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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File Number 0-26962

A.D.A.M., INC.

(Exact name of registrant as specified in its charter)

1600 RiverEdge Parkway, Suite 800
Atlanta, Georgia 30328
(Address of Principal Executive Offices, Zip Code)

Registrant's telephone number, including area code:
(770) 980-0888

Securities registered pursuant to Section 12(b) of the Act:
None

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

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

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

        The aggregate market value of the common equity held by non-affiliates of the Registrant (assuming for these purposes, but without conceding, that all executive officers and directors are "affiliates" of the Registrant) as of March 27, 2002 (based on the closing sale price of the Registrant's common stock, par value $.01, as reported on the Nasdaq National Market on such date) was $24,005,721. As of March 27, 2001, 7,599,102 shares of common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

PART I.

ITEM 1. BUSINESS

        In this report, the terms "A.D.A.M.," "the Company" and "we" refer to A.D.A.M., Inc. In addition, the term "calendar 2001", unless otherwise specifically indicated, refers to the twelve-month period ending December 31, 2001 and the term "calendar 2000" will refer to the twelve-month period ended December 31, 2000. The transition reporting period from April 1, 1999 to December 31, 1999 will be referred to as "the nine months ended December 31, 1999."

Overview

        A.D.A.M. serves healthcare organizations, medical professionals, health-interested consumers and students as a leading publisher of visually engaging health and medical information products. A.D.A.M. products are used for learning about health, wellness, disease, clinical treatments, alternative medicine, nutrition, anatomy and general medical reference in both the healthcare and education markets. A.D.A.M. products contain physician-reviewed text, in-house developed medical graphics and multimedia interactivity to create health information solutions that offer a unique "visual learning" experience. Today, A.D.A.M. employs a growing range of media, including Internet, software, CD-ROM, television and print, to deploy its proprietary content assets and products.

        The Company's proprietary content library, more than 16 years in the making, includes:

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a physician reviewed Health Encyclopedia that covers approximately 3,800 diseases and medical conditions;



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approximately 40,000 medical illustrations that have been drawn and compiled by A.D.A.M.;



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an extensive library of 3D models developed from the Visible Human Project;



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thousands of web-enabled animations depicting disease states and other medical conditions and topics, many of which are broadcast-quality;



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interactive tools,



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unique technology for viewing the human body's anatomy; and



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an advanced content management system the Company is implementing.

Collectively, the Company believes these assets represent the single largest database of proprietary health and medical related content anywhere in the world.

        A.D.A.M. believes that pictures are worth a thousand words and illustrated approaches to explaining complex medical conditions has a significant impact on the way people understand their bodies and medical situations. A.D.A.M. also believes that its products will have an impact on the way patient education information is delivered and used in personal health management, prevention, disease management, and after care applications. The Company believes it has the potential to capture a significant share of the consumer-patient health education market with its high-quality, medically-accurate, visual and text based information—whether it is being distributed over the Internet, as a component of point-of-care applications within the health care system or as printed products that can be sold and disseminated in a variety of ways including subscriptions and "information prescriptions" given during patient-provider contacts.

        Consumer appetite for health information continues to grow as shown by the dramatic increase in the number of searches conducted by consumers over the Internet in the last three years. Today, more than 50 million "health seekers" are online at least monthly, seeking information to manage their own conditions and the health of their family and friends." (Health Information Technology in the New Millenium 2001, Russell C. Coile, Editor) With this consumer demand, and the proliferation of patients

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taking an active role with their healthcare provider in their personal care management, the Company believes that its products will play a more important role in the product offerings of healthcare providers (particularly hospitals), the pharmaceutical industry, and the health insurance and managed care industries. These organizations are actively looking for ways to improve efficiencies, reduce clinical costs, increase patient encounters, communicate better with patients and plan members, and remain competitive in an environment that is becoming more crowded with direct-to-consumer marketing. Healthcare organizations must also deal with broader technical and compliancy issues such as HIPAA (the Health Insurance Portability and Accountability Act) and other federal regulations that could have an impact on the usage of health content and patient education.

        In addition, A.D.A.M. has recognized the important role its products can have with the growing U.S. Hispanic population. With more than 34 million Spanish-speaking consumers in the U.S., the Company believes that there will be a growing need to provide health information to this fast growing demographic segment. New legislation requiring federally funded organizations, such as hospitals and other healthcare providers, to translate information into other languages for people with limited English proficiency, will fuel opportunities for Spanish versions of A.D.A.M.'s health information products. A.D.A.M. completed the Spanish translation of its Health Illustrated Encyclopedia, Pregnancy Health Center and Surgeries and Procedures products in 2001. The Company maintains a translation relationship with a third party vendor for editorial updates to the Spanish products.

        A.D.A.M. currently provides its health content products to a broad range of customers whose profile has shifted since the Company began licensing its health content products in 1998. Originally, the Company's focus for licensed products was in the Internet portal market. At that time, healthcare organizations had not fully developed their web strategies and eBusiness initiatives that used health content as a significant driver. While A.D.A.M.'s sales and marketing focus is now more aligned to the healthcare market, the Company still has active contracts with major Internet portals and will continue to seek new opportunities in this market as they become available. In the healthcare market, the Company has developed a growing license business in the hospital, pharmaceutical and managed care areas. In calendar 2001, the Company signed 14 contracts directly with hospitals and several more indirectly through use of its reseller relationships. In total, more than 120 hospitals were using A.D.A.M. content products at the end of calendar 2001. The Company has signed a number of new contracts with hospitals in the first quarter of 2002, and expects the number of hospitals using A.D.A.M. products to continue to grow in 2002.

        Besides the hospital sector, the Company has signed new or renewed contracts with several leading pharmaceutical companies and other healthcare-related organizations as well as the National Library of Medicine. Through this licensing network, A.D.A.M.'s products are searched and viewed by millions of consumers around the world. Because of the size and breadth of the Company's distribution network, the Company believes it is the single largest provider of health related information on the Internet.

        A.D.A.M. was incorporated in 1990 as A.D.A.M. Software, Inc. The Company changed its name to adam.com, Inc. in 1999 and to A.D.A.M., Inc. in 2001. The Company is headquartered in Atlanta, Georgia and maintains an office in Newton, Massachusetts.

Acquisitions

        In December 2001, the Company acquired Integrative Medicine Communications, Inc. ("IMC"), a leading developer and publisher of health content in the complimentary and alternative medicine ("CAM") field. The products, which include a comprehensive, web-enabled database of condition, herbal and supplemental monographs, are designed for use by both the professional clinician and the consumer.

        CAM is a growing industry in healthcare. Many healthcare providers are developing CAM departments to address the needs of their physicians and patients requesting information on alternative medical treatments. As a result, the Company plans to integrate the CAM products as part of a larger portfolio of content products that will be offered to the healthcare industry. In addition, IMC publishes a

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weekly online newsletter and a monthly newsletter targeted to physicians on issues and news surrounding the use of CAM. Currently, there are approximately 1,500 subscribers to the newsletter. The Company plans to aggressively expand the subscriber base through direct marketing efforts.

        In February 2002, the Company acquired Nidus Information Services, Inc. ("Nidus"). Nidus was a privately held provider of in-depth patient education reports on common health conditions and diseases. Nidus's core product, the WELL-CONNECTED™ patient education report library, is written by experienced medical writers and reviewed for accuracy by a board of physicians who have faculty positions at Harvard Medical School and Massachusetts General Hospital. The reports are distinguished from other information sources by their detail of information, quality and currency, including rigorous editorial review. The reports are available through print or web subscriptions and online licensing agreements with major healthcare providers and web portals, health content resellers and medical libraries.

Industry

        For the past several years, consumer demand for accurate, credible health information has been increasing at a rapid pace. As the Internet has emerged as a significant global communications medium, it has fueled the consumer's ability to better understand, manage and play a more active role in their personal health. According to a recent Harris Interactive survey, in 2001 nearly 100 million Americans were going online in search of health information.

        Results from other recent surveys showed that large portions of these "health seekers" believe that the ability to find credible health information on the Internet empowers them to make more informed personal health choices. In the Harris survey for, 70% of the survey respondents took additional healthcare actions by making a personal treatment decision, urging a family member or friend to visit a doctor, or changing their lifestyle habits.

        The rapid growth of the Internet as a tool for information research and the increasing appetite consumers have for health information has resulted in a proliferation of web sites offering health-related content. While this proliferation has had a positive effect for consumers, it has also raised concerns over the credibility and accuracy of the information being made available. The combined effect of consumers having access to large amounts of information that may or may not be credible is further taxing healthcare providers as they struggle to answer patient's questions or spend additional time redirecting them to other information sources.

        The trend for healthcare organizations today is to use health information in two ways:

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to increase the number of encounters with their organization by providing content that connects a consumer or patient directly to a facility's services or products; and,



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to improve the efficiency of the provider-patient relationship by providing relevant, credible information.

        A.D.A.M. believes it is well positioned in the market as the demand for health information grows and as content becomes an increasingly important driver for business growth within the healthcare industry. The Company has put in place rigorous editorial review and quality assurance processes to insure the accuracy of the products it publishes. In addition, A.D.A.M. has undertaken technological initiatives to enable its products to be used in broader applications within the healthcare industry such as wireless healthcare delivery, electronic medical records and other point-of-care applications.

Products and Services

        A.D.A.M. offers a comprehensive suite of informative, web-enabled products that are designed to explain complex medical issues in a way that can be easily understood by the non-medical consumer or patient. The Company also develops and sells a line of CD ROM products that are sold primarily to the K

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through 12 and higher education markets. In the past several years, the Company has seen a growing interest from the educational market in web-enabled versions of these products, and continues to consider migrating certain of its educational products to the web. Currently, the Company offers its popular anatomical dissection application on the web through an online subscription that is bundled with a traditional anatomy textbook. The bundled textbook product is sold through the Company's network of educational resellers and publishers.

        The following chart summarizes A.D.A.M.'s principal products and who might use them:

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        A.D.A.M. also offer its customers various custom and professional services including medical illustration, multimedia and animation development and engineering. The Company's ability to provide its customers with these types of professional services is an important component to the Company's position as a full-service solution provider. The Company also believes that in order to provide full-service solutions to its customers, it must provide flexibility in the way its products are configured and delivered.

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        The Company has begun the implementation of an advanced content management system that will enable it to take full advantage of the Company's diverse content assets. The new system is intended to enable A.D.A.M. to produce new content products with minimal development costs, access assets more effectively, and deliver products to customers in a more efficient manner. The new system will also streamline the Company's ability to update and maintain its products by providing more real-time update tools to its internal and external reviewers. In calendar 2001, the Company signed a license agreement with Interwoven, a leading content infrastructure company, which provides A.D.A.M. with key technology components for this new system. The Company expects to implement the new system in the second quarter of 2002.

Markets

        A.D.A.M. operates in one segment comprised of two markets: healthcare and education. The Company publishes healthcare and related information to institutions, healthcare professionals, consumer-oriented Internet web sites and students in a variety of mediums including: through the Internet, through printed products such as newsletters, and on CD ROMs. The Company defines its target markets in the following way:

Healthcare

        The Health Provider Market. The health provider market includes hospitals, hospital systems, integrated delivery networks, and large physician practice groups that are providing healthcare services to consumers. Hospitals are the first area in the health provider market the Company has actively targeted. Out of approximately 6,000 hospitals in the U.S., the Company's primary revenue opportunities are with those approximately 2,000 facilities that exceed 200 beds. There are two underlying reasons why the Company believes this market is important:

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providers are seeking to enhance their web sites with content, tools and services that will increase the number of "encounters" by consumers and patients in their service area; and



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providers are evolving their web sites to offer more point-of-care services including the effective use of personalized health information as part of patient education and risk management.

        The Health Insurance and Managed Care Market. This market includes a broad range of health insurance companies, managed care organizations, and large employers who are self-insured or who are moving from defined benefit programs to defined contribution programs. A.D.A.M. believes that each of these organizations will want to help their plan members and employees better understand healthcare issues of interest to them. The Company further believes that its health information products are well suited to assist these organizations in two important aspects:

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the recognition and identification of disease for early health intervention; and



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demand management of plan members and employees to seek health intervention when appropriate or as necessary.

