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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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

For the fiscal year ended December 31, 2006



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

Commission File No. 0-25203



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OmniComm Systems, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)



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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



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

Check whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    x  Yes ̈No

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained herein, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB.    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 issuers revenues for its most recent fiscal year: $2,763,039 for the 12 months ended December 31, 2006.

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



|               |  |                                         |  |                       
|-------------- |  | --------------------------------------- |  | ----------------------
|Date           |  | Non-Affiliate Voting Shares
Outstanding |  | Aggregate Market Value
|March 19, 2007 |  | 48,813,972                              |  | $29,776,523           

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

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



|               |  |                                          |  |                   
|-------------- |  | ---------------------------------------- |  | ------------------
|Date           |  | Class                                    |  | Outstanding Shares
|March 19, 2007 |  | Common Stock, $0.001 par value per share |  | 56,074,110        

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 2007 Annual Meeting of Stockholders to be held on
May 18, 2007 is incorporated by reference in Items 9, 10, 11, 12 and 14 of Part III of this Form 10-KSB.

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



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OMNICOMM SYSTEMS, INC.

ANNUAL REPORT ON

FORM 10-KSB

FOR THE YEAR ENDED DECEMBER 31, 2006

Table of Contents



|           |  |                                                                                                                                        |  |     
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                                        |  | Page
|           |  | Part I                                                                                                                                 |  |     
|           |  |                                                                                                                                       
|Item 1.    |  | Business.                                                                                                                              |  | 3   
|           |  |                                                                                                                                       
|Item 2.    |  | Description of Property.                                                                                                               |  | 22  
|           |  |                                                                                                                                       
|Item 3.    |  | Legal Proceedings.                                                                                                                     |  | 22  
|           |  |                                                                                                                                       
|Item 4.    |  | Submission of Matters to a Vote of Security Holders.                                                                                   |  | 22  
|           |  |                                                                                                                                       
|           |  | Part II                                                                                                                                |  |     
|           |  |                                                                                                                                       
|Item 5.    |  | Market for Common Equity and Related Stockholder Matters.                                                                              |  | 23  
|           |  |                                                                                                                                       
|Item 6.    |  | Managements Discussion and Analysis or Plan of Operation.                                                                             |  | 24  
|           |  |                                                                                                                                       
|Item 7.    |  | Financial Statements.                                                                                                                  |  | 34  
|           |  |                                                                                                                                       
|Item 8.    |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.                                                  |  | 34  
|           |  |                                                                                                                                       
|Item 8A.   |  | Controls and Procedures.                                                                                                               |  | 34  
|           |  |                                                                                                                                       
|Item 8B.   |  | Other Information.                                                                                                                     |  | 35  
|           |  |                                                                                                                                       
|           |  | Part III                                                                                                                               |  |     
|           |  |                                                                                                                                       
|Item 9.    |  | Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act. |  | 35  
|           |  |                                                                                                                                       
|Item 10.   |  | Executive Compensation.                                                                                                                |  | 35  
|           |  |                                                                                                                                       
|Item 11.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.                                        |  | 35  
|           |  |                                                                                                                                       
|Item 12.   |  | Certain Relationships and Related Transactions; and Director Independence.                                                             |  | 35  
|           |  |                                                                                                                                       
|Item 13.   |  | Exhibits.                                                                                                                              |  | 35  
|           |  |                                                                                                                                       
|Item 14.   |  | Principal Accountant Fees and Services.                                                                                                |  | 39  
|           | 
|Signatures |  | 40                                                                                                                                    



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

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

Background and History

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

Overview

OmniComm Systems, Inc. provides Web-based Electronic Data Capture (EDC) software and services that streamline the clinical research process. TrialMaster®is the hub of OmniComms unique EDC 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 including patient histories, patient dosing, adverse events and other clinical trial related information. TrialMaster is a 21 CFR Part 11
compliant solution and designed to offer clinical trial sponsors the freedom 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 including SAS, CDISC, CSV, TAB and XML formats. In a market overview entitled The Promise of Next-Gen eClinical Trial
Software by Forrester Research issued in March 2006; OmniComm was given the highest rating among its competitors for industry middleware.

TrialMaster offers significant business benefits to its 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 into the clinical trial process. Our goal is to
provide our clients a data collection process that is streamlined, efficient and cost-effective. We believe that TrialMaster is significantly more efficient than the traditional paper collection methods employed in the past. TrialMaster has been
designed to make the trial building process more efficient than the technologies deployed by our competitors. The benefits of managing a clinical trial using TrialMaster for EDC include:



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



| |  |  | Faster Study Completion: TrialMaster saves time at the back-end of a study by eliminating most of the time it takes for database clean-up in
studies involving paper-based Case Report Forms (CRFs). This is done by eliminating most incorrect or incomplete entries at the time of entry. Queries for non-automatic items can be handled shortly thereafter through electronic data review by the
monitors. 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 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The U.S. clinical trial Research and Development (R & D) market was estimated at $31.5 billion in
2005 and is estimated to grow at 10% annually for the next few years. Data capture costs currently account for approximately 10% of total R & D spending. Estimates by CenterWatch place EDC use in 2005 at 15 to 25% of clinical trials. We expect
that we will see a significant 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.

Our Strategy

Our primary goal is to establish OmniComm Systems 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 that stimulates market demand, while maintaining a continuous focus on cost-containment and operating
efficiencies. We intend to follow a controlled growth plan designed to take advantage of our competitive strengths. Our growth has occurred through 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 approximately 10% of total drug
development costs. Because TrialMaster has been designed to make the trial building process more efficient than the technologies deployed by our competitors, we have been able to provide pricing that is in many cases substantially lower than that of
the competition. We provide 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.

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 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.

During 2004-2005 we made a strategic decision to begin emphasizing sales to the CRO market. This decision allows us to add a significant
number of potential users since outsourcing clinical trials in the US market is an established practice. During 2006 we increased the percentage of our revenues coming from CROs by approximately 155%. There is an industry-wide emphasis in
establishing strategic relationships with CROs. In addition, CRO partnerships allow us to leverage the selling and marketing capabilities of the CRO itself. Because of our relatively small sales force and limited resources, this strategy allowed us
to augment our selling efforts in a cost-effective manner by forging long-term strategic relationships. Our CRO partners gain the ability to manage the EDC decision making process proactively and add an extension to their line of products. With the
release of our CRO Preferred Program in early 2007, which offers fixed pricing and pay-as-you-go Hosted Services, we look to continue our growth within the CRO marketplace.

Differentiate Through Service. We believe that a key to our initial and long-term success is that we offer customers a robust EDC product and a distinctive experience that includes highly efficient
integration with data imports and exports, quick set-up times and a growing list of TrialMaster enhancements. We strive to communicate openly and honestly with customers about their projects,



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especially when we believe that process improvements can be implemented to improve the overall EDC experience. Unlike most EDC providers, we have a policy of
not charging clients for small, incidental changes that should be part of the EDC service in the first place. Based on customer feedback, we believe our service is an important reason why our customers choose us over other EDC providers. In 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.

Competitive Strengths

Low Operating Costs.For the year ended December 31, 2006, our Cost of Goods Sold (COGS) as a
percentage of revenues was 35.1%. Our low intrinsic costs allow us to offer prices low enough to stimulate new demand and to attract customers away from higher-priced competitors.

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



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



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



| |  |  | TrialMaster is the core of our product offerings. Our competitors have often added functionality to their products via acquisition or by merger. We
feel 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: caring, integrity, innovation and passion. The first step is hiring people who are team-oriented and customer-focused. We reinforce our culture by communicating actively, on a regular basis, with all of our employees,
keeping them informed about events at the Company and soliciting feedback for ways to improve teamwork and their working environment.

Proven
Management Team.We are led by a management team with significant experience, including experience at international pharmaceutical companies and other EDC providers. Our President and Chief Executive Officer, Cornelis 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, Sr. Vice President of Marketing and Sales brings more than 13 years of clinical trials experience in sales management and business development to OmniComm.
Jesus. J. Rojas comes to OmniComm from the clinical trial development arena with over 11 years of experience in clinical trial research. Mr. Rojas is our Senior Vice President of Clinical Services and Support. 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. However, with the release of TrialMaster V4.0 in late 2006, our customers now have several business models available to them  ASP, Technology Transition, and Technology Transfer.



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We continue to offer a fully hosted ASP model, but now also offer a Technology Transition 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 all the technology 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 IBMs e-business center, built within a hardened data center environment in Atlanta, Georgia. 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 Hosted Services include the number of case report forms 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, 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 are recorded as deferred revenues on our balance sheet, will provide our customers and investors revenue visibility and provide meaningful information on the size and scope of our selling efforts.

Pricing for Technology Transition and Technology Transfer is based on the transfer of a perpetual license and is based on the number of internal named users of the
licensee and the volume of CRF pages collected annually. Under our Technology Transfer model there is also a monthly maintenance charge incurred for hosting and hosting related services.

Our Software Products and Services

TrialMaster.The heart of OmniComms unique product offering
begins with TrialMaster. Trial Master, 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 EDC solutions and related value-added services to pharmaceutical and biotechnology
companies, clinical research organizations (CROs), academic research institutions and other clinical trial sponsors. TrialMaster helps reduce the inefficiencies, inaccuracies and costs associated with paper-based clinical data
collection methodologies that are traditionally employed at the remote sites where clinical trial participants are monitored. Through TrialMaster, our customers can deploy customized electronic case report forms for on-site clinical data input,
which incorporate automated edit checking and deliver real-time data management capabilities previously unavailable through paper-based clinical trial data collection approaches.

TrialMaster Features:



| |  |  | Designed using Microsofts .NET®architecture.
| | - |  | ---------------------------------------------



| |  |  | Drag and drop trial building that allows OmniComm to provide an efficient, easy to use trial building solution for internal and Tech Transfer or Tech
Transition TrialMaster users.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An extensive Library of re-usable forms allowing for more efficient and effective follow-on engagements.
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Encoded SSL Connection that provides for patient and clinical trial data security.
| | - |  | ----------------------------------------------------------------------------------



| |  |  | A robust communications/administration system that includes powerful query resolution, trial participant notification and an integrated e-mail system.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Pre-trial management and tracking of Institutional Review Board (IRB), U.S. Food and Drug Administration (FDA) and laboratory
documentation.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Real-time query management, reporting and resolution.
| | - |  | -----------------------------------------------------



| |  |  | On-demand importingof CDISC, HL7, eDiary, Central/Core labs, IVRs, device, CTMS and dictionary data.
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Randomization solutions for patient enrollment and inventory tracking solutions for lot and drug shipment.
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Safety solutions to allow for serious adverse event (SAE) tracking and reporting with MedWatch capabilities.
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | Integrated Ad-Hoc reporting is available through LogiXML with Wizard-driven report generation.
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | Automated exports of data to client systems in various formats including SAS, CDISC, CSV, TAB, XML formats and Oracle Clinical formats.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FDA Archive Submission ready casebook containing PDF formatted copies of all CRFs in FDA submission format.
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | Comprehensive Servicesincluding a dedicated 21 CFR Part 11 compliant hosting environment at our secure IBM hosting facility, on-site or Web-driven training,
and 24 X 7 X 365 support.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Technology Transitionto allow for a smooth adoption of EDC with OmniComm offering hosted solutions.
| | - |  | ---------------------------------------------------------------------------------------------------

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

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

TrialMaster Phase I Application Features:



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



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



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



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



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



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



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



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

Improved productivity



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



| |  |  | All data entered into the system has been checked by the system Edit Checks, no gross errors will be included in the data.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



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



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



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



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

Improved responsiveness



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



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



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

Improved data accuracy



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



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

Reduced end-to-end study time line



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



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



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

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

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

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

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



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

TrialMaster Safety features include:



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



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



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



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



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



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



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

Services

Our services include delivery of the hosted solutions (ASP and Tech Transfer) of TrialMaster, including consulting services, customer support and
training and the delivery of implementation services for Tech Transfer, including installation, configuration, validation and training. The primary consulting services we offer for ASP and Tech Transfer include:



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



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



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



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



| |  |  | Training.OmniComm provides extensive hands-on TrialMaster training classes. Training classes can be conducted at a sponsor location, at an investigator
meeting, or at an investigator site.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Technology Transfer

The primary consulting services we offer for Tech Transfers include:

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.



9



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Configuration and Study Setup.OmniComm ensures the Trial Master set-up is configured optimally to handle design,
capture, and management of site based data capture. OmniComm helps clients design their initial EDC trial(s) so that common standards and business rules are in place to support the unique challenges that apply to site based data capture and
electronic Case Report Forms. Ultimately, we believe this will promote reuse of forms and clinical trial procedures and shorten study setup time for future engagements.

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

According to a 2005 Goldman Sachs report, global
R & D expenditures by the pharmaceutical and Biotech industries reached an estimated $102.6 billion in 2006, with approximately 53% of that amount spent by North American-based pharmaceutical, biotechnology and medical device companies. Based on
a 2002 CenterWatch report approximately 8.5% of total R & D costs are spent on data management.

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

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

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

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

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

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

New Drug Development Pressures. To respond to the demand for products for an aging population and for the treatment of chronic disorders and life-threatening conditions, R & D expenditures have increased because of the
constant pressure to develop and patent new therapies.

Growth of Biotechnology Industry. The biotechnology industry and the number of drugs
produced by it which require FDA approval have grown substantially over the past decade.

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

Market Opportunity

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



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



| |  |  | Drug companies lose as much as $32.9 million in potential revenue for each day a trial is delayed on a blockbuster drug such as Lipitor.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | According to a 2004 Thompson CenterWatch report, the average drug approved for sale by the FDA cost approximately $1.13 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 2001 Tufts University study cite that many factors are driving up
development costs, including a greater emphasis on developing treatments for chronic diseases, the increasing size of trials and the rising cost of recruiting subjects.

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. These success criteria include:



| |  |  | Deployment options. EDC vendors should 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 speed, performance or system reliability.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Customers

As of December 31, 2006, we had approximately 50
customers, including several Fortune 1000 companies. 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                  
|KOS Pharmaceuticals           |  | Pharmaceutical                
|W. L. Gore                    |  | Medical Device                
|Optimer Pharmaceuticals       |  | Biopharmaceutical             
|Columbia University (InChoir) |  | Academic                      
|Catalyst Pharmaceuticals      |  | 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 2006 will include: increasing the
number of sales personnel employed; increasing our attendance and marketing efforts at industry conferences and deploying a direct sales force in Europe. As of December 31, 2006 our sales and marketing function consisted of eight field sales
personnel. In addition, the efforts of our CEO and Chairman are directed at both business development and strategic planning issues.

