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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K



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

For the fiscal year ended December 31, 2010



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

Commission File No. 0-25203





OmniComm
Systems, Inc.

(Exact name of registrant as specified in its charter)

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

2101 West Commercial Blvd, Suite
3500

Ft. Lauderdale, FL 33309

(Address of principal executive offices)

(954)473-1254

(Registrants telephone number, including area code)

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

None

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

Common Stock, $0.001 par value per share

(Title of class)





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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    x  Yes     ̈  No

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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



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

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

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



|              |  |                                         |  |                       
|------------- |  | --------------------------------------- |  | ----------------------
|Date          |  | Non-Affiliate Voting Shares Outstanding |  | Aggregate Market Value
|June 30, 2010 |  | 59,834,663                              |  | $7,180,160            

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 29, 2011 |  | Common Stock, $0.001 par value per share |  | 86,081,495        





DOCUMENTS
INCORPORATED BY REFERENCE

Portions of the information to be set forth in our Proxy Statement to be filed by us pursuant to Regulation 14A
relating to our 2011 Annual Meeting of Stockholders to be held on August 4, 2011 is incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K.









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OMNICOMM SYSTEMS, INC.

ANNUAL REPORT ON

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2010

Table of Contents



|           |  |                                                                                                              |  |      |    | 
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|           |  |                                                                                                              |  | Page |   
|           |  | Part I                                                                                                       |  |      |   
|           |  |                                                                                                             
|Item 1.    |  | Business                                                                                                     |  |      | 3  | 
|           |  |                                                                                                             
|Item 1A.   |  | Risk Factors                                                                                                 |  |      | 17 | 
|           |  |                                                                                                             
|Item 1B.   |  | Unresolved Staff Comments                                                                                    |  |      | 23 | 
|           |  |                                                                                                             
|Item 2.    |  | Properties                                                                                                   |  |      | 24 | 
|           |  |                                                                                                             
|Item 3.    |  | Legal Proceedings                                                                                            |  |      | 24 | 
|           |  |                                                                                                             
|           |  | Part II                                                                                                      |  |      |    | 
|           |  |                                                                                                             
|Item 5.    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  |      | 25 | 
|           |  |                                                                                                             
|Item 6.    |  | Selected Financial Data                                                                                      |  |      | 25 | 
|           |  |                                                                                                             
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  |      | 25 | 
|           |  |                                                                                                             
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  |      | 39 | 
|           |  |                                                                                                             
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  |      | 39 | 
|           |  |                                                                                                             
|Item 9.    |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  |      | 39 | 
|           |  |                                                                                                             
|Item 9A.   |  | Controls and Procedures                                                                                      |  |      | 40 | 
|           |  |                                                                                                             
|Item 9B.   |  | Other Information                                                                                            |  |      | 40 | 
|           |  |                                                                                                             
|           |  | Part III                                                                                                     |  |      |    | 
|           |  |                                                                                                             
|Item 10.   |  | Directors, Executive Officers and Corporate Governance                                                       |  |      | 41 | 
|           |  |                                                                                                             
|Item 11.   |  | Executive Compensation                                                                                       |  |      | 41 | 
|           |  |                                                                                                             
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  |      | 41 | 
|           |  |                                                                                                             
|Item 13.   |  | Certain Relationships and Related Transactions; and Director Independence                                    |  |      | 41 | 
|           |  |                                                                                                             
|Item 14.   |  | Principal Accounting Fees and Services                                                                       |  |      | 41 | 
|           |  |                                                                                                             
|           |  | Part IV                                                                                                      |  |      |    | 
|           |  |                                                                                                             
|Item 15.   |  | Exhibits, Financial Statement Schedules                                                                      |  |      | 42 | 
|           |  |                                                                                                             
|Signatures |  |                                                                                                              |  |      | 45 | 



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PART I.

ITEM 1. BUSINESS

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

Overview

OmniComm Systems, Inc. provides Web-based electronic data
capture (EDC) and eClinical (eClinical) software and services that streamline the clinical research process. Our eClinical software and service offerings (eClinical Products or eClinical Solutions)
include TrialMaster®, TrialOne® and eClinical Suite. TrialOne and eClinical Suite were acquired during 2009 as more fully described herein. Our eClinical Products are designed to allow
clinical trial sponsors and investigative sites to easily and securely collect, validate, transmit, and analyze clinical study data. Our eClinical Products are 21 CFR Part 11 compliant solutions and are designed to offer clinical trial sponsors the
ability to conduct clinical trials under multiple platforms, with significant flexibility, ease-of-use and with complete control over collected data.

Our eClinical Products offer significant business benefits to our customers and are designed to help clinical trial sponsors more efficiently conduct their clinical trials. This efficiency can translate
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 and the broader array of eClinical Solutions and processes into the clinical trial process. Our goal is to provide our clients a data collection process that is streamlined, efficient and cost-effective. We believe that our eClinical Solutions
are significantly more efficient than the traditional paper collection methods employed by the clinical trial industry in the past. TrialMaster has been designed to make the trial building process more efficient than the technologies deployed by our
competitors. We are in the process of integrating the TrialOne and the eClinical Suites with TrialMaster in order to provide an end-to-end eClinical solution for our clients.

The benefits of managing a clinical trial using our eClinical products include:



| |  |  | Real-Time Access to the Data. Our eClinical products are designed to provide all interested parties with real-time access
to study data over the Internet as it is generated. This allows for the monitoring of patient enrollments and, study outcomes related clinical trial metrics in a time-frame that allows study sponsors the ability to make effective study conduct
related decisions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Faster Study Completion: We believe our eClinical products and services save time at the back-end of a clinical trial by eliminating most of the
time it takes for database clean-up when compared with studies completed by paper-based Case Report Forms (CRFs). This is done by eliminating most incorrect or incomplete entries at the time of entry. A 2008 Clarkston
Consulting report estimates that trial sponsors can experience up to a 70-80% 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 use of EDC can be even more cost effective when applied to multiple
studies, which we believe is relatively easy to do in certain therapeutic areas, in which there are a few primary indications and the studies are relatively simple and similar in terms of the type of data captured. A 2009 report by Contemporary
Clinical Trials estimates that EDC users can expect a cost reduction of approximately 55% via the adoption of EDC when compared to traditional paper-based methods.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Improved quality and visibility of results. Our eClinical software applications allow users engaged in clinical trials to enhance the quality
and completeness of their data earlier in the clinical trial process by providing real-time data cleansing and eliminating duplicative manual entry of data. We believe decision making is enhanced through consistent access to reliable data, including
allowing for adaptive trial design, the early identification and termination of unsuccessful trials and timely access to trial data that may identify significant safety concerns.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Comprehensive clinical development solution. We have designed our comprehensive solutions to provide support throughout the clinical development
process, from providing consulting services in the protocol authoring process to preparing data for regulatory analysis and submission. We provide third-party technology providers with access to our application programming interface, or API, and
developer tools, which facilitates integration with complementary business systems. Our eClinical Products can be integrated easily with auxiliary clinical and operational data systems, making it the core for a complete end-to-end solution.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

According to a 2010 Tufts CSDD/EvaluatePharma report, global R & D expenditures by the pharmaceutical and BioTech
industries were approximately $60 billion in 2010, with approximately 50% of that amount spent by North American-based



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pharmaceutical, biotechnology and medical device companies. A 2009 report by William Blair and Company states that the EDC market is estimated to grow at 15% per year through 2012 with an
estimated 85% share by 2013 as paper records are converted to digital and a total estimated market opportunity of $1.4 billion in 2012. According to a 2010 Applied Clinical Trials report the costs associated with drug development are increasing at
an annual rate of 11.8% which can be compared with sales that are growing in the range of 4.5% to 5.5% globally, and 2% to 5% in the United States. The report authors suggest that the use of electronic solutions, such as EDC, are essential for
achieving the efficiencies needed to speed development and better align development costs with sales revenues.

Our Strategy

Our primary goal is to establish ourselves as a leading EDC and eClinical software and services provider by offering our customers the
highest quality service with a differentiated, user-friendly product. Our eClinical Solutions are priced to provide a solid value, which we believe will stimulate customer demand. In addition, we believe that through the natural evolution of our
products and via the additional functionality we have added through our two fiscal 2009 acquisitions that we have increased the scope and quality of products and services we offer. We maintain a continuous focus on cost-containment and operating
efficiencies. We intend to follow a controlled growth plan designed to take advantage of our competitive strengths. Historically, 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. During 2009, we increased the breadth and depth of our products and clients through the acquisition of the EDC assets of eResearch
Technology, Inc. and through the acquisition of Logos Technologies, Ltd. EDC assets which include TrialOne EDC software application. The key elements of our strategy are:

Our business strategy is based upon leveraging the experience of our operations, business development and marketing teams; on building programs and services around our learned best practices; and on
building on our existing business model by expanding our relationships and resources. Key facets of our strategy inlcude:



| |  |  | Scope Expansion  We plan on expanding the scope of services and products offered within the eClinical product spectrum via organic product
and service development, through strategic partnerships and relationships or through the selective use of acquisitions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Customer Base Expansion  We will seek to expand the customer base for our existing set of eClinical Solutions and we will design
complementary solutions that will allow us to expand the universe of clients that we service; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Diversification  We will continue to diversify our revenue and customer base in order to avoid over-concentration of our business on any
solution/product set or client-base.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe the following factors play a key role in the development of our strategic
goals and in the implementation of the corresponding programs and services aimed at helping us achieve our strategic goals and operational objectives:

Expand our global customer base. We expect EDC adoption to increase, resulting in significant growth in spending on EDC solutions. We will continue to pursue new relationships with large
global pharmaceutical and biotechnology companies by leveraging our support infrastructure, unique language translation capabilities and industry expertise. In addition, we have marketing, sales and services resources dedicated to small- and
middle-market life sciences companies, since we believe this market represents an under-penetrated opportunity for customer expansion.

Stimulate Demand by providing Clinical Trial Sponsors with High Value eClinical Services and Products.Deploying eClinical services and
products can be an expensive proposition. Each trial is considered a stand-alone project and can incur data collection costs that are according to a CenterWatch report approximately 8.5% of total drug development costs. Our eClinical solutions have
been designed to make the trial building process more efficient than the technologies deployed by our competitors and we have been able to provide pricing that is in many cases substantially lower than that of the competition. We believe we provide
a broad array of eClinical solutions, excellent customer service, including full project management and process improvement consulting - while maintaining significant gross margins. The combination of our cost structure and use of technology allows
us to compete both on quality and price.

Increase Sales to our Existing Customers.We intend to increase the share of eClinical
spending we receive from our existing customers by continuing to increase the scope of services and eClinical Products we offer. The two acquisitions completed in 2009 allow us to add a dedicated Phase One solution, TrialOne, and a broad set of
eClinical solutions including an enhanced reporting tool, a clinical trial management system (CTMS), a clinical data management system (CDMS) and a client portal that provides user dashboard functionality. By offering
end-to-end eClinical solutions to our customers we believe we afford them the opportunity to experience seamless integration of the services and software products needed to bring their therapies to market. We believe a suite of integrated eClinical
Products and Services will diminish the total cost of ownership; increase the efficiency of the solutions we provide ; and will allow us to capture revenues that are currently being spent with other eClinical solution providers.



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Emphasize Low Operating Costs.We are committed to keeping our operating and general and
administrative costs low. We have achieved our high gross margins by primarily by designing a flexible, customizable EDC product that does not require numerous hours of configuration time. We have also been able to leverage our existing
administrative, selling, consulting and clinical infrastructure in the scope of our two acquisitions. By leveraging our existing corporate infrastructure we have been able to add approximately 40 new clients across the U.S. and in Europe without
adding any personnel aside from those acquired in the two transactions. We believe we use advanced technologies and employ a well incentivized, productive and highly professional workforce. We are continually focused on developing and implementing
improvements that increase our efficiency and we believe that as we continue to integrate our three existing software platforms and services that we will enhance our ability to broaden our product line. We have already derived benefit from economies
of scale by leveraging our current infrastructure over an expanded operation.

Provide EDC Services to Small and Midsize Pharmaceutical,
Bio-Technology and Medical Device Companies. In considering new markets, we focus on service to markets that we believe are underserved. In determining which markets to select, we have analyzed the size of our potential markets 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 eClinical
products such as eClinical Suite, TrialOne or TrialMaster and often prefer working with small companies themselves. Yet, the advantages of eClinical services, 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.

Continue Expansion of Indirect Sales Through CRO Partnerships.Penetrating the CRO market is an important component of our strategic plan. By emphasizing CRO partnerships through our CRO Preferred Program we have been able to add a significant number of potential users for our products and
services since outsourcing clinical trials in the US market is an established practice. During 2010, the percentage of revenues from our CRO clients totaled approximately 20%. We initiated the marketing of our CRO Preferred Program in early 2007 and
as of December 31, 2010 we had entered into approximately 45 CRO Partner relationships. CRO partnerships allow us to leverage the selling and marketing capabilities of the CRO itself. Because of our relatively small sales force and limited
marketing resources, our CRO strategy has allowed us to augment our selling efforts in a cost-effective manner by forging long-term strategic relationships with our CRO partners and their existing client base. Our CRO partners gain the ability to
manage the EDC decision making process proactively and add an extension to their line of products. The CRO Preferred Program offers fixed pricing and pay-as-you-go Hosted Services.

Develop New Consulting Services. Organizations are continually seeking advice and assistance in the implementation of tools and processes to better manage their clinical business and
meet regulatory requirements. Our experience working with many size and types of organizations allows us to assist organizations is business strategy, business requirements, and customer software and integration solutions, all using tools, methods,
and operating processes required for regulated data and applications.

Increase Public Relations and Marketing Activities. The
software and services that are offered by this organization have not been actively marketed over the past five years. We believe that targeted marketing efforts using web advertising campaigns, social networking tools, and industry publications and
presentations will raise awareness and significantly increase sales opportunities.

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 eClinical enhancements. Based on customer feedback, we believe our service is an important reason why our customers choose us over other EDC providers.

Penetrate the Large Pharma Market. As part of the June 2009 eClinical Suite acquisition we acquired the rights to contracts with two of the largest pharmaceutical companies. We also acquired
the rights to one of the ten largest pharmaceutical companies in the August 2009 Logos Technologies acquisition. Historically, we have had difficulties penetrating this market due to the size and scope of our operations. Our long-term success in the
eClinical market is predicated on leveraging the R & D, clinical and G & A investments we have made over as large a group of clients and projects as possible. It is typically more cost efficient, both to us and our clients, to deploy EDC and
eClinical Solutions over a broader array of projects since EDC and eClinical solutions provide significant economies of scale from a human resources perspective when compared with traditional paper-based data collection methods. The largest
pharmaceutical companies have R & D budgets encompassing a significantly larger number of therapies and projects than others in the clinical trial space and are therefore in a position to spend more on EDC and eClinical Solutions. The contracts
we assumed in connection with our two fiscal 2009 acquisitions provide us with entrée to this market and may allow us to substantially increase our penetration within this market.



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Our Business Model

The scope of client clinical trial support service needs can vary from trial to trial. Experience with EDC and other eClinical trial management solutions can also vary based on such factor as client size
and sophistication. Our approach to satisfying the diverse needs of our customers is a crawl, walk, run approach to Web-based services adoption. Our TrialMaster EDC application has historically been sold under an Application Service
Provider (ASP) model, providing EDC and complementary services. Beginning in late 2008 we began offering TrialMaster under several business models including ASP, Technology Transition, and Technology Transfer.

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

Under our ASP and Technology Transition models, critical data is housed in Cincinnati Bells e-business center in Cincinnati, Ohio. For Technology Transfer engagements, OmniComm provides an array of
implementation services such as installation, configuration, training, and validation support to assist our customers during the migration of the eClinical software and services to client owned facilities.

ASP contracts provide for flexible pricing that is based on both the size and duration of the clinical trial. Size parameters for ASP engagements include
the number of case report forms (CRF) used to collect data and the number of sites utilizing our eClinical Products. The client pays a trial setup fee based on the previously mentioned factors and then pay an on-going maintenance fee for
the duration of the clinical trial that provides software updates, network and site support during the trial. Generally, these contracts will range in duration from three months to five years. Setup fees are generally earned prior to the inception
of a trial, however, the revenues are recognized in accordance with SEC Staff Accounting Bulletin No. 104 Revenue Recognition codified within Accounting Standards Codification 605  Revenue Recognition which requires that the
revenues be recognized ratably over the life of the contract. The maintenance fee revenues are earned and recognized monthly. Costs associated with contract revenues are recognized as incurred. In the short-run this method of revenue recognition
diminishes the revenues recognized on a periodic basis on our financial statements and obliges us to record a liability. In the long-run, we believe this backlog of unrecognized revenue, which is recorded as deferred revenues on our
balance sheet, will provide our customers and investors revenue visibility and provide meaningful information on the size and scope of our selling efforts.

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

Both the TrialOne software application and eClinical Suites have historically been, and are expected to be sold in
the future, under Technology Transfer arrangements. Technology Transfer and Technology Transition relationships afford our clients with the ability to license eClinical solutions on a more cost-effective basis. However, these relationships are
normally predicated on the client having the internal infrastructure needed to effectively deploy EDC and eClinical products and services. Consequently, we have found and continue to expect the typical client that licenses our eClinical applications
to be a mid-sized or larger CRO; biotechnology: and pharmaceutical clients that are testing multiple therapies over a significant number of projects.

The advantage to us of having the licensing business models is that it allows us to significantly increase our installed base of EDC clients with a concomitant increase in revenues, however, we are able
to make smaller investments in incremental cost of goods sold. We expect our gross margins under licensing arrangements to exceed those we have historically experienced under our ASP model and are expected to be approximately 80% of revenues.

Our Software Products and Services

TrialMaster Solution for Electronic Data Capture (EDC)

Our core product is TrialMaster,
which allows organizations conducting clinical trials to collect and manage the data over the World Wide Web. Users at investigative sites such as hospitals and doctors offices can enter data into electronic forms that represent the study
protocol, and the data is immediately validated against a set of protocol-specific rules. For example, a rule



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could check that a medication start date is earlier than the medication stop date, and prompt the user to correct this before proceeding. Compared to paper studies  and about half the
clinical studies in the world are still conducted using paper  such real-time feedback dramatically improves the initial data quality. This in turn decreases the time it takes to analyze the study results, helping pharmaceutical and medical
device companies bring their products to market sooner.

TrialMaster has a number of competitive strengths when compared to other EDC
products. A key differentiator is that the rule checks described above are implemented using JavaScript, giving a highly-responsive user experience. For example, if a medication is marked as continuing, the stop date field can be
immediately disabled, preventing inconsistent data from being entered. Other products would allow inconsistent data to be entered and only catch the problem after the user saves the whole form, which is less friendly and considerably more
time-consuming. Additionally, TrialMaster has an intuitive user interface, easy navigation, and robust tools for monitoring and tracking the state of the data at any time. Finally, TrialMaster has open Application Programming Interfaces (APIs) that
allow other clinical trial applications to send and receive data over the web. For example, laboratory data can be transmitted and loaded automatically, while an external project management system could inquire about how many patients were enrolled
in a particular TrialMaster study and update a summary table accordingly.

TrialMaster has a comprehensive set of standard
reports, as well as integrated Ad-Hoc reporting using a sophisticated business intelligence tool called
LogiXML®. TrialMaster allows the collected data to be extracted in a variety of standard formats, such as
database tables, comma-delimited files, and SAS® datasets. The latest release also allows the data to be
extracted in an industry-standard format called SDTM (Study Data Tabulation Model), simply by defining mappings between the input and output data structures. We believe this feature can save our customers considerable programming time.

TrialBuilder. TrialBuilder is the tool our customers and professional services staff use to model a clinical study. This includes the data
collection forms, the data consistency rules and the visit schedule, as well as the workflow and security rules for accessing and managing the data. TrialBuilder is a sophisticated multi-window application with a productive user interface and
utilizing drag-and-drop functionality. For example, to program the rule that a medication start date must be before the stop date, the user would simply drag the start and stop date fields into an expression window, and insert a less
than sign between them. Experience indicates that the TrialBuilder tool can be used to model a clinical study far more quickly than is possible with competitive products. This means our customers can get their studies enrolling patients more
rapidly, and at lower cost.

TrialMaster Archiveallows us to provide human and machine-readable copies of the data when a
clinical study has completed. The human-readable format consists of PDF files that represent the data exactly as it was displayed on the interactive web pages. These are delivered to the client via CD in a read-only format, which affords our clients
and the FDA the ability to review clinical trial data by: trial; site; patient; visit and by form. 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. The TrialMaster Archive also includes an optional
Submission Module, which 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.

TrialMaster SafetyLinkis a new capability that allows data about serious adverse events to be automatically collated and
transmitted to an external safety reporting system. When a serious and unexpected adverse event is recorded during a clinical trial, the sponsor has a maximum of 15 calendar days to report the incident to the regulatory authorities in each country
where the trial is being conducted. Historically, the practice has been for staff at the investigative site to fill in the adverse event information on a paper form, and fax this to the sponsor company conducting the trial. With SafetyLink, this
information can now be transmitted automatically from the data stored in TrialMaster. This saves time and effort, not to mention improving patient safety by alerting the appropriate staff more quickly.

Hosting. Substantially all of our customers use our hosting services for TrialMaster at our dedicated data center in Cincinnati, Ohio,
which was designed specifically to optimize the delivery of our application services and to ensure the availability and security of our customers research data. Our state of the art facility includes 24 by 7 staffing, enterprise class
security, redundant power and cooling systems, large-scale data back-up capabilities and multiple Internet access points and providers. Our eClinical customers receive similar support and service out of data center in Secaucus, New Jersey. In
addition, we maintain back-up facilities and disaster recovery services out of a location in Fort Lauderdale, Florida. We use Iron Mountain for offsite data storage.

Our hosting operations incorporate industry-standard hardware, databases and application servers in a flexible, scalable architecture. Elements of our applications infrastructure can be replaced or
added with minimal interruption in service in order to reduce the likelihood that the failure of any single device will cause a broad service outage. We can scale to increasing numbers of customers by adding industry-standard computers and servers
and have invested heavily in our data center operations to expand our storage capacity to meet increasing customer demands. Our storage architecture helps to ensure the safe, secure archiving of customers data and to deliver the speed and
performance required to enable customers to access and manage their clinical study data in real-time.



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Support. We have a multi-national organization to support our applications worldwide. We also
offer 24 by 7 support to our customers investigator sites through multi-lingual help desks located in our US offices and in Bonn, Germany.

Consulting and Professional Services

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



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



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



| |  |  | System Integration. We help our clients integrate our EDC solutions with existing systems or external systems (Patient Diaries, Medical Devices
and Labs, etc.). We analyze our clients 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 our EDC solutions. We can also write standard operating procedures (SOPs) 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 our EDC systems, 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 EDC.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

TrialOne Phase I EDC Software Acquisition

On August 3, 2009, we acquired certain tangible and intangible electronic data capture (EDC) assets, owned by Logos Technologies, Ltd.
(Logos Ltd) (Logos EDC Assets), pursuant to a Sale Agreement related to the Administration (similar to a U.S. Chapter 11 bankruptcy proceeding) process in the United Kingdom. Our purpose in acquiring these assets, which
included employment rights to the research and development personnel of Logos Ltd, was to increase our presence in the EDC industry through the Logos Ltd client list and the acquisition of the intellectual property associated with the Logos EDC
Assets which we view as a strategically important facet of our software and service portfolio since it has allowed us to increase our revenue base, broaden our eClinical Product offerings and has allowed us to diversify our client and product mix.
Additionally, we believe we can leverage our existing administrative and technical corporate infrastructure by competing in what we view as an under-serviced segment of the EDC industry, the Phase I market space.

The Company purchased from Logos Ltd, the Logos EDC Assets including equipment, devices, computer hardware and other computer systems, certain
intellectual property, contracts, customer lists and other assets specifically identified in schedules to the Sale Agreement. We also assumed certain liabilities associated with these assets which included a short-term office lease obligation.
Consideration for the acquisition consisted of £92,000, which approximates $152,628.

A 2009 PhRMA report estimates that its members
firms, which account for approximately 75% of total R & D spending worldwide, spent approximately $3.5 billion on Phase I clinical trials during 2007. The majority of EDC vendors cannot support the unique way Phase I trials are conducted. Often
clinical trial sponsors will conduct numerous small studies that require frequent last minute changes. Those changes can be both time consuming and costly to implement. Typically, this has caused pharmaceutical companies to continue using
traditional paper-based data collection methods. Typically Phase I trials are conducted on small subject populations and often only at one site. Studies can be broken down into multiple cohorts where the majority of data is collected in the first 48
hours.



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TrialOne has been designed for real-time source-based data collection. Where this is not possible, data is
collected through customizable data collection forms that are designed to match the source paper collection forms in order to reduce the errors inherent to data entry.

We believe TrialOne can help dramatically reduce queries through the use of real time edit checks and direct data capture from source medical instrumentation (e.g., ECG, vital sign monitors). The
schedule-driven system, which is automated via the TrialOne application, assists investigators and their staff to collect accurate data at the point of patient collection reducing errors inherent with manual operations in a clinical trial.

TrialOne is a web-based application which provides secure real-time access to all study information, in particular trial sponsor and
investigators are provided with information that allows for faster decision making. Mid-study data provides trial sponsors with information helpful in determining a drugs safety and efficacy. More rapid access to clinical trial data will also
allow trial sponsors to stop unsuccessful compounds sooner and to bring the successful therapies to market more quickly.

The key benefits of
TrialOne for our customers include:



| |  |  | Faster data collection which leads to the ability to get to a quicker database lock allowing for a timelier analysis of study data;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | An ability for clinical trial sponsors to reduce their total cost throughout the entire Phase I process by streamlining the patient recruitment
process, improving error rates through the use of edit queries and through the effective use of integration with medical instrumentation;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Access to valid data earlier provides more visibility for Go/No Go decisions;
| | - |  | -------------------------------------------------------------------------------



| |  |  | Increase trial subject safety-review data (e.g. vital sign trends) in real-time;
| | - |  | --------------------------------------------------------------------------------



| |  |  | Trial sponsors can manage or run more studies with less human resources; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | The use of bar-coded samples reduces laboratory errors thereby increasing patient safety.
| | - |  | -----------------------------------------------------------------------------------------

TrialOne Phase I Application Suite

TrialOne is a comprehensive software application suite that provides clinical trial site sponsors, study investigators and study monitors with several
tools designed at making the overall Phase I operation more efficient. The key components of the TrialOne application include:

Sample
Tracking. TrialOne allows customers to completely automate their sites laboratory. Samples can be tracked and batched while alarms and information can be configured specific to each sample. Dispatch lists and labels are automatically
produced for shipment of samples to the central laboratory. Data is then received back electronically into the TrialOne database.

Subject
Recruitment and Screening. The TrialOne subject recruitment module provides essential functionality for automating the collection and tracking of information involved in finding, screening and scheduling subject candidates for an early phase
study. The use of TrialOne for subject recruitment allows customers to access a comprehensive volunteer record management system with ease and efficiency. The customized database can be searched for volunteers based on specific demographics, medical
history and concomitant medications. Trial sponsors can define study-specific screening test panels and record volunteer screening test results. Outbound communications can be managed allowing for the scheduling of calls, sending e-mail blasts,
printing mailing labels or exploring flexible CSV files.

The process of screening and interviewing study volunteers can be a time-consuming
and expensive proposition. TrialOne provides staff with an easy-to-use, scripted interface for interviewing volunteers that allows staff to automatically evaluate study volunteers based on configurable inclusion and exclusion requirements. Finally,
the TrialOne recruitment module seamlessly integrates data with the TrialOne EDC solution when a volunteer is accepted into a study

Scheduler. The scheduler module provides a mechanism for defining the study structure including a time and events schedule. The module optimizes
study build times using a wizard-driven design tool creating database efficiencies using object libraries and templates. This can quickly produce clear, easy to use, schedule driven electronic case report forms suitable for complex and adaptive
clinical trials including study alarms and real time validation criteria with edits. Additionally, the Scheduler can define actions or events to be automatically offset relative to the study drug and rapidly address mid-study changes.

Web-based EDC. The EDC module allows capture of real-time data for screening or study at data collection stations, bed-side or roaming. The system
allows for the collection of data online, over an intranet or internet using a desktop, notebook, or



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tablet PC. Using a library of custom drivers the EDC module can collect vital signs or other biologic data directly from device and/or instrumentation (DDC). As with later phase applications the
system can clean data at the point of collection with real-time validation edit checks while enhancing protocol compliance via schedule-driven workflow. Working with the Subject Recruitment and Screening module the system seamlessly maps data to the
recruitment database for future criteria searches. Automation and authentication checks are maintained using a full array of barcode and scanner support for all aspects of the clinic including subject IDs, sample labeling and event tracking.

AdHoc Reporting. An integrated Ad-Hoc reporting tool is available with wizard driven report generation with drill-down reports that
include interactive charts and graphs. The AdHoc module supports aggregate data and advanced calculations, an advanced and easy to use export feature, and distributable system reports by configurable schedules. Data is protected by event
configurable security and role-based security. The AdHoc module allows for real-time data access to important trends such as vital signs and adverse events.

eClinical Suite Acquisition

On June 23, 2009, we acquired certain tangible and
intangible eClinical software (eClinical) assets (eClinical Suite Assets), formerly owned by eResearch Technology, Inc. (ERT), pursuant to an Asset Purchase Agreement (eRT Agreement). Our purpose in
acquiring these assets, which included employment rights to the operating and business development team of ERTs eClinical team, was to increase our presence in the eClinical industry through the ERT client list and increase our revenues in
order to leverage our existing administrative and technical corporate infrastructure.

The Company purchased from eRT, the eClinical Suite
Assets including equipment, devices, computer hardware and other computer systems, certain intellectual property, contracts, customer lists and other assets specifically identified in schedules to the eRT Agreement and $1,150,000 in cash. We also
assumed certain liabilities associated with these assets, including deferred revenues under certain assumed contracts in the amount of approximately $954,000 and concurrent with the consummation of the transactions entered into the First Amendment
to Settlement and Licensing Agreement with DataSci, LLC to provide for license payments of $300,000 to DataSci over the next three years for the EDC assets acquired in the eRT Agreement.

Consideration for the acquisition consisted of 8,100,000 shares (Shares) of our $0.001 par value common stock. Under the terms of the eRT Agreement, eRT agreed to a covenant not to compete
under certain circumstances with us for a period of two years following the closing.

eClinical Software Suite

The eClinical suite is comprised of a number of highly configurable modules that can be combined to provide the ideal solution based on client needs. The
modules are:



| |  |  | eClinical Portal  the gateway to all functions, data and reports. It provides the means to create an environment specific to any Protocol
and User needs.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | eClinical Data Management  where protocols are defined using libraries of reusable standard objects (Codelists, Data Items, Data Modules,
Pages, Edit Checks, etc.).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | eClinical Data Capture  is the Electronic Data Capture (EDC) module used by Investigator Sites and client Personnel such as Data Managers,
Statisticians, Safety, etc. In this module data can be entered and reviewed; queries resolved, etc. The interface is highly intuitive and easy to use thereby minimizing end-user training times. High performance is maintained to keep page turn wait
times to a minimum.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | eClinical Study Conduct  proactively allows the clinical operations organization to manage the timelines, resources, budget, payments,
clinical supplies, and key study milestones and metrics.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | eClinical Adverse Event Reporting  based on industry standards for safety reporting, this module allows for the capture, review, reporting
and global submission of both serious and non-serious adverse event cases.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | eClinical Autoencoder  delivers both automated and manual coding of adverse event and drug medication terminology using standard and
custom dictionaries and configurable coding algorithms.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

To date, this software has been used to run over 2000 clinical
trials at approximately 40,000 clinical investigative sites worldwide.

Industry Background

The eClinical industry is poised for widespread adoption over the next few years in both the domestic and international clinical trial market. Our
research indicates that industry experts anticipate an enormous transition towards EDC in the next 5 years with estimates from firms such as William Blair and Company placing studies initiated using EDC use above 85% by the end of 2013.



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Furthermore, we believe that industry and regulatory trends summarized below have led pharmaceutical,
biotechnology and medical device companies to increase R & D for proprietary new drugs and medical devices. We believe these trends have required companies to conduct increasingly complex clinical trials and develop multinational clinical trial
capability, while seeking to control costs. Concurrently, we believe demand for simplified integration and improved collaboration has driven EDC vendors to develop broader eClinical trial suites to give sponsors shorter, less costly trials and give
investigators easier ways to execute and manage them.

Government Health Care Reform. There has been significant pressure in the
U.S. to enact health care reform. During 2010 new legislation was enacted which is likely to alter the dynamic of how prescription drugs are reimbursed by both private insurers and government-sponsored agencies. These pressures which may mandate
significant cost containment measures including government sponsored health care and regulation over the cost of therapies may increase the pressure on drug and device manufacturers to expedite the approval of their products and services.

Generic Drug Effect. Competition from generic drugs following patent expiration has resulted in increasing market pressure on
profit margins. A 2011 EvaluatePharma report estimated that medicines now generating approximately $133 billion in revenues will be subject to generic competition by 2016 including Lipitor, the top selling pharmaceutical medicine in the world.

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

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

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

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

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

Market Opportunity

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

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



| |  |  | Drug companies lose as much as $35.6 million in potential revenue for each day a trial is delayed on a blockbuster drug such as Lipitor®. Source: Pfizer, Inc. website.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Of 5,000 screened chemical compounds approximately 250 enter preclinical testing, 5 enter clinical testing and only one is approved by the FDA to be
marketed to consumers. Source: Congressional Research Service, Library of Congress.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | According to a 2010 Tufts Center for the Study of Drug Development report, the average drug approved for sale by the FDA costs over $1 Billion to bring
to market.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 2010 Tufts University study cite that drug
companies are under great pressure to reduce costs and to increase the pace of drug development.

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



| |  |  | Deployment options. Successful EDC vendors provide clinical trial sponsors flexibility in choosing whether to deploy EDC on an ASP, Technology
Transfer or Technology Transition basis. The ultimate criteria for selection of the type of technology delivery methodology selected is often predicated on the size of the clinical trial sponsor. Since this will often determine first the financial
resources available for the deployment of new technologies and second, will help determine the sophistication of the companys technology infrastructure and therefor their ability to bring in-house their EDC operations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 eClinical solution to integrate with existing technology platforms is a key decision making factor.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Scalability. The ability to scale the eClinical 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 eClinical services and solutions
in-house it is vital that they do not experience a degradation of speed, performance or system reliability.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Flexibility. The more robust eClinical 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. eClinical 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. eClinical vendors will be expected to assimilate best-practice workflows and process tools.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Professional services. The adoption and implementation of eClinical 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 eClinical offerings will be considered an integral part of any eClinical purchase.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

License Agreements

DataSci, LLC

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



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On June 23, 2009, we entered into an agreement to acquire the EDC assets of eResearch Technology.
Concurrent with the consummation of that transaction we entered into the First Amendment to Settlement and Licensing Agreement with DataSci, LLC to provide for license payments of $300,000 to DataSci over the next three years for the EDC assets
acquired in the agreement.

Alphadas Licensing Agreement

Effective September 30, 2010, the Company and Logos Holdings, Ltd. (Holdings) (a UK limited company) entered into an agreement delineating the ownership rights of the Alphadas EDC system
owned by Logos Holdings and the Companys TrialOne EDC system. Pursuant to the agreement, the Company agreed to pay Logos Holdings a license fee of 15% on certain clients utilizing the Alphadas system that were being serviced by the Company
beginning on August 3, 2009, the date of the Companys acquisition of Logos Technologies. The license limits the total license fee payable by the Company to Holdings to $200,000. The license terminates upon the termination or expiration of
any Alphadas contracts serviced by the Company. The Company incurred $54,642 in license fees under this arrangement during 2010.