        By providing information on relevant healthcare issues, end users can make more informed healthcare decisions. Payers are also interested in building closer relationships with their constituents that can improve member retention and employee health and productivity. The Company believes this market will need medically-sound health and wellness information that can serve to educate consumers about their health status and improve the appropriate utilization of healthcare resources.

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        The Pharmaceutical/Biotech/Medical Device Market. Another change to the healthcare industry has been the relaxation of pharmaceutical marketing regulations by the Food and Drug Administration in 1997. These changes have led to the proliferation of Direct to Consumer ("DTC") advertising by the pharmaceutical companies. In calendar 2000, the overall promotion expenditure by pharmaceutical companies was $15.8 billion of which DTC represented 15.7%. This dramatic increase in spending, along with other types of promotional activities these organizations are engaging in, has created new market opportunities for customized health content that supports these efforts. A.D.A.M. currently has several leading pharmaceutical organizations that license its content products, and the Company believes that there is significant potential to expand these relationships as well as pursue additional content opportunities to support the promotional activities of organizations in this industry.

        National Internet and Media Web Sites. This market includes national Internet portals and large media-related web sites that host a variety of consumer-oriented content and services. These web sites use A.D.A.M.'s health content either exclusively or as part of a larger health channel offering to serve as a driver for advertising revenue. Exceptions would include government-sponsored web sites such as the licensing agreement the Company has with the National Library of Medicine. The Company still derives significant amounts of revenues from this market; however, the number of license agreements the Company has completed has diminished as the larger web sites continue to grow and the number of smaller, more specialized health sites have either shut down or have been acquired. A.D.A.M. currently views this market as an important component in its revenue strategy and will continue to pursue opportunities as they become available. The Company is actively leveraging existing relationships to provide more content products and professional services.

        Print Publishing and Professional Subscriptions. The recent acquisitions of IMC and Nidus included print-based products such as The Complete German Commission E Monographs, Herbal Medicine, and The Integrative Medicine Consult, a professional monthly newsletter marketed to physicians and healthcare professionals. In addition to these new products, A.D.A.M. believes that it also has the opportunity to publish other content products in print formats that can be sold as patient education materials at point-of-care or in retail outlets such as drug stores. Importantly, the Company views its ability to provide print-based products as a strategic ingredient in developing new sources of revenue and in providing full service solutions to its existing customers. A.D.A.M. plans to increase its marketing efforts for its print-based products, particularly attempting to increase subscriptions for IMC's Consult newsletter.

Education

        The Educational/eLearning Market. The educational/eLearning market includes; higher education, K-12, and allied health markets. Historically, A.D.A.M. has serviced this market with its CD ROM-based products. The Company continues to experience a steady revenue stream from the sale of its CD ROMs and is currently evaluating plans to update its line of CD ROMs to better meet the demands of its education customers. The Company believes that the educational market is a complimentary extension to its broader content strategy in healthcare and continues to look for ways to expand its presence in the education market. For example, in calendar 2001, the Company released its flagship product for education, A.D.A.M. Interactive Anatomy, as an online product that is currently being bundled with traditional textbook offerings for the undergraduate market as well as being sold via online subscriptions to students and educational institutions through several of its education reseller partners.

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Customer Support and Client Services

        The Company believes that a high level of customer support is absolutely necessary to attract and retain customers, and therefore provides several levels of customer support for both its CD-ROM end users and its license customers. The Company provides, toll-free telephone technical support for its CD-ROM customers, and through A.D.A.M.'s client services team, it maintains direct and ongoing relationships with its license customers for technical support, integration issues, content updates, and maintenance.

Platform, Product and Content Development

        The Company's content platform is designed to handle content creation, management and distribution. The Company is currently implementing a new, more robust content management system. The enhanced system will further the Company's ability to leverage its diverse content assets, produce products more efficiently with minimal development costs, and deliver products to customers faster and more efficiently. Also, the new system will better enable the Company to customize its content. The Company has also implemented the use of standard medical lexicons such as ICD-9 and MESH as part of its content management system so that healthcare organizations can easily integrate A.D.A.M.'s content into their own content products and clinical systems. Development of these enabling technologies will allow A.D.A.M. to create highly targeted products with broad application within the healthcare continuum. The Company provides its products directly to its customers via CD ROM or through File Transfer Protocol (FTP). In addition, the Company can also host content for customers through an Application Services Provider model. A.D.A.M.'s platform technology and servers are located in a secure data center with built in redundancies at its corporate offices in Atlanta, Georgia and its satellite facilities in Newton, Massachusetts and New York, New York. The Company is currently working on a plan to consolidate all of its content assets at its corporate offices in Atlanta, Georgia.

        With the creation of the new content management system, and through the development of additional content, products and technologies, A.D.A.M. expects to expand its licensing network with new customers and derive additional revenues from its current license customers. The Company is also developing complimentary products that are derived from its content database and from content and products that are acquired in strategic transactions. The Company believes that the combination of the size and breadth of its health information assets, a vast majority of which the Company considers to be "evergreen" in nature, and a tightly integrated content management system will allow A.D.A.M. to achieve a considerable competitive advantage in our targeted markets.

Editorial Excellence

        A.D.A.M.'s health information products are developed and maintained to the highest degree of completeness, relevancy and medical accuracy. Our editorial process is divided into five areas:

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Development. Medical writers, health practitioners and medical illustrators develop the Company's content. Previously published content is reviewed and internally evaluated for completeness and relevancy. Also, textual content is evaluated for enhancement with new and appropriate visuals.



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Review. A.D.A.M.'s Content Review Board ("CRB") evaluates the accuracy of the text and visual content. The CRB consists of physicians who are specialists in their field that provide input on the medical accuracy, relevancy and completeness of the information.



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Editorial. A.D.A.M.'s editorial staff reviews all content, both textual and visual, for grammar, style and consistency. A content quality assurance check is also performed. Acquired content, which has demonstrated adherence to the criteria of the CRB and to the editorial standards, may enter the editorial process at this stage.

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Production. The content is indexed, stored in a data management environment, coded and tagged for presentation. Another level of technical and content quality assurance checks are also performed during this step.



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Publication. This is the stage the Company distributes the content or product to customers. Customers either purchase printed versions, CD-ROMs or integrate the products with their Internet sites and provide feedback to the editorial process in the form of customer inquiries. A.D.A.M.'s health information is regularly updated and, in most cases, this update cycle is repeated quarterly. Upon receipt of editorially reviewed and updated information, customers are contractually obligated to implement the updated content on their site.

        In December of 2001, A.D.A.M. announced that it was one of the first companies to receive the URAC seal of approval for health information. The URAC seal indicates that A.D.A.M.'s Health Illustrated Encyclopedia is in compliance with 53 rigorous standards of quality and accountability, verified by independent audit of the American Accreditation HealthCare Commission. The Company believes that the URAC accreditation for its health content products provides it with a competitive advantage and plans to bring its other health content products before the URAC accreditation board in the first half of 2002. Additionally, the Company is working to receive URAC accreditation for the CAM monographs acquired from IMC in December 2001, and the Well-Connected patient education library that was acquired from Nidus in February 2002.

Sales and Marketing

        A.D.A.M.'s sales force consists of an enterprise sales group that focuses on the development of health provider accounts, a business development group that develops account relationships with pharmaceutical organizations, managed care organizations, and non-healthcare related business, and an educational sales group focused on the development of its education markets. The Company markets its products and services through direct sales contacts, its reseller network, consulting groups that provide professional services such as web strategy to our target markets, by participating in major industry trade shows and by leveraging its existing customer base.

        The Company has also established certain strategic relationships in order to expand its sales and distribution of international products. For example, we have partnered with an organization that has translated our Health Illustrated Encyclopedia and several other content products into both Spanish and Portuguese. The Company believes that with the rising Hispanic population in the U.S and the federal legislation requiring federally funded organizations, such as hospitals and other healthcare providers, to translate information into other languages for people with limited English proficiency, the Company's Spanish language products will be an important driver for future revenues.

Manufacturing

        The production of A.D.A.M.'s software products includes CD-ROM pressing, assembly of purchased product components, printing of product packaging and user manuals and shipping of finished goods, which is performed by third-party vendors in accordance with the Company's specifications and forecasts. A.D.A.M. believes that there are alternate sources of these services that could be implemented without material delay, if necessary.

Proprietary Rights and Licenses

        The Company regards its software publications and the A.D.A.M. content assets as proprietary. The Company relies primarily on a combination of copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements and other methods to protect its proprietary rights. The Company has obtained U.S. federal registrations of the trademarks and the logos for the "A.D.A.M." marks, as well as numerous other trademarks, which identify its products. The Company has also obtained registrations of

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the "A.D.A.M." trademark in Australia, Austria, Benelux, Canada, Chile, China, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Korea, Malaysia, New Zealand, Norway, Portugal, South Africa, Sweden, Switzerland and Taiwan. The Company has also acquired and is using a number of registered and unregistered trademarks to identify its products. The Company uses the "A.D.A.M." mark in Japan under license with Kataken Seiko K.K. and Hihon Novell K.K. The Company is also the owner of a number of domain name registrations.

        The Company has applied for and/or obtained numerous U.S. Copyright Registrations for its software, publication and content products, including Health Illustrated Encyclopedia, Adam Interactive Anatomy, Online Anatomy and Pregnancy Health Center. The Company does not currently hold any patents or have any patent applications pending. There can be no assurance that these protections will be adequate to protect the intellectual property rights or that A.D.A.M.'s competitors will not independently develop technologies that are substantially equivalent or superior to its technologies. The Company further believes that due to the rapid pace of innovation within the multimedia and software industries, factors such as the technological and creative skills of A.D.A.M. personnel and the quality of the content of its products are as important in establishing and maintaining a leadership position within the industry as the various legal protections for the Company's technology.

        A.D.A.M. believes that its products, trademarks and other proprietary rights do not infringe upon the proprietary rights of third parties and to date no third party has filed an infringement claim against the Company. However, as the number of products in our industry increases and the functionality of these products overlap, content providers may become increasingly subject to infringement claims. There can be no assurance that third parties will not assert infringement claims against A.D.A.M. in the future with respect to current or future products, trademarks or other works of A.D.A.M. or that any assertion will not require the Company to enter into royalty arrangements or result in costly litigation.

Competition

        The market in which we operate is highly competitive and continually evolving. There are a number of health content service providers offering products in various pre-packaged and customized ways, including:

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online content providers, portals or Web sites targeting the healthcare industry or healthcare consumers, such as WellMed, Inc., InteliHealth, Inc., WebMD Corporation, and HealthGate Data Corporation;



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public sector and non-profit organizations that provide healthcare information without advertising or commercial sponsorships such as the American Medical Association, LaurusHealth.com and Healthwise, Inc.;



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publishers and distributors of traditional offline media, including those targeting healthcare professionals, many of which have established or may establish Web sites such as Krames, and Health Ink & Vitality;



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healthcare consulting and Web development companies such as Greystone.net;



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healthcare information system vendors such as McKesson Corporation, Cerner Corporation and IDX; and



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vendors of healthcare information, products and services distributed through other means, including direct sales, mail and fax messaging.

        Many of our competitors have greater technical, product development, marketing, financial and other resources than we do. These organizations may have longer operating histories, greater brand recognition and larger customer bases. We believe other competitive factors in our markets include ease of implementation and use, pricing, features and quality of customer support.

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        A.D.A.M. believes its principal competitive advantages are:

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ownership of all A.D.A.M.-labeled assets;



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rigorous editorial review processes;



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industry compliance for certain products with the American Accreditation HealthCare Commission (URAC) accreditation program; and



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unique visual content assets.

Employees

        As of December 31, 2001, A.D.A.M. had 57 employees, including ten employees added as a result of the IMC acquisition. Of these employees, 30 were engaged primarily in editorial management and product development, 18 in sales and marketing and 9 in finance and administration. Management currently intends to keep most of the current IMC staff to take advantage of the editorial expertise of these employees in managing the IMC products.