Research and
Development

Our ability to compete within the EDC industry is predicated on our ability to continue enhancing and broadening the scope of solutions
offered through TrialMaster. Our 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. Our philosophy towards software development has been to design and implement all of our solutions through in-house development. We expect future R
& D efforts to be aimed at broadening the scope of TrialMaster functionality. These efforts may include select strategic alliances with best-in-class software and service partners possessing clinical trial industry experience. During fiscal
2006, we spent approximately $742,000 on R & D activities, the majority of which represented salaries to our developers. In fiscal 2005 we spent approximately $478,000 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 contractual
provisions, to protect our intellectual property and other proprietary rights. In addition, we attempt to protect our intellectual property and proprietary information by requiring our employees and consultants to enter into confidentiality,
non-competition and assignment of inventions agreements. These legal protections afford only limited protection for our technology. We have registered trademarks in the United States. Our principal registered trademarks are our company name
OmniComm Systems and our product name, TrialMaster. We cannot predict whether these trademark registrations will provide meaningful protection. Our agreements with employees, consultants and others who participate in
development activities could be breached. We may not have adequate remedies for any breach, and our trade secrets may otherwise become known or independently developed by our competitors or other third parties. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as the laws of the United States, and effective copyright, patent, trademark and trade secret protection may not be available in those jurisdictions.

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

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



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



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Competition

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



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



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



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



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

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

Government Regulation

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

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



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

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

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

Business Segments and Geographic Information

We view our operations and manage our business as one operating segment. Our sales to date
have been generated almost exclusively from U.S. based clients. TrialMaster has been deployed in clinical trials conducted both domestically in the U.S. and internationally in Europe, Asia, Africa and Australia. We have entered into a strategic
alliance with a Clinical Research Organization in the Pacific Rim and began operations in Europe through our wholly owned subsidiary OmniComm Europe BV.

Employees

We currently have 44 full time employees of which four are executives, one is administrative, 29 are programmers, engineers or
technology specialists, two are technology and systems managers and eight are in sales and marketing. We employ 37 employees out of our headquarters in Fort Lauderdale, Florida and seven field sales and marketing employees in California;
Pennsylvania; New York; Texas and North Carolina. We also employ a technology specialist in New Jersey. 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 the Netherlands. Our Internet website address is http://www.omnicomm.com. Our Annual Report on Form 10-KSB, Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available either via a link on our website or on the Securities and Exchange Commission website, http://www.sec.gov.

RISK FACTORS

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



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

We incurred net losses attributable to common stockholders of $4,764,498 and $2,224,933 in fiscal 2006 and 2005, respectively. At December 31,
2006, we had an accumulated deficit of approximately $31,951,911 and a working capital deficit of approximately $2,446,719. 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 2007, but we have little control over the timing of contracted projects. We expect our client and contract base to expand and diversify to the point where it meets our
on-going operating needs, but this may not happen in the short-term or at all. While we expect to achieve additional revenue through the growth of our business, we cannot assure you that we will generate sufficient revenue to fund our expenses and
achieve and maintain profitability in any period.

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

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



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



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



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



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



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



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

Any
decrease in 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 R & D 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.



16



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

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

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

Our revenues and operating results are difficult to predict and may fluctuate significantly from quarter to quarter, particularly because of the rapidly evolving market
in which we operate and our term license model. For instance, our quarterly results ranged from an operating loss of $1,653,875 for the quarter ended December 31, 2006 to an operating loss of $321,055 for the quarter ended March 31, 2005.
Our results of operations in any given quarter will be based on a number of factors, including:



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



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



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



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



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



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



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



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

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

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

The sales cycle for some of our software solutions frequently takes six months to a year or longer from initial customer contact to
contract execution. During this time, we may expend substantial time, effort and financial resources without realizing any revenue with respect to the potential sale. In addition, in the case of our hosted 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.



17



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

Our top five customers accounted for approximately 53% of our revenues during 2006 and approximately 54% of our revenues during 2005. Three
customers accounted individually for 10% or more of our revenues during 2005. One customer accounted individually for 10% or more of our revenues during 2006. These customers can terminate our services at any time. The loss of any of our major
customers could have a material adverse effect on our results of operations or financial condition. We may not be able to maintain our customer relationships, and our customers may not renew their agreements with us, which could adversely affect our
results of operations or financial condition. A significant change in the liquidity or financial position of any of these customers could also have a material adverse effect on the collectibility of our accounts receivables, our liquidity and our
future operating results.

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

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

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

The
clinical trial process is subject to extensive and strict regulation by the FDA, as well as other regulatory authorities worldwide. Our EDC, 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,



18



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

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

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

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

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

A SYSTEM FAILURE COULD RESULT IN SIGNIFICANTLY REDUCED REVENUES.

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

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

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

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

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



19



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

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

OUR FINANCIAL STATEMENTS CONTAIN A GOING CONCERN QUALIFICATION.

Because of our significant operating losses, accumulated deficit and the uncertainty as to our ability to secure additional financing, the report of
our independent auditors on our consolidated financial statements for the year ended December 31, 2006 contained an explanatory paragraph indicating there is substantial doubt about our ability to continue as a going concern.

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

At December 31, 2006, we had outstanding borrowings of approximately $1,050,000 of which



| |  |  | approximately $100,000, at 10% interest, was due June 2004. We are also in default in the payment of interest;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | approximately $100,000 at 9% interest was due January 31, 2007, and was converted as part of a private placement of equity that was closed on March 12,
2007;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | approximately $250,000 at 9% interest, is due May 31, 2007, and
| | - |  | ---------------------------------------------------------------



| |  |  | approximately $600,000 at 9% interest is due January 1, 2009.
| | - |  | -------------------------------------------------------------

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

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

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



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



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



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



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



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



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



20



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

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

At March 19, 2007, we had 56,074,110 shares of common stock issued and outstanding and 31,142,670 shares issuable upon the conversion of
preferred stock or exercise of warrants or options. Of these shares, 33,652,168 are, or will be upon issuance, eligible for resale pursuant to Rule 144. In general, Rule 144 permits a shareholder who has owned restricted shares for at least one
year, to sell without registration, within a three-month period, up to one percent of our then outstanding common stock. In addition, shareholders other than our officers, directors or 5% or greater shareholders who have owned their shares for at
least two years may sell them without volume limitation or the need for our reports to be current.

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

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

As of March 19, 2007, we had a total of 12,846,520 shares of our common stock underlying options, warrants and other convertible securities and 18,296,149 shares of common stock underlying convertible preferred
stock. The exercise of these warrants and options and/or the conversion of these convertible securities will have a dilutive effect on our existing stockholders.

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

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

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

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



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



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



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



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



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

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



21



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

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

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

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

Provisions of our
articles of incorporation and by-laws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, our articles of
incorporation authorize the issuance of up to 10,000,000 shares of preferred stock with such rights and preferences as may be determined from time to time by our Board of Directors, of which 4,602,374 shares are currently issued and outstanding. Our
board of directors may, without stockholder approval, issue additional series of preferred stock with dividends, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of our
common stock.



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

Our principal executive offices are located in commercial office space in approximately
8,900 square feet at 2101 West Commercial Blvd, Suite 4000, Fort Lauderdale, Florida, and our telephone number is (954) 473-1254. We lease these offices under the terms of a lease expiring in April 2011. Our annual rental payment under this
sublease is $121,344 plus sales tax.

Our secondary data site, which serves as our primary disaster recovery location, is located in Atlanta, Georgia and
is leased from IBM. We lease this space under the terms of a lease expiring in October 2007. Our annual lease payment is approximately $32,256.

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 $18,540 plus sales tax. This lease expires in August 2008.

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

OmniComm Systems is not currently a party to any legal proceedings.



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

None.



22



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PART II



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

Our common stock is traded on a limited basis on the
OTC Bulletin Board under the symbol OMCM. The following table sets forth the 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 2005 |  |      |      |     |   |     
|1stQuarter  |  | $    | 0.26 |     | $ | 0.18
|2ndQuarter  |  | $    | 0.27 |     | $ | 0.24
|3rdQuarter  |  | $    | 0.35 |     | $ | 0.24
|4thQuarter  |  | $    | 0.40 |     | $ | 0.29
|            |  |     
|Fiscal 2006 |  |      |      |     |   |     
|1stQuarter  |  | $    | 0.54 |     | $ | 0.40
|2ndQuarter  |  | $    | 0.59 |     | $ | 0.54
|3rdQuarter  |  | $    | 0.56 |     | $ | 0.50
|4thQuarter  |  | $    | 0.52 |     | $ | 0.48

On March 19, 2007, the closing price of our common stock as reported on the OTC Bulletin Board was $0.61. At
March 19, 2007, we had approximately 400 shareholders of record; however, we believe that we have in excess of 1,000 beneficial owners of our common stock.

Dividend Policy

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

A special note about penny stock rules

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

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth securities authorized for issuance under equity compensation plans, including individual compensation arrangements, under our 1998 Incentive Stock Plan as of December 31, 2006.



23



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|                                                       |  |                                                                                         |   |  |                                                                          |      |   |                                                                                                                                      |           |  
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------- | - |  | ------------------------------------------------------------------------ | ---- | - | ------------------------------------------------------------------------------------------------------------------------------------ | --------- | -
|                                                       |  | 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                              |  | 8,824,270                                                                               |   |  | $                                                                        | 0.38 |   |                                                                                                                                      | 3,675,730 |  
|                                                       |  |                                                                                         |   |  |                                                                          |      |   |                                                                                                                                      |           |  
|Equity compensation plans not approved by stockholders |  | None                                                                                    |   |  |                                                                          | n/a  |   |                                                                                                                                      | None      |  
|                                                       |  |                                                                                         |   |  |                                                                          |      |   |                                                                                                                                      |           |  
|Total                                                  |  | 8,824,270                                                                               |   |  | $                                                                        | 0.38 |   |                                                                                                                                      | 3,675,730 |  
|                                                       |  |                                                                                         |   |  |                                                                          |      |   |                                                                                                                                      |           |  

Recent Sales of Unregistered Securities

In October 2006, , our Board of Directors approved the granting of an aggregate of 1,324,270 incentive stock options to certain employees of our company vesting in equal amounts over a three year term at exercise
prices ranging from $0.50 to $0.58 per share. The employees were each provided disclosure of and access to business and financial information about our company. The recipients were non-accredited investors who had such knowledge and experience in
business, investment and financial matters that they were able to evaluate the risks and merits of an investment in our company. Accordingly, the employees were sophisticated within the meaning of federal securities laws. Each
certificate evidencing securities issued in the transaction included a legend stating that the securities were not registered under the Securities Act and may not be resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with the transaction. The transaction was exempt from the registration requirements of the Securities Act by reason of Section 4(2) thereunder and/or the rules and
regulations thereunder including Rule 506 of Regulation D.

On November 1, 2006, we issued an aggregate of 100,000 shares of common stock to five
individuals in consideration of employment services and services rendered to us by a member of our Board of Directors. The employment and Directors services were for legal, business development services and strategic services. Each of the employees
or the Director (a) had a preexisting relationship with us, (b) had access to business and financial information concerning us, (c) was afforded the opportunity to ask questions of our management concerning our operations and the terms of
the offering, and (d) had such knowledge and experience in business and financial matters that it was able to evaluate the risks and merits of an investment. Therefore, each investor was sophisticated within the meaning of Federal
securities laws. In addition, the certificates evidencing the shares that were issued contained a legend restricting their transferability absent registration under the Act or the availability of an applicable exemption therefrom. The issuance of
these securities was exempt from the registration requirements of the Act by reason of Section 4(2) and/or the rules and regulations thereunder including Rule 506 of Regulation D.

On December 31, 2006, we issued 50,000 shares of our common stock to one accredited investor pursuant to the conversion of a 10% Convertible Note originally issued in May 1999. The investor was provided access to
business and financial information about our company and had such knowledge and experience in business and financial matters that they were able to evaluate the risks and merits of an investment in our common stock. No general solicitation or
advertising was used in connection with the transaction and no commission or other remuneration was paid or given directly or indirectly for such exchange. The transaction was exempt from the registration requirements of the Securities Act by reason
of Section 4(2) and/or the rules and regulations thereunder including, Rule 506 of Regulation D and/or Section 3(a)(9) under the Securities Act.



|ITEM 6. | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
|------- | ----------------------------------------------------------

General

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



24



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Forward-Looking Statements

Statements contained in this Form 10-KSB that are not historical fact are forward looking statements. These statements can often be identified by the use of forward-looking terminology such as
estimate, project, believe, expect, may, will, should, intends, or anticipates or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy that involve risks and uncertainties. We wish to caution the reader that these forward-looking statements, contained in this Form 10-KSB regarding matters that are not historical facts, are only
predictions. No assurance can be given that plans for the future will be consummated or that the future results indicated, whether expressed or implied, will be achieved. While sometimes presented with numerical specificity, these plans and
projections and other forward-looking statements are based upon a variety of assumptions, which we consider reasonable, but which nevertheless may not be realized. Because of the number and range of the assumptions underlying our projections and
forward-looking statements, many of which are subject to significant uncertainties and contingencies that are beyond our reasonable control, some of the assumptions inevitably will not materialize, and unanticipated events and circumstances may
occur subsequent to the date of this Form 10-KSB. Therefore, our actual experience and results achieved during the period covered by any particular projections or forward-looking statements may differ substantially from those projected.
Consequently, the inclusion of projections and other forward- looking statements should not be regarded as a representation by us or any other person that these plans will be consummated or that estimates and projections will be realized, and actual
results may vary materially. There can be no assurance that any of these expectations will be realized or that any of the forward-looking statements contained herein will prove to be accurate. The Company does not undertake any obligation to update
or revise any forward-looking statement made by it or on its behalf, whether as a result of new information, future events or otherwise.

Overview

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

During fiscal 2006 the Company has continued its efforts in executing its strategy. The primary focus of our strategy includes:



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



| |  |  | 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.
| | - |  | --------------------------------

A crucial success
factor in the EDC industry is the overall penetration of our industry into the domestic and international clinical trial market. CenterWatch, an industry publication, estimates that as of 2004 approximately 15 to 25% of clinical trials are conducted
with the use of EDC. CenterWatch estimates that U.S. clinical R & D was at $31.5 billion in 2005. Based on a 2002 CenterWatch report approximately 8.5% of total R & D costs are spent on data management. 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 2005 and the first half of 2006
we expanded our sales and marketing team and we anticipate continuing to increase our marketing and sales personnel during fiscal 2007.

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 2006 and 2005, we spent approximately $742,000 and $478,000 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.



25



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The Year-ended December 31, 2006 Compared With the Year-ended December 31, 2005

Results of Operations

A summarized version of our results of
operations for the years ended December 31, 2006 and December 31, 2005 is included in the table below.