Our
Customers

We are committed to developing long-term, partnering relationships with our clients and adapting our products and services to
meet the unique and challenging needs of their trials. Our customers include leading pharmaceutical, biotechnology, medical device companies, academic institutions, clinical research organizations and other entities engaged in clinical trials. As of
December 31, 2010, we had 112 customers, including 3 of the top 10 global pharmaceutical companies measured by revenue, the second largest medical device company and the second largest biotechnology company. Our representative customers by
sponsor type include:



|                                   |  |                               
|---------------------------------- |  | ------------------------------
|Trial Sponsor                      |  | Sponsor Type                  
|Boston Scientific                  |  | Medical Device                
|Hoffmann-La Roche                  |  | Pharmaceutical (Phase I)      
|Gilead Sciences                    |  | Biopharmaceutical             
|Columbia University (InChoir)      |  | Academic                      
|Kendle International               |  | Contract Research Organization
|Johnson & Johnson                  |  | Pharmaceutical                
|Pfizer (Wyeth Consumer Healthcare) |  | Pharmaceutical                

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. As of December 31, 2010, we had 12 employees in sales and marketing.

Our efforts during
2011 will include: increasing the number of sales personnel employed both in the U.S. and in Europe, which will include the expansion of our inside sales force; increasing our attendance and marketing efforts at industry conferences and increasing
the number of Company sponsored events including webinars, symposiums and other marketing events.

Our marketing strategy is to generate
qualified sales leads, enhance the global recognition of our brand and products and establish OmniComm as a provider of high value eClinical solutions. Our principal marketing initiatives target key executives and decision makers within our existing
and prospective customer base. We sponsor and participate in industry events including user conferences, trade shows and webinars. During 2011 we expect to increase the number of articles authored by OmniComm employees and to increase our efforts at
participating in cooperative marketing efforts with our CRO partners and other providers of complementary services or technology, including joint press announcements, joint trade show activities and joint seminars and webinars.

Clinical trial sponsors have historically outsourced their clinical research activities in an attempt to control costs and expand capacity. Our CRO
relationships help us position our software solutions as the core platform for their outsourced client trial management services. Through our CRO Preferred Program, we partner with CROs to deliver our eClinical technologies along with the CROs
project and data management expertise. We also train, certify and support our CRO and other clinical services partners which enables them to quickly and cost-effectively implement our technology in sponsors studies. A critical aspect of the
program is our ability to deliver our eClinical solutions on a fixed cost basis to our partners. Because of the economics intrinsic to the CRO industry a fixed cost solution affords the partner a stronger ability to manage their costs and deliver
cost-effective solutions to their clinical trial sponsor clients.



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We have been able to obtain valuable insight into our customers needs through the following specific
customer initiatives:

Strategic Advisory Board. (SAB) We sponsor semi-annual meetings of the OmniComm Systems SAB which provides us
with an opportunity to learn from industry experts about the trends and direction of the EDC, eClinical and R & D industries. The SAB is comprised of industry veterans from the biotechnology, medical device, CRO and pharmaceutical sectors.
Members are both current and prospective users of our products. We have found that use of third-party industry experts provides us with useful feedback on our application services, provides a significant barometer for the threats and opportunities
facing our industry in the short and long-run and allows us to forge meaningful relationships within the eClinical industry.

eClinical
webinars. We host periodic web-based seminars for current and prospective customers, which are typically focused on our products or current developments in the eClinical industry.

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 our eClinical solutions. Our R & D efforts are focused on developing new, complementary software solutions, as well as enhancing our existing software
solutions through the addition of increased functionality. Our development of TrialMaster and its subsequent improvements and refinements have been handled by our in-house staff of developers. In the past, our philosophy towards software development
has been to design and implement all of our solutions through in-house development. During 2009 we increased the scope and breadth of our eClinical solutions through the acquisition of the EDC assets of eResearch Technology in June 2009 and the
acquisition of the EDC assets of Logos Technologies in August 2009. Both acquisitions added significant functionality in the form of products and services to our overall eClinical suite of applications. Because of the inherent limitations that exist
in our operations due to manpower constraints and due to the nature of the products acquired, we do not believe we could have developed either suite of products internally in a strategically feasible timeframe. As of December 31, 2010, we had
approximately 24 employees involved in our research and development efforts.

We currently partner with several eClinical applications in an
effort to expand the scope of products and services we offer our customers. In the past, integrating these platforms has required R & D time, effort and expenditures. We anticipate expending R & D funds on these efforts as we expand these
relationships to include more formalized relationships which could include revenue sharing or private label arrangements.

We expect our R
& D efforts over the next two to three years to be aimed at first, effectively integrating the broad array of functionality that exists in our current product base (TrialMaster, TrialOne and eClinical Suite), and second, broadening the scope of
our eClinical functionality and services by selectively developing or acquiring new complementary products and services. These efforts may include select strategic alliances with software and service partners possessing clinical trial industry
experience.

When developing our technical solutions to manage clinical data, industry regulatory requirements also dictate that substantial
documentation be created to demonstrate the integrity of the solution, known in the industry as a validation package. Our software development lifecycle practices include streamlined methodologies for generating and maintaining validation packages
during the software release process. These methodologies include a validated path for upgrading existing installations and data. We currently release major updates to our software applications approximately twice per year. We believe that the
completeness of our validation packages provide our customers with an ability to stay on current technology, allowing us to minimize the number of legacy releases that require maintenance and support.

Our research and development department includes a product management team that works with both internal and customer experts to create new features and
functionality, a technical documentation team, as well as product engineering and software quality assurance functions. We also have a dedicated research and development team building integration software and APIs on top of our platform. During
fiscal 2010, we spent approximately $3,304,000 on R & D activities, the majority of which represented the salaries of our programmers and developers. In fiscal 2009 we spent approximately $2,064,000 on R & D activities, the majority of which
represents salaries to our programmers and developers.

Intellectual Property

Our success and ability to compete are dependent on our efforts to develop and maintain the proprietary aspects of our technology. We rely upon a combination of trademark, trade secret, copyright and
unfair competition laws, as well as license agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. In addition, we attempt to protect our intellectual property and proprietary information by
requiring our employees and consultants to enter into confidentiality, non-competition and assignment of inventions agreements. We have registered trademarks and service marks in the United States and abroad, and have filed applications for the
registration of additional trademarks and service



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marks. Our principal trademarks are OmniComm Systems, TrialMaster, TrialBuilder, TrialExplorer and TrialOne. These legal protections
afford only limited protection for our technology. We are in the process of registering several trademarks in the United States and in the United Kingdom. We cannot predict whether these trademark registrations will provide meaningful protection.
Additionally, trademark applications have been filed for various key components of our TrialMaster products and services. Our agreements with employees, consultants and others who participate in development activities could be breached. However, due
to rapid technological change, we believe that factors such as the technological and creative skills of our personnel, new product and service developments and enhancements to existing products and services are more important than the various legal
protections of our technology to establish and maintain a technology leadership position.

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

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

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

We have licensed in the past, and expect that we may license in the future, certain of our
proprietary rights, such as trademarks, technology or copyrighted material, to third parties. We generally provide in our customer agreements that we will indemnify our customers against third-party infringement claims relating to our technology
provided to the customer.

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



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



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



| |  |  | 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, eClinical, clinical trial management systems and adverse event reporting solutions;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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. Many of our competitors and potential competitors have greater name recognition, longer operating histories and significantly greater resources. There can be no assurance that our current or prospective
competitors will not offer or develop products or services that are superior to, or that achieve greater market acceptance than, our products and services.

Government Regulation

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

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

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

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

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

Business Segments and Geographic Information

We view our operations and manage our business as one operating segment. Our revenues prior to 2009 had been generated almost exclusively from U.S. based clients. Our 2009 acquisitions both allowed us to
increase the number of clients we service in the European market. TrialMaster has been deployed in clinical trials conducted both domestically in the U.S. and



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

In August 2009 we acquired the EDC assets of Logos Technologies Ltd. out of administration (similar to a U.S.
Chapter 11 bankruptcy proceeding) in the U.K. As part of that transaction we opened an R & D office for our newly acquired phase one product, TrialOne. We currently employ five software developers and engineers out of that office.

During 2009 we also completed the acquisition of the EDC assets of eResearch Technology. The result of our two acquisitions was to increase the number of
clients serviced in the European market to approximately 9 clients. We expect the percentage of revenues generated from our European operations to increase to approximately 12% of total revenues.

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.

Employees

We currently have 84 full time employees of which four are executives, four are
administrative, 24 are programmers, engineers or technology specialists, 37 work in clinical operations, three are technology and systems managers and 12 are in sales and marketing. We employ 47 employees out of our headquarters in Fort Lauderdale,
Florida, 9 employees out of a field office in Monmouth Junction, New Jersey and eight field sales and marketing employees located in California, Missouri, Massachusetts, New York, Illinois, Tennessee and North Carolina. Our wholly-owned subsidiary,
OmniComm Europe, GmbH, employs 14 employees in Bonn, Germany. Our wholly-owned subsidiary, OmniComm Ltd., employs five employees in Lymington, England. 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 operating subsidiaries in Bonn, Germany and Lymington, England and a wholly-owned U.S. subsidiary, OmniComm USA, Inc. Our Internet website
address is http://www.omnicomm.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 are available either via a link on our website or on the Securities and Exchange Commission website, http://www.sec.gov.

ITEM 1A. Risk Factors

RISK FACTORS

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

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

We incurred net losses attributable to common stockholders of
$3,335,869 and $8,275,481 in fiscal 2010 and 2009, respectively. At December 31, 2010, we had an accumulated deficit of approximately $59,001,262 and a working capital deficit of approximately $9,400,947. 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 2011, 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.



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

At December 31, 2010, we had outstanding borrowings of approximately $13,503,165 of which



| |  |  | approximately $75,000, at 10% interest, was due June 2004. We are in default in the payment of principal and interest;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | approximately $137,500, at 9% interest, is due in January 2013;
| | - |  | ---------------------------------------------------------------



| |  |  | approximately $12,500 at 12% was due in January 2011 and was repaid;
| | - |  | --------------------------------------------------------------------



| |  |  | approximately $1,400,000 at 12% interest is due in March 2011;
| | - |  | --------------------------------------------------------------



| |  |  | approximately $1,490,000 at 12% interest is due in June 2011;
| | - |  | -------------------------------------------------------------



| |  |  | approximately $2,477,500 at 12% interest is due in December 2011;
| | - |  | -----------------------------------------------------------------



| |  |  | approximately $444,379 at 12% is due in April 2012;
| | - |  | ---------------------------------------------------



| |  |  | approximately $20,000 at 12% is due in December 2012;
| | - |  | -----------------------------------------------------



| |  |  | approximately $111,800 at 9% interest is due in July 2012;
| | - |  | ----------------------------------------------------------



| |  |  | approximately $431,986 at 10% is due in January 2013;
| | - |  | -----------------------------------------------------



| |  |  | approximately $1,920,000 at 10% interest is due in August 2013, and
| | - |  | -------------------------------------------------------------------



| |  |  | approximately $4,980,000 at 12% interest is due in December 2013.
| | - |  | -----------------------------------------------------------------

No assurance can be given that the holders of the $75,000 in principal amount 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 HAVE HISTORICALLY NEEDED AND POTENTIALLY WILL LIKELY NEED ADDITIONAL FINANCING, THE TERMS OF WHICH MAY BE UNFAVORABLE TO OUR THEN EXISTING
STOCKHOLDERS.

During the years ended December 31, 2010 and 2009 we were required to raise working capital to meet operating expenses
in the amount of approximately $3,477,500 and $2,890,000. Our plan of operations going forward may 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.
| | - |  | -----------------------------------------------------------

If we raise additional capital through the issuance of debt, this will result in increased interest expenses. 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.

IF WE ARE NOT ABLE TO RELIABLY MEET OUR DATA STORAGE AND MANAGEMENT REQUIREMENTS, OR IF WE EXPERIENCE ANY FAILURE OR INTERRUPTION
IN THE DELIVERY OF OUR SERVICES OVER THE INTERNET, CUSTOMER SATISFACTION AND OUR REPUTATION COULD BE HARMED AND CUSTOMER CONTRACTS MAY BE TERMINATED.



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As part of our current business model, we store and manage in excess of ten terabytes of data for our
customers, resulting in substantial information technology infrastructure and ongoing technological challenges, which we expect to continue to increase over time. If we do not reliably meet these data storage and management requirements, or if we
experience any failure or interruption in the delivery of our services over the Internet, customer satisfaction and our reputation could be harmed and lead to reduced revenues and increased expenses. Our hosting services are subject to service level
agreements and, in the event that we fail to meet guaranteed service or performance levels, we could be subject to customer credits or termination of these customer contracts. If the cost of meeting these data storage and management requirements
increases, our results of operations could be harmed.

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.

OUR REVENUES DERIVED FROM INTERNATIONAL OPERATIONS ARE SUBJECT TO RISK, INCLUDING RISKS RELATING TO UNFAVORABLE ECONOMIC, POLITICAL, LEGAL, REGULATORY, TAX, LABOR AND TRADE CONDITIONS IN THE FOREIGN
COUNTRIES IN WHICH WE OPERATE, THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.

During fiscal 2010 international
customers began to account for a substantial percentage of our revenues. International operations are subject to inherent risks. These risks include:



| |  |  | the economic conditions in these various foreign countries and their trading partners, including conditions resulting from disruptions in the world
credit and equity markets;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | political instability;
| | - |  | ----------------------



| |  |  | greater difficulty in accounts receivable collection and enforcement of agreements and longer payment cycles;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | compliance with foreign laws;
| | - |  | -----------------------------



| |  |  | changes in regulatory requirements;
| | - |  | -----------------------------------



| |  |  | fewer legal protections for intellectual property and contract rights;
| | - |  | ----------------------------------------------------------------------



| |  |  | tariffs or other trade barriers;
| | - |  | --------------------------------



| |  |  | staffing and managing foreign operations;
| | - |  | -----------------------------------------



| |  |  | exposure to currency exchange and interest rate fluctuations;
| | - |  | -------------------------------------------------------------



| |  |  | potentially adverse tax consequences; and
| | - |  | -----------------------------------------



| |  |  | recently proposed changes to taxation of offshore earnings.
| | - |  | -----------------------------------------------------------

EXTENSIVE GOVERNMENTAL REGULATION OF THE CLINICAL TRIAL PROCESS AND OUR PRODUCTS AND SERVICES COULD REQUIRE SIGNIFICANT COMPLIANCE COSTS AND HAVE A MATERIAL ADVERSE EFFECT ON THE DEMAND FOR OUR
SOLUTIONS.

The clinical trial process is subject to extensive and strict regulation by the U.S. Food and Drug Administration and other
regulatory authorities worldwide. Our software products, services and hosted solutions are also subject to state, federal and foreign regulations. Demand for our solutions is largely a function of such government regulation, which is generally
increasing at the state and federal levels in the United States and elsewhere, and subject to change at any time. Changes in the level of regulation, including a relaxation in regulatory requirements or the introduction of simplified drug approval
procedures, could have a material adverse effect on the demand for our solutions. For example, proposals to place caps on drug prices could limit the profitability of existing or planned drug development programs, making investment in new drugs and
therapies less attractive to pharmaceutical companies. Similarly, the requirements in the United States, the European Union and elsewhere to create a detailed registry of all clinical trials could have an impact on customers willingness to
perform certain clinical studies. Likewise, a proposal for government-funded universal health care could subject expenditures for health care to governmental budget constraints and limits on spending. In addition, the uncertainty surrounding the
possible adoption and impact on health care of any Good Clinical Practice reforms could cause our customers to delay planned research and development until some of these uncertainties are resolved. Until the new legislative agenda is finalized and
enacted, it is not possible to determine the impact of any such changes.



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Modifying our software products and services to comply with changes in regulations or regulatory guidance
could require us to incur substantial costs. Further, changing regulatory requirements may render our solutions obsolete or make new products or services more costly or time consuming than we currently anticipate. Failure by us, our customers, or
our competitors to comply with applicable regulations could result in increased regulatory scrutiny and enforcement. If our solutions fail to comply with government regulations or guidelines, we could incur significant liability or be forced to
cease offering our applicable products or services. If our solutions fail to allow our customers to comply with applicable regulations or guidelines, customers may be unwilling to use our solutions and any such non-compliance could result in the
termination of or additional costs arising from contracts with our customers.

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

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

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.

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

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

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

Our top five
customers accounted for approximately 38% of our revenues during 2010 and approximately 46% of our revenues during 2009. One customer accounted for 20% of our revenues during 2010 or approximately $2,466,000. One customer accounted for 26% of our
revenues during 2009, or approximately $2,443,000. These customers can terminate our



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services at any time. The loss of any of our major customers could have a material adverse effect on our results of operations or financial condition. We may not be able to maintain our customer
relationships, and our customers may not renew their agreements with us, which could adversely affect our results of operations or financial condition. A significant change in the liquidity or financial position of any of these customers could also
have a material adverse effect on the collectibility of our accounts receivables, our liquidity and our future operating results.

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

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

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

There can be no assurance that our products will achieve or maintain a competitive advantage. There are currently a number of companies who market
services and products for Web-based clinical trial data collection. Barriers to entry on the Internet are relatively low, and we expect competition to increase significantly in the future. We face competitive pressures from numerous actual and
potential competitors, both online and offline, many of which have longer operating histories, greater brand name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. We cannot assure
you that the Web-based clinical trials maintained by our existing and potential competitors will not be perceived by clinical trial sponsors as being superior to ours.

WE MAY BE UNABLE TO PREVENT COMPETITORS FROM USING OUR INTELLECTUAL PROPERTY, AND WE WOULD FACE POTENTIALLY EXPENSIVE LITIGATION TO ASSERT OUR RIGHTS. IF WE CANNOT PROTECT OUR PROPRIETARY INFORMATION,
WE MAY LOSE A COMPETITIVE ADVANTAGE AND SUFFER DECREASED REVENUES AND CASH FLOW.

We are dependent, in part, on proprietary data,
analytical computer programs and methods and related know-how for our day-to-day operations. We rely on a combination of confidentiality agreements, contract provisions, license agreements, trademarks and trade secret laws to protect our proprietary
rights. Although we intend to protect our rights vigorously, to the extent that our intellectual property and other proprietary rights are not adequately protected, third parties might gain access to our proprietary information, develop and market
products or services similar to ours, or use trademarks similar to ours, each of which could materially harm our business. If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the
intellectual property or other proprietary rights of others, the proceedings could be burdensome and expensive, even if we were to prevail. There can be no assurance we will be successful in protecting our proprietary rights. If we are unable to
protect our proprietary rights, or if our proprietary information and methods become widely available, we may lose any ability to obtain or maintain a competitive advantage within our market niche, which may have a material adverse effect on our
business, results of operations or financial condition.

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

We have been, and may in the future be, subject to claims that our technologies infringe upon the intellectual property or other proprietary rights of a third party. For instance, in April 2009, we
settled a lawsuit against us which alleged that we infringed a patent claimed to be owned by the plaintiff. We incurred substantial professional fees in connection with this claim and agreed to enter into a license for the patent pursuant to which
we issued warrants and agreed to pay royalties and future royalties in order to settle this litigation. In addition, this licensor could become subject to similar infringement claims. Although we believe that our software solutions do not infringe
the patents or other intellectual property rights of any third party, we cannot assure you that our technology does not infringe patents or other intellectual property rights held or owned by others or that they will not in the future. Any future
claims of infringement could cause us to incur substantial costs defending against such claims, even if the claims are without merit, and could distract our management from our business. Moreover, any settlement or adverse judgment resulting from
such claims could require us to pay substantial amounts or obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology. There can be no assurance that we would be
able to obtain a license from the third party asserting the claim on commercially reasonable terms,



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if at all, that we would be able to successfully develop alternative technology on a timely basis, if at
all, or that we would be able to obtain a license from another provider of suitable alternative technology to permit us to continue offering, and our customers to continue using, the applicable technology. In addition, we generally provide in our
customer agreements that we will indemnify our customers against third-party infringement claims relating to our technology provided to the customer, which could obligate us to fund significant amounts. Infringement claims asserted against us or our
licensor may have a material adverse effect on our business, results of operations or financial condition

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

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

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 effect on our financial condition.

FAILURE TO MANAGE RAPID GROWTH EFFECTIVELY COULD HARM OUR
BUSINESS.

We have been experiencing a period of growth, including through our recent acquisitions, that has placed a significant strain
on our operational and financial resources and our personnel. To manage our growth and 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. Our failure to manage our rapid growth effectively could have a material adverse effect on our business, operating results or financial condition.

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 trials. 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, negative cash flows 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, 2010 contained an explanatory paragraph indicating there is substantial doubt about our
ability to continue as a going concern.

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.



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At March 26, 2011, we had 86,081,495 shares of common stock issued and outstanding and 81,690,391
shares issuable upon the conversion of preferred stock, convertible debt or exercise of warrants or options. Of these shares, 50,700,419 are, or will be upon issuance, eligible for resale pursuant to Rule 144. In general, Rule 144 permits a
shareholder who has owned restricted shares for at least six months, to sell without registration, within a three-month period, up to one percent of our then outstanding common stock. In addition, shareholders other than our officers, directors or
5% or greater shareholders who have owned their shares for at least two years may sell them without volume limitation or the need for our reports to be current.

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

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

As of March 26, 2011, we had a total of 78,940,242 shares of our common stock underlying
options, warrants and other convertible securities and 2,750,149 shares of common stock underlying convertible preferred stock. The exercise of these warrants and options and/or the conversion of these convertible securities will have a dilutive
effect on our existing stockholders.

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

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

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

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

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

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

Provisions of our articles of incorporation and by-laws may be deemed to have anti-takeover effects, which include when and
by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, our articles of incorporation authorize the issuance of up to 10,000,000 shares of preferred stock with such rights and
preferences as may be determined from time to time by our Board of Directors, of which 4,125,224 shares are currently issued and outstanding. Our board of directors may, without stockholder approval, issue additional series of preferred stock with
dividends, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of our common stock.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



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ITEM 2. PROPERTIES

Our corporate headquarters and other material leased real property as of December 31, 2010 are shown in the following table. We do
not own any real property.



|                              |  |                                              |  |                    |  |                    
|----------------------------- |  | -------------------------------------------- |  | ------------------ |  | -------------------
|Location                      |  | Use                                          |  | Size               |  | Expiration of Lease
|Fort Lauderdale, Florida      |  | Corporate headquarters                       |  | 11,519 square feet |  | September 2016     
|Monmouth Junction, New Jersey |  | Office Space                                 |  | 3,877 square feet  |  | February 2013      
|Bonn, Germany                 |  | European headquarters                        |  | 4,600 square feet  |  | June 2011          
|Lymington, United Kingdom     |  | Office Space                                 |  | 1,500 square feet  |  | October 2012       
|Cincinnati, Ohio              |  | Data Center                                  |  | 1,000 square feet  |  | March 2011         
|Fort Lauderdale, Florida      |  | Data Center / Disaster Recovery Office Space |  | 8,250 square feet  |  | August 2012        
|Secaucus, New Jersey          |  | Data center                                  |  | 2,000 square feet  |  | December 2011      

Our principal executive offices are located in
commercial office space in approximately 11,519 square feet at 2101 West Commercial Blvd, Fort Lauderdale, Florida, and our telephone number is (954) 473-1254. We lease these offices under the terms of a lease expiring in September 2016. Our
annual rental payment under this lease is $331,000 plus sales tax.

On August 12, 2009, we opened an office located at 1100 Cornwall
Road, Monmouth Junction, New Jersey. This office is located in commercial office space in approximately 3,900 square feet. We lease this office under the terms of a lease expiring in February 2013 and our annual rental payment under this lease is
$75,800 plus sales tax.

Our European headquarters are located in commercial office space in approximately 4,600 square feet
at Graurheindorfer Strasse 35-39, Bonn, Germany. We lease these offices under the terms of a lease expiring in June 2011. Our annual rental payment under this lease is 94,500 Euros or approximately $129,516.

On November 4, 2009, we entered into lease agreement in order to open an R & D office in Europe for our TrialOne software application. The new
office is located at The Shipyard, Bath Road, Lymington, Hampshire, UK. The office has an area of approximately 1,500 square feet. We lease these offices under the terms of a lease expiring in October 2012. Our annual rental payment under this lease
is 23,750 British Pounds or approximately $38,500 through April 2010. In May 2010 our annual rental payment becomes 45,000 British Pounds or approximately $72,950.

We currently have two data sites, which serve as our primary network and data hosting locations, one is located in Cincinnati, Ohio and is leased from Cincinnati Bell Technology Solutions. We lease this
space under the terms of a lease expiring in March 2011. We expect our annual lease payment to be approximately $53,000 plus sales tax. The other secondary data site is located in Secaucus, New Jersey and is operated by Equinix, Inc. We lease this
space under the terms of a lease expiring in December 2011 and we expect our annual rental payment under this lease to be approximately $67,968 plus sales tax.

We maintain a business-continuity site for disaster recovery purposes in Ft. Lauderdale, Florida. We lease from our landlord, rack space for our SG & A servers and redundant data hosting, an
office suite and cubicles that will allow us to maintain operations in the event of a disaster. Our annual rental payment is $175,180 plus sales tax. This lease expires in August 2012.

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

ITEM 3. LEGAL PROCEEDINGS

On November 24, 2010, Achyut
Dhakal, a former employee, filed suit in the United States District Court for the Southern District of Florida, Miami Division, alleging racial and national discrimination, retaliation for a requested FMLA leave, retaliation under state
whistleblower provisions and monies owed for overtime pay under the Fair Labor Standards Act (FLSA). The Company disagreed with the allegations and submitted its response on February 1, 2011. On March 3, 2011 the Company and
Mr. Dhakal, subject to the terms agreed into during a court mandated settlement conference, entered into Settlement Agreement and Full Release subject to mutual non-disclosure provisions. On March 3, 2011, the Court entered an Order of
Dismissal with Prejudice approving the settlement.



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PART II



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

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



|            |  |      |      |  |     |   |      | 
|----------- |  | ---- | ---- |  | --- | - | ---- | 
|            |  | HIGH |      |  | LOW |  
|Fiscal 2010 |  |      |      |  |     |   |      | 
|1stQuarter  |  | $    | 0.20 |  |     | $ | 0.16 | 
|2ndQuarter  |  | $    | 0.20 |  |     | $ | 0.12 | 
|3rdQuarter  |  | $    | 0.18 |  |     | $ | 0.08 | 
|4thQuarter  |  | $    | 0.09 |  |     | $ | 0.03 | 
|            |  |     
|Fiscal 2009 |  |      |      |  |     |   |      | 
|1stQuarter  |  | $    | 0.32 |  |     | $ | 0.18 | 
|2ndQuarter  |  | $    | 0.27 |  |     | $ | 0.17 | 
|3rdQuarter  |  | $    | 0.25 |  |     | $ | 0.13 | 
|4thQuarter  |  | $    | 0.24 |  |     | $ | 0.15 | 

On March 29, 2011 the closing
price of our common stock as reported on the OTC Bulletin Board was $0.13 At March 29, 2011 we had approximately 400 shareholders of record; however, we believe that we have in excess of approximately 1,000 beneficial owners of our common
stock.

Dividend Policy

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

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.



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

Not applicable to a smaller reporting company.



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

General

The following information should be read in conjunction with the information
contained in our audited consolidated financial statements and notes thereto appearing elsewhere herein and other information set forth in this report.



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Forward-Looking Statements

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

Overview

We are a healthcare technology company that provides 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 worldwide. Our proprietary EDC software applications: TrialMaster®; TrialOne®; and eClinical Suite (the eClinical Software Products), allow clinical trial sponsors and investigative sites to securely collect, validate,
transmit and analyze clinical trial data.

During fiscal 2010 we sought to build and expand on our strategic efforts. The primary focus of our
strategy includes:



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



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



| |  |  | Continued emphasis on expanding our business model by offering our software solutions on a licensed basis in addition to our existing hosted-services
solutions;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Broadening our eClinical suite of services and software applications on an organic R & D basis and on a selective basis via the acquisition or
licensing of complementary solutions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An emphasis on penetrating the Phase I trial market with our dedicated Phase I solution, TrialOne;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | Expanding our business development efforts in Europe to capitalize on our operational and clinical capabilities vis-à-vis our competition in
that geographic market;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Providing our services to small and midsize pharmaceutical, biotechnology, medical device companies and CROs; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | Expanding our penetration of the large pharmaceutical sponsor market by leveraging the client contracts we assumed in from our 2009 acquisitions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

Our operating focus is first, to increase our sales and marketing capabilities and penetration rate and secondly, to
continue developing and improving our software solutions and services to ensure our services and products remain an attractive, high-value EDC choice. During 2010, we increased our marketing and sales personnel both in the U.S. and European markets
and aggressively expanded the scope of our CRO Preferred Program in order to increase our penetration of the domestic CRO market. The CRO Preferred Program offers fixed pricing and pay-as-you-go hosted services. Additionally, we believe we have
established an effective presence in the European clinical trial market by expanding the number of clients we service in the European market after the acquisition of the EDC assets of eResearch Technology, Inc., (eRT or eResearch
Technologies). We will seek to aggressively expand the scope of our sales and marketing operations in Europe during 2011.

Our ability
to compete within the EDC and eClinical industries is predicated on our ability to continue enhancing and broadening the scope of solutions we offer. 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. We spent approximately $3,304,000 and $2,064,000 on R & D activities during years ended December 31, 2010 and December 31, 2009, respectively.
The majority of these expenses represent salaries to our developers which include costs associated with the customization of our EDC software applications for our clients projects.



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Our selling efforts include marketing our products to several Fortune 1000 pharmaceutical and medical device
manufacturers and several of the largest CROs. We have experienced, both via organic growth and through our 2009 acquisitions, success in broadening our client roster over the past several 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.

Our business development 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 of our solutions
including the solutions provided by our TrialOne products and services. We believe we have the ability to produce trials more quickly and economically than our competitors for this specialized and large market. During fiscal 2010, we emphasized
commercializing our products on a licensed basis. During 2010 we experienced mixed results in achieving this goal. We were able to increase the scope of licenses existing clients had deployed in our eClinical and TrialMaster product lines. We found
that the sale of licenses of our eClinical Software Products to new clients was somewhat hampered by what we perceived as a sluggish market for R & D spending. We expect to experience increased success in penetrating the market for larger
pharmaceutical, biotechnology and medical device clinical trial sponsors as we continue expanding our marketing and sales efforts during 2011.

Our clients will be able to partially or completely license our EDC solutions. The licensing business model provides our clients a more cost effective
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, allows 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. The acquisitions completed during fiscal 2009 (the eResearch EDC Assets and TrialOne) have
historically been sold on a licensed basis and have allowed us to broaden our base of licensed customers. 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 users for our EDC and eClinical software applications. This installed base of
users increases our ability to provide rapidly developed, cost effective solutions for our clients. Additionally, we believe we have established an effective presence in the European clinical trial market and will seek to aggressively expand the
scope of our sales and marketing operations there. Through December 31, 2010 the European market accounts for approximately 12% of total revenues for the year ended December 31, 2010.

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 fiscal 2011. We have increased the marketing and business development budget for our TrialOne product during 2011 as we place increased emphasis on increasing our penetration of the Phase I market both in the U.S. and in
Europe since we believe that segment of the EDC market is the least penetrated and allows for the greatest potential increases in market share and in sales volumes. We expect to continue increasing the level of resources deployed in our sales and
marketing efforts. We feel that a combination of our existing infrastructure, broadened array of eClinical products and services, 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.

Fiscal 2009 Acquisitions

eResearch Technology, Inc. Acquisition:

On June 23, 2009, we acquired the EDC
business unit owned by eResearch Technology, Inc. (eResearch Technology) and as a result acquired certain tangible and intangible EDC assets, (eResearch EDC Assets), pursuant to an Asset Purchase Agreement. Our purpose in
acquiring these assets, which included employment rights to eResearch Technologys EDC operating and business development team, was to increase our presence in the EDC industry through the eResearch Technology client list and increase our
revenues in order to leverage our existing administrative and technical corporate infrastructure.

The Company purchased from eResearch
Technology, the eResearch EDC Assets including equipment, devices, computer hardware and other computer systems, certain intellectual property, contracts, customer lists and other assets specifically identified in schedules to the Agreement, and
$1,150,000 in cash. The Company also assumed certain liabilities associated with these assets, including deferred revenues under certain assumed contracts in the amount of approximately $954,000, and concurrent with the consummation of the
transactions entered into the First Amendment to Settlement and Licensing Agreement with DataSci, LLC to provide for license payments of $300,000 to DataSci over the next three years for the EDC assets acquired in the Agreement. Consideration for
the acquisition consisted of 8,100,000 shares of our common stock.



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Logos Technologies, Ltd. (In Administration) Acquisition:

On August 3, 2009, we acquired the EDC business owned by Logos Technologies, Ltd. (Logos Technologies) and as a result acquired certain
tangible and intangible EDC assets, (Logos EDC Assets), pursuant to a Sale Agreement related to the Administration process in the United Kingdom. Our purpose in acquiring these assets, which included employment rights to the research and
development personnel of Logos Technologies, was to increase our presence in the EDC industry, specifically access to the Phase I clinical trial market, through the Logos Technologies client list and the acquisition of the intellectual property
associated with the Logos EDC Assets which we view as a strategically important facet of our software and service portfolio since it can allow us increase our revenues in order to leverage our existing administrative and technical corporate
infrastructure by competing in what we view as an under-serviced segment of the EDC industry.

The Company purchased from Logos Technologies
(in Administration), the Logos EDC Assets including equipment, devices, computer hardware and other computer systems, certain intellectual property, contracts, customer lists and other assets specifically identified in schedules to the Sale
Agreement. We also assumed certain liabilities associated with these assets which includes a short-term office lease obligation. Consideration for the acquisition consisted of £92,000, which approximated $152,628.

Effective September 30, 2010 the Company and Logos Holdings, Ltd. (a UK limited company) entered into an agreement delineating the ownership rights
of the Alphadas EDC system owned by Logos Holdings and the Companys TrialOne EDC system. Pursuant to the agreement, the Company has agreed to pay Logos Holdings a license fee of 15% on certain clients utilizing the Alphadas system that were
being serviced by the Company beginning on August 3, 2009, the date of the Companys acquisition of Logos Technologies. The license limits the total license fee payable by the Company to $200,000. The license terminates upon the
termination or expiration of any Alphadas contracts serviced by the Company.

The Year-ended December 31, 2010 Compared with the
Year ended December 31, 2009

Results of Operations

A summarized version of our results of operations for the years ended December 31, 2010 and December 31, 2009 is included in the table below.