        Our employees are not covered by a collective bargaining agreement and we have experienced no work stoppages. We consider our employee relations to be good. We believe that our future growth and success will depend upon our ability to retain and continue to attract highly skilled and motivated personnel in all areas of our operations.

Disclosure Regarding Forward Looking Statements

        Certain statements made in this report, and other written or oral statements made by or on behalf of A.D.A.M., may constitute "forward-looking statements" within the meaning of the federal securities laws. When used in this report, the words "believes," "expects," "estimates," "intends," "will" and similar expressions are intended to identify forward-looking statements. Statements regarding future events and developments and our future performance, as well as our expectations, beliefs, plans, intentions, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. Examples of such statements in this report include descriptions of our plans and strategies with respect to developing certain market opportunities, our overall business plan, our plans to develop additional strategic partnerships, our intention to develop our products and platform technologies, our continuing growth and our ability to contain our operating expenses. All forward-looking statements are subject to certain risks and uncertainties that could cause actual events to differ materially from those projected. We believe that these forward-looking statements are reasonable; however, you should not place undue reliance on such statements. These statements are based on current expectations and speak only as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise.

        In addition to other factors addressed elsewhere in this report, the following are certain of the factors that could cause our actual results to differ materially from the expected results described in the our forward-looking statements:

        Although we reported net income in calendar 2001, we have incurred substantial losses throughout our history. In calendar 2001 we recorded net income of $1,597,000. Net income for calendar 2001 was largely provided through the sale of assets and not through operations. Prior to this we experienced losses of $7,854,000 for calendar 2000, $9,579,000 for the nine months ended December 31, 1999 and $2,180,000 for the twelve months ended March 31, 1999. We cannot guarantee that we will be able to sustain profitability.

        We may be unable to obtain sufficient capital to pursue our growth and market development strategies, which would hurt our financial results. Since inception we have funded operations with debt and equity capital. A.D.A.M.'s total operating costs and expenses decreased to $8,769,000 in calendar 2001

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compared to $14,257,000 in calendar 2000, and $13,056,000 for the nine months ended December 31, 1999. Management projects that total operating costs and expenses will increase modestly in the twelve months ending December 31, 2002, and cannot assure that future operating losses will not occur. There is no assurance that our revenues will be sufficient to cover our expenses or that capital will be available to us on satisfactory terms or at all, to fund any shortfall in these costs and revenues.

        We may be unable to compete effectively with other online providers of healthcare information, which could cause our growth and market development strategies to be unsuccessful. The market for providing healthcare information is intensely competitive, and competition could increase in the future. As this market develops, we expect our sensitivity to competitive pressures to be especially strong as we continue to attract and retain customers. We may not be able to compete effectively against these companies, and if we fail to compete effectively we may suffer reduced gross margins and loss of market share.

        The healthcare information market is rapidly evolving and subject to rapid technological change. Certain companies could enter this market that could be larger and more established than we are. These competitors could have advantages over us because of their longer operating histories, greater name recognition, or greater financial, technical and marketing resources. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. They could also devote greater resources to the promotion and sale of their products or services. Furthermore, mergers and acquisitions among other companies could intensify our existing competition or create new competitors.

        We have relied and continue to rely on a limited number of customers for a significant portion of our revenues. Losing one or more of these customers may adversely affect our revenues and financial results. We generate a significant portion of our revenues from a limited number of customers and we expect that this will continue for the foreseeable future. For example, during calendar 2001, two customers accounted for approximately 26% and 12% of our net revenues, respectively. These same two customers accounted for 33% and 13% of our net revenues, respectively, for calendar 2000. In calendar 2002, as a result of a bankruptcy filing in December 2001 by our second largest customer, we expect approximately 19% of our revenues to be generated from only one customer. If we lose any more of our large customers, or if we are unable to add new large customers, then our revenues may decline or not increase as expected.

        We face technological challenges in our ability to deliver customized information in the rapidly changing healthcare industry, which may limit our ability to maintain existing customer or attract new customers. We believe that health information will become more customized to an individual's personal health management needs. As a result, we will need to have adequate technology infrastructure that will allow us to deliver in a cost effective manner portions of our content assets based on each customer's requirements. We will be required to utilize, without significant prior experience, technologies related to content management and content distribution. A failure to develop or obtain this technology could adversely affect our ability to maintain market share or acquire new customers.

        We may be unable to successfully identify, acquire, manage or integrate complementary businesses. As evidenced by our recent acquisitions of IMC and Nidus, part of our immediate growth strategy includes acquiring businesses with complementary products, technologies or professional services. Moving forward, we may not be successful in acquiring other complementary businesses or assimilating their personnel and operations into our Company. These difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations. Future acquisitions may also cause us to incur expenses such as in-process research and development expenses, which may negatively affect our earnings. We cannot be certain that we will successfully overcome these risks with respect to any future acquisitions. In addition, in the past, we have paid a portion of the consideration for some our acquisitions by issuing common

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stock. The issuance of additional common stock or other securities convertible into common stock in connection with future acquisitions could dilute the ownership interests of our existing shareholders.

        We may be unable to attract new personnel, which would adversely affect implementation of our overall business strategy. In order to promote the development of our target markets, we will need to identify, attract and retain software engineers, web designers, sales and marketing professionals and other key personnel. We will compete with other companies both within and outside our markets for such employees and we may be unable to attract these employees. If we do not succeed in attracting these types of new employees, we may be unable to fully implement our growth and market development strategies and our business will suffer.

        Our stock price is extremely volatile and could decline significantly. Since our initial public offering in 1995, there has been significant volatility in the price of our common stock. This volatility has often been unrelated to our operating performance. There can be no assurance that the market price of our common stock will be maintained or that the volume of trading in our shares will not decrease.

        Furthermore, following periods of volatility in the market price of a company's securities, securities class action claims frequently are brought against the subject company. To the extent that the market price of our shares falls dramatically in any period of time, shareholders may bring claims, with or without merit, against us. Such litigation would be expensive to defend and would divert management attention and resources regardless of outcome.

        We are not compliant with the new Nasdaq National Market listing maintenance requirements as of December 31, 2001, as it relates to net equity, and we could fall out of compliance with other listing requirements. Effective June 29, 2001, the SEC approved a change to the Nasdaq Stock Market Marketplace Rules concerning quantitative listing standards for initial and continued inclusion on the Nasdaq National and SmallCap Markets. While the Company currently meets the old maintenance standard for continued inclusion on the Nasdaq National Market, as it relates to net tangible assets, we are not compliant with the new standard, as it relates to net equity. The new standard requires that for companies to remain listed on the Nasdaq National Market, they should have net equity of $10,000,000. As of December 31, 2001, A.DA.M. had net equity of approximately $7,173,000. We have until November 1, 2002 to become compliant with the new standard.

        While management plans to become compliant with the new standard by November 1, 2002, significant changes to the Company's balance sheet as a result of operating losses could affect our listing status, which could result in the Company being delisted. We believe that there are measures currently available to us that could be implemented to become compliant by the November 1, 2002 deadline. These measures include the sale of additional shares of common stock, and acquisitions of other companies, both of which could result in dilution to our existing shareholders. Should we be delisted from the Nasdaq National Market, the Company currently qualifies for listing on the Nasdaq SmallCap Market under the new standard.

        We have adopted certain anti-takeover provisions that may deter a takeover. Our articles of incorporation and bylaws contain the following provisions that may deter a takeover, including a takeover on terms that many of our shareholders might consider favorable, such as:

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the authority of our board of directors to issue common stock and preferred stock and to determine the price, rights (including voting rights), preferences, privileges and restrictions of each series of preferred stock, without any vote or action by our shareholders;



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the existence of large amounts of authorized but unissued common stock and preferred stock;



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staggered, three-year terms for our board of directors; and



•

advance notice requirements for board of directors nominations and for shareholder proposals.

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        The rights and preferences of any series of preferred stock could include a preference over the common stock on the distribution of our assets upon a liquidation or sale of our Company, preferential dividends, redemption rights, the right to elect one or more directors and other voting rights. The rights of the holders of any series of preferred stock that may be issued in the future may adversely affect the rights of the holders of the common stock. We have no current plans to issue preferred stock. In addition, certain provisions of Georgia law and our stock option plan may also discourage, delay or prevent a change in control of our Company or unsolicited acquisition proposals.

        A significant number of un-issued shares are registered for future sale and could adversely affect the market price of our common stock. If our shareholders, option holders, or warrant holders exercise their rights to sell substantial amounts of our common shares in the public market, the market price of our common stock could fall. Given the unpredictable transaction volumes for A.D.A.M. shares, the sale of a significant amount of these shares at any given time could cause the market price of our common stock to decline or otherwise be highly volatile. Such sales could also make it more difficult for us to sell equity or equity-related securities in the future at a time and price when we deem conditions to be more favorable.

        Our principal shareholders have substantial influence and their interest may differ from those of our remaining shareholders. As of December 31, 2001, our executive officers, directors and persons who beneficially own more than 5% of our outstanding common stock controlled approximately 26.6% of the combined outstanding voting power of our common stock. As a result, these holders exert substantial influence with respect to all matters submitted to a vote of holders of common stock, including election of our directors. If our remaining shareholders have interests that differ from these holders, their needs may not be met.

ITEM 2. PROPERTIES

        Our headquarters are located in approximately 26,000 square feet of leased office space in Atlanta, Georgia. The space is leased for a term ending in June 2002. As of December 31, 2001, we sublease approximately 3,600 square feet of space to a company whose president is a director of A.D.A.M.    We are currently in negotiations to sign a lease for approximately 15,000 square feet of new leased office space in or around Atlanta, Georgia for a term of approximately eight years.

        During 2001 the Company acquired IMC, which is located in Newton, Massachusetts. IMC currently leases two small offices consisting of approximately 5,100 and 1,900 square feet of space, respectively. Both spaces are leased for a term ending in December 2003. We have engaged a real estate agent to dispose of the larger space and, at present, we intend to keep the smaller Newton office open to take advantage of the editorial expertise of the IMC employees in managing the IMC products.

        If additional facilities are required, we believe that suitable facilities will be available at market rates.

ITEM 3. LEGAL PROCEEDINGS

        On April 25, 1996, a shareholders' class action lawsuit was filed in Fulton County Superior Court in Atlanta, Georgia against A.D.A.M. (formerly A.D.A.M. Software, Inc.) and certain of our then officers and directors. The complaint alleges violations of sections 11, 12(2) and 15 of the Securities Act of 1933, violations of the Georgia Securities Act and negligent misrepresentation arising out of alleged disclosure deficiencies in connection with our initial public offering of common stock, which was completed on November 10, 1995. The complaint seeks compensatory damages and reimbursements for plaintiff's fees and expenses. We, and the other named defendants, have filed a motion to dismiss the claim, which is pending. A Notice of Status Conference has been scheduled for May 15, 2002 where A.D.A.M. intends to ask the court to take up our motion to dismiss.

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

        No matters were submitted to a vote of security holders during the last quarter of calendar 2001.

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PART II.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Our common stock is quoted on the Nasdaq National Market under the symbol "ADAM." The following table sets forth the high and low sales prices of our common stock as reported by the Nasdaq National Market for each quarter in the twelve months ended December 31, 2000 and 2001.

        At March 27, 2002 there were 164 record holders of our common stock.

        We have never paid or declared any cash dividends on our common stock and we do not intend to pay dividends on our common stock in the near future. We presently expect to retain any future earnings to fund continuing development and growth of our business. The payment by A.D.A.M. of dividends, if any, on our common stock in the future is subject to the discretion of our board of directors and will depend on our earnings, financial condition, capital requirements and other relevant factors.

ITEM 6. SELECTED FINANCIAL DATA

        In 1999, the Company changed its fiscal year end from March 31 to December 31. The selected historical balance sheet and statement of operations presented below for the years ended December 31, 2001 and 2000, the nine months ended December 31, 1999, and the years ended March 31, 1999 and 1998, have been derived from the Company's audited consolidated financial statements.