Summarized Statement of
Operations



|                                               |  |                                  |            |   |               |        |   |      |   |            |               |  |        |          |  |   |            |   |  |        |  
|---------------------------------------------- |  | -------------------------------- | ---------- | - | ------------- | ------ | - | ---- | - | ---------- | ------------- |  | ------ | -------- |  | - | ---------- | - |  | ------ | -
|                                               |  | For the years ended December 30, |            |   |               |        |   |      |  
|                                               |  | 2006                             |            |   | % of Revenues |        |   | 2005 |   |            | % of Revenues |  |        | $ Change |  |   | % Change   |  
|Total revenues                                 |  | $                                | 2,763,039  |   |               |        |   |      | $ | 1,753,976  |               |  |        |          |  | $ | 1,009,063  |   |  | 57.5   | %
|                                               |  |                                  |            |   |               |       
|Cost of sales                                  |  |                                  | 969,323    |   |               | 35.1   | % |      |   | 387,262    |               |  | 22.1   | %        |  |   | 582,061    |   |  | 150.3  | %
|                                               |  |                                  |            |   |               |        |   |      |   |            |               |  |        |          |  |   |            |   |  |        |  
|Gross margin                                   |  |                                  | 1,793,716  |   |               | 64.9   | % |      |   | 1,366,714  |               |  | 77.9   | %        |  |   | 427,002    |   |  | 31.2   | %
|                                               |  |                                  |            |   |               |       
|Salaries, benefits and related taxes           |  |                                  | 3,986,311  |   |               | 144.3  | % |      |   | 1,871,508  |               |  | 106.7  | %        |  |   | 2,114,803  |   |  | 113.0  | %
|Rent                                           |  |                                  | 221,817    |   |               | 8.0    | % |      |   | 154,048    |               |  | 8.8    | %        |  |   | 67,769     |   |  | 44.0   | %
|Consultingmarketing sales                     |  |                                  | 376,152    |   |               | 13.6   | % |      |   |           |               |  | 0.0    | %        |  |   | 376,152    |   |  | N/M    |  
|Legal and professional fees                    |  |                                  | 233,035    |   |               | 8.4    | % |      |   | 178,219    |               |  | 10.2   | %        |  |   | 54,816     |   |  | 30.8   | %
|Travel                                         |  |                                  | 222,419    |   |               | 8.0    | % |      |   | 107,101    |               |  | 6.1    | %        |  |   | 115,318    |   |  | 107.7  | %
|Selling, general and administrative            |  |                                  | 338,761    |   |               | 12.3   | % |      |   | 275,802    |               |  | 15.7   | %        |  |   | 62,959     |   |  | 22.8   | %
|Bad debt expense                               |  |                                  |           |   |               | 0.0    | % |      |   | 9,201      |               |  | 0.5    | %        |  |   | (9,201     | ) |  | N/M    |  
|Depreciation and amortization                  |  |                                  | 55,900     |   |               | 2.0    | % |      |   | 28,332     |               |  | 1.6    | %        |  |   | 27,568     |   |  | 97.3   | %
|                                               |  |                                  |            |   |               |        |   |      |   |            |               |  |        |          |  |   |            |   |  |        |  
|Total Operating Expenses                       |  |                                  | 5,525,422  |   |               | 200.0  | % |      |   | 2,696,203  |               |  | 153.7  | %        |  |   | 2,829,219  |   |  | 104.9  | %
|                                               |  |                                  |            |   |               |        |   |      |   |            |               |  |        |          |  |   |            |   |  |        |  
|Operating income (loss)                        |  |                                  | (3,731,706 | ) |               | -135.1 | % |      |   | (1,329,489 | )             |  | -75.8  | %        |  |   | (2,402,217 | ) |  | 180.7  | %
|                                               |  |                                  |            |   |               |       
|Interest Expense                               |  |                                  | 509,648    |   |               | 18.4   | % |      |   | 365,397    |               |  | 20.8   | %        |  |   | 144,251    |   |  | 39.5   | %
|                                               |  |                                  |            |   |               |       
|Interest income                                |  |                                  |           |   |               | 0.0    | % |      |   | 476        |               |  | 0.0    | %        |  |   | (476       | ) |  | -100.0 | %
|                                               |  |                                  |            |   |               |        |   |      |   |            |               |  |        |          |  |   |            |   |  |        |  
|(Loss) before income taxes and dividends       |  |                                  | (4,241,354 | ) |               | -153.5 | % |      |   | (1,694,410 | )             |  | -96.6  | %        |  |   | (2,546,944 | ) |  | 150.3  | %
|Income tax expense (benefit)                   |  |                                  | -0-        |   |               | 0.0    | % |      |   | -0-        |               |  | 0.0    | %        |  |   | -0-        |   |  | N/M    |  
|                                               |  |                                  |            |   |               |        |   |      |   |            |               |  |        |          |  |   |            |   |  |        |  
|Net (loss)                                     |  |                                  | (4,241,354 | ) |               | -153.5 | % |      |   | (1,694,410 | )             |  | -96.6  | %        |  |   | (2,546,944 | ) |  | 150.3  | %
|                                               |  |                                  |            |   |               |       
|Total preferred stock dividends                |  |                                  | (523,144   | ) |               | -18.9  | % |      |   | (530,523   | )             |  | -30.2  | %        |  |   | 7,379      |   |  | -1.4   | %
|                                               |  |                                  |            |   |               |        |   |      |   |            |               |  |        |          |  |   |            |   |  |        |  
|Net (loss) attributable to common stockholders |  | $                                | (4,764,498 | ) |               | -172.4 | % |      | $ | (2,224,933 | )             |  | -126.9 | %        |  | $ | (2,539,565 | ) |  | 114.1  | %
|                                               |  |                                  |            |   |               |        |   |      |   |            |               |  |        |          |  |   |            |   |  |        |  



26



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Results of Operations

Revenues for the year-ended December 31, 2006 were $2,763,039 compared to $1,753,976 for the year-ended December 31, 2005, an increase of 57.5%. The revenue increase can be attributed to a 43% increase in projects under
management. Additionally, the average project initiated during the year-ended December 31, 2006 was approximately 20% larger than the trials initiated during the year-ended December 31, 2005. Industry acceptance of EDC continues to
increase and CenterWatch, an industry trade group, estimates that current EDC use is approximately 15-25% of clinical trials. TrialMaster is currently sold primarily as an application service provider (ASP) that provides EDC and other
services such as an enterprise management suite which assists its clients in the pharmaceutical, biotechnology and medical device industries in accelerating the completion of clinical trials. As we continue developing TrialMaster and our client
relationships mature we expect some of our clients to deploy TrialMaster on a licensed, rather than ASP hosted basis. TrialMaster contracts provide for pricing that is based on both the size and duration of the clinical trial. Size parameters
include the number of case report forms used to collect data and the number of sites utilizing TrialMaster. The client will pay a trial setup fee based on the previously mentioned factors, and then pay an on-going maintenance fee for the duration of
the clinical trial that provides software, network and site support during the trial. During the year-ended 2006 approximately 69.6% of revenues was generated by trial setup activities, 21.3% was generated from on-going maintenance fees and
approximately 9.1% was generated from fees charged for changes to on-going clinical trial engagements. During the year-ended 2005 we generated 69.6% of revenues from setup fees, 21.3% from on-going maintenance fees and 9.1% 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 53% of our revenues during the year-ended December 31, 2006 and approximately 54% of
our revenues during the year-ended December 31, 2005. One customer accounted individually for 10% or more of our revenues during fiscal 2006. The loss of any of these contracts or these customers in the future could adversely affect our results
of operations.

Cost of goods sold increased to $969,323 for the year-ended December 31, 2006 compared to $387,262 for the year-ended
December 31, 2005, an increase of 150.3%. Cost of goods sold were approximately 35.1% of sales for the year-ended December 31, 2006 compared to 22.1% for the year-ended December 31, 2005. 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 2006 due to the addition of five additional programmers, four additional
quality analysts and a training specialist as part of our 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 return to the 25% of sales range during fiscal 2007. 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 V3.0, the current release of our trial-building
software has improved our ability to reduce trial production related costs since it automates many of the trial building functions that were manually performed in prior releases of our software. We expect the next release of TrialMaster, (V4.0),
which is available for commercialization, to increase the efficiency of trial building operations by 20 to 25%. V4.0 is being designed using Microsofts .NET framework. Microsoft®.NET is described by Microsoft as a set of software technologies for connecting information, people, systems, and devices. This new
generation of technology is based on Web servicessmall building-block applications that can connect to each other as well as to other, larger applications over the Internet.

Salaries and related expenses are our biggest expense at 72.1% of total Operating Expenses for the year-ended December 31, 2006 compared with 69.4% of total Operating Expenses for the year-ended December 31,
2005. Salaries and related expenses totaled $3,986,311 for the year-ended December 31, 2006 compared to $1,871,508 for the year-ended December 31, 2005, an increase of 113.0%. We currently employ approximately 37 employees out of our Ft.
Lauderdale, Florida corporate office and have eight out-of-state employees. We expect to increase personnel within our production, project management and quality analysis functions in concert with anticipated increases in TrialMaster clients during
fiscal 2007. We will look to selectively add experienced sales and marketing personnel in fiscal 2007 in an effort to increase our market penetration and to continue broadening our client base. During the year ended December 31, 2006 we
incurred approximately $786,703 in salary expense in connection with our adoption of SFAS No. 123(R), Share-Based Payment. SFAS 123(R) 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.



27



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Rent and related expenses increased by $67,769 during the year-ended December 31, 2006 when compared to the
year-ended December 31, 2005. We entered into a new corporate office lease that runs through April 2011. In December 2001, we established a disaster recovery site at an IBM owned Co-Location facility in Atlanta, Georgia and will continue
utilizing this facility for the foreseeable future since it is designed to ensure 100% production system up-time and to provide system redundancy. In August 2006, we entered into a lease with Gold Coast 1-Vault in the Ft. Lauderdale, Florida area.
This facility provides us with disaster recovery and business continuity services for our operations. This lease expires in August 2008.

Consulting
services expense was $376,152 for the year ended December 31, 2006 compared with $0 for the year ended December 31, 2005. Consulting services were comprised of fees paid to recruiting consultants in helping us develop our R & D and
sales and marketing recruiting programs and in helping us recruit employees in those two functions.

Legal and professional fees totaled $233,035 for the
year-ended December 31, 2006 compared with $178,219 for the year-ended December 31, 2005, an increase of approximately $54,816. Professional fees represent fees paid to our auditors for services rendered on a quarterly and annual basis in
connection with our SEC filings and fees paid to our attorneys in connection with representation in matters involving litigation or for services rendered to us related to securities and SEC related matters. We expect legal and professional fees to
increase during fiscal 2007 in connection with our project aimed at ensuring timely compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

Selling, general and administrative expenses (SGA) were $338,761 for the year-ended December 31, 2006 compared to $275,802 for the year-ended December 31, 2005, an increase of 22.8%. These expenses relate primarily to
costs incurred in running our office day-to-day and other costs not directly related to other captioned items in our income statement, and include the cost of office equipment and supplies, the costs of attending conferences and seminars and other
expenses incurred in the normal course of business. The Company increased its marketing, sales and advertising expenditures by $67,459 for the year-ended December 31, 2006 from $66,269 for the year-ended December 31, 2005 to $133,728, an
increase of approximately 101.8%. We expect SGA expenses to continue increasing as we intensify and extend our selling and marketing efforts.

Interest
expense was $509,648 during the year-ended December 31, 2006, including $195,880 in interest expense related (1) the conversion of certain accrued expense owed to our Placement Agent, Noesis Capital Corp. and (2) to the conversion of
our 10% Convertible Notes that were converted during 2006 compared to $365,397 for the year-ended December 31, 2005, including $104,000 in interest expense related to the conversion of our 10% convertible notes that were converted in 2005, an
increase of $144,251 or 39.5%. Interest expense related to related parties was $328,709 during the year ended December 31, 2006 and $129,684 for the year ended December 31, 2005. The increase in total interest expense during the year ended
December 31, 2006 can be attributed to the interest expense incurred on notes issued during calendar 2006 and the increase in interest expense associated with notes issued throughout calendar 2005 and the additional interest associated with
conversions of or 10% Notes in both years. We evaluate the cost of capital available to us in combination with our overall capital structure in deciding what financing best fulfills our short and long-term capital needs. During the year-ended
December 31, 2006 we issued $700,000 in promissory notes, including $185,000 to our Placement Agent Noesis Capital Corp. The note for $185,000 issued to Noesis Capital included $125,000 in accrued expenses associated with financial services
provided during fiscal 2004 and 2005. During the year-ended December 31, 2005, we issued $708,300 in promissory notes. An aggregate of $2,924,260 in promissory notes were converted into shares of our common stock in December 2006. Included in
the notes converted during December 2006 were notes held by Cornelis F. Wit, our President and CEO in the amount of $691,501, by Guus van Kesteren, a Director, in the amount of $439,136 and by Noesis Capital Corp., our Placement Agent and a 5% or
greater shareholder, in the amount of $511,910. The interest expense savings associated with these conversions will be approximately $263,000 in fiscal 2007.

There were arrearages of $210,761 in 5% Series A Preferred Stock dividends, $42,663 in Series B Preferred Stock dividends and $269,720 in Series C Preferred Stock dividends for the year-ended December 31, 2006, compared with arrearages
of $205,363 in 5% Series A Preferred Stock dividends, $55,441 in Series B Preferred Stock dividends and $269,720 in Series C Preferred Stock dividends for the year-ended December 31, 2005. We deducted $523,144 and $530,523 from Net Income
(Loss) Attributable to Common Stockholders for the year-ended December 31, 2006 and December 31, 2005, respectively, relating to undeclared Series A, B and C Convertible Preferred Stock dividends.