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Summarized Statement of Operations



|                                              |  |                                         |            |   |              |  |       |      |  |   |              |   |  |         |       |   |         |   |           |   |  |  |        |  
|--------------------------------------------- |  | --------------------------------------- | ---------- | - | ------------ |  | ----- | ---- |  | - | ------------ | - |  | ------- | ----- | - | ------- | - | --------- | - |  |  | ------ | -
|                                              |  | For the twelve months
endedDecember 31, |            |   |              |  |       |      | 
|                                              |  | 2010                                    |            |   | % ofRevenues |  |       | 2009 |  |   | % ofRevenues |   |  | $Change |       |   | %Change |  
|Total revenues                                |  | $                                       | 12,427,511 |   |              |  |       |      |  | $ | 9,556,366    |   |  |         |       |   |         | $ | 2,871,145 |   |  |  | 30.0   | %
|                                              |  |                                         |            |   |              | 
|Cost of sales                                 |  |                                         | 1,800,281  |   |              |  | 14.5  | %    |  |   | 1,894,248    |   |  |         | 19.8  | % |         |   | (93,967   | ) |  |  | -5.0   | %
|                                              |  |                                         |            |   |              |  |       |      |  |   |              |   |  |         |       |   |         |   |           |   |  |  |        |  
|Gross margin                                  |  |                                         | 10,627,230 |   |              |  | 85.5  | %    |  |   | 7,662,118    |   |  |         | 80.2  | % |         |   | 2,965,113 |   |  |  | 38.7   | %
|                                              |  |                                         |            |   |              | 
|Salaries, benefits and related taxes          |  |                                         | 9,815,549  |   |              |  | 79.0  | %    |  |   | 9,316,101    |   |  |         | 97.5  | % |         |   | 499,448   |   |  |  | 5.4    | %
|Rent                                          |  |                                         | 918,711    |   |              |  | 7.4   | %    |  |   | 775,329      |   |  |         | 8.1   | % |         |   | 143,382   |   |  |  | 18.5   | %
|Consulting                                    |  |                                         | 429,240    |   |              |  | 3.5   | %    |  |   | 274,126      |   |  |         | 2.9   | % |         |   | 155,114   |   |  |  | 56.6   | %
|Legal and professional fees                   |  |                                         | 333,561    |   |              |  | 2.7   | %    |  |   | 622,227      |   |  |         | 6.5   | % |         |   | (288,666  | ) |  |  | -46.4  | %
|Other expenses                                |  |                                         | 1,798,121  |   |              |  | 14.5  | %    |  |   | 1,482,331    |   |  |         | 15.5  | % |         |   | 315,790   |   |  |  | 21.3   | %
|Selling, general and administrative           |  |                                         | 1,165,512  |   |              |  | 9.4   | %    |  |   | 1,193,802    |   |  |         | 12.5  | % |         |   | (28,290   | ) |  |  | -2.4   | %
|                                              |  |                                         |            |   |              |  |       |      |  |   |              |   |  |         |       |   |         |   |           |   |  |  |        |  
|Total operating expenses                      |  |                                         | 14,460,694 |   |              |  | 116.4 | %    |  |   | 13,663,916   |   |  |         | 143.0 | % |         |   | 796,778   |   |  |  | 5.8    | %
|                                              |  |                                         |            |   |              |  |       |      |  |   |              |   |  |         |       |   |         |   |           |   |  |  |        |  
|Operating loss                                |  |                                         | (3,833,464 | ) |              |  | -30.8 | %    |  |   | (6,001,798   | ) |  |         | -62.8 | % |         |   | 2,168,334 |   |  |  | -36.1  | %
|                                              |  |                                         |            |   |              | 
|Interest expense                              |  |                                         | (3,628,230 | ) |              |  | -29.2 | %    |  |   | (2,747,390   | ) |  |         | -28.7 | % |         |   | (880,840  | ) |  |  | 32.1   | %
|Interest income                               |  |                                         | 49         |   |              |  | 0.0   | %    |  |   | 4,491        |   |  |         | 0.0   | % |         |   | (4,442    | ) |  |  | -98.9  | %
|Gain (Loss) on extinguishment of debt         |  |                                         | -0         | - |              |  | 0.0   | %    |  |   | 432          |   |  |         | 0.0   | % |         |   | (432      | ) |  |  | -100.0 | %
|                                              |  |                                         |            |   |              | 
|Change in derivatives                         |  |                                         | 4,330,279  |   |              |  | 34.8  | %    |  |   | 673,918      |   |  |         | 7.1   | % |         |   | 3,656,361 |   |  |  | 542.6  | %
|                                              |  |                                         |            |   |              |  |       |      |  |   |              |   |  |         |       |   |         |   |           |   |  |  |        |  
|Net loss                                      |  |                                         | (3,130,735 | ) |              |  | -25.2 | %    |  |   | (8,070,347   | ) |  |         | -84.4 | % |         |   | 4,939,612 |   |  |  | -61.2  | %
|Total preferred stock dividends               |  |                                         | (205,134   | ) |              |  | -1.7  | %    |  |   | (205,134     | ) |  |         | -2.1  | % |         |   |          |   |  |  | 0.0    | %
|                                              |  |                                         |            |   |              |  |       |      |  |   |              |   |  |         |       |   |         |   |           |   |  |  |        |  
|Net loss attributable to common stockholders  |  | $                                       | (3,335,869 | ) |              |  | -26.8 | %    |  | $ | (8,275,481   | ) |  |         | -86.6 | % |         | $ | 4,939,612 |   |  |  | -59.7  | %
|                                              |  |                                         |            |   |              |  |       |      |  |   |              |   |  |         |       |   |         |   |           |   |  |  |        |  
|Net loss per share                            |  | $                                       | (0.04      | ) |              |  |       |      |  | $ | (0.10        | ) |  |         |       |   |         |   |           |   |  |  |        |  
|                                              |  |                                         |            |   |              |  |       |      |  |   |              |   |  |         |       |   |         |   |           |   |  |  |        |  
|Weighted average number of shares outstanding |  |                                         | 85,606,706 |   |              |  |       |      |  |   | 81,229,605   |   |  |         |       |   |         |   |           |   |  |  |        |  
|                                              |  |                                         |            |   |              |  |       |      |  |   |              |   |  |         |       |   |         |   |           |   |  |  |        |  

Revenues for the year ended December 31, 2010 increased approximately 30.0% from the year ended
December 31, 2009. The table below provides a comparison of our recognized revenues for the years ended December 31, 2010 and December 31, 2009.



|                        |  |                    |            |  |  |  |       |                   |  |   |           |  |  |            |       |   |            |   |           |   |  |  |       |  
|----------------------- |  | ------------------ | ---------- |  |  |  | ----- | ----------------- |  | - | --------- |  |  | ---------- | ----- | - | ---------- | - | --------- | - |  |  | ----- | -
|                        |  | For the year ended |           
|Business Activity       |  | December 31, 2010  |            |  |  |  |       | December 31, 2009 |  |   |           |  |  | Increase $ |       |   | Increase % |  
|Set-up Fees             |  | $                  | 4,345,529  |  |  |  | 35.0  | %                 |  | $ | 4,925,205 |  |  |            | 51.5  | % |            | $ | (579,676  | ) |  |  | -11.8 | %
|Change Orders           |  |                    | 217,960    |  |  |  | 1.8   | %                 |  |   | 385,275   |  |  |            | 4.0   | % |            |   | (167,315  | ) |  |  | -43.4 | %
|Maintenance             |  |                    | 4,607,680  |  |  |  | 37.1  | %                 |  |   | 2,604,534 |  |  |            | 27.3  | % |            |   | 2,003,146 |   |  |  | 76.9  | %
|Software Licenses       |  |                    | 1,329,260  |  |  |  | 10.7  | %                 |  |   | 575,968   |  |  |            | 6.0   | % |            |   | 753,292   |   |  |  | 130.8 | %
|Professional Services   |  |                    | 858,710    |  |  |  | 6.9   | %                 |  |   | 362,322   |  |  |            | 3.8   | % |            |   | 496,388   |   |  |  | 137.0 | %
|Hosting & Subscriptions |  |                    | 1,068,372  |  |  |  | 8.6   | %                 |  |   | 703,062   |  |  |            | 7.4   | % |            |   | 365,310   |   |  |  | 52.0  | %
|                        |  |                    |            |  |  |  |       |                   |  |   |           |  |  |            |       |   |            |   |           |   |  |  |       |  
|Totals                  |  | $                  | 12,427,511 |  |  |  | 100.0 | %                 |  | $ | 9,556,366 |  |  |            | 100.0 | % |            | $ | 2,871,145 |   |  |  | 30.0  | %
|                        |  |                    |            |  |  |  |       |                   |  |   |           |  |  |            |       |   |            |   |           |   |  |  |       |  

Revenues from our TrialMaster ASP fees and maintenance from existing TrialMaster clients decreased by $324,453 or 5.2%.
During 2009 our primary customer base which consisted primarily of small, U.S.-based biotechnology firms, dramatically reduced the level of clinical trials they were conducting. Many of these firms are pre-revenue and as we understand are reliant on
the capital markets for working capital and R & D funding. With the difficult economic climate experienced beginning in late 2008 and continuing through the present we believe that many of these firms either reduced or completely curtailed their
R & D activities either because of a lack of capital or in order to conserve their cash reserves. We saw evidence during late 2009 and during the first half of 2010 of increased activity from these clients but have not seen a complete recovery
of this market segments R & D spending. In addition, we have placed an emphasis on increasing the number of customers licensing the TrialMaster software suite. The licensing business model allows for more regular revenue recognition and
operating cash flows, greater visibility into our operating results and has the potential, in the long-run, for stronger gross margins since the manpower requirements are smaller than under an ASP model thus producing less cost of goods sold.



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We recorded $780,805 in revenues from our licensing activity and $326,937 from professional services
associated with our TrialMaster suite during the year ended December 31, 2010 compared with $575,968 and $362,322, respectively, during the year ended December 31, 2009. The amounts relating to fiscal 2009 activity are associated with the
sale and installation of the TrialMaster application suite to one client.

We expect revenues from both activities to increase during 2011 for
several reasons. First, we see significant activity in the CRO market relating to infrastructure investing. Second, we have entered into a contract with Kendle International for them to license our TrialMaster application. Third, most new sales of
our eClinical application and all future sales of the TrialOne application will be made on a licensed basis.

We recorded $4,997,198 in
revenues associated with clients with our acquisition of the eResearch Technology eClinical software application suite (eClinical) during the year ended December 31, 2010 compared with $2,262,603 for the year ended December 31,
2009. We only operated the eClinical unit for approximately six months during fiscal 2009. eClinical revenues are primarily comprised of license subscriptions and revenues associated with our hosting and maintenance services.

We recorded $1,068,372 in revenues from hosting and subscriptions activities and $521,573 in consulting services associated with the eClinical suite
during the year ended December 31, 2010 compared with $703,062 and $380,612, respectively, for the year ended December 31, 2009. The 2009 amounts represent approximately six months of operations subsequent to our acquisition of the EDC
assets. Generally, these revenues are paid quarterly and are connected to hosting, maintenance and client support for clients licensing that application.

We recorded $349,551 in revenues associated with clients on our TrialOne EDC software for the year ended December 31, 2010 compared with $58,000 for the year ended December 31, 2009. We only
operated the TrialOne unit for approximately five month during fiscal 2009. We have begun increasing our efforts at commercializing and developing our sales and marketing campaign for the TrialOne application. We expect to significantly increase our
participation in industry trade shows and conferences and are in the process of developing a dedicated sales force for the TrialOne software. TrialOne revenues are comprised of license subscriptions and maintenance services since the software is
currently only sold under a technology transfer basis.

Our TrialMaster EDC application has historically been sold on an application service
provider (ASP) basis that provides EDC and other services such as an enterprise management suite which assists our clients in the pharmaceutical, biotechnology and medical device industries in accelerating the completion of clinical
trials. During 2009, as discussed earlier, we completed the acquisition of the eResearch EDC Assets and TrialOne (the Acquired Software). Both software applications have historically been sold on a licensed or technology transfer basis.
As we continue developing our software applications and our client relationships mature, we expect some of our clients to deploy TrialMaster on a licensed, rather than ASP hosted basis. We expect both Acquired Software applications to continue to be
sold primarily on a licensed basis.

TrialMaster contracts for ASP services provide for pricing that is based on both the size and duration of
the clinical trial. Size parameters include the number of case report forms used to collect data and the number of sites utilizing TrialMaster. The client will pay a trial setup fee based on the previously mentioned factors and then pay an on-going
maintenance fee for the duration of the clinical trial that provides software, network and site support during the trial.

Generally, ASP
contracts will range in duration from one month to several years. ASP Setup fees are generally recognized in accordance with Accounting Standards Codification 605 (ASC 605) Revenue Recognition, which requires that the
revenues be recognized ratably over the life of the contract. ASP maintenance fee revenues are earned and recognized monthly. Costs associated with contract revenues are recognized as incurred.

Beginning in late 2008, we began selling our core TrialMaster product on a licensed basis. Beginning with the third fiscal quarter of 2009 we have
experienced greater success in selling TrialMaster on a licensed basis. The EDC assets acquired from eResearch Technology and TrialOne are primarily sold on a licensed basis. License contracts are typically sold on a subscription basis that takes
into account system usage both on a data volume and system user basis. Pricing includes additional charges for consulting services associated with the installation, validation, training and deployment of our eClinical software and solutions.
Licensed contracts of the eClinical suite have historically been sold on a perpetual license basis with hosting and maintenance charges being paid annually. The Company expects any licenses it sells of its software products to be sold in three to
five year term licenses.

Our top five customers accounted for approximately 37.6% of our revenues during the year ended December 31,
2010 and approximately 46.0% of our revenues during the year ended December 31, 2009. One customer accounted for 20% of our revenues during the year ended December 31, 2010. One customer accounted for 26% of our revenues during the year
ended December 31, 2009. The loss of any of these contracts or these customers in the future could adversely affect our results of operations.



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Cost of goods sold decreased approximately 5.0% or $93,967 for the year ended December 31, 2010 as
compared to the year ended December 31, 2009. Cost of goods sold were approximately 14.5% of revenues for the year ended December 31, 2010 compared to approximately 19.8% for the year ended December 31, 2009. 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. Cost of goods sold decreased during the year ended December 31, 2010 due to
a decrease in salary related costs associated with the delivery of TrialMaster ASP projects of $405,867 and a decrease of $70,264 in costs from third-party services which help us with the delivery of our application to customers offset by an
increase of approximately $368,028 for costs associated with salary and related costs associated with the delivery and support of our eClinical suite. Although our experience to-date in licensing and deploying TrialMaster on a technology transfer or
licensed basis has been limited, we expect our cost of goods sold related to these types of engagements to approximate 20% of revenues associated with those engagements.

We expect to increase development programming and support labor costs on an absolute basis as our trial revenues increase. We expect our cost of goods sold to return to the 20% to 22% range we have
historically experienced as we expand the number of licenses we deploy and service since we expect cost of sales from licensed engagements to fall in the 20% range as that business model matures. We expect to continue to increase follow-on
engagements from existing clients and expect to increase the phase I and CRO portions of our client base. TrialMaster (V4.0) increased the efficiency of our trial building operations by approximately 20% through the use of additional automated
tools, the ability to use our library of pre-existing CRFs and through the use of our drag and drop clinical trial building tool. We have begun our business development efforts in commercializing the Acquired Software. We expect to
primarily sell those products as licensed products providing further basis to our cost of goods sold estimates. At least initially, we expect the costs to deploy TrialOne to exceed our long-term estimates as we develop and refine our installation,
validation, and training procedures.

Overall, total operating expenses increased approximately 5.8% for the year ended December 31, 2010
when compared to the year ended December 31, 2009. The increase in operating expenses can be attributed to managing the operations associated with our acquisitions of the eResearch Technology EDC Assets and TrialOne unit. during 2009. Total
operating expenses were approximately 116.4% of revenues during the year ended December 31, 2010 compared to approximately 143.0% of revenues for the year ended December 31, 2009.

Salaries and related expenses were our biggest operating expense at 67.9% of total operating expenses for the year ended December 31, 2010 and 68.2% of total operating expenses for the year ended
December 31, 2009. Salaries and related expenses increased approximately 5.4% for the year ended December 31, 2010 when compared to the same period that ended December 31, 2009. The table below provides a summary of the significant
components of salary and related expenses by primary cost category.



|                                    |  |                                    |           |  |                   |   |           |        |  |   |          |   |  |  |       |  
|----------------------------------- |  | ---------------------------------- | --------- |  | ----------------- | - | --------- | ------ |  | - | -------- | - |  |  | ----- | -
|                                    |  | Salary expense for the years ended |          
|                                    |  | December 31, 2010                  |           |  | December 31, 2009 |   |           | Change |  |   | % Change |  
|OmniComm Corporate Operations       |  | $                                  | 6,199,413 |  |                   | $ | 6,491,783 |        |  | $ | (292,370 | ) |  |  | -4.5  | %
|New Jersey Operations Office        |  |                                    | 1,310,252 |  |                   |   | 656,154   |        |  |   | 654,098  |   |  |  | 99.7  | %
|OmniComm Europe, GmbH               |  |                                    | 1,191,920 |  |                   |   | 1,020,194 |        |  |   | 171,726  |   |  |  | 16.8  | %
|OmniComm Ltd.                       |  |                                    | 529,903   |  |                   |   | 187,946   |        |  |   | 341,957  |   |  |  | 181.9 | %
|Employee Stock Option Expense       |  |                                    | 584,061   |  |                   |   | 960,024   |        |  |   | (375,963 | ) |  |  | -39.2 | %
|                                    |  |                                    |           |  |                   |   |           |        |  |   |          |   |  |  |       |  
|Total Salaries and related expenses |  | $                                  | 9,815,549 |  |                   | $ | 9,316,101 |        |  | $ | 499,448  |   |  |  | 5.4   | %
|                                    |  |                                    |           |  |                   |   |           |        |  |   |          |   |  |  |       |  

We currently employ approximately 47 employees out of our Ft. Lauderdale, Florida corporate office, 9 employees out of our
New Jersey field office, eight out-of-state employees, five employees out of a wholly-owned subsidiary in the United Kingdom and 14 employees out of a wholly-owned subsidiary in Bonn, Germany. We expect to continue to selectively add experienced
sales and marketing personnel over the next six months in an effort to increase our market penetration, particularly as it relates to the largest pharmaceutical, biotechnology and CRO customers and to continue broadening our client base domestically
as well as in Europe. In addition we expect to increase R & D personnel as we continue our efforts to integrate an end-to-end solution comprised of our three primary eClinical solutions: TrialMaster, TrialOne and eClinical Suite.

During the year ended December 31, 2010 and the year ended December 31, 2009 we incurred $584,061 and $960,024, respectively, in salary expense
in connection with ASC 718 Compensation  Stock Compensation, which establishes standards for transactions in which an entity exchanges its equity instruments services from employees. 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.

Rent and
related expenses increased by approximately 18.5% during the year ended December 31, 2010 when compared to the year ended December 31, 2009. The table below details the significant portions of our rent expense. In particular, the increase
in 2010 is associated with the additions of our offices in New Jersey and in the UK from our 2009 acquisitions. Our



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primary data site is located at a Cincinnati Bell owned Co-Location facility in Cincinnati, Ohio and will continue utilizing this facility for the foreseeable future since it is designed to
ensure 100% production system up-time and to provide system redundancy. We lease co-location and disaster recovery space 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 2012. We currently lease office space in Bonn, Germany for our European subsidiary, OmniComm Europe, GmbH. That lease expires in June 2011. We entered into a lease for office space in New Jersey in order to
integrate our acquisition of the eResearch EDC Assets during the third quarter of fiscal 2009. That office lease expires in February 2013. Our OmniComm Ltd. subsidiary entered into a lease for office space during the fourth quarter of 2009. That
office lease expires in October 2012. During September 2010 we renewed our home office lease. That lease now extends through September 2016. The table below provides the significant components of our rent related expenses by location or subsidiary.
Included in rent during 2010 was $56,455 in non-cash, straight line rent expense recorded to give effect to contractual, inflation-based rent increases in our leases.



|                                             |  |                   |         |  |                   |   |         |        |  |    |          |   |  |  |        |  
|-------------------------------------------- |  | ----------------- | ------- |  | ----------------- | - | ------- | ------ |  | -- | -------- | - |  |  | ------ | -
|Rent expenses for the years
ended            | 
|                                             |  | December 31, 2010 |         |  | December 31, 2009 |   |         | Change |  |    | % Change |  
|Corporate Office                             |  | $                 | 266,263 |  |                   | $ | 318,259 |        |  | ($ | 51,996   | ) |  |  | -16.3  | %
|Co location and disaster recovery facilities |  |                   | 363,701 |  |                   |   | 219,970 |        |  |    | 143,731  |   |  |  | 65.3   | %
|New Jersey Operations Office                 |  |                   | 71,846  |  |                   |   | 138,666 |        |  |    | (66,820  | ) |  |  | -48.2  | %
|OmniComm Europe, GmbH                        |  |                   | 86,660  |  |                   |   | 73,584  |        |  |    | 13,076   |   |  |  | 17.8   | %
|OmniComm Ltd.                                |  |                   | 73,786  |  |                   |   | 24,850  |        |  |    | 48,936   |   |  |  | 196.92 | %
|Straight-line rent expense                   |  |                   | 56,455  |  |                   |   | -0-     |        |  |    | 56,455   |   |  |  | n/m    |  
|                                             |  |                   |         |  |                   |   |         |        |  |    |          |   |  |  |        |  
|Total                                        |  | $                 | 918,711 |  |                   | $ | 775,329 |        |  | $  | 143,382  |   |  |  | 18.5   | %
|                                             |  |                   |         |  |                   |   |         |        |  |    |          |   |  |  |        |  

Consulting services expense increased to $429,240 for the year ended December 31, 2010 compared with $274,126 for the
year ended December 31, 2009, an increase of $155,114 or 55.6%. Consulting services were comprised of fees paid to consultants for help with developing our computer applications, fees incurred as part of our employee recruiting programs and for
services related to our sales and marketing efforts. The table provided below provides the significant components of the expenses incurred related to consulting services. Consulting fees were higher during fiscal 2010 as we contracted with
third-party sources for portions of our product development work. We do not expect this trend to continue during fiscal 2011.



|                                        |  |                   |         |  |                   |   |         |        |  |   |          |   |  |  |       |  
|--------------------------------------- |  | ----------------- | ------- |  | ----------------- | - | ------- | ------ |  | - | -------- | - |  |  | ----- | -
|Consulting expenses for the years ended | 
|Expense Category                        |  | December 31, 2010 |         |  | December 31, 2009 |   |         | Change |  |   | % Change |  
|Employee Recruitment                    |  | $                 | 30,000  |  |                   | $ | 65,970  |        |  | $ | (35,970  | ) |  |  | -54.5 | %
|Sales & Marketing                       |  |                   | 174,460 |  |                   |   | 63,000  |        |  |   | 111,460  |   |  |  | 176.9 | %
|Product Development                     |  |                   | 224,780 |  |                   |   | 145,156 |        |  |   | 79,624   |   |  |  | 54.9  | %
|                                        |  |                   |         |  |                   |   |         |        |  |   |          |   |  |  |       |  
|                                        |  | $                 | 429,240 |  |                   | $ | 274,126 |        |  | $ | 155,114  |   |  |  | 56.6  | %
|                                        |  |                   |         |  |                   |   |         |        |  |   |          |   |  |  |       |  

Legal and professional fees decreased approximately 46.4% for the year ended December 31, 2010 compared with the year
ended December 31, 2009. Professional fees include fees paid to our auditors for services rendered on a quarterly and annual basis in connection with our SEC filings and fees paid to our attorneys in connection with representation in matters
involving litigation and acquisitions or for services rendered to us related to securities and SEC related matters. During 2010 legal and professional fees decreased due to significant legal fees we incurred during 2009 on acquisition related legal
matters and miscellaneous legal fees matters. The table below compares the significant components of our legal and professional fees for the years ended December 31, 2010 and December 31, 2009, respectively.



|                                                  |  |                   |         |   |                   |   |         |        |  |   |          |   |  |  |        |  
|------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ------ |  | - | -------- | - |  |  | ------ | -
|Professional services expense for the
years ended | 
|Expense Category                                  |  | December 31, 2010 |         |   | December 31, 2009 |   |         | Change |  |   | % Change |  
|Financial Advisory                                |  | $                 | 53,519  |   |                   | $ | 173,897 |        |  | $ | (120,378 | ) |  |  | -69.2  | %
|Audit and Related                                 |  |                   | 100,836 |   |                   |   | 91,666  |        |  |   | 9,170    |   |  |  | 10.0   | %
|Accounting Services                               |  |                   | 82,447  |   |                   |   | 49,475  |        |  |   | 32,972   |   |  |  | 66.6   | %
|HR Consulting                                     |  |                   | -0      | - |                   |   | 22,100  |        |  |   | (22,100  | ) |  |  | -100.0 | %
|Acquisition Related                               |  |                   | -0      | - |                   |   | 29,705  |        |  |   | (29,705  | ) |  |  | -100.0 | %
|Miscellaneous                                     |  |                   | 22,865  |   |                   |   | 212,693 |        |  |   | (189,828 | ) |  |  | -89.2  | %
|General Legal                                     |  |                   | 73,894  |   |                   |   | 42,691  |        |  |   | 31,203   |   |  |  | 73.1   | %
|                                                  |  |                   |         |   |                   |   |         |        |  |   |          |   |  |  |        |  
|                                                  |  | $                 | 333,561 |   |                   | $ | 622,227 |        |  | $ | (288,666 | ) |  |  | -46.4  | %
|                                                  |  |                   |         |   |                   |   |         |        |  |   |          |   |  |  |        |  



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Selling, general and administrative expenses (SGA) decreased approximately
2.4% for the year ended December 31, 2010 compared to the year ended December 31, 2009. During the year ended December 31, 2010 we recorded $223,667 in license fees associated with our license agreement with DataSci, LLC compared to
$383,951 during the year ended December 31, 2009. We incurred $50,000 in software licensing expense in conjunction with a software licensing matter with the Business Software Alliance related to our use of several Microsoft® software products. We recorded a license fee of $54,642 relating to a license agreement with Logos Holdings, Ltd.
relating to certain clients we acquired as part of our acquisition of Logos Technologies, Ltd. in August 2009. In addition, SGA expenses relate primarily to costs incurred in running our offices in Fort Lauderdale, New Jersey, Lymington, England and
Bonn, Germany on a day-to-day basis and other costs not directly related to other captioned items in our income statement. SGA 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 decreased its marketing, sales and advertising expenditures by approximately 12.8% or $35,403 for the year ended December 31, 2010 compared to the year ended December 31, 2009. The
decrease relates primarily to decreased amounts spent on our participation in industry trade shows and conferences during 2010. During 2011 we expect the amount spent on general corporate marketing to increase by $200,000 in connection with projects
related to our corporate website and in conjunction with marketing activities aimed at increasing industry awareness and product penetration of TrialOne. We expect to have expenditures related to our corporate website, customer marketing materials,
branding related activities and for materials related to the commercialization of our TrialOne software application.

During the year ended
December 31, 2010 we incurred $13,954 in bad debt expense compared to $235,160 for the year ended December 31, 2009. During 2009, our existing base of TrialMaster clients, which is primarily comprised of small, U.S.-based biotechnology
firms, experienced significant problems in obtaining working capital and R & D funding. During the year ended December 31, 2009 seven of our clients either ceased operations or severely curtailed their work with us. We have seen evidence
during late 2010 of increased activity in general and believe that our current allowance for uncollectible accounts accurately reflects any accounts which may prove uncollectible during fiscal 2011.

Interest expense was $3,628,230 during the year ended December 31, 2010 compared to $2,747,390 for the year ended December 31, 2009, an
increase of $880,480. Interest incurred to related parties was $1,236,843 during the year ended December 31, 2010 and $867,822 for the year ended December 31, 2009. Included in interest expense for both periods is the accretion of
discounts recorded related to financial instrument derivatives that were deemed a part of the financings we undertook in fiscal 2008 and 2009. The table below provides detail on the significant components of interest expense for the years ended
December 31, 2010 and December 31, 2009.

Interest Expense for the Twelve Months Ended



|                                         |  |                   | $0,000,000 |  |                   |   | $0,000,000 |          |  |   | $0,000,000 |  
|---------------------------------------- |  | ----------------- | ---------- |  | ----------------- | - | ---------- | -------- |  | - | ---------- | -
|Debt Description                         |  | December 31, 2010 |            |  | December 31, 2009 |   |            | Change $ | 
|Accretion of Discount from Derivatives   |  | $                 | 2,286,799  |  |                   | $ | 1,802,355  |          |  | $ | 484,444    |  
|August 2008 Convertible Notes            |  |                   | 227,000    |  |                   |   | 227,000    |          |  |   | -0         | -
|December 2008 Convertible Notes          |  |                   | 608,531    |  |                   |   | 609,000    |          |  |   | (469       | )
|Sept 2009 Secured Convertible Debentures |  |                   | 168,000    |  |                   |   | 42,345     |          |  |   | 125,655    |  
|Dec 2009 Convertible Debentures          |  |                   | 178,800    |  |                   |   | -0         | -        |  |   | 178,800    |  
|General Interest                         |  |                   | 30,407     |  |                   |   | 66,690     |          |  |   | (36,283    | )
|Related Party Notes from fiscal 2010     |  |                   | 128,693    |  |                   |   | -0         | -        |  |   | 128,693    |  
|                                         |  |                   |            |  |                   |   |            |          |  |   |            |  
|Total                                    |  | $                 | 3,628,230  |  |                   | $ | 2,747,390  |          |  | $ | 880,840    |  
|                                         |  |                   |            |  |                   |   |            |          |  |   |            |  

We evaluate the cost of capital available to us in combination with our overall capital structure and the prevailing market
conditions in deciding what financing best fulfills our short and long-term capital needs. Given the difficult overall economic climate and in particular the difficulties nano-cap companies have experienced in obtaining financing, we believe the
structure and terms of the transactions we entered into during 2008 and 2009 were obtained at the best terms available to the Company. During the year ended December 31, 2010 we issued $2,866,879 in Promissory Notes to our Chief Executive
Officer and Director, Mr. Cornelis Wit.

We recorded unrealized gains related to changes in our derivative liabilities associated with
the issuance of convertible debt that occurred during fiscal 2008 and 2009. We recorded a net unrealized gain of $4,330,279 during the year ended December 31, 2010 compared with a net unrealized gain of $673,918 during the year ended
December 31, 2009. The unrealized gains can be attributed to fair value calculations undertaken periodically on the warrant and conversion feature liabilities recorded by us at the time the convertible debt was issued. Accordingly the warrant
and conversion feature liabilities are increased or decreased based on the fair value calculations made at each balance sheet date. These non-cash gains have materially impacted our results of operations during the year ended December 31, 2010
and during fiscal 2009 and 2008 and can be reasonably anticipated to materially affect our net loss or net income in future periods. We are, however, unable to estimate the amount of such income/expense in future periods as the income/expense is
partly based on the market price of our common stock at the end of a future measurement date. In addition, in the future if we issue securities which are classified as derivatives we will incur expense and income items in future periods. Investors
are cautioned to consider the impact of this non-cash accounting treatment on our financial statements.



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The Company recorded arrearages of $205,134 in its 5% Series A Preferred Stock dividends for the year ended
December 31, 2010, and December 31, 2009. As of December 31, 2010, the Company had cumulative arrearages for preferred stock dividends as follows:



|                                 |  |                      |           | 
|-------------------------------- |  | -------------------- | --------- | 
|Series of Preferred Stock        |  | Cumulative Arrearage |          
|Series A                         |  | $                    | 1,740,174 | 
|Series B                         |  |                      | 609,904   | 
|Series C                         |  |                      | 1,469,593 | 
|                                 |  |                      |           | 
|Total Preferred Stock Arrearages |  | $                    | 3,819,671 | 
|                                 |  |                      |           | 

Liquidity and Capital Resources

Liquidity is the ability of a company to generate adequate amounts of cash to meet its needs for cash. 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                                              | 
|(all amounts in USD $)                                                       |  |                   |            |   |                   |  
|Summarized Balance Sheet Disclosure                                          | 
|                                                                             |  |                   |           
|                                                                             |  | December 31, 2010 |            |   | December 31, 2009 |   |            | Change | 
|Cash                                                                         |  | $                 | 1,213,397  |   |                   | $ | 60,352     |        |  | $ | 1,153,045  |  
|Accounts Receivable, net of allowance for doubtful accounts                  |  |                   | 1,031,745  |   |                   |   | 587,119    |        |  |   | 444,626    |  
|Current Assets                                                               |  |                   | 2,342,479  |   |                   |   | 886,535    |        |  |   | 1,455,944  |  
|                                                                             |  |                   |           
|Accounts Payable and accrued expenses                                        |  |                   | 1,371,703  |   |                   |   | 1,548,215  |        |  |   | (176,512   | )
|Notes payable, current portion                                               |  |                   | 12,500     |   |                   |   | 111,800    |        |  |   | (99,300    | )
|Notes payable, related parties, current portion                              |  |                   | 2,615,000  |   |                   |   | -0         | -      |  |   | 2,615,000  |  
|Patent litigation settlement liability, current portion                      |  |                   | 765,089    |   |                   |   | 627,810    |        |  |   | 137,279    |  
|Deferred revenue, current portion                                            |  |                   | 4,060,425  |   |                   |   | 2,048,305  |        |  |   | 2,012,120  |  
|Convertible notes payable, current portion, net of discount                  |  |                   | 395,733    |   |                   |   | 402,777    |        |  |   | (7,044     | )
|Convertible notes payable, related parties, current portion, net of discount |  |                   | 2,169,622  |   |                   |   | -0         | -      |  |   | 2,169,622  |  
|Conversion feature liability, related parties, current portion               |  |                   | 92,134     |   |                   |   | -0         | -      |  |   | 92,134     |  
|Conversion feature liability, current portion                                |  |                   | 72         |   |                   |   | 64,550     |        |  |   | (72        | )
|Warrant liability, related parties                                           |  |                   | 206,760    |   |                   |   | -0         | -      |  |   | 206,760    |  
|Warrant liability                                                            |  |                   | 54,388     |   |                   |   | -0         | -      |  |   | 54,388     |  
|Current liabilities                                                          |  |                   | 11,743,426 |   |                   |   | 4,803,529  |        |  |   | 6,939,897  |  
|                                                                             |  |                   |           
|Working Capital (Deficit)                                                    |  | $                 | (9,400,947 | ) |                   | $ | (3,916,994 | )      |  | $ | (5,483,953 | )



|                                                                |  |                   |            |   |                   |   |            |  
|--------------------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -
|Statement of Cash Flows Disclosure for the years ended          | 
|                                                                |  |                  
|                                                                |  | December 31, 2010 |            |   | December 31, 2009 |  
|Net cash used in operating activities                           |  | $                 | (1,953,919 | ) |                   | $ | (5,176,989 | )
|Net cash provided by (used in) provided by investing activities |  |                   | (318,304   | ) |                   |   | 682,079    |  
|Net cash provided by financing activities                       |  |                   | 3,452,500  |   |                   |   | 2,517,500  |  
|                                                                |  |                  
|Net increase (decrease) in cash and cash equivalents            |  | $                 | 1,153,045  |   |                   | $ | (1,975,466 | )

Cash and Cash Equivalents

Cash and cash equivalents increased by $1,153,405 at December 31, 2010. The increase is comprised of an operating loss of $3,130,735,
offset by an increase from non-cash transactions of $65,550 and changes in working capital accounts of $1,111,266. During the year ended December 31, 2010 we had investing activities comprised of purchases of property and equipment of $318,304.
During the year ended December 31, 2010 we raised $2,477,500 in promissory notes and issued $1 million of Series D Preferred Stock.



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During the year ended December 31, 2010, Companys cash and working capital needs were
supplemented through the issuance of promissory notes and preferred stock totaling $3.5 million. During the second half of fiscal 2010 the Company experienced some liquidity issues as the volume of new contracts lagged as compared with the first
half of 2010.

Notwithstanding what we perceived as a sluggish selling environment, we were able to increase cash through the collection of
large receivables during December 2010 which also increased the amount of deferred revenues carried at December 31, 2010.

During 2010
our ability to collect on trade receivable improved as compared to fiscal 2009. We saw decreased incidence of customers discontinuing operations and experienced a small amount of uncollectable receivables.

Our expectation is that during 2011 we will continue to see improved trade receivables collections and will not experience any material customer
defaults.

In the past, the Company has through extending payments on trade payables managed to improve its working capital and cash position.
Additionally, the amounts expended on payroll and operating expenses were decreased during 2010 in connection with a restructuring of its costs. The Company has experienced a commensurate decrease in payables and payroll related accruals and expects
these trends to continue during fiscal 2011.

Capital Expenditures

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 $250,000 planned for capital expenditures to further develop the Companys infrastructure to allow for growth in
our operations over the next 12 months. We expect to fund these capital expenditure needs through a combination of vendor-provided financing, the use of operating or capital equipment leases and cash provided from operations.

