MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

General

The following information should be read in conjunction with the consolidated financial statements and notes thereto and other information set forth in this report.

Overview

We are a healthcare technology company that provides Web-based electronic data capture (“EDC”) solutions and related value-added services to pharmaceutical and biotechnology companies, clinical research organizations, and other clinical trial sponsors via our Internet-based software, TrialMaster®. TrialMaster allows clinical trial sponsors and investigative sites to securely collect, validate, transmit, and analyze clinical study data including patient histories, patient dosing, adverse events, and other clinical trial information. Medical Error Reporting System (“MERS-TH”) was co-developed with Columbia University during 2002. MERS-TH provides our clients, U.S. and European based hospitals and medical centers, a standardized system for collecting data on medical errors, adverse events and near misses. Medical errors lead to between 40,000 and 90,000 deaths annually and cost the U.S. health care system over $33 billion annually. We phased out the systems integration segment of our business during 2001. All of our personnel are involved in the development and marketing of TrialMaster.

The Six Months Ended June 30, 2003 Compared With the Six Months Ended June 30, 2002

Results of Operations

Revenues

Revenues for the period ended June 30, 2003 were $333,550 compared to $225,973 for the same period in 2002. The increase can be attributed to increased success we experienced in marketing TrialMaster. While industry growth estimates vary, most predictions indicate that EDC is anticipated to become widely accepted within the next three to five years. Web-based EDC has been around for approximately four years and between 10% and 15% of all clinical trials are currently conducted using Web-based EDC. Incremental growth within the industry should continue as competitive pressures mount in the pharmaceutical industry to replace existing prescription drugs losing their patent protection.

We changed our marketing focus to include clinical research organizations (CRO’s) approximately eight months ago. CRO’s generally market to and service a broad range of pharmaceutical and medical device manufacturers and consequently provide us the opportunity to market to a broader, bigger and more diverse end-user base. We have recently found CRO’s to be more receptive to the use of EDC. This is likely in response to pressure from clinical trial sponsors for more rapid and cost-efficient clinical trials, a result that EDC use can impact. We expect to increase the number of CRO’s using TrialMaster during the next six months. TrialMaster supplements the traditional CRO’s basket of products and services and would be sold as integral part of the outsource package offered to their trial sponsor clients. This should provide us the opportunity to leverage their sales force thereby increasing new clients with only modest increases in our sales and marketing expenditures.

Our TrialMaster product is currently being sold as an application service provider (“ASP”) that provides EDC and other services such as an enterprise management suite which assists its clients in the pharmaceutical, biotechnology and medical device industries in accelerating the completion of clinical trials.

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TrialMaster contracts provide for pricing that is based on both the size and duration of the clinical trial. Size parameters include the number of patients participating in the trial and the number of data points being collected per patient. The client will pay a trial setup fee based on the previously mentioned factors, and then pay an on-going maintenance fee for the duration of the clinical trial that provides software, network and site support during the trial. Generally, these contracts will range in duration from four months to several years. Setup fees are generally earned prior to the inception of a trial; however, the revenues will be recognized in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements” 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.

Cost of Goods Sold

Cost of goods sold decreased to $95,334 in 2003 compared to $202,934 during the comparable period in 2002. Cost of goods sold relates primarily to salaries and benefits associated with the programmers, developers and systems analysts producing clinical trials on behalf of our clients. In addition, we have entered into a strategic alliance with a company based in Holland to provide help-desk services for our clients located in Europe. We do not expect the costs associated with this relationship to materially affect our results of operations.

Our gross margins during the first quarter of 2003 were approximately 71.4%. TrialMaster V3.0 automated many of the manual programming functions inherent in earlier versions of the product. This combined with the experience gained from serving our existing client base has allowed to decrease the time and cost involved in producing clinical trials. We expect gross margins to contract during the third quarter as we transition our business to providing TrialMaster on both an ASP and licensed basis. We expect margins to return to the 70-75% range during the fourth quarter of 2003 after these design efforts have been completed.

Other Expenses

Salaries, Benefits and Related Taxes

Salaries and related expenses are our biggest expense at 74.2% of total Other Expenses for the first half of 2003. Salaries and related expenses totaled $916,943 in 2003 compared to $876,565 in 2002. Total salaries declined relative to 2002 since a portion of total payroll is accounted for in cost of goods sold. We currently employ approximately 15 employees out of our Davie, Florida corporate office and two out-of-state sales executives. We expect to increase headcount within our technology and sales and marketing functions in concert with anticipated increases in TrialMaster clients during fiscal 2003.

Rent

Rent expense was $75,282 for fiscal 2003 compared with $78,565 for fiscal 2002. Although rent expense remained relatively constant, the components of the costs have changed. Our development office in Tampa was closed in March 2001 and that function was relocated to the corporate office to provide a complementary workflow between our R & D function and our operations and marketing departments. During November 2001 our corporate offices were relocated to the Ft. Lauderdale, Florida area. We believe this market provides a better environment for technical personnel recruiting. We were also able to reduce our rent obligations by approximately $3,300 per month. In December 2001, we established a disaster recovery site at an IBM Co-Location facility in Atlanta, Georgia. This site allows 100% system up-time and provides us with redundant data storage capabilities.

Legal and Professional Fees

Legal and professional fees totaled $31,517 in 2003 compared with $118,795 during fiscal 2002. Key components of the 2003 amounts include $45,000 paid to our placement agent for financial advisory services, $25,000 in audit related fees, $(50,018) in legal fees which includes a credit of $(52,023) for a settlement of accrued legal fees associated with a private placement of our Series C Preferred Stock and $11,534 that relate to accounting and legal services associated with our obligations as a public company. We expect on-going legal and professional fees to fall in-line with what was experienced during 2002.

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Travel

We incurred $28,857 in travel expenses during fiscal 2003 compared to $20,260 during 2002. We expect travel to increase as we experience more success in penetrating the marketplace with our sales efforts. We expect this increase to be offset by the increase in accompanying revenues.

Telephone and Internet

Telephone and Internet related costs were reduced by $4,639, or approximately 11.6%, due to decreased telephone and Internet access costs associated with the change of our telecom provider from MCI to AT&T. We do not anticipate increases in access charges during fiscal 2003 based on our own existing communications infrastructure and our projected 2003 clinical trial workload.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SGA”) were $67,463 during the first half of 2003. These expenses relate primarily to costs incurred in running our office day-to-day and other costs not directly related to other captioned items in our income statement, and include the cost of office equipment and supplies, the costs of attending conferences and seminars and other expenses incurred in the normal course of business. We expect to increase the overall dollar volume spent on SGA as we increase our revenue base and step-up our overall activity. The increase of approximately $14,000 is partially attributable to increased advertising and public relations costs of approximately $3,000 and increased insurance costs of approximately $11,000.

Interest Expense

Interest expense was $58,421 during 2003 versus $145,026 in fiscal 2002. The Company converted its 12% Convertible Notes during December 2002 into shares of its Series C Preferred Stock. This conversion reduced annualized interest expense by approximately $190,000.