        The following selected financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere herein.

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion should be read in conjunction with the consolidated financial statements and notes thereto presented elsewhere in this Annual Report on Form 10-K.

Overview

        A.D.A.M. serves healthcare organizations, medical professionals, health-interested consumers and students as a leading publisher of visually engaging health and medical information products. A.D.A.M. products are used for learning about health, wellness, disease, clinical treatments, alternative medicine, nutrition, anatomy and general medical reference in both the healthcare and education markets. A.D.A.M. products contain physician-reviewed text, in-house developed medical graphics and multimedia interactivity to create health information solutions that offer a unique "visual learning" experience. Today, A.D.A.M. employs a growing range of media, including Internet, software, CD-ROM, television and print, to deploy its proprietary content assets and products.

        The Company's proprietary content library, more than 16 years in the making, includes:

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a physician reviewed Health Encyclopedia that covers approximately 3,800 diseases and medical conditions;

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approximately 40,000 medical illustrations that have been drawn and compiled by A.D.A.M.;

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an extensive library of 3D models developed from the Visible Human Project;

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thousands of web-enabled animations depicting disease states and other medical conditions and topics, many of which are broadcast-quality;

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interactive tools,

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unique technology for viewing the human body's anatomy; and

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an advanced content management system the Company is implementing.

Collectively, the Company believes these assets represent the single largest database of proprietary health and medical related content anywhere in the world.

        A.D.A.M. believes that pictures are worth a thousand words and illustrated approaches to explaining complex medical conditions has a significant impact on the way people understand their bodies and medical situations. A.D.A.M. believes that its products will have an impact in the way patient education information is delivered and used in personal health management, prevention, disease management, and after care applications. The Company believes it has the potential to capture a significant share of the consumer-patient health education market with its high-quality, medically accurate, visual and text based information—whether it is being distributed over the Internet, as a component of point-of-care applications within the health care system or as printed products that can be sold and disseminated in a variety of ways including subscriptions and "information prescriptions" given during patient-provider contacts.

        Consumer appetite for health information continues to grow as shown by the dramatic increase in the number of searches conducted by consumers over the Internet in the last three years. Today, more than 50 million "health seekers" are online at least monthly, seeking information to manage their own conditions and the health of their family and friends." (Health Information Technology in the New Millenium 2001, Russell C. Coile, Editor) With this consumer demand, and the proliferation of patients taking an active role with their healthcare provider in their personal care management, the Company believes that its products will play an increasing role in the product offerings of healthcare providers (particularly hospitals), the pharmaceutical industry, and the health insurance and managed care industries. These organizations are actively looking for ways to improve efficiencies, reduce clinical costs, increase patient encounters, communicate better with patients and plan members, and remain competitive

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in an environment that is increasingly becoming more crowded with direct-to-consumer marketing. Healthcare organizations must also deal with broader technical and compliancy issues such as HIPAA (the Health Insurance Portability and Accountability Act) and other federal regulations that could have an impact on the usage of health content and patient education.

        In addition, A.D.A.M. has recognized the important role its products can have with the growing U.S. Hispanic population. With more than 34 million Spanish-speaking consumers in the U.S., the Company believes that there will be an increasing need to provide health information to this fast growing demographic segment. New legislation requiring federally funded organizations, such as hospitals and other healthcare providers, to translate information into other languages for people with limited English proficiency, will fuel opportunities for Spanish versions of A.D.A.M.'s health information products. A.D.A.M. completed the translation of its Health Illustrated Encyclopedia, Pregnancy Health Center and Surgeries and Procedures products in 2001. The Company maintains a translation relationship with a third party vendor for editorial updates to the Spanish products.

        A.D.A.M. currently provides its health content products to a broad range of customers whose profile has shifted since the Company began licensing its health content products in 1998. Originally, the Company's focus for licensed products was in the Internet portal market. At that time, healthcare organizations had not fully developed their web strategies and eBusiness initiatives that used health content as a significant driver. While A.D.A.M.'s sales and marketing focus is now more aligned to the healthcare market, the Company still has active contracts with major Internet portals and will continue to seek new opportunities in this market as they become available. In the healthcare market, the Company has developed a growing license business in the hospital, pharmaceutical and managed care areas. In calendar 2001, the Company signed 14 contracts directly with hospitals and several more indirectly through use of its reseller relationships. In total, more than 120 hospitals were using A.D.A.M. content products at the end of calendar 2001. The Company has already signed a number of new contracts in the first quarter of 2002, and expects the number of hospitals using A.D.A.M. products to rise at a faster pace than 2001.

        Besides the hospital sector, the Company has signed new or renewed contracts with several leading pharmaceutical companies and other healthcare-related organizations as well as the National Library of Medicine. Through this licensing network, A.D.A.M.'s products are searched and viewed by millions of consumers around the world. Because of size and breadth of the Company's distribution network, the Company believes it is the single largest provider of health related information on the Internet.

        A.D.A.M. was incorporated in 1990 as A.D.A.M. Software, Inc. The Company changed its name to adam.com, Inc. in 1999 and to A.D.A.M., Inc. in 2001. The Company is headquartered in Atlanta, Georgia and maintains an office in Newton, Massachusetts.

Critical Accounting Policies and Estimates

        The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the amounts reported in the consolidated financial statements and the accompanying notes. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, contingencies and litigation. The Company bases its estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

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•

Revenue Recognition.

        The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), as amended by SAB 101A and 101B. SAB 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the fee charged for services rendered and products delivered and the collectibility of those fees. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

        The Company generates revenues mainly in two ways—Internet-based licensing and shipped product sales. Internet revenues consist primarily of platform license fees that usually consist of an annual, up-front charge that is recognized ratably over the term of the license agreement beginning upon customer acceptance. Revenues from licensing arrangements are recognized after delivery has occurred, when the Company has determined that the fees from the agreement are fixed and determinable and there are no significant return or acceptance provisions. Fees billed in advance of the performance of services are recorded as deferred revenue and are recognized as the services are performed. Payments, or installment invoices for licensing arrangements, received in advance of shipments are recorded as deferred revenue and are recognized as revenue when the related software is shipped and all other revenue recognition criteria have been met. Product revenues represent the sales of software products and revenues earned under certain royalty agreements. Revenues from product sales are generally recognized at the time title passes to customers, distributors or resellers. Revenues from royalty agreements are recognized as earned based upon performance or product shipment.

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Sales Returns Allowances and Allowance for Doubtful Accounts

        Significant management judgments and estimates must be made and used in connection with establishing the sales returns and other allowances in any accounting period. Management must make estimates of potential future product returns related to current period product revenue. Allowances for estimated product returns are provided at the time of sale. The Company evaluates the adequacy of allowances for returns primarily based upon its evaluation of historical and expected sales experience and by channel of distribution. Material differences may result in the amount and timing of our revenue for any period if management made different judgments or utilized different estimates.

        Similarly, management must make estimates of the uncollectability of our accounts receivables. Management specifically analyzes account receivable and analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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Capitalized Software Development Costs

        We capitalize internal software development costs in accordance with Financial and Accounting Standards Board ("FASB") Statement No. 86 ("FAS 86"), "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed." This statement specifies that costs incurred internally in creating a computer software product shall be charged to expense when incurred as research and development until technological feasibility has been established for the product. Technological feasibility is established upon completion of all planning, designing, and testing activities that are necessary to establish that the product can be produced to meet its design specifications including functions, features, and technical performance requirements. We cease capitalization of internally developed software when the product is made available for general release

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to customers and thereafter, any maintenance and customer support is charged to expense when related revenue is recognized or when those costs are incurred. We amortize such capitalized costs as cost of sales on a product-by-product basis using the straight-line method over a period of two years. We continually evaluate the recoverability of capitalized costs and if the successes of new product releases are less that we anticipate then a material write down of capitalized costs could adversely affect any reporting period in which the write down occurs.

        We also capitalize internal software development costs in accordance with the American Institute of Certified Public Accountants Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement specifies that computer software development costs for computer software intended for internal use occurs in three stages: (1) the preliminary project stage, where costs are expensed as incurred, (2) the application development stage, where costs are capitalized, and (3) the post-implementation or operation stage, where again costs are expense as incurred. We cease capitalization of developed software for internal use when the software is ready for its intended use and placed in service. We amortize such capitalized costs as cost of sales on a product-by-product basis using the straight-line method over a period of three years. We continually evaluate the usability of the products that make up our capitalized costs and if certain circumstances arise such as the introduction of new technology in the marketplace that management intends to use in place of the capitalized project, then a material write down of capitalized costs could adversely affect any reporting period in which the write down occurs.

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Inventory

        The Company records reserves for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

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Legal Contingencies

        The Company is subject to certain legal proceedings as discussed elsewhere in this report. Currently the Company does not believe that these matters will have a material impact on its financial results or financial position. This conclusion is based primarily on the Company's insurance coverage for these matters. It is possible, however, that future results of operations for any particular quarter or annual period could be materially affected by changes in assumptions or other circumstances involving these legal matters.

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Goodwill and Intangible Assets

        As described in Note 2 to the consolidated financial statements the Company has recorded goodwill in connection with its acquisition of IMC in 2001. In June 2001, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets."

        SFAS No. 141 requires the purchase method of accounting for all business combinations and that certain acquired intangible assets in a business combination be recognized as assets separate from goodwill. We have applied SFAS No. 141 in our allocation of the purchase price to the IMC acquisition.

        SFAS No. 142 requires that goodwill and other intangibles that have an indefinite life are no longer to be amortized but are to be tested for impairment at least annually. In assessing impairment the Company must make judgments and assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective net assets. Other factors that could cause impairment could result from a significant decline in our stock price for a sustained period and our market capitalization relative to net book value. If these estimates or their related assumptions change in the future, the Company may be required to record an impairment charge for the recorded

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goodwill. We currently do not expect to record an impairment charge upon completion of the annual impairment review in 2002. However, there can be no assurance that at the time the review is completed a material impairment charge will not be recorded. Since the Company did not have any goodwill recorded prior to the IMC acquisition, the provision of SFAS 142 requiring companies to stop amortizing goodwill will have no impact on the ongoing operating results of the Company or the comparability of such results with prior periods.

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Variable Stock Options

        In March 2000, the FASB issued Financial Interpretations No. 44 ("FIN 44"), "Accounting for Certain Transactions involving Stock Compensation (an interpretation of APB Opinion No. 25)." This opinion provides guidance on the accounting for certain stock option transactions and subsequent amendments to stock option transactions. FIN 44 was effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. We have from time to time since 1991 granted stock options to our employees to purchase shares of our common stock. Certain of these options were canceled at the option of their holders on January 14, 1999, and then replaced that day on a one-for-one basis with new options with an exercise price equal to the closing market price that day.

        The adoption of FIN 44 did not have a material impact on A.D.A.M.'s financial position or results of operations for calendar 2001. This interpretation requires variable accounting treatment for options that have been modified from their original terms. Accordingly, compensation cost shall be adjusted for increases or decreases in the intrinsic value of the modified awards in subsequent periods and until the awards have been exercised, forfeited, or expired. As of December 31, 2001, the Company has 221,200 outstanding options with an exercise price of $5.25 that are considered variable under this interpretation. Because the stock price since the effective date of July 1, 2000 has been below $5.25, the Company has not recorded any compensation cost related to the repriced options issued on January 14, 1999. Should our stock price climb above $5.25 our operating results will be affected until the stock options are either exercised or forfeited and could adversely affect any reporting period in which the variable accounting is required. Any charges that result from these variable options would be non-cash operating expenses and will be reported on a separate line item.

Recent Accounting Pronouncements

        In June 2001, the FASB issued SFAS 141 and SFAS 142. SFAS 141 is effective for any business combinations initiated after June 30, 2001, while SFAS 142 becomes effective for the Company commencing January 1, 2002.

•

SFAS 141 generally requires the Company to use the purchase method to account for its acquisitions, if any. The Company does not believe that SFAS 141 will have a significant impact on its financial position or results of operations. We have applied SFAS No. 141 in our allocation of the purchase price to the IMC acquisition.

