UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 ---------------

                                   FORM 10-QSB

|X|  QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                  For the quarterly period ended March 31, 2000

                                       or

|_|  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ to _______

                           Commission File No. 0-22947

                                ADATOM.COM, INC.
                       ----------------------------------
            (Exact name of Small Business registrant in its charter)

          Delaware                                             43-1771999
          --------                                             ----------
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                           Identification Number)

920 Hillview Court, Suite 190, Milpitas, CA                       95035
- ------------------------------------------------                -----
  (Address of principal executive offices)                      (Zip Code)

Issuer's telephone number,:                                    (408) 935-7979

Check whether the registrant (1) 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
ninety (90) days. YES [X] NO [_]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 11, 2000 there were
16,146,499 shares outstanding of the Company's common stock.



                                       1
<PAGE>

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

     Balance Sheet as of March 31, 2000............................. 3

     Statement of Operations for the three months ended
     March 31, 2000 and 1999 ....................................... 4

     Statement of Cash Flows for the three months ended
     March 31, 2000 and 1999 ....................................... 5

     Notes to the Financial Statements ............................. 6

Item 2. Management's Discussion and Analysis or Plan of Operations...7

PART II.  OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds ...................25

Item 4. Submission of Matters to a Vote of the Security Holders .....26

Item 6. Exhibits and Reports on Form 8-K  .......................... 26

SIGNATURES ......................................................... 26

EXHIBITS............................................................E-1



                                       2
<PAGE>

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                                ADATOM.COM, INC.
                                  BALANCE SHEET
                                   (unaudited)

                                                                March 31
                                                                  2000
                                                              ------------
Current assets:
     Cash                                                     $    790,000
     Notes receivable from franchisee                                8,000
     Inventory                                                     260,000
     Prepaid expenses and other                                    108,000
                                                              ------------
            Total current assets                                 1,166,000

Other assets:
     Fixed assets net                                              432,000
     Deposits and other assets                                      27,000
     Investment joint venture                                      500,000
     Web development costs, net                                    264,000
                                                              ------------
            Total other assets                                   1,223,000
                                                              ------------
                                                              $  2,389,000
                                                              ============

Current Liabilities:
     Accounts payable                                         $    686,000
     Obligations under capital leases current                       57,000
     Accrued expenses                                              294,000
                                                              ------------
            Total current liabilities                            1,037,000

Long-term liabilities
     Obligations under capital leases                               86,000

                                                              ------------
            Total liabilities                                    1,123,000

Equity
     Preferred stock, $.01 par value; authorized
            5,000,000 shares, issued and outstanding - none
     Common stock $.01 par value; 50,000,000 authorized;           161,000
            16,161,499 issued; 16,146,499 outstanding
     Paid in capital                                            17,945,000
     Accumulated deficit                                       (16,825,000)
     Treasury Stock - at cost (15,000 shares)                      (15,000)
                                                              ------------
                                                                 1,266,000
                                                              ------------
                                                              $  2,389,000
                                                              ============

     The accompanying notes are an integral part of these financial statements


                                       3
<PAGE>

                                ADATOM.COM, INC.
                             STATEMENT OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                  Three Months Ended  Thee Months Ended
                                                    March 31, 2000      March 31, 1999
                                                 ----------------------------------------
<S>                                                     <C>                  <C>
Product revenue                                         $   443,000          $   100,000

Cost of product revenue                                     433,000               88,000
                                                 -------------------  -------------------
                                                             10,000               12,000

Operating expenses:
    Research and development                                364,000              132,000
    Selling, general and administrative                   1,824,000              188,000
                                                 -------------------  -------------------
                                                          2,188,000              320,000
                                                 -------------------  -------------------
            Loss from operations                         (2,178,000)            (308,000)

Other income (expense)
    Internet support income                                       0               38,000
    Miscellaneous income                                      1,000                    0
    Interest income (expense), net                            4,000              (28,000)
                                                 -------------------  -------------------
                                                              5,000               10,000
                                                 ----------------------------------------
             Net Loss                                 $  (2,173,000)        $   (298,000)
                                                 ========================================

    Basic and diluted loss per share                         ($0.15)              ($0.06)

    Weighted average shares outstanding                  14,778,000            5,056,000
</TABLE>


    The accompanying notes are an integral part of these financial statements


                                       4
<PAGE>

                                ADATOM.COM, INC.
                             STATEMENT OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                  Three Months     Three Months
                                                                 Ended March 31,   Ended March
                                                                       2000          31, 1999
                                                                 ------------------------------
<S>                                                               <C>               <C>
Cash flows from operating activities:
     Net loss                                                     $ (2,173,000)     $  (298,000)

     Adjustments to reconcile net (loss) to net
        Cash used in operating activities:
           Depreciation and amortization                                29,000            8,000
           Decrease (increase) in operating assets
               Accounts receivable                                     101,000          (10,000)
               Inventory                                               (20,000)          (5,000)
               Prepaid expenses and other                              172,000           (9,000)
           Increase (decrease) in operating liabilities
               Accounts payable                                       (446,000)          52,000
               Accrued expenses                                       (140,000)          29,000
               Customer deposits                                      (232,000)         (28,000)
                                                                 ---------------  -------------
Net cash used in operating activities                               (2,709,000)        (261,000)

Cash flows from investing activities:
     Investment Joint Venture (CPTNC)                                 (500,000)               0
     Payments received on franchisee notes receivable                    1,000            1,000
     Acquisition of fixed assets & Web site development               (122,000)          (1,000)
                                                                 ---------------  -------------
Net cash used in investing activities                                 (621,000)               0

Cash flows from financing activities:
     Proceeds from sales and issuance of stock                       4,011,000          231,000
     Repayments of notes and contracts payable                               0           (7,000)
                                                                 ---------------  -------------
Net cash provided by financing activities                            4,011,000          224,000

Net increase (decrease) in cash                                        681,000          (37,000)
Cash beginning of period                                               109,000           91,000
                                                                 ------------------------------
Cash end of period                                                  $  790,000       $   54,000
                                                                 ==============================

Supplemental disclosure of cash flow
Cash paid during year for:
        Interest                                                              0           1,000
</TABLE>

    The accompanying notes are an integral part of these financial statements


                                       5
<PAGE>

                                ADATOM.com, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                        THREE MONTHS ENDED MARCH 31, 2000

                                   (Unaudited)

1.       ACCOUNTING POLICIES

Unaudited Interim Financial Information

      The accompanying unaudited condensed financial statements have been
prepared in conformity with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and the
applicable rules of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. For further
information, refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-KSB for the year ended December 31, 1999.

Use of Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Legal Proceedings

         From time to time the Company is subject to legal proceedings and
claims in the ordinary course of business, including claims alleging
infringement of trademarks, copyrights and other intellectual property rights.
The Company currently is not aware of any such legal proceedings or claims that
it believes will have individually or in the aggregate a material adverse effect
on its business, prospects, financial condition or operating results.

Net Loss Per Share

      Net loss per share basic and diluted is calculated using the weighted
average number of common shares outstanding during the period. Diluted net loss
per share excludes the impact of stock options and warrants, as the effect of
their inclusion is antidilutive as of the periods reported on.