Preferred Stock Dividends

In March 2003 we issued 590,000 warrants to investors in a private placement of our Series C Preferred Stock. The warrants were valued at $135,344 utilizing the Black-Scholes model. The net proceeds received in the Series C Preferred Stock offering were allocated to the Series C Preferred Stock and we recognized a deemed dividend on preferred stock of $135,344 resulting in a charge to retained earnings and a credit to additional paid-in capital within our stockholders’ equity as of June 30, 2003. In June 2003 we issued 700,000 warrants to investors in a private placement of our common stock. The warrants were valued at $160,577 utilizing the Black-Scholes model. The net proceeds received in the common stock offering were allocated to the common stock and we recognized a deemed dividend on common stock of $160,577 resulting in a charge to retained earnings and a credit to additional paid-in capital within our stockholders’ equity as of June 30, 2003. Dividends on our Series A Preferred Stock totaled $0 in 2003 compared to $101,837 for the comparable period in 2002. There were arrearages of $101,837 in Series A Preferred Stock dividends, of $79,342 in Series B Preferred Stock dividends and $129,956 in Series C Preferred Stock dividends at June 30, 2003 and we therefore deducted $311,135 from Net Income (Loss).

The Three Months Ended June 30, 2003 Compared With the Three Months Ended June 30, 2002

Results of Operations

Revenues

Revenues for the period ended June 30, 2003 were $132,420 compared to $121,951 for the same period in 2002. The increase can be attributed to increased success we experienced in marketing TrialMaster. We expect revenues to increase as we experience continued success in marketing TrialMaster to larger entities. These clients will afford us a higher likelihood of multiple trial engagements. In addition, the trials conducted will characteristically encompass more locations and therefore provide us incremental revenues.

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Cost of Goods Sold

Cost of goods sold decreased to $48,227 in 2003 compared to $78,225 during the comparable period in 2002. Cost of goods sold relates primarily to salaries and benefits associated with the programmers, developers and systems analysts producing clinical trials on behalf of our clients. In addition, we have entered into a strategic alliance with a company based in Holland to provide help-desk services for our clients located in Europe. We do not expect the costs associated with this relationship to materially affect our results of operations.

Our gross margins during the second quarter of 2003 were approximately 63.6%. The decrease in gross margins versus the first quarter of 2003 is a result of smaller than expected revenues combined with significant amounts of labor expended on producing a new version of TrialMaster focused primarily on companies conducting Phase I clinical trials.

Other Expenses

Salaries, Benefits and Related Taxes

Salaries and related expenses were our biggest expense at 88.1% of total Other Expenses for the second quarter of 2003. Salaries and related expenses totaled $465,856 in 2003 compared to $438,952 in 2002. Total salaries declined relative to 2002 since a portion of total payroll is accounted for in cost of goods sold. We currently employ approximately 15 employees out of our Davie, Florida corporate office and two out-of-state sales executives. We expect to increase headcount within our technology and sales and marketing functions in concert with anticipated increases in TrialMaster clients during fiscal 2003.

Rent

Rent expense was $38,524 for fiscal 2003 compared with $38,345 for fiscal 2002. Although rent expense remained relatively constant, the components of the costs have changed. Our development office in Tampa was closed in March 2001 and that function was relocated to the corporate office to provide a complementary workflow between our R & D function and our operations and marketing departments. During November 2001 our corporate offices were relocated to the Ft. Lauderdale, Florida area. We believe this market provides a better environment for technical personnel recruiting. We were also able to reduce our rent obligations by approximately $3,300 per month. In December 2001, we established a disaster recovery site at an IBM Co-Location facility in Atlanta, Georgia. This is designed to ensure 100% system up-time.

Legal and Professional Fees

Legal and professional fees totaled $6,764 in 2003 compared with $36,867 during fiscal 2002. Key components of the 2003 amounts include $22,500 paid to our placement agent for financial advisory services, $25,000 for audit related fees, $(49,971) in legal fees which includes a credit of $52,023 for a settlement of accrued legal fees associated with the private placement of our Series C Preferred Stock, and $11,534 that relate to accounting and legal services associated with our obligations as a public company. We expect on-going legal and professional fees to fall in-line with what was experienced during 2002.

Travel

We incurred $19,102 in travel expenses during fiscal 2003 compared to $5,814 during 2002. We expect travel to increase as we experience more success in penetrating the marketplace with our sales efforts. We expect this increase to be offset by the increase in accompanying revenues.

Telephone and Internet

Telephone and Internet related costs increased by $3,278. We do not anticipate increases in access charges during fiscal 2003 based on our own existing communications infrastructure and our projected 2003 clinical trial workload.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SGA”) were $34,272 during the second quarter of 2003. These expenses relate primarily to costs incurred in running our office day-to-day and other costs not directly related to other captioned items in our income statement, and include the cost of office equipment and supplies, the costs of attending conferences and seminars and other expenses incurred in the normal course of business.

Interest Expense

Interest expense was $29,311 during 2003 versus $72,982 in fiscal 2002. The holders of our 12% Convertible Notes converted these notes during December 2002 into shares of our Series C Preferred Stock and warrants. This conversion reduced annualized interest expense by approximately $190,000.

Preferred Stock Dividends

In June 2003 we issued 700,000 warrants to investors in a private placement of our common stock. The warrants were valued at $160,577 utilizing the Black-Scholes model. The net proceeds received in the Series C Preferred Stock offering were allocated to the common stock and we recognized a deemed dividend on preferred stock of $160,577 resulting in a charge to retained earnings and a credit to additional paid-in capital within our stockholders’ equity as of June 30, 2003. Dividends on our Series A Preferred Stock totaled $0 in 2003 compared to $51,200 for the comparable period in 2002. There were arrearages of $51,200 in Series A Preferred Stock dividends, $39,890 in Series B Preferred Stock dividends and $67,245 in Series C Preferred Stock dividends at June 30, 2003 and we therefore deducted $158,335 from Net Income (Loss).

The Year Ended December 31, 2002 Compared With the Year Ended December 31, 2001

Results of Operations

Revenues

Revenues for the period ended December 31, 2002 were $437,698 compared to $170,522 for the same period in 2001, an increase of 156.7%. We have found the markets increasingly receptive to utilizing EDC services during the second half of 2002. This is consistent with our expectation that the market would begin adopting EDC services more rapidly as early adopters bring increased credibility to the market. We built upon this momentum through the acquisition of new clients and via repeat engagements with existing clients. We placed additional emphasis on broadening the market segments that we market our products to. During the latter half of 2002 we secured engagements from our first Clinical Research Organization (CRO) and academic research organization, Columbia University. We believe the broadened marketing horizon provides us some insulation from downturns in any specific segment for clinical trial services and also affords us some ability to cross-market services between our different clients. Working with CRO’s brings our services to their built-in client base and allows us to benefit from their sales efforts by bundling TrialMaster as part of their service offerings. Conversely, we can provide the CRO potential new clients for their non-data collection services.

CRO’s have become more receptive to the EDC process during 2002 and we expect their adoption rate to continue increasing. We believe that the adoption of EDC by CRO’s is a significant factor to the overall success of EDC as a data collection tool. We expect the adoption rate to increase as clinical trial sponsors continue seeking methods to reduce their R & D costs and more importantly as they continue seeking a way to make the clinical trial process more efficient. Academic research organizations provide us an attractive opportunity due to their participation in cutting-edge projects, access to government sponsored projects and the credibility afforded companies partnering with institutions such as Columbia University.

The general weakness exhibited in the economy has not diminished the level of activity in new drug therapy research since the drug and medical device manufacturers are continuously forced to find replacements for therapies coming under the pressures exerted by the loss of patent protection. We do believe, however, that the broad perception that small, high-technology firms are operating under severe financial constraints has caused slower adoption of EDC. More specifically, we have found that potential clients are apprehensive of doing business with us because of our going-concern issues. We believe we have had success in addressing this issue and that our recent success in securing new clients in conjunction with our improved financial results will lessen the effect this has on our sales efforts.