•

SFAS 142 affects how the Company accounts for goodwill and other intangible assets acquired in both previous and any future acquisitions. SFAS 142 prohibits the amortization of goodwill associated with acquisitions made after June 30, 2001. SFAS 142 also requires an impairment test on goodwill be performed at least annually beginning in 2002. The Company will perform the impairment test during 2002, the test is expected to be based on cash flow and earnings projections, and is not expected to result in an impairment charge. Since the Company did not have any goodwill recorded prior to the IMC acquisition, the provision of SFAS 142 requiring companies to stop amortizing goodwill will have no impact on the ongoing operating results of the Company or the comparability of such results with prior periods.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 supercedes SFAS No. 121, "Accounting for the Impairment

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of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", but retains its fundamental provisions for recognition and measurement of the impairment of long-lived assets to be held and used and those to be disposed of by sale. The Company must adopt this standard in 2002. The Company is evaluating the effect that this standard will have on its results of operations and financial condition.

Results of Operations

        The following table sets forth for the periods indicated the percentages of our net revenues represented by each line item.

Twelve months ended December 31, 2001 compared to twelve months ended December 31, 2000

        Total net revenues increased $325,000, or 3.8%, to $8,946,000 for calendar year 2001 compared to $8,621,000 for calendar year 2000. The increase is primarily attributable to a $709,000 increase in net revenues from the healthcare market as a result of our focus on this market in calendar 2001, partially offset by a decrease in net revenues from the education market.

        Net revenues from the healthcare market increased $709,000, or 11.4% to $6,924,000 for calendar 2001 compared to $6,215,000 for calendar 2000. The increase is primarily attributable to increases in the health provider, pharmaceutical and managed care areas of the healthcare market. Revenues from national Internet and media web sites were essentially flat for calendar 2001. As a percent of total net revenues, net revenues from the healthcare market increased to 77.4% for calendar 2001 compared to 72.1% for calendar 2000.

        Net revenues from the education market decreased $171,000, or 8.0%, to $1,979,000 for calendar 2001 compared to $2,150,000 for calendar 2000. The education market revenues consist primarily of CD-ROM based product sales. This decrease is primarily attributable to increased sales and marketing focus on the healthcare market during calendar 2001. As a percent of total net revenues, net revenues from the education market decreased to 22.1% for calendar 2001 compared to 24.9% for the calendar 2000.

        Cost of revenues increased $846,000, or 114.0%, to $1,588,000 for calendar 2001 compared to $742,000 for calendar 2000. Cost of revenues includes the cost of support, shipped product component costs, packaging, documentation, royalties and amortization of capitalized software development costs. This increase is primarily the result of the amortization and write off of older technology acquired in calendar 2000. As a percent of total net revenues, cost of revenues increased to 17.8% for calendar 2001 compared to 8.6% for calendar 2000.

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        General and administrative expenses decreased $1,167,000, or 35.1%, to $2,156,000 for calendar 2001 from $3,323,000 for calendar 2000. This decrease is primarily attributable to continued aggressive cost control measures enacted in calendar 2000 and continued in calendar 2001. In particular, the Company realized significant savings in the areas of consulting, legal and accounting fees, and other professional service fees. Also, approximately $370,000 of the decrease is attributed to the costs saved by closing our San Francisco office in 2000. These decreases in general and administrative expenses were partially offset by a non-cash stock compensation charge of $141,000 in calendar 2001. As a percent of total net revenues, general and administrative costs decreased to 24.1% for calendar 2001 compared to 38.5% for calendar 2000.

        Product and content development costs decreased $1,848,000, or 45.2%, to $2,243,000 for calendar 2001 from $4,091,000 for calendar 2000. We capitalized product development expenditures of $896,000 in calendar 2001 and $1,631,000 during calendar 2000, which represented 28.5% of total product development expenditures for each respective period. This decrease is primarily attributable to continued aggressive cost control measures enacted in calendar 2000 and continued in calendar 2001. In particular, the Company incurred significantly lower costs for outside consultants and content acquisition. Also, product expenses related to the operation of the DrGreene.com web site, which was discontinued during the third quarter of calendar 2000, decreased $357,000 for calendar 2001 compared to calendar 2000. Additionally, we merged production of our LIDO.com web site with our general ADAM production efforts, and the resulting synergies decreased product and content development costs by $147,000 when comparing calendar 2001 to calendar 2000. These decreases were offset by an increase in editorial expenses of $611,000 incurred to keep our content products updated. As a percent of total net revenues, product development costs decreased to 25.1% for calendar 2001 compared to 47.5% for calendar 2000.

        Sales and marketing expenses decreased $997,000, or 33.7%, to $1,961,000 for calendar 2001 from $2,958,000 for calendar 2000. This decrease is attributable to aggressive cost control measures enacted in calendar 2000 and continued in calendar 2001. In particular the Company realized significant savings in the areas of advertising, trade shows, travel, and marketing co-op development funds. Also, this decrease is partially attributable to a decrease of $333,000 resulting from the combination of sales and marketing activities related to the LIDO.com web site with our general ADAM sales and marketing efforts. Additionally, we reduced our resources on the development of our web page, which serves primarily as a marketing tool for the Company during calendar 2001 resulting in a $216,000 decrease in expenses. As a percent of total net revenues, sales and marketing expenses decreased to 21.9% for calendar 2001 compared to 34.3% for calendar 2000.

        Depreciation and amortization expenses decreased $1,590,000, or 66.0%, to $820,000 for calendar 2001 from $2,410,000 for calendar 2000. This decrease is primarily the result of (1) a $415,000 amortization charge in calendar 2000 related to expenses associated with the $6,000,000 debenture sold to Fusion Capital I, LLC and (2) a decrease of $1,336,000 in amortization expense and the write-down in calendar 2000 of the DrGreene.com assets acquired during the nine months ended December 31, 1999. This decrease for calendar 2001 was partially offset by a $227,000 increase in amortization expense due to the write off of the Informational Medical Systems, Inc. asset, a collection of patient consent forms for surgical procedures purchased in 1999. As a percent of total net revenues, depreciation and amortization expenses decreased to 9.2% for calendar 2001 compared to 28.0% for calendar 2000.

        During calendar 2000, the Company recorded a restructuring charge of $733,000 reflecting costs associated with certain obsolete contracts, non-cash stock compensation paid to former employees and leasehold improvement costs and accrual of lease obligations related to the closure of our California office. During calendar 2001, no restructuring charges were recorded.

        Interest expense, net, decreased $1,086,000, or 110.1%, to interest income of $99,000 for calendar 2001, as compared to interest expense $987,000 for calendar 2000. This decrease was primarily attributable to a $750,000 non-cash charge related to the beneficial conversion feature associated with the $6,000,000

23

debenture from Fusion Capital Fund I, LLC, $71,000 of interest payable to the holders of the notes payable and $337,000 representing amortization associated with the warrants issued in connection with the notes payable for calendar 2000.

        During calendar 2001, the Company sold its 50 percent ownership interest in the intellectual property rights associated with the A.D.A.M./Benjamin Cummings Interactive Physiology Series to Pearson Education, Inc. for $1,950,000 in cash resulting in a net gain of $1,808,000 after expenses. There were no gains on the sale of assets during calendar 2000.

        For calendar 2001 and calendar 2000, no provision has been estimated for income taxes. The Company has sufficient net operating loss carry forwards to offset regular taxable income. Additionally, the Company anticipates meeting the requirements for the small corporation exemption for Alternative Minimum Tax purposes. As of December 31, 2001, the Company continues to maintain a valuation allowance against its total net deferred tax asset balance.

        The Company recorded an investment loss of $146,000 during calendar 2001 due to the difference in the book value of investment securities held at the end of calendar 2000 and the amount realized from their sale in calendar 2001. During calendar 2000, the Company recorded an investment loss of $1,105,000 as a result of a decline in the fair value of its investment securities. Management determined the decline to be "other than temporary". As of December 31, 2001, the Company holds no investment securities.

        During calendar 2001, the Company invested $275,000 in a software development company, ThePort Network, Inc. (formerly ThePort.com, Inc.) ("ThePort"). The results of operations of this entity have been accounted for as an equity investment during calendar 2001 and accordingly the Company records its share of the results of operations in the consolidated financial statements of the Company. For calendar 2001, the Company recorded its share of ThePort's losses of $342,000. At December 31, 2001, the carrying value of this investment was $40,000. During calendar 2000, the Company, also accounted for its investment using the equity method and recorded its share of ThePort's losses of $126,000. At December 31, 2000, the carrying value of this investment was $107,000.

        As a result of the above, we had net income of $1,597,000 for calendar 2001 compared to a net loss of $7,854,000 for calendar 2000.

Twelve months ended December 31, 2000 compared to nine months ended December 31, 1999

        Total net revenues increased $5,477,000, or 174.2%, to $8,621,000 for calendar 2000 compared to $3,144,000 for the nine months ended December 31, 1999. The increase is primarily attributable to a $5,361,000 increase in net revenues from the healthcare market as a result of our focus on this market in calendar 2000. A significant portion of the Company's revenue increase during calendar 2000 is attributable to contracts with subscription-based licensee customers finalized during the last quarter of 1999. Additionally, the increases in total net revenues are the result of three additional months of operations included in calendar 2000.

        Net revenues from the healthcare market increased $5,361,000, or 627.8% to $6,215,000 for calendar 2000 compared to $854,000 for the nine months ended December 31, 1999. The Company entered the healthcare market during the nine months ended December 31, 1999, resulting in substantial growth in the number of subscription-based licensee customers from national Internet and media web sites during calendar 2000. Additional product offerings during calendar 2000 in the healthcare market resulted in a larger licensee customer base as compared to the nine months ended December 31, 1999. As a percent of total net revenues, net revenues from the healthcare market increased to 72.1% for calendar 2000 compared to 27.2% for the nine months ended December 31, 1999.

        Net revenues from the education market decreased $72,000, or 3.2%, to $2,150,000 for calendar 2000 compared to $2,222,000 for the nine months ended December 31, 1999. The education market revenues consist primarily of CD-ROM based product sales. This decrease is primarily attributable to increased

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sales and marketing focus on the healthcare market during calendar 2000. As a percent of total net revenues, net revenues from the education market decreased to 24.9% for calendar 2000 compared to 70.7% for the nine months ended December 31, 1999.

        Average net revenue for the 52,000 units of software sold during calendar 2000 decreased to approximately $33.00 per unit compared with approximately $61.00 per unit for 30,000 units sold for the nine months ended December 31, 1999. The lower average price per unit is due to (1) increased sales in calendar 2000 to resellers at a discount of standard retail price as compared to direct sales at retail price during the nine months ended December 31, 1999, (2) increased unit sales of lower priced K-12 products in calendar 2000 as compared to higher priced higher education products sold in the nine months ended December 31, 1999, and (3) increased granting of promotional discounts (usually 10%) to resellers for higher volume orders in calendar 2000. Approximately 20.0% of revenues for calendar 2000 were derived from product shipments, compared to 58.5% for the nine months ended December 31, 1999. We expect future sales of our CD-ROM products to decrease as we focus our sales and marketing efforts on our online market and growth strategies.

        Cost of revenues increased $191,000, or 34.7%, to $742,000 for calendar 2000 compared to $551,000 for the nine months ended December 31, 1999. This increase is predominately attributable to the change in the Company's fiscal year partially offset by a $105,000 increase in amortization of software development costs. Cost of revenues includes the cost of support, packaging, documentation, royalties and amortization of capitalized software development costs. As a percent of total net revenues, cost of revenues decreased to 8.6% for calendar 2000 compared to 17.5% for the nine months ended December 31, 1999. This decrease is the result of the significant increase in higher margin subscription-based revenues during calendar 2000. In calendar 2000, subscription-based licensing revenue accounted for 66.5% of total net revenue as compared to 23.3% in the nine months ended December 31, 1999. Conversely, lower margin CD-ROM revenue accounted for 20.0% of total net revenue compared to 58.5% in the nine months ended December 31, 1999.