                                       6
<PAGE>

ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         Statements in this Form 10-QSB and the following "Management's
Discussion and Analysis or Plan of Operations" that are not statements or
descriptions of historical facts are forward-looking statements that are subject
to risks and uncertainties. Words such as "expect," "intends," "believes,"
"plans," "anticipates" and "likely" also identify forward-looking statements.
All forward-looking statements are based on current facts and analyses. Actual
results may differ materially from those currently anticipated due to a number
of factors including, but not limited to, history of operating losses,
anticipated future losses, competition, future capital needs, the need for
market acceptance, dependence upon third parties, disruption of vital
infrastructure and intellectual property rights, government regulation,
dependence on third parties, and other risks. See the section entitled
"MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -Risk Factors" for a
discussion of some of those risks. Additional information on factors that may
affect the business and financial results of the Company can be found in filings
of the Company with the Securities and Exchange Commission. All forward-looking
statements are made pursuant to the Private Securities Litigation Reform Act of
1995. Additional information on factors that may affect the business and
financial results of the Company can be found in filings of the Company with the
Securities and Exchange Commission.

         The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
report.

GENERAL

         The Company has created an Internet-based retail system, WWW.ADATOM.COM
superstore, where most goods flow directly from suppliers to the consumers. The
Company also outsources warehouse facilities for stocking certain products and
filling demand from this inventory where it is more practical to do so. The
system attempts to reduce costs and expenses by removing the need for middlemen.
In addition to its superstore site, Adatom provides ancillary services such as
website development, administrative support and e-commerce infrastructure to
other retailers who desire to sell their products on the Internet. The Company's
revenues are derived principally from the sale of goods to consumers and
businesses. All sales and their corresponding expenses are recognized as
revenues when the goods are shipped to the customer.

Adatom.com E-commerce Solution Program (ESP)

         ESP is a business to business e-commerce program designed to work with
companies and individuals seeking to gain an instant presence in the e-commerce
marketplace by creating a branded store. The Company is an e-commerce enabler
and will provide all of the associated fulfillment services. The ESP affiliate
will receive a commission on sales which will allow companies to launch their
"own" stores without the start-up burdens and high development costs often
associated with such ventures. The responsibility and cost of customer
acquisition will be borne by the ESP affiliate while the costs incurred by the
Company will be relatively low. Products, order management systems, and customer
support representatives will be shared with other e-tailers, including
WWW.ADATOM.COM. ESP is anticipated to receive significant attention in the
marketplace, through its ability to quickly and

                                       7
<PAGE>

efficiently launch new e-tailers. The ESP program was launched in January 2000,
with the first customer iEntertainment Network. To date the Company has signed
30 ESP contracts, but has not received any significant revenue from them.

Global Ecommerce Marketmaker Solutions (GEMS)

         Adatom's role as a global ecommerce marketmaker is in its early
developmental stages. In March 2000, Adatom signed an exclusive joint venture
agreement with the CPTNC (China Product Trade Net Center) to form a US-China
marketplace. The CPTNC was formed by the Chinese government to enable the
systematic and efficient distribution of Chinese manufactured goods. A second
agreement was signed in April 2000 between Adatom and YAHIDZ (Yangling
Agricultural Hi-Tech Industrial Demonstration Zone) to develop and implement an
agricultural electronic marketplace to source and sell agricultural farm
machinery, seeds, fertilizer, pesticides and crops. Adatom has also signed a
third agreement with ShenZhen Bay Industrial, Education and Research Center
(SBIERC) to develop and facilitate an electronic marketplace with China Hi-Tech
Exchange Network and China IT Product Purchasing Net for international
e-commerce.

CHINA JOINT VENTURES

         In March 2000, the Company signed an exclusive agreement with the China
Product Trade Net Center (CPTNC). The CPTNC is an organization officially
launched in 1998 with the support of several Chinese governmental and private
institutions to enable increased sales and ensure systematic and efficient
worldwide distribution of Chinese manufactured goods.

         The CPTNC initiative covers both consumer and industrial goods and aims
to use Internet technology as its primary information and distribution medium.
The Company and the CPTNC will establish a joint venture company located in
Beijing, China, to work directly with the CPTNC. The joint venture company will
develop and implement the systems, Internet applications, services and support
to enable the marketing and sale of industrial and consumer goods produced in
China into the U.S. as well as goods produced in the U.S. into the Chinese
marketplace exclusively through Adatom.com.

         The scope of this agreement includes the establishment of an electronic
business-to-business and business-to-consumer marketing, selling and
distribution system with back-end factory quality and level of service
standards. This electronic system will be accessible in both English and
Chinese. Additional support will be provided by subsidiary CPTNC organizations
including the centers for transportation, trade, Internet and method of
payments.

         The implementation of this joint venture is expected to take
approximately 60 days based on receipt of various China business licenses and is
also subject to submission of a mutually acceptable business plan.

         In March 2000, Adatom signed a cooperative agreement with Yangling
Agricultural Hi-Tech Industrial Demonstration Zone (YAHIDZ) to among other
things develop and implement a Hi-Tech agricultural electronic marketplace.
YAHIDZ is a Chinese agricultural organization established in 1997 by the China
National State council and 14 Chinese ministries, commissions and

                                       8
<PAGE>

provincial governments. In this joint effort, Adatom.com, Inc. is the exclusive
overseas e-commerce partner of YAHIDZ. Adatom and YAHIDZ will source, provide,
market and sell industrial and consumer agricultural products between the United
States and China. The timetable for implementation of this joint venture has not
been finalized and will require various China business licenses.

Adatom.com has established a joint venture agreement with the ShenZhen Bay
Industrial, Education and Research Center (SBIERC) to develop and facilitate an
electronic marketplace with China Hi-Tech Exchange Network and China IT Product
Purchasing Net for international e-commerce. This electronic marketplace will
provide information on products and business opportunities related to hi-tech
products, electronics and information technology. In addition to the e-commerce
enablement, the cooperation will develop an online hi-tech education platform
and will establish a venture capital fund to invest in the activation of Chinese
hi-tech companies. Furthermore, a "Global Economic Network Forum" will be
instituted to educate and inform on economic strategy development, industry
orientation, new century network technology and human resources. Located in
South China, SBIERC is an elite high-tech industrial park that was founded by
city government officials of ShenZhen. SBIERC will work exclusively with Adatom
and will contribute financial resources to enable the Company to establish an
instant e-commerce presence for SBIERC. The timetable for implementation of this
joint venture has not been finalized, will require various China business
licenses and is also subject to a mutually acceptable business plan.

OPERATIONS

         During the quarter ended March 31, 2000, the Company's primary
activities consisted of establishing and marketing its Adatom Ecommerce Solution
Program (ESP), building brand name recognition through its superstore with
affiliate programs and agreements with web shopping portals, and signing three
significant agreements with three different major Chinese organizations. During
January through May 2000 the major promotion offered by Adatom.com was free
shipping on orders.

         The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
report. The following table indicates quarterly user sessions, orders received,
and revenue comparing the first quarter 1999 with the first quarter 2000.

------------------------------------------------------------------------------
                                           No. of Orders
                          User Sessions       Received         Revenue
------------------------------------------------------------------------------
1st Quarter 1999              62,743            271            $100,000
------------------------------------------------------------------------------
1st Quarter 2000          1,485,000           3,496            $443,000
------------------------------------------------------------------------------
Change 2000 vs. 1999      1,422,000           3,225            $343,000
------------------------------------------------------------------------------

         The Company has seen steady quarter over quarter growth in both the
user sessions and except for the quarter ended March 31, 2000 when there was a
decrease of approximately $36,000 from fourth quarter 1999 in the revenue since
it began its Internet sales during the fourth quarter 1998. Shown below is the
Adatom Revenue Growth chart from fourth quarter 1998 through to first quarter
2000. Adatom has experienced significant growth every quarter. The

                                       9
<PAGE>

small fallback between fourth quarter 1999 and first quarter 2000 is explained
by the enormous growth that Adatom experienced last Christmas.

