closing stock price on the date of exercise and the exercise price, for the years ended December 31, 2008 and December 31, 2007
were $165,350 and $270,926, respectively.



F - 35



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



The total fair value of shares vested for the years ended December 31, 2008 and December 31, 2007
were:



|                                                                     |  |   |          
|-------------------------------------------------------------------- |  | - | ---------
|Fair value of options vested during the year ended December 31, 2007 |  | $ | 558,793  
|Fair value of options vested during the year ended December 31, 2008 |  | $ | 1,035,664

Cash received from stock option exercises for the years ended December 31, 2008 and
December 31, 2007 was $7,753 and $113,267, respectively. Due to the Companys net loss position, no windfall tax benefit has been realized during the years ended December 31, 2008 and December 31, 2007.

The following table summarizes information concerning options outstanding at December 31, 2008:



|                                  |  |                              |  |                                         |      |                                                   |      |                              |      
|--------------------------------- |  | ---------------------------- |  | --------------------------------------- | ---- | ------------------------------------------------- | ---- | ---------------------------- | -----
|                                  |  | OptionsOutstandingin (000s) |  | WeightedAverageExercisePrice(per share) |      | WeightedAverageRemainingContractualLife(in
Years) |      | OptionsExercisablein (000s)
|Exercise Price range (per share): |  |                              |  |                                         |      |                                                   |      |                              |      
|$ 0.00 - $ 0.25                   |  | 2,877                        |  | $                                       | 0.25 |                                                   | 2.6  |                              | 2,462
|$ 0.28 - $ 0.45                   |  | 1,810                        |  |                                         | 0.33 |                                                   | 4.4  |                              | 1,730
|$ 0.48 - $ 2.75                   |  | 6,311                        |  |                                         | 0.59 |                                                   | 4.9  |                              | 2,717
|                                  |  |                              |  |                                         |      |                                                   |      |                              |      
|                                  |  |                              |  |                                        
|                                  |  | 10,998                       |  | $                                       | 0.46 |                                                   | 4.18 |                              | 6,909
|                                  |  |                              |  |                                         |      |                                                   |      |                              |      

The weighted average fair value (per share) of options granted during the years ended
December 31, 2008, and December 31, 2007 using the American Binomial option-pricing model was $0.35 and $0.50, respectively.

Stock-Based Compensation

For the year ended December 31, 2008, the Company recognized total stock-based compensation
expense of $1,360,393 related to stock option and other share-based awards made from its equity compensation plan, including $24,000 of stock-based compensation related to restricted stock grants.

For the year ended December 31, 2007, the Company recognized total stock-based compensation expense of $1,018,323 related to stock option and other
share-based awards made from its equity compensation plan, including $37,500 of stock-based compensation related to restricted stock grants.

Prior to January 1, 2006, the Company accounted for those plans under the recognition and measurement provisions of APB No. 25. Accordingly, the Company generally recognized compensation expense only when it granted options with
an exercise price below the estimated fair value of the Companys common stock.

Prior to the adoption of SFAS No. 123(R) on
January 1, 2006, the Company applied the intrinsic value-based method of accounting prescribed by APB Opinion No. 25 and related interpretations including Financial Accounting Standards Board (FASB) Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation: An Interpretation of APB Opinion No. 25 (issued in March 2000), to account for its fixed plan stock options. Under this method, compensation expense was recorded on
the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123 and SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure (an amendment to SFAS
No. 123), established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As permitted by the accounting standards, the Company had elected to continue to apply the
intrinsic value-based method of accounting described above, and had adopted the disclosure requirements of SFAS No. 123, as amended by SFAS No. 148. The Company amortized deferred compensation on a graded vesting methodology in accordance
with FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Award Plans.



F - 36



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



As a result of adopting SFAS No. 123(R), the impact to the Companys net loss for the
years ended December 31, 2008 and December 31, 2007, was $1,321,004 and $980,823 greater, respectively, than if the Company had continued to account for its stock options under APB No. 25. The table below gives effect to the impact of
SFAS No. 123(R) on the Companys Statement of Operations.



|                                                                    |  |                         |            |   |      |   |             |  
|------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                    |  | Year ended December 31, |           
|                                                                    |  | 2007                    |            |   | 2008 |  
|Net income (loss) attributable to common stockholders (as reported) |  | $                       | (5,773,469 | ) |      | $ | (10,878,521 | )
|Salary expense recorded in accordance with SFAS No. 123(R)          |  |                         | (980,823   | ) |      |   | (1,321,004  | )
|                                                                    |  |                         |            |   |      |   |             |  
|Net income (loss) attributable to common stockholders (adjusted)    |  |                         | (4,792,646 | ) |      |   | (9,557,517  | )
|                                                                    |  |                         |            |   |      |   |             |  
|Net (loss) per share, basic and diluted (as reported)               |  | $                       | (0.10      | ) |      | $ | (0.15       | )
|                                                                    |  |                         |            |   |      |   |             |  
|Net (loss) per share, basic and diluted (adjusted)                  |  | $                       | (0.09      | ) |      | $ | (0.13       | )
|                                                                    |  |                         |            |   |      |   |             |  
|Weighted average number of shares outstanding, basic and diluted    |  |                         | 55,545,968 |   |      |   | 71,789,073  |  
|                                                                    |  |                         |            |   |      |   |             |  