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While industry growth estimates vary, most predictions indicate that EDC is anticipated to become widely accepted. For example, Forrester Research and Frost & Sullivan each predict annual double-digit growth in the use of EDC technologies between 2001 and 2006. Web-based EDC has been around for approximately four years and between 10% and 15% of all clinical trials are currently conducted using Web-based EDC. Incremental growth within the industry should continue as competitive pressures mount in the pharmaceutical industry to replace existing prescription drugs losing their patent protection.

Our TrialMaster product is currently being sold as an application service provider (“ASP”) that provides EDC and other services such as an enterprise management suite which assists its clients in the pharmaceutical, biotechnology and medical device industries in accelerating the completion of clinical trials.

TrialMaster contracts provide for pricing that is based on both the size and duration of the clinical trial. Size parameters include the case report forms used to collect data and the number of sites utilizing TrialMaster. The client will pay a trial setup fee based on the previously mentioned factors, and then pay an on-going maintenance fee for the duration of the clinical trial that provides software, network and site support during the trial. Generally, these contracts will range in duration from four months to several years. Setup fees are generally earned prior to the inception of a trial, however, the revenues will be recognized in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” 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.

We expect to begin marketing our new EDC product MERS-TH, during 2003. The Medical Event Reporting System (MERS-TH) is an event reporting system developed for hospitals and medical centers to collect, classify, and analyze events that could potentially compromise patient safety. MERS-TH provides the opportunity to study and monitor both actual and near-miss events to facilitate process improvement efforts. MERS-TH was developed in conjunction with Columbia University and will be marketed by both of us to hospital and medical centers in the U.S. and Europe initially.

Cost of Goods Sold

Cost of goods sold increased to $288,790 in 2002 compared to $194,108. Cost of goods sold were approximately 66.0% of sales. Approximately 8.1% of the expenses incurred in 2001 relate to our systems integration business and these expenses were eliminated in 2002 as we continued phasing out that line of our business. Cost of goods sold now relates primarily to salaries and related benefits associated with the programmers, developers and systems analysts producing clinical trials on behalf of our clients.

We expect to increase development programming labor costs on an absolute basis as our trial revenues increase. We expect labor costs to decrease on a relative percentage basis as we increase our trial base and develop economies of scale with regard to trial production. TrialMaster V3.0, the latest release of our trial-building software will improve our ability to reduce our trial production related costs since it automates many of the trial building functions that were manually performed in prior releases of our software. In addition, MERS-TH will provide a sales platform with high gross margins since we expect few client specific alterations to the basic software platform.

Other Expenses

Salaries, Benefits and Related Taxes

Salaries and related expenses are our biggest expense at 45.3% of total Other Expenses for 2002. Salaries and related expenses totaled $1,620,663 in 2002 compared to $1,829,385 in 2001. Total salaries decreased by approximately 5.6% versus 2001 since a portion of total payroll is now accounted for in cost of goods sold. We currently employ approximately 15 employees out of our Davie, Florida corporate office and have two out-of-state employees. We expect to increase headcount by about 25% within our production function in concert with anticipated increases in TrialMaster clients during fiscal 2003. We will look to selectively add experienced sales and marketing personnel in 2003 in an effort to increase our market penetration and to continue broadening our client base.

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Rent & Occupancy Expenses

Rent expense was $153,344 for fiscal 2002 compared with $185,040 for fiscal 2001. We have diminished our rent expense by closing our development office in Tampa in March 2001 and relocating that function to the corporate office to provide a more effective synthesis of workflows between our R & D function and our operations and marketing departments. During November 2001 our corporate offices were relocated to the Ft. Lauderdale, Florida area. We believe this market provides a better environment for technical personnel recruiting. We were also able to reduce our rent obligations by approximately $3,300 per month. In December 2001, we established a disaster recovery site at an IBM Co-Location facility in Atlanta, Georgia. This is designed to ensure 100% system up-time.

Legal and Professional Fees

Legal and professional fees totaled $178,214 in 2002 compared with $215,001 during fiscal 2001. Key components of the 2002 amounts include $90,000 paid to our placement agent for financial advisory services, $53,058 to our accountants for audit and tax related services, $8,891 in legal expenses related to various matters and $26,265 that relate to accounting and legal services associated with our obligations as a public company. We expect on-going legal and professional fees to approximate what was experienced during 2002.

Travel

We incurred $34,548 in travel expenses during fiscal 2002 compared to $66,205 during 2001. We began reducing travel expenses during mid-2000 as a result of the on-going working capital difficulties that we have been experiencing. Those cost-cutting measures continued in 2001 and during the first quarter of 2002. We expect travel to increase markedly as we experience more success in penetrating the marketplace with our sales efforts. We expect this increase to be offset by the increase in accompanying revenues.

Telephone and Internet

Telephone and Internet related costs were reduced by $14,597 due to decreased telephone and Internet access costs associated with the closing of our office in Tampa, Florida, and a decrease in overall long-distance charges associated with the closed facilities. We anticipate reducing our total telecommunications expenses by approximately 40% during 2003 by virtue of our change in long-distance and data line providers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SGA”) were $224,844 during 2002. These expenses relate primarily to costs incurred in running our office day-to-day and other costs not directly related to other captioned items in our income statement, and include the cost of office equipment and supplies, the costs of attending conferences and seminars and other expenses incurred in the normal course of business. We made a concerted effort during the second half of 2000 to eliminate or reduce SGA expenses not crucial to the efficient operation of our company. This effort continued during 2001 and is now culturally ingrained. We do expect to increase the overall dollar volume spent on SGA as we increase our revenue base and step-up our overall activity.

Interest Expense

Interest expense was $938,639 during 2002 versus $918,834 in fiscal 2001. In December 2002, the holders of 12% Convertible Notes converted those notes into shares of our Series C Preferred Stock. This conversion lowered the conversion price of the investors from $0.50 per share to $0.25 per share resulting in a debt conversion expense due to the more favorable conversion terms afforded the investors. The debt conversion expense of $646,000 was recorded as additional interest expense, this expense is non-cash and we recorded a corresponding increase to our additional paid-in capital.

During 2001 we entered into a private placement of 12% Convertible Notes. We recorded interest expense of $508,835 in connection with a “beneficial conversion feature” that was deemed to exist when the conversion price of some of the 12% Notes was issued at a discount to the prevailing market price of the stock. This expense is non-cash and we recorded a corresponding increase to our additional paid-in capital.

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During 2001 we issued 230,700 detachable common stock warrants as additional compensation in connection with short-term bridge loans that were used for working capital purposes. We valued the warrants utilizing the Black-Scholes model and recorded $124,827 as interest expense in 2001 and $165 as interest expense in 2002.

Preferred Stock Dividends

During 2002 we issued 6,153,000 warrants to investors in a private placement of our Series C Preferred Stock, including 3,230,000 warrants issued in the conversion of our 12% Convertible Notes into shares of Series C Preferred Stock. The warrants were valued at $1,411,475 utilizing the Black-Scholes model. The net proceeds received in the Series C Preferred Stock offering were allocated to the Series C Preferred Stock and we recognized a deemed dividend on preferred stock of $1,411,475 resulting in a charge to retained earnings and a credit to additional paid-in capital within our stockholders’ equity as of December 31, 2002.