        General and administrative expenses increased $326,000, or 10.9%, to $3,323,000 for calendar 2000 from $2,997,000 for the nine months ended December 31, 1999. As a percent of total net revenues, general and administrative costs decreased to 38.5% for calendar 2000 compared to 95.3% for the nine months ended December 31, 1999. This decrease as a percent of total net revenue is primarily a result of the increase in net revenues. Further, the decrease is the result of decreased rent and compensation costs, related to the closure of our San Francisco office during the first quarter of calendar 2000.

        Product and content development costs decreased $924,000, or 18.4%, to $4,091,000 for calendar 2000 from $5,015,000 for the nine months ended December 31, 1999. We capitalized product development expenditures of $1,631,000 in calendar 2000 and $4,000 during the nine months ended December 31, 1999, which represented 28.5% and 0.1% of total product development expenditures for each respective period. The expense decrease for calendar 2000 was partially offset by increases in costs related to a web site that served our legal customers, the DrGreene.com web site purchase in July 1999, and other increased levels of non-capitalized production costs in calendar 2000. As a percent of total net revenues, product development costs decreased to 47.5% for calendar 2000 compared to 159.6% for the nine months ended December 31, 1999. Total expenditures for product development, including capitalized expense, increased 14.0% to $5,722,000 in calendar 2000 compared to $5,019,000 for the nine months ended December 31, 1999.

        Sales and marketing expenses increased $278,000, or 10.4%, to $2,958,000 for calendar 2000 from $2,680,000 for the nine months ended December 31, 1999. As a percent of total net revenues, sales and marketing expenses decreased to 34.3% for calendar 2000 compared to 85.2% for the nine months ended December 31, 1999. This decrease as a percent of total net revenue is primarily a result of increased net revenues. Further, the decrease is the result of (1) a $149,000 decrease in advertising expense from

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discontinued promotion of our consumer portal web site in calendar 2000, and (2) a $219,000 decrease during calendar 2000 in sales and marketing expenses related to a web site that served our legal customers.

        Depreciation and amortization expenses increased $1,646,000, or 215.4%, to $2,410,000 for calendar 2000 from $764,000 for the nine months ended December 31, 1999. This increase is the result of (1) a $415,000 amortization charge in calendar 2000 related to expenses associated with the $6,000,000 debenture sold to Fusion Capital I, LLC, (2) an increase of $1,233,000 in amortization expense in calendar 2000 related to twelve months of amortization expense for calendar 2000 compared to five months for the nine months ended December 31, 1999, including the write-down in calendar 2000 of the DrGreene.com assets acquired during the nine months ended December 31, 1999. As a percent of total net revenues, depreciation and amortization expenses increased to 28.0% for calendar 2000 compared to 24.3% for the nine months ended December 31, 1999.

        During calendar 2000, the Company recorded a restructuring charge of $733,000 reflecting costs associated with certain obsolete contracts, non-cash stock compensation paid to former employees and leasehold improvement costs and accrual of lease obligations related to the closure of our California office. During the nine months ended December 31, 1999, the Company recorded a restructuring charge of $1,049,000 resulting from the cost of severance agreements, principally expense of $690,000 caused by modification of employee stock options, for several executives that were released due to our re-focused Internet strategy.

        Interest expense, net, increased $1,145,000, or 724.7%, to $987,000 for calendar 2000 from interest income, net, of $158,000 for the nine months ended December 31, 1999. This increase was due to a $750,000 non-cash charge related to the beneficial conversion feature associated with the $6,000,000 debenture from Fusion Capital Fund I, LLC, $71,000 of interest payable to the holders of the notes payable issued December 31, 1999 and $337,000 representing amortization associated with the warrants issued in connection with the notes payable.

        The Company recorded an investment loss of $1,105,000 during calendar 2000 as a result of a decline in the fair value of its investment securities. Management has determined the decline to be "other than temporary".

        During the nine months ended December 31, 1999, the Company invested $250,000 in a software development company, ThePort. For the nine months ended December 31, 1999, ThePort incurred operating losses of $383,000. The Company consolidated the operations on our financial statements due to our control through voting shares and other means. The financial statements for the nine months ended December 31, 1999 reflect a $175,000 benefit in minority interest in consolidated subsidiary to account for the other shareholders' share of the operating losses. Due to significant reductions in the Company's ownership interest during calendar 2000, the Company accounted for this investment using the equity method as of January 1, 2000. Accordingly, the accompanying financial statements reflect losses from an affiliate of $126,000 and increases in the investment balance of $191,000 resulting from cash investments by third parties to ThePort.

        As a result of the above, we incurred a net loss of $7,854,000 for calendar 2000 compared to a net loss of $9,579,000 for the nine months ended December 31, 1999.

Liquidity and Capital Resources

        As of December 31, 2001, the Company had cash and cash equivalents of $2,878,000 and working capital of $2,756,000.

        Cash used by operating activities decreased to $874,000 during calendar 2001 as compared to $2,840,000 during calendar 2000. The improvement was due to improved operational results. The Company recorded net earnings during calendar 2001 of $1,597,000, as compared to net losses of $7,854,000 during calendar 2000. This conversion from net losses to net earnings is attributable to

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continued aggressive cost control measures enacted in calendar 2000 and continued in calendar 2001. An increase to accounts receivable, prepaid expenses and other assets, combined with a decrease in accounts payable, accrued liabilities and deferred revenue offset the benefits of our cost controls measures as it relates to operating cash flows.

        Cash provided by investing activities was $1,250,000 during calendar 2001 as compared to cash used by investing activities of $2,184,000 during calendar 2000. This improvement was due primarily to the sale of the Company's 50% ownership interest in the A.D.A.M./Benjamin Cummings Interactive Physiology Series of products for $1,950,000, the receipt of scheduled payments on our notes receivable, the sale of all its holdings in drkoop.com, Inc. common stock, decreases in capital expenditures for equipment and decreases in software development expenditures of software products for internal use or sale during calendar 2001. The cash provided by investing activities in calendar 2001 was offset by an equity investment of $275,000 in ThePort with no comparable activity in calendar 2000.

        Cash provided by financing activities decreased to $1,260,000 during calendar 2001 as compared to $4,789,000 during calendar 2000. In calendar 2001, the primary financing activity impacting cash flows relate to additional common stock sales under the Common Stock Purchase Agreement entered into in calendar 2000, which resulted in $1,373,000 of cash. The primary financing activities impacting cash flows in calendar 2000 relate to the sale by the Company of a $6,000,000 convertible debenture, which yielded a net cash inflow of $5,202,000, and the execution of a common stock purchase agreement, which resulted in common stock sales of $997,000. As of December 31, 2001, the Company has neither a convertible debenture nor a common stock purchase agreement in effect. Cash provided by financing activities was offset by the repayment of $205,000 of notes payable during calendar 2001and $797,000 of notes payable during calendar 2000.

        A.D.A.M. also uses working capital to finance ongoing operations, fund the development and introduction of new business strategies and internally developed software, acquire complementary businesses and acquire capital equipment. Deferred revenue decreased $858,000 for the twelve months ended December 31, 2001, primarily due to the recognition of $1,043,000 of revenue from net advance payments recorded in August 2000 from one customer, while net accounts payable and accrued expenses have been reduced by $470,000. Notes payable decreased by $188,000 to $0 for calendar 2001.

        The Company received 70,464 shares of our common stock during the twelve months ended December 31, 2001 as liquidation of a note receivable from an employee. The Company reissued all of these Treasury shares during calendar 2001 to employees who exercised stock options during the period.

        On September 5, 2000, A.D.A.M. entered into a Common Stock Purchase Agreement with Fusion Capital Fund II, LLC, an affiliate of Fusion Capital Fund I, LLC. Pursuant to the Common Stock Purchase Agreement, Fusion Capital agreed to purchase up to $12,000,000 of the Company's common stock in two rounds of $6,000,000 each. The purchase price of the Company's common stock is based upon the future market price of the common stock. The Company determines the month of purchase based on its cash requirements. At the time of the sale, A.D.A.M. estimated that the maximum number of shares the Company would issue to be 1,200,000. Should the Company be required to issue 20% or more of its outstanding shares, measured as of the date of the agreement, then shareholder approval will be required. Total shares outstanding on September 5, 2000 were 5,627,127. The Company has the right to terminate the agreement at any time if more than 1,200,000 shares are issuable under the first tranche of the Common Stock Purchase Agreement. In conjunction with this transaction, the Company issued 154,286 shares of common stock that had a fair value equal to approximately $549,000 as a fee. Additional fees payable in shares with a fair value of $480,000 are required to be issued if the Company elects to enter into the second round. As of December 31, 2001, the Company has sold 963,920 shares of common stock pursuant to the agreement and received cash totaling approximately $2,370,000, including 663,920 shares for $1,373,000 in calendar 2001. As of December 31, 2001, the Common Stock Purchase Agreement with Fusion Capital Fund II has expired.

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        On December 31, 1999, the Company issued notes payable in exchange for $500,000 each from our Chief Executive Officer and a commercial bank. These notes accrued interest at 10% per annum with principal and interest due initially on December 31, 2000. The terms of these notes allowed for an extension of six months, to June 30, 2001 at the option of the holders. The Company issued warrants to purchase 85,000 shares of common stock to the lenders in conjunction with the issuance of the notes and the related extensions pursuant to the original terms of the notes. The warrants are exercisable at any time at the option of the holders through December 31, 2005 and entitled the holders to purchase an equal number of common shares at a weighted-average price of $7.63 per share. The Company paid the note and interest earned in full to the commercial bank by June 30, 2000 and paid the note and interest earned in full to the Chief Executive Officer of the Company by June 30, 2001.

        During calendar 2001, the Company acquired an additional preferred stock interest in ThePort, for $275,000 in cash, resulting in an approximate 25% voting interest as of December 31, 2001. In connection with the preferred stock investment, the Company entered into a five-year agreement whereby the Company will have exclusive distribution rights to ThePort's products within the healthcare industry. As of December 31, 2001, A.D.A.M. has pre-paid $125,000 of the contract fee to be applied against future subscription fees. The Company has committed to generate $1,500,000 in subscription fees during the initial term of the agreement. In calendar 2001, the Company's Chief Operating Officer was appointed to the Board of Directors of ThePort. A.D.A.M.'s Chief Executive Officer currently serves on the Board of Directors of ThePort, acquired an approximately 19% voting interest in ThePort in the nine months ended December 1999 and accepted a convertible note from ThePort for $425,000 in calendar 2001. The results of operations of this entity have been accounted for as an equity investment and accordingly, the Company records its share of the results of operations in the consolidated financial statements of the Company. For the year ended December 31, 2001, the Company recorded its share of ThePort's losses of $342,000. At December 31, 2001, the carrying value of this investment was $40,000.

        For calendar 2001, A.D.A.M. had income as a result of increased revenue and continuing expense control and the sale of Company assets. Operating expense levels, excluding potential non-recurring, non-cash charges, have been decreasing as reflected in the results of operations for the twelve months ended December 31, 2001 and we expect costs to continue at their current levels in relation to revenues for the foreseeable future. We anticipate continued current levels of investment for content development, improvement of existing and development of new technologies, infrastructure development and product marketing and sales efforts. However, we will also continue to evaluate opportunities that create efficiencies, consolidate operating costs and reduce overhead such that overall operating expense levels remain controlled.

        The Company has contractual obligations at December 31, 2001, relating to real estate, capital and operating lease arrangements. The Company does not have any other significant purchase obligations or commitments at December 31, 2001, except as mentioned above for the $1,500,000 in subscription fees for ThePort. The Company does not have any investments in joint ventures or special purpose entities, and does not guarantee the debt of any third parties. The Company's subsidiary is 100% owned by the Company and is included in its consolidated financial statements. Our headquarters are located in approximately 26,000 square feet of leased office space in Atlanta, Georgia. The space is leased for a term ending in June 2002. We are currently in negotiations to sign a lease for approximately 15,000 square feet of leased office space in or around Atlanta, Georgia for a term of approximately eight years. During calendar 2002 we expect to incur approximately $75,000 of moving expenses and $125,000 of leasehold

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improvements in association with our move to new leased space. Total payments due and estimated under real estate, operating and capital leases are listed below:

(1)

Includes an estimate of $157,500 for the lease expense associated with the new office space.