28



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Liquidity and Capital Resources

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

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

Liquidity and Capital Resources

Disclosure for the Period Ended

December 31,



|                                                            |  |            |   |  |            |   |  |          |  
|----------------------------------------------------------- |  | ---------- | - |  | ---------- | - |  | -------- | -
|                                                            |  | 2006       |   |  | 2005       |   |  | Change   |  
|Cash                                                        |  | 38,254     |   |  | 9,931      |   |  | 28,323   |  
|Accounts Receivable, net of allowance for doubtful accounts |  | 286,708    |   |  | 234,565    |   |  | 52,143   |  
|                                                            |  |            |  
|Current Assets                                              |  | 366,988    |   |  | 246,890    |   |  | 120,098  |  
|                                                            |  |            |  
|Accounts Payable and accrued expenses                       |  | 645,374    |   |  | 779,456    |   |  | (134,082 | )
|                                                            |  |            |  
|Accrued payroll taxes                                       |  | 74,766     |   |  | 58,742     |   |  | 16,024   |  
|                                                            |  |            |  
|Deferred revenue                                            |  | 1,643,566  |   |  | 1,048,707  |   |  | 594,859  |  
|                                                            |  |            |  
|Convertible notes payable                                   |  | 100,000    |   |  | 125,000    |   |  | (25,000  | )
|                                                            |  |            |  
|Current Liabilities                                         |  | 2,813,706  |   |  | 2,011,905  |   |  | 801,801  |  
|                                                            |  |            |  
|Working Capital (Deficit)                                   |  | (2,446,718 | ) |  | (1,765,015 | ) |  | (681,703 | )
|                                                            |  |            |  
|Net cash provided by (used in) operating activities         |  | (2,264,664 | ) |  | (809,926   | ) |  |          |  
|                                                            |  |            |  
|Net cash provided by (used in) investing activities         |  | (228,642   | ) |  | (24,638    | ) |  |          |  
|                                                            |  |            |  
|Net cash provided by financing activities                   |  | 2,523,670  |   |  | 778,800    |   |  |          |  
|                                                            |  |            |  
|Net increase (decrease) in cash and cash equivalents        |  | 28,323     |   |  | (55,764    | ) |  |          |  

Cash and cash equivalents increased by $28,323 from $9,931 to $38,254 at December 31, 2006. This was the
result of cash provided by financing activities of $2,523,670 offset by cash used in operating activities of approximately $2,264,664 and $228,642 used in investing activities. The significant components of the activity include a loss from
operations of approximately $4,241,354 offset by non-cash expenses of $1,597,757 and approximately $2,523,670 we raised through the issuance of debt and equity securities offset by $228,642 used in investing activities and increases in cash of
$378,933 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 $400,000 planned for capital
expenditures to further the Companys growth during fiscal 2007, which will be funded through cash from operations.



29



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Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2006:



|                                 |  |       |           |                        |   |         |           |  |   |           |     |           |   |         |  |   |        
|-------------------------------- |  | ----- | --------- | ---------------------- | - | ------- | --------- |  | - | --------- | --- | --------- | - | ------- |  | - | -------
|                                 |  |       |           | Payments Due by Period |   |         |           |  |  
|Contractual Obligations          |  | Total |           | Less than1 year        |   |         | 1-2 Years |  |   | 2-3 Years |     | 3-5 Years
|Long Term Debt (1)               |  | $     | 1,050,000 |                        | $ | 450,000 | (2)       |  | $ | 600,000   | (3) |           | $ | 0       |  | $ | 0      
|Operating Lease Obligations      |  |       | 971,066   |                        |   | 265,651 |           |  |   | 213,261   |     |           |   | 206,829 |  |   | 282,325
|Financial Advisory Agreement (4) |  |       | 270,000   |                        |   | 90,000  |           |  |   | 90,000    |     |           |   | 90,000  |  |   | 0      
|                                 |  |       |           |                        |   |         |           |  |   |           |     |           |   |         |  |   |        
|Total                            |  | $     | 2,291,066 |                        | $ | 808,651 |           |  | $ | 903,261   |     |           | $ | 296,829 |  | $ | 282,325
|                                 |  |       |           |                        |   |         |           |  |   |           |     |           |   |         |  |   |        

---

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

|2. | Includes $100,000 of convertible notes currently in default and due that are convertible into shares of common stock at the option of the debenture holder at a conversion rate of
$1.25 per share and $350,000 in promissory notes bearing interest at 9% annually that mature in January 31, 2007 and May 2007.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Includes $600,000 in promissory notes bearing interest at 9% annually that mature on January 1, 2009.
|-- | -----------------------------------------------------------------------------------------------------

|4. | 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 $170,298 on our 10% Convertible Notes. We were in default effective January 30, 2002.

We have been operating with a cash burn rate since beginning our EDC operations. In order to manage cash flows, we have issued preferred stock, common stock, and debt to satisfy operating expenses and obligations. From April 2005 through
July 2005, we sold an aggregate of 850,000 shares of our common stock resulting in gross proceeds of $212,500. We accrued $20,000 in transaction fees leaving net proceeds to us of $192,500. From January 2006 to December 2006, an aggregate of
7,240,000 common stock warrants originally issued in connection with private placements of our Series B and Series C Preferred stock and with a round of financing involving our common stock that occurred in 2005 were exercised on a cash basis. An
additional 6.4 million warrants issued in the private placement of our Series B Preferred Stock were exercised on a cashless basis providing us with no cash proceeds. The gross proceeds of the warrant exercises were $1,810,000 and we incurred
no transaction fees in connection with the warrant exercise transactions. From March 2006 to December 2006 an aggregate of 834,500 shares of common stock were issued in connection with the exercise of employee stock options resulting in gross
proceeds of $223,375.

Our selling efforts include marketing our products to several Fortune 1000 pharmaceutical and medical device manufacturers and
several of the largest CROs. We began providing services to some of these entities during 2003 and we have experienced success in broadening our client roster over the past 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 2005 and 2006. We
entered into approximately $9.0 million in contracts during those two fiscal years for trials to be serviced over the next five years. These contracts included nineteen clinical trial engagements with twelve new clients. These contracts, however,
may 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 2007, we will begin commercializing our products on a licensed basis. Our clients will be able to partially or completely license TrialMaster. This business model provides our



30



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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 industry-wide emphasis in establishing strategic relationships with CROs. These relationships provide marketing leverage in
the form of joint marketing and sales efforts and provide an installed base of trained TrialMaster users. This installed base of users increases our ability to provide rapidly developed, cost effective solutions for our clients.

We feel that the momentum established from new client acquisitions and our ability to retain clients for repeat engagements provide a good operating base from which to
build during 2007. 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 experienced since 1999 we have
needed to continue utilizing the proceeds from the sale of debt and equity securities to fund our working capital needs. When available, capital has been expensive relative to the valuations that were afforded during the expansion of the Internet
sector in 1999 and 2000. The softness in the capital markets earlier this decade coupled with the losses experienced have caused working capital shortfalls. We have used a combination of equity financing and short-term bridge loans to fund our
working capital needs. Other than our current capital and capital we may raise from future debt or equity offerings or short-term bridge loans, we do not have any additional sources of working capital.

We may continue to require substantial funds to continue our R & D activities and to market, sell and commercialize our technology. We may need to raise substantial
additional capital to fund our future operations. Our capital requirements will depend on many factors, including the problems, delays, expenses and complications frequently encountered by companies developing and commercializing new technologies;
the progress of our R & D activities; the rate of technological advances; determinations as to the commercial potential of our technology under development; the status of competitive technology; the establishment of collaborative relationships;
the success of our sales and marketing programs; 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 R & D 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 R & D plans or other events will not result in accelerated or unexpected expenditures.

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

Our ability to continue in existence is dependent on our having sufficient financial resources to bring products and services to market. As a result of our significant losses, negative cash flows from operations, and
accumulated deficits for the periods ending December 31, 2006, 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 16, 2007.

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.



31



---

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

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

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

Deferred Revenue

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

Revenue Recognition Policy

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

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

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 and 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 and made pro forma footnote disclosures as required by SFAS No. 148, Accounting For Stock-Based CompensationTransition and Disclosure,
which amended SFAS No. 123, Accounting For Stock-Based Compensation. Pro forma net income and pro forma net income per share disclosed in the footnotes to the consolidated condensed financial statements were estimated using a
Binomial option valuation model. The fair value of any restricted stock granted was calculated based upon the fair market value of OmniComms common stock at the date of grant.



32



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EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 2006, the FASB issued FASB Staff Position (FSP) FAS 123R-4 Classification of Options and Similar Instruments Issued as Employee Compensation
That Allow for Cash Settlement upon the Occurrence of a Contingent Event. FSP FAS 123(R)-4 addresses the classification of options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence
of a contingent event and amends paragraphs 32 and A229 of SFAS 123(R). The Company is required to apply the guidance in FSP FAS123(R)-4 in the quarterly period ending April 30, 2006. The impact of the adoption of FSP FAS123(R)-4 was
approximately $786,000 for the year ended December 31, 2006. We expect that our adoption of FAS 123(R)-4 to have a significant impact on our results of operations in the future.



33



---

In February 2006, the FASB issued SFAS 155 Accounting for Certain Hybrid Financial Instruments, an amendment of
FASB Statements No. 133 and 140. This Statement amends FASB 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS 155 resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. SFAS 155 permits fair value
remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133,
establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded derivatives and amends SFAS 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of the Companys first fiscal year that begins after September 15,
2006, with earlier adoption permitted. The Company does not expect SFAS 155 will have a material effect on its consolidated financial position, results of operations and cash flows.

In March 2006, the FASB issued SFAS No. 156 (FAS 156), Accounting for Servicing of Financial AssetsAn Amendment of FASB Statement No. 140. Among other requirements, FAS 156
requires a company to recognize a servicing asset or servicing liability when it undertakes an obligation to service a financial asset by entering into a servicing contract under certain situations. Under FAS 156 an election can also be made for
subsequent fair value measurement of servicing assets and servicing liabilities by class, thus simplifying the accounting and provide for income statement recognition of potential offsetting changes in the fair value of servicing assets, servicing
liabilities and related derivative instruments. FAS 156 is effective for fiscal years beginning after September 15, 2006. The Company does not expect the adoption of FAS 156 will have a material impact on its financial position or results of
operations.

In July 2006, the FASB issued Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB
Statement No. 109 (FIN 48), which is a change in accounting for income taxes. FIN 48 specifies how tax benefits for uncertain tax positions are to be recognized, measured, and derecognized in financial statements; requires
certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company does not expect the adoption of FIN 48 will have a material impact on its financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157 (FAS 157), Fair Value Measurements. Among other requirements, FAS 157 defines fair value and establishes a framework for measuring fair
value and also expands disclosure about the use of fair value to measure assets and liabilities. FAS 157 is effective beginning the first fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact of FAS 157
on its financial position and results of operations.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (SAB 108), which provides interpretive guidance on how the effects of the carryover or
reversal of prior year misstatements should be considered in quantifying a current year misstatement. The guidance is applicable for fiscal years ending after November 15, 2006. The Company does not believe SAB 108 will have a material
impact on its consolidated financial statements.



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

Our financial statements are set forth on Pages F-1 through F-28 attached hereto.



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

None.



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

Based on their evaluation as of the end of the period covered by this Annual Report on
Form 10-KSB, being December 31, 2006, the Companys principal executive officer and principal financial officer have concluded that the Companys disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms.



34



---

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

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



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

None.

PART III



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

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 2007 Annual Meeting of Stockholders to be held on May 18, 2007 (the Proxy Statement).



|ITEM 10. | 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.



|ITEM 11. | 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 12. | 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 13. | EXHIBITS
|-------- | --------

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



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



35



---

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



36



---

|      |  |                                                                                                                                                                           
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 (39)                                                                
|      | 
|10.18 |  | Amended and Restated Promissory Note between the Company and Guus van Kesteren, dated December 31, 2005 (40)                                                              
|      | 
|10.19 |  | Promissory Note between the Company and Cornelis F. Wit, dated October 11, 2005 (41)                                                                                      
|      | 
|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)                                                   
|      | 
|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.
|--- | ---------------------------------------------------------------------------------------------



37



---

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



38



---

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

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

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

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

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

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

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

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

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

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

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

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

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

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

|(39) | Incorporated by reference to Exhibit 10.17 filed with our Form 10-KSB for the period ended December 31, 2005.
|---- | -------------------------------------------------------------------------------------------------------------

|(40) | Incorporated by reference to Exhibit 10.18 filed with our Form 10-KSB for the period ended December 31, 2005.
|---- | -------------------------------------------------------------------------------------------------------------

|(41) | Incorporated by reference to Exhibit 10.19 filed with our Form 10-KSB for the period ended December 31, 2005.
|---- | -------------------------------------------------------------------------------------------------------------



|ITEM 14. | PRINCIPAL ACCOUNTANT 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.



39



---

SIGNATURES

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



OMNICOMM SYSTEMS, INC.By:

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

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


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



|                      |  |                                                             |  |               
|--------------------- |  | ----------------------------------------------------------- |  | --------------
|Signature             |  | Title                                                       |  | Date          
|                      |  |                                                            
|/s/ Cornelis F. Wit   |  | Chief (Principal) Executive Officer, President and Director |  | March 30, 2007
|Cornelis F. Wit       |  |                                                             | 
|                      |  |                                                            
|/s/ Randall G. Smith  |  | Chairman, Chief Technology Officer                          |  | March 30, 2007
|Randall G. Smith      |  |                                                             | 
|                      |  |                                                            
|/s/ Ronald T. Linares |  | Chief (Principal) Accounting and Financial Officer          |  | March 30, 2007
|Ronald T. Linares     |  |                                                             | 
|                      |  |                                                            
|/s/ Guus van Kesteren |  | Director                                                    |  | March 30, 2007
|Guus van Kesteren     |  |                                                             | 
|                      |  |                                                            
|/s/ Matthew D. Veatch |  | Director                                                    |  | March 30, 2007
|Matthew D. Veatch     |  |                                                             | 
|                      |  |                                                            
|/s/ Simon P. Kooyman  |  | Director                                                    |  | March 30, 2007
|Simon P. Kooyman      |  |                                                             | 



40



---

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, 2006 and 2005, 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, 2006. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based upon our audits.