During 2001 we issued 8,000,000 warrants to investors in a private placement of our Series B Preferred Stock. The warrants were valued at $3,383,168 utilizing the Black-Scholes model. The net proceeds received in the Series B Preferred Stock offering were allocated to the Series B Preferred Stock and we recognized a deemed dividend on preferred stock of $3,383,168 resulting in a charge to retained earnings and a credit to additional paid-in capital within our stockholders’ equity as of December 31, 2001.

Dividends on our Series A Preferred Stock totaled $121,025 in 2002 compared to $205,585 for the comparable period in 2001. This occurred as a result of our filing an Amended Certificate of Designation for the Series A Preferred Stock. The Amended Certificate of Designation was filed with the State of Delaware effective August 2, 2002. The Amended Certificate of Designation changed the terms of the Series A Preferred Stock dividend so that it becomes a liability only “when and if declared” by our board of directors. There were arrearages of $84,958 in Series A Preferred Stock dividends, $211,256 in Series B Preferred Stock dividends and $56,805 in Series C Preferred Stock dividends at December 31, 2002. We deducted $301,763 from Net Income (Loss) Attributable to Common Stockholders’ for the year ended December 31, 2002 relating to undeclared Series A, B and C Preferred Stock dividends.

Liquidity and Capital Resources

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

Cash and cash equivalents decreased by $129,090 from $194,877 to $65,787 at June 30, 2003. This was the result of cash provided by financing activities of $680,265 offset by cash used in operating activities of approximately $797,533. The significant components of the activity include a loss from operations of approximately $998,239 offset by non-cash expenses of 88,459, increases in cash of $112,247 from changes in working capital accounts and approximately $680,265 we raised through the sale of debt and equity securities.

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. We do not presently have any commitment for capital expenditures.

We are currently in default on interest payments owed totaling $66,879 on our 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. We were in default effective January 30, 2002.

We had a recorded liability of $145,711 at June 30, 2003 for federal employment taxes. We had not fully satisfied the liability as of August 15, 2003.

We have been operating with a cash burn rate. In order to manage cash flows, we have issued preferred stock and common stock to satisfy operating expenses and obligations. Between March 28, 2002 and March 2003 we sold 165,650 shares of our Series C Preferred Stock and warrants to purchase 3,513,000 shares of our common stock. Gross cash proceeds from this offering totaled $1,656,500. We accrued $333,077 in transaction related fees leaving net proceeds of approximately $1,423,423.

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From April 2003 through May 31, 2003 we sold an aggregate of 1,400,000 shares of our Common Stock and warrants to purchase 700,000 shares of our common stock for gross proceeds of $350,000. We accrued $35,000 in transaction fees leaving net proceeds to us of $315,000.

From July 2003 through August 31, 2003 we sold an aggregate of 620,000 shares of our common stock for gross proceeds of $155,000. We accrued $15,500 in transaction fees leaving net proceeds to us of $139,500.

During the second half of fiscal 2002 and first half of 2003, we entered into contracts for EDC services worth approximately $1.6 million in value. During this period we added seven new clients, including two clinical research organizations (CRO) and an academic research institution. These clients in particular are deemed vital to our long-term growth since these two areas have become a point of emphasis for our sales and marketing activities.

Our selling efforts now include marketing our products to several Fortune 500 pharmaceutical and medical device manufacturers and two of the largest CRO’s. We began providing services to some of these entities during the first half of 2003. These contracts should provide us the opportunity to limit our need for funding our operations via debt and equity capital. Obtaining contracts with clients of this size and reputation would also increase the credibility of the company.

We feel that the momentum established from new client acquisitions; the development of a new EDC product – MERS-TH; and our ability to retain clients for repeat engagements provide a good operating base from which to build during 2003. We improved our sales staff during the latter half of fiscal 2002 and expect to increase the level of resources utilized in the sales and marketing areas. We embarked on a cost cutting program during fiscal 2000. That program became part of our organization’s identity and remains ingrained in our culture today. We feel that a combination of our lean operating environment and increased success in new client acquisition, coupled with our ability to retain our existing clients will allow us to compete effectively within the EDC market.

Because of the losses experienced since 1999 we have needed to continue utilizing the proceeds from the sale of debt and equity securities to fund our working capital needs. The capital markets since mid-2000 have provided a difficult climate for raising capital due to the decline in value of publicly held technology stocks and the resultant apprehension on the part of investors to invest in technology oriented firms. In addition, when available, capital has been expensive relative to the valuations that were afforded during the expansion of the Internet sector in 1999 and 2000. The softness in the capital markets coupled with the losses experienced have caused working capital shortfalls. We have used a combination of equity financing and short-term bridge loans to fund our working capital needs. Other than our current capital and capital we may raise from future debt or equity offerings or short-term bridge loans, we do not have any additional sources of working capital.

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

To satisfy our capital requirements, including ongoing future operations, we will seek to raise additional financing through debt and equity financings. There can be no assurance that any such findings 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.

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Our ability to continue in existence is dependent on our having sufficient financial resources to bring products and services to market. As a result of our significant losses, negative cash flows from operations, and accumulated deficits for the periods ending June 30, 2003, there is doubt about our ability to continue as a going concern.

CRITICAL ACCOUNTING POLICIES

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

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

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

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

DEFERRED REVENUE

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

REVENUE RECOGNITION POLICY

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

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We recognize sales, for both financial statement and tax purposes, in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements” (SAB 101), SAB 101 requires that revenue be recognized ratably over the life of a contract. In accordance with SAB 101 we will periodically record deferred revenues relating to advance payments in contracts.

STOCK BASED COMPENSATION.

Options granted to employees under our Stock Option Plan are accounted for by using the intrinsic value method under APB Opinion 25, Accounting for Stock Issued to Employees (APB 25). In October 1995, the Financial Accounting Standards Board issued Statement No.123, Accounting for Stock-Based Compensation (SFAS 123), which defines a fair value based method of accounting for stock options. In December 2002, the FASB issued SFAS No.148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FAS 123” . This statement amends SFAS 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition and annual disclosure provisions of FAS 148 are effective for fiscal years ending after December 15, 2002. We account for stock options under the intrinsic value method specified in APB 25 and have adopted the disclosure requirement of FAS 148.

EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 141”), and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). They also issued Statement of Financial Accounting Standards No. 143, “Accounting for Obligations Associated with the Retirement of Long Lived Assets” (“SFAS 143”), and Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), in August and October 2001, respectively. Statement of Financial Accounting Standards No. 145- “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections” , was issued in April 2002. Also during 2002, Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” and Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FAS 123” were issued in June and December 2002, respectively.

SFAS 141 requires all business combinations initiated after September 30, 2001 be accounted for under the purchase method. SFAS 141 supersedes APB Opinion No. 16, “Business Combination’s” , and Statement of Financial Accounting Standards No. 38, “Accounting for Preacquisition Contingencies” of purchased Enterprises, and is effective for all business combinations initiated after September 30, 2001.

SFAS 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets. Under the new rules, we are no longer required to amortize goodwill and other intangible assets with indefinite lives, but will be subject to periodic testing for impairment. SFAS 142 supercedes APB Opinion No. 17, “Intangible Assets” . We expect that SFAS 142 will not have a material impact on our consolidated results of operations and financial position upon adoption. We adopted SFAS 142 on January 1, 2002.

SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective in fiscal years beginning after September 15, 2002, with early adoption permitted. We expect that the provisions of SFAS 143 will not have a material impact on our consolidated results of operations and financial position upon adoption. We adopted SFAS 143 effective January 1, 2002.