(2)

Represents an estimate of the lease expense associated with the new office space.

        Effective June 29, 2001, the SEC approved a change to the Nasdaq Stock Market Marketplace Rules concerning quantitative listing standards for initial and continued inclusion on the Nasdaq National and SmallCap Markets. While the Company currently meets the old maintenance standard for continued inclusion on the Nasdaq National Market, as it relates to net tangible assets ($4,000,000), we are not in compliance with the new standard, as it relates to net equity ($10,000,000). We have until November 1, 2002 to become compliant with the new standard. Management plans to become compliant with the new standard by that date, although there can be no guarantee that this will occur. As of December 31, 2001, ADAM had net equity of approximately $7,173,000.

        Management believes that cash on hand, together with anticipated cash flow from operations, together with the proceeds already realized from the Common Stock Purchase Agreement described above, will be sufficient to meet the Company's working capital needs through December 31, 2002 and beyond. However, we may be required to raise additional funds in order to accelerate development of new and existing services and products, to respond to competitive pressures or to possibly acquire complementary products, businesses or technologies. There can be no assurance that any required additional financing will be available on terms favorable to us, or at all. If additional funds are raised by the issuance of equity securities, our shareholders may experience dilution of their ownership interest and these securities may have rights senior to those of the holders of the common stock. If additional funds are raised by the issuance of debt securities, we may be subject to certain limitations on our operations, including limitations on the payment of dividends. If adequate funds are not available or not available on acceptable terms, we may be unable to take advantage of acquisition opportunities, develop or enhance services or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

        Forward-looking statements in this report, including without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) the Company's plans, strategies, objectives, expectations, and intentions are subject to change at any time at the discretion of the Company, (ii) the Company's plans and results of operations will be affected by the Company's ability to manage its growth and inventory, and (iii) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        As of December 31, 2001, the Company had cash and cash equivalents of $2,878,000 invested in liquid money market funds or bank accounts. The cash and cash equivalents are subject to interest rate risk and we may receive higher or lower interest income if market interest rates increase or decrease. A hypothetical increase or decrease in market interest rates by 10 percent from levels at December 31, 2001 would not have a material impact on our future earnings, fair values or cash flows.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        This information is set forth under Item 14(a)(1) and (2).

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

        None.

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PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        As of March 27, 2002, our directors and executive officers are as follows:

        Robert S. Cramer, Jr.    Mr. Cramer, a co-founder of the Company, has served as Chairman of the Board and a Director since the Company's inception in March 1990, and Chief Executive Officer since September 1996. Mr. Cramer currently serves on the Board of Directors of ThePort, an Internet technology company he co-founded in 1999. Mr. Cramer also serves as Chairman of the Board of the Atlanta Task Force for the Homeless, a community-wide non-profit organization working with and on the behalf of homeless people.

        Kevin S. Noland.    Since joining the Company in 1994, Mr. Noland has been extensively involved in marketing, communications and brand building for A.D.A.M. From 1994 to 1996, Mr. Noland was strategic in A.D.A.M.'s development and growth of its consumer retail products group. He served as Director of Marketing from 1996 to 1998 and was named Vice President of Marketing and Corporate Communications in 1999. Mr. Noland has served as A.D.A.M.'s Chief Operating Officer since September 2000. Mr. Noland has extensive background in sales, marketing and operations with leading technology companies, including General Electric and Borland International and several successful technology start-ups.

        Daniel S. Howe.    Mr. Howe has been a Director of the Company since December 1996. Mr. Howe is President of DSH Enterprises, Inc., a real estate and investment company, and has served in that capacity since January 1990. DSH Enterprises focuses on shopping centers, freestanding drug stores and other commercial development property in the South Eastern United States.

        John W. McClaugherty.    Mr. McClaugherty, a co-founder of the Company, has served as a Director of the Company since its inception in March 1990. Currently, Mr. McClaugherty serves as President of beBetter Networks, Inc., a human resource productivity company. He has served as its president since its inception in September 1999. Prior thereto, Mr. McClaugherty served as President of J.S.K., Inc., a medical illustration company from 1994 to 1999. Mr. McClaugherty served as Chief Executive Officer of the Company from its inception until March 1994.

        Francis J. Tedesco, M.D.    Dr. Tedesco has been a Director of the Company since July 1996. In January 2001, Dr. Tedesco was appointed as President Emeritus of the Medical College of Georgia ("MCG") and Professor Emeritus of Medicine, Surgery, School of Graduate Studies of the MCG. Prior to this Dr. Tedesco served as Chief Executive Officer of Health Sciences University and as President of the MCG from 1988-2001, and was a Professor of Medicine at MCG from 1981-2001. He has been a consultant to Dwight David Eisenhower Medical Center-Fort Gordon, Georgia; Veterans Administration Medical Center-Augusta, Georgia and Walter Reed Army Medical Center-Washington, D.C. Prior to coming to MCG in 1978, Dr. Tedesco held academic appointments beginning in 1971 at the Hospital of the University of Pennsylvania; Washington University School of Medicine, St. Louis, Missouri; and University of Miami School of Medicine. Dr. Tedesco currently serves on the Board of Directors and is Vice President of the Georgia Division of the American Cancer Society, is chairman of BeBetter Networks Inc, is a member of

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the CDC Foundation Board of Visitors, serves on the Ty Cobb Foundation Scholarship Board and serves on VerifyMD.com, Inc. Board of Directors.

        Mark Kishel, M.D.    Dr. Kishel joined A.D.A.M.'s Board of Directors in November 2001. Dr. Kishel currently serves on the Board of Directors of Immucor, Inc. (Nasdaq NM: BLUD), an international in vitro diagnostic company and is a healthcare consultant through his company, E-Medicine Solutions. Inc. Dr. Kishel was Executive Vice President and Chief Medical Officer for Blue Cross Blue Shield of Georgia from 1993 until its acquisition by Wellpoint in 2001. Dr. Kishel is a board certified pediatrician and a Fellow of the American Academy of Pediatrics. He has practiced pediatrics and family medicine, and over the years, has served in executive medical director roles for several national insurance carriers, including Travelers, HealthAmerica and Lincoln National. He has served on the Blue Cross Blue Shield Association's National Medical Council. Dr. Kishel also served as a director and founder of the Center for Healthcare Improvement, a collaborative research venture between the Medical College of Georgia and Blue Cross and Blue Shield of Georgia, and is currently a director of the Boys and Girls Club of Metro Atlanta.

ELECTION TO THE BOARD

        Under our Articles of Incorporation, directors are elected to the Board for three-year terms, and one-third of the Board members stand for election each year. Currently, the terms of Messrs. Cramer and McClaugherty are scheduled to expire at the annual meeting of shareholders in 2002, the term of Dr. Tedesco is scheduled to expire at the annual meeting of shareholders in 2003 and the term of Mr. Howe is scheduled to expire at the annual meeting of shareholders in 2004. Effective March 20, 2002, Linda B. Davis, whose term was to expire at the annual meeting of shareholders in 2003, resigned from the Board. Because Dr. Kishel was elected to the Board in November 2001, under our bylaws, he will be nominated to stand for election at the annual meeting of shareholders in 2002 for a term will that will expire at the annual meeting of shareholders in 2004.

MEETINGS OF THE BOARD OF DIRECTORS

        During calendar 2001, the Board held nine meetings. Each director that served during calendar 2001 attended at least 75% of all Board meetings and the aggregate number of meetings held by all committees on which the individual director served in calendar 2001, except for Ms. Davis who missed three of nine board meetings.

COMMITTEES OF THE BOARD OF DIRECTORS

        The Board has standing Audit, Stock Repurchase and Compensation/Stock Option Committees that assist it in discharging its responsibilities. These committees, their members and functions are discussed below.

        The Audit Committee, which held one meeting during calendar 2001, is responsible for recommending independent accountants, reviewing with the accountants the scope and results of the audit engagement, and consulting with independent accountants and management with regard to A.D.A.M.'s accounting methods and control procedures. At the beginning of calendar 2001, the Audit Committee was composed of Messrs. Howe (Chairman) and McClaugherty. At a February 26, 2001 Board Meeting, the Board voted to change the composition of this committee in order to comply with the rules of the Nasdaq National Market. As a result, the Audit Committee is currently compised of Messrs. Howe (Chairman) and McClaugherty and Dr. Tedesco.

        The Stock Repurchase Committee, which held no meetings in calendar 2001, is responsible for A.D.A.M.'s repurchase of its own shares pursuant to any stock repurchase program implemented by the Board. There is no current stock repurchase program approved by the Board. The Stock Repurchase Committee is composed of Messrs. Cramer (Chairman) and Howe.

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        The Compensation/Stock Option Committee, which held one meeting during calendar 2001, is responsible for reviewing recommendations from the Chairman of the Board of Directors with regard to the compensation of officers of A.D.A.M. and reporting to the Board of Directors its recommendations with regard to such compensation and is responsible for operating and administering A.D.A.M.'s 1991 Employee Stock Option Plan, its Amended and Restated 1992 Stock Option Plan and its 2002 Stock Incentive Plan. The Compensation/Stock Option Committee is comprised of Dr. Tedesco (Chairman) and Mr. McClaugherty.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        Section 16(a) of the Exchange Act requires our executive officers and directors and persons who beneficially own more than ten percent of our common stock to file with the Securities and Exchange Commission certain reports, and to furnish copies thereof to us, with respect to each such person's beneficial ownership of our equity securities. Based solely upon a review of the copies of such reports furnished to us, and certain representations of such persons, all such persons have complied with the applicable reporting requirements for calendar 2001.

ITEM 11. EXECUTIVE COMPENSATION

        The table below sets forth certain information relating to the compensation earned during calendar 2001, calendar 2000 and the nine months ended December 31, 1999, by our Chief Executive Officer and each of the other highest paid executive officers whose total annual salary and bonus exceeded $100,000 during calendar 2001 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

(1)

"CY01" represents calendar 2001, "CY00" represents calendar 2000, and "TP99" represents the nine months ended December 31, 1999.

(2)

Represents gains from the sale of stock upon exercise of in-the-money stock options.

(3)

Represents life insurance premiums paid on behalf of such executive officer.

(4)

During calendar 2001, Mr. Cramer forfeited his rights to 145,000 of these options as well as 195,000 options issued in January 1999.

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OPTION GRANTS IN LAST FISCAL YEAR

        The following table provides information regarding stock options granted to the Named Executive Officers during calendar 2001.

(1)

The potential realizable value portion of the foregoing table illustrates value that might be realized upon exercise of the options immediately prior to the expiration of their term, assuming the specified compounded rates of appreciation on the common stock over the term of the options. These numbers do not take into account plan provisions providing for termination of the option following termination of employment or non-transferability.

(2)

Prior to the end of calendar 2001, Mr. Cramer exercised these options.

(3)

In calendar 2001, Mr. Cramer forfeited his rights to 340,000 previously granted options.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE TABLE

        The following table shows the number and value of exercisable and unexercisable options held by A.D.A.M.'s Named Executive Officers as of the end of calendar 2001. No stock appreciation rights were outstanding during calendar 2001.

(1)

Does not include warrants to purchase 60,000 shares of common stock issued in connection with the loan by Mr. Cramer to A.D.A.M. of $500,000 on December 31, 1999.

(2)

The closing price of our common stock on December 31, 2001 was $3.00.

        We have not awarded stock appreciation rights to any employee, we have no long-term incentive plans, as that term is defined in SEC regulations, and we have no defined benefit or actuarial plans covering any of our employees.

COMPENSATION OF DIRECTORS

        To date, directors have not received cash compensation for their services as directors of A.D.A.M. On January 2, 2001, each non-employee director of A.D.A.M. was awarded an option to purchase 25,000 shares of A.D.A.M. common stock. Such options have a term of ten years from the date of grant and vest one year from the date of grant. Each option has an exercise price of $1.94 per share.