                                [OBJECT OMITTED]

            [FIGURES BELOW REPRESENTS BAR CHART IN ITS PRINTED PIECE]

<TABLE>
<CAPTION>
                  Q4 1998    Q1 1999     Q2 1999     Q3 1999        Q4 1999    Q1 2000
                  -------    -------     -------      -------      --------    -------
<S>                <C>       <C>         <C>          <C>         <C>          <C>
Revenues ($)       40,264    100,000     161,210      216,055       478,562      443,000
User Sessions      53,490     62,743     366,607      517,548     1,078,633    1,485,476
</TABLE>


         On January 31, 2000 3,973 shares of stock were awarded as bonuses to
non-managerial employees of the Company for their efforts during the 1999
holiday season. The average number of shares per person was 131.

RESULTS OF OPERATIONS:

         QUARTERS ENDED MARCH 31, 2000 AND 1999. Revenues of approximately
$443,000 were generated during the quarter ended March 31, 2000, an increase of
approximately 343% compared to revenues of $100,000 during the quarter ended
March 31, 1999. This increase in revenue is attributable to the growth of sales
in the Company's superstore. During the same period the number of orders
increased 1,190%.

         During the first quarter the Company offered free shipping on orders to
build the customer base and brand name recognition. We believe that this
promotion was successful in increasing order volume and building brand
awareness. The freight costs incurred during this promotion reduced gross
profit. Management anticipated this impact and believed that the expected
increase in customers, customer satisfaction, and brand name recognition
justified the cost incurred.

         Operating expenses increased from the first quarter 1999 to the first
quarter 2000 by $1,868,000, or 584%. Selling, general, and administrative
expenses increased by approximately 873% from approximately $188,000 in 1999 to
approximately $1,824,000 in 2000. Web research and development increased
$232,000 or 176%. This increase in 2000 over 1999 is primarily the result of
putting into place the processes and personnel required support increased orders
and sales levels. The chart below highlights some of the more significant cost
areas. The increased salaries and related expenses are due to increased
headcount to handle anticipated business growth, increased requirements in the
Adatom Ecommerce Program Solution (ESP) and to position the Company to begin to
embark on its Global Electronic Market (GEM) program. There was also increased
advertising and promotions to grow business volume, increased rent to
accommodate more staff, more phone costs to serve the customers and additional
costs to ship the products to the customers. In the

                                       10
<PAGE>

early stages of a company's development it may need to invest substantial
amounts in capital equipment and infrastructure, which may seem to be relatively
high compared to reoccurring operating costs. Adatom has hired a CTO, a
controller, and a Vice President of Operations since the first quarter of last
year, which has also caused an increase in compensation expense over the year
earlier period. Additionally the President started being compensated for his
services in the last half of 1999. The increased legal and accounting expense
reflects the effect of additional legal advisors and assistance needed in
connection with the Company's growing business, periodic financing transactions,
and regulatory filings.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
  Analysis of Selected S G & A Expenses:         3/31/00         3/31/99       VARIANCE          %
-----------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>           <C>              <C>
Payroll                                           803,500        85,000         718,500         945%
Advertising & I.R.                                223,000             0         223,000
Rent                                               61,000        24,000          37,000         254%
Insurance                                          79,000         5,000          74,000        1580%
Delivery & Freight                                 74,000         2,000          72,000        3700%
Legal & Accounting Svc                            122,000        19,000         103,000         642%
Telephone                                          49,000        15,000          34,000         327%
                                         ------------------------------------------------------------
                                                1,411,500       150,000       1,261,500         941%
-----------------------------------------------------------------------------------------------------
</TABLE>

The following table depicts staffing levels at month end during the first
quarter 2000 and for the same period in the first quarter 1999. Staffing
increased from an average of eleven each month in 1999 to a maximum of 58 on
March 31, 2000. This is an increase of over 427%.

         ---------------------------------------------------------------------
         TOTAL EMPLOYEES
         (BOTH FULL & PART TIME)  Q1-1999        Q1-2000        VARIANCE
         ---------------------------------------------------------------------
         JANUARY                         11            51                  40
         ---------------------------------------------------------------------
         ---------------------------------------------------------------------
         FEBRUARY                        11            49                  38
         ---------------------------------------------------------------------
         ---------------------------------------------------------------------
         MARCH                           11            58                  47
         ---------------------------------------------------------------------

         During the next nine months the Company may hire approximately 28
additional employees. We anticipate that most SG&A expenses will continue to
increase.

         Other income (expense) decreased approximately 50% to $5,000 in income
in 2000 from $10,000 in income in 1999.

         Net loss increased by approximately 629% from $298,000 in the first
quarter 1999 to $2,173,000 in the first quarter 2000.

LIQUIDITY AND CAPITAL RESOURCES

         At March 31, 2000, the Company had cash of approximately $790,000.

         Since its inception, our business has incurred significant losses, and
as of March 31, 2000, had an approximate accumulated deficit of $16,825,000.

                                       11
<PAGE>

As a result, there is an uncertainty about the Company's ability to continue as
a going concern, which was stated in our auditor's report on the Company's
financial statements for the 1999 fiscal year. The Company is expected to incur
substantial operating losses for the foreseeable future due to a high level of
expenditures in the areas of operations, website development and other
investments designed to enhance the Company's products and services and maintain
Internet capabilities. The Company intends to increase marketing and promotional
spending in an effort to increase revenues from its superstore. However, we
cannot be sure that the Company will generate sufficient revenues to ever
achieve or sustain profitability.

         The operations of the Company are still subject to all the risks
inherent in the establishment of a new business enterprise, including the
absence of a substantial operating history. The likelihood of the success of the
Company must be considered in light of the uncertainties, expenses, and delays
frequently encountered in connection with the development of any new business.

         There was a net increase in cash during the first quarter of 2000 of
$681,000. Net cash used in operating activities primarily consisted of the
Company's net loss of approximately $2,173,000. Additionally, accounts payable
decreased by $446,000, and other uses of cash netted to a reduction of $90,000
resulting in net cash used in operations of approximately $2,709,000.

         Net cash used in investing activities during the first quarter 2000 was
approximately $621,000, $500,000 of which was the Company's investment in the
CPTNC joint venture. The Company's uses of cash in investing activities also
related to acquisition of fixed assets (web development and computers) of
$122,000.

         Net cash from financing activities was approximately $4,011,000 for
first quarter 2000. In December 1999, Mr. Barton, the President and CEO made
short-term non-interest bearing loans to the Company amounting to $500,000 for
working capital purposes. Mr. Barton also made an additional
non-interest-bearing loan on February 1, 2000 in the amount of $200,000, also
for working capital purposes. In February 2000, Adatom.com issued 172,057 shares
of common stock to Mr. Barton in settlement of $500,000 of these notes payable.
In March 2000 the remaining $200,000 was repaid. Mr. Barton does not intend to
make loans to the Company in the future. The net effect of these transactions
was neither net increase nor decrease in cash flows from this financing
activity.

         On March 2, 2000, the Company executed documents for a private
placement of two million shares of common stock yielding proceeds of $4 million.
The sale was made to several accredited investors. Adatom.com used the proceeds
for working capital, including the payment of accrued liabilities of
approximately $1.5 million, and a sales and marketing campaign focusing on its
business-to-business system, Adatom's E-commerce Solution (ESP), as well as to
create further consumer awareness of its Web site, WWW.ADATOM.COM. The Company
further estimates that it will require an additional minimum of at least
$7,000,000 to adequately implement its business plan and sustain and expand its
sales and marketing activities through December 31, 2000. The Company cannot be
sure that it will be able to raise this money.