Contractual Obligations

The following
table sets forth our contractual obligations during the next five years as of December 31, 2010:



|                                |  |       |                        |  |                 |   |           |           |  |   |           |     |  |           |           |     |  |   |           |  
|------------------------------- |  | ----- | ---------------------- |  | --------------- | - | --------- | --------- |  | - | --------- | --- |  | --------- | --------- | --- |  | - | --------- | -
|Contractual
Obligations         |  |       | Payments Due by Period | 
|                                |  | Total |                        |  | Less than 1year |   |           | 1-2 Years |  |   | 2-3 Years |     |  | 3-5 Years |          
|Promissory Notes (1)            |  | $     | 3,638,166              |  |                 | $ | 2,627,500 | (2)       |  | $ | 578,679   | (3) |  | $         | 431,987   | (4) |  | $ | -0        | -
|Convertible Notes               |  |       | 9,865,000              |  |                 |   | 2,965,000 | (6)       |  |   | -0        | -   |  |           | 6,900,000 | (5) |  |   | -0        | -
|Operating Lease Obligations (7) |  |       | 2,123,242              |  |                 |   | 623,104   |           |  |   | 442,989   |     |  |           | 343,135   |     |  |   | 714,014   |  
|Patent Licensing Fees (8)       |  |       | 2,565,089              |  |                 |   | 765,089   |           |  |   | 450,000   |     |  |           | 450,000   |     |  |   | 900,000   |  
|                                |  |       |                        |  |                 |   |           |           |  |   |           |     |  |           |           |     |  |   |           |  
|Total                           |  | $     | 18,191,497             |  |                 | $ | 6,980,693 |           |  | $ | 1,471,668 |     |  | $         | 8,125,122 |     |  | $ | 1,614,014 |  
|                                |  |       |                        |  |                 |   |           |           |  |   |           |     |  |           |           |     |  |   |           |  



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

|2. | Includes $2,477,500 of 12% notes payable that mature in December 2011; $137,500 of 9% notes payable that mature in January 2011; and $12,500 of notes payable that
mature in January 2011.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Includes $446,879 of 12% notes payable that mature in April 2012; $111,800 of notes payable that mature in July 2012; and $20,000 of notes payable that mature in
December 2102.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | Includes $431,987 of 12% notes payable that mature in January 2013.
|-- | -------------------------------------------------------------------

|5. | Includes $75,000 of 10% convertible notes currently in default and due that are convertible into shares of common stock at the option of the holder at a conversion rate
of $1.25 per share; $1,400,000 in 12% Convertible Notes that mature in March 2011; and $1,490,000 in Convertible Notes that mature in June 2011.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Includes $1,920,000 in 10% Convertible Notes that mature in August 2013 and $4,980,000 in 12% Convertible Notes that mature in December 2013.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------

|7. | Includes office lease obligations for our headquarters in Fort Lauderdale, for our regional operating office in New Jersey, and R & D office in England and our
European headquarters in Bonn, Germany and lease obligations for co-location and disaster recovery computer service centers in Cincinnati, Ohio and Fort Lauderdale, Florida.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | Relates to guaranteed minimum payments owed in connection with our settlement of a patent infringement lawsuit brought against the Company by DataSci, LLC.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



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Off Balance Sheet Arrangements

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.

Debt Obligations

We are currently in arrears on principal and interest payments owed totaling $162,228 on our 10% Convertible Notes that were issued in 1998. We were in
default effective January 30, 2002.

On December 31, 2010, the Company issued promissory notes payable totaling $431,986 in exchange
for two Convertible Debentures originally issued in August 2008 with a maturity date of August 29, 2010 with principal payments totaling $350,000 and accrued interest of 81,986. The promissory notes bear interest at 10% per annum and
mature in January 2013.

During fiscal 2010, $111,800 in promissory notes and $70,000 in convertible notes originally issued in fiscal 2008
and 2009 matured. The convertible notes are held by two senior managers of the Company. The convertible notes were extended with $12,500 of the notes payable in January 2011, $27,500 payable in April 2012 and $20,000 payable in December 2012. The
new promissory notes bear interest at 12% per annum. The $111,800 in promissory notes were held by two long term investors and were extended to July 2012. The notes bear interest at 12% per annum.

During the next twelve months we expect the following debt to mature: $75,000 of 10% convertible notes currently in default and due that are convertible
into shares of common stock at the option of the debenture holder at a conversion rate of $1.25 per share; $1,400,000 in 12% Convertible Notes that mature in March 2011; and $1,490,000 in Convertible Notes that mature in June 2011; $2,457,500 in
promissory notes, held by our Chief Executive Officer, Cornelis F. Wit, that mature in December 2011; and $150,000 in promissory notes that mature in January 2011.

Sources of Liquidity and Capital Resources

Because of the losses we have experienced from
operations we have needed to continue utilizing the proceeds from the sale of debt and equity securities to fund our working capital needs. We have used a combination of equity financing, short-term bridge loans and long-term loans to fund our
working capital needs, if any. Other than our revenues, 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.

Since 2008 the Company has utilized the proceeds of convertible debentures and promissory notes to satisfy its working capital and capital expenditure
needs. During 2008 and 2009 we raised $10,235,000 in convertible debentures that remain outstanding. Approximately 96% of those debentures were issued to officers, directors or significant senior managers of the Company, including debentures
totaling $8,660,000 to our Chief Executive Officer. During 2010 we raised $2,886,879 from promissory notes to our Chief Executive Officer. In addition, we issued a $20,000 promissory note to our Chairman and Chief Technology Officer during 2010.

In November 2010, the Company issued 250,000 shares of its Series D Preferred Stock to its CEO, Cornelis F. Wit in exchange for the
cancellation of $1,000,000 of the Companys convertible debentures.

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

During the second half of 2010,
the Company made material changes to its cost structure including reducing commitments for financial advisory and product development consulting arrangements. We have looked closely at staffing costs and attempted to ensure that our overall salary
levels are structured around the current and projected business development and contract levels expected for the next 12 months.

While the
Company has not sought capital from venture capital or private equity sources we believe that those sources of capital remain available although possibly under terms and conditions that might be disadvantageous to existing investors.



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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.

While several of our directors have historically, either personally or through funds with which they
are affiliated, provided substantial capital either in the form of debt or equity financing there can be no assurance that they will continue to provide any such funding to us on favorable terms or at all.

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 historical operating losses, negative cash flows and accumulated deficits for the periods ending December 31, 2010, there is substantial doubt about our ability to continue as a going concern. In addition, our auditors Webb &
Company, P.A., included language which qualified their opinion regarding our ability to continue as a going concern in their report dated March 29, 2011 regarding our audited financial statements for the year ended December 31, 2010.

CRITICAL ACCOUNTING POLICIES

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

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

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

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

ASSET
IMPAIRMENT

Asset Acquisitions and Intangible Assets

We account for asset acquisitions in accordance with ASC 350, Intangibles- Goodwill and Other. The acquisition method of accounting requires that assets acquired and liabilities assumed be recorded
at their fair values on the date of an asset acquisition.

The judgments that we make in determining the estimated fair value assigned to each
class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income in periods following an asset acquisition. We generally use either the income, cost or market approach to aid in our conclusions of such fair
values and asset lives. The income approach presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted to present value. The cost approach presumes that an investor would
pay no more for an asset than its replacement or reproduction cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets. Although each valuation approach is considered in valuing
the assets acquired, the approach ultimately selected is based on the characteristics of the asset and the availability of information.



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Long Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred
typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the assets residual value,
if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We use quoted market prices when available and independent appraisals, as appropriate, to determine fair
value.

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 generally entitled to
payment for all work performed through the point of cancellation.

REVENUE RECOGNITION POLICY

OmniComms revenue model is transaction-based and can be implemented either as an ASP (application service provider) or licensed for implementation
by a customer such as a pharmaceutical company. Revenues are derived from the set-up of clinical trial engagements; licensing arrangements, fees earned for hosting our clients data and projects, 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 our EDC Applications 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 clinical trial projects. Cost of sales is primarily comprised of programmer salaries and taxes and is expensed as incurred.

The Company recognizes sales, for both financial statement and tax purposes in accordance with SEC Staff Accounting Bulletin No. 104
Revenue Recognition in Financial Statements (SAB 104)(Codified within Accounting Standards Codification (ASC) Revenue Recognition ASC 605) and AICPA Statement of Position 97-2 (SOP 97-2) Software Revenue Recognition
as amended by SOP 98-9 (Codified within ASC 605.985, Software Industry Revenue Recognition). SAB 104 requires that revenues be recognized ratably over the life of a contract. The Company will periodically record deferred revenues relating to
advance payments in contracts. Under its licensing arrangement the Company recognizes revenue pursuant to SOP 97-2. Under these arrangements the Company recognizes revenue when all of the following conditions are satisfied: (1) there is
persuasive evidence of an arrangement; (2) the service has been provided to the customer and/or delivery has occurred; (3) the collection of fees is probable; and (4) the fee is fixed or determinable. SOP 97-2, as amended, requires
revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. We have analyzed each element in our multiple element arrangements and determined that we have
sufficient vendor-specific objective evidence (VSOE) to allocate revenues to license updates and product support. License revenues are recognized on delivery if the other conditions of SOP 97-2 are satisfied. License updates and product
support revenue is recognized ratably over the term of the arrangement. In arrangements where term licenses are bundled with license updates and product support and such revenue is recognized ratably over the term of the arrangement, we allocate the
revenue to license revenue and to license updates and product support revenue based on the VSOE of fair value for license updates and product support revenue on perpetual licenses of similar products.

STOCK BASED COMPENSATION.

The Company
accounts for its employee equity incentive plans underASC 718, Compensation  Stock Compensation 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.

ASC 718 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. The Company currently uses the American Binomial option pricing model to determine grant date fair value.

EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

During fiscal 2010, we adopted
the following new accounting pronouncements:



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On January 1, 2010, the Company implemented certain provisions of Financial Accounting Standards Board
Accounting Standards Codification (FASB ASC) Topic 810, Consolidation. The new provisions (a) require a qualitative rather than a quantitative approach to determining the primary beneficiary of a variable interest entity
(VIE); (b) amend certain guidance pertaining to the determination of the primary beneficiary when related parties are involved; (c) amend certain guidance for determining whether an entity is a VIE; and (d) require
continuous assessments of whether an enterprise is the primary beneficiary of a VIE. The implementation of this standard did not have an impact on the Companys results of operations or financial condition.

On January 1, 2010, the Company implemented certain provisions of Accounting Standards Update No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820)Improving Disclosures about Fair Value Measurements (Update 2010-06). Update 2010-06 requires the Company to (a) provide information about movements of assets among Levels 1 and 2 of the three-tier
fair value hierarchy; (b) provide a reconciliation of purchases, sales, issuance, and settlements of financial instruments valued with a Level 3 method; and (c) provide fair value measurement disclosures for each class of financial assets
and liabilities. The implementation did not have an impact on the Companys results of operations or financial condition. Required disclosures for the reconciliation of purchases, sales, issuance and settlements of financial instruments valued
with a Level 3 method are effective for the Company beginning on January 1, 2011 and the Company does not expect the implementation to have a material impact on the Companys results of operations or financial condition.

In February 2010, the FASB issued Accounting Standards Update No. 2010-09. Amendments to Certain Recognition and Disclosure
Requirements(ASU No. 2010-09). ASU No. 2010-09 amends FASB ASC Topic 855-10, Subsequent Events,to remove the requirement for an SEC filer to disclose the date through which subsequent events
have been evaluated in both issued and revised financial statements. This change alleviates potential conflicts between ASC 855-10 and SECs requirements. The update did not have a material impact on the
Companys consolidated results of operations or financial position.

In April 2010, FASB issued ASU No. 2010-17,
Milestone Method of Revenue Recognition(ASU 2010-17), which provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development
transactions. Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a study or achieving a specific
result from the research or development efforts. The amendments in this ASU provide guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. ASU 2010-17 is effective for fiscal
years and interim periods within those years beginning on or after June 15, 2010, with early adoption permitted. This ASU is effective for the Company on January 1, 2011. The Company is currently evaluating the impact, if any, ASU 2010-17
will have on its consolidated results of operations, financial position or liquidity.



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

Not applicable to smaller reporting companies.



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

Our financial statements are set forth on Pages F-1 through F-52 attached hereto.



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

On July 12, 2010, Greenberg and Company, LLC (Greenberg) resigned as the independent registered public accounting firm for the Company and on August 2, 2010 we engaged
Webb & Company, P.A. as our independent registered public accounting firm. The change of our independent registered public accounting firm and engagement of Webb & Company, P.A. was approved by our Board of Directors on
August 2, 2010.

Greenbergs audit reports on our financial statements for the fiscal years ended December 31, 2009 and 2008
did not contain an adverse opinion or a disclaimer of opinion. Their opinion for the fiscal years ended December 31, 2008 and 2009 were not qualified or modified as to audit scope or accounting principles except that each such audit report for
the fiscal years ended December 31, 2008 and 2009 contained a qualification regarding uncertainty regarding the Companys ability to continue as a going concern.

During the fiscal years ended December 31, 2009 and 2008 and the subsequent interim period preceding the date Greenberg resigned as our independent registered public accounting firm (i) there
were no disagreements between the Company and Greenberg on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreement, if not resolved to the satisfaction of Greenberg would
have caused it to make a reference to the subject matter of the disagreement in connection with its reports and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.



39



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##### Table of Contents

During our two most recent fiscal years and the subsequent interim period prior to retaining Webb &
Company, P.A. (1) neither we nor anyone on our behalf consulted Webb & Company, P.A. regarding (a) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements or (b) any matter that was the subject of a disagreement or a reportable event as set forth in Item 304(a)(1)(iv) and (v), respectively, of Regulation S-K, and
(2) Webb & Company, P.A. did not provide us with a written report or oral advice that they concluded was an important factor considered by us in reaching a decision as to accounting, auditing or financial reporting issue.

We provided Greenberg with a copy of the disclosure contained in our Current Report on Form 8-K filed July 14, 2010 reporting the resignation
(Form 8-K) and contained in an amendment to the 8-K filed August 2, 2010 (Form 8-K/A), prior to each filing with the Securities and Exchange Commission (SEC), and requested that the firm furnish us with a letter
addressed to the SEC stating whether they agree with the statements made in that Current Report on Form 8-K, and if not, stating the aspects with which they do not agree. Greenberg furnished us with a letter addressed to the SEC stating their
agreement with the above statements. The letters provided by Greenberg were filed as Exhibit 16.1 to the Form 8-K and as Exhibit 16.1(a) to the Form 8-K/A and are incorporated herein by reference.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of
Disclosure Controls and Procedures

Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, being
December 31, 2010, the Companys principal executive officer and principal financial officer have concluded that the Companys disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 (the Exchange Act) are effective such that the information relating to OmniComm, including our consolidating subsidiaries, required to be disclosed by the Company in reports that it files or submits under the Exchange Act
(1) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) is accumulated and communicated to our management, including our principal executive
officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Managements Report
on Internal Control over Financial Reporting

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

Management assessed the effectiveness of OmniComms internal control over financial reporting as of December 31, 2010. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on the assessment using those criteria, management
concluded that the internal control over financial reporting was effective as of December 31, 2010.

Changes in Internal Controls over
Financial Reporting

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

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



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.



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##### Table of Contents

PART III



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

The information required in response to this item is incorporated by reference from the information contained in the sections Nominees for the Board of Directors, Management,
Compliance with Section 16(a) of the Exchange Act , and Stock Option Plan, in our Proxy Statement for our 2011 Annual Meeting of Stockholders to be held on August 4, 2011 (the Proxy Statement).



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

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



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

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



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

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



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

The information required in response to this item is incorporated by reference from the information contained in the section captioned Ratification
of the Appointment of Webb & Company, P.A. as independent auditors of OmniComm Systems in the Proxy Statement.



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##### Table of Contents

PART IV



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

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



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



|            |  |                                                                                                                                                                                             
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                                 
|            | 
|2.1         |  | Agreement and Plan of Reorganization dated July 22, 1998 (1)                                                                                                                                
|            | 
|2.2         |  | Amendment to Agreement and Plan of Reorganization (2)                                                                                                                                       
|            | 
|2.3         |  | Plan of Merger (3)                                                                                                                                                                          
|            | 
|2.4         |  | Agreement and Plan of Acquisition of WebIPA dated January 26, 2000 (4)                                                                                                                      
|            | 
|3.1         |  | Certificate of Incorporation (5)                                                                                                                                                            
|            | 
|3.2         |  | Certificate of Designation  Series A Preferred Stock (6)                                                                                                                                   
|            | 
|3.3         |  | Certificate of Increase  Series A Preferred Stock (7)                                                                                                                                      
|            | 
|3.4         |  | Certificate of Designation Series B Preferred Stock (8)                                                                                                                                    
|            | 
|3.5         |  | Amendment to Certificate of Incorporation (9)                                                                                                                                               
|            | 
|3.6         |  | By-laws (10)                                                                                                                                                                                
|            | 
|3.7         |  | Certificate of Amendment  Certificate of Designation  Series A Preferred Stock (11)                                                                                                       
|            | 
|3.8         |  | Certificate of Amendment  Certificate of Incorporation (12)                                                                                                                                
|            | 
|3.9         |  | Certificate of Designation  Series C Preferred Stock (13)                                                                                                                                  
|            | 
|3.10        |  | Certificate of Designation  Series D Preferred Stock (14)                                                                                                                                  
|            | 
|4.1         |  | Form of Warrant Agreement including the Form of Warrant issued in connection with the Series B Preferred Stock offering (15)                                                                
|            | 
|4.2         |  | Form of Warrant Agreement including the Form of Warrant issued in connection with the Series C Preferred Stock offering (16)                                                                
|            | 
|4.3         |  | Form of 10% Convertible Note (17)                                                                                                                                                           
|            | 
|4.4         |  | Form of Placement Agent Unit Option issued to Commonwealth Associates, LP in connection with the Series B Preferred Stock offering (18)                                                     
|            | 
|4.5         |  | Form of Placement Agent Unit Option issued to Noesis Capital Corp. in connection with the Series C Preferred Stock offering (19)                                                            
|            | 
|10.1        |  | Employment Agreement and Stock Option Agreement between the Company and Randall G. Smith (20)                                                                                               
|            | 
|10.2        |  | Employment Agreement and Stock Option Agreement between the Company and Ronald T. Linares (21)                                                                                              
|            | 
|10.3        |  | 1998 Stock Incentive Plan (22)                                                                                                                                                              
|            | 
|10.4        |  | Standard Agreement  Proprietary Protection (23)                                                                                                                                            
|            | 
|10.6        |  | Employment Agreement and Stock Option Agreement between the Company and Cornelis F. Wit (24)                                                                                                
|            | 
|10.7        |  | Amendment to Employment Agreement between the Company and Cornelis F. Wit (25)                                                                                                              
|            | 
|10.9        |  | Amendment to Employment Agreement between the Company and Randall G. Smith (26)                                                                                                             
|            | 
|10.10       |  | Amendment to Employment Agreement between the Company and Ronald T. Linares (27)                                                                                                            
|            | 
|10.20       |  | Lease Agreement for principal offices dated March 24, 2006 between OmniComm Systems, Inc. and RFP Mainstreet 2101 Commercial, LLC (28)                                                      
|            | 
|10.21       |  | Employment Agreement and Stock Option Agreement between the Company and Stephen E. Johnson dated September 4, 2006 (29)                                                                     
|            | 
|10.23       |  | Form of Debenture dated February 29, 2008 (30)                                                                                                                                              
|            | 
|10.24       |  | Form of Warrant February 29, 2008 (31)                                                                                                                                                      
|            | 
|10.27       |  | Form of Debenture dated August 29, 2008 (32)                                                                                                                                                
|            | 
|10.28       |  | Form of Warrant dated August 29, 2008(33)                                                                                                                                                   
|            | 
|10.29       |  | Securities Purchase Agreement dated December 16, 2008 by and between OmniComm Systems, Inc. and each individual or entity named on an executed counterpart of the signature page
thereto(34)
|            | 
|10.30       |  | Form of Debenture dated December 16, 2008(35)                                                                                                                                               
|            | 
|10.31       |  | Form of Warrant December 16, 2008(36)                                                                                                                                                       
|            | 
|10.32       |  | Asset Purchase Agreement with eResearch Technology, Inc. dated June 23, 2009.(37)                                                                                                           



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##### Table of Contents

|      |  |                                                                                                                                                                                              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.33 |  | Transition Service Agreement with eResearch Technology, Inc. dated June 23, 2009(38)                                                                                                         
|      | 
|10.34 |  | Lock-up and Registration Rights Agreement with eResearch Technology, Inc. dated June 23, 2009(39)                                                                                            
|      | 
|10.35 |  | Agreement by and between OmniComm, Ltd. and Logos Technologies, Ltd dated August 3, 2009(40)                                                                                                 
|      | 
|10.36 |  | Securities Purchase Agreement dated September 30, 2009 by and between OmniComm Systems, Inc. and each individual or entity named on an executed counterpart of the signature page
thereto(41)
|      | 
|10.37 |  | Form of Debenture dated September 30, 20(42)                                                                                                                                                 
|      | 
|10.38 |  | Form of Warrant dated September 30, 2009(43)                                                                                                                                                 
|      | 
|10.40 |  | Subscription Agreement for the Series D Preferred Stock dated November 30, 2010 by and between OmniComm Systems, Inc. and Cornelis F. Wit (44)                                               
|      | 
|10.41 |  | Promissory note payable to Cornelis F. Wit dated September 30, 2010*                                                                                                                         
|      | 
|10.42 |  | Promissory note payable to Cornelis F. Wit dated December 31, 2010*                                                                                                                          
|      | 
|10.43 |  | Promissory note payable to Cornelis F. Wit dated December 31, 2010*                                                                                                                          
|      | 
|14    |  | OmniComm Systems, Inc. Code of Ethics (45)                                                                                                                                                   
|      | 
|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 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**                                                                     



43



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##### Table of Contents

|   |  |                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------
|   | 
|1  |  | Incorporated by reference to Exhibit 2 filed with our Report on Form 8-K dated March 3, 1999.                                       
|   | 
|2  |  | Incorporated by reference to Exhibit 2(c) filed with our Registration Statement on Form 10-SB dated December 22, 1998.              
|   | 
|3  |  | Incorporated by reference to Exhibit 2(c) filed with our amended Registration Statement on Form 10-SB dated July 27, 1999.          
|   | 
|4  |  | Incorporated by reference to Exhibit 2 filed with our Report on Form 8-K dated February 9, 2000.                                    
|   | 
|5  |  | Incorporated by reference to Exhibit 3(a) filed with our Registration Statement on Form SB-2 dated February 6, 1997.                
|   | 
|6  |  | Incorporated by reference to Exhibit 4(b) filed with our amended Registration Statement on Form 10-SB dated August 25, 1999.        
|   | 
|7  |  | Incorporated by reference to Exhibit 4(c) filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 1999.    
|   | 
|8  |  | Incorporated by reference to Exhibit 4(D) filed with our amended Registration Statement on Form SB-2 dated September 17, 2001.      
|   | 
|9  |  | Incorporated by reference to Exhibit 4(E) filed with our Registration Statement on Form SB-2 dated December 27, 2001.               
|   | 
|10 |  | Incorporated by reference to Exhibit 3(b) filed with our Registration Statement on Form SB-2 dated February 6, 1997.                
|   | 
|11 |  | Incorporated by reference to Exhibit 3.7 filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.     
|   | 
|12 |  | Incorporated by reference to Exhibit 3.8 filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.     
|   | 
|13 |  | Incorporated by reference to Exhibit 3.9 filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.     
|   | 
|14 |  | Incorporated by reference to Exhibit 3.10 filed with our Form 8-K dated November 30, 2010                                           
|   | 
|15 |  | Incorporated by reference to Exhibit 4.1 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003          
|   | 
|16 |  | Incorporated by reference to Exhibit 4.2 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003          
|   | 
|17 |  | Incorporated by reference to Exhibit 4.3 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003          
|   | 
|18 |  | Incorporated by reference to Exhibit 4.4 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003          
|   | 
|19 |  | Incorporated by reference to Exhibit 4.5 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003          
|   | 
|20 |  | Incorporated by reference to Exhibit 10(a)(i) filed with our amended Registration Statement on Form SB-2 dated September 17, 2001.  
|   | 
|21 |  | Incorporated by reference to Exhibit 10(a)(iii) filed with our amended Registration Statement on Form SB-2 dated September 17, 2001.
|   | 
|22 |  | Incorporated by reference to Exhibit 10(c) filed with our amended Registration Statement on Form 10-SB dated July 27, 1999.         
|   | 
|23 |  | Incorporated by reference to Exhibit 10(f) filed with our amended Registration Statement on Form 10-SB dated August 25, 1999.       
|   | 
|24 |  | Incorporated by reference to Exhibit 10.7 filed with our Form 10-Q for the period ended June 30, 2002.                              
|   | 
|25 |  | Incorporated by reference to Exhibit 10.8 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003         
|   | 
|26 |  | Incorporated by reference to Exhibit 10.9 filed with our Form 10-Q for the period ended September 30, 2004.                         
|   | 
|27 |  | Incorporated by reference to Exhibit 10.10 filed with our Form 10-Q for the period ended September 30, 2004.                        
|   | 
|28 |  | Incorporated by reference to Exhibit 10.1 filed with our Form 10-Q for the period ended June 30, 2006.                              
|   | 
|29 |  | Incorporated by reference to Exhibit 10.1 filed with our Form 10-Q for the period ended September 30, 2006.                         
|   | 
|30 |  | Incorporated by reference to Exhibit 10.2 filed with our Form 8-K dated March 5, 2008.                                              
|   | 
|31 |  | Incorporated by reference to Exhibit 10.3 filed with our Form 8-K dated March 5, 2008.                                              
|   | 
|32 |  | Incorporated by reference to Exhibit 4.8 filed with our Form 10-K dated December 31, 2009                                           
|   | 
|33 |  | Incorporated by reference to Exhibit 4.9 filed with our Form 10-K dated December 31, 2009                                           
|   | 
|34 |  | Incorporated by reference to Exhibit 10.1 filed with our Form 8-K dated December 17, 2008                                           
|   | 
|35 |  | Incorporated by reference to Exhibit 10.2 filed with our Form 8-K dated December 17, 2008                                           
|   | 
|36 |  | Incorporated by reference to Exhibit 10.3 filed with our Form 8-K dated December 17, 2008                                           
|   | 
|37 |  | Incorporated by reference to Exhibit 10.26 filed with our Form 8-K dated June 26, 2009                                              
|   | 
|38 |  | Incorporated by reference to Exhibit 10.27 filed with our Form 8-K dated June 26, 2009                                              
|   | 
|39 |  | Incorporated by reference to Exhibit 10.28 filed with our Form 8-K dated June 26, 2009                                              
|   | 
|40 |  | Incorporated by reference to Exhibit 10.29 filed with our Form 8-K dated August 4, 2009                                             
|   | 
|41 |  | Incorporated by reference to Exhibit 10.1 filed with our Form 8-K dated October 5, 2009                                             
|   | 
|42 |  | Incorporated by reference to Exhibit 10.2 filed with our Form 8-K dated October 5, 2009                                             
|   | 
|43 |  | Incorporated by reference to Exhibit 10.3 filed with our Form 8-K dated October 5, 2009                                             
|   | 
|44 |  | Incorporated by reference to Exhibit 10.32 filed with our Form 8-K dated November 30, 2010                                          
|   | 
|45 |  | Incorporated by reference to our Proxy Statement filed on June 9 2003.                                                              



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

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



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##### Table of Contents

SIGNATURES

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

Dated: March 31, 2011



OMNICOMM SYSTEMS, INC.By:

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

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


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.



|                                        |  |                                                    |  |               
|--------------------------------------- |  | -------------------------------------------------- |  | --------------
|Signature                               |  | Title                                              |  | Date          
|                                        |  |                                                   
|/s/ Cornelis F. Wit Cornelis F. Wit     |  | Chief (Principal) Executive Officer and Director   |  | March 31, 2011
|                                        |  |                                                   
|/s/ Randall G. Smith Randall G. Smith   |  | Chairman, Chief Technology Officer                 |  | March 31, 2011
|                                        |  |                                                   
|/s/ Ronald T. Linares Ronald T. Linares |  | Chief (Principal) Accounting and Financial Officer |  | March 31, 2011
|                                        |  |                                                   
|/s/ Guus van Kesteren Guus van Kesteren |  | Director                                           |  | March 31, 2011
|                                        |  |                                                   
|/s/ Matthew D. Veatch Matthew D. Veatch |  | Director                                           |  | March 31, 2011
|                                        |  |                                                   
|/s/ Fernando Montero Fernando Montero   |  | Director                                           |  | March 31, 2011



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of:

OmniComm Systems, Inc.

We have
audited the accompanying balance sheet of OmniComm Systems, Inc. (the Company) as of December 31, 2010, and the related statements of operations and comprehensive income, changes in stockholders deficit and cash flows for the
year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit 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. An audit 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 statement presentation. We believe that our audit provides a reasonable basis for
our opinion.

In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of
OmniComm Systems, Inc. as of December 31, 2010 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

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 a net loss attributable to common shareholders of $3,335,869, a negative cash flow from operations of $1,953,919, a working capital deficiency of $9,400,947 and a stockholders deficiency of $17,814,029.
These factors raise substantial doubt about the Companys ability to continue as a going concern. Managements plans concerning these matters are also described in Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/S/ WEBB & COMPANY, P.A.

WEBB & COMPANY, P.A.

Certified Public Accountants

Boynton Beach, Florida

March 29, 2011



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

OmniComm Systems, Inc.

Fort Lauderdale, Florida

We have audited the accompanying consolidated balance sheet of OmniComm Systems, Inc. as of December 31, 2009, and the related
consolidated statements of operations, changes in shareholders equity (deficit) and cash flows for the year ended December 31, 2009. These financial statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements based upon our audits.

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

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of OmniComm Systems, Inc. at December 31, 2009, and the results of its operations and cash flows for the year then ended, in conformity with U.S. generally
accepted accounting principles.

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

GREENBERG & COMPANY LLC

Springfield, New Jersey

February 12, 2010



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##### Table of Contents

OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                                                                                    |  |                  |            |   |                            |   |            |  
|------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ---------- | - | -------------------------- | - | ---------- | -
|                                                                                                                    |  | December 31,2010 |            |   | December 31,2009(restated) |  
|ASSETS                                                                                                              |  |                  |            |   |                            |   |            |  
|CURRENT ASSETS                                                                                                      |  |                  |            |   |                            |   |            |  
|Cash                                                                                                                |  | $                | 1,213,397  |   |                            | $ | 60,352     |  
|                                                                                                                    |  |                 
|Accounts receivable, net of allowance for doubtful accounts of $269,869 and $267,526 in 2010 and 2009,
respectively |  |                  | 1,031,745  |   |                            |   | 587,119    |  
|Prepaid expenses                                                                                                    |  |                  | 97,337     |   |                            |   | 239,064    |  
|Total current assets                                                                                                |  |                  | 2,342,479  |   |                            |   | 886,535    |  
|                                                                                                                    |  |                 
|PROPERTY AND EQUIPMENT, net                                                                                         |  |                  | 1,046,688  |   |                            |   | 1,240,697  |  
|                                                                                                                    |  |                 
|OTHER ASSETS                                                                                                        |  |                  |            |   |                            |   |            |  
|Intangible assets, net                                                                                              |  |                  | 696,350    |   |                            |   | 1,160,581  |  
|Other assets                                                                                                        |  |                  | 34,218     |   |                            |   | 25,882     |  
|                                                                                                                    |  |                  |            |   |                            |   |            |  
|                                                                                                                    |  |                 
|TOTAL ASSETS                                                                                                        |  | $                | 4,119,735  |   |                            | $ | 3,313,695  |  
|                                                                                                                    |  |                  |            |   |                            |   |            |  
|                                                                                                                    |  |                 
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                      |  |                  |            |   |                            |   |            |  
|                                                                                                                    |  |                 
|CURRENT LIABILITIES                                                                                                 |  |                  |            |   |                            |   |            |  
|Accounts payable and accrued expenses                                                                               |  | $                | 1,371,703  |   |                            | $ | 1,548,215  |  
|Notes payable, current portion                                                                                      |  |                  | 12,500     |   |                            |   | 111,800    |  
|Notes payable related parties, current portion                                                                      |  |                  | 2,615,000  |   |                            |   | -0         | -
|Deferred revenue, current portion                                                                                   |  |                  | 4,060,425  |   |                            |   | 2,048,305  |  
|Conversion feature liability, related parties, current portion                                                      |  |                  | 92,134     |   |                            |   | -0         | -
|Conversion feature liability, current portion                                                                       |  |                  | 72         |   |                            |   | 64,622     |  
|Convertible notes payable, current portion, net of discount                                                         |  |                  | 395,733    |   |                            |   | 402,777    |  
|Convertible notes payable, related parties, current portion, net of discount                                        |  |                  | 2,169,622  |   |                            |   | -0         | -
|Patent settlement liability, current portion                                                                        |  |                  | 765,089    |   |                            |   | 627,810    |  
|Warrant liability, related parties                                                                                  |  |                  | 206,760    |   |                            |   | -0         | -
|Warrant liability                                                                                                   |  |                  | 54,388     |   |                            |   | -0         | -
|                                                                                                                    |  |                  |            |   |                            |   |            |  
|Total current liabilities                                                                                           |  |                  | 11,743,426 |   |                            |   | 4,803,529  |  
|                                                                                                                    |  |                  |            |   |                            |   |            |  
|                                                                                                                    |  |                 
|Notes payable - long term, net of current portion                                                                   |  |                  | 601,286    |   |                            |   | -0         | -
|Notes payable related parties, long term, net of current portion                                                    |  |                  | 409,379    |   |                            |   | 137,500    |  
|Deferred revenue, long term, net of current portion                                                                 |  |                  | 691,234    |   |                            |   | 980,642    |  
|Convertible notes payable, related parties, net of current portion                                                  |  |                  | 6,900,000  |   |                            |   | 6,996,178  |  
|Convertible notes payable, net of current portion                                                                   |  |                  | -0         | - |                            |   | 224,600    |  
|Conversion feature liability, related parties, net of current portion                                               |  |                  | -0         | - |                            |   | 1,809,418  |  
|Conversion feature liability, net of current portion                                                                |  |                  | -0         | - |                            |   | 71,400     |  
|Warrant liability, related parties                                                                                  |  |                  | -0         | - |                            |   | 1,977,402  |  
|Warrant liability                                                                                                   |  |                  | -0         | - |                            |   | 760,791    |  
|Patent settlement liability - long term                                                                             |  |                  | 1,588,439  |   |                            |   | 1,835,463  |  
|                                                                                                                    |  |                  |            |   |                            |   |            |  
|TOTAL LIABILITIES                                                                                                   |  |                  | 21,933,764 |   |                            |   | 19,596,923 |  



F-3



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##### Table of Contents

|                                                                                                                                                                                                                   |  |   |             |   |  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | - | ----------- | - |  | - | ----------- | -
|COMMITMENTS AND CONTINGENCIES (See Note 14)                                                                                                                                                                        |  |   |             |   |  |   |             |  
|                                                                                                                                                                                                                   |  |  
|SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                     |  |   |             |   |  |   |             |  
|Preferred stock, $0.001 par value, 10,000,000 share authorized 4,022,500 shares undesignated                                                                                                                       |  |   | -0          | - |  |   | -0          | -
|Series B convertible preferred stock - 230,000 shares authorized, -0- and -0- issued and outstanding, respectively at $.001 par
value; liquidation preference $-0- and $-0-, respectively                          |  |   | -0          | - |  |   | -0          | -
|Series C convertible preferred stock - 747,500 shares authorized, -0- and -0- issued and outstanding, respectively at $.001 par
value; liquidation preference $-0- and $-0-, respectively                          |  |   | -0          | - |  |   | -0          | -
|Series A convertible preferred stock - 5,000,000 shares authorized, 4,125,224 and 4,125,224 issued and outstanding, respectively
at $.001 par value liquidation preference $4,125,224 and $4,125,224, respectively |  |   | 4,125       |   |  |   | 4,125       |  
|Series D preferred stock - 250,000 shares authorized, 250,000 and -0- issued and outstanding, respectively at $.001 par
value                                                                                      |  |   | 250         |   |  |   | -0          | -
|Common stock - 250,000,000 shares authorized, 86,081,495 and 85,507,699 issued and outstanding, respectively, at $.001 par
value                                                                                   |  |   | 86,082      |   |  |   | 86,474      |  
|Additional paid in capital - preferred                                                                                                                                                                             |  |   | 4,717,804   |   |  |   | 3,718,054   |  
|Additional paid in capital - common                                                                                                                                                                                |  |   | 36,906,356  |   |  |   | 36,278,798  |  
|Less cost of treasury stock: Common - 1,014,830 and 1,014,830 shares, respectively                                                                                                                                 |  |   | (503,086    | ) |  |   | (503,086    | )
|Accumulated other comprehensive income (loss)                                                                                                                                                                      |  |   | (24,298     | ) |  |   | 2,934       |  
|Accumulated deficit                                                                                                                                                                                                |  |   | (59,001,262 | ) |  |   | (55,870,527 | )
|                                                                                                                                                                                                                   |  |   |             |   |  |   |             |  
|                                                                                                                                                                                                                   |  |  
|TOTAL SHAREHOLDERS (DEFICIT)                                                                                                                                                                                      |  |   | (17,814,029 | ) |  |   | (16,283,228 | )
|                                                                                                                                                                                                                   |  |   |             |   |  |   |             |  
|                                                                                                                                                                                                                   |  |  
|TOTAL LIABILITIES AND SHAREHOLDERS (DEFICIT)                                                                                                                                                                      |  | $ | 4,119,735   |   |  | $ | 3,313,695   |  
|                                                                                                                                                                                                                   |  |   |             |   |  |   |             |  