SFAS 144 establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. SFAS 144, supersedes Statement of Financial Accounting Standards No. 121, “Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of” (“SFAS 121”), and APB Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and

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Infrequently Occurring Events and Transactions” . The provisions of SFAS 144 are effective in fiscal years beginning after December 15, 2001, with early adoption permitted, and in general are to be applied prospectively. We adopted SFAS 144 effective January 1, 2002 and do not expect that the adoption will have a material impact on our consolidated results of operations and financial position.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 eliminates SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item. Under SFAS No. 145, such gains and losses should be classified as extraordinary only if they meet the criteria of APB Opinion No. 30. In addition, SFAS No. 145 amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. We do not expect the adoption of SFAS No. 145, which will become effective after May 2002 to have a material effect on our financial condition or results of operations.

June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” . The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Previous accounting guidance was provided by EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs incurred in a Restructuring)” . SFAS No. 146 replaces Issue 94-3. The provisions of SFAS No. 146 are to be applied prospectively to exit or disposal activities initiated after December 31, 2002. We do not expect the adoption of this pronouncement to have a material effect on our earnings or financial position.

On December 31, 2002, the FASB issued SFAS No.148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FAS 123” . This statement amends SFAS 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition and annual disclosure provisions of FAS 148 are effective for fiscal years ending after December 15, 2002. We do not expect the adoption to have a material effect on our earnings or financial position.

DESCRIPTION OF BUSINESS

Summary

We are an Internet-based healthcare technology company that provides Web-based electronic data capture (“EDC”) solutions and related value-added services to pharmaceutical and biotechnology companies, clinical research organizations (“CRO’s”), academic research institutions and other clinical trial sponsors. TrialMaster, our Internet-based software, allows clinical trial sponsors and investigative sites to securely collect, validate, transmit, and analyze clinical study data including patient histories, patient dosing, adverse events, and other clinical trial information. At every research site, clinical research data is entered electronically. All participants in the clinical trial process are connected and have access to the data in real time. Clinical trial sponsors can review, monitor, and analyze the data remotely and in real time.

Medical Error Reporting System (“MERS-TH”) was co-developed with Columbia University during 2002. MERS-TH provides our clients, U.S. and European based hospitals and medical centers, a standardized system for collecting data on medical errors, adverse events and near misses. Based on a February 2000 report made to the President medical errors are estimated to lead to between 40,000 and 90,000 deaths annually, and cost the U.S. health care system over $33 billion annually.

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.

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TrialMaster

TrialMaster is a Web-based software application that uses Internet technologies for EDC to conduct and manage clinical trial data from geographically dispersed sites.

We believe TrialMaster offers the following advantages, which increase the efficiency and decrease the costs of the clinical trial process:

	•		Accelerates initiation and completion of clinical trials by approximately 30%;
	•		Provides real-time access to clinical trial data;
	•		Eliminates double data entry and paper based reports;
	•		Decreases the cost of data collection in clinical trials by up to 80%;
	•		Provides real time connection between all participants in the clinical trial process;
	•		Improves data entry accuracy by up to 80%; and
	•		Secures collection and storage of clinical trial data, through encryption and multilevel storage in two locations.

Market Opportunity

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

In order for a drug or medical device to be marketed in the United States, Europe or Japan, the drug or device must undergo extensive testing and regulatory review to determine that it is safe and effective. The regulatory review process for new drugs and devices is time consuming and expensive. A new drug application (“NDA”) can take up to two years before the FDA approves it. This is in addition to three to five 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 the dynamics:

	•		The average drug approved for sale by the FDA in 2000 cost $635,000,000 to bring to market.
	•		Drug companies lose as much as $13 million in potential revenue for each day a trial is delayed on a blockbuster drug such as Lipitor™.

We believe TrialMaster provides us with strong market opportunities, including:

The Clinical Trial Industry is a Large and Growing Industry.

Worldwide R & D spending totaled $57 billion in 2000. A June 2003 Covance report projects 10% annual growth in R & D spending powered by the development of new drugs and treatments, increases in the complexity and number of clinical trials, increasing number of patients in the average application, an aging population and strong demand for drugs to treat this aging population.

CenterWatch estimates that in 2000 $4.8 billion was spent in the United States on clinical research data management and handling. We estimate that in 2002 approximately 10%-15% of all clinical trials were conducted using Web-based (EDC) solutions.

Industry Trends

Industry and regulatory trends have led pharmaceutical, biotechnology, and medical device companies to increase research and development for proprietary new drugs and medical devices. To keep pace in today’s market companies must conduct both more and increasingly complex clinical trials, develop multinational clinical trial capability, and, at the same time, control costs. These trends have created even greater competitive demands on the industry to bring products to market efficiently and quickly.

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Competitive Pressures

Increased competition and pressure from generic brands and increased volume of new drug candidates from the genomics industry have forced pharmaceutical companies to attempt to shorten the clinical trial processes to bring new drugs to market as soon as possible. New drugs are also needed because shortened life cycles of drugs have narrowed the window of opportunity for companies to enjoy extraordinary returns from patented drugs. According to Accenture, pharmaceutical companies are striving to select winning drugs earlier and to reduce the time it takes to bring the drug to market by one-third.

Expensive and Inefficient Paper-Based Clinical Trials Compared to EDC Solution

One of the bottlenecks in the clinical trials process is in the collection, validation and management of data. Traditional paper-based clinical trials are an inefficient process. Several market-leading CRO’s are conducting trials using Web-based trial solutions. Trial sponsors are beginning to use EDC in order to remain competitive relative to the costs in conducting trials and the time to completion.

Emerging Market of Web-Based EDC

Web-based EDC has been around for four years and an estimated 10% to 15% of all clinical trials are currently conducted using Web-based EDC. We believe that the move toward emerging Web-based technologies is natural since it involves the management of large quantities of trial data in different formats, which is by definition one of the core skills and competencies of the IT industry. While industry growth estimates vary, all predictions indicate that EDC will become widely accepted. For example, Forrester Research and Frost & Sullivan each predict annual double-digit growth in the use of EDC technologies between 2001 and 2006; Accenture predicts that by 2004, 60% of all clinical trials will use some form of EDC.

Unique Competitive Advantages

We believe we are well positioned to succeed within the emerging EDC industry due to our competitive strengths which include:

A focus toward customer requirements .

Unlike competitors that have “global” solutions with standard data fields, screens and forms, we provide a fully customized solution to meet very specific client needs. TrialMaster V3.0 is a robust, dynamically-driven software platform. It has been designed, based on our past experience, to include many “custom” features our clients have sought in our past engagements. TrialMaster’s flexible architecture allows us to perform client specific customizations in what we believe are industry best turnaround times. Our team of developers and programmers ensures user acceptance and system performance and provides customer-focused support services to guarantee a smooth integration of technology into each sponsor’s clinical trials. We assist with the design, installation, and integration of TrialMaster with existing systems, host the clinical trial data in a secure and controlled state-of-the-art facility, provide customer support 24 hours a day, 7 days a week, and train on-site personnel.

Quality EDC solution offered at a discount to the market price.

Our business strategy focuses on the continued development, marketing and sale of our TrialMaster product. TrialMaster V3.0 was introduced less than a year ago. As of today, we are involved in conducting or developing multi-center, clinical trials for seventeen clients. We completed a multi-center, multi-national clinical trial with a European-based medical device company and a European-based clinical research organization. This clinical trial encompassed 400 patients in 42 sites throughout Canada, Western Europe, and Scandinavia. We are in negotiations with several U.S.-based pharmaceutical and clinical research organizations to implement TrialMaster. During the last twelve months we have signed contracts with eight new clients with contractual values exceeding $1.6 million.