                                       12
<PAGE>

         Additional funds will be needed, particularly in light of the existence
of a number of well-financed competitors. Adequate funds for these and other
purposes on terms acceptable to the Company, whether through additional equity
financing or other sources, may not be available when needed or may result in
significant dilution to existing stockholders. Furthermore, the Company's lack
of tangible assets to pledge as security for debt financing could prevent the
Company from obtaining bank or similar debt financing. Failure to obtain
adequate financing would have a material adverse effect on the Company and could
result in cessation of the Company's business.

         At this time the Company anticipates that an investment of $20.0
million will be needed to fund the CPTNC joint venture and an investment of $7.5
million will be need to fund the YAHIDZ joint venture and $12.5 Million will be
needed to fund the ShenZhen (SBIERC) joint venture. The Company cannot provide
any assurance that it will be able to raise these funds.

RISK FACTORS

         Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and stockholder
values of the company may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. Stockholders
are cautioned not to put undue reliance on any forward-looking statements. In
addition, the Company does not have any intention or obligation to update
forward-looking statements, even if new information, future events or other
circumstances have made them incorrect or misleading. For those statements, the
Company is relying on the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
You should understand that the following important factors could affect the
future results of the company, and could cause results to differ materially from
those expressed in such forward-looking statements.

     THE COMPANY HAS A HISTORY OF LOSSES AND EXPECTS CONTINUED LOSSES FOR THE
FORESEEABLE FUTURE. Adatom, Inc was incorporated in October in 1996 but did not
begin to generate any Internet revenues until October 1998. Accordingly, the
Company has only a limited operating history upon which to evaluate our business
and prospects. The Company will encounter risks and difficulties that are
frequently encountered by early stage companies in new and rapidly evolving
markets. Many of these risks are described in more detail in this section. If
the Company is unsuccessful in addressing these risks and uncertainties, its
business, results of operations and financial condition will be harmed. The
Company has incurred significant losses, and as of March 31, 2000, had an
approximate accumulated deficit of $16,821,000. There is an uncertainty about
its ability to continue as a going concern. The Company incurred net losses of
$2,169,000 for the quarter ended March 31, 2000 and $398,000 for the quarter
ended March 31, 1999. The Company anticipates its losses will increase from
current levels because we intend to substantially increase our costs and
expenses related to:

                                       13
<PAGE>

-  brand development, marketing and other promotional activities to increase our
   revenue;
-  the expansion of our inventory management and order fulfillment
   infrastructure;
-  the continued development of our Web site, transaction-processing systems and
   network infrastructure;
-  the expansion of our product offerings and Web site content; and
- strategic relationship development. Our ability to become profitable depends
on our ability to generate and sustain substantially higher net sales while
maintaining reasonable expense levels. If the Company does achieve
profitability, it cannot be certain that it would be able to sustain or increase
profitability on a quarterly or annual basis in the future. The Company is an
early stage company and expects to incur substantial operating losses for the
foreseeable future as it incurs significant operating expenses and research and
development expenses and makes investments, to enhance its line of products and
services and establish Internet capabilities. The Company may never generate
sufficient revenues to achieve profitability. Even if the Company does achieve
profitability, it may not be able to sustain or increase profitability on a
quarterly or annual basis in the future.

         THE COMPANY WILL NEED ADDITIONAL FINANCING TO FUND ITS BUSINESS AND THE
FAILURE TO OBTAIN FINANCING WOULD MOST LIKELY RESULT IN CESSATION OF ITS
BUSINESS. The Company is dependent upon raising additional capital for working
capital and to finance its future plans for expansion. Based on current market
conditions as of March 31, 2000 the Company had on hand working capital to
sustain its business for approximately two or three months. The Company further
estimates that it will require a minimum of $7,000,000 to adequately implement
its business plan and sustain and expand its sales and marketing activities
through December 31, 2000. Adatom.com, Inc. has experienced negative cash flow
from operations from its inception and expects to experience significant
negative cash flow from operations for the foreseeable future. The Company needs
additional funds to sustain and expand its sales and marketing activities and
its marketing arrangements, particularly if there is a shift in the type of
Internet services that are developed and ultimately receive customer acceptance.
Adequate funds for these and other purposes on terms acceptable to us, whether
through additional equity financing, debt financing or other sources, may not be
available when needed or may result in significant dilution to existing
stockholders. Failure to obtain financing would most likely result in cessation
of our business. Our lack of tangible assets to pledge has to date prevented us
from obtaining bank or similar debt financing, and will probably continue to do
so in the future. In their reports on the audits of our financial statements for
each of the years in the two-year period ended December 31, 1999, our
independent auditors included an explanatory paragraph in each of their reports
because of the uncertainty that Adatom.com could continue in business as a going
concern. As of March 31, 2000 the Company had $794,000 remaining from this
raise. Unless it raises additional funds, the Company expects it will exhaust
these funds within two months of March 31, 2000. Any raise of additional capital
will dilute all stockholders of the Company.

         THE COMPANY DEPENDS HEAVILY UPON MARKETING ARRANGEMENTS. WITHOUT THEM,
ITS BUSINESS WILL BE ADVERSELY AFFECTED. The Company relies heavily on certain
marketing arrangements with other companies that have websites to attract
shoppers to purchase our products. Adatom.com has entered into marketing
arrangements with a number of existing organizations with a

                                       14
<PAGE>

definable user base. Our ability to generate revenues from online commerce
depends, among other things, upon the increased traffic, purchases, advertising
and sponsorships that it generates through our marketing arrangements. The
Company cannot be sure that other companies will continue these relationships
with it, or, if continued that they will be on terms favorable to it. Our
inability to enter into new marketing arrangements or to maintain our existing
arrangements would have a material adverse effect on us.

         THE COMPANY RELIES ON SUPPLIERS FOR ITS RETAIL MERCHANDISE AND
SHIPMENTS TO CUSTOMERS. LOSS OF THESE RELATIONSHIPS COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS. Our current suppliers may not continue to sell
merchandise to us on current terms. We may not be able to maintain our current
arrangements with suppliers or be able to establish new or extend current
supplier relationships to ensure acquisition of merchandise in a timely and
efficient manner and on acceptable commercial terms. Loss of these relationships
could have a material adverse effect on us. The Company also relies on most of
its suppliers to process and ship merchandise directly to customers and where
required to install merchandise on our customers premises. The Company has
limited control over the shipping procedures of its suppliers, and shipments by
these suppliers have at times been subject to delays. If the quality of service
provided by such suppliers falls below a satisfactory standard or if our level
of returns exceeds our expectations, our business will be materially adversely
affected.