See accompanying summary of accounting policies and notes to financial statements



F-4



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##### Table of Contents

OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                        |  |                                  |            |   |      |   |            |  
|------------------------------------------------------- |  | -------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                        |  | For the years 
endedDecember 31, |           
|                                                        |  | 2010                             |            |   | 2009 |  
|Total revenues                                          |  | $                                | 12,427,511 |   |      | $ | 9,556,366  |  
|                                                        |  |                                 
|Cost of sales                                           |  |                                  | 1,800,281  |   |      |   | 1,894,248  |  
|                                                        |  |                                  |            |   |      |   |            |  
|Gross margin                                            |  |                                  | 10,627,230 |   |      |   | 7,662,118  |  
|                                                        |  |                                  |            |   |      |   |            |  
|Operating expenses                                      |  |                                  |            |   |      |   |            |  
|Salaries, benefits and related taxes                    |  |                                  | 9,815,549  |   |      |   | 9,316,101  |  
|Rent & occupancy expenses                               |  |                                  | 918,711    |   |      |   | 775,329    |  
|Consulting services                                     |  |                                  | 429,240    |   |      |   | 274,126    |  
|Legal and professional fees                             |  |                                  | 333,561    |   |      |   | 622,227    |  
|Travel                                                  |  |                                  | 535,929    |   |      |   | 482,131    |  
|Telephone and internet                                  |  |                                  | 271,693    |   |      |   | 176,095    |  
|Selling, general and administrative                     |  |                                  | 1,165,512  |   |      |   | 1,193,802  |  
|Bad debt expense                                        |  |                                  | 13,954     |   |      |   | 235,160    |  
|Depreciation Expense                                    |  |                                  | 512,311    |   |      |   | 356,828    |  
|Amortization Expense                                    |  |                                  | 464,234    |   |      |   | 232,117    |  
|                                                        |  |                                  |            |   |      |   |            |  
|Total operating expenses                                |  |                                  | 14,460,694 |   |      |   | 13,663,916 |  
|                                                        |  |                                  |            |   |      |   |            |  
|Operating loss                                          |  |                                  | (3,833,464 | ) |      |   | (6,001,798 | )
|                                                        |  |                                  |            |   |      |   |            |  
|Other income (expense)                                  |  |                                  |            |   |      |   |            |  
|Interest expense                                        |  |                                  | (2,391,387 | ) |      |   | (1,880,168 | )
|Interest expense, related parties                       |  |                                  | (1,236,843 | ) |      |   | (867,222   | )
|Interest income                                         |  |                                  | 49         |   |      |   | 4,491      |  
|Gain on extinguishment of debt                          |  |                                  | -0         | - |      |   | 432        |  
|Change in derivative liabilities                        |  |                                  | 4,330,279  |   |      |   | 673,918    |  
|Other Comprehensive Income (Loss)                       |  |                                  | 631        |   |      |   | -0         | -
|                                                        |  |                                  |            |   |      |   |            |  
|Loss before income taxes and preferred dividends        |  |                                  | (3,130,735 | ) |      |   | (8,070,347 | )
|                                                        |  |                                  |            |   |      |   |            |  
|Net loss                                                |  |                                  | (3,130,735 | ) |      |   | (8,070,347 | )
|                                                        |  |                                  |            |   |      |   |            |  
|Preferred stock dividends                               |  |                                  |            |   |      |   |            |  
|Preferred stock dividends in arrears Series A Preferred |  |                                  | (205,134   | ) |      |   | (205,134   | )
|                                                        |  |                                  |            |   |      |   |            |  
|Total preferred stock dividends                         |  |                                  | (205,134   | ) |      |   | (205,134   | )
|                                                        |  |                                  |            |   |      |   |            |  
|Net loss attributable to common stockholders            |  | $                                | (3,335,869 | ) |      | $ | (8,275,481 | )
|                                                        |  |                                  |            |   |      |   |            |  
|Net loss per share                                      |  |                                  |            |   |      |   |            |  
|Basic and Diluted                                       |  | $                                | (0.04      | ) |      | $ | (0.10      | )
|                                                        |  |                                  |            |   |      |   |            |  
|Weighted average number of shares outstanding           |  |                                  |            |   |      |   |            |  
|Basic and Diluted                                       |  |                                  | 85,606,706 |   |      |   | 81,229,605 |  
|                                                        |  |                                  |            |   |      |   |            |  

See accompanying summary of accounting policies and notes to financial statements



F-5



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##### Table of Contents

OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)

FOR THE PERIOD JANUARY 1, 2009 TO DECEMBER 31, 2010



|                                                      |  |                 |            |  |                  |   |        |                         |  |   |                         |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|----------------------------------------------------- |  | --------------- | ---------- |  | ---------------- | - | ------ | ----------------------- |  | - | ----------------------- | - |  | ----------------------- | --------- |  | ------------------------ | - | ----- | --------------- |  | - | ---------------- |  |  | --------------- | - |  | --------------- | - | - | ---------------- |  | - | -------------- |  |  | --------------- | - |  | ----------------- | - | - | -------------- |  | - | - |  |  |  | ------- |  |  | - | --- |  |  | - | ------- | 
|                                                      |  |                 |            |  |                  |   |        |                         |  |   |                         |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  | Preferred Stock |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |  
|                                                      |  |                 |            |  |                  |   |        | 5% Series A Convertible |  |   | 8% Series B Convertible |   |  | 8% Series C Convertible |           |  | Series D Preferred Stock |  
|                                                      |  | Common Stock    |            |  | Additional       |   |        |                         |  |   |                         |   |  | Additional              |           |  |                          |   |       |                 |  |   | Additional       |  |  |                 |   |  |                 |   |   | Additional       |  |   |                |  |  |                 |   |  | Additional        |  
|                                                      |  | Numberof Shares |            |  | $ 0.001Par Value |   |        | Paid InCapital          |  |   | Numberof Shares         |   |  | $ 0.001Par Value        |           |  | Paid InCapital           |   |       | Numberof Shares |  |   | $ 0.001Par Value |  |  | Paid InCapital  |   |  | Numberof Shares |   |   | $ 0.001Par Value |  |   | Paid InCapital |  |  | Numberof Shares |   |  | $ 0.001Par 
Value |   |   | Paid InCapital | 
|Balances at December 31, 2008                         |  |                 | 76,579,951 |  |                  | $ | 77,546 |                         |  | $ | 33,430,270              |   |  |                         | 4,125,224 |  |                          | $ | 4,125 |                 |  | $ | 3,718,054        |  |  |                 |  |  |                 | $ |  |                  |  | $ |               |  |  |                 |  |  |                   | $ | 0 |                |  | $ | 0 |  |  |  |        |  |  | $ |    |  |  | $ |        | 
|                                                      |  |                 |            |  |                  |   |        |                         |  |   |                         |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Common stock issued in lieu of wages                  |  |                 | 405,055    |  |                  |   | 405    |                         |  |   | 108,777                 |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Employee stock option expense                         |  |                 |            |  |                  |   |        |                         |  |   | 960,024                 |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Common stock issued for services                      |  |                 | 415,000    |  |                  |   | 415    |                         |  |   | 61,835                  |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Common stock issued in asset acquisition              |  |                 | 8,100,000  |  |                  |   | 8,100  |                         |  |   | 1,717,900               |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Common stock issued for cashless exercise of warrants |  |                 | 7,693      |  |                  |   | 8      |                         |  |   | (8                      | ) |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Foreign currency translation adjustment               |  |                 |            |  |                  |   |        |                         |  |   |                         |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Net loss for the period ended December 31, 2009       |  |                 |           |  |                  |   |       |                         |  |   |                        |   |  |                         |          |  |                          |   |      |                 |  |   |                 |  |  |                 |  |  |                 |   |  |                  |  |   |               |  |  |                 |  |  |                   |   |  |                |  |   |  |  |  |  |        |  |  |   |    |  |  |   |        | 
|                                                      |  |                 |            |  |                  |   |        |                         |  |   |                         |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Balances at December 31, 2009                         |  |                 | 85,507,699 |  |                  |   | 86,474 |                         |  |   | 36,278,798              |   |  |                         | 4,125,224 |  |                          |   | 4,125 |                 |  |   | 3,718,054        |  |  |                 |  |  |                 |   |  |                  |  |   |               |  |  |                 |  |  |                   |   | 0 |                |  |   | 0 |  |  |  |        |  |  |   |    |  |  |   |        | 
|                                                      |  |                 |            |  |                  |   |        |                         |  |   |                         |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Employee stock option expense                         |  |                 |            |  |                  |   |        |                         |  |   | 584,061                 |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Common stock issued in lieu of salaries               |  |                 | 573,796    |  |                  |   | 574    |                         |  |   | 42,531                  |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Foreign currency translation adjustment               |  |                 |            |  |                  |   |        |                         |  |   |                         |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Adjustment for treasury stock transactions            |  |                 |            |  |                  |   | (966   | )                       |  |   | 966                     |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Issuance of Series D preferred stock                  |  |                 |            |  |                  |   |        |                         |  |   |                         |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  | 250,000 |  |  |   | 250 |  |  |   | 999,750 | 
|Net loss for the period ended December 31, 2010       |  |                 |           |  |                  |   |       |                         |  |   |                        |   |  |                         |          |  |                          |   |      |                 |  |   |                 |  |  |                 |  |  |                 |   |  |                  |  |   |               |  |  |                 |  |  |                   |   |  |                |  |   |  |  |  |  |        |  |  |   |    |  |  |   |        | 
|                                                      |  |                 |            |  |                  |   |        |                         |  |   |                         |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 
|Balances at December 31, 2010                         |  |                 | 86,081,495 |  |                  | $ | 86,082 |                         |  | $ | 36,906,356              |   |  |                         | 4,125,224 |  |                          | $ | 4,125 |                 |  | $ | 3,718,054        |  |  |                 |  |  |                 | $ |  |                  |  | $ |               |  |  |                 |  |  |                   |   | 0 |                |  | $ | 0 |  |  |  | 250,000 |  |  | $ | 250 |  |  | $ | 999,750 | 
|                                                      |  |                 |            |  |                  |   |        |                         |  |   |                         |   |  |                         |           |  |                          |   |       |                 |  |   |                  |  |  |                 |   |  |                 |   |   |                  |  |   |                |  |  |                 |   |  |                   |   |   |                |  |   |   |  |  |  |         |  |  |   |     |  |  |   |         | 



F-6



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##### Table of Contents

OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)

FOR THE PERIOD JANUARY 1, 2009 TO DECEMBER 31, 2010



|                                                      |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   |             |  
|----------------------------------------------------- |  | ------------------ | ----------- | - | -------------------- | - | -- | ---------------------- |  | - | ------------------------------------ | - |  | ------------- | ------- | - | --------------------------------- | - | -------- | - |  | - | ----------- | -
|                                                      |  | AccumulatedDeficit |             |   | DeferredCompensation |   |    | SubscriptionReceivable |  |   | Accumulated OtherComprehensiveIncome |   |  | TreasuryStock |         |   | TotalShareholdersEquity(Deficit) |  
|Balances at December 31, 2008                         |  | $                  | (47,800,180 | ) |                      | $ | -0 | -                      |  | $ | -0                                   | - |  | $             | 989     |   |                                   | $ | (503,086 | ) |  | $ | (11,072,282 | )
|                                                      |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   |             |  
|Common stock issued in lieu of wages                  |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   | 109,182     |  
|Employee stock option expense                         |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   | 960,024     |  
|Common stock issued for services                      |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   | 62,250      |  
|Common stock issued in asset acquisition              |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   | 1,726,000   |  
|Common stock issued for cashless exercise of warrants |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   | -0          | -
|Foreign currency translation adjustment               |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               | 1,945   |   |                                   |   |          |   |  |   | 1,945       |  
|Net loss for the period ended December 31, 2009       |  |                    | (8,070,347  | ) |                      |   | -0 | -                      |  |   | -0                                   | - |  |               | -0      | - |                                   |   | -0       | - |  |   | (8,070,347  | )
|                                                      |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   |             |  
|Balances at December 31, 2009                         |  |                    | (55,870,527 | ) |                      |   | (0 | )                      |  |   | (0                                   | ) |  |               | 2,934   |   |                                   |   | (503,086 | ) |  |   | (16,283,228 | )
|                                                      |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   |             |  
|Employee stock option expense                         |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   | 584,061     |  
|Common stock issued in lieu of salaries               |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   | 43,105      |  
|Adjustment for treasury stock transactions            |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   | -0          | -
|Foreign currency translation adjustment               |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               | (27,232 | ) |                                   |   |          |   |  |   | (27,232     | )
|Adjustment for treasury stock transactions            |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   | -0          | -
|Issuance of Series D preferred stock                  |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   | 1,000,000   |  
|Net loss for the period ended December 31, 2010       |  |                    | (3,130,735  | ) |                      |   | -0 | -                      |  |   | -0                                   | - |  |               | -0      | - |                                   |   | -0       | - |  |   | (3,130,735  | )
|                                                      |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   |             |  
|Balances at December 31, 2010                         |  | $                  | (59,001,262 | ) |                      | $ | (0 | )                      |  | $ | (0                                   | ) |  | $             | (24,298 | ) |                                   | $ | (503,086 | ) |  | $ | (17,814,029 | )
|                                                      |  |                    |             |   |                      |   |    |                        |  |   |                                      |   |  |               |         |   |                                   |   |          |   |  |   |             |  



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##### Table of Contents

OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                          |  |                                 |            |   |            |   |            |  
|------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ---------- | - | ---------- | -
|                                                                          |  | For the years
endedDecember 31, |           
|                                                                          |  | 2010                            |            |   | 2009       |  
|                                                                          |  |                                 |            |   | (restated) |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                      |  |                                 |            |   |            |   |            |  
|Net loss                                                                  |  | $                               | (3,130,735 | ) |            | $ | (8,070,347 | )
|                                                                          |  |                                
|Adjustment to reconcile net loss to net cash used in operating activities |  |                                 |            |   |            |   |            |  
|Gain on extinguishment of debt                                            |  |                                 | -0         | - |            |   | (432       | )
|Common stock issued in lieu of salary                                     |  |                                 | 43,105     |   |            |   | 109,182    |  
|Change in derivative liabilities                                          |  |                                 | (4,330,279 | ) |            |   | (673,918   | )
|Interest expense from derivative instruments                              |  |                                 | 2,286,799  |   |            |   | 1,802,355  |  
|Employee stock option expense                                             |  |                                 | 584,061    |   |            |   | 960,024    |  
|Depreciation and amortization                                             |  |                                 | 976,545    |   |            |   | 588,945    |  
|Bad debt expense                                                          |  |                                 | 13,954     |   |            |   | -0         | -
|Common stock issued for services                                          |  |                                 | -0         | - |            |   | 62,250     |  
|Changes in operating assets and liabilities                               |  |                                 |            |   |            |   |            |  
|Accounts receivable                                                       |  |                                 | (458,580   | ) |            |   | 2,020,774  |  
|Prepaid expenses                                                          |  |                                 | 141,727    |   |            |   | (95,795    | )
|Other assets                                                              |  |                                 | (8,336     | ) |            |   | (8,242     | )
|Accounts payable and accrued expenses                                     |  |                                 | 314,853    |   |            |   | 463,115    |  
|Patent settlement liability                                               |  |                                 | (109,744   | ) |            |   | 25,000     |  
|Deferred revenue                                                          |  |                                 | 1,722,711  |   |            |   | (2,359,900 | )
|                                                                          |  |                                 |            |   |            |   |            |  
|Net cash used in operating activities                                     |  |                                 | (1,953,919 | ) |            |   | (5,176,989 | )
|                                                                          |  |                                 |            |   |            |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                      |  |                                 |            |   |            |   |            |  
|Cash received in acquisition of eResearch Technology assets               |  |                                 | -0         | - |            |   | 1,150,000  |  
|Purchase of Logos Technologies, Ltd. Assets                               |  |                                 | -0         | - |            |   | (152,628   | )
|Purchase of property and equipment                                        |  |                                 | (318,304   | ) |            |   | (315,293   | )
|                                                                          |  |                                 |            |   |            |   |            |  
|Net cash provided by (used in) investing activities                       |  |                                 | (318,304   | ) |            |   | 682,079    |  
|                                                                          |  |                                
|CASH FLOWS FROM FINANCING ACTIVITIES                                      |  |                                 |            |   |            |   |            |  
|Repayments of notes payable                                               |  |                                 | (25,000    | ) |            |   | (360,000   | )
|Repayments of convertible notes payable                                   |  |                                 | -0         | - |            |   | (12,500    | )
|Proceeds from issuances of convertible notes payable, related parties     |  |                                 | -0         | - |            |   | 2,540,000  |  
|Proceeds from issuances of convertible notes payable                      |  |                                 | -0         | - |            |   | 350,000    |  
|Proceeds from issuances of notes payable                                  |  |                                 | 3,477,500  |   |            |   | -0         | -
|                                                                          |  |                                 |            |   |            |   |            |  
|Net cash provided by financing activities                                 |  |                                 | 3,452,500  |   |            |   | 2,517,500  |  
|                                                                          |  |                                 |            |   |            |   |            |  
|Effect of exchange rate changes on cash and cash equivalents              |  |                                 | (27,232    | ) |            |   | 1,944      |  
|                                                                          |  |                                 |            |   |            |   |            |  
|Net increase (decrease) in cash and cash equivalents                      |  |                                 | 1,153,045  |   |            |   | (1,975,466 | )
|Cash and cash equivalents at beginning of period                          |  |                                 | 60,352     |   |            |   | 2,035,818  |  
|                                                                          |  |                                 |            |   |            |   |            |  
|Cash and cash equivalents at end of period                                |  | $                               | 1,213,397  |   |            | $ | 60,352     |  
|                                                                          |  |                                 |            |   |            |   |            |  
|Supplemental disclosures of cash flow information:                        |  |                                 |            |   |            |   |            |  
|Cash paid during the period for:                                          |  |                                 |            |   |            |   |            |  
|Income taxes                                                              |  | $                               | -0         | - |            | $ | -0         | -
|                                                                          |  |                                 |            |   |            |   |            |  
|Interest                                                                  |  | $                               | 810,982    |   |            | $ | 845,894    |  
|                                                                          |  |                                 |            |   |            |   |            |  



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##### Table of Contents

OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(continued)



|                                                                           |  |                                 |           |   |            |   |           |  
|-------------------------------------------------------------------------- |  | ------------------------------- | --------- | - | ---------- | - | --------- | -
|                                                                           |  | For the years endedDecember 31, |          
|                                                                           |  | 2010                            |           |   | 2009       |  
|                                                                           |  |                                 |           |   | (restated) |  
|Non-cash transactions                                                      |  |                                 |           |   |            |   |           |  
|Common stock issued in lieu of salary                                      |  | $                               | 43,105    |   |            | $ | 109,182   |  
|Common stock issued for services                                           |  | $                               | -0        | - |            | $ | 62,250    |  
|Promissory notes issued for accrued interest                               |  | $                               | 491,365   |   |            | $ | -0        | -
|Conversion of notes payable into Series D Preferred Stock                  |  | $                               | 1,000,000 |   |            |   | -0        | -
|Convertible notes payable converted into notes payable                     |  | $                               | 445,000   |   |            | $ | -0        | -
|Common stock issued for the acquisition of assets and liabilities assumed: |  |                                 |           |   |            |   |           |  
|Fixed assets                                                               |  | $                               | -0        | - |            | $ | 36,006    |  
|Prepaid expenses                                                           |  | $                               | -0        | - |            | $ | 44,707    |  
|Customer list                                                              |  | $                               | -0        | - |            | $ | 1,392,701 |  
|Software application code                                                  |  | $                               | -0        | - |            | $ | 324,964   |  
|Present value of assumed patent liability                                  |  | $                               | -0        | - |            | $ | 267,790   |  
|Deferred revenue                                                           |  | $                               | -0        | - |            | $ | 954,588   |  

See accompanying
summary of accounting policies and notes to financial statements



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



|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 principally located in the United States and Europe. Our proprietary EDC software applications: TrialMaster®; TrialOne®; and eClinical
suite, allow 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 our EDC software and services. 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. The majority of our research and development activities
represent salaries to our software developers. During the years ended December 31, 2010 and December 31, 2009 we spent approximately $3,304,000 and $2,064,000, respectively, on research and development activities, which is primarily
comprised of payroll and related costs associated with the development of our software products.



|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, which are more fully described in the Company Annual Report filed on Form 10-K with the Securities and Exchange Commission, 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. Significant estimates included in our financial statements include royalty-based patent liabilities and the value of
derivatives associated with debt issued by the Company. Actual results may differ from those estimates.

RECLASSIFICATIONS

Certain reclassifications have been made in the 2009 financial statements to conform to the 2010 presentation. These reclassifications did not have any effect on our net loss or shareholders
deficit.

FOREIGN CURRENCY TRANSLATION

The financial statements of the Companys foreign subsidiaries are translated in accordance with ASC 830-30,Foreign Currency
MattersTranslation of Financial Statements. The reporting currency for the Company is the U.S. dollar. The functional currencies of the Companys subsidiaries, OmniComm Europe GmbH and OmniComm Ltd., in Germany and the United Kingdom
are the Euro and British Pound Sterling, respectively. Accordingly, the assets and liabilities of the Companys foreign subsidiaries are translated into U.S. dollars using the exchange rate in effect at each balance sheet date. Revenue and
expense accounts of the Companys foreign subsidiaries are translated using an average rate of exchange during the period. Foreign currency translation adjustments are accumulated as a component of other comprehensive income (loss) as a
separate component of stockholders equity. Gains and losses arising from transactions denominated in foreign currencies are primarily related to intercompany accounts that have been determined to be temporary in nature and accordingly, are
recorded directly to the statement of operations. We record translation gains and losses in accumulated other comprehensive income as a component of stockholders equity. We recorded $2,934 of net translation gains in 2009, and $24,298 of net
translation losses in 2010.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



REVENUE RECOGNITION POLICY

The Company derives revenues from software licenses and services of its EDC products and services which can be purchased on a stand-alone basis. License revenues are derived principally from the sale of
term licenses for the following software products offered by the Company: TrialMaster, TrialOne and eClinical Suite (the EDC Software).Service revenues are derived principally from the Companys delivery of the hosted
solutions of its TrialMaster and eClinical software products, and consulting services and customer support, including training, for all of the Companys products.

The Company recognizes revenues when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the product or service has been provided to the
customer; (3) the collection of fees is probable; and (4) the amount of fees to be paid by the customer is fixed or determinable.

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

Hosted Application Revenues

The Company offers its TrialMaster and eClinical Suitesoftware products as hosted application solutions delivered through a standard Web-browser, with customer support and training services. The
Companys TrialOnesolution is presently available only on a licensed basis.

Revenues resulting from TrialMaster and
eClinical application hosting services consist of three components of services for each clinical trial: the first component is comprised of application set up, including design of electronic case report forms and edit checks, installation and
server configuration of the system. The second component involves application hosting and related support services as well as billing change orders which consist of amounts billed to customers for functionality changes made; and the third stage
involves services required to close out, or lock, the database for the clinical trial.

Fees charged and costs incurred for the trial system
design, set up and implementation are amortized and recognized ratably over the estimated hosting period. Work performed outside the original scope of work is contracted for separately as an additional fee and is generally recognized ratably over
the remaining term of the hosting period. Fees for the first and third stages of the service are billed based upon milestones. Revenues earned upon completion of a contractual milestone are deferred and recognized over the estimated remaining
hosting period. Fees for application hosting and related services in the second stage are generally billed quarterly in advance. Revenues resulting from hosting services for the eClinicalproducts consist of installation and server
configuration, application hosting and related support services. Services for this offering are generally charged as a fixed fee payable on a quarterly or annual basis. Revenues are recognized ratably over the period of the service.



F-11



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



Licensing Revenues

The Companys software license revenues are earned from the sale of off-the-shelf software. From time-to-time a client might require significant modification or customization subsequent to delivery
to the customer. The Company generally enters into software term licenses for its EDC Software products with its customers for 3 to 5 year periods, although customers have entered into both longer and shorter term license agreements.
These arrangements typically include multiple elements: software license, consulting services and customer support. The Company bills its customers in accordance with the terms of the underlying contract. Generally, the Company bills license fees in
advance for each billing cycle of the license term which typically is either on a quarterly or annual basis. Payment terms are generally net 30 days.

The Company in the past has sold perpetual licenses for EDC Software products in certain situations to existing customers with the option to purchase customer support, and may in the future do so for new
customers based on customer requirements or market conditions. The Company has established vendor specific objective evidence of fair value for the customer support. Accordingly, license revenues are recognized upon delivery of the software and when
all other revenue recognition criteria are met. Customer support revenues are recognized ratably over the term of the underlying support arrangement. The Company generates customer support and maintenance revenues from its perpetual license customer
base.

Maintenance Revenues

Maintenance includes telephone-based help desk support and software maintenance. The Company generally bundles customer support with the software license for the entire term of the arrangement. As a
result, the Company generally recognizes revenues for both maintenance and software licenses ratably over the term of the software license and support arrangement. The Company allocates the revenues recognized for these arrangements to the different
elements based on managements estimate of the relative fair value of each element. The Company generally invoices each of the elements based on separately quoted amounts and thus has a fairly accurate estimate of the relative fair values of
each of the invoiced revenue elements.

Professional Services

The Company may also enter into arrangements to provide consulting services separate from a license arrangement. In these situations, revenue is recognized on a time-and-materials basis. Professional
services can be deemed to be as essential to the functionality of the software at inception and typically are for initial trial configuration, implementation planning, loading of software, building simple interfaces and running test data and
documentation of procedures. Subsequent additions or extensions to license terms do not generally include additional professional services.



F-12



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



The fees associated with each business activity for the fiscal years ended December 31, 2010 and
December 31, 2009, respectively are:



|                        |  |                    |            |  |                   |   |           | 
|----------------------- |  | ------------------ | ---------- |  | ----------------- | - | --------- | 
|                        |  | For the year ended |           
|Business Activity       |  | December 31, 2010  |            |  | December 31, 2009 |  
|Set-up Fees             |  | $                  | 4,345,529  |  |                   | $ | 4,925,205 | 
|Change Orders           |  |                    | 217,960    |  |                   |   | 385,275   | 
|Maintenance             |  |                    | 4,607,680  |  |                   |   | 2,604,534 | 
|Software Licenses       |  |                    | 1,329,260  |  |                   |   | 575,968   | 
|Professional Services   |  |                    | 858,710    |  |                   |   | 362,322   | 
|Hosting & Subscriptions |  |                    | 1,068,372  |  |                   |   | 703,062   | 
|                        |  |                    |            |  |                   |   |           | 
|Totals                  |  | $                  | 12,427,511 |  |                   | $ | 9,556,366 | 
|                        |  |                    |            |  |                   |   |           | 

COST OF REVENUES

Cost of revenues primarily consists of costs related to hosting, maintaining and supporting the Companys application suite and delivering professional services and support. These costs include
salaries, benefits, bonuses and stock-based compensation for the Companys professional services staffs. Cost of revenues also includes outside service provider costs, data center and networking expenses, and allocated overhead.These
costs are expensed as incurred.

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 collectability by management and an allowance for bad debts is established as necessary. The
allowance is based on an evaluation of the collectibility of accounts receivable and prior bad debt experience. The Company had recorded an allowance for uncollectible accounts receivable of $269,869 and $267,526 as of December 31, 2010 and
December 31, 2009, respectively.

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



For the years endedDecember 31, 2010


December 31, 2009Beginning of period

$
267,526


$
150,933Bad debt expense


13,954



235,160Write-offs


(11,611
)


(118,567
)End of period

$
269,869


$
267,526




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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



CONCENTRATION OF CREDIT RISK

Cash and cash equivalents and restricted cash are deposited with major financial institutions and, at times, such balances with any one
financial institution may be in excess of FDIC-insured limits. As of December 31, 2010, $1,217,729 in cash and cash equivalents were deposited in excess of FDIC-insured limits.

Except as follows, the Company has no significant off-balance-sheet risk or credit risk concentrations. Financial instruments that
subject the Company to potential credit risks are principally cash equivalents and accounts receivable. Concentrated credit risk with respect to accounts receivable is limited to creditworthy customers. The Companys customers are principally
located in the United States and Europe. The Company is directly affected by the overall financial condition of the pharmaceutical, biotechnology and medical device industries and management believes that credit risk exists and that any credit risk
the Company faces has been adequately reserved for as of December 31, 2010. Prior to 2008 the Company had not historically experienced significant losses related to receivables from individual customers or groups of customers in any specific
industry or geographic area. During the second half of fiscal 2008 and continuing during 2009, the biotechnology industry experienced liquidity and funding difficulties. Several of the Companys clients operate in this segment. The Company
maintains an allowance for doubtful accounts based on accounts past due according to contractual terms and historical collection experience. Actual losses when incurred are charged to the allowance. The Companys losses related to collection of
accounts receivable prior to fiscal 2008 were consistently within managements expectations. The overall downturn in the Global economy impacted several of the Companys clients beginning in late 2008. Due to these factors, the Company
believes no additional credit risk beyond the amounts provided for in our allowance for uncollectible accounts, which the Company reevaluates on a monthly basis based on specific review of receivable agings and the period that any receivables are
beyond the standard payment terms, is believed by management to be probable in the Companys accounts receivable. The Company does not require collateral from its customers in order to mitigate credit risk.

One customer accounted for 20% of our revenues during the year ended December 31, 2010 or approximately $2,466,120. One customer
accounted for 26% of our revenues during the year ended December 31, 2009 or approximately $2,443,540. The following table summarizes the number of customers who individually comprise greater than 10% of total revenue and/or total accounts
receivable and their aggregate percentage of the Companys total revenue and gross accounts receivable for the years presented.



Revenues


Accounts ReceivableFor the years ended

# ofCustomers


Percentage ofTotal Revenues


# ofCustomers


Percentage ofTotal RevenuesDecember 31, 2010


1



20
%


3



44
%December 31, 2009


1



26
%


1



22
%


After the
acquisitions completed in fiscal 2009, the Companys European operations became a more material portion of its overall revenues. The table below provides revenues from European customers for the years ended December 31, 2010 and
December 31, 2009, respectively.



December 31, 2010


December 31, 2009European Revenues

% of Total Revenues


European Revenues


% of Total Revenues$        1,587,676


12.8
%

$
767,987



8.0
%


The Company serves all of its hosting customers from third-party web hosting facilities located in the
United States. The Company does not control the operation of these facilities, and they are vulnerable



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



to damage or interruption. The Company maintains redundant systems that can be used to provide service in the event third-party web hosting facilities become unavailable, although in such
circumstances, the Companys service may be interrupted during the transition.

PROPERTY AND EQUIPMENT

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

ASSET IMPAIRMENT

Acquisitions and Intangible Assets

We account for acquisitions in accordance with ASC 805- Business Combinations (ASC 805) and ASC 350, Intangibles- Goodwill and Other (ASC 350). The acquisition method of accounting
requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business acquisition. Our consolidated financial statements and results of operations reflect an acquired business from the completion date of an
acquisition.

The judgments that we make in determining the estimated fair value assigned to each class of assets acquired and
liabilities assumed, as well as asset lives, can materially impact net income in periods following an asset acquisition. We generally use either the income, cost or market approach to aid in our conclusions of such fair values and asset lives. The
income approach presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted to present value. The cost approach presumes that an investor would pay no more for an asset than
its replacement or reproduction cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets. Although each valuation approach is considered in valuing the assets acquired, the
approach ultimately selected is based on the characteristics of the asset and the availability of information.

Long-lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred
typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the assets residual value,
if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We use quoted market prices when available and independent appraisals and management estimates of future
operating cash flows, as appropriate, to determine fair value.

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 generally
entitled to payment for all work performed through the point of cancellation. As of December 31, 2010, the Company had $4,751,659 in deferred revenues relating to contracts for services to be performed over periods ranging from 1 month to 5
years. The Company had $4,060,425 in deferred revenues that are expected to be recognized in the next twelve fiscal months.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



ADVERTISING

Advertising costs are expensed as incurred. Advertising costs were $242,168 and $255,730 for the years ended December 31, 2010 and
December 31, 2009, respectively.

RESEARCH AND DEVELOPMENT EXPENSES

Software development costs are included in research and development and are expensed as incurred. ASC 985.20, Software Industry Costs
of Software to Be Sold, Leased or Marketed, 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 ASC 985.20. During the year ended December 31, 2010 and December 31, 2009 we spent approximately
$3,304,000 and $2,064,000 respectively, on research and development activities, which include costs associated with the development of our software products and services for our clients projects and which are primarily comprised of salaries
and related expenses for our software developers and consulting fees paid to third-party consultants. Research and development costs are primarily included under Salaries, benefits and related taxes in our Statement of Operations.

EMPLOYEE EQUITY INCENTIVE PLANS

The OmniComm Systems, Inc. 2009 Equity Incentive Plan (the 2009 Plan) was approved at our Annual Meeting of Shareholders on July 10, 2009. The 2009 Plan provides for the issuance of up to
7.5 million shares to employees, directors and key consultants in accordance with the terms of the 2009 Plan documents. The predecessor plan, the OmniComm Systems, 1998 Stock Incentive Plan (the 1998 Plan) expired on
December 31, 2008. The 1998 Plan provided for the issuance of up to 12.5 million shares in accordance with the terms of the 1998 Plan document. Each plan is more fully described in Note 18, Employee Equity Incentive Plans. The
Company accounts for its employee equity incentive plans underASC 718, Compensation  Stock Compensation 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.

ASC 718
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. The Company currently uses the American Binomial option pricing model to determine grant date fair value.

EARNINGS PER SHARE

The Company recognizes Earnings Per Share using ASC 260  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.

INCOME TAXES

The Company accounts for income taxes in accordance
ASC 740, Income Taxes. ASC 740 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.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



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

During fiscal 2010, we adopted the following new accounting pronouncements:

On
January 1, 2010, the Company implemented certain provisions of Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) Topic 810, Consolidation. The new provisions (a) require a qualitative
rather than a quantitative approach to determining the primary beneficiary of a variable interest entity (VIE); (b) amend certain guidance pertaining to the determination of the primary beneficiary when related parties are involved;
(c) amend certain guidance for determining whether an entity is a VIE; and (d) require continuous assessments of whether an enterprise is the primary beneficiary of a VIE. The implementation of this standard did not have an impact on the
Companys results of operations or financial condition.

On January 1, 2010, the Company implemented certain
provisions of Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820)Improving Disclosures about Fair Value Measurements (Update 2010-06). Update 2010-06 requires the Company to
(a) provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy; (b) provide a reconciliation of purchases, sales, issuance, and settlements of financial instruments valued with a Level 3
method; and (c) provide fair value measurement disclosures for each class of financial assets and liabilities. The implementation did not have an impact on the Companys results of operations or financial condition. Required disclosures
for the reconciliation of purchases, sales, issuance and settlements of financial instruments valued with a Level 3 method are effective for the Company beginning on January 1, 2011 and the Company does not expect the implementation to have a
material impact on the Companys results of operations or financial condition.

In February 2010, the FASB issued
Accounting Standards Update No. 2010-09. Amendments to Certain Recognition and Disclosure Requirements(ASU No. 2010-09). ASU No. 2010-09 amends FASB ASC Topic 855-10, Subsequent
Events,to remove the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in both issued and revised financial statements. This change alleviates potential conflicts between ASC 855-10
and SECs requirements. The update did not have a material impact on the Companys consolidated results of operations or financial position.

In April 2010, FASB issued ASU No. 2010-17, Milestone Method of Revenue Recognition(ASU 2010-17), which provides guidance on defining a milestone and determining when it may
be appropriate to apply the milestone method of revenue recognition for research or development transactions. Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon
milestone events such as successful completion of phases in a study or achieving a specific result from the research or development efforts. The amendments in this ASU provide guidance on the criteria that should be met for determining whether the
milestone method of revenue recognition is appropriate. ASU 2010-17 is effective for fiscal years and interim periods within those years beginning on or after June 15, 2010, with early adoption permitted. This ASU is effective for the Company
on January 1, 2011. The Company is currently evaluating the impact, if any, ASU 2010-17 will have on its consolidated results of operations, financial position or liquidity.



|NOTE 3: | GOING CONCERN
|------- | -------------

We
have experienced net losses and 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



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



of our research and development activities; the rate of technological advances; determinations as to the commercial potential of our technology under development; the status of competitive
technology; the establishment of collaborative relationships; the success of our sales and marketing programs; and other changes in economic, regulatory or competitive conditions in our planned business.