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

In our opinion, the consolidated financial statements presented above present fairly, in all material respects, the financial position of OmniComm Systems, Inc. at
December 31, 2006 and 2005, 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 16, 2007, except for Note 15, as to
which the date is March 23, 2007



F - 1



---

OMNICOMM SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                                                                    |  | December 31,2006 |             |   | December 31,2005 |  
|ASSETS                                                                                                                                                                                                              |  |                  |             |   |                  |   |             |  
|CURRENT ASSETS                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|Cash                                                                                                                                                                                                                |  | $                | 38,254      |   |                  | $ | 9,931       |  
|Accounts receivable, net of allowance for doubtful accounts of $58,539 and $58,539 in 2006 and 2005, respectively                                                                                                   |  |                  | 286,708     |   |                  |   | 234,565     |  
|Prepaid expenses                                                                                                                                                                                                    |  |                  | 42,026      |   |                  |   | 2,394       |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|Total current assets                                                                                                                                                                                                |  |                  | 366,988     |   |                  |   | 246,890     |  
|                                                                                                                                                                                                                    |  |                 
|PROPERTY AND EQUIPMENT, net                                                                                                                                                                                         |  |                  | 199,931     |   |                  |   | 31,222      |  
|                                                                                                                                                                                                                    |  |                 
|OTHER ASSETS                                                                                                                                                                                                        |  |                  |             |   |                  |   |             |  
|Intangible assets                                                                                                                                                                                                   |  |                  | 2,686       |   |                  |   | -0-         |  
|Other assets                                                                                                                                                                                                        |  |                  | 12,937      |   |                  |   | 5,497       |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|TOTAL ASSETS                                                                                                                                                                                                        |  | $                | 582,542     |   |                  | $ | 283,609     |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|CURRENT LIABILITIES                                                                                                                                                                                                 |  |                  |             |   |                  |   |             |  
|Accounts payable and accrued expenses                                                                                                                                                                               |  | $                | 645,375     |   |                  | $ | 779,456     |  
|Accrued payroll taxes                                                                                                                                                                                               |  |                  | 74,766      |   |                  |   | 58,742      |  
|10% Convertible Notes                                                                                                                                                                                               |  |                  | 100,000     |   |                  |   | 125,000     |  
|Notes payable  current portion                                                                                                                                                                                     |  |                  | 350,000     |   |                  |   | -0-         |  
|Deferred revenue                                                                                                                                                                                                    |  |                  | 1,643,566   |   |                  |   | 1,048,707   |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                                                           |  |                  | 2,813,707   |   |                  |   | 2,011,905   |  
|                                                                                                                                                                                                                    |  |                 
|NOTES PAYABLE, net of current portion                                                                                                                                                                               |  |                  | 415,000     |   |                  |   | 2,043,623   |  
|NOTES PAYABLE RELATED PARTY, net of current portion                                                                                                                                                                 |  |                  | 185,000     |   |                  |   | 1,150,937   |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|TOTAL LIABILITIES                                                                                                                                                                                                   |  |                  | 3,413,707   |   |                  |   | 5,206,465   |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|COMMITMENTS AND CONTINGENCIES (See Note 9)                                                                                                                                                                          |  |                  |             |   |                  |   |             |  
|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, 50,000 and 65,000 issued and outstanding, respectively;
liquidation preference $500,000 and $650,000, respectively                |  |                  | 50          |   |                  |   | 65          |  
|                                                                                                                                                                                                                    |  |                 
|Series C convertible preferred stock,$.001 par value. 747,500 shares authorized, 337,150 and 337,150 issued and outstanding,
respectively; liquidation preference $3,371,500 and $3,371,500, respectively          |  |                  | 337         |   |                  |   | 337         |  
|                                                                                                                                                                                                                    |  |                 
|5% Series A convertible preferred stock$0.001 par value, 5,000,000 shares authorized; 4,215,224 and 4,215,224 issued and outstanding,
respectively; liquidation preference $4,215,224 and $4,215,224, respectively |  |                  | 4,215       |   |                  |   | 4,215       |  
|                                                                                                                                                                                                                    |  |                 
|Common stock  150,000,000 shares authorized, 47,972,091 and 27,425,915 issued and outstanding, after deducting 773,878 and 673,878
shares of treasury stock, at $.001 par value, respectively                      |  |                  | 48,697      |   |                  |   | 28,051      |  
|Additional paid in capital  preferred                                                                                                                                                                              |  |                  | 7,703,502   |   |                  |   | 7,853,488   |  
|Additional paid in capital  common                                                                                                                                                                                 |  |                  | 21,719,097  |   |                  |   | 15,201,406  |  
|Stock subscription receivable                                                                                                                                                                                       |  |                  | (1,250      | ) |                  |   | -0-         |  
|Accumulated other comprehensive loss                                                                                                                                                                                |  |                  | (2,041      | ) |                  |   | -0-         |  
|Less: Treasury stock, cost method, 773,878 and 673,878 shares, respectively                                                                                                                                         |  |                  | (351,861    | ) |                  |   | (299,861    | )
|Accumulated deficit                                                                                                                                                                                                 |  |                  | (31,951,911 | ) |                  |   | (27,710,557 | )
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|TOTAL SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                |  |                  | (2,831,165  | ) |                  |   | (4,922,856  | )
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                |  | $                | 582,542     |   |                  | $ | 283,609     |  
|                                                                                                                                                                                                                    |  |                  |             |   |                  |   |             |  

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



F - 2



---

OMNICOMM SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                 |  |                                 |            |   |      |   |            |  
|---------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                 |  | For the years endedDecember 31, |           
|                                                                 |  | 2006                            |            |   | 2005 |  
|Total revenues                                                   |  | $                               | 2,763,039  |   |      | $ | 1,753,976  |  
|                                                                 |  |                                 |            |   |      |   |            |  
|Cost of sales                                                    |  |                                 | 969,323    |   |      |   | 387,262    |  
|                                                                 |  |                                 |            |   |      |   |            |  
|Gross margin                                                     |  |                                 | 1,793,716  |   |      |   | 1,366,714  |  
|                                                                 |  |                                
|Operating expenses                                               |  |                                 |            |   |      |   |            |  
|Salaries, benefits and related taxes                             |  |                                 | 3,986,311  |   |      |   | 1,871,508  |  
|Rent & occupancy expenses                                        |  |                                 | 221,817    |   |      |   | 154,048    |  
|Consulting Services                                              |  |                                 | 376,152    |   |      |   | -0-        |  
|Legal and professional fees                                      |  |                                 | 233,035    |   |      |   | 178,219    |  
|Travel                                                           |  |                                 | 222,419    |   |      |   | 107,101    |  
|Telephone and internet                                           |  |                                 | 91,027     |   |      |   | 71,992     |  
|Selling, general and administrative                              |  |                                 | 338,761    |   |      |   | 275,802    |  
|Bad debt expense                                                 |  |                                 | -0-        |   |      |   | 9,201      |  
|Depreciation and amortization                                    |  |                                 | 55,900     |   |      |   | 28,332     |  
|                                                                 |  |                                 |            |   |      |   |            |  
|Total operating expenses                                         |  |                                 | 5,525,422  |   |      |   | 2,696,203  |  
|                                                                 |  |                                 |            |   |      |   |            |  
|Operating income (loss)                                          |  |                                 | (3,731,706 | ) |      |   | (1,329,489 | )
|                                                                 |  |                                
|Other income (expense)                                           |  |                                 |            |   |      |   |            |  
|Interest expense                                                 |  |                                 | (509,648   | ) |      |   | (365,397   | )
|Interest income                                                  |  |                                 | -0-        |   |      |   | 476        |  
|                                                                 |  |                                 |            |   |      |   |            |  
|(Loss) before taxes and preferred dividends                      |  |                                 | (4,241,354 | ) |      |   | (1,694,410 | )
|                                                                 |  |                                 |            |   |      |   |            |  
|Net income (loss)                                                |  |                                 | (4,241,354 | ) |      |   | (1,694,410 | )
|                                                                 |  |                                 |            |   |      |   |            |  
|Preferred stock dividends in arrears Series A Preferred          |  |                                 | (210,761   | ) |      |   | (205,363   | )
|Preferred stock dividends in arrears Series B Preferred          |  |                                 | (42,663    | ) |      |   | (55,440    | )
|Preferred stock dividends in arrears Series C Preferred          |  |                                 | (269,720   | ) |      |   | (269,720   | )
|                                                                 |  |                                 |            |   |      |   |            |  
|Total preferred stock dividends                                  |  |                                 | (523,144   | ) |      |   | (530,523   | )
|                                                                 |  |                                 |            |   |      |   |            |  
|Net income (loss) attributable to common stockholders            |  | $                               | (4,764,498 | ) |      | $ | (2,224,933 | )
|                                                                 |  |                                 |            |   |      |   |            |  
|Net (loss) per share, basic and diluted                          |  | $                               | (0.14      | ) |      | $ | (0.09      | )
|                                                                 |  |                                 |            |   |      |   |            |  
|Weighted average number of shares outstanding, basic and diluted |  |                                 | 34,936,930 |   |      |   | 26,122,694 |  
|                                                                 |  |                                 |            |   |      |   |            |  

See accompanying summary of accounting policies and notes to financial statements



F - 3



---

OMNICOMM SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

OMNICOMM SYSTEM, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2005



|                                                                                           |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                           |  | 2006 |            |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                       |  |      |            |   |      |   |            |  
|Net income (loss)                                                                          |  | $    | (4,241,354 | ) |      | $ | (1,694,410 | )
|Adjustment to reconcile net income to net cash provided by (used in) operating activities: |  |      |            |   |      |   |            |  
|Common stock issued on cashless exercise of options                                        |  |      | (26,914    | ) |      |   | -0-        |  
|Common stock issued for services                                                           |  |      | 40,000     |   |      |   | -0-        |  
|Common stock issued for accrued interest                                                   |  |      | 280,438    |   |      |   | -0-        |  
|Note payable issued for accrued expenses                                                   |  |      | 185,000    |   |      |   | -0-        |  
|Employee stock option expense                                                              |  |      | 786,703    |   |      |   | -0-        |  
|Warrants exercised in exchange for accrued expense                                         |  |      | 80,750     |   |      |   | -0-        |  
|Depreciation and amortization                                                              |  |      | 55,900     |   |      |   | 28,332     |  
|Interest expense from beneficial conversion of 10% Convertible Notes                       |  |      | 195,880    |   |      |   | 104,000    |  
|Change in assets and liabilities:                                                          |  |      |            |   |      |   |            |  
|Accounts receivable                                                                        |  |      | (50,626    | ) |      |   | (86,437    | )
|Prepaid expenses                                                                           |  |      | (39,632    | ) |      |   | 5,360      |  
|Other assets                                                                               |  |      | (7,440     | ) |      |   | -0-        |  
|Accounts payable and accrued expenses                                                      |  |      | (118,228   | ) |      |   | 219,478    |  
|Deferred revenue                                                                           |  |      | 594,859    |   |      |   | 613,751    |  
|                                                                                           |  |      |            |   |      |   |            |  
|Net cash provided by (used in) operating activities                                        |  |      | (2,264,664 | ) |      |   | (809,926   | )
|                                                                                           |  |      |            |   |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                       |  |      |            |   |      |   |            |  
|Sale of property and equipment                                                             |  |      | 2,500      |   |      |   | -0-        |  
|Investment in intangible assets                                                            |  |      | (3,065     | ) |      |   | -0-        |  
|Purchase of property and equipment                                                         |  |      | (228,077   | ) |      |   | (24,638    | )
|                                                                                           |  |      |            |   |      |   |            |  
|Net cash provided by (used in) investing activities                                        |  |      | (228,642   | ) |      |   | (24,638    | )
|                                                                                           |  |      |            |   |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                       |  |      |            |   |      |   |            |  
|Proceeds from issuance of common stock, net of issuance costs                              |  |      | 1,806,845  |   |      |   | 192,500    |  
|Proceeds from exercise of employee stock options                                           |  |      | 223,375    |   |      |   | -0-        |  
|Stock subscription receivable                                                              |  |      | (1,250     | ) |      |   | -0-        |  
|Repayments of notes payable                                                                |  |      | (20,300    | ) |      |   | (122,000   | )
|Proceeds from notes payable                                                                |  |      | 515,000    |   |      |   | 708,300    |  
|                                                                                           |  |      |            |   |      |   |            |  
|Net cash provided by (used in) financing activities                                        |  |      | 2,523,670  |   |      |   | 778,800    |  
|                                                                                           |  |      |            |   |      |   |            |  
|Effect of exchange rate change on cash and cash equivalents                                |  |      | (2,041     | ) |      |   | -0-        |  
|Net increase (decrease) in cash and cash equivalents                                       |  |      | 28,323     |   |      |   | (55,764    | )
|Cash and cash equivalents at beginning of period                                           |  |      | 9,931      |   |      |   | 65,695     |  
|                                                                                           |  |      |            |   |      |   |            |  
|Cash and cash equivalents at end of period                                                 |  | $    | 38,254     |   |      | $ | 9,931      |  
|                                                                                           |  |      |            |   |      |   |            |  



F - 4



---

OMNICOMM SYSTEM, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2005

(continued)



|                                                                     |  |                                 |           |      |   |          
|-------------------------------------------------------------------- |  | ------------------------------- | --------- | ---- | - | ---------
|                                                                     |  | For the years endedDecember 31,
|                                                                     |  | 2006                            |           | 2005
|Supplemental Disclosure of Cash Flow Information:                    |  |                                 |           |      |   |          
|Cash paid during the period for:                                     |  |                                 |           |      |   |          
|                                                                     |  |                                
|Income tax                                                           |  | $                               | -0-       |      | $ | -0-      
|                                                                     |  |                                 |           |      |   |          
|Interest                                                             |  | $                               | 13,130    |      | $ | 15,175   
|                                                                     |  |                                 |           |      |   |          
|Non-cash Transactions                                                |  |                                 |           |      |   |          
|Conversion of 10% Notes Payable into common stock                    |  | $                               | 25,000    |      | $ | 234,000  
|Accrued interest converted into common stock                         |  | $                               | 280,438   |      | $ | 24,986   
|Common stock issued in exchange for notes payable                    |  | $                               | 2,924,260 |      | $ | 165,000  
|Amended notes payable  extended maturity date                       |  | $                               | -0-       |      | $ | 2,341,930
|Conversion of Series B Preferred Stock into common stock             |  | $                               | 150,000   |      | $ | 325,000  
|Common stock tendered in exercise of incentive stock options         |  | $                               | 52,000    |      | $ | -0-      
|Notes payable issued for accrued expenses                            |  | $                               | 185,000   |      | $ | -0-      
|Common stock issued for services in lieu of pay                      |  | $                               | 40,000    |      | $ | -0-      
|Conversion of series B common stock warrants on a cashless basis     |  | $                               | 1,600,000 |      | $ | -0-      
|Exercise of series B placement agent unit option on a cashless basis |  | $                               | 557,013   |      | $ | -0-      

See accompanying summary of accounting policies and notes to financial statements



F - 5



---

OMNICOMM SYSTEMS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)