     OUR FUTURE OPERATING RESULTS ARE UNPREDICTABLE AND FLUCTUATIONS IN OUR
QUARTERLY RESULTS MAY CAUSE VOLATILITY IN OUR STOCK VALUATION. As a result of
our limited operating history, it is difficult to accurately forecast our net
sales and we have limited meaningful historical financial data upon which to
base planned operating expenses. We base our current and future expense levels
on our operating plans and estimates of future net sales, and our expenses are
to a large extent fixed. Sales and operating results are difficult to forecast
because they generally depend on the volume and timing of the orders we receive.
As a result, the Company may be unable to adjust our spending in a timely manner
to compensate for any unexpected revenue shortfall. The Company may also be
unable to increase its spending and expand its operations in a timely manner to
adequately meet customer demand to the extent it exceeds its expectations. The
Company expects to experience significant fluctuations in our future quarterly
operating results due to a variety of factors, many of which are outside of its
control which, include without limitation:
-  our ability to attract new customers at reasonable cost and at a steady rate,
   retain existing customers, or encourage repeat purchases and maintain
   customer satisfaction;
-  decreases in the number of visitors to our Web site or our inability to
   convert visitors to our Web site into customers;
-  seasonality;
-  our ability to manage inventory levels and to manage fulfillment operations;
-  our inability to adequately maintain, upgrade and develop our Web site,
   transaction-processing systems or network infrastructure;
-  the announcement or introduction of new sites, services and products by our
   competitors;
-  price competition in the industry;
-  the level of merchandise returns experienced by us;
-  the level of traffic on our web site;

                                       15
<PAGE>

-  fluctuations in the amount of consumer spending;
-  the termination of existing, or failure to develop new, strategic marketing
   relationships pursuant to which we receive exposure to traffic on third-party
   Web sites;
-  increases in the cost of online or offline advertising;
-  our ability to upgrade and develop our systems and infrastructure and attract
   new personnel in a timely and effective manner or retain existing personnel;
-  the amount and timing of operating costs and capital expenditures relating to
   expansion of our business, operations, and infrastructure;
-  unexpected increases in shipping costs or delivery times, particularly during
   the holiday season;
-  the level of use of the Internet and online services and increasing consumer
   acceptance of the Internet and other online services for the purchase of
   consumer products such as those offered by us;
-  technical difficulties, system downtime or Internet brownouts;
-  changes in gross profit margins or product mix;
-  effects of acquisitions and other business combinations and related
   integration issues;
-  failure to maintain good relationships with our business partners and
   suppliers;
-  government regulations related to use of the Internet for commerce;
-  general economic conditions and economic conditions specific to the Internet,
online commerce.

A number of factors will cause our gross margins to fluctuate in future periods,
including the mix of product sold by us, inventory management, inbound and
outbound shipping and handling costs, the level of product returns and the level
of discount pricing and promotional activity. Any change in one or more of these
factors could materially and adversely affect our gross margins and operating
results in future periods. The Company expects that it will experience
seasonality in its business, reflecting a combination of seasonal fluctuations
in Internet usage and traditional retail seasonality patterns. Internet usage
and the rate of Internet growth may be expected to decline during the summer.
Further, sales in the traditional retail industry are significantly higher in
the fourth calendar quarter of each year than in the preceding three-quarters.
Due to the foregoing factors, The Company believes that quarter-to-quarter
comparisons of its operating results are not a good indication of its future
performance. Additionally it is likely that in one or more future quarters our
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of our Common Stock would likely be
materially adversely affected.

         THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY MANAGE THE GROWTH OF ITS
BUSINESS. Our ability to successfully offer products and services and implement
our business plan in a rapidly evolving market requires an effective planning
and management process. The Company continues to increase the scope of its
operations and has grown the headcount substantially. At March 31, 1999, the
Company had a total of 11 employees full and part time combined and at March 31,
2000,it had a total of 58 employees full and part time combined. This growth has
placed, and our anticipated future operations will continue to place, a strain
on our management, information systems and resources. As a result, during 2000,
the Company intends to increase its headcount and to install new ERP systems
with new accounting and financial reporting systems. The Company anticipates
expanding its financial and management information systems to accommodate new
data. If the Company fails

                                       16
<PAGE>

to successfully implement and integrate its new financial reporting and
management information systems with its existing systems or if we are not able
to expand these systems to accommodate our growth, we may not have adequate,
accurate or timely financial information. Our failure to have such information
would hinder our ability to manage our business and operating results. If we
grow rapidly, we will face additional challenges in upgrading and maintaining
our financial and reporting systems. A failure to successfully implement and
integrate these systems would adversely affect our business. The Company expects
that it will need to continue to improve its financial and managerial controls
and reporting systems and procedures. In addition, the Company will need to
continue to expand, train and manage its already growing employee base.
Furthermore, the Company expects that it will be required to manage multiple
relationships with various vendors and other third parties. To manage the
expected growth of our operations and personnel, the Company will be required to
improve existing and implement new transaction-processing, operational and
financial systems, procedures and controls. Further, the Company will be
required to maintain and expand its relationships with various merchandise
manufacturers, distributors, Internet and other online service providers and
other third parties necessary to its business. If the Company is unable to
manage growth effectively, its business will be materially adversely affected.

         IF THE COMPANY EXPERIENCES PROBLEMS WITH OUR THIRD-PARTY SHIPPING
SERVICES, THE COMPANY COULD LOSE CUSTOMERS. The Company relies upon third-party
carriers, primarily UPS, for product shipments, including shipments to and from
its warehouse. The Company is therefore subject to the risks, including employee
strikes and inclement weather associated with these carriers' ability to provide
delivery services to meet its shipping needs. In addition, failure to deliver
products to our customers in a timely manner would damage our reputation and
brand identity.

         THE LOSS OF KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our performance will be substantially dependent on the continued services and on
the performance of our senior management, particularly Richard Barton,
President, Chief Executive Officer, and Chairman of the Board, and Sridhar
Jagannathan, Chief Technology Officer and Executive Vice President. Two of our
senior management team joined us during the last half of 1999. They are the
Controller and the Vice President of Operations. Our future success depends on
these officers effectively working together with our original management team.
Other than the President none of our officers or key employees is bound by an
employment agreement for any specific term. Our relationships with these
officers and key employees are at will. The Company does not have any "key
person" life insurance policies covering any of its employees. Our performance
depends on our ability to retain and motivate our officers and key employees.
The loss of the services of any of our executive officers or other key employees
could have a material adverse effect on us. Our future success also depends on
our ability to identify, attract, hire, train, retain and motivate other highly
skilled officers and technical, managerial, editorial, merchandising, marketing
and customer service personnel. Competition for such personnel is intense, and
the Company may not be able to successfully attract, assimilate or retain
sufficiently qualified personnel. This inability could have a material adverse
effect on us.

         WE MAY BE UNABLE TO PROTECT OUR TRADEMARKS AND PROPRIETARY RIGHTS WHICH
WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. Our performance and

                                       17
<PAGE>

ability to compete are dependent to a significant degree on our proprietary
technology. We regard our copyrighted material, service marks, trademarks, trade
secrets, and similar intellectual property as critical to our success, and rely
on trademark and copyright law, trade secret protection and confidentiality
and/or license agreements with our employees, customers, partners and others to
protect our proprietary rights. We have the registered trademarks "Adatom" and
"Discovering New Shopping Dimensions" in the United States and have a trademark
application pending for the mark "Adatom Home Dimensions." The Company cannot be
sure that it will be able to secure significant protection for these trademarks.
It is possible that competitors of Adatom.com or others will adopt product or
service names similar to "Adatom" and our other trademarks, thereby impeding our
ability to build brand identity and possibly leading to customer confusion. We
generally have entered into agreements containing confidentiality and
non-disclosure provisions with our employees and consultants and limit access to
and distribution of our software, documentation and other proprietary
information. We cannot be sure that the steps taken by us will prevent
misappropriation of our technology or that agreements entered into for that
purpose would be enforceable. Notwithstanding the precautions taken by us, it
might be possible for a third party to copy or otherwise obtain and use our
software or other proprietary information without authorization or to develop
similar software independently. Policing unauthorized use of our technology is
difficult, particularly because the global nature of the Internet makes it
difficult to control the ultimate destination or security of software or other
data transmitted. The laws of other countries may afford us little or no
effective protection of our intellectual property. Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our products and services are made available online. In the
future, we may also need to file lawsuits to enforce our intellectual property
rights, protect our trade secrets, and determine the validity and scope of the
proprietary rights of others. Such litigation, whether successful or
unsuccessful, could result in substantial costs and diversion of resources,
which could have a material adverse effect on us. We also rely on a variety of
technology that is licensed from third parties, including our database and
Internet server software, which is used in our web site to perform key
functions. These third party technology licenses may not continue to be
available to us on commercially reasonable terms. Our loss of or inability to
maintain or obtain upgrades to any of these technology licenses could result in
delays in completing our proprietary software enhancements and new developments
until equivalent technology could be identified, licensed or developed and
integrated. Any such delays would have a material adverse effect on us.