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

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

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 our
historical operating losses, negative cash flows and accumulated deficits for the year ending December 31, 2010 there is substantial doubt about the Companys ability to continue as a going concern.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets
or the amounts and classification of liabilitieis that might be necessary should the Company be unable to continue as a going concern.



|NOTE 4 | EARNINGS PER SHARE
|------ | ------------------

Antidilutive shares aggregating 83,207,557 and 83,549,895 have been omitted from the calculation of dilutive EPS for the years ended
December 31, 2010 and December 31, 2009, respectively, as the shares were antidilutive. Provided below is reconciliation between numerators and denominators of the basic and diluted earnings per shares:

Basic earnings per share were calculated using the weighted average number of shares outstanding of 86,081,495 and 81,229,605 for the
years ended December 31, 2010 and December 31, 2009, respectively. There were no differences between basic and diluted earnings per share. Options to purchase 11,822,000 shares of common stock at prices ranging from $0.10 to $0.70 per
share were outstanding at December 31, 2010. Stock warrants to purchase 40,808,241 shares of common stock at exercise prices ranging from $0.25 to $0.60 per share were outstanding at December 31, 2010. Shares issuable upon conversion of
Convertible Debentures totaling 27,200,000 shares at prices ranging from $0.25 to $0.50 per share were outstanding at December 31, 2010.

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.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



|                              |  |                        |           |   |                   |  |            |                 |  |    |                         |   |  |                   |           |   |                 |  |            |   |  |    |      |  
|----------------------------- |  | ---------------------- | --------- | - | ----------------- |  | ---------- | --------------- |  | -- | ----------------------- | - |  | ----------------- | --------- | - | --------------- |  | ---------- | - |  | -- | ---- | -
|For the Fiscal Years Ended    | 
|                              |  | December 31, 2010      |           |   | December 31, 2009 | 
|                              |  | Income (loss)Numerator |           |   | SharesDenominator |  |            | Per-ShareAmount |  |    | Income 
(loss)Numerator |   |  | SharesDenominator |           |   | Per-ShareAmount | 
|Basic EPS                     |  | ($                     | 3,335,869 | ) |                   |  | 85,606,706 |                 |  | ($ | 0.04                    | ) |  | ($                | 8,275,481 | ) |                 |  | 81,229,605 |   |  | ($ | 0.10 | )
|Effect of Dilutive Securities |  |                        |           |   |                   |  |            |                 |  |    |                         |   |  |                   |           |   |                 |  |            |   |  |    |      |  
|                              |  |                        |           |   |                   | 
|None.                         |  |                        | -0        | - |                   |  | -0         | -               |  |    | -0                      | - |  |                   | -0        | - |                 |  | -0         | - |  |    | -0   | -
|                              |  |                        |           |   |                   |  |            |                 |  |    |                         |   |  |                   |           |   |                 |  |            |   |  |    |      |  
|Diluted EPS                   |  | ($                     | 3,335,869 | ) |                   |  | 85,606,706 |                 |  | ($ | 0.04                    | ) |  | ($                | 8,275,481 | ) |                 |  | 81,229,605 |   |  | ($ | 0.10 | )
|                              |  |                        |           |   |                   |  |            |                 |  |    |                         |   |  |                   |           |   |                 |  |            |   |  |    |      |  



|NOTE 5: | PROPERTY AND EQUIPMENT, NET
|------- | ---------------------------

Property and equipment consists of the following:



|                       |  |                   |           |  |                         |   |           |                |  |   |           |  |  |                         |           |  |                |   |           |                        |  |   |           |  |  |  |         | 
|---------------------- |  | ----------------- | --------- |  | ----------------------- | - | --------- | -------------- |  | - | --------- |  |  | ----------------------- | --------- |  | -------------- | - | --------- | ---------------------- |  | - | --------- |  |  |  | ------- | 
|                       |  | December 31, 2010 |           |  | December 31, 2009       |   |           |                | 
|                       |  | Cost              |           |  | AccumulatedDepreciation |   |           | Net Book Value |  |   | Cost      |  |  | AccumulatedDepreciation |           |  | Net Book Value |   |           | EstimatedUseful 
Lives | 
|Computer & Office      |  |                   |           |  |                         |   |           |                |  |   |           |  |  |                         |           |  |                |   |           |                        |  |   |           |  |  |  |         | 
|Equipment              |  |                   | 1,466,187 |  |                         | $ | 914,016   |                |  | $ | 552,171   |  |  | $                       | 1,309,329 |  |                | $ | 719,222   |                        |  | $ | 590,107   |  |  |  | 5 Years | 
|Leasehold Improvements |  |                   | 84,313    |  |                         |   | 51,212    |                |  |   | 33,101    |  |  |                         | 64,110    |  |                |   | 37,592    |                        |  |   | 26,518    |  |  |  | 5 Years | 
|Computer Software      |  |                   | 1,366,955 |  |                         |   | 937,141   |                |  |   | 429,814   |  |  |                         | 1,230,989 |  |                |   | 642,042   |                        |  |   | 588,947   |  |  |  | 3 Years | 
|Office Furniture       |  |                   | 106,759   |  |                         |   | 75,157    |                |  |   | 31,602    |  |  |                         | 102,159   |  |                |   | 67,034    |                        |  |   | 35,125    |  |  |  | 5 Years | 
|                       |  |                   |           |  |                         |   |           |                |  |   |           |  |  |                         |           |  |                |   |           |                        |  |   |           |  |  |  |         | 
|                       |  | $                 | 3,024,214 |  |                         | $ | 1,977,526 |                |  | $ | 1,046,688 |  |  | $                       | 2,706,587 |  |                | $ | 1,465,890 |                        |  | $ | 1,240,697 |  |  |  |         | 
|                       |  |                   |           |  |                         |   |           |                |  |   |           |  |  |                         |           |  |                |   |           |                        |  |   |           |  |  |  |         | 

Depreciation expense for the years ended December 31, 2010 and December 31, 2009 was
$512,311 and $356,828 respectively.



|NOTE 6: | INTANGIBLE ASSETS, AT COST
|------- | --------------------------

Intangible assets consists of the following:



|               |  |      |                   |  |                         |                   |         |               |  |   |         |  |  |                         |           |  |               |   |         |                        |  |   |           |  |  |  |         | 
|-------------- |  | ---- | ----------------- |  | ----------------------- | ----------------- | ------- | ------------- |  | - | ------- |  |  | ----------------------- | --------- |  | ------------- | - | ------- | ---------------------- |  | - | --------- |  |  |  | ------- | 
|               |  |      | December 31, 2010 |  |                         | December 31, 2009 |         |               |  |  
|               |  | Cost |                   |  | AccumulatedAmortization |                   |         | Net BookValue |  |   | Cost    |  |  | AccumulatedAmortization |           |  | Net BookValue |   |         | EstimatedUseful 
Lives | 
|Customer lists |  | $    | 1,392,701         |  |                         | $                 | 696,351 |               |  | $ | 696,350 |  |  | $                       | 1,392,701 |  |               | $ | 232,117 |                        |  | $ | 1,160,584 |  |  |  | 3 years | 
|               |  |      |                   |  |                         |                   |         |               |  |   |         |  |  |                         |           |  |               |   |         |                        |  |   |           |  |  |  |         | 
|               |  | $    | 1,392,701         |  |                         | $                 | 696,351 |               |  | $ | 696,350 |  |  | $                       | 1,392,701 |  |               | $ | 232,117 |                        |  | $ | 1,160,584 |  |  |  |         | 
|               |  |      |                   |  |                         |                   |         |               |  |   |         |  |  |                         |           |  |               |   |         |                        |  |   |           |  |  |  |         | 

Amortization expense was $464,234 and $232,117, for the years ended December 31, 2010 and
December 31, 2009, respectively.

Annual amortization expense for the Companys intangible assets is as follows:



|      |  |   |         |  
|----- |  | - | ------- | -
|2010  |  | $ | 464,233 |  
|2011  |  |   | 232,117 |  
|2012  |  |   | -0      | -
|2013  |  |   | -0      | -
|2014  |  |   | -0      | -
|      |  |   |         |  
|Total |  | $ | 696,350 |  
|      |  |   |         |  



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



|NOTE 7: | ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|------- | -------------------------------------

Accounts payable and accrued expenses consist of the following:



|                                            |  |                   |           |  |                   |   |           | 
|------------------------------------------- |  | ----------------- | --------- |  | ----------------- | - | --------- | 
|Account                                     |  | December 31, 2010 |           |  | December 31, 2009 |  
|Accounts payable                            |  | $                 | 629,775   |  |                   | $ | 1,200,674 | 
|Accrued payroll and related costs           |  |                   | 179,331   |  |                   |   | 119,137   | 
|Other accrued expenses                      |  |                   | 159,294   |  |                   |   | 11,821    | 
|Accrued interest                            |  |                   | 403,303   |  |                   |   | 216,583   | 
|                                            |  |                   |           |  |                   |   |           | 
|Total Accounts Payable and Accrued Expenses |  | $                 | 1,371,703 |  |                   | $ | 1,548,215 | 
|                                            |  |                   |           |  |                   |   |           | 



|NOTE 8: | eRESEARCH TECHNOLOGY, INC. ACQUISITION
|------- | --------------------------------------

On June 23, 2009, we acquired the EDC business unit owned by eResearch Technology, Inc. (eResearch) and as a result acquired certain tangible and intangible electronic data capture
(EDC) assets, (eResearch EDC Assets), pursuant to an Asset Purchase Agreement (eResearch Agreement). Our purpose in acquiring these assets, which included employment rights to the operating and business
development team of eResearchs EDC team, is to increase our presence in the EDC industry through the eResearch client list and increase our revenues in order to leverage our existing administrative and technical corporate infrastructure.

The Company purchased from eResearch, the eResearch EDC Assets including equipment, devices, computer hardware and other
computer systems, certain intellectual property, contracts, customer lists, and other assets specifically identified in schedules to the eResearch Agreement, and $1,150,000 in cash. The Company also assumed certain liabilities associated with these
assets, including deferred revenues under certain assumed contracts in the amount of approximately $954,000, and concurrent with the consummation of the transactions entered into the First Amendment to Settlement and Licensing Agreement with
DataSci, LLC to provide for license payments of $300,000 to DataSci over the next three years for the EDC assets acquired in the eResearch Agreement.

Consideration for the acquisition consisted of 8,100,000 shares (Shares) of our $0.001 par value common stock. Under the terms of the eResearch Agreement, eResearch agreed to a covenant not to
compete under certain circumstances with the Company for a period of two years following the closing. OmniComm and eResearch also entered into a Lock-up and Registration Rights Agreement pursuant to which, among other things, the Shares will be
subject to a complete trading lock-up for twelve months following the closing date (Lock-up Period) and the Company granted registration rights to eResearch pursuant to which eResearch, at any time following the Lock-up Period, may
request OmniComm to file a registration statement to register the Shares within pre-defined periods and circumstances. eResearch also received piggyback registration rights, pursuant to which eResearch

may require OmniComm to register all or any part of the Shares then held by eResearch when the Company files registration statements for
purposes of effecting a public offering of the Companys securities under certain circumstances.

The purchase of the
eResearch EDC Assets required us to determine whether the group of assets constituted a business, and accordingly, require accounting under Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141)
(Codified within ASC 805, Business Combinations)and Statement of Financial Accounting Standards No. 142, Goodwill and Intangible Assets (SFAS 142) (Codified within ASC 350, Intangibles  Goodwill and Other).

SFAS 142 provides that intangible assets acquired as a group are initially recognized at fair value applying the measurement
principles for exchange transactions provided in SFAS 141.5-7. Those measurement principles provide that, when consideration is not in the form of cash, measurement is



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



based upon the fair value of the consideration given or the fair value of the assets acquired, whichever is more clearly and closely evident and, thus more reliably measureable. We have concluded
that the value of the consideration given, represented by our common stock, is more clearly evident and reliable for this purpose because (i) the exchange resulted from exhaustive negotiations with eResearch, (ii) fair value measurement of
our common stock is based upon market indicators such as the trading price of our stock on the Over the Counter Market (OTC Bulletin Board) and assumptions derived for active markets, and (iii) while ultimately reasonable, our fair
value measurements of the significant tangible and intangible asset relies heavily on subjective estimates and prospective financial information. The following table reflects the components of the consideration paid to effect the acquisition:



|                                                                          |  |        |           | 
|------------------------------------------------------------------------- |  | ------ | --------- | 
|Financial Instrument or Cost:                                             |  | Amount |          
|Common stock, par value $0.001 per share 8,100,000 shares of common stock |  | $      | 1,701,000 | 
|Direct costs                                                              |  |        | 25,000    | 
|                                                                          |  |        |           | 
|Total                                                                     |  | $      | 1,726,000 | 
|                                                                          |  |        |           | 

We have evaluated the substance of the exchange for purposes of identifying all assets acquired. The
following table reflects the acquisition date final allocation of the consideration to the assets acquired. The allocation was performed in accordance with SFAS 142, which provides that an excess in consideration over the fair values of the assets
acquired is allocated to the assets subject to depreciation and amortization, based upon their relative fair values, and not to those assets with indefinite lives. A difference in the recognized basis in the value of the consideration between book
and income tax gives rise to the deferred income taxes. The allocation of consideration in this manner contemplates an immediate impairment analysis under Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144) (Codified within ASC 360, Property, Plant, and Equipment). Our analysis did not result in impairment, but we are required to continue to perform this analysis as provided in our impairments
policy (see Note 2).

The purchase price allocation for the acquisition was based upon a valuation completed by a third-party
valuation specialist using an income approach based on estimates and assumptions provided by Management. There was no excess of the purchase price over the net tangible and identifiable intangible assets thus we recorded no goodwill. The intangible
assets acquired in the acquisition has been deemed to be deductible for tax purposes.

Allocation of the purchase price
for eResearch transaction



|                            |  |   |           |  
|--------------------------- |  | - | --------- | -
|Cash                        |  | $ | 1,150,000 |  
|Property and equipment      |  |   | 36,006    |  
|Prepaid expenses            |  |   | 44,707    |  
|Purchased intangible assets |  |   | 1,717,665 |  
|Accrued expenses            |  |   | (267,790  | )
|Deferred revenue            |  |   | (954,588  | )
|                            |  |   |           |  
|Total purchase price        |  | $ | 1,726,000 |  
|                            |  |   |           |  



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



The amounts allocated to the purchased intangible assets for eResearch consist of the
following:



|                                 |  |                          |           |  |            |  |         | 
|-------------------------------- |  | ------------------------ | --------- |  | ---------- |  | ------- | 
|                                 |  | Purchase PriceAllocation |           |  | Asset Life | 
|Amortizable intangible assets:   |  |                          |           |  |            |  |         | 
|                                 |  |                         
|Customer relationships/contracts |  | $                        | 1,392,701 |  |            |  | 3 years | 
|                                 |  |                         
|Software Technology              |  |                          | 324,964   |  |            |  | 3 years | 
|                                 |  |                          |           |  |            |  |         | 
|Total intangible assets          |  | $                        | 1,717,665 |  |            |  |         | 
|                                 |  |                          |           |  |            |  |         | 

We engaged a third-party to perform a valuation based on historical data available to us prior to
the acquisition regarding existing customers, the historical cost of certain fixed assets, historical revenue results, internal financial statements and employee records. Based on their analysis, the third-party determined that the fair value of the
assets acquired on June 23, 2009 was:



|                                       |  |                            |           | 
|-------------------------------------- |  | -------------------------- | --------- | 
|Assets                                 |  | Fair Value at June23,
2009 |          
|Customer lists/relationships           |  | $                          | 1,500,000 | 
|Software                               |  |                            | 350,000   | 
|                                       | 
|Workforce in place (employment rights) |  |                            | 450,000   | 
|                                       | 
|Cash                                   |  |                            | 1,150,000 | 
|Prepaid expenses                       |  |                            | 44,707    | 
|Fixed assets                           |  |                            | 36,006    | 
|                                       |  |                            |           | 
|Total                                  |  | $                          | 3,530,713 | 
|                                       |  |                            |           | 

See Note 13 for fair value measurement disclosures

Pursuant to 805-55-6 the acquirer subsumes into goodwill the value of an acquired intangible asset that is not identifiable as of the
acquisition date. For example, an acquirer may attribute value to the existence of an assembled workforce, which is an existing collection of employees that permits the acquirer to continue to operate an acquired business from the acquisition date.
An assembled workforce does not represent the intellectual capital of the skilled workforcethe (often specialized) knowledge and experience that employees of an acquiree bring to their jobs. Because the assembled workforce is not an
identifiable asset to be recognized separately from goodwill, any value attributed to it is subsumed into goodwill.

In
connection with the above allocation, we evaluated the presence of in-process research and development that may require recognition (and immediate write-off). We concluded that in-process research and development was de minimus since the eResearch
EDC Assets which include software applications have been in commercialization since 1996. The application is largely mature and stable and, in fact, no substantive effort and/or R & D costs were found in the records of eResearch. Research and
development, if any is incurred, will be expensed as it is incurred.

In addition to the assets acquired at the time of the
acquisition the Company assumed certain eResearch liabilities. These liabilities include obligation underlying certain customer contracts and a liability to make payments under a patent licensing agreement with DataSci, LLC. The fair value of these
liabilities was $954,588 for the assumed customer contracts and $267,790 for the patent royalty agreement. The customer contract liability valuation was supported by payments received by



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



eResearch which had not been fully earned and were subject to extended customer support obligation and thus deferred revenue recognition over the term of the expected customer support obligation.
Further, the value of the deferred revenue was evidenced by the fact that a portion of the cash received from eResearch at closing was provided in exchange for our agreement to assume the customer support obligation. The patent royalty liability was
equal to the present value of the patent payments required over the course of 24 months from the date of the transaction.

Because the value of the consideration paid to eResearch exceeded the fair value of the assets acquired by $132,335 we ratably allocated
the cost of our acquisition first to tangible assets (fixed assets, cash, prepaid expenses) and then to acquired intangible assets. Based on the third-party valuation analysis the customer list represented approximately 81 percent of the intangible
assets acquired and the value of the existing acquired proprietary software accounted for 19 percent of the intangible assets acquired.



|NOTE 9: | LOGOS TECHNOLOGIES, LTD. ASSET ACQUISITION
|------- | ------------------------------------------

On August 3, 2009, we acquired an EDC business formerly owned by Logos Technologies, Ltd. (Logos Ltd) and as a result of the transaction certain tangible and intangible electronic data
capture (EDC) assets, (Logos EDC Assets), pursuant to a Sale Agreement related to the Administration process ( Similar to a U.S. based bankruptcy proceeding) in the United Kingdom. Our purpose in acquiring these assets, which
included employment rights to the research and development personnel of Logos Ltd, is to increase our presence in the EDC industry through the Logos, Ltd client list and the acquisition of the Intellectual Property associated with the Logos EDC
Assets which we view as a strategically important facet of our software and service portfolio since it will allow us to increase our revenues and to leverage our existing administrative and technical corporate infrastructure. We believe the Phase I
segment of the clinical trial industry has been under-serviced with regard to EDC and eClinical software applications and services and that the Logos EDC Assets will allow us to successfully penetrate this market segment. We have rebranded the
acquired software and services under the TrialOne brand name.

The Company purchased from Logos, Ltd (in Administration), the
Logos EDC Assets including equipment, devices, computer hardware and other computer systems, certain intellectual property, contracts, customer lists, and other assets specifically identified in schedules to the Sale Agreement. The Company also
assumed certain liabilities associated with these assets which includes a short-term office lease obligation. Consideration for the acquisition consisted of £92,000 in cash, which approximates $152,628.

The purchase of the Logos EDC Assets required us to determine whether the group of assets constituted a business, and accordingly,
require accounting under Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141) (Codified within ASC 805, Business Combinations) and Statement of Financial Accounting Standards No. 142,
Goodwill and Intangible Assets (SFAS 142) (Codified within ASC 350, Intangibles  Goodwill and Other)

SFAS 142 provides that intangible assets acquired as a group are initially recognized at fair value applying the measurement principles
for exchange transactions provided in SFAS 141.5-7. Those measurement principles provide that, when consideration is in the form of cash, the measurement can, given an authentic arms-length transaction, be based upon the amount of cash consideration
given or the fair value of the assets acquired, whichever is more clearly and closely evident and thus more reliably measureable. We have concluded that the value of the consideration given representing cash, is more clearly evident and reliable for
this purpose because (i) the exchange resulted from exhaustive negotiations with the Administrators of Logos Ltd., and (ii) while ultimately reasonable, our fair value measurements of the significant tangible and intangible asset relies
heavily on subjective estimates and prospective financial information. The following table reflects the components of the consideration paid to effect the acquisition:

|                              |  |        |         | 
|----------------------------- |  | ------ | ------- | 
|Financial Instrument or Cost: |  | Amount |        
|Cash                          |  | $      | 152,628 | 
|Direct costs                  |  |        | 23,441  | 
|                              |  |        |         | 
|Total                         |  | $      | 176,069 | 
|                              |  |        |         | 



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



We have evaluated the substance of the exchange for purposes of identifying all assets
acquired. The following table reflects the acquisition date final allocation of the consideration to the assets acquired. The allocation was performed in accordance with SFAS 142, which provides that an excess in consideration over the fair values
of the assets acquired is allocated to the assets subject to depreciation and amortization, based upon their relative fair values, and not to those assets with indefinite lives. A difference in the recognized basis in the value of the consideration
between book and income tax gives rise to the deferred income taxes. The allocation of consideration in this manner contemplates an immediate impairment analysis under SFAS 144. Our analysis did not result in impairment, but we are required to
continue to perform this analysis as provided in our impairments policy (see Note 2).

The purchase price allocation for the
acquisition was based upon a valuation completed by a third-party valuation specialist using an income approach and was based on estimates and assumptions provided by Management. There was no excess of the purchase price over the net tangible and
identifiable intangible assets thus we recorded no goodwill. The intangible assets acquired in the acquisition have been deemed to be deductible for tax purposes.



|                                 |  |   |         | 
|-------------------------------- |  | - | ------- | 
|Allocation of the purchase price |  |   |         | 
|Property and equipment           |  | $ | 35,000  | 
|Purchased intangible assets      |  |   | 117,628 | 
|                                 |  |   |         | 
|Total purchase price             |  | $ | 152,628 | 
|                                 |  |   |         | 

The amounts allocated to the purchased intangible assets for Logos Holdings consist of the
following:



|                               |  |                          |         |  |            |  |         | 
|------------------------------ |  | ------------------------ | ------- |  | ---------- |  | ------- | 
|                               |  | Purchase PriceAllocation |         |  | Asset Life | 
|Amortizable intangible assets: |  |                          |         |  |            |  |         | 
|Software Technology            |  | $                        | 117,628 |  |            |  | 3 years | 
|                               |  |                          |         |  |            |  |         | 
|Total intangible assets        |  | $                        | 117,628 |  |            |  |         | 
|                               |  |                          |         |  |            |  |         | 

We engaged a third-party to perform a valuation based on historical data available to us prior to
the acquisition regarding the historical cost of certain fixed assets, historical revenue results, internal financial statements and employee records. The records available for historical revenue results and internal financial statements were
extremely limited due to the small, unsophisticated nature of the previous owners of the software and also due to the nature of the transaction. The assets had been placed in Administration (the UK equivalent of a Chapter 7 bankruptcy) largely in
part to disagreements between the existing partners in Logos Holdings. Based on their analysis, the third-party determined that the fair value of the assets acquired on August 3, 2009 was:



|                                       |  |                              |           | 
|-------------------------------------- |  | ---------------------------- | --------- | 
|Assets                                 |  | Fair Value at August 3, 2009 |          
|Software                               |  | $                            | 1,200,000 | 
|Workforce in place (employment rights) |  |                              | 52,000    | 
|Fixed assets                           |  |                              | 35,000    | 
|                                       |  |                              |           | 
|Total                                  |  | $                            | 1,287,000 | 
|                                       |  |                              |           | 

See Note 13 for fair value measurement disclosures



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



Pursuant to 805-55-6 the acquirer subsumes into goodwill the value of an acquired
intangible asset that is not identifiable as of the acquisition date. For example, an acquirer may attribute value to the existence of an assembled workforce, which is an existing collection of employees that permits the acquirer to continue to
operate an acquired business from the acquisition date. An assembled workforce does not represent the intellectual capital of the skilled workforcethe (often specialized) knowledge and experience that employees of an acquiree bring to their
jobs. Because the assembled workforce is not an identifiable asset to be recognized separately from goodwill, any value attributed to it is subsumed into goodwill.

Because the value of the assets acquired exceeded the consideration paid to the Logos Holdings Administrator we ratably allocated the cost of our acquisition first to tangible assets, fixed assets, and
then to acquired intangible assets. Based on the third-party FAS 141 valuation analysis the value of the acquired software was recorded as $117,628 at the time of acquisition reflecting the fact that the total consideration paid was the equivalent
of $152,628. The table below provides a tabular representation of the allocation at the time of acquisition of the assets acquired in the Logos Holdings acquisition.

Allocation of the purchase price for Logos Technologies, Ltd.



|                            |  |   |         | 
|--------------------------- |  | - | ------- | 
|Property and equipment      |  | $ | 35,000  | 
|Purchased intangible assets |  |   | 117,628 | 
|                            |  |   |         | 
|Total purchase price        |  | $ | 152,628 | 
|                            |  |   |         | 

In connection with the above allocation, we evaluated the presence of in-process research and development
that may require recognition (and immediate write-off). We concluded that in-process research and development was de minimus since the Logos EDC Assets which include software applications while not currently in extensive commercialization would have
required far greater capital to acquire in a non-Administration setting, would require significantly more than the allocated fair value to replicate and that we anticipated more widely commercializing the acquired Logos EDC software during fiscal
2010. Research and development, if any is incurred, will be expensed as it is incurred.



|NOTE 10: | SHORT TERM OBLIGATIONS
|-------- | ----------------------

The following information summarizes the Companys short-term obligations for the years ended December 31, 2010 and December 31, 2009, respectively.



|                                                    |  |                     |           |   |                   |   |         |  
|--------------------------------------------------- |  | ------------------- | --------- | - | ----------------- | - | ------- | -
|                                                    |  | For the years ended |          
|                                                    |  | December 31, 2010   |           |   | December 31, 2009 |  
|Weighted average interest rate                      |  |                     | 11.93     | % |                   |   | 10.12   | %
|Weighted average short-term borrowings              |  | $                   | 2,035,712 |   |                   | $ | 267,467 |  
|Short-term debt discount amortization               |  | $                   | 1,887,162 |   |                   | $ | 378,613 |  
|Interest expense on short-term debt                 |  | $                   | 238,660   |   |                   | $ | 27,298  |  
|Debt acquisition costs amortized in short-term debt |  | $                   | -0        | - |                   | $ | -0      | -



|NOTE 11: | NOTES PAYABLE
|-------- | -------------

At
December 31, 2010, the Company owed $3,638,165 in notes payable all of which are unsecured. The table below provides details as to the terms and conditions of the notes payable.



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



|                 |  |              |            |  |              |  |    |                     |  |   |                   |  |  |               |        |  |         |   |         |          |  |   |           |  |  |   |         | 
|---------------- |  | ------------ | ---------- |  | ------------ |  | -- | ------------------- |  | - | ----------------- |  |  | ------------- | ------ |  | ------- | - | ------- | -------- |  | - | --------- |  |  | - | ------- | 
|                 |  |              |            |  |              |  |    | Ending              |  |   | Non-Related Party |  |  | Related Party |       
|Origination Date |  | MaturityDate |            |  | InterestRate |  |    | Principal12/31/2010 |  |   | Current           |  |  | LongTerm      |        |  | Current |   |         | LongTerm | 
|12/31/2010       |  |              | 7/1/2012   |  |              |  | 12 | %                   |  | $ | 51,800            |  |  | $             |       |  |         | $ | 51,800  |          |  | $ |          |  |  | $ |        | 
|12/31/2010       |  |              | 7/1/2012   |  |              |  | 12 | %                   |  |   | 60,000            |  |  |               |       |  |         |   | 60,000  |          |  |   |           |  |  |   |         | 
|12/31/2008       |  |              | 1/31/2011  |  |              |  | 9  | %                   |  |   | 137,500           |  |  |               |       |  |         |   |        |          |  |   | 137,500   |  |  |   |        | 
|4/13/2010        |  |              | 12/31/2011 |  |              |  | 12 | %                   |  |   | 450,000           |  |  |               |       |  |         |   |        |          |  |   | 450,000   |  |  |   |        | 
|6/30/2010        |  |              | 12/31/2011 |  |              |  | 12 | %                   |  |   | 115,000           |  |  |               |       |  |         |   |        |          |  |   | 115,000   |  |  |   |        | 
|9/30/2010        |  |              | 12/31/2011 |  |              |  | 12 | %                   |  |   | 695,000           |  |  |               |       |  |         |   |        |          |  |   | 695,000   |  |  |   |        | 
|12/31/2010       |  |              | 12/31/2011 |  |              |  | 12 | %                   |  |   | 1,197,500         |  |  |               |       |  |         |   |        |          |  |   | 1,197,500 |  |  |   |        | 
|12/31/2010       |  |              | 12/31/2011 |  |              |  | 12 | %                   |  |   | 20,000            |  |  |               |       |  |         |   |        |          |  |   | 20,000    |  |  |   |        | 
|12/31/2010       |  |              | 4/1/2012   |  |              |  | 12 | %                   |  |   | 50,000            |  |  |               | 12,500 |  |         |   | 37,500  |          |  |   |          |  |  |   |        | 
|12/16/2010       |  |              | 12/16/2012 |  |              |  | 12 | %                   |  |   | 20,000            |  |  |               |       |  |         |   | 20,000  |          |  |   |          |  |  |   |        | 
|12/31/2010       |  |              | 1/1/2013   |  |              |  | 10 | %                   |  |   | 308,562           |  |  |               |       |  |         |   | 308,562 |          |  |   |          |  |  |   |        | 
|12/31/2010       |  |              | 1/1/2013   |  |              |  | 10 | %                   |  |   | 123,425           |  |  |               |       |  |         |   | 123,425 |          |  |   |          |  |  |   |        | 
|12/31/2010       |  |              | 4/1/2012   |  |              |  | 12 | %                   |  |   | 409,379           |  |  |               |       |  |         |   |        |          |  |   |          |  |  |   | 409,379 | 
|                 |  |              |            |  |              |  |    |                     |  |   |                   |  |  |               |        |  |         |   |         |          |  |   |           |  |  |   |         | 
|                 |  |              |            |  |              |  |   |                     |  | $ | 3,638,165         |  |  | $             | 12,500 |  |         | $ | 601,286 |          |  | $ | 2,615,000 |  |  | $ | 409,379 | 
|                 |  |              |            |  |              |  |    |                     |  |   |                   |  |  |               |        |  |         |   |         |          |  |   |           |  |  |   |         | 



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



|NOTE 12: | CONVERTIBLE NOTES PAYABLE
|-------- | -------------------------

SECURED CONVERTIBLE DEBENTURES

September 2009
Transaction

On September 30, 2009, we sold an aggregate of $1,400,000 principal amount 12% Secured Convertible
Debentures (the Debentures) and common stock purchase warrants (the Warrants) to purchase an aggregate of 5,600,000 shares of our common stock to three accredited investors, including our Chief Executive Officer. There were
no fees or expenses incurred thus we received net proceeds of $1,400,000.

The Debentures, which bear interest at 12% per
annum with interest payable monthly, are due 18 months from their issuance date, or on March 30, 2011. The Debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.25
per share (the Conversion Price), subject to adjustment as provided in the transaction documents (the Conversion Feature). Interest is convertible as provided in the Debentures. We are permitted to prepay the Debentures
without the prior written consent of the holders. We granted the holders a security interest in all of our assets to secure performance of our obligations under the Debentures and the other transaction agreements.

The Warrants, which have a cashless exercise provision, are exercisable until approximately four years after the closing at an exercise
price of $0.25 per share. The number of shares covered by the Warrants and the Warrant exercise price are subject to adjustment as provided in the transaction documents. The Warrants carry an anti-dilution provision that is tied to financings the
Company conducts at any time prior to the exercise of the Warrants. That anti-dilution feature has caused the Warrants to be treated as a derivative liability and accounted for in accordance with FAS 133 (codified in ASC 815 - Derivatives and
Hedging). The Warrants were valued using a Binomial option pricing model. A value of $358,400 was calculated and allocated to the Warrants and recorded as a discount to the issuance of the Debentures. The Warrant liability will be amortized over the
18 month exercise period of the Debentures. In addition, a fair value calculation is undertaken periodically on the Warrant liability and accordingly the Warrant liability is increased or decreased based on the fair value calculation. The resulting
increase or decrease is reflected in operations as an unrealized change in derivative liabilities.

The Debentures carry an
anti-dilution provision or Conversion Feature that is tied to financings the Company conducts at any time prior to the satisfaction of the Debentures. In the event the Company issues common stock or any other security that is convertible into the
Companys common stock at a price below the Conversion Price of the Debentures the holders of the Debentures would be entitled to additional shares upon conversion. The additional shares issuable are equal to the ratio of the price of the
subsequent financing divided by the Conversion Price. That anti-dilution feature has caused the Conversion Feature to be treated as a derivative liability and accounted for in accordance with ASC 815. The Conversion Feature was valued using a
Binomial option pricing model. A value of $168,000 was calculated and allocated to the Conversion Feature and recorded as a discount to the issuance of the Debentures. The Conversion Feature liability (discount) will be amortized over the 18 month
maturity of the Debentures. In addition, a fair value calculation is undertaken periodically on the Conversion Feature liability and accordingly the Conversion Feature liability is increased or decreased based on the fair value calculation. The
resulting increase or decrease is reflected in operations as an unrealized gain or loss from changes in derivative liabilities. See Note 13 for fair value measurement of the above disclosed conversion feature and warrant liabilities.

As a result of these Debentures having a conversion price of $0.25 per share the anti-dilution clause of the Debentures offered by us in
August 2008 and December 2008 was triggered. The warrants issued in connection with the August 2008 and December 2008 offerings had an exercise price of $0.60 per share. In connection with those anti-dilution clauses the Company issued additional
warrants totaling 7,441,883 to the non-related parties in those investments.



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



CONVERTIBLE DEBENTURES

August 1999 Transaction

During the first quarter of 1999, the Company issued 10% Convertible Notes payable in the amount of $862,500 as part of a Private Placement. 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, 2010, $787,500 of the Convertible Notes had been repaid in cash or
converted into 1,495,179 shares of common stock of the Company leaving an outstanding principal balance of $75,000.

As of
December 31, 2010, the Company is in default on interest payments owed totaling $87,228 on its 10% Convertible Notes. The terms of the notes provide a payment grace period of thirty days in which to make required semi-annual interest payments.
The Company has been in default since January 30, 2002. At the option of the note holders the full amount of the convertible notes could be declared in default. For the year ended December 31, 2010, we incurred and recorded $7,500 in
interest expense on the 10% Convertible Notes.

August 2008 Transaction

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

The Convertible Notes, which bear interest at 10% per annum
with interest payable every three months, were originally due on August 29, 2010. On September 30, 2009, two Affiliates of the Company extended $1,920,000 of Convertible Notes until August 29, 2013 in accordance with the terms of a
Secured Convertible Debenture issued on that date. The Convertible Notes are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share (the Conversion Price),
subject to adjustment as provided in the transaction documents (the Conversion Feature).

In accordance with the
terms of the Convertible Notes, the Conversion Price of the Convertible Notes was reduced from $0.50 to $0.25 per share based on the Conversion Price of a round of Secured Convertible Debentures that were issued in September 2009. The Affiliate
Investors waived their anti-dilution rights on $1,920,000 of Convertible Notes. Based on the reduced Conversion Price for the Convertible Notes, and in accordance with the terms of the Convertible Notes the remaining two investors were granted the
rights to acquire an additional 700,000 shares at a price of $0.25 per share upon conversion of the Convertible Notes. We are not permitted to prepay the Convertible Notes without the prior written consent of the holders.