EMPLOYMENT AGREEMENTS

        We have entered into an employment agreement with Robert S. Cramer, Jr. that is currently scheduled to expire on December 31, 2002 (the "Expiration Date") and is automatically renewable for

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successive one-year periods unless either party gives written notice of non-renewal. This agreement also may be terminated by us with or without cause or upon Mr. Cramer's death or inability to perform his duties due to disability for a period of twelve consecutive months. If the agreement is terminated prior to the Expiration Date for any reason, except by Mr. Cramer, by us for cause or upon Mr. Cramer's death or disability, we must continue to pay Mr. Cramer's base salary and bonus either (1) for the period from the date of termination through the Expiration Date if the agreement is terminated prior to the first anniversary thereof or (2) for the two year period following the date of termination if the agreement is terminated after the first anniversary thereof. If the agreement is terminated because of the death or disability of Mr. Cramer, we must pay Mr. Cramer or his beneficiaries his base salary and bonus for a period of one year following the date of termination; provided, however, that in the case of termination for disability, we may elect, in lieu of making such payments, to provide Mr. Cramer with disability insurance coverage. The agreement provides for a minimum annual base salary of $120,000 and for annual discretionary bonuses. The agreement also contains a two-year noncompetition, customer and employee nonsolicitation and confidentiality provision.

        We have entered into an employment agreement with Kevin S. Noland that shall continue indefinitely until terminated in accordance with the agreement. This agreement may be terminated by us with or without cause, by Mr. Noland for good reason or without good reason or upon Mr. Noland's death or inability to perform her duties due to disability for a period of three consecutive months. If we terminate the agreement prior to the expiration date for cause, by Mr. Noland without good reason or by the death of Mr. Noland, then all obligations of the Company to provide compensation and benefits under this Agreement shall cease on that date. If we terminate the agreement prior to the expiration date without cause, by Mr. Noland for good reason, or because of the disability of Mr. Noland, then we must continue to pay Ms. Noland's base salary for the period from the date of termination for up to twelve months. The agreement provides for a minimum annual base salary of $150,000. The agreement also contains a one-year noncompetition and nonsolicitation of customers, and a two-year nonsolicitation of employees as well as confidentiality provisions.

        We have executed Employee Confidentiality, Nondisclosure and Noncompetition Agreements with all executive officers and senior management.

REPORT ON REPRICING OF OPTIONS

        We have from time to time since 1991 granted stock options to our employees to purchase shares of our common stock. Certain of these options were canceled at the option of their holders on January 14, 1999, and then replaced that day on a one-for-one basis with new options with an exercise price equal to the closing market price that day. The repricing of options reflects the consistent application of our policy as determined by our Compensation/Stock Option Committee of the Board of Directors. The Compensation/Stock Option Committee and Board of Directors believe that incentive options should be granted at exercise prices equal to or not materially in excess of the market price of our common stock in order to provide maximum incentive to employees, including senior executives.

        FIN44 was issued in March 2000. This opinion provides guidance on the accounting for certain stock option transactions and subsequent amendments to stock option transactions. FIN 44 was effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. The adoption of FIN 44 did not have a material impact on A.D.A.M.'s financial position or results of operations for calendar 2001. This interpretation requires variable accounting treatment for options that have been modified from their original terms. Accordingly, compensation cost shall be adjusted for increases or decreases in the intrinsic value of the modified awards in subsequent periods and until the awards have been exercised, forfeited, or expired. As of December 31, 2001, the Company has 221,200 outstanding options with an exercise price of $5.25 that are considered variable under this interpretation. Because the stock price since the effective date of July 1, 2000 has been below $5.25, the Company has not recorded any compensation cost related to the repriced options issued on January 14, 1999

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        During calendar 2001, Dr. Tedesco and Mr. McClaugherty were members of the Compensation/Stock Option Committee. During calendar 2001, we entered into a sublease agreement with BeBetter Networks, Inc., a company that McClaugherty serves as president. BeBetter pays A.D.A.M. approximately 8,333 common shares of BeBetter Network's stock per month with a fair value of $3,511 as rent. We did not engage in any transactions with Dr. Tedesco during calendar 2001. Dr. Tedesco is also a board member of BeBetter Networks. Mr. McClaugherty was formerly an officer of A.D.A.M. from its inception until March 1994.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF MANAGEMENT

        The following table sets forth the beneficial ownership of shares of common stock as of March 27, 2001 for (1) directors of A.D.A.M., (2) the Named Executive Officers, (3) the directors and executive officers of A.D.A.M. as a group and (4) each shareholder of A.D.A.M. holding more than a 5% interest in A.D.A.M. Unless otherwise indicated in the footnotes, all of such interests are owned directly, and the indicated person or entity has sole voting and disposition power.

*

Less than 1%

(1)

Unless otherwise indicated, the address of the persons listed is c/o A.D.A.M., 1600 RiverEdge Parkway, Suite 800, Atlanta, Georgia 30328-4658.

(2)

Based on 7,336,602 shares outstanding. Except as indicated in the footnotes set forth below, the persons named in the table, to A.D.A.M.'s knowledge, have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The number of shares shown as owned by, and the voting power of, individual shareholders include shares which are not currently outstanding but which such shareholders are entitled to acquire or will be entitled to acquire within 60 days. Such shares are deemed to be outstanding for the purpose of computing the percentage of outstanding common stock owned by the particular shareholder, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.

(3)

Includes 460,500 shares issuable upon exercise of outstanding options and 60,000 shares issuable upon exercise of outstanding warrants.

(4)

The address of this shareholder is Addison Wesley Longman, Inc., 1330 Avenue of the Americas, New York NY, 10019.

(5)

Includes 130,208 shares issuable upon exercise of outstanding options.

(6)

Includes 62,416 shares issuable upon exercise of outstanding options.

(7)

Includes 57,916 shares issuable upon exercise of outstanding options.

(8)

Includes 54,500 shares issuable upon exercise of outstanding options.

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(9)

Includes 765,540 shares issuable upon exercise of outstanding options and 60,000 shares issuable upon exercise of outstanding warrants.

ITEM 13. CERTAIN TRANSACTIONS

        During calendar 2001 and calendar 2000, the Company sold approximately $112,000 and $92,000, respectively, of a product to a company, which owns shares in the Company. During calendar 2001 and calendar 2000, the Company sold approximately $25,000 and $6,000, respectively, of product to a subsidiary of the company which owns shares in A.D.A.M. The Company earned royalty revenues of approximately $367,000 and $372,000, respectively, related to this subsidiary during calendar 2001 and calendar 2000. Additionally, the Company purchased approximately $13,000 and $15,000, respectively of product from this subsidiary during calendar 2001 and calendar 2000, and recorded royalty expenses of approximately of $130,000 and $170,000, respectively.

        On June 22, 2001, A.D.A.M. sold its 50 percent ownership interest in the intellectual property rights associated with the A.D.A.M./Benjamin Cummings Interactive Physiology Series to Pearson Education, Inc. for $1,950,000 in cash resulting in a net gain $1,808,000 after expenses. The purchase price was determined through arms' length negotiations. Pearson Education, Inc. jointly developed and co-owned the A.D.A.M./Benjamin Cummings Interactive Physiology Series with ADAM. The A.D.A.M./Benjamin Cummings Interactive Physiology Series is a learning tool available in both CD-ROM and Web-enabled versions that educates students on physiological concepts and processes associated with the human body's major systems. Linda B. Davis, an A.D.A.M. board member until her resignation on March 20, 2002, is an officer of Benjamin Cummings, a publishing imprint of Addison Wesley Longman, Inc.

        During calendar 2001, the Company acquired an additional preferred stock interest in ThePort, for $275,000 in cash, resulting in an approximate 25% voting interest as of December 31, 2001. In connection with the preferred stock investment, the Company entered into a five-year agreement whereby the Company will have exclusive distribution rights to ThePort's products within the healthcare industry. As of December 31, 2001, A.D.A.M. has pre-paid $125,000 of the contract fee to be applied against future subscription fees. The Company has committed to generate $1,500,000 in subscription fees during the initial term of the agreement. In calendar 2001, the Company's Chief Operating Officer was appointed to the Board of Directors of ThePort. A.D.A.M.'s Chief Executive Officer currently serves on the Board of Directors of ThePort, acquired an approximate 19% voting interest in ThePort in the nine months ended December 1999 and accepted a convertible note from ThePort for $425,000 in calendar 2001. The results of operations of this entity have been accounted for as an equity investment and accordingly, the Company records its share of the results of operations in the consolidated financial statements of the Company. For the year ended December 31, 2001, the Company recorded its share of ThePort's losses of $342,000. At December 31, 2001, the carrying value of this investment was $40,000.

        On December 31, 1999, the Company issued a note in exchange for $500,000 to the Company's Chief Executive Officer. The note accrued interest at 10% per annum and matured on June 30, 2001. In conjunction with the issuance of this note, the Company issued the officer warrants to purchase 60,000 shares of its common stock. The warrants are exercisable at any time through December 31, 2005 and entitle the holder to purchase an equal number of common shares at a weighted-average price of $6.18 per share. The Company repaid the principal of the note and all accrued interest during the quarter ended June 30, 2001.

        On May 30, 2001, the Company received a full-recourse promissory note from its Chief Executive Officer for approximately $341,000. The note earns interest of 6.25% per annum and is due in full on or before May 29, 2006. Part of the note, or $291,000, is secured by 150,000 shares of A.D.A.M.'s common stock owned by this executive. As of December 31, 2001, approximately $12,000 of interest has been earned and recorded on this note and the unpaid balance was approximately $353,000.

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PART IV.

ITEM 14.  EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

The following documents are included as part of this report:

        All other schedules have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.

(b)

Exhibits. The following exhibits are filed as part of, or are incorporated by reference into, this report on Form 10-K:

        The Company hereby agrees to furnish to the Commission upon request any additional instruments defining the rights of the holders of long-term debt of the Company.

38

(a)

Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999

(b)

Incorporated by reference to the Company's Registration Statement on Form S-1, File No. 33-96864, dated September 12, 1995, as amended.

(c)

Incorporated by reference to the Company's Current Report on Form 8-K filed November 30, 1999

(d)

The Company has been granted confidential treatment of portions of this Exhibit. Accordingly, portions thereof have been omitted and filed separately.

(e)

Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.

(f)

Incorporated by reference to the Company's Registration Statement of Form S-3, File No. 333-45294, dated September 7, 2000, as amended.

(g)

Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

(h)

Incorporated by reference to the Company's Current Report on Form 8-K filed December 5, 2001.

(c)  Reports on Form 8-K

        During the fourth quarter ended December 31, 2001, the Company filed the following current reports on Form 8-K:

•

The Company filed a report on Form 8-K on November 1, 2001 relating to the November 1, 2001 press release announcing its financial results for the three and nine months ended September 30, 2001.



•

The Company filed a report on Form 8-K on December 5, 2001 relating to the December 3, 2001 merger by and among A.D.A.M., Inc, IM Acquisition Sub, Inc. and Integrative Medicine Communications, Inc.

39

SIGNATURES

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

        KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Robert S. Cramer, Jr. and Kevin S. Noland, and each of them, his or her true and lawful attorney-in-fact and agents, with full power of substitution and resubstitution, from such person and in each person's name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue thereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on March 28, 2001.

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Report of Independent Accountants

To the Board of Directors and Shareholders of
A.D.A.M, Inc.;

        In our opinion, the consolidated financial statements listed in the index appearing under item 14(a)(1) on page 38 present fairly, in all material respects, the financial position of A.D.A.M., Inc. and its subsidiary (the "Company") at December 31, 2001 and 2000, and the results of their operations and their cash flows for the years ended December 31, 2001 and 2000, and the nine months ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under item 14(a)(2) on page 38 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

By: /s/ PricewaterhouseCoopers LLP

Atlanta, Georgia
March 14, 2002

F-1

A.D.A.M., Inc.

Consolidated Balance Sheets

(In thousands, except share data)

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

F-2

A.D.A.M., Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

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

F-3

A.D.A.M., Inc.

Consolidated Statements of Changes in Shareholders' Equity

(In thousands, except share data)