         PROTECTION OF DOMAIN NAME IS UNCERTAIN. We currently hold various Web
domain names relating to our brand, including the "ADATOM.com" domain name.
Governmental agencies and their designees generally regulate the acquisition and
maintenance of domain names. For example, in the United States, the National
Science Foundation has appointed Network Solutions, Inc. as the current
exclusive registrar for the ".com", ".net" and ".org" generic top-level domains.
The regulation of domain names in the United States and in foreign countries is
subject to change. Such changes in the United States are presently expected to
include a transition from the current system to a system that is controlled by a
non-profit corporation and the creation of additional top-level domains.
Governing bodies may establish additional top-level domains, appoint additional
domain name registrars or modify the requirements for holding domain names. As a
result, we may be unable to


                                       18
<PAGE>

acquire or maintain relevant domain names in all countries in which we conduct
business. Furthermore, the relationship between regulations governing domain
names and laws protecting trademarks and similar proprietary rights is unclear.
Therefore, we may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or otherwise decrease the value of our
trademarks and other proprietary rights.

         WE MAY EXPERIENCE CAPACITY CONSTRAINTS DUE TO OUR RELIANCE ON
INTERNALLY DEVELOPED TRANSACTION-PROCESSING SYSTEMS. If we suffer any system
interruptions that result in the unavailability of our store on the Internet or
reduced order fulfillment capability, such interruptions would reduce the volume
of goods sold and the attractiveness of our product offerings. We have
experienced periodic system interruptions, which we believe will continue to
occur from time to time. The satisfactory performance, reliability and
availability of our store on the Internet, transaction-processing systems and
network infrastructure are critical to our reputation and our ability to attract
and retain customers and maintain adequate customer service levels. Our revenues
depend on the number of visitors who shop at our store on the Internet and the
volume of orders we fulfill. There will be a significant need to upgrade the
capacity of our store on the Internet in order to handle thousands of
simultaneous shoppers. Our inability to add additional software and hardware or
to develop and upgrade further our existing technology, transaction-processing
systems or network infrastructure to accommodate increased traffic on our store
on the Internet or increased sales volume through our transaction-processing
systems may cause unanticipated system disruptions, slower response times,
degradation in levels of customer service and impaired quality and speed of
order fulfillment, any of which could have a material adverse effect on us.

         OUR BUSINESS MAY SUFFER IF OUR SYSTEMS FAIL OR IF THE SYSTEMS OF OUR
BUSINESS PARTNERS FAIL. We presently have limited redundant systems. We do not
have a complete disaster recovery plan and carry limited business interruption
insurance to compensate us for losses that may occur. Despite our implementation
of network security measures, our servers are vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data or the inability to accept and fulfill
customer orders. Our ability to successfully receive and fulfill orders and
provide high-quality customer service, largely depends on the efficient and
uninterrupted operation of our computer and communications hardware systems. Our
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and similar
events. In addition, any disruptions of those web sites or at the web sites of
other companies where we market goods or have a website link could have a
material adverse effect on us and the volume of sales generated. The occurrence
of any of the foregoing risks could have a material adverse effect on us.

         IF WE ARE NOT ABLE TO SUSTAIN RAPID TECHNOLOGICAL CHANGES, OUR BUSINESS
MAY SUFFER. We may not successfully use new technologies effectively or adapt
our proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards. Our failure to adapt in a timely
manner for technical, legal, financial or other reasons, to changing market
conditions or customer requirements, could have a material adverse effect on us.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online stores. The Internet
and the online commerce industry are characterized by rapid technological

                                       19
<PAGE>

change, changes in user and customer requirements and preferences, frequent new
product and service introductions embodying new technologies and the emergence
of new industry standards and practices that could render our existing store on
the Internet and proprietary technology and systems obsolete. Our success will
depend, in part, on our ability to license leading technologies useful in our
business, enhance our existing services, develop new services and technology
that address the increasingly sophisticated and varied needs of our prospective
customers, and respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.

         YEAR 2000 UPDATE. Through the four months of the calendar year 2000, we
have not experienced any significant problems associated with the Year 2000
issue. Although it appears that the Year 2000 issue will not have a significant
adverse affect on us, we continue to monitor the Year 2000 compliance of our
internal systems. Undetected errors in our internal systems that may be
discovered in the future could have a material adverse affect on our business,
operating results or financial condition.

         OUR BUSINESS STRATEGY REQUIRES CONTINUED GROWTH OF ONLINE COMMERCE. IF
ON-LINE COMMERCE DOES NOT CONTINUE TO GROW, OUR BUSINESS COULD BE MATERIALLY
ADVERSELY AFFECTED. Our future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Internet and online
services as a significant medium of commerce by consumers. Rapid growth in the
use of and interest in the Internet and online services is a recent phenomenon,
and we can not be sure that acceptance and use will continue to develop or that
a sufficiently broad base of consumers will adopt, and continue to use, the
Internet and online services as a medium of commerce. We rely on consumers who
have historically used traditional means of commerce to purchase merchandise.
For us to be successful, these consumers must accept and utilize novel ways of
conducting business and exchanging information. Moreover, critical issues
concerning the commercial use of the Internet, such as ease of access, security,
privacy, reliability, cost and quality of service, remain unresolved and may
affect the growth of Internet use or the attractiveness of conducting commerce
online. In addition, the Internet and online services may not be accepted as a
viable commercial marketplace for reasons relating to the adequacy of
technology. To the extent that the Internet and online services continue to
experience significant growth, we can not be sure that the infrastructure of the
Internet and online services will prove adequate to support increased user
demands. Difficulties with the telecommunications used to support the Internet
or online services also could result in slower response times and adversely
affect usage of the Internet.

     OUR MARKETS ARE HIGHLY COMPETITIVE. The online commerce market is new,
rapidly evolving and intensely competitive. We expect competition to intensify
in the future. Barriers to entry are minimal, and current and new competitors
can launch new Web sites at a relatively low cost. We currently or potentially
compete with a variety of other companies, including:

-  major "brick and mortar" retailers such as Macys, J.C. Penney's, Nordstrom's,
   and Target;
-  online efforts of these traditional retailers, including the online stores
   operated by Macys, J. C. Penny, Toys R Us, and Wal-Mart:
-  catalog retailers;
-  vendors or manufacturers that currently sell certain of their products
   directly online, such as Mattel;

                                       20
<PAGE>

-  other online retailers such as Amazon.com, Taydo.com, Furniture.com, CDnow,
   Beyond.com and Reel.com;
-  on line stores that have a presence on Internet portals and online service
   providers that feature shopping services, such as AOL, Yahoo!, Excite and
   Lycos;
-  various online retailers.