FOR THE PERIOD JANUARY 1, 2005 TO
DECEMBER 31, 2006



|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|------------------------------------------------------------------------------- |  | --------------- | - | ------------------------ | ---------------- | --------- | --------------- | - | ---------------- | ----------------------- | ------------------------- | ----------------------- | --------------- | - | ----------------------- | --------------- | - | ------------ | ------------------------ | ------- | - | --------------- | - | --------------- | - | ------------------------- | - | ---------- | - |  | - | ------- |  | - | --- |  | - | ------------
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  | Preferred Stock        
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  | 5% Series A Convertible |                           | 8% Series B Convertible |                 |   | 8% Series C Convertible
|                                                                                |  | Common Stock    |   | AdditionalPaid
InCapital |                  |           | Number ofShares |   | $ 0.001Par Value |                         | Additional PaidIn Capital |                         | Numberof Shares |   |                         | $ 0.001ParValue |   |              | AdditionalPaid
InCapital |         |   | Number ofShares |   | $ 0.001ParValue |   | Additional PaidIn
Capital
|                                                                                |  | Number ofShares |   |                          | $ 0.001 ParValue |           |                 |   |                  |                         |                           |                         |                 |   |                        
|Balances at December 31, 2004                                                   |  | 24,065,972      |   |                          | $                | 24,691.07 |                 | $ | 14,263,281       |                         |                           | 4,215,224               |                 | $ | 4,215.22                |                 | $ | 3,807,964    |                          | 97,500  |   |                 | $ | 98              |   |                           | $ | 686,420    |   |  | $ | 337,150 |  | $ | 337 |  | $ | 3,684,070   
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|Conversion of preferred stock to common stock                                   |  | 1,300,000       |   |                          |                  | 1,300     |                 |   | 323,700          |                         |                           |                         |                 |   |                         |                 |   |              |                          | (32,500 | ) |                 |   | (33             | ) |                           |   | (324,967   | ) |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Conversion of 10% notes payable to common stock                                 |  | 609,943         |   |                          |                  | 610       |                 |   | 255,376          |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Conversion of notes payable and accrued interest to common stock                |  | 600,000         |   |                          | $                | 600.00    |                 | $ | 167,400.00       |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Issuance of common stock, net of issuance costs of $20,000                      |  | 850,000         |   |                          |                  | 850       |                 |   | 191,650          |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Net loss for the period ended December 31, 2005                                 |  |                |   |                          | $                |          |                 | $ |                 |                         |                           |                        |                 | $ |                        |                 | $ |             |                          |        |   |                 |   |                |   |                           |   |           |   |  |   |        |  |   |    |  |   |            
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|Balances at December 31, 2005                                                   |  | 27,425,915      |   |                          |                  | 28,051    |                 |   | 15,201,406       |                         |                           | 4,215,224               |                 |   | 4,215                   |                 |   | 3,807,963.51 |                          | 65,000  |   |                 |   | 65              |   |                           |   | 361,453.00 |   |  |   | 337,150 |  |   | 337 |  |   | 3,684,070.49
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|Conversion of Warrants                                                          |  | 7,240,000       |   |                          |                  | 7,240     |                 |   | 1,800,079        |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Conversion of Series B Preferred Stock                                          |  | 600,000         |   |                          |                  | 600       |                 |   | 149,400          |                         |                           |                         |                 |   |                         |                 |   |              |                          | (15,000 | ) |                 |   | (15             | ) |                           |   | (149,985   | ) |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Conversion of Placement Agent Unit Options                                      |  | 1,138,139       |   |                          |                  | 1,138     |                 |   | (1,138           | )                       |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Conversion of warrants- cashless exercise                                       |  | 3,537,232       |   |                          |                  | 3,537     |                 |   | (3,537           | )                       |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Exercise of employee stock options                                              |  | 1,248,410       |   |                          |                  | 1,248     |                 |   | 246,739          |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Common stock issued for notes payable and accrued interest                      |  | 6,409,395       |   |                          |                  | 6,409     |                 |   | 3,198,288        |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Common stock tendered in exercise of incentive stock options                    |  | (100,000        | ) |                          |                  |           |                 |   |                  |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Common stock issued in conversion of 10% Convertible Notes Payable              |  | 50,000          |   |                          |                  | 50        |                 |   | 24,950           |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Common stock warrants exercised for accrued expenses                            |  | 323,000         |   |                          |                  | 323       |                 |   | 80,427           |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Common stock issued in lieu of wages                                            |  | 100,000         |   |                          |                  | 100       |                 |   | 39,900           |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Beneficial conversion of 10% Convertible Note Payable and common stock warrants |  |                 |   |                          |                  |           |                 |   | 195,880          |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Employee stock option expense                                                   |  |                 |   |                          |                  |           |                 |   | 786,703          |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Foreign currency translation adjustment                                         |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                        
|Net loss for the period ended December 31, 2006                                 |  |                |   |                          |                  |          |                 |   |                 |                         |                           |                        |                 |   |                        |                 |   |             |                          |        |   |                 |   |                |   |                           |   |           |   |  |   |        |  |   |    |  |   |            
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             
|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   
|                                                                                |  |                 |   |                          |                  |           |                 |   |                  |                         |                           |                         |                 |   |                         |                 |   |              |                          |         |   |                 |   |                 |   |                           |   |            |   |  |   |         |  |   |     |  |   |             



|                                                                                |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   |            |  
|------------------------------------------------------------------------------- |  | ------------------ | ----------- | - | -------------------- | - | -- | ---------------------- |  | - | ------------------------------------------ | - |  | ------------- | ------ | - | ---------------------------------- | - | -------- | - |  | - | ---------- | -
|                                                                                |  | AccumulatedDeficit |             |   | DeferredCompensation |   |    | SubscriptionReceivable |  |   | AccumulatedOtherComprehensiveIncome/(Loss) |   |  | TreasuryStock |        |   | Total ShareholdersEquity(Deficit) |  
|                                                                                |  |                    |             |   |                     
|Balances at December 31, 2004                                                   |  | $                  | (26,016,147 | ) |                      | $ | (0 | )                      |  | $ | (0                                         | ) |  | $             |       |   |                                    | $ | (299,861 | ) |  | $ | (3,844,932 | )
|                                                                                |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   |            |  
|Conversion of preferred stock to common stock                                   |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   |           |  
|                                                                                |  |                    |             |   |                      |  
|Conversion of 10% notes payable to common stock                                 |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   | 255,986    |  
|                                                                                |  |                    |             |   |                      |  
|Conversion of notes payable and accrued interest to common stock                |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   | 168,000    |  
|                                                                                |  |                    |             |   |                      |  
|Issuance of common stock, net of issuance costs of $20,000                      |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   | 192,500    |  
|                                                                                |  |                    |             |   |                      |  
|Net loss for the period ended December 31, 2005                                 |  |                    | (1,694,410  | ) |                      |   |   |                        |  |   |                                           |   |  |               |       |   |                                    |   |         |   |  |   | (1,694,410 | )
|                                                                                |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   |            |  
|Balances at December 31, 2005                                                   |  |                    | (27,710,557 | ) |                      |   | (0 | )                      |  |   | (0                                         | ) |  |               |       |   |                                    |   | (299,861 | ) |  |   | (4,922,856 | )
|                                                                                |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   |            |  
|Conversion of Warrants                                                          |  |                    |             |   |                      |   |    |                        |  |   |                                           |   |  |               |        |   |                                    |   |          |   |  |   | 1,807,319  |  
|                                                                                |  |                    |             |   |                      |  
|Conversion of Series B Preferred Stock                                          |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   |           |  
|                                                                                |  |                    |             |   |                      |  
|Conversion of Placement Agent Unit Options                                      |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   |           |  
|                                                                                |  |                    |             |   |                      |  
|Conversion of warrants-cashless exercise                                        |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   |           |  
|                                                                                |  |                    |             |   |                      |  
|Exercise of employee stock options                                              |  |                    |             |   |                      |   |    |                        |  |   | (1,250                                     | ) |  |               |        |   |                                    |   |          |   |  |   | 246,738    |  
|                                                                                |  |                    |             |   |                      |  
|Common stock issued for notes payable and accrued interest                      |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   | 3,204,697  |  
|                                                                                |  |                    |             |   |                      |  
|Common stock tendered in exercise of incentive stock options                    |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   | (52,000  | ) |  |   | (52,000    | )
|                                                                                |  |                    |             |   |                      |  
|Common stock issued in conversion of 10% Convertible Notes Payable              |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   | 25,000     |  
|                                                                                |  |                    |             |   |                      |  
|Common stock warrants exercised for accrued expenses                            |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   | 80,750     |  
|                                                                                |  |                    |             |   |                      |  
|Common stock issued in lieu of wages                                            |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   | 40,000     |  
|                                                                                |  |                    |             |   |                      |  
|Beneficial conversion of 10% Convertible Note Payable and common stock warrants |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   | 195,880    |  
|                                                                                |  |                    |             |   |                      |  
|Employee stock option expense                                                   |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   | 786,703    |  
|                                                                                |  |                    |             |   |                      |  
|Foreign currency translation adjustment                                         |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               | (2,041 | ) |                                    |   |          |   |  |   | (2,041     | )
|                                                                                |  |                    |             |   |                      |  
|Net loss for the period ended December 31, 2006                                 |  |                    | (4,241,354  | ) |                      |   |   |                        |  |   |                                           |   |  |               |       |   |                                    |   |         |   |  |   | (4,241,354 | )
|                                                                                |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   |            |  
|Balances at December 31, 2006                                                   |  | $                  | (31,951,911 | ) |                      | $ | (0 | )                      |  | $ | (1,250                                     | ) |  | $             | (2,041 | ) |                                    | $ | (351,861 | ) |  | $ | (2,831,165 | )
|                                                                                |  |                    |             |   |                      |   |    |                        |  |   |                                            |   |  |               |        |   |                                    |   |          |   |  |   |            |  

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



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



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

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

Our
ability to compete within the EDC industry is predicated on our ability to continue enhancing and broadening the scope of solutions offered through TrialMaster. Our research and development efforts are focused on developing new, complementary
software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. During fiscal 2006, we spent approximately $742,000 on research and development activities, the majority of which represented
salaries to our developers. In fiscal 2005 we spent approximately $478,000 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.

ESTIMATES IN FINANCIAL STATEMENTS

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

RECLASSIFICATIONS

Certain
reclassifications have been made in the 2005 financial statements to conform to the 2006 presentation. These reclassifications did not have any effect on net income (loss) or shareholders equity.

SEGMENT INFORMATION

The
Company operates in one reportable segment.

CASH AND CASH EQUIVALENTS

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

ACCOUNTS RECEIVABLE

Accounts receivable are judged as to collectibility by management and an allowance for bad debts is established as necessary. The Company had recorded an
allowance for uncollectible accounts receivable of $58,539 and $58,539 as of December 31, 2006 and December 31, 2005, respectively.



F - 7



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



CONCENTRATION OF CREDIT RISK

Accounts receivable subject the Company to its highest potential concentration of credit risk. The Company reserves for credit losses. The Company does
not require collateral on trade accounts receivables. Our top five customers accounted for approximately 53% of our revenues during 2006 and approximately 54% of our revenues during 2005. One customer accounted individually for 10%, approximately
$609,282, or more of our revenues during 2006.

PROPERTY AND EQUIPMENT

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

DEFERRED REVENUE

Deferred
revenue represents cash advances received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the
completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is entitled to payment for all work performed through the point of cancellation. As of December 31, 2006 the Company had $1,643,566
in deferred revenues relating to contracts for services to be performed over periods ranging from 1 month to 5 years.

REVENUE
RECOGNITION POLICY

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

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

ADVERTISING

Advertising costs
are expensed as incurred. Advertising costs were $26,203 and $10,256 for the years ended December 31, 2006 and 2005, respectively.



F - 8



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



RESEARCH AND DEVELOPMENT EXPENSES

Software development costs are included in research and development and are expensed as incurred. Statement of Financial Accounting Standards No. 86
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, (SFAS 86), requires the capitalization of certain development costs of software to be sold once technological feasibility is
established, which the Company defines as completion to the point of marketability. The capitalized cost is then amortized on a straight-line basis over the estimated product life. To date, the period between achieving technological feasibility and
the general availability of such software has been short and software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs under SFAS 86. Research and
development expense was approximately $742,114 and $478,463 for the years ended December 31, 2006 and 2005 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 year ended December 31, 2006 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 Statement of Income for the year ended December 31, 2006 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 compensation expense for share-based awards granted subsequent to January 1, 2006 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.



F - 9



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



Basic earnings per share were calculated using the weighted average number of shares outstanding of
34,936,930 and 26,122,694 for the years ended December 31, 2006 and 2005, respectively. There were no differences between basic and diluted earnings per share. Options to purchase 8,824,270 shares of common stock at prices ranging from $.15 to
$2.75 per share were outstanding at December 31, 2006. Stock warrants to purchase 2,531,400 shares of common stock at an exercise price of $0.25 per share were outstanding at December 31, 2006.

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

The Companys convertible debt and convertible preferred stock have an anti-dilutive effect on net loss per share and were not included in the
computation of diluted earnings per share.

INCOME TAXES

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

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

IMPACT OF NEW ACCOUNTING STANDARDS

In February 2006, the FASB issued FASB Staff Position
(FSP) FAS 123(R)-4 Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. FSP FAS 123(R)-4 addresses the classification
of options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence of a contingent event and amends paragraphs 32 and A229 of SFAS 123(R). The Company was required to apply the guidance in FSP
FAS123(R)-4 in the quarterly period ending March 31, 2006. During the year ended December 31, 2006 the Company incurred approximately $786,703 in salary expense in connection with our adoption of SFAS No. 123(R)-4. The Company
expects that the adoption of SFAS 123(R)-4 will continue to have an impact on our results of operations in the future.

In February 2006,
the FASB issued SFAS 155 Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140. This Statement amends FASB 133, Accounting for Derivative Instruments and Hedging
Activities, and SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 155 resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of Statement
133 to Beneficial Interests in Securitized Financial Assets. SFAS 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which
interest-only strips and principal-only strips are not subject to the requirements of SFAS 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are
hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends SFAS 140 to eliminate the prohibition on a
qualifying



F - 10



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of the Companys first fiscal year that begins after September 15, 2006, with earlier adoption permitted. The Company does not
expect SFAS 155 will have a material effect on its consolidated financial position, results of operations and cash flows.

In March 2006,
the FASB issued SFAS No. 156 (FAS 156), Accounting for Servicing of Financial AssetsAn Amendment of FASB Statement No. 140. Among other requirements, FAS 156 requires a company to recognize a servicing asset
or servicing liability when it undertakes an obligation to service a financial asset by entering into a servicing contract under certain situations. Under FAS 156 an election can also be made for subsequent fair value measurement of servicing assets
and servicing liabilities by class, thus simplifying the accounting and provide for income statement recognition of potential offsetting changes in the fair value of servicing assets, servicing liabilities and related derivative instruments. FAS 156
is effective for fiscal years beginning after September 15, 2006. The Company does not expect the adoption of FAS 156 will have a material impact on its financial position or results of operations.