Basis for Fair Value Estimate of Share-Based Payments

Based on analysis of its historical volatility, the Company expects that the future volatility of its share price is likely to be similar to the
historical volatility the Company experienced since the Companys commercialization activities were initiated during the second half of 2000. The Company used a volatility calculation utilizing the Companys own historical volatility to
estimate its future volatility for purposes of valuing the share-based payments granted during fiscal 2007 and 2008. Actual volatility, and future changes in estimated volatility, may differ substantially from the Companys current estimates.

The Company utilizes the historical data available regarding employee and director exercise activity to calculate an expected life of the
options. The table below presents the weighted average expected life in years of options granted under the Plan as described above. The risk-free rate of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant,
which corresponds with the expected term of the option granted.

The following table summarizes weighted average grant date fair value
activity for the 1998 Plan:



|                                                           |  |                                      |      |      |   |     
|---------------------------------------------------------- |  | ------------------------------------ | ---- | ---- | - | ----
|                                                           |  | WeightedAverage Grant-DateFair Value
|                                                           |  | 2007                                 |      | 2008
|Stock options granted during the year ended December 31,   |  | $                                    | 0.50 |      | $ | 0.35
|Stock options vested during the year ended December 31,    |  | $                                    | 0.39 |      | $ | 0.43
|Stock options forfeited during the year ended December 31, |  | $                                    | 0.40 |      | $ | 0.45

During the years ended December 31, 2008 and December 31, 2007 2,388,333 and 1,423,336
stock options vested, respectively. The aggregate fair value of the vested options was $1,035,664 and $558,793, respectively.



F - 37



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



The fair value of share-based payments was estimated using the American Binomial option pricing
model with the following assumptions and weighted average fair values for grants made during the periods indicated.



|                                                   |  |                                          |      |   |      |   |      |  
|-------------------------------------------------- |  | ---------------------------------------- | ---- | - | ---- | - | ---- | -
|                                                   |  | Stock Options forYear Ended December 31, |     
|                                                   |  | 2008                                     |      |   | 2007 |  
|Risk-free interest rate                            |  |                                          | 1.37 | % |      |   | 4.35 | %
|Dividend yield                                     |  |                                          | 0    | % |      |   | 0    | %
|Expected volatility                                |  |                                          | 81.7 | % |      |   | 92.1 | %
|Expected life of options (years)                   |  |                                          | 5.0  |   |      |   | 6.0  |  
|                                                   |  |                                         
|Weighted average fair value of grants (per option) |  | $                                        | 0.35 |   |      | $ | 0.50 |  

A summary of the status of the Companys nonvested shares as of December 31, 2007, and
changes during the year ended December 31, 2008 is as follows:



|                                      |  |           |  |                                      |     
|------------------------------------- |  | --------- |  | ------------------------------------ | ----
|                                      |  | Shares    |  | WeightedAverage Grant-DateFair
Value
|Nonvested Shares at January 1, 2008   |  | 3,079,333 |  | $                                    | 0.45
|                                      |  |          
|Nonvested Shares at December 31, 2008 |  | 4,088,500 |  | $                                    | 0.38

As of December 31, 2008, approximately $1,323,393 of total unrecognized compensation cost
related to unvested stock options is expected to be recognized over a weighted-average period of 0.94 years.



|NOTE 16: | 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:



|                                |  |          |            |   |          |   |            |  
|------------------------------- |  | -------- | ---------- | - | -------- | - | ---------- | -
|                                |  | 12/31/07 |            |   | 12/31/08 |  
|Current tax expense (benefit):  |  |          |            |   |          |   |            |  
|Income tax at statutory rates   |  | $        | -0-        |   |          | $ | -0-        |  
|                                |  |          |            |   |          |   |            |  
|Deferred tax expense (benefit): |  |          |            |   |          |   |            |  
|Bad debt allowance              |  |          | (-0-       | ) |          |   | (55,823    | )
|Operating loss carryforward     |  |          | (1,607,886 | ) |          |   | (2,289,991 | )
|Patent litigation settlement    |  |          | -0-        |   |          |   | (816,753   | )
|                                |  |          |            |   |          |   |            |  
|                                |  |          | (1,607,886 | ) |          |   | (3,162,567 | )
|                                |  |          |            |   |          |   |            |  
|Valuation allowance             |  |          | 1,607,886  |   |          |   | 3,162,567  |  
|                                |  |          |            |   |          |   |            |  
|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:



|                                    |  |          |             |   |          |   |             |  
|----------------------------------- |  | -------- | ----------- | - | -------- | - | ----------- | -
|                                    |  | 12/31/07 |             |   | 12/31/08 |  
|Deferred tax assets:                |  |          |             |   |          |   |             |  
|Amortization of intangibles         |  | $        | 283,698     |   |          | $ | 283,698     |  
|Bad debt allowance                  |  |          | -0-         |   |          |   | 55,823      |  
|Patent litigation liability accrual |  |          | -0-         |   |          |   | 816,753     |  
|Operating loss carryforwards        |  |          | 10,512,958  |   |          |   | 12,137,829  |  
|                                    |  |          |             |   |          |   |             |  
|Gross deferred tax assets           |  |          | 10,796,656  |   |          |   | 13,294,103  |  
|                                    |  |          |             |   |          |   |             |  
|Valuation allowance                 |  |          | (10,796,656 | ) |          |   | (13,294,103 | )
|                                    |  |          |             |   |          |   |             |  
|Net deferred tax asset              |  | $        | -0-         |   |          | $ | -0-         |  
|                                    |  |          |             |   |          |   |             |  



F - 38



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



The Company has net operating loss carryforwards (NOL) for income tax purposes of approximately
$34,502,000. This loss is allowed to be offset against future income until the year 2028 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, 2008.



|NOTE 17: | SUBSEQUENT EVENTS
|-------- | -----------------

On April 9, 2009,
we entered into a Settlement and License Agreement with DataSci, LLC (DataSci) which relates to a lawsuit filed on June 18, 2008 in the United States District Court for the District of Maryland by DataSci against OmniComm alleging
infringement of a U.S. Patent No. 6,496,827 B2 entitled Methods and Apparatus for the Centralized Collection and Validation of Geographically Distributed Clinical Study Data with Verification of Input Data to the Distributed System
(Licensed Patent) claimed to be owned by DataSci. Pursuant to the Settlement and License Agreement, the parties agreed to enter into a Stipulated Order of Dismissal of the lawsuit filed by DataSci and DataSci granted us a worldwide,
non-exclusive non-transferable right and license under the Licensed Patent the subject of the claim and the right to sublicense TrialMaster on a technology Transfer and Technology Transition basis. The license expressly excludes the right to make,
use, sell, import, market, distribute, oversee the operation of, or service systems covered by a claim (if any) of the Licensed Patent to the extent such systems are used for creating and managing source documentation and conducting remote data
validation in clinical trial studies using a tablet PC with stylus, touch screen device, digitizing tablet, digitizer pen, or similar mobile processing device (Digitizing Device), wherein the source documentation is electronic and is
completed using a Digitizing Device. Under the terms of the license, we are obligated to pay royalties quarterly for sales of Licensed Products, as defined therein, from January 1, 2009 until the expiration of the Licensed Patent equal to two
percent (2%) of OmniComms annual Gross Revenues or, alternatively, the annual minimum royalty payment(s), whichever is greater, during any calendar year as follows: 2009 - $130,000; 2010 - $200,000; 2011 - $300,000; and 2012 - until
expiration of the Licensed Patent - $450,000 per year. The Licensed Patent is scheduled to expire in 2017. In addition to the cash consideration the Company has issued a warrant for 1,000,000 shares of our common stock with an exercise price of $.01
per share. The warrant has been granted for past use of the Licensed Patent. The warrant can be exercised by DataSci in month 24 or upon its sole discretion induce the Company to pay $300,000 in cash in lieu of exercising the warrant.

As part of this transaction the Company recorded a liability in the amount of $2,170,481 and a corresponding charge to its income statement for the year
ended December 31, 2008. The recorded liability corresponds to the guaranteed payments stipulated in the Settlement and License Agreement including the guaranteed minimum payment associated with the warrant that was granted to DataSci. The
present value of the aggregate guaranteed payments was calculated using a discount rate equal to the cost of capital the Company experienced during the second half of 2008 which is 12%.



F - 39



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##### Table of Contents

Exhibit Index



|            |  |                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                               
|            | 
|4.8         |  | Form of Debenture dated August 29, 2008                                                                                                                                   
|            | 
|4.9         |  | Form of Warrant dated August 29, 2008                                                                                                                                     
|            | 
|10.24       |  | Amendment dated August 29, 2008 by and between OmniComm Systems, Inc. and Gemini Master Fund, Ltd.                                                                        
|            | 
|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