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Industry Background

Global research and development expenditures by the pharmaceutical, medical device and biotechnology industries reached an estimated $57 billion in 2000, with $23 billion being spent by North American-based pharmaceutical, biotechnology and medical device companies. It is estimated that pre-clinical and clinical trial costs represent approximately one-third of the total spent on research and development, with approximately 8.5% of the total costs spent on data management.

Pre-clinical and clinical trials historically were performed almost exclusively by in-house personnel at the major pharmaceutical companies. Over the last two decades, clinical trial sponsors have transitioned to a model that includes the outsourcing of clinical trial management to clinical research organizations (“CRO’s”).

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

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

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

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

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

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

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

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

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

Clinical Trial Overview

In order for a drug or medical device to be marketed the drug or device must undergo extensive testing and regulatory review to determine that it is safe and effective. To support an application for regulatory approval, clinical data must be collected, reviewed and compiled. Clinical data is collected from case report forms (“CRF’s”) that are submitted to and filled out by an investigator, typically a doctor or research assistant who is administering the clinical trial. CRF’s can be five to several hundred pages long, and document a series of visits by patients over a period of time.

Once information is collected by the investigator and the CRF is completed, the investigator submits the CRF to the sponsor or the CRO. The data is then input manually into a database. Typically, double data entry is used to resolve errors.

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TrialMaster allows participants in the clinical trial process, such as a sponsor or CRO, to perform data collection, handling and transmission via a direct, secure Internet connection. After the CRF’s are Internet enabled and the validation criteria encoded, the CRF forms are accessed via the Internet from our server to the sites where the clinical trials will take place.

The TrialMaster Suite of Products

TrialMaster is an open system that is fully integratable with existing legacy data systems such as Oracle ^® and Microsoft SQL ^® . The application utilizes a standard browser such as Internet Explorer 5.0 ^® . TrialMaster allows clinical data to be entered directly from a source document, such as a patient record or doctor’s notes, via computer. The clinical data is transmitted via the Internet to a secure server where the data is validated and stored. The cost for implementing the application is based on a data point per page/per patient fee which increases or decreases depending on the size and length of the trial.

TrialMaster’s features and benefits include:

	•		Internet-based network - no special client software required;
	•		Role-based security - data presented on basis of role in the trial (i.e., investigator, sponsor, trial manager);
	•		Audit trail of all transactions - all original data and changes are recorded;
	•		Primary data validation - data ranges and requirements are checked upon entry of data
	•		Customized reports based on client’s specifications;
	•		Enhanced Messaging system - sends email notifications based upon client defined events both systemically and client generated;
	•		Data export - client can export database in a variety of formats for interim analysis;
	•		Real time data access - clients can monitor trial progress and make go/no-go decisions;
	•		ASP model - uses our secure data infrastructure and can be installed utilizing client-supplied equipment as an option;
	•		Fully compliant with FDA 21 CFR Part 11 and subsequent April 1999 Guidance to Industry;
	•		CDISC compliant exported data.

TrialMaster is intended to enhance the clinical trial process in the following three areas:

Data Collection is Faster and Cheaper . Clinical data is collected from the CRF’s that are provided by the trial sponsor and submitted to and filled out by an investigator - a doctor or a research assistant - who is participating in the clinical trial. The forms are five to several hundred pages per patient and encompass a series of visits by patients over a period of time. Currently, the cost to process data ranges from $7.00 to $25.00 per page per patient. Under the TrialMaster system, the cost to process the data is approximately two to five times less per page per patient. The time to process the data under the current manual system can take anywhere from one to eight weeks, which is significantly reduced utilizing TrialMaster because the data is entered in real-time with validation occurring instantly.

Data is Collected More Accurately. Upon its submission, data is reviewed to determine if the collected data is within the parameters of the clinical trial. If data is outside of the clinical trial parameters or if there are typographical errors or similar data problems, the data collection process will generate an edit query. This edit query must be submitted to the investigator for resolution and resubmitted for data processing. Under the current manual system, the cost to process an edit query is approximately $80 to $115 per query; for a large trial, it is not uncommon to generate 500 to 1,000 edit queries a week. The time to process the data for each patient under the current manual system can take anywhere from three to eight weeks. By using TrialMaster, the number of edit queries are significantly reduced because the system validates data as it is input, and the cost of the queries can be reduced by up to 80% to 85%.

Clinical Studies Can Be Monitored More Efficiently . Monitors are an integral and necessary part of the clinical trial process. These individuals travel to clinical sites to ensure that the investigators are complying with good clinical practice standards. They make sure clinical data is collected and submitted in a safe, timely and accurate manner. Monitoring and its associated costs, such as travel, can exceed one-quarter of the total costs of a clinical trial. Under the current system, the cost for a monitoring visit can vary from $1,000 to $3,000 per visit, and a trial can require as many as three to seven visits by the monitor. The number of visits can be reduced when using TrialMaster because the status of sites can be monitored remotely and in real-time. Under the current system, the time for each visit is usually one to two days; utilizing TrialMaster, we believe monitoring hours can be reduced by 50% and monitoring visits can be more efficiently scheduled due to the availability of more accurate and complete information on the trials.

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TrialMaster Sales and Marketing

EDC services are currently used in approximately 10% to 15% of clinical trials. Our sales efforts encompass a broad range of clinical trial sponsors including multi-national pharmaceutical companies, small and mid-size pharmaceutical, medical device, academic research institutions and clinical research organizations. We have begun allocating a substantial portion of our sales effort towards large multi-national pharmaceutical companies. These firms conduct numerous trials per year making TrialMaster a scalable and cost-efficient solution. The scope of work available from these large sponsors provides a strong market for sales growth for us. Our focus on small and mid-size companies is predicated upon the fact that they are unlikely to have the technological resources necessary to develop a product like TrialMaster which will offer these companies operating efficiencies in the clinical trial process as well as potential cost savings.

TrialMaster can be used within any segment of the pharmaceutical, biotechnology or medical device industries that undertake clinical trials. We have focused our sales and marketing efforts on the pharmaceutical industry, a market dominated by companies such as Johnson & Johnson and Pfizer. We believe the following are the relevant factors for approaching this market:

	•		access to “validators” for the market,
	•		relatively standardized and advanced approach to clinical trial process,
	•		a very competitive market with relatively short product cycles providing for a need to get products to market quickly, and
	•		a tight group of opinion leaders within the market segment with which we have direct relationships.

Our marketing strategy includes establishing relationships with “opinion leaders” and decision makers within the clinical trial industry. In this regard, we have created a Medical Advisory Board to advise us on the development and marketing of the TrialMaster system. The Medical Advisory Board will also provide a platform to contact these opinion leaders and to provide information about the application. We are also using traditional methods to market TrialMaster, including advertising in trade periodicals and attending industry conventions.

Medical Error Reporting System – MERS-TH

MERS-TH is a Web-based reporting system used to collect, classify and analyze medical events from geographically dispersed sites. MERS-TH provides the opportunity to study and monitor actual and near-miss errors to facilitate the improvement of the care-giving process. We developed MERS-TH in conjunction with Columbia University during 2002.