Many of our current and potential traditional store-based and online competitors
have longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than us. Many of these current and potential competitors can devote
substantially more resources to Web site and systems development than we can. In
addition, online retailers may be acquired by, receive investments from or enter
into other commercial relationships with larger, well-established and
well-financed companies as use of the Internet and other online services
increases. Many of our competitors may be able to secure merchandise from
manufacturers on more favorable terms, fulfill customer orders more efficiently
and adopt more aggressive pricing or inventory availability policies, and devote
greater resources to marketing than we can. Traditional store-based retailers
also enable customers to see and feel products in a manner that is not possible
over the Internet. Our online competitors are able to use the Internet as a
marketing medium to reach significant numbers of potential customers. Finally,
new technologies and the expansion of existing technologies, such as price
comparison programs that select specific titles from a variety of Web sites may
direct customers to other online retailers, and may increase competition.
Increased competition may result in reduced operating margins, loss of market
share and a diminished brand franchise. New technologies and the expansion of
existing technologies may increase the competitive pressures on us.

         WE MAY ENTER NEW BUSINESS CATEGORIES. We may choose to expand our
operations by developing new departments or product categories, promoting new or
complementary products or sales formats, expanding the breadth and depth of
products and services offered or expanding our market presence through
relationships with third parties. In addition, we may pursue the acquisition of
new or complementary businesses, products or technologies. We may not be
successful in our efforts to expand our operations, and potential customers may
not react favorably to these efforts. Furthermore, any new department or product
category that is launched by us but not favorably received by consumers could
damage our brand or reputation. An expansion of our business in this manner
would also require significant additional expenses, expose us to additional
inventory risk and development, operations and editorial resources and would
strain our management, financial and operational resources and subject us to
increased inventory risk.

         WE FACE FULFILLMENT OPERATIONS RISKS. Our success depends on our
ability to rapidly scale our fulfillment operations in order to accommodate a
significant increase in customer orders. Our current fulfillment operations are
not adequate to accommodate significant increases in customer demand that may
occur during the fourth calendar quarter of 2000. We must also be able to
rapidly scale our fulfillment operations and information systems to accommodate
significant increases in demand, which may require us to automate tasks that are
currently performed manually. If we do not successfully scale our fulfillment
operations to accommodate demand generally and, in particular, increased demand
during the fourth calendar quarter of each year, due to the seasonal nature of
our business, our business will be adversely affected.

                                       21
<PAGE>

         OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED IF THE SECURITY
MEASURES WE HAVE IMPLEMENTED TO PROTECT CONFIDENTIAL INFORMATION PROVE TO BE
INADEQUATE. Advances in computer capabilities, new discoveries in the field of
cryptography, or other developments may result in a compromise or breach of the
algorithms used by us to protect customer transaction data. Any compromise of
our security could have a material adverse effect on our reputation and us. We
rely on encryption and authentication technology licensed from third parties to
provide the security and authentication necessary to effect secure transmission
of confidential information, such as customer credit card numbers. A party who
is able to circumvent our security measures could misappropriate proprietary
information or cause interruptions in our operations. Furthermore, our servers
may be vulnerable to computer viruses, physical or electronic break-ins and
similar disruptions. We may be required to expend significant additional capital
and other resources to protect against such security breaches or to alleviate
problems caused by such breaches. Our business may be adversely affected if our
security measures do not prevent security breaches and we cannot assure that we
can prevent all security breaches.

         CREDIT CARD FRAUD. During the first quarter of 2000 the Company has
suffered less than $3,700 as a result of orders placed with fraudulent credit
card data even though the associated financial institution approved payment of
the orders. Under current credit card practices, a merchant is liable for
fraudulent credit card transactions where, as is the case with the transactions
we process, that merchant does not obtain a cardholder's signature. A failure to
adequately control fraudulent credit card transactions would adversely affect
our business.

         GROWING CONCERNS ABOUT THE USE OF "COOKIES" AND DATA COLLECTION MAY
LIMIT OUR ABILITY TO DEVELOP USER PROFILES. Our current technology uses small
files of information, commonly known as "cookies", on a users hard drive to
collect information about our customers' movements through our Website. Most
Internet browsers allow users to modify their browsers settings to prevent
cookies from being stored on their hard drive, and small minorities of users are
currently choosing to do so. Users can also delete cookies from their hard drive
at any time. Some Internet commentators and privacy advocates have suggested
limiting or eliminating the use of cookies. The reduction or limitation in the
use of cookies could:
-  reduce the effectiveness of our technology to gather data on our customers;
-  require us to switch to other potentially less effective technology in order
   to gather demographic or behavioral information; and
-  require us to expend financial and technological resources, originally
   allocated to other purposes, to create alternatives that might be
   unsuccessful.

         THE COMPANY MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION. Due
to the increasing popularity and use of the Internet and other online services,
it is possible that a number of laws and regulations may be adopted with respect
to the Internet covering issues such as user privacy, pricing, content,
copyrights, distribution and quality of products and services. We are not
currently subject to regulation by any domestic or foreign governmental agency,
other than regulations applicable to businesses generally, and laws or
regulations directly applicable to access to online commerce. The adoption of
any additional laws or regulations may decrease the

                                       22
<PAGE>

growth of the Internet or other online services, which could, in turn, decrease
the demand for our products and services and increase our cost of doing
business, or otherwise have a material adverse effect on us. Moreover, the
applicability to the Internet and other online services of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes and personal privacy is uncertain and may take years to resolve. In
addition, as our service is available over the Internet in multiple states and
foreign countries, and as we sell to numerous consumers residing in such states
and foreign countries, such jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in each such state and foreign
country. We could be subject to taxes and penalties for failure to qualify as a
foreign corporation in a jurisdiction where we are required to do so. Any such
new legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services could have a material adverse effect on us.

         THE COMPANY MAY BE SUBJECT TO SALES AND OTHER TAXES. We do not
currently collect sales or other similar taxes for physical shipments of goods
into states other than California. However, one or more local, state or foreign
jurisdictions may seek to impose sales tax collection obligations on us. In
addition, any new operation in states outside California could subject our
shipments in such states to state sales taxes under current or future laws. If
one or more states or any foreign country successfully asserts that we should
collect sales or other taxes on the sale of our products, it could adversely
affect our business.

         THE COMPANY MAY BE LIABLE FOR INFORMATION RETRIEVED FROM THE INTERNET.
Due to the fact that material may be downloaded from web sites and subsequently
distributed to others, there is a potential that claims will be made against us
for negligence, copyright or trademark infringement or other theories based on
the nature and content of such material. Although we carry general liability
insurance, our insurance may not cover potential claims of this type or may not
be adequate to cover all costs incurred in defense of potential claims or to
indemnify us for all liability that may be imposed. Any costs or imposition of
liability that is not covered by insurance or in excess of insurance coverage
could have a material adverse effect on us.

         INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND RESULT IN THE
LOSS OF SIGNIFICANT RIGHTS Other parties may assert infringement or unfair
competition claims against us. We cannot predict whether third parties will
assert claims of infringement against us, or whether any future assertions or
prosecutions will adversely affect our business. If we are forced to defend
against any such claims, whether they are with or without merit or are
determined in our favor, then we may face costly litigation, diversion of
technical and management personnel, or product shipment delays. As a result of
such a dispute, we may have to develop non-infringing technology or enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may be unavailable on terms acceptable to us, or at all. If there is a
successful claim of product infringement against us and we are unable to develop
non-infringing technology or license the infringed or similar technology on a
timely basis, it could adversely affect our business.

                                       23
<PAGE>

         OUR COMMON STOCK PRICE MAY BE VOLATILE The market price for our Common
Stock is likely to be highly volatile and subject to wide fluctuations in
response to factors including the following:
-  actual or anticipated variations in our quarterly operating results;
-  announcements of technological innovations or new products or services by us
   or our competitors;
-  changes in financial estimates by securities analysts;
-  conditions or trends in the Internet and/or online commerce industries;
-  changes in the economic performance and/or market valuations of other
   Internet, online commerce or retail companies;
-  announcements by us or our competitors of significant acquisitions, strategic
   partnerships, joint ventures or capital commitments;
-  additions or departures of key personnel;
-  release of lock-up on April 12, 2000 or other transfer restrictions on our
   outstanding shares of Common Stock or sales of additional shares of Common
   Stock;
-  potential litigation.