The Warrants, which have a cashless exercise provision, are exercisable until approximately four years after the closing at an exercise
price of $0.60 per share. The number of shares covered by the Warrants and the Warrant exercise price are subject to adjustment as provided in the transaction documents. The Warrants carry an anti-dilution provision that is tied to financings the
Company conducts at any time prior to the exercise of the Warrants. In September 2009, the Company completed a Financing of Secured Convertible Debt with an exercise price of $0.25 per share. In accordance with Anti-Dilution Provisions of the
Warrants, the exercise price of the Warrants was lowered to $0.25 per share. The reduction in exercise price caused the Company to issue an additional 980,000 warrants with an exercise price of $0.25 per share to purchase common stock to two
non-affiliate investors. That anti-dilution feature has caused the Warrants to be treated as a derivative liability and accounted for in accordance with ASC 815. The Warrants were valued using a Binomial option pricing model. A value of $1,153,160
was calculated and allocated to the Warrants and recorded as a discount to the issuance of the Convertible Notes. The Warrant liability was amortized over the 24 month maturity of the Convertible Notes. In addition, a fair value calculation is
undertaken periodically on the Warrant liability and accordingly the Warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on
derivative liabilities.



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



The Convertible Note carries an anti-dilution provision or Conversion Feature that is
tied to financings the Company conducts at any time prior to the satisfaction of the Convertible Note. In the event the Company issues common stock or any other security that is convertible into the Companys common stock at a price below the
Conversion Price of the Convertible Note the holder of the Convertible Note would be entitled to additional shares upon conversion. The additional shares issuable are equal to the ratio of the price of the subsequent financing divided by the
Conversion Price. That anti-dilution feature has caused the Conversion Feature to be treated as a derivative liability and accounted for in accordance with ASC 815. The Conversion Feature was valued using a Binomial option pricing model. A value of
$898,920 was calculated and allocated to the Conversion Feature and recorded as a discount to the issuance of the Convertible Note. The Conversion Feature discount was amortized over the 24 month maturity of the Convertible Note. In addition, a fair
value calculation is undertaken periodically on the Conversion Feature liability and accordingly the Conversion Feature liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in
operations as an unrealized gain or loss from changes in derivative liabilities.

Effective August 30, 2010, the Company
defaulted on principal payments totaling $350,000 on two Convertible Debentures originally issued in August 2008 with a maturity date of August 29, 2010. On December 31, 2010, the Company entered into notes payable with the holders of the
Convertible Debentures. The notes payable mature January 1, 2013 and bear interest at 12% per annum. As part of the terms of agreeing to convert the Convertible Debentures into notes payable the Company agreed to include $81,986 in accrued
interest in the principal amounts of the notes payable. The notes payable include original principal due in the amount of $350,000 and the accrued interest of $81,986. The total principal amount due on January 1, 2013 is $431,986. See Note 13
for fair value measurement of the above disclosed conversion feature and warrant liabilities.

December 2008
Transaction

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

The Convertible Notes, which bear interest at 12% per annum with interest payable every three months, were originally due on December 16, 2010. On September 30, 2009 Affiliates of the
Company extended $4,980,000 of Convertible Notes until December 16, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date The Convertible Notes are convertible at any time at the option of the holder into
shares of our common stock based upon a conversion rate of $0.50 per share (the Conversion Price), subject to adjustment as provided in the transaction documents (the Conversion Feature). In accordance with the terms of the
Convertible Notes, the Conversion Price of the Convertible Notes was reduced from $0.50 to $0.25 per share based on the Conversion Price of the Secured Convertible Debentures that were issued in September 2009. The Affiliate Investors waived their
anti-dilution rights on $4,980,000 of Convertible Notes. Based on the reduced Conversion Price for the Convertible Notes, and in accordance with the terms of the Convertible Notes the remaining three investors were granted the rights to acquire an
additional 190,000 shares at a price of $0.25 per share upon Conversion of the Convertible Notes. Interest is convertible as provided in the Convertible Notes. We are not permitted to prepay the Convertible Notes without the prior written consent of
the holders.

The Warrants, which have a cashless exercise provision, are exercisable until approximately four years after the
closing at an exercise price of $0.60 per share. The number of shares covered by the Warrants and the Warrant exercise price are subject to adjustment as provided in the transaction documents. The Warrants carry an anti-dilution provision that is
tied to financings the Company conducts at any time prior to the exercise of the Warrants. In September 2009, the Company completed a Financing of Secured Convertible Debt with an exercise price of $0.25 per share. In accordance with Anti-Dilution



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



Provisions of the Warrants, the exercise price of the Warrants was lowered to $0.25 per share. The reduction in exercise price caused the Company to issue an additional 266,000 warrants with an
exercise price of $0.25 per share to purchase common stock to three non-affiliate investors. That anti-dilution feature has caused the Warrants to be treated as a derivative liability and accounted for in accordance with ASC 815. The Warrants were
valued using a Binomial option pricing model. A value of $852,600 was calculated and allocated to the Warrants and recorded as a discount to the issuance of the Convertible Notes. The Warrant liability was amortized over the 24 month maturity of the
Convertible Notes. In addition, a fair value calculation is undertaken periodically on the Warrant liability and accordingly the Warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is
reflected in operations as an unrealized gain or loss from changes in derivative liabilities.

The Convertible Note carries an
anti-dilution provision or Conversion Feature that is tied to financings the Company conducts at any time prior to the satisfaction of the Convertible Note. In the event the Company issues common stock or any other security that is convertible into
the Companys common stock at a price below the Conversion Price of the Convertible Note the holder of the Convertible Note would be entitled to additional shares upon conversion. The additional shares issuable are equal to the ratio of the
price of the subsequent financing divided by the Conversion Price. That anti-dilution feature has caused the Conversion Feature to be treated as a derivative liability and accounted for in accordance with ASC 815. The Conversion Feature was valued
using a Binomial option pricing model. A value of $517,650 was calculated and allocated to the Conversion Feature and recorded as a discount to the issuance of the Convertible Note. The Conversion Feature discount was amortized over the 24 month
maturity of the Convertible Note. In addition, a fair value calculation is undertaken periodically on the Conversion Feature liability and accordingly the Conversion Feature liability is increased or decreased based on the fair value calculation.
The resulting increase or decrease is reflected in operations as an unrealized gain or loss from changes in derivative liabilities. See Note 13 for fair value measurement of the above disclosed conversion feature and warrant liabilities.

During December 2010, the Company repaid $25,000 in principal amounts owed to one of the Debenture holders. In addition, during December
2010, the Company entered into notes payable with two of the holders of the Convertible Debentures. The Convertible Debentures held by the two holders matured on December 16, 2010. The Company issued notes payable totaling a principal amount of
$70,000. One of the notes payable, with a principal amount of $20,000, matures on December 16, 2012 and bears interest at 12% per annum. The second note payable matures on April 1, 2012 and calls for a principal payment in the amount
of $12, 500 on February 1, 2011. The outstanding principal balance at December 31, 2010 is $4,980,000. The note payable bears interest at 12% per annum.

December 2009 Transaction

On December 31, 2009, we sold,
$1,490,000 principal amount Convertible Debentures (the Convertible Debentures) and common stock purchase warrants (the Convertible Debentures Warrants) to purchase an aggregate of 5,960,000 shares of our common stock to
three accredited investors including our Chief Executive Officer. We received net proceeds of $1,490,000.

The Convertible
Notes, which bear interest at 12% per annum with interest payable monthly, are due on June 30, 2011. The Convertible Notes are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate
of $0.25 per share (the Conversion Price), subject to adjustment as provided in the transaction documents (the Conversion Feature). Interest is convertible as provided in the Convertible Notes. We are permitted to prepay the
Convertible Notes without the prior written consent of the holders.

The Warrants, which have a cashless exercise provision,
are exercisable until approximately four years after the closing at an exercise price of $0.25 per share. The number of shares covered by the Warrants and the Warrant exercise price are subject to adjustment as provided in the transaction documents.
The Warrants carry an anti-dilution provision that is tied to financings the Company conducts at any time prior to the exercise of the Warrants. That anti-dilution feature has caused the Warrants to be treated as



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



a derivative liability and accounted for in accordance with ASC 815. The Warrants were valued using a Binomial option pricing model. A value of $596,000 was calculated and allocated to the
Warrants and recorded as a discount to the issuance of the Convertible Notes. The Warrant liability will be amortized over the 18 month maturity of the Convertible Notes. In addition, a fair value calculation is undertaken periodically on the
Warrant liability and accordingly the Warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss from changes in derivative
liabilities.

The Convertible Note carries an anti-dilution provision or Conversion Feature that is tied to financings the
Company conducts at any time prior to the satisfaction of the Convertible Note. In the event the Company issues common stock or any other security that is convertible into the Companys common stock at a price below the Conversion Price of the
Convertible Note the holder of the Convertible Note would be entitled to additional shares upon conversion. The additional shares issuable are equal to the ratio of the price of the subsequent financing divided by the Conversion Price. That
anti-dilution feature has caused the Conversion Feature to be treated as a derivative liability and accounted for in accordance with ASC 815. The Conversion Feature was valued using a Binomial option pricing model. A value of $339,720 was calculated
and allocated to the Conversion Feature and recorded as a or discount to the issuance of the Convertible Note. The Conversion Feature discount will be amortized over the 18 month maturity of the Convertible Note. In addition, a fair value
calculation is undertaken periodically on the Conversion Feature liability and accordingly the Conversion Feature liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations
as an unrealized change in derivative liabilities. See Note 13 for fair value measurement of the above disclosed conversion feature and warrant liabilities.



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



The following table summarizes the convertible debt outstanding as of December 31,
2010.



|                   |  |              |    |   |                   |   |            |                               |  |   |                   |  |  |                        |           |  |                              |   |           |                                     |  |   |              |  |  |   |           |  |  |   |           | 
|------------------ |  | ------------ | -- | - | ----------------- | - | ---------- | ----------------------------- |  | - | ----------------- |  |  | ---------------------- | --------- |  | ---------------------------- | - | --------- | ----------------------------------- |  | - | ------------ |  |  | - | --------- |  |  | - | --------- | 
|Date               |  | InterestRate |    |   | OriginalPrincipal |   |            | Principal atDecember 31, 2010 |  |   | AllocatedDiscount |  |  | TotalDiscountAmortized |           |  | Discount atDecember 31, 2010 |   |           | Carrying Amount atDecember 31, 2010 |  |   | RelatedParty | 
|August 1, 1999     |  |              | 10 | % |                   | $ | 862,500    |                               |  | $ | 75,000            |  |  | $                      | -0-       |  |                              | $ | -0-       |                                     |  | $ | -0-          |  |  | $ | 75,000    |  |  | $ | -0-       | 
|August 29, 2008    |  |              | 10 | % |                   |   | 2,270,000  |                               |  |   | 1,920,000         |  |  |                        | 2,052,080 |  |                              |   | 2,052,080 |                                     |  |   | -0-          |  |  |   | 1,920,000 |  |  |   | 1,920,000 | 
|December 16, 2008  |  |              | 12 | % |                   |   | 4,980,000  |                               |  |   | 4,980,000         |  |  |                        | 1,370,250 |  |                              |   | 1,370,250 |                                     |  |   | -0-          |  |  |   | 4,980,000 |  |  |   | 4,980,000 | 
|September 30, 2009 |  |              | 12 | % |                   |   | 1,400,000  |                               |  |   | 1,400,000         |  |  |                        | 526,400   |  |                              |   | 438,667   |                                     |  |   | 87,733       |  |  |   | 1,312,267 |  |  |   | 1,031,067 | 
|December 31, 2009  |  |              | 12 | % |                   |   | 1,490,000  |                               |  |   | 1,490,000         |  |  |                        | 935,720   |  |                              |   | 623,813   |                                     |  |   | 311,907      |  |  |   | 1,178,093 |  |  |   | 1,138,555 | 
|                   |  |              |    |   |                   |   |            |                               |  |   |                   |  |  |                        |           |  |                              |   |           |                                     |  |   |              |  |  |   |           |  |  |   |           | 
|Totals             |  |              |    |   |                   | $ | 11,002,500 |                               |  | $ | 9,865,000         |  |  | $                      | 4,884,450 |  |                              | $ | 4,484,810 |                                     |  | $ | 399,640      |  |  | $ | 9,465,360 |  |  | $ | 9,069,622 | 
|                   |  |              |    |   |                   |   |            |                               |  |   |                   |  |  |                        |           |  |                              |   |           |                                     |  |   |              |  |  |   |           |  |  |   |           | 

The payments required at maturity under the Companys outstanding convertible debt at
December 31, 2010 are as follows:



|      |  |   | 00000     |  
|----- |  | - | --------- | -
|2011  |  | $ | 2,965,000 |  
|2012  |  |   | -0        | -
|2013  |  |   | 6,900,000 |  
|2014  |  |   | -0        | -
|2015  |  |   |          |  
|      |  |   |           |  
|Total |  | $ | 9,865,000 |  
|      |  |   |           |  



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | 
|NOTE 13: |  | FAIR VALUE MEASUREMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         | 
|         |  | The Company measures the fair value of its assets and liabilities under the guidance of ASC 820, Fair Value Measurements and Dislosures, which defines fair value,
establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to
all other accounting pronouncements that require or permit fair value measurement.                                                                                                                                            
|         | 
|         |  | ASC 820 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or
liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
|         | 
|         |  |        Level 1: Observable inputs such as quoted prices for identical assets
or liabilities in active markets;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | 
|·        |  |        Level 2: Inputs, other than the quoted prices in active markets, that
are observable either directly or indirectly such as quoted prices for similar assets or liabilities or market-corroborated inputs; and                                                                                                                                                                                                                                                                                                                                                                                                                                      
|         | 
|·        |  |        Level 3: Unobservable inputs for which there is little or no market
data, which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         | 
|         |  | The valuation techniques that may be used to measure fair value are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | 
|         |  | A.      Market approach - Uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         | 
|         |  | B.      Income approach - Uses valuation techniques to convert future amounts to a single
present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings method                                                                                                                                                                                                                                                                                                                                                                                             
|         | 
|         |  | C.     Cost approach - Based on the amount that currently would be required to replace
the service capacity of an asset (replacement cost)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 
| |  | The Company also adopted the provisions of ASC 825, Financial Instruments in the first quarter of 2008. ASC 825allows companies to choose to measure eligible assets
and liabilities at fair value with changes in value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new
basis of accounting. The Company did not elect to re-measure any of its existing financial assets or liabilities under the provisions of this Statement, and did not elect the fair value option for any financial assets and liabilities transacted in
the years-ended December 31, 2009 and December 31, 2010, respectively.
| | 
| |  | The Companys financial assets or liabilities subject to ASC 820 as of December 31, 2010 include the conversion feature and warrant liability associated with convertible
debentures issued during fiscal 2008 and 2009. The conversion feature and warrants were deemed to be derivatives (the Derivative Instruments) since a fixed conversion price cannot be determined for either of the Derivative Instruments
due to anti-dilution provisions embedded in the offering documents for the convertible debentures. The derivative instruments were not issued for risk management purposes and as such are not designated as hedging instruments under the provisions of
ASC 815. See Note 12  Convertible Debt.                                
| | 
| |  | Following is a description of the valuation methodologies used to determine the fair value of the Companys financial assets including the general classification of such
instruments pursuant to the valuation hierarchy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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



|                               |  |                               |         |  |                                                                         |   |     |                                           |  |   |                                        |  |  |   |         | 
|------------------------------ |  | ----------------------------- | ------- |  | ----------------------------------------------------------------------- | - | --- | ----------------------------------------- |  | - | -------------------------------------- |  |  | - | ------- | 
|                               |  | Fair Valueat December 31,2010 |         |  | Quoted prices inactive markets foridentical
assets/liabilities(Level 1) |   |     | SignificantOtherObservableInputs(Level 2) |  |   | SignificantUnobservableInputs(Level 3) | 
|Derivatives: (1) (2)           |  |                               |         |  |                                                                         |   |     |                                           |  |   |                                        | 
|Conversion feature liability   |  | $                             | 92,206  |  |                                                                         | $ | -0- |                                           |  | $ | -0-                                    |  |  | $ | 92,206  | 
|Warrant liability              |  |                               | 261,148 |  |                                                                         |   | -0- |                                           |  |   | -0-                                    |  |  |   | 261,148 | 
|                               |  |                               |         |  |                                                                         |   |     |                                           |  |   |                                        |  |  |   |         | 
|Total of derivative liabilties |  | $                             | 353,354 |  |                                                                         | $ | -0- |                                           |  | $ | -0-                                    |  |  | $ | 353,354 | 
|                               |  |                               |         |  |                                                                         |   |     |                                           |  |   |                                        |  |  |   |         | 



|(1) | The fair value of the Derivative Instruments was estimated using the Income Approach and using the American Binomial option pricing model with the following assumptions
for the year ended December 31, 2009.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The fair value at the measurement is equal to their carrying value on the balance sheet
|--- | ---------------------------------------------------------------------------------------

Significant Valuation Assumptions of Derivative Instruments at December 31, 2010



|                               |  |               
|------------------------------ |  | --------------
|Risk free interest rate        |  | 0.12% to 2.55%
|Dividend yield                 |  | 0.00%         
|Expected Volatility            |  | 72.00%        
|Expected life (range in years) |  |               
|Conversion feature liability   |  | 0.25 to 2.96  
|Warrant liability              |  | 1.16 to 3.0   



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



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



|                               |  |                      |           |  |                                                              |   |     |                                  |  |   |                               |  |  |   |           | 
|------------------------------ |  | -------------------- | --------- |  | ------------------------------------------------------------ | - | --- | -------------------------------- |  | - | ----------------------------- |  |  | - | --------- | 
|                               |  | Fair Value           |           |  | Quoted pricesin activemarkets foridenticalassets/liabilities |   |     | SignificantOtherObservableInputs |  |   | SignificantUnobservableInputs | 
|                               |  | at December 31, 2009 |           |  | (Level 1)                                                    |   |     | (Level 2)                        |  |   | (Level 3)                     | 
|Derivatives: (1) (2)           |  |                      |           |  |                                                              |   |     |                                 
|Conversion feature liability   |  | $                    | 1,945,440 |  |                                                              | $ | -0- |                                  |  | $ | -0-                           |  |  | $ | 1,945,440 | 
|Warrant liability              |  |                      | 2,738,193 |  |                                                              |   | -0- |                                  |  |   | -0-                           |  |  |   | 2,738,193 | 
|                               |  |                      |           |  |                                                              |   |     |                                  |  |   |                               |  |  |   |           | 
|Total of derivative liabilties |  | $                    | 4,683,633 |  |                                                              | $ | -0- |                                  |  | $ | -0-                           |  |  | $ | 4,683,633 | 
|                               |  |                      |           |  |                                                              |   |     |                                  |  |   |                               |  |  |   |           | 



|(1) | The fair value of the Derivative Instruments was estimated using the Income Approach and using the American Binomial option pricing model with the following assumptions
for the year ended December 31, 2009.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The fair value at the measurement is equal to their carrying value on the balance sheet
|--- | ---------------------------------------------------------------------------------------

Significant Valuation Assumptions of Derivative Instruments at December 31, 2009



|                               |  |            
|------------------------------ |  | -----------
|Risk free interest rate        |  | 1.66%      
|Dividend yield                 |  | 0.00%      
|Expected Volatility            |  | 73.70%     
|Expected life (range in years) |  |            
|Conversion feature liability   |  | 0.8 to 4.0 
|Warrant liability              |  | 2.16 to 4.0



|                                                                                                                                                                           |  |                     |           |  |                   |   |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | --------- |  | ----------------- | - | ------- | 
|                                                                                                                                                                           |  | Other Income        |          
|                                                                                                                                                                           |  | for the years ended |          
|                                                                                                                                                                           |  | December 31, 2010   |           |  | December 31, 2009 |  
|The net amount of total gains for the period included in earnings attributable to the unrealized gain or loss from changes in
derivative liabilities at the reporting date |  | $                   | 4,330,279 |  |                   | $ | 673,918 | 
|                                                                                                                                                                           |  |                     |           |  |                   |   |         | 
|Total unrealized gains included in earnings                                                                                                                                |  | $                   | 4,330,279 |  |                   | $ | 673,918 | 
|                                                                                                                                                                           |  |                     |           |  |                   |   |         | 

The tables below set forth a summary of changes in fair value of the Companys level 3 financial
liabilities at fair value for the years ended December 31, 2010 and December 31, 2009. The tables reflect gains and losses, for all financial liabilities at fair value categorized as level 3 as of December 31, 2010 and
December 31, 2009.



|                                                 |  |                                                                  |           |  |                            |   |     |                                                                                   |  |   |                                      |  |  |                                      |     |  |                      |   |     |  |  |   |         | 
|------------------------------------------------ |  | ---------------------------------------------------------------- | --------- |  | -------------------------- | - | --- | --------------------------------------------------------------------------------- |  | - | ------------------------------------ |  |  | ------------------------------------ | --- |  | -------------------- | - | --- |  |  | - | ------- | 
|                                                 |  | Level 3 Financial Assets and Financial Liabilities at Fair Value |          
|                                                 |  | Balance,Beginningof
year                                         |           |  | Net realizedgains/(losses) |   |     | Net unrealizedgains/(losses)relating toinstruments stillheld at
thereporting date |  |   | Netpurchases,issuancesandsettlements |  |  | Net transfersin and/or outof level 3 |     |  | Balance,end ofperiod |  
|Year ended December 31, 2010Derivatives: (1) (2) |  |                                                                  |           |  |                            |   |     |                                                                                   |  |   |                                      |  |  |                                      |     |  |                      |   |     |  |  |   |         | 
|Conversion feature liability                     |  | $                                                                | 1,945,440 |  |                            | $ | -0- |                                                                                   |  | $ | 1,853,234                            |  |  | $                                    | -0- |  |                      | $ | -0- |  |  | $ | 92,206  | 
|Warrant liability                                |  |                                                                  | 2,738,193 |  |                            |   | -0- |                                                                                   |  |   | 2,477,045                            |  |  |                                      | -0- |  |                      |   | -0- |  |  | $ | 261,148 | 
|                                                 |  |                                                                  |           |  |                            |   |     |                                                                                   |  |   |                                      |  |  |                                      |     |  |                      |   |     |  |  |   |         | 
|Total of derivative liabilities                  |  | $                                                                | 4,683,633 |  |                            | $ | -0- |                                                                                   |  | $ | 4,330,279                            |  |  | $                                    | -0- |  |                      | $ | -0- |  |  | $ | 353,354 | 
|                                                 |  |                                                                  |           |  |                            |   |     |                                                                                   |  |   |                                      |  |  |                                      |     |  |                      |   |     |  |  |   |         | 



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



|                                                  |  |                                                                  |           |  |                            |   |     |                                                                                   |  |   |                                      |   |  |                                      |           |  |                      |   |     |  |  |   |           | 
|------------------------------------------------- |  | ---------------------------------------------------------------- | --------- |  | -------------------------- | - | --- | --------------------------------------------------------------------------------- |  | - | ------------------------------------ | - |  | ------------------------------------ | --------- |  | -------------------- | - | --- |  |  | - | --------- | 
|                                                  |  | Level 3 Financial Assets and Financial Liabilities at Fair Value |          
|                                                  |  | Balance,Beginningof
year                                         |           |  | Net realizedgains/(losses) |   |     | Net unrealizedgains/(losses)relating toinstruments stillheld at
thereporting date |  |   | Netpurchases,issuancesandsettlements |   |  | Net transfersin and/or outof level 3 |           |  | Balance,end
ofperiod |  
|Year ended December 31, 2009 Derivatives: (1) (2) |  |                                                                  |           |  |                            |   |     |                                                                                   |  |   |                                      |   |  |                                      |           |  |                      |   |     |  |  |   |           | 
|Conversion feature liability                      |  | $                                                                | 1,257,902 |  |                            |   | 432 |                                                                                   |  | $ | (180,250                             | ) |  | $                                    | 507,720   |  |                      | $ | -0- |  |  | $ | 1,945,440 | 
|Warrant liability                                 |  |                                                                  | 2,637,961 |  |                            |   | -0- |                                                                                   |  |   | 854,168                              |   |  |                                      | 954,400   |  |                      |   | -0- |  |  | $ | 2,738,193 | 
|                                                  |  |                                                                  |           |  |                            |   |     |                                                                                   |  |   |                                      |   |  |                                      |           |  |                      |   |     |  |  |   |           | 
|Total of derivative liabilities                   |  | $                                                                | 3,895,863 |  |                            | $ | 432 |                                                                                   |  | $ | 673,918                              |   |  | $                                    | 1,462,120 |  |                      | $ | -0- |  |  | $ | 4,683,633 | 
|                                                  |  |                                                                  |           |  |                            |   |     |                                                                                   |  |   |                                      |   |  |                                      |           |  |                      |   |     |  |  |   |           | 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On June 23, 2009, we acquired an EDC business unit formerly owned by eResearch Technology, Inc. as is more fully described in Note 8 and in that transaction we acquired
certain tangible and intangible EDC assets and liabilities. As part of our analysis of that transaction and prior to recoding the assets and associated liabilities in our financial statements we performed a fair value analysis of the acquired assets
and liabilities. The results of that valuation exercise are presented in Note 8.                                                                         
| | 
| |  | On August 3, 2009, we acquired the EDC business formerly owned by Logos Technologies, Ltd. as is more fully described in Note 9 and in that transaction we acquired certain
tangible and intangible EDC assets and liabilities. As part of our analysis of that transaction and prior to recoding the assets and associated liabilities in our financial statements we performed a fair value analysis of the acquired assets and
liabilities. The results of that valuation exercise are presented in Note 9                                                                               
| | 
| |  | The assets acquired as part of these two transactions are not measured on a recurring basis since their initial fair value has been deemed to have a finite life and the
associated assets are being either depreciated as tangible assets or amortized as intangible assets. The Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair
value of the assets in a market-based transaction. The table below provides fair value information on the assets acquired as part of those two transactions.

A summary of the fair value of assets measured at fair value on a non-recurring basis follows:



|                                                     |  |                          |           |  |                                                                         |   |     |                                             |  |   |                                         |  |  |   |           | 
|---------------------------------------------------- |  | ------------------------ | --------- |  | ----------------------------------------------------------------------- | - | --- | ------------------------------------------- |  | - | --------------------------------------- |  |  | - | --------- | 
|                                                     |  | Fair Valueat Acquisition |           |  | Quoted prices inactive marketsfor identicalassets/ liabilities(Level
1) |   |     | Significant OtherObservable Inputs(Level 2) |  |   | SignificantUnobservableInputs(Level
 3) | 
|Acquired Assets: (1)                                 |  |                          |           |  |                                                                         |   |     |                                             |  |   |                                         |  |  |   |           | 
|Software code eResearch Technology transaction (eRT) |  | $                        | 350,000   |  |                                                                         | $ | -0- |                                             |  | $ | -0-                                     |  |  | $ | 350,000   | 
|Software code Logos Technologies transaction         |  |                          | 1,200,000 |  |                                                                         |   |     |                                             |  |   |                                         |  |  |   | 1,200,000 | 
|                                                     |  |                          |           |  |                                                                         |   |     |                                             |  |   |                                         |  |  |   |           | 
|Customer list (eRT) transaction                      |  |                          | 1,500,000 |  |                                                                         |   | -0- |                                             |  |   | -0-                                     |  |  |   | 1,500,000 | 
|                                                     |  |                          |           |  |                                                                         |   |     |                                             |  |   |                                         |  |  |   |           | 
|Total of Acquired Assets                             |  | $                        | 3,050,000 |  |                                                                         | $ | -0- |                                             |  | $ | -0-                                     |  |  | $ | 3,050,000 | 
|                                                     |  |                          |           |  |                                                                         |   |     |                                             |  |   |                                         |  |  |   |           | 



|(1) | The fair value of the Acquired Assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

Significant Valuation Assumptions of the Acquired Assets



The Company performs a discounted
cash flow (DCF) analysis of the projected revenues, operating expenses and operating cash flows of the Acquired Assets. The DCF analysis compares the projected value of the Acquired Assets at each quarterly balance sheet date against the DCF value
calculated at the respective time of the acquisition of the assets. A material reduction in DCF value would be considered an impairment of the Acquired Assets and would result in a reduction in the carrying value of a specific asset with a
corresponding charge to earnings.



|NOTE 14: | COMMITMENTS AND CONTINGENCIES
|-------- | -----------------------------

The Company currently leases office space under operating leases for its office locations and has several operating leases related to computer co-location and disaster recovery for its operations. The
minimum future lease payments required under the Companys operating leases at December 31, 2010 are as follows:



|      |  |   |           | 
|----- |  | - | --------- | 
|2011  |  | $ | 623,104   | 
|2012  |  |   | 442,989   | 
|2013  |  |   | 343,135   | 
|2014  |  |   | 353,212   | 
|2015  |  |   | 360,802   | 
|      |  |   |           | 
|Total |  | $ | 2,123,242 | 
|      |  |   |           | 

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 $918,711 and $775,329 for the years ended December 31, 2010 and December 31, 2009, respectively.

The Companys corporate office lease expires in September 2016. The Companys lease on its New Jersey field office expires in
February 2013. The Company currently operates its wholly-owned subsidiary, OmniComm Ltd., in the United Kingdom under the terms of a lease that expires in October 2012. The Company currently operates its wholly-owned subsidiary, OmniComm Europe,
GmbH, in Bonn, Germany under the terms of a lease that expires in June 2011.

LEGAL PROCEEDINGS

On November 24, 2010, Achyut Dhakal, a former employee, filed suit in the United States District Court for the Southern District of
Florida, Miami Division, alleging racial and national discrimination, retaliation for a requested FMLA leave, retaliation under state whistleblower provisions and monies owed for overtime pay under the Fair Labor Standards Act (FLSA). The Company
disagreed with the allegations and submitted its response on February 1, 2011. On March 3, 2011, the Company and Mr. Dhakal, subject to the terms agreed into during a court mandated settlement conference, entered into Settlement
Agreement and Full Release subject to mutual non-disclosure provisions. On March 3, 2011, the Court entered an Order of Dismissal with Prejudice approving the settlement.



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



PATENT LITIGATION SETTLEMENT

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



|          |  |   |           | 
|--------- |  | - | --------- | 
|2011      |  | $ | 765,089   | 
|2012      |  |   | 450,000   | 
|2013      |  |   | 450,000   | 
|2014      |  |   | 450,000   | 
|2015      |  |   | 450,000   | 
|2016-2017 |  |   | 900,000   | 
|          |  |   |           | 
|Total     |  | $ | 3,465,089 | 
|          |  |   |           | 

In conjunction with the acquisition of the eResearch Technology, Inc. EDC assets, the Company entered into
the First Amendment to Settlement and Licensing Agreement with DataSci, LLC in June 2009 to provide for license payments totaling $300,000 to DataSci over the next three years for the EDC assets acquired in that transaction. The Company began making
annual payments of $100,000 to DataSci beginning in July 2009 and has to-date made payments totaling $200,000 with a final payment of $100,000 due in June 2011.

During the years ended December 31, 2010 and December 31, 2009, the Company recorded a charge to earnings of $223,667 and $383,951, respectively, which amounts represent (1) the amount of
additional license expense incurred above the stipulated minimum in the DataSci License Agreement during the years ended December 31, 2010 and December 31, 2009 and (2) the accretion of the difference between the total stipulated
annual minimum royalty payments and the recorded present value accrual of the annual minimum royalty payments

EMPLOYMENT AGREEMENTS

In December 2010, we renewed an employment agreement with Mr. Cornelis F. Wit to serve as our Chief Executive Officer through December 31, 2011. 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 $183,600 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 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



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



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 2010, 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 $270,300 to be paid in the form of cash and/or stock, as agreed upon by the parties, and he is eligible to receive a bonus based upon achieving technology related milestones. The agreement also provides, among other things, for
participation in employee benefit plans or programs applicable to employees and executives. Under the terms of the agreement, we may terminate the employment of Mr. Smith upon 30 days notice of a material breach and Mr. Smith may terminate
the agreement under the same terms and conditions. If Mr. Smith is terminated by us for any reason other than for cause, we must pay him severance benefits equal to six months salary. The employment agreement contains customary non-disclosure
provisions, as well as a one year non-competition restriction following the termination of the agreement. The agreement renews automatically for one-year terms unless expressly cancelled by either Mr. Smith or the Company in writing ninety
(90) days prior to termination of the term.

In December 2010, 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 $245,000 to be paid in the form of cash and/or stock, as agreed upon by the parties, and he is eligible to receive additional incentive
compensation based upon achieving financial milestones. The agreement also provides, among other things, for participation in employee benefit plans or programs applicable to employees and executives. Under the terms of the agreement, we may
terminate the employment of Mr. Linares upon 30 days notice of a material breach and Mr. Linares may terminate the agreement under the same terms and conditions. If Mr. Linares is terminated by us for any reason other than for cause,
we must pay him severance benefits equal to twelve months salary. The employment agreement contains customary non-disclosure provisions, as well as a one year non-competition restriction following the termination of the agreement. The agreement
renews automatically for one-year terms unless expressly cancelled by either Mr. Linares or the Company in writing ninety (90) days prior to termination of the term.

In September 2010, we renewed our employment agreement with Mr. Stephen Johnson to serve as our President and Chief Operating 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. Johnson or the Company ninety days prior to the end of the term. Under the terms of this agreement, Mr. Johnson receives an annual salary of
$290,700 subject to annual adjustment for cost of living increases. Mr. Johnson is eligible for a bonus, payable on an annual basis, equal to 5% of the Companys earnings before interest, taxes, depreciation and amortization (EBITDA). The
agreement also provides, among other things, for participation in employee benefit plans or programs applicable to employees and executives. Under the terms of the agreement, we may terminate the employment of Mr. Johnson upon 30 days notice of
a material breach and Mr. Johnson may terminate the agreement under the same terms and conditions. If Mr. Johnson is terminated by us for any reason other than for cause, we must pay him severance benefits equal to three months salary for
every year of service up to a maximum of twelve months salary. The employment agreement contains customary non-disclosure provisions as well as a one year non-compete clause if Mr. Johnson leaves the company voluntarily or a six month
non-compete clause following his termination by us.



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



|NOTE 15: | 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. Mr. van Kesteren is a holder of greater than 5% of our securities on a fully diluted basis as measured under Section 13 of the Securities Act of 1934.

Fernando Montero. a member of our Board of Directors, is president, director and sole shareholder of Mentor Capital Corporation (Mentor Capital). Mentor Capital is the fund manager for
Atlantic Balanced Fund (ABF) having voting and dispositive control of the shares in OmniComm Systems, Inc. held by ABF and therefore Mr. Montero may be deemed to beneficially own the shares held by ABF. Mr. Montero also has
voting and dispositive control of the shares in OmniComm Systems, Inc. held by Atlantic Security Bank (ASB) and therefore may be deemed to beneficially own the shares held by ASB. Mr. Montero may be deemed to beneficially own an
aggregate of 7,873,411 shares of the Common Stock (as described below), which constitute approximately 8.98% of the outstanding shares of our Common Stock

In December 2008, the Company issued a promissory note for $197,500 that included $112,500 in accrued expenses associated with financial services provided by Noesis Capital Corp., the Companys
Placement Agent for several equity and debt transactions since 1999. The amount was borrowed under a promissory note bearing interest at 9% per annum payable with a maturity date of January 31, 2011. Included in the principal amount
due under this promissory note is $85,000 that was originally owed under a $185,000 principal amount promissory note with a maturity date of January 1, 2009. The remaining $100,000 in principal amount owed was converted into a Convertible
Note dated December 16, 2008. The Company repaid $60,000 in principal on this promissory note during the year ended December 31, 2010. We incurred $12,375 in interest expense on the note payable to Noesis Capital Corp., the
Placement Agent for the Company during the year ended December 31, 2010 and $13,218 for the year ended December 31, 2009.