We believe MERS-TH will improve the process of collecting, cataloging and studying medical errors. MERS-TH provides the following benefits:

	•		Standardized error classification system and reporting will allow larger hospital and health care providers to streamline the reporting process;
	•		Real-time access to data;
	•		Seamless integration into existing health care reporting systems utilizing data imports;
	•		Improves existing QA systems’ effectiveness without creating additional layers of responsibility;
	•		Facilitates compliance with governmental mandated reporting requirements; and
	•		Secure collection and storage of data through encryption.

Medical Errors Defined

Types of Medical Errors

	•		Diagnostic

	•		Error or delay in diagnosis;
	•		Failure to act on results of testing or monitoring;
	•		Using outdated tests.

	•		Treatment

•

Error in the performance of an operation, procedure or test;

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	•		Error in administering the treatment;
	•		Error in the dose or method of using a drug.

	•		Preventive

	•		Failure to provide prophylactic treatment;
	•		Inadequate monitoring or follow-up treatment.

	•		Other

	•		Equipment failure;
	•		Other system failure.

A “near miss” is an event or situation that could have resulted in an accident, injury, or illness, but did not, either by chance or through timely intervention.

Market Opportunity

In November 1999, the Institute of Medicine (“IOM”) issued a report titled “To Err is Human: Building a Safer Health System,” detailing its findings from reviewing medical errors in the U.S. health care system. The report found that between 44,000 and 98,000 people are killed annually from preventable medical errors and that another one million people are injured by errors in treatment at hospitals. Beyond their cost in human lives, preventable medical errors are estimated to cost as much as $29 billion annually in U.S. hospitals. These costs include; the expense of additional care necessitated by the errors, lost income and household productivity, and disability. The report called on states to create mandatory reporting systems, starting with hospitals. The consequences of medical mistakes are often more severe than the consequences of mistakes in other industries—leading to death or disability rather than inconvenience on the part of consumers.

Most hospitals underestimate or are underreporting the number of errors and injuries that occur due to a workplace culture that tends to punish those making mistakes and because hospital personnel tend to regard health care provider errors as evidence of personal carelessness. Dr. Lucien Leape of the Harvard School of Public Health estimates that only 2 to 3% of major errors are reported through hospital incident reporting systems. Worse yet, another study by Dr. Leape found that 70% of adverse events found in a review of 1,133 medical records were preventable.

A wide body of research, including studies by the Agency for Healthcare Research and Quality (“AHRQ”), support the IOM conclusions. Studies conducted during the 90’s have shown that adverse events occur in approximately 3 to 4% of patients. Another study conducted by Dr. Leape found that the average intensive care unit (“ICU”) patient experienced almost two errors per day, a proficiency level of 99 percent. However, one out of five of these errors were potentially serious or fatal. If performance levels of 99.9%— substantially better than those found in the ICU—applied to the airline industry, it would equate to two dangerous landings per day at O’Hare International Airport in Chicago.

Other industries, e.g., aviation or manufacturing, have done a better job than the health care industry in managing the risk level inherent in their operating activities. Some industries, such as the aviation industry, have adopted quality improvement, safety assurance and error reduction programs as a core mission. A review of the experience in non-health-care industries offers some lessons that may be applicable to reducing medical errors. Characteristics found in industries that have effectively reduced errors include:

	•		Development of tracking mechanisms that expose errors;
	•		Thorough investigation of errors;
	•		Applying to error reduction a systems oriented approach that combines human intervention, technical tools and organizational remedies;
	•		Systems solutions that are focused on fixing the problem, not the blame;
	•		Changing organizational cultures so that an environment that embraces error reduction is nurtured; and
	•		Allocating the resources necessary to fix the problems.

One of the problems in concluding that a chronic medical error problem exists is that medical errors usually affect only one patient at a time; therefore, they are treated as isolated incidents. Health-care errors are also underreported due to liability and confidentiality concerns. Implementing a broad-based solution that is available to the healthcare industry can help begin to remedy the first problem. Only changing the culture intrinsic to the industry can combat the second.

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Regulatory Background

In December of 1999, President Clinton directed the Quality Interagency Coordination Task Force (“QuIC”) to evaluate recommendations from To Err is Human and to respond with a strategy to identify prevalent threats to patient safety and reduce medical errors. The QuIC is a multi-agency task force with participants including the Department of Health and Human Services; Department of Defense; and the Department of Veteran Affairs. The latter two are of significance since they collectively manage over 1,800 health care sites serving 13 million patients annually.

In response to the IOM report, the President directed the QuIC to prepare a set of recommendations for specific actions to improve health care outcomes and prevent medical errors. Specifically, the President requested that the QuIC report:

	•		Identify prevalent threats to patient safety and medical errors that can be prevented through the use of decision-support systems;
	•		Identify additional strategies to reduce medical errors and ensure patient safety in Federal health care programs;
	•		Evaluate the extent to which medical errors are caused by misuse of medications and medical devices, and consider steps to strengthen the FDA’s reporting structure on these types of errors; and
	•		Identify opportunities for the Federal Government to take specific action to improve patient safety and health care quality through collaboration with the private sector.

The IOM’s report resulted in a flurry of regulatory activity. As of January 2003, approximately 20 states have implemented laws making error reporting systems mandatory. The goal of such legislation is to improve patient safety and to hold health care organizations responsible for the quality of care they provide.

The IOM and QuIC made several recommendations in their respective reports. Amongst their recommendations are to:

	•		Create a national mandatory reporting system;
	•		Include patient safety in performance standards for health care organizations – require specific performance levels in order to retain the rights to provide goods and services;
	•		Ask independent accrediting organizations to demonstrate how they are coordinating and strengthening their patient safety standards;
	•		Identify a core set of errors reporting data;
	•		Identify and attempt to pool existing data sets (such as State mandatory errors reporting data) that can be brought together to enhance the knowledge and understanding of errors.

AHRQ and the CDC have expanded their research efforts in the area of informatics to include initiatives aimed at developing and evaluating electronic systems to identify, track, and address patient safety concerns. Additionally, Governmental participation especially in requiring the pooling of data, and in setting and enforcing safety standards from its vendors is likely. On a more global basis, establishing a national MERS-TH database will provide useful data to study system failure points, enable benchmarking and provide data to study the efforts that prevented near misses from becoming errors. The errors that are cataloged will provide useful information on the causes of health care problems. Perhaps more importantly, near misses occur more frequently than errors and reveal a greater variety of systemic problems with processes and procedures.

MERS-TH Description

When designing MERS-TH the following design criteria were identified as crucial for an ideal reporting system:

Error reporting should:

	•		Be confidential and non-punitive;
	•		Be relatively easy to integrate into an existing quality assurance system;
	•		Include near-misses and no harm events, in addition to errors;
	•		Classify events by what and where events happened, where and how they were discovered, and by the underlying root causes of the errors;
	•		Use a uniform method for recording data;
	•		Include a process for analyzing data and sharing solutions; and
	•		Feed into a non-regulatory central system where the aggregated data can be further analyzed.

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Since quality assurance (“QA”) programs are already required by regulation, it is vital that the design of an error reporting system be complementary to existing QA systems to avoid employee resistance. The system therefore could not duplicate existing QA systems, but instead needs to meet the above criteria and still be compatible with existing QA systems.

MERS-TH provides a software-based process to sort error reports based on the potential for risk to a patient and provides health care organizations a consistent method for classifying the causes of events. The system has been designed to handle high volume environments without becoming cumbersome to use at the local hospital level.