In July 2006, the FASB issued Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement
No. 109 (FIN 48), which is a change in accounting for income taxes. FIN 48 specifies how tax benefits for uncertain tax positions are to be recognized, measured, and derecognized in financial statements; requires certain
disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company does not expect the adoption of FIN 48 will have a material impact on its financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157 (FAS 157), Fair Value Measurements. Among other requirements, FAS 157 defines fair value and establishes a framework for measuring fair
value and also expands disclosure about the use of fair value to measure assets and liabilities. FAS 157 is effective beginning the first fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact of FAS 157
on its financial position and results of operations.

In September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (SAB 108), which provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The guidance is applicable for fiscal years ending after November 15, 2006. The Company does not believe SAB 108 will have a
material impact 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.



F - 11



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



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, 2006 there is doubt about the Companys ability to continue as a going concern.



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

Property
and equipment consists of the following:



|                              |  |                   |           |                         |   |         |  |                         |         |                       |   |         |  |        
|----------------------------- |  | ----------------- | --------- | ----------------------- | - | ------- |  | ----------------------- | ------- | --------------------- | - | ------- |  | -------
|                              |  | December 31, 2006 |           | December 31, 2005       |   |        
|                              |  | Cost              |           | AccumulatedDepreciation |   | Cost    |  | AccumulatedDepreciation |         | EstimatedUseful Lives
|Computer and office equipment |  | $                 | 558,810   |                         | $ | 462,911 |  | $                       | 457,827 |                       | $ | 439,789 |  | 5 years
|Leasehold improvements        |  |                   | 36,475    |                         |   | 7,865   |  |                         | 3,299   |                       |   | 3172    |  | 5 years
|Computer software             |  |                   | 367,514   |                         |   | 297,106 |  |                         | 280,640 |                       |   | 272,181 |  | 3 years
|Office furniture              |  |                   | 56,081    |                         |   | 51,067  |  |                         | 52,950  |                       |   | 48,353  |  | 3 years
|                              |  |                   |           |                         |   |         |  |                         |         |                       |   |         |  |        
|                              |  | $                 | 1,018,880 |                         | $ | 818,949 |  | $                       | 794,716 |                       | $ | 763,495 |  |        
|                              |  |                   |           |                         |   |         |  |                         |         |                       |   |         |  |        

Depreciation expense for the years ended December 31, 2006 and 2005 was $55,437 and $28,332
respectively.



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

Accounts payable and accrued expenses consist of the following:



|                                            |  |                   |         |                   |   |        
|------------------------------------------- |  | ----------------- | ------- | ----------------- | - | -------
|                                            |  | December 31, 2006 |         | December 31, 2005
|Accounts payable                            |  | $                 | 288,713 |                   | $ | 466,353
|Accrued payroll and related costs           |  |                   | 9,491   |                   |   | 2,248  
|Other accrued expenses                      |  |                   | 96,117  |                   |   | 80,000 
|Accrued interest                            |  |                   | 123,535 |                   |   | 103,336
|Accrued expenses of OmniTrial BV            |  |                   | 127,519 |                   |   | 127,519
|                                            |  |                   |         |                   |   |        
|Total accounts payable and accrued expenses |  | $                 | 645,375 |                   | $ | 779,456
|                                            |  |                   |         |                   |   |        

Other accrued expenses consist primarily of amounts accrued for penalties and interest due on state
payroll tax filings.



F - 12



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|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 31,222,670 and 46,734,169 have been omitted from the calculation of dilutive EPS for the years December 31, 2006 and December 31, 2005, respectively. Provided below is a
reconciliation between numerators and denominators of the basic and diluted earnings per shares:



|                              |  |                   |            |   |                   |            |                 |   |       |                 |  |   |                   |   |                 |            |  |   |       |  
|----------------------------- |  | ----------------- | ---------- | - | ----------------- | ---------- | --------------- | - | ----- | --------------- |  | - | ----------------- | - | --------------- | ---------- |  | - | ----- | -
|                              |  | Years Ended       |           
|                              |  | December 31, 2006 |            |   | December 31, 2005 |           
|                              |  | IncomeNumerator   |            |   | SharesDenominator |            | Per-ShareAmount |   |       | IncomeNumerator |  |   | SharesDenominator |   | Per-ShareAmount |           
|Basic EPS                     |  | $                 | (4,764,498 | ) |                   | 34,936,930 |                 | $ | (0.14 | )               |  | $ | (2,224,933        | ) |                 | 26,122,694 |  | $ | (0.09 | )
|Effect of Dilutive Securities |  |                   |            |   |                   |            |                 |   |       |                 |  |   |                   |   |                 |            |  |   |       |  
|None.                         |  |                   | -0-        |   |                   | -0-        |                 |   | -0-   |                 |  |   | -0-               |   |                 | -0-        |  |   | -0-   |  
|                              |  |                   |            |   |                   |            |                 |   |       |                 |  |   |                   |   |                 |            |  |   |       |  
|Diluted EPS                   |  | $                 | (4,764,498 | ) |                   | 34,936,930 |                 | $ | (0.14 | )               |  | $ | (2,224,933        | ) |                 | 26,122,694 |  | $ | (0.09 | )



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

At December 31, 2006,
the Company owed $950,000 in notes payable. The table below provides details as to the terms and conditions of the notes payable.



|                 |  |          |  |              |   |  |        |         |           |   |          |  |   |        
|---------------- |  | -------- |  | ------------ | - |  | ------ | ------- | --------- | - | -------- |  | - | -------
|Origination Date |  | Due Date |  | InterestRate |   |  | Amount |         | ShortTerm |   | LongTerm
|08/15/03         |  | 01/31/07 |  | 9.00         | % |  |        | 100,000 |           | $ | 100,000  |  | $ | -0-    
|11/08/05         |  | 05/31/07 |  | 9.00         | % |  |        | 50,000  |           |   | 50,000   |  |   | -0-    
|11/30/05         |  | 05/31/07 |  | 9.00         | % |  |        | 50,000  |           |   | 50,000   |  |   | -0-    
|12/05/05         |  | 05/31/07 |  | 9.00         | % |  |        | 50,000  |           |   | 50,000   |  |   | -0-    
|01/10/06         |  | 05/31/07 |  | 9.00         | % |  |        | 100,000 |           |   | 100,000  |  |   | -0-    
|09/30/06         |  | 01/01/09 |  | 9.00         | % |  |        | 50,000  |           |   | -0-      |  |   | 50,000 
|11/16/06         |  | 01/01/09 |  | 9.00         | % |  |        | 45,000  |           |   | -0-      |  |   | 45,000 
|11/08/06         |  | 01/01/09 |  | 9.00         | % |  |        | 150,000 |           |   | -0-      |  |   | 150,000
|10/13/06         |  | 01/01/09 |  | 9.00         | % |  |        | 170,000 |           |   | -0-      |  |   | 170,000
|12/31/06         |  | 01/01/09 |  | 9.00         | % |  |        | 185,000 |           |   | -0-      |  |   | 185,000
|                 |  |          |  |              |   |  |        |         |           |   |          |  |   |        
|                 |  |          |  |              |   |  | $      | 950,000 |           | $ | 350,000  |  | $ | 600,000
|                 |  |          |  |              |   |  |        |         |           |   |          |  |   |        



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

During the first quarter
of 1999, the Company issued 10% Convertible Notes payable in the amount of $862,500 pursuant to a Confidential Private Placement Memorandum. There were costs of $119,625 associated with this offering. The net proceeds to the Company were $742,875.
The notes bear interest at ten percent annually, payable semi-annually. The notes are convertible after maturity, which was June 30, 2004, into shares of common stock of the Company at $1.25 per share. As of December 31, 2006,
approximately $762,500 of the Convertible Notes had been converted into 1,456,638 shares of common stock of the Company leaving an outstanding principal balance of $100,000.



F - 13



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



The Company is currently in default on interest payments owed totaling $70,298 on its 10% Convertible
Notes. The terms of the notes provide a payment grace period of thirty days in which to make required semi-annual interest payments. The company has been in default since January 30, 2002. At the option of the note holders the full amount of
the convertible notes could be declared in default.



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

The Company
currently leases office space under an operating lease. The minimum future lease payments required under the Companys operating leases at December 31, 2006 are as follows:



|      |  |   |        
|----- |  | - | -------
|2007  |  | $ | 268,651
|2008  |  |   | 213,261
|2009  |  |   | 206,829
|2010  |  |   | 211,362
|2011  |  |   | 70 963 
|      |  |   |        
|Total |  | $ | 971,066
|      |  |   |        

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 $221,817 and $154,048 for the years ended December 31, 2006 and 2005, respectively.

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

EMPLOYMENT AGREEMENTS

In December 2006, we renewed an employment agreement with
Mr. Cornelis F. Wit to serve as our Chief Executive Officer and President through December 31, 2007. 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 $240,200 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 2006, 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 $233,200 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



F - 14



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)

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 2006 for one year under the terms of the existing employment
agreement

In December 2006, 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 $184,064 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 2006 for one year under the terms of the existing
employment agreement

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 $178,310 subject to annual adjustment for cost of living increases.
Mr. Johnson is eligible for a commission, payable on a monthly basis, equal to 1% of the Companys cash receipts as defined in an exhibit to his employment contract. The agreement also provides, among other things, for participation in
employee benefit plans or programs applicable to employees and executives. Under the terms of the agreement, we may terminate the employment of Mr. 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.

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.



F - 15



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|NOTE 10: | RELATED PARTY TRANSACTIONS
|-------- | --------------------------

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

In June 2004, the Company issued a promissory note in the amount of $450,875 to Noesis Capital Corp. for amounts owed to Noesis for financial advisory
services and for placement agent fees earned during 2003 and 2004. This note was amended and restated on December 31, 2005, under the terms of a new note bearing interest at 9% payable on April 1, 2008. The principal amount of the note
issued on December 31, 2005 was $511,919 which includes $61,044 in accrued and unpaid interest. The note and accrued and unpaid interest in the amount of $46,072 was converted on December 31, 2006 into 1,115,964 shares of common stock at a
conversion price of $0.50 per share.

On December 31, 2006, the Company issued a promissory note in the amount of $185,000 to Noesis
Capital Corp. The note bears interest at 9% per annum and is payable on January 31, 2009. The principal amount of the promissory note represents $60,000 in placement agent fees earned during 2004 and 2005 and financial advisory fees in the
amount of $125,000 earned during 2004 and 2005.

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

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

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

The above referenced notes payable to Guus van Kesteren, which were originally amended and restated on June 30, 2004 into one promissory note with a principal amount of $364,758.38 bearing interest at 9% per annum and payable on
October 31, 2006, were amended and restated on December 31, 2005, under the terms of a new note bearing interest at 9% payable on April 1, 2008. The principal amount of the note is $414,135.75 which includes accrued and unpaid
interest of $49,337.37. The note and accrued and unpaid interest in the amount of $37,272.22 was converted on December 31, 2006 into 902,816 shares of common stock at a conversion price of $0.50 per share.

During November 2002, we borrowed $6,000 from Randall G. Smith, our Chairman of the board and Chief Technology Officer. In March 2003 this note was
amended and restated extending the maturity date to January 31, 2005. This note was amended and restated on March 31, 2005 extending the maturity date to January 31, 2007. The note and accrued but unpaid interest in the amount of
$1,860 were repaid on April 17, 2006.

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

From September to November 2003 we borrowed $262,000 from Cornelis Wit, our President and Chief Executive Officer,
and a member of our Board of Directors. These amounts were borrowed under promissory notes bearing interest at 9% per



F - 16



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



annum with maturity dates ranging from January 31, 2005 to October 31, 2005. These notes were amended and restated on September 30, 2004 under
the terms of a new note bearing interest at 9% interest payable on October 31, 2006.

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

The above referenced notes payable to Cornelis Wit, which were originally amended and restated on June 30, 2004 into one promissory note with a
principal amount of $483,984.00 bearing interest at 9% per annum and payable on October 31, 2006, were amended and restated on December 31, 2005, under the terms of a new note bearing interest at 9% payable on April 1, 2008. The
principal amount of the new note is $549,500.85 which includes accrued and unpaid interest of $65,516.85. The note and accrued and unpaid interest in the amount of $49,455.07 was converted on December 31, 2006 into 1,197,912 shares of common
stock at a conversion price of $0.50 per share.

In March 2005, the Company borrowed $22,000 from Cornelis Wit, the Companys President
and Chief Executive Officer and a Director. These amounts were borrowed under a promissory note bearing interest at 9% per annum payable on January 31, 2007. The note and accrued and unpaid interest in the amount of $3,547.73 were
converted on December 31, 2006 into 51,095 shares of common stock at a conversion price of $0.50 per share.

In April 2005, the Company
borrowed $25,000 from Guus van Kesteren, a company Director. These amounts were borrowed under a promissory note bearing interest at 9% per annum payable on January 31, 2007. The note and accrued and unpaid interest in the amount of
$3,908.22 were converted on December 31, 2006 into 57,816 shares of common stock at a conversion price of $0.50 per share.

In June
2005, the Company borrowed $120,000 from Cornelis Wit, the Companys President and Chief Executive Officer and a Director. These amounts were borrowed under a promissory note bearing interest at 9% per annum payable on January 31,
2007. The note and accrued and unpaid interest in the amount of $14,608.44 were converted on December 31, 2006 into 269,217 shares of common stock at a conversion price of $0.50 per share.

From June to September 2005, the Company borrowed $14,300 from Ronald Linares, the Companys Vice President and Chief Financial Officer. These
amounts were borrowed under a promissory note bearing interest at 9% per annum payable on January 31, 2007. The note and accrued and unpaid interest in the amount of $1,011 were repaid on April 17, 2006.

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



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

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



F - 17



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



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

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

As of
December 31, 2006 we had the following outstanding securities:



| |  |  | 47,972,091 shares of common stock issued and outstanding;
| | - |  | ---------------------------------------------------------



| |  |  | 2,531,400 warrants issued and outstanding to purchase shares of our common stock;
| | - |  | ---------------------------------------------------------------------------------



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



| |  |  | 50,000 shares of our Series B Preferred Stock issued and outstanding;
| | - |  | ---------------------------------------------------------------------



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



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



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

Common
Stock

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

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

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

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



F - 18



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



Preferred stock

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



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



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



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



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

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

Series A
Preferred Stock

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

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



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



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



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



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



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



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

There were arrearages of $912,370 and $701,609 on the
Series A Preferred Stock for undeclared dividends as of December 31, 2006 and December 31, 2005, respectively.

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



F - 19



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



Series B Preferred Stock

In August 2001, our Board of Directors designated 200,000 shares of our preferred stock as Series B Convertible Preferred Stock (Series B Preferred
Stock). A Corrected Certificate of Designations was filed on February 7, 2002 with the Delaware Secretary of State increasing the number of shares authorized as Series B Preferred Stock to 230,000 shares, of which 50,000 shares are issued
and outstanding.