The market prices of the securities of Internet-related and online commerce
companies have been especially volatile. Broad market and industry factors may
adversely affect the market price of our Common Stock, regardless of our actual
operating performance. In the past, following periods of volatility in the
market price of their stock, many companies have been the subject of securities
class action litigation. If we were sued in a securities class action, it could
result in substantial costs and a diversion of management's attention and
resources and would adversely affect our stock price.

         OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS COULD
CONTROL STOCKHOLDER VOTES AND OUR MANAGEMENT AND AFFAIRS. Our executive
officers, directors and 5% or greater stockholders, and their respective
affiliates, in the aggregate, own approximately 52.3% of our outstanding common
stock. As a result, they could act together to control all matters submitted to
stockholders for approval (including the election and removal of directors and
any merger, consolidation or sale of all or substantially all of our assets).
Accordingly, such concentration of ownership may delay, defer or prevent a
change in control, impede a merger, consolidation, takeover or other business
combination involving us or discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us. This could, in turn, have
an adverse effect on the market price of our common stock.

         THE COMPANY MAY NOT HAVE AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK.
THE ABSENCE OF AN ACTIVE TRADING MARKET WOULD LIKELY MAKE THE COMMON STOCK AN
ILLIQUID INVESTMENT. If the Company does not continue to meet the listing
requirements of the NASDAQ Small Cap Market its common stock risks being
delisted. If this occurs, trading in the common stock would be conducted in the
over-the-counter market in the so-called "pink sheets" or, if available, the
"OTC Bulletin Board Service." As a result, an investor would likely find it
significantly more difficult to dispose of, or to obtain accurate quotations as
to the value of the securities.

         RISK OF INTERNATIONAL EXPANSION. We plan to expand our presence in
foreign markets especially China. We have relatively little experience in
purchasing, marketing and distributing products or services for these markets
and may not benefit from any first to market advantages. It will be costly to
establish international facilities and operations, promote our brand
internationally, and develop localized Web sites and stores and other


                                       24
<PAGE>

systems. We may not succeed in our efforts in these countries. If revenues from
international activities do not offset the expense of establishing and
maintaining foreign operations, our business prospects, financial condition and
operating results will suffer. As the international online commerce market
continues to grow, competition in this market will likely intensify. In
addition, governments in foreign jurisdictions may regulate Internet or other
online services in such areas as content, privacy, network security, encryption
or distribution. This may affect our ability to conduct business
internationally.

         CHILDREN'S ONLINE PRIVACY PROTECTION ACT. On October 20, 1999, The
Federal Trade Commission ("FTC") issued the final rule to implement the
Children's Online Privacy Protection Act of 1998 (COPPA). The main goal of the
COPPA and the rule is to protect the privacy of children using the Internet.
Publication of the rule means that, as of April 21, 2000, certain commercial Web
sites must obtain parental consent before collecting, using, or disclosing
personal information from children under 13. The statute and rule apply to
commercial websites and online services directed to, or that knowingly collect
information from, children under 13. To inform parents of their information
practices, these sites will be required to provide notice on the site and a
separate notification to parents about their policies with respect to the
collection, use and disclosure of children's personal information. With certain
statutory exceptions, sites will also have to obtain "verifiable parental
consent" before collecting, using or disclosing personal information from
children. The rule will become effective on April 21,2000, giving websites six
months to come into compliance with the rule's requirements. A websites operator
must post a clear and prominent link to a notice of its information practices on
its home page and at each area where personal information is collected from
children. The notice must state the name and contact information of all
operators, the types of personal information collected from children, how such
personal information is used, and whether personal information is disclosed to
third parties. The notice also must state that the operator is prohibited from
conditioning a child's participation in activity on the child's disclosing more
personal information than is reasonably necessary. In addition, the notice must
state that the parent can review and have deleted the child's personal
information, and refuse to permit further collection or use of the child's
information. The COPPA regulations could reduce our ability to engage in direct
marketing. The cost to the Company of complying with the new requirements is not
known but is not expected to have a material effect upon operating results or
financial condition.

Form 10-QSB

PART II  OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

         The foregoing transactions were done under Section 4(2) of the
Securities Act of 1933 based, INTER ALIA, on representations and warranties made
by the investors, the small numbers of investors solicited and the

                                       25
<PAGE>

absence of any advertising or general solicitation in the process of raising
funds.

         (i)      In March 2000, the Company issued warrants to purchase up to
                  600,000 shares of common stock to Richard Seifert at $2.25 per
                  share, for consulting services. Mr. Seifert will receive
                  warrants for an additional 600,000 shares of common stock at
                  the same price if the trading price of the Company's stock
                  exceeds $9.10 for 30 days.

         (ii)     In March 2000, the Company agreed to issue warrants to
                  purchase up to 25,000 shares of common stock to David Cannon
                  at $3.00 per share related to his employment with Adatom.

Item 4. Submission of matters to a vote of the security holders

         Pursuant to the terms of the Amended and Restated Escrow Agreement
dated as of July 31, 1997 (the "Escrow Agreement") between the Company, American
Stock Transfer & Trust Company, and certain stockholders of the Company (the
"Escrow Stockholders"), an aggregate of 900,000 shares of common stock of the
Company were held under the Escrow Agreement. The Escrow Agreement was entered
into in connection with the Company's initial public offering in 1997. In
connection with the merger of Adatom, Inc. into the Company, the Company and the
Escrow Stockholders entered into a Termination Agreement (the "Termination
Agreement") pursuant to which, subject to approval of the stockholders, the
Escrow Agreement would be terminated and 80 percent of the shares of stock
subject to the Escrow Agreement would be canceled and the remaining 20 percent
of the shares held in escrow, or 180,000 shares, were released from the escrow
without any further restriction. On January 6, 2000, the holders of
approximately 70% of the outstanding shares of common stock, other than shares
held by the Escrow Stockholders, consented in writing to the termination of the
Escrow Agreement pursuant to the terms of the Termination Agreement.

Item 6. Exhibits and Reports on Form 8-K.

(a) List of Exhibits. An Exhibit Index has been filed starting on page E-1 of
    this Report and is incorporated herein by reference.

(b) Reports On Form 8-K. None.

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
Adatom.com, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          ADATOM.COM, INC.

Date: May 12, 2000

                                          /s/ Richard S. Barton
                                          ---------------------
                                          By: Richard S. Barton
                                          President and Chief Executive Officer

                                       26

<PAGE>


EXHIBIT INDEX

Exhibit Description

4.16  Form of warrant to be issued to Dr. Victor W. Nee(1)

4.17  Warrant to purchase shares of Common Stock issued to Richard Seifert dated
      as of April 4, 2000

4.18  Warrant to purchase shares of Common Stock issued to David Cannon dated as
      of April 1, 2000

10.21 Description of Adatom.com, Inc. 1999 Officer Bonus Stock Grants

10.22 YangLing Agriculture Hi-Tech Industrial Demonstration Zone Cooperative
      Memorandum

10.23 Shenzhen Bay Industrial, Educational & Research Center Cooperative
      Memorandum

27    Financial Data Schedule







---------------------------------------
(1) Incorporated by reference to Appendix A of the Registrant's Proxy Statement
dated April 27, 2000












                                      E-1