MERS-TH has been developed with the knowledge that errors can never be eliminated; however they can be reduced by managing, identifying and addressing the risks inherent in health care services. MERS-TH provides a standardized means of organized data collection and analysis of medical errors, adverse events and near misses. Its effectiveness depends on the willingness of individuals to report such information.

How does MERS-TH work?

	•		Detection: Identify, report and record the event.
	•		Selection: Determine the extent of investigation needed.
	•		Investigation: Find out more about the context in which the event occurred, and conduct a root cause analysis, if necessary.
	•		Description and Classification: Assign standardized codes to describe the event and root causes.
	•		Computation: Analyze the aggregate data to identify patterns and trends.
	•		Interpretation: Use the results to guide organizational risk reduction efforts.

Barriers to Implementation

Information systems and technical problems. To be practical, error prevention will need to rely on sophisticated management and clinical information systems, both as sources of data on adverse events and as a component of interventions to reduce errors. However, information systems existent in health care organizations today are neither sufficiently integrated nor flexible enough to serve either of these purposes. We believe MERS-TH bridges this gap by combining a user-friendly interface that will avoid initial user reluctance, with an engine dynamically driven by its database that provides a flexible system that is readily integrated into existing healthcare information structures.

Cost and structural problems. Although considerable cost savings can be realized by the effective reduction of medical errors, instituting such programs will require a substantial initial investment. In addition, the relative autonomy of departments within some health care institutions is a potential barrier to rapid organization change and the adoption of new models and procedures to prevent errors. We view the cultural changes needed to implement new error reduction campaigns as the more relevant obstacle. MERS-TH is a reasonably priced alternative for fulfilling an organization’s MIS needs in combating medical errors. Most health-care organizations have capital expenditure budgets that dwarf the investment necessary to implement MERS-TH.

MERS-TH Sales and Marketing

MERS-TH is currently installed and is being evaluated as part of an approximately one-year pilot study that began in January 2003 at the University of Columbia. The sales and marketing of MERS-TH will be done separately from TrialMaster and is likely to command specialized sales personnel with risk management backgrounds. As our co-developer in the project, Columbia University provides an extensive network of research associates as potential clientele. Our initial target will be the domestic market with academic institutions and private and public hospitals and medical centers targeted equally. The European market provides an equally attractive sales market. Illustrative of the potential market for MERS-TH is the number of hospitals in operation domestically and in the European market. As of January 2003 approximately :

	•		Privately run U.S. hospitals – 5,801
	•		Government run U.S. hospitals – 1,802
	•		European academic and state-run hospitals – 14,000

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The market for error reporting systems is in its initial stages, with few competitors and no products currently exerting market dominance. Our internal estimates are that error reporting systems may account for as much as a $500 million annual market. Given the likelihood that governmental regulation may make error reporting systems mandatory; we believe that this market provides enormous short and long-term prospects.

Systems

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

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

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

HP Netserver computers running Microsoft Windows 2000 are used in all production and database servers. The servers are configured with dual Intel Pentium class processors, dual power supplies, and hot-swappable RAID disk storage for maximum availability and reliability. Database servers are configured with one gigabyte of RAM memory and 36 gigabytes of disk storage. Production servers are configured with 512 megabytes of RAM memory and 27 gigabytes of disk storage. All servers are capable of supporting up to one gigabyte of RAM memory and one terabyte (1,099,511,627,776 bytes) of disk storage. Up-time of 100% has been experienced since the deployment of these servers.

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

Research and Development

We acquired the technology, developed by Education Navigator, Inc., for our TrialMaster product in June 1998. Since that date, our development of TrialMaster and its subsequent improvements and refinements have been handled by our in-house staff of programmers. During fiscal 2002, we spent approximately $465,000 on research and development activities, the majority of which represented salaries to our developers. In fiscal 2001 we spent approximately $392,000 on research and development activities. We intend to continue to improve and broaden our product line to increase our ability to compete in our market segment

Competition

We compete in the EDC market. This industry can be characterized as rapidly evolving, highly competitive and fragmented. There are other entities that compete with TrialMaster. The principal competitors include Phase Forward Incorporated and eResearch Technology. We believe that 25 to 30 viable competitors in varying degrees of development exist. Many of these competitors have significantly greater financial, technical and marketing resources, or name recognition than we do. In addition, other companies could enter the EDC market due to the vast size of the market opportunity. We believe that the most significant competitive factors we face are a lack of operating history and the poor financial results experienced during the period covering fiscal 2000 to the present.

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We believe, however, that our technical expertise, the knowledge and experience of our principals in the industry, quality of service, responsiveness to client needs and speed in delivering solutions will allow us to compete favorably within this market. Further, we believe that none of the aforementioned companies have developed an approach to the clinical trial process that is as flexible and customizable as TrialMaster.

Government Regulation

We do not believe that we are currently regulated, nor do we need any approvals by the FDA or any specific government or quasi-governmental agency. There can be no assurance, however, that we will not become subject to government regulation in the future. See the “Risk Factors” section of this document.

Intellectual Property Rights

Our success depends in part on our ability to protect our intellectual property. To protect our proprietary rights, we rely generally on copyright, trademark and trade secret laws, confidentiality agreements with employees and third parties, and agreements with consultants, vendors and customers, although we have not signed such agreements in every case. Despite such protections, a third party could, without authorization, copy or otherwise obtain and use our software. We can give no assurance that our agreements with employees, consultants and others who participate in development activities will not be breached, or that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or independently developed by competitors.

We have a patent application pending with respect to our TrialMaster product. This application was filed in May 2000 and remains pending. We are also in the process of registering a number of trademarks including “OMNICOMM SYSTEMS, INC.,” and we have federally registered “TRIALMASTER” and “OMNICOMM SYSTEMS,” as well as copyrights on any computer software applications produced by us. We intend to make such other state and federal registrations as we deem necessary and appropriate to protect our intellectual property rights.

Employees

We currently have 17 full time employees of which three are executives, two are administrative, seven are programmers, two are technology and systems managers and three are in sales and marketing. We believe that relations with our employees are good. None of our employees is represented by a union.

DESCRIPTION OF PROPERTY

Our principal executive offices are located in commercial office space in approximately 4,400 square feet at 2555 Davie Road, Suite 110B, Fort Lauderdale, Florida, and our telephone number is (954) 473-1254. We lease these offices under the terms of a sublease expiring in September 2005. Our annual rental payment under this sublease is $66,900 plus sales tax.

Our secondary data site, which serves as our disaster recovery location, is located in Atlanta, Georgia and is leased from IBM. We lease this space under the terms of a lease expiring in October 2004. Our annual lease payment is approximately $53,460.

LEGAL PROCEEDINGS

On or about September 6, 2000, the Company’s wholly owned subsidiary, OmniTrial B.V. (“OmniTrial”) submitted a petition for bankruptcy protection from the bankruptcy court of the Netherlands. The court appointed a liquidating trustee. The Company claimed that certain assets in the possession of OmniTrial were paid for by the Company and therefore should not be part of the liquidating assets of OmniTrial. The bankruptcy trustee rejected that claim and told the Company that as part of the OmniTrial bankruptcy estate the assets would be sold to diminish any deficiency of the estate. On July 5, 2001 the Company signed a settlement agreement providing for the return of the assets to the Company in exchange for a payment of $10,000 that was made on or about July 5, 2001. The bankruptcy proceeding is ongoing. The Company does not expect to incur any additional liability in this bankruptcy proceeding.

Other than the foregoing, we are not a party to any legal proceedings.

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