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



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



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



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



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



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



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



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



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

There were arrearages of $560,684 and $518,021 on the
Series B Preferred Stock dividends as of December 31, 2006 and December 31, 2005, respectively.

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

Series C Preferred Stock

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

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



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



F - 20



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



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



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



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



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



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



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



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

There were arrearages of $1,132,628 and $862,908 on
the Series C Preferred Stock for undeclared dividends as of December 31, 2006 and December 31, 2005, respectively.

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

Warrants

We have issued and outstanding warrants to purchase a total of 2,531,400 shares of our common stock, including:



| |  |  | warrants to purchase 1,603,000 shares of our common stock at an exercise price of $.25 per share expiring May 2007 which were issued by us in connection with the
Series C Preferred Stock offering, which warrants contain a cashless exercise provision. The holders of the warrants were granted certain mandatory and piggy-back registration rights covering the shares of our common stock issuable upon the exercise
of the warrants.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F - 21



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



| |  |  | warrants to purchase 200,000 shares of our common stock at an exercise price of $.25 per share expiring May 2008 which were issued by us in connection with a
private placement of common stock, which warrants contain a cashless exercise provision.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

Series C Placement Agent Unit Option

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

10% Convertible Note

From
February 1999 to May 1999, we issued 10% convertible notes (10% Convertible Notes) in the aggregate principal amount of $862,500. The 10% Convertible Notes pay 10% interest and were due and payable on June 2004. The holders have the
right to convert the principal and interest amount into shares of our common stock at a rate of $1.25 per share. From 2000 to 2006, certain of the note holders converted an aggregate of $762,500 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.

Other Comprehensive 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 loss. The following table lists the beginning balance,
yearly activity and ending balance of the components of accumulated other comprehensive loss.



|                          |  |                            |        |   |                                     |   |        |  
|------------------------- |  | -------------------------- | ------ | - | ----------------------------------- | - | ------ | -
|                          |  | Foreign CurrentTranslation |        |   | Accumulated OtherComprehensive Loss |  
|Balance January 1, 2006   |  | $                          | -0-    |   |                                     | $ | -0-    |  
|2006 Activity             |  |                            | (2,041 | ) |                                     |   | (2,041 | )
|                          |  |                            |        |   |                                     |   |        |  
|Balance December 31, 2006 |  | $                          | (2,041 | ) |                                     | $ | (2,041 | )
|                          |  |                            |        |   |                                     |   |        |  



F - 22



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



|NOTE 13: | 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, 2006, 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 three installments with the first installment vesting 33% upon completion of one full year from date of grant and on an annual basis over the following two years of their employment. The vesting
period typically begins on the date of hire for new employees and on the date of grant for existing employees.

In March 2006, the Board of
Directors authorized the issuance of restricted stock to each of the Companys executive officers and two Directors, in the aggregate totaling 100,000 shares. The restricted stock vested immediately at the date of grant and the Company recorded
$40,000 in compensation expense in connection with the issuance.

At December 31, 2006, there were 3,675,730 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, 2004            |  | 4,562,770       |   |  | $                                        | 0.59  |   |                                                     |     |                                    |   |      
|Granted                                     |  | 3,370,000       |   |  |                                          | 0.30  |   |                                                     |     |                                    |   |      
|Exercised                                   |  | -0-             |   |  |                                          | 0.00  |   |                                                     |     |                                    |   |      
|Forfeited/cancelled/expired                 |  | (392,000        | ) |  |                                          | (1.75 | ) |                                                     |     |                                    |   |      
|                                            |  |                 |   | 
|Outstanding at December 31, 2005            |  | 7,540,770       |   |  | $                                        | 0.40  |   |                                                     |     |                                    |   |      
|Granted                                     |  | 3,565,000       |   |  |                                          | 0.51  |   |                                                     |     |                                    |   |      
|Exercised                                   |  | (1,737,498      | ) |  |                                          | (0.30 | ) |                                                     |     |                                    |   |      
|Forfeited/cancelled/expired                 |  | (544,002        | ) |  |                                          | (0.35 | ) |                                                     |     |                                    |   |      
|                                            |  |                 |   | 
|Outstanding at December 31, 2006            |  | 8,824,270       |   |  | $                                        | 0.46  |   |                                                     | 5.4 |                                    | $ | 1,053
|                                            |  |                 |   | 
|Vested and exercisable at December 31, 2006 |  | 5,950,270       |   |  | $                                        | 0.33  |   |                                                     | 4.6 |                                    | $ | 898  

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, 2006. 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, 2006 and December 31, 2005
were $403,948 and $0, respectively.



F - 23



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



The total fair value of shares vested for the years ended December 31, 2006 and
December 31, 2005 were:



|                                                                     |  |   |        
|-------------------------------------------------------------------- |  | - | -------
|Fair value of options vested during the year ended December 31, 2006 |  | $ | 806,302
|Fair value of options vested during the year ended December 31, 2005 |  | $ | 320,041

Cash received from stock option exercises for the year ended December 31, 2006 was $223,375.
Due to the Companys net loss position, no windfall tax benefit has been realized during the year ended December 31, 2006.

The
following table summarizes information concerning options outstanding at December 31, 2006:



|                                  |  |                              |  |                                         |      |                                                    |     |                              |      
|--------------------------------- |  | ---------------------------- |  | --------------------------------------- | ---- | -------------------------------------------------- | --- | ---------------------------- | -----
|                                  |  | OptionsOutstandingin (000s) |  | WeightedAverageExercisePrice(per share) |      | WeightedAverageRemainingContractualLife (in Years) |     | OptionsExercisablein (000s)
|Exercise Price range (per share): |  |                              |  |                                         |      |                                                    |     |                              |      
|$ 0.15$ 0.25                     |  | 3,208                        |  | $                                       | 0.25 |                                                    | 3.6 |                              | 3,208
|$ 0.28$ 0.47                     |  | 2,410                        |  |                                         | 0.35 |                                                    | 5.4 |                              | 1.585
|$ 0.48$ 2.75                     |  | 3,206                        |  |                                         | 0.52 |                                                    | 7.2 |                              | 1,157
|                                  |  |                              |  |                                         |      |                                                    |     |                              |      
|                                  |  | 8,824                        |  | $                                       | 0.38 |                                                    | 5.4 |                              | 5,950
|                                  |  |                              |  |                                         |      |                                                    |     |                              |      

The weighted average fair value (per share) of options granted during the years ended
December 31, 2006, and December 31, 2005 using the American Binomial option-pricing model was $0.42 and $0.28, respectively.

Stock-Based Compensation

For the year ended December 31, 2006, the Company recognized total stock-based compensation
expense of $826,703 related to stock option and other share-based awards made from its equity compensation plan, including $40,000 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 SF0AS 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



F - 24



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



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.

The Company applied APB Opinion No. 25 and related interpretations in accounting for its stock option grants to employees. Accordingly, except as
mentioned below for 2005 and 2004, no compensation expense had been recognized relating to these stock option grants in the consolidated financial statements. Had compensation cost for the Companys stock option grants been determined based on
the fair value at the grant date for awards consistent with the method of SFAS No. 123, the Companys net income attributable to common stockholders for the years ended December 31, 2005 would have decreased to the pro forma amount
presented below. The Company did not have any employee stock options outstanding prior to January 1, 1998.

Prior to January 1,
2006, the Company provided pro forma disclosure amounts in accordance with SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure (SFAS No. 148), as if the fair value method
defined by SFAS No. 123 had been applied to its stock-based compensation. The pro forma table below reflects net loss and basic and diluted net loss per share for the year ended December 31, 2005, had the Company applied the fair value
recognition provisions of SFAS No. 123, as follows:



|                                                   |  |                              |        |  
|-------------------------------------------------- |  | ---------------------------- | ------ | -
|                                                   |  | Year Ended December 31, 2005 |       
|Net lossas reported                               |  | $                            | (2,225 | )
|Compensation expense included in reported net loss |  |                              |       |  
|Pro forma adjustment for compensation expense      |  |                              | (403   | )
|                                                   |  |                              |        |  
|Net losspro forma                                 |  | $                            | (2,628 | )
|                                                   |  |                              |        |  
|Net loss per common shareas reported              |  | $                            | (0.09  | )
|Net loss per common sharepro forma                |  | $                            | (0.10  | )

As a result of adopting SFAS No. 123(R), the impact to the Companys net loss for the
year ended December 31, 2006, was $786,703 greater than if the Company had continued to account for its stock options under APB No. 25.

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 2005 and 2006. Actual volatility, and future changes in estimated
volatility, may differ substantially from the Companys current estimates.



F - 25



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



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:



|                                                                |  |                                        |     
|--------------------------------------------------------------- |  | -------------------------------------- | ----
|                                                                |  | Weighted Average Grant-Date Fair
Value
|Stock options granted during the year ended December 31, 2006   |  | $                                      | 0.42
|Stock options vested during the year ended December 31, 2006    |  | $                                      | 0.34
|Stock options forfeited during the year ended December 31, 2006 |  | $                                      | 0.23

During the years ended December 31, 2006 and December 31, 2005 2,397,505 and 1,701,833
stock options vested, respectively. The aggregate fair value of the vested options was $806,302 and $408,994, respectively.

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, |     
|                                                   |  | 2006                                     |      |   | 2005 |  
|Risk-free interest rate                            |  |                                          | 4.72 | % |      |   | 2.50  | %
|Dividend yield                                     |  |                                          | 0    | % |      |   | 0     | %
|Expected volatility                                |  |                                          | 98.5 | % |      |   | 104.4 | %
|Expected life of options (years)                   |  |                                          | 6.0  |   |      |   | 6.0   |  
|                                                   |  |                                         
|Weighted average fair value of grants (per option) |  | $                                        | 0.42 |   |      | $ | 0.28  |  

A summary of the status of the Companys nonvested shares as of December 31, 2005, and
changes during the year ended December 31, 2006 is as follows:



|                                      |  |           |  |                                       |     
|------------------------------------- |  | --------- |  | ------------------------------------- | ----
|                                      |  | Shares    |  | WeightedAverage Grant-Date Fair Value
|Nonvested Shares at January 1, 2006   |  | 2,287,510 |  | $                                     | 0.27
|                                      |  |          
|Nonvested Shares at December 31, 2006 |  | 2,870,000 |  | $                                     | 0.39
|                                      |  |           |  |                                       |     

As of December 31, 2006, approximately $1,249,402 of total unrecognized compensation cost
related to unvested stock options is expected to be recognized over a weighted-average period of 1.28 years.



F - 26



---

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



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

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



|                                      |  |          |            |   |          |   |          |  
|------------------------------------- |  | -------- | ---------- | - | -------- | - | -------- | -
|                                      |  | 12/31/06 |            |   | 12/31/05 |  
|Current tax expense (benefit):        |  |          |            |   |          |   |          |  
|Income tax at statutory rates         |  | $        | -0-        |   |          | $ | -0-      |  
|                                      |  |          |            |   |          |   |          |  
|Deferred tax expense (benefit):       |  |          |            |   |          |   |          |  
|Amortization of goodwill and covenant |  |          | -0-        |   |          |   | -0-      |  
|Operating loss carryforward           |  |          | (1,596,022 | ) |          |   | (637,606 | )
|                                      |  |          |            |   |          |   |          |  
|                                      |  |          | (1,596,022 | ) |          |   | (637,606 | )
|                                      |  |          |            |   |          |   |          |  
|Valuation allowance                   |  |          | 1,596,022  |   |          |   | 637,606  |  
|                                      |  |          |            |   |          |   |          |  
|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:



|                             |  |          |            |   |          |   |            |  
|---------------------------- |  | -------- | ---------- | - | -------- | - | ---------- | -
|                             |  | 12/31/06 |            |   | 12/31/05 |  
|Deferred tax assets:         |  |          |            |   |          |   |            |  
|Amortization of intangibles  |  | $        | 283,698    |   |          | $ | 283,698    |  
|Operating loss carryforwards |  |          | 9,201,108  |   |          |   | 7,605,086  |  
|                             |  |          |            |   |          |   |            |  
|Gross deferred tax assets    |  |          | 9,484,806  |   |          |   | 7,888,784  |  
|                             |  |          |            |   |          |   |            |  
|Valuation allowance          |  |          | (9,484,806 | ) |          |   | (7,888,784 | )
|                             |  |          |            |   |          |   |            |  
|Net deferred tax asset       |  | $        | -0-        |   |          | $ | -0-        |  
|                             |  |          |            |   |          |   |            |  

The Company has net operating loss carryforwards (NOL) for income tax purposes of approximately
$24,439,000. This loss is allowed to be offset against future income until the year 2026 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, 2006.



|NOTE 15: | SUBSEQUENT EVENTS
|-------- | -----------------

From February 2007
through March 2007, we sold an aggregate of 5,000,000 shares of our common stock to 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. No general solicitation or advertising was used in connection with this transaction, and the certificates evidencing the shares that were issued contained a legend restricting their transferability absent
registration under the Securities Act or the availability of an applicable exemption therefrom. Each purchaser represented that he/she was an accredited investor and was acquiring the shares for investment purposes only, and not with a view towards
distribution or resale except in compliance with applicable securities laws. The investors had full access to, or were otherwise provided with, all relevant information reasonably necessary to evaluate us. None of these investors were our
affiliates.

Also on March 12, 2007, certain holders of Promissory Notes (Notes Payable or the Notes) of the
Company, issued at various times from August 2003 to January 2007, converted the principal amount of the Notes and accrued but unpaid interest in the aggregate amount of $928,784 into shares of common stock of the Company at a conversion price of
$0.50 per share resulting in the issuance of 1,857,568 shares of common stock equaling 3.8% of the issued and outstanding



F - 27



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(continued)



common stock of the Company. The Company did not receive any proceeds as part of this conversion. The issuance of the shares upon conversion of the Notes was
exempt from registration under the Securities Act of 1933, as amended, in reliance on Rule 506 of Regulation D. No general solicitation or advertising was used in connection with this transaction, and the certificates evidencing the shares that were
issued contained a legend restricting their transferability absent registration under the Securities Act or the availability of an applicable exemption therefrom. Each purchaser represented that he/she was an accredited investor and was acquiring
the shares for investment purposes only, and not with a view towards distribution or resale except in compliance with applicable securities laws. The holders of the Notes had full access to, or were otherwise provided with, all relevant information
reasonably necessary to evaluate us. Noesis Capital Corp., an NASD member firm, acted as placement agent in both the offering and conversions and as compensation therefore received a commission equal to $65,015 and a warrant to purchase at $0.50 per
share, 10% of the shares sold, or 185,757 shares of our common stock.



F - 28



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Exhibit Index



|            |  |                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                               
|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