As of December 31, 2010, we have an aggregate of $11,526,771 principal amount of convertible debentures and promissory notes outstanding to Cornelis Wit, our Chief Executive Officer and a director,
and have issued certain warrants to Mr. Wit, as follows:



| |  |  | On February 14, 2008, $150,000 principal amount promissory note. This note was convertible at the option of the holder into any New Securities
(New Securities) we issue before maturity of this promissory note on the same terms and conditions of the sale of the New Securities. This convertible note carried an interest rate of 10% per annum and was due on December 31,
2009. On December 16, 2008, Mr. Wit agreed to convert this convertible note into a private placement of convertible debentures, which convertible debentures were due on December 16, 2010. Mr. Wit waived his anti-dilution
rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a secured convertible debenture financing the Company completed in September 2009. In addition, Mr. Wit agreed to extend
the maturity date of the convertible debenture he was issued by three years to December 16, 2013.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On June 10, 2008, $210,000 principal amount convertible note and common stock purchase warrants to purchase an aggregate of 264,706 shares of our
common stock. We received net proceeds of $210,000. This note was convertible at the option of the holder into any securities we issue (New Securities) before maturity of the convertible debenture on the same terms and conditions of
the sale of the New Securities. This convertible debenture, which carried an interest rate of 10% per annum, was due on June 10, 2009. On August 29, 2008, Mr. Wit agreed to convert this convertible debenture into a
private placement of convertible debentures that originally matured on August 29, 2010. Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and
conditions of a secured convertible debenture financing the Company completed in September 2009. In addition, Mr. Wit agreed to extend the maturity date of convertible debenture he was issued by three years to August 29, 2013.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On June 10, 2008, $300,000 principal amount convertible note. This note was convertible at the option of the holder into any New Securities
(New Securities) we issue before maturity
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



| | of this promissory note on the same terms and conditions of the sale of the New Securities. This convertible note carried an interest rate of 10% per annum and was originally due on
June 30, 2010. On August 29, 2008, Mr. Wit agreed to convert this convertible note into a private placement of convertible debentures, which convertible debentures that originally matured on August 29, 2010. Mr. Wit
waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a secured convertible debenture financing the Company completed in September 2009. In addition,
Mr. Wit agreed to extend the maturity date of convertible debenture he was issued by three years to August 29, 2013.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During August 2008, $1,260,000 principal amount convertible note that is part of a private placement of Convertible Debentures that originally matured
in August 29, 2010. Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a Secured Convertible Debenture financing the Company
completed in September 2009. In addition, Mr. Wit agreed to extend the maturity date of convertible debenture he was issued by three years to August 29, 2013.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | From September 2008 to December 2008, $4,200,000 principal amount convertible notes. These notes were convertible at the option of the holder into any
New Securities (New Securities) we issue before maturity of the Convertible Note on the same terms and conditions of the sale of the New Securities. These convertible notes carried an interest rate of 12% per annum and were due on
December 31, 2009. On December 16, 2008, Mr. Wit agreed to convert these convertible notes into a private placement of convertible debentures, which convertible debentures originally matured on December 16, 2010.
Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a secured convertible debenture financing the Company completed in September 2009. In
addition, Mr. Wit agreed to extend the maturity date of convertible debenture he was issued by three years to December 16, 2013.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | From July to September 2009, Mr. Wit invested $1,100,000 which amount was aggregated under the terms of one convertible note dated
September 30, 2009. This note was convertible at the option of the holder into any new securities we issue before maturity of this promissory note on the same terms and conditions of the sale of any new securities issued. This convertible
note carried an interest rate of 12% per annum and was due on December 31, 2009. On September 30, 2009, Mr. Wit agreed to convert this Convertible Note into a private placement of secured convertible debentures bearing
interest at a rate of 12% per annum, which Secured Convertible Debentures are due on March 30, 2011 which are convertible into 4,400,000 shares of common stock and received 4,400,000 warrants to purchase common stock of the Company.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | From October to December 2009, Mr. Wit invested $1,440,000 which amount was aggregated under the terms of one convertible note dated
December 31, 2009. This note was convertible at the option of the holder into any new securities we issued before the maturity of this promissory note on the same terms and conditions of the sale of any new securities issued. This convertible
note carried an interest rate of 12% per annum and was due on December 31, 2009. On December 31, 2009, Mr. Wit agreed to convert this Convertible Note into a private placement of unsecured convertible debentures bearing interest
at a rate of 12% per annum, which Convertible Debentures are due on June 30, 2011.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On April 13, 2010, $450,000 principal amount promissory note. This note carries an interest rate of 12% per annum and is due on
December 31, 2011.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On September 30, 2010, $1,000,000 principal amount promissory note. This note carries an interest rate of 12% per annum and was due on
December 31, 2011. The promissory note was comprised of the following amounts received on the following dates: (i) principal amount of $50,000 received on July 6, 2010, (ii) principal amount of $65,000 received on
July 14, 2010, (iii) principal amount of $175,000 received on July 15, 2010, (iv) principal amount of $140,000 received on July 30, 2010, (v) principal amount of $400,000 received on August 12, 2010,
(vi) principal amount of $90,000 received on August 27, 2010, and (vii) principal amount of $80,000 received on August 31, 2010. On November 30, 2010, the note was converted by Mr. Wit into 250,000 shares of the
Companys Series D Preferred Stock.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On September 30, 2010, $695,000 principal amount promissory note. This note carries an interest rate of 12% per annum and is due on
December 31, 2011. The promissory note was
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



| | comprised of the following amounts received on the following dates: (i) principal amount of $120,000 received on August 31, 2010, (ii) principal amount of $50,000 received on
September 7, 2010, (iii) principal amount of $200,000 received on September 15, 2010, (iv) principal amount of $90,000 received on September 22, 2010, (v) principal amount of $200,000 received on September 29,
2010, and (vi) principal amount of $35,000 received on September 30, 2010.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On December 31, 2010, $1,197,500 principal amount promissory note. The note carries and interest rate of 12% per annum and is due on
December 31, 2011. The promissory note is comprised of the following amounts received on the following dates: (i) principal amount of $150,000 received on October 15, 2010, (ii) principal amount of $140,000 received on
October 26, 2010, (iii) principal amount of $200,000 received on October 28, 2010, (iv) principal amount of $43,500 received on November 2, 2010, (v) principal amount of $200,000 received on November 10, 2010,
(vi) principal amount of $32,000 received on November 22, 2010, (vii) principal amount of $37,000 received on November 29, 2010, (viii) principal amount of $160,000 received on November 30, 2010, (ix) principal
amount of $25,000 received on December 2, 2010, (x) principal amount of $50,000 received on December 8, 2010, (xi) principal amount of $10,000 received on December 9, 2010, (xii) principal amount of $40,000 received on
December 15, 2010, and (xiii) principal amount of $110,000 received on December 16, 2010.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On December 31, 2010, $409,721 principal amount promissory note. The note carries and interest rate of 12% per annum and is due on
December 31, 2011. The note is comprised of accrued and unpaid interest owed as of December 31, 2010 on various notes held by Mr. Wit that were converted into the principal amount owed under this note payable.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On December 16, 2010, we issued a promissory note with a principal amount of $20,000 to our Chairman
and Chief Technology Officer, Randall Smith. The note bears interest at a rate of 12% per annum and is due on Decembrer 16, 2012.

As discussed in Note 12 - Convertible Notes, on August 29, 2008, we sold, $2,270,000 principal amount convertible notes (the Convertible Notes) and common stock purchase warrants (the
Convertible Note Warrants) to purchase an aggregate of 4,540,000 shares of our common stock to four accredited investors including Mr. Wit our Chief Executive Officer as discussed above, and Guus van Kesteren one of our Directors
(the Affiliate Investors). The Convertible Notes bear interest at 10% and originally matured on August 29, 2010. As part of the transaction Cornelis Wit, Chief Executive Officer and Director and Guus van Kesteren,
Director, purchased $1,770,000 and $150,000, respectively, principal amount of notes, which are convertible into 3,540,000 shares and 300,000 shares, respectively, and received 3,540,000 and 300,000 warrants, respectively. The Affiliate Investors
waived their anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a Secured Convertible Debenture financing the Company completed in September 2009. In addition,
the Affiliate Investors agreed to extend the maturity date of convertible debenture they were issued by three years to December 16, 2013.

As discussed in Note 12, Convertible Notes, on December 16, 2008, we sold, $5,075,000 principal amount Convertible Debentures (the Convertible Debentures) and common stock purchase
warrants (the Convertible Debenture Warrants) to purchase an aggregate of 10,150,000 shares of our common stock to eleven accredited investors including Mr. Wit our Chief Executive Officer, Mr. Smith, our Chairman and Chief
Technology Officer, Mr. Johnson, our Chief Operating Officer, Mr. Linares, our Chief Financial Officer and two members of our Board of Directors, Mr. Veatch and Mr. van Kesteren (the Affiliate Investors). The
Convertible Debentures bear interest at 12% and originally matured on December 16, 2010. As part of the transaction Cornelis Wit, Chief Executive Officer and Director and Guus van Kesteren, Director, purchased $4,350,000 and $160,000,
respectively, principal amount of Debentures, which are convertible into 8,700,000 shares and 320,000 shares, respectively, and received 8,700,000 and 320,000 warrants, respectively. Noesis Capital Corp. placement agent for the sale of our
securities in various offerings since 1999 converted $100,000 in promissory notes and received 200,000 warrants to purchase common stock of the Company. Atlantic Balanced Fund, a fund managed by Mentor Capital of which Fernando Montero, a director
of OmniComm, is president, director and sole shareholder, converted $200,000 that was originally invested into a round of financing of Secured



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



Convertible Debentures in February 2008 and received 400,000 warrants to purchase common stock of the Company. Additionally the following officers and directors invested in the Convertible
Debentures: Mr. Smith $5,000, Mr. Johnson, $25,000, Mr. Veatch $15,000 and Mr. Linares $125,000. The officers and directors received 10,000, 50,000, 30,000 and 250,000 warrants to purchase shares of our common stock,
respectively. The Affiliate Investors waived their anti-dilution rights relating to the outstanding Convertible Debentures and warrants issued in this transaction as part of the terms and conditions of a Secured Convertible Debenture financing
the Company completed in September 2009. In addition, the Affiliate Investors extended the maturity date of their Convertible Debentures by three years to December 16, 2013.

On September 30, 2009, we sold, $1,400,000 principal amount Convertible Debentures (the Convertible Debentures) and
common stock purchase warrants (the Convertible Debenture Warrants) to purchase an aggregate of 5,600,000 shares of our common stock to four accredited investors including Mr. Wit, our Chief Executive Officer and a
Director. The Convertible Debentures bear interest at 12% and are due on March 30, 2011. As part of the transaction Mr. Wit purchased $1,100,000 principal amount of Convertible Debentures, which are convertible into 4,400,000
shares and received 4,400,000 warrants to purchase common stock of the Company.

On December 31, 2009, we sold,
$1,490,000 principal amount Convertible Debentures (the Convertible Debentures) and common stock purchase warrants (the Convertible Debenture Warrants) to purchase an aggregate of 5,960,000 shares of our common stock to three
accredited investors including Mr. Wit, our Chief Executive Officer and a Director. The Convertible Debentures bear interest at 12% and are due on June 30, 2011. As part of the transaction Mr. Wit purchased $1,440,000
principal amount of Convertible Debentures, which are convertible into 5,760,000 shares and received 5,760,000 warrants to purchase common stock of the Company.

During the year ended December 31, 2009, the Company issued 405,055 shares of common stock to our Chairman and Chief Technology Officer Randall G. Smith. The shares were valued at prices ranging
from $0.19 to $0.30 per share based on the closing share price of our common stock on the OTC Bulletin Board on the date of each payroll. The shares of common stock were issued in lieu of salary for the year ended December 31, 2009 for
salary totaling $109,182.

During the year ended December 31, 2010, the Company issued 573,796 shares of common stock to
eleven employees of the Company including our Chief Executive Officer, Chief Operating Officer, Chief Technology Officer and Chief Financial Officer. The shares were valued at prices ranging from $0.05 to $0.18 per share based on the closing
share price of our common stock on the OTC Bulletin Board on the date of each payroll. The shares of common stock were issued in lieu of salary for the year ended December 31, 2010 for salary totaling $43,105.

For the year ended December 31, 2010 we incurred $1,236,843 in interest expense payable to related parties, and we incurred $867,222
in interest expense for the year ended December 31, 2009.

During 2009 we had an agreement with Noesis Capital under which
they assisted 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 was obligated to
pay $90,000 in professional fees annually. The termination date of the agreement was December 31, 2009.



|NOTE 16: | STOCKHOLDERS EQUITY (DEFICIT)
|-------- | ------------------------------

Our authorized capital stock consists of 250,000,000 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, 747,500 shares have been designated as Series C Preferred Stock and 250,000 shares have been designated as Series D Preferred Stock.



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OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



As of December 31, 2010 we had the following outstanding securities:



| |  |  | 86,081,495 shares of common stock issued and outstanding;
| | - |  | ---------------------------------------------------------



| |  |  | 40,808,240 warrants issued and outstanding to purchase shares of our common stock;
| | - |  | ----------------------------------------------------------------------------------



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



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



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



| |  |  | 250,000 Series D Preferred Stock issued and outstanding; and
| | - |  | ------------------------------------------------------------



| |  |  | $9,865,000 principal amount Convertible Debentures convertible into 26,310,000 shares of common stock.
| | - |  | ------------------------------------------------------------------------------------------------------

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, 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.

Preferred stock

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



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



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



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



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

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

Series A Preferred Stock

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

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



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



| |  |  | each share of Series A Preferred Stock is convertible into shares of our common stock at any time at the option of the holder at a conversion price of
$1.50 per share, or if not so converted after one year from issuance, at any time at our option if the closing bid price of
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



| | our common stock has exceeded $3.00 for 20 consecutive trading days, our common stock is listed on The NASDAQ Stock Market or other national stock exchange, and the shares of common stock
issuable upon conversion of the Series A Preferred Stock are registered under a registration statement,
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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

There were cumulative
arrearages of $1,740,174 and $1,535,040, or $0.43 and $0.37 per share, on the Series A Preferred Stock for undeclared dividends as of December 31, 2010 and December 31, 2009, respectively.

The Company has 235,000 shares of its 5% Series A Preferred stock that have been converted by the shareholders into shares of our common
stock. Pursuant to Delaware General Corporate Law, once the Company has a positive net worth, the cumulative dividends would be payable in either cash or in shares of our common stock upon the declaration of dividends by our board of directors.

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

Series B Preferred Stock

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

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



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



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



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



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



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 cumulative
arrearages of $609,904 and $609,904, or $3.05 and $3.05 per share, on the Series B Preferred Stock dividends as of December 31, 2010 and December 31, 2009, respectively.

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

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

Series C Preferred Stock

In March 2002, our Board of Directors
designated 747,500 shares of our preferred stock as Series C Convertible Preferred Stock of which -0- shares are issued and outstanding.

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



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



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



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



F-44



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



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 cumulative
arrearages of $1,469,593 and $1,469,593, or $4.36 and $4.36 per share, on the Series C Preferred Stock for undeclared dividends as of December 31, 2010 and December 31, 2009, respectively.

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

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

Series D Preferred Stock

In November 2010, our Board of Directors
designated 250,000 shares of our preferred stock as Series D Convertible Preferred Stock of which 250,000 shares are issued and outstanding.

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



| |  |  | the stated value of the Series D Preferred is $0.001 per share.
| | - |  | ---------------------------------------------------------------



| |  |  | the Series D Preferred have no rights to receive dividend distributions or to participate in any dividends declared by the Corporation to or for the
benefit of the holders of its common stock.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the shares of Series D Preferred are not convertible into or exchangeable for any other security of the Corporation.
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | except as provided in Series D Preferred Designation, in the case of the death or disability of Series D Preferred Holder, the Series D Preferred is
not redeemable without the prior express written consent of the holders of the majority of the voting power of all then outstanding shares of such Series D Preferred. In the event any shares of Series D Preferred are redeemed pursuant, the shares
redeemed will automatically be canceled and returned to the status of authorized but unissued shares of preferred stock.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | each share of Series D Preferred entitles the holder to Four Hundred (400) votes, and with respect to such vote, are entitled to notice of any
stockholders meeting in accordance with the bylaws of the Company, and are entitled to vote, together as a single class with
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-45



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



| | holders of common stock and any other series of preferred stock then outstanding, with respect to any question or matter upon which holders of common stock that have the right to vote. The Series
D Preferred will also entitle the holders to vote the shares as a separate class as set forth herein and as required by law. In the event of any stock split, stock dividend or reclassification of the Corporations common stock, the number of
votes which attach to each share of Series D Preferred shall be adjusted in the same proportion as any adjustment to the number of outstanding share of common stock. The shares of Series D Preferred present at a meeting of the Companys
shareholders shall vote in the same percentage as all voting shares voted for each director at the Companys shareholder meeting in connection with the election or removal of directors to or from the Corporations Board of Directors,
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in the event of the liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of shares
of the Series D Preferred then outstanding are entitled to receive before holders of shares of common stock receive any amounts, out of the remaining assets of the Corporation available for distribution to its stockholders, an amount equal to $0.001
per share.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | so long as any shares of Series D Preferred are outstanding, the Company cannot without first obtaining the written approval of the holders of at least
a majority of the voting power of the then outstanding shares of such Series D Preferred Stock (i) alter or change the rights, preferences or privileges of the Series D Preferred, or (ii) increase or decrease the total number of authorized
shares of Series D Preferred Stock.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the holders of the Series D Preferred are not entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any
class, whether now or hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Company has a thirty (30) day right of first refusal in which to match the terms and conditions set forth in any bona fide offer
received by holders of the Series D Preferred Stock. The Company must purchase all of those shares of Series D Preferred offered by the holder of the Series D Preferred Stock.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the holders of Series D Preferred cannot, directly or indirectly, transfer any shares of Series D Preferred. Any such purported transfer shall
be of no force or effect and shall not be recognized by the Company.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table presents preferred
dividends accreted for the years ended December 31, 2010 and December 31, 2009, respectively, and the per share effect of the preferred dividends if their effect was not anti-dilutive.



|                                              |  |                          |         |   |                          |   |         |      |  |   |      |  |  |   |      | 
|--------------------------------------------- |  | ------------------------ | ------- | - | ------------------------ | - | ------- | ---- |  | - | ---- |  |  | - | ---- | 
|                                              |  | Dividends Accreted       |         |   | Dividends per share      |  
|                                              |  | Years ended December 31, |         |   | Years ended December 31, |  
|                                              |  | 2010                     |         |   | 2009                     |   |         | 2010 |  |   | 2009 | 
|Preferred stock dividends in arrears Series A |  | $                        | 205,134 |   |                          | $ | 205,134 |      |  | $ | 0.05 |  |  | $ | 0.05 | 
|                                              |  |                          |         |  
|Preferred stock dividends in arrears Series B |  | $                        | -0      | - |                          | $ | -0      | -    |  | $ | 0.00 |  |  | $ | 0.00 | 
|Preferred stock dividends in arrears Series C |  | $                        | -0      | - |                          | $ | -0      | -    |  | $ | 0.00 |  |  | $ | 0.00 | 

Warrants

We have issued and outstanding warrants to purchase a total of 40,808,240 shares of our common stock, including:



| |  |  | Warrants to purchase 80,000 shares of our common stock at an exercise price of $.25 per share expiring in September 2010.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 185,356 shares of our common stock at an exercise price of $0.50 per share expiring in March 2014.
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 100,707 shares of our common stock at an exercise price of $0.50 per share expiring in December 2012.
| | - |  | --------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



| |  |  | Warrants to purchase 222,458 shares of our common stock at an exercise price of $0.60 per share expiring in February 2012.
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 264,706 shares of our common stock at an exercise price of $0.60 per share expiring in September 2012 which were by us in
connection with a private placement of our Convertible Notes in September2008.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 7,449,012 shares of our common stock at exercise prices ranging from $0.25 to $0.60 per share expiring in February 2012 which were
issued by us in connection with a private placement of our Secured Convertible Debentures in February 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 4,890,000 shares of our common stock at exercise prices ranging from$0.25 to $0.60 per share expiring in August 2012 which were
issued by us in connection with an extension of Secured Convertible Debentures which occurred in August 2008.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 5,520,000 shares of our common stock at exercise prices ranging from $0.25 to $0.60 per share expiring in August 2012 which were
issued by us in connection with a private placement of our Convertible Debentures in August 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 10,536,001 shares of our common stock at exercise prices from to $0.25 to $0.60 per share expiring in December 2012 which were
issued by us in connection with a private placement of our Convertible Debentures in December 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 5,600,000 shares of our common stock at an exercise price of $0.25 per share expiring in September 2013 which were issued by us in
connection with a private placement our Secured Convertible Debentures in September 2009.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants to purchase 5,960,000 shares of our common stock at an exercise price of $0.25 per share expiring in December 2013 which were issued by us in
connection with a private placement our Convertible Debentures in December 2009.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10% Convertible
Notes

During 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 were 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, 2010, approximately $787,500 of the Convertible Notes had been repaid in cash or converted into 1,495,179 shares of
common stock of the Company leaving an outstanding principal balance of $75,000. There was $87,228 of accrued interest at December 31, 2010.

Secured Convertible Debentures

As discussed in Note 12,
Convertible Debt, on September 30, 2009, we sold an aggregate of $1,400,000 principal amount 12% Secured Convertible Debentures (the Debentures) and common stock purchase warrants (the Warrants) to purchase an aggregate
of 5,600,000 shares of our common stock exercisable at a price of $0.25 per share for four years subsequent to the closing of the transaction to four accredited investors including our Chief Executive Officer. We received net proceeds of $1,400,000.
The Debentures, which bear interest at 12% per annum, are due 18 months from their issuance date on March 30, 2011. The Debentures are convertible at any time at the option of the holder into shares of our common stock based upon a
conversion rate of $0.25 per share.

Convertible Debentures

As discussed in Note 12, Convertible Debt, on December 31, 2009, we sold an aggregate of $1,490,000 principal amount 12% Convertible
Debentures (the Debentures) and common stock purchase warrants (the Warrants) to purchase an aggregate of 5,960,000 shares of our common stock exercisable at a price of $0.25 per share for four years subsequent to the closing
of the transaction to three accredited investors including our Chief Executive Officer. We received net proceeds of $1,490,000. The Debentures, which bear interest at 12% per annum, are due 18 months from their issuance date on June 30,
2011. The Debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.25 per share.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



Other Comprehensive Gain (Loss)

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



|                          |  |                             |         |   |                                            |   |         |  
|------------------------- |  | --------------------------- | ------- | - | ------------------------------------------ | - | ------- | -
|                          |  | Foreign CurrencyTranslation |         |   | Accumulated OtherComprehensive Gain (Loss) |  
|Balance December 31, 2008 |  | $                           | 989     |   |                                            | $ | 989     |  
|2009 Activity             |  |                             | 1,945   |   |                                            |   | 1,945   |  
|                          |  |                             |         |   |                                            |   |         |  
|Balance December 31, 2009 |  |                             | 2,934   |   |                                            |   | 2,934   |  
|2010 Activity             |  |                             | (27,232 | ) |                                            |   | (27,232 | )
|                          |  |                             |         |   |                                            |   |         |  
|Balance December 31, 2010 |  | $                           | (24,298 | ) |                                            | $ | (24,298 | )
|                          |  |                             |         |   |                                            |   |         |  



|NOTE 17: | EMPLOYEE EQUITY INCENTIVE PLANS
|-------- | -------------------------------

Stock Option Plan

Description of 1998 Stock Incentive 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 was able to grant options to purchase up to 12,500,000 shares of the Companys common stock. The 1998 Plan expired as of December 31, 2008. As of December 31, 2010 there were 7,247,000 outstanding options that
had been granted under the 1998 Plan.

Description of 2009 Equity Incentive Plan

In 2009, the Companys Board of Directors and shareholders approved the 2009 Equity Incentive Plan of OmniComm Systems, Inc. (the
2009 Plan). The 2009 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 2009 Plan,
the Company may grant options to purchase up to 7,500,000 shares of the Companys common stock.

The maximum term for any
option grant under the 2009 Plan is ten years from the date of the grant; however, options granted under the 2009 Plan will generally expire five years from the date of grant for most employees, officers and directors of the Company. Options granted
to employees generally vest either upon grant or in two installments with the first installment vesting 50% upon completion of one full year from date of grant and on the next anniversary of the employees employment. The vesting period
typically begins on the date of hire for new employees and on the date of grant for existing employees.

At December 31,
2010, there were 2,925,000 shares available for grant as options or other forms of share-based compensation under the 2009 Plan. As of December 31, 2010, substantially all of the Companys employees were participating in either the 1998
Plan or 2009 Plan.



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



The following table summarizes the stock option activity for the Companys equity
incentive plans:



|                                            |  |                  |            |   |                                         |   |       |                                                     |  |  |                                      |  |  |   |    |  
|------------------------------------------- |  | ---------------- | ---------- | - | --------------------------------------- | - | ----- | --------------------------------------------------- |  |  | ------------------------------------ |  |  | - | -- | -
|                                            |  | Number of Shares |            |   | WeightedAverageExercisePrice(per share) |   |       | WeightedAverageRemainingContractualTerm (in 
Years) |  |  | Aggregate Intrinsic Value in (000s) | 
|                                            |  |                  |           
|                                            |  |                  |           
|                                            |  |                  |           
|                                            |  |                  |           
|Outstanding at December 31, 2008            |  |                  | 10,997,770 |   |                                         | $ | 0.46  |                                                     |  |  |                                      |  |  |   |    |  
|Granted                                     |  |                  | 2,890,000  |   |                                         |   | 0.22  |                                                     |  |  |                                      |  |  |   |    |  
|Exercised                                   |  |                  |           |   |                                         |   | -0    | -                                                   |  |  |                                      |  |  |   |    |  
|Forfeited/Cancelled/Expired                 |  |                  | (1,826,270 | ) |                                         |   | (0.43 | )                                                   |  |  |                                      |  |  |   |    |  
|                                            |  |                  |            |   |                                         |   |       |                                                     |  |  |                                      |  |  |   |    |  
|Outstanding at December 31, 2009            |  |                  | 12,061,500 |   |                                         |   | 0.40  |                                                     |  |  | 3.62                                 |  |  | $ | -0 | -
|Granted                                     |  |                  | 1,865,000  |   |                                         |   | 0.23  |                                                     |  |  |                                      |  |  |   |    |  
|Exercised                                   |  |                  | -0         | - |                                         |   | -0    | -                                                   |  |  |                                      |  |  |   |    |  
|Forfeited/Cancelled/Expired                 |  |                  | (2,104,500 | ) |                                         |   | (0.32 | )                                                   |  |  |                                      |  |  |   |    |  
|                                            |  |                  |            |   |                                         |   |       |                                                     |  |  |                                      |  |  |   |    |  
|Outstanding at December 31, 2010            |  |                  | 11,822,000 |   |                                         | $ | 0.39  |                                                     |  |  | 3.21                                 |  |  | $ | -0 | -
|                                            |  |                  |            |   |                                         |   |       |                                                     |  |  |                                      |  |  |   |    |  
|Vested and Exercisable at December 31, 2010 |  |                  | 10,212,000 |   |                                         | $ | 0.39  |                                                     |  |  | 3.16                                 |  |  | $ | -0 | -
|                                            |  |                  |            |   |                                         |   |       |                                                     |  |  |                                      |  |  |   |    |  

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, 2010.

The total fair value of shares vested for the years ended December 31, 2010 and
December 31, 2009 were:



|                                                                     |  |   |         | 
|-------------------------------------------------------------------- |  | - | ------- | 
|Fair value of options vested during the year ended December 31, 2010 |  | $ | 456,682 | 
|Fair value of options vested during the year ended December 31, 2009 |  | $ | 741,545 | 

Cash received from
stock option exercises for the years ended December 31, 2010 and December 31, 2009 was $-0- and $0, respectively. Due to the Companys net loss position, no income tax benefit has been realized during the years ended December 31,
2010 and December 31, 2009.

The following table summarizes information concerning options outstanding at
December 31, 2010:



|               |  |                    |                      |  |                                          |  |      |                                        |  |   |               |  |  |                                |           |  |                                  |  |      |  |  |   |      | 
|-------------- |  | ------------------ | -------------------- |  | ---------------------------------------- |  | ---- | -------------------------------------- |  | - | ------------- |  |  | ------------------------------ | --------- |  | -------------------------------- |  | ---- |  |  | - | ---- | 
|Outstanding    |  |                    | Vested & Exercisable | 
|Range $        |  | OptionsOutstanding |                      |  | WeightedAverageRemainingContractual Life |  |      | WeightedAverageOutstandingStrike Price |  |   | VestedOptions |  |  | RemainingVestedContractualLife |           |  | WeightedAverageVestedStrikePrice | 
|$0.00 to $0.20 |  |                    | 1,900,000            |  |                                          |  | 4.06 |                                        |  | $ | 0.19          |  |  |                                | 1,410,000 |  |                                  |  | 3.98 |  |  | $ | 0.20 | 
|0.21 to 0.29   |  |                    | 4,585,000            |  |                                          |  | 3.16 |                                        |  | $ | 0.26          |  |  |                                | 4,090,000 |  |                                  |  | 3.02 |  |  | $ | 0.26 | 
|0.30 to 0.49   |  |                    | 935,000              |  |                                          |  | 2.86 |                                        |  | $ | 0.45          |  |  |                                | 935,000   |  |                                  |  | 2.86 |  |  | $ | 0.45 | 
|$0.50 to $0.70 |  |                    | 4,402,000            |  |                                          |  | 2.95 |                                        |  | $ | 0.60          |  |  |                                | 3,777,000 |  |                                  |  | 3.07 |  |  | $ | 0.60 | 



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



The following table summarizes information concerning options outstanding at
December 31, 2009:



|               |  |                    |                      |  |                                          |  |      |                                        |  |   |               |  |  |                                |           |  |                                  |  |      |  |  |   |      | 
|-------------- |  | ------------------ | -------------------- |  | ---------------------------------------- |  | ---- | -------------------------------------- |  | - | ------------- |  |  | ------------------------------ | --------- |  | -------------------------------- |  | ---- |  |  | - | ---- | 
|Outstanding    |  |                    | Vested & Exercisable | 
|Range $        |  | OptionsOutstanding |                      |  | WeightedAverageRemainingContractual Life |  |      | WeightedAverageOutstandingStrike Price |  |   | VestedOptions |  |  | RemainingVestedContractualLife |           |  | WeightedAverageVestedStrikePrice | 
|$0.00 to $0.20 |  |                    | 1,630,000            |  |                                          |  | 4.96 |                                        |  | $ | 0.20          |  |  |                                | 1,330,000 |  |                                  |  | 5.00 |  |  | $ | 0.20 | 
|0.25 to 0.29   |  |                    | 4,495,000            |  |                                          |  | 2.82 |                                        |  | $ | 0.26          |  |  |                                | 3,916,666 |  |                                  |  | 2.66 |  |  | $ | 0.26 | 
|0.31 to 0.49   |  |                    | 1,250,000            |  |                                          |  | 4.18 |                                        |  | $ | 0.45          |  |  |                                | 1,210,000 |  |                                  |  | 4.20 |  |  | $ | 0.45 | 
|$0.50 to $0.70 |  |                    | 4,686,500            |  |                                          |  | 3.77 |                                        |  | $ | 0.60          |  |  |                                | 3,335,250 |  |                                  |  | 4.00 |  |  | $ | 0.60 | 

The weighted average
fair value (per share) of options granted during the years ended December 31, 2010, and December 31, 2009 using the American Binomial option-pricing model was $0.10 and $0.11, respectively.

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 2010 and 2009. Actual volatility, and future changes in estimated volatility, may differ substantially from the Companys current estimates.

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

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



|                                 |  |                                                     |      |   |      |  |      |  
|-------------------------------- |  | --------------------------------------------------- | ---- | - | ---- |  | ---- | -
|                                 |  | Stock Option Assumptions forYear Ended December 31, |     
|                                 |  | 2010                                                |      |   | 2009 | 
|Risk-free interest rate          |  |                                                     | 1.93 | % |      |  | 2.40 | %
|Dividend yield                   |  |                                                     | 0    | % |      |  | 0    | %
|Expected volatility              |  |                                                     | 72.3 | % |      |  | 73.6 | %
|Expected life of options (years) |  |                                                     | 5.0  |   |      |  | 5.0  |  



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



The following table summarizes weighted average grant date fair value activity for the
Company incentive stock plans:



|                                                           |  |                                        |      |  |      |   |      | 
|---------------------------------------------------------- |  | -------------------------------------- | ---- |  | ---- | - | ---- | 
|                                                           |  | Weighted
Average Grant-Date Fair Value |     
|                                                           |  | 2010                                   |      |  | 2009 |  
|Stock options granted during the year ended December 31,   |  | $                                      | 0.10 |  |      | $ | 0.11 | 
|Stock options vested during the year ended December 31,    |  | $                                      | 0.19 |  |      | $ | 0.21 | 
|Stock options forfeited during the year ended December 31, |  | $                                      | 0.27 |  |      | $ | 0.33 | 

During the years
ended December 31, 2010 and December 31, 2009, 2,432,084 and 3,537,916 stock options vested, respectively. The aggregate fair value of the vested options was $456,682 and $741,545, respectively.

A summary of the status of the Companys nonvested shares underlying stock options as of December 31, 2010, and changes during
the year ended December 31, 2010 is as follows:



|                                      |  |                                |           |  |                                     |   |      | 
|------------------------------------- |  | ------------------------------ | --------- |  | ----------------------------------- | - | ---- | 
|                                      |  | Shares Underlying StockOptions |           |  | WeightedAverageGrant DateFair Value |  
|Nonvested Shares at January 1, 2010   |  |                                | 2,269,584 |  |                                     | $ | 0.27 | 
|Nonvested Shares at December 31, 2010 |  |                                | 1,610,000 |  |                                     | $ | 0.36 | 

As of
December 31, 2010, approximately $303,502 of total unrecognized compensation cost related to unvested stock options is expected to be recognized over a weighted-average period of 0.91 years.



|NOTE 18: | 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:



|                                |  |                   |            |   |                   |   |            |  
|------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -
|                                |  | December 31, 2010 |            |   | December 31, 2009 |  
|Current tax expense (benefit):  |  |                   |            |   |                   |   |            |  
|Income tax at statutory rates   |  | $                 | -0         | - |                   | $ | -0         | -
|Deferred tax expense (benefit): |  |                   |            |   |                   |   |            |  
|Bad debt allowance              |  |                   | (882       | ) |                   |   | (43,874    | )
|Operating loss carryforward     |  |                   | (1,726,393 | ) |                   |   | (2,207,272 | )
|Patent litigation settlement    |  |                   | 84,166     |   |                   |   | 144,481    |  
|                                |  |                   |            |   |                   |   |            |  
|                                |  |                   | (1,643,109 | ) |                   |   | (2,106,665 | )
|Valuation allowance             |  |                   | 1,643,109  |   |                   |   | 2,106,665  |  
|                                |  |                   |            |   |                   |   |            |  
|Total tax expense (benefit)     |  | $                 | -0         | - |                   | $ | -0         | -
|                                |  |                   |            |   |                   |   |            |  



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##### Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND DECEMBER 31, 2009



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:



|                                    |  |                   |             |   |                   |   |             |  
|----------------------------------- |  | ----------------- | ----------- | - | ----------------- | - | ----------- | -
|                                    |  | December 31, 2010 |             |   | December 31, 2009 |  
|Amortization of intangibles         |  | $                 | 283,698     |   |                   | $ | 283,698     |  
|Bad debt allowance                  |  |                   | 100,579     |   |                   |   | 99,697      |  
|Patent litigation liability accrual |  |                   | 588,106     |   |                   |   | 672,272     |  
|Operating loss carryforwards        |  |                   | 16,071,494  |   |                   |   | 15,501,373  |  
|                                    |  |                   |             |   |                   |   |             |  
|Gross deferred tax assets           |  |                   | 17,043,877  |   |                   |   | 16,557,040  |  
|                                    |  |                   |             |   |                   |   |             |  
|Valuation allowance                 |  |                   | (17,043,877 | ) |                   |   | (16,557,040 | )
|                                    |  |                   |             |   |                   |   |             |  
|Net deferred tax asset              |  | $                 | -0          | - |                   | $ | -0          | -
|                                    |  |                   |             |   |                   |   |             |  

The Company has net operating loss carryforwards (NOL) for income tax purposes of approximately
$44,955,360. This loss is allowed to be offset against future income until the year 2030 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 substantial losses incurred through December 31, 2010. The change in the valuation allowance for the year ended
December 31, 2010 was an increase of $486,836.



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