<PAGE>   1

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

                               FORM 10-K/A NO. 1

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For The Fiscal Year Ended December 31, 1997

                         Commission File Number: 1-12529

                                  NETMED, INC.
             (Exact name of Registrant as specified in its charter)

        OHIO                                               31-1282391
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                        Identification No.)

                               6189 MEMORIAL DRIVE
                               DUBLIN, OHIO 43017
                    (Address of principal executive offices,
                               including zip code)

                                 (614) 793-9356
                         (Registrant's telephone number,
                              including area code)

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

                           COMMON SHARES, NO PAR VALUE
                                (Title of Class)

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

         The Registrant 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 has been subject to the filing requirements for at least the past
90 days.

         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. [x]

         The aggregate market value of the Registrant's Common Shares held by
non-affiliates of the Registrant was approximately $9,640,000 on March 16, 1998.

         There were 11,334,169 shares of the Registrant's Common Shares
outstanding on March 16, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's Proxy Statement for the 1998 Annual
Meeting of Shareholders are incorporated by reference in Part III.


<PAGE>   2








                           Annual Report on Form 10-K

                   Item 8, Item 14(a)(1) and (2), (c) and (d)

                   Financial Statements and Supplementary Data
         List of Financial Statements and Financial Statement Schedules

                                Certain Exhibits

                          Financial Statement Schedules

                          Year ended December 31, 1997

                                  NetMed, Inc.

                                  Dublin, Ohio



                                       2
<PAGE>   3





                                  NetMed, Inc.

                          Audited Financial Statements


                  Years ended December 31, 1997, 1996 and 1995





                                    CONTENTS

Report of Independent Auditors...............................................4

Audited Financial Statements

Balance Sheets...............................................................5
Statements of Operations.....................................................6
Statements of Stockholders' Equity...........................................7
Statements of Cash Flows.....................................................8
Notes to Financial Statements................................................9





                                       3
<PAGE>   4








                         Report of Independent Auditors


The Board of Directors and Stockholders
NetMed, Inc.


We have audited the accompanying balance sheets of NetMed, Inc. (the Company) as
of December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.

                                        /s/ ERNST & YOUNG LLP

Columbus, Ohio
February 16, 1998



                                       4
<PAGE>   5


                                  NetMed, Inc.

                                 Balance Sheets
<TABLE>
<CAPTION>
                                                                                      DECEMBER 31
                                                                                 1997             1996
                                                                          ------------------------------------
<S>                                                                          <C>             <C>        
ASSETS
Current assets:
   Cash and cash equivalents                                                 $1,656,370      $   142,074
   Accounts receivable                                                          216,356          175,512
   Prepaid assets                                                                25,208           28,394
                                                                          ---------------------------------
Total current assets                                                          1,897,934          345,980

Investment in NSI--available for sale                                         1,267,343        9,238,503
Notes receivable - NSI                                                           21,443           21,443
Note receivable-COTI                                                            278,499               --
Furniture and equipment (net of accumulated
   depreciation of $46,095 -- 1997 and $32,399 -- 1996)                          42,263           28,034
Deferred taxes                                                                  260,100          744,162
Deposits and other assets                                                         1,467            1,468
                                                                          =================================
Total assets                                                                 $3,769,049      $10,379,590
                                                                          =================================

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
   Accounts payable                                                          $  113,176      $    97,625
   Accrued expenses                                                             304,576          223,536
   Loan payable                                                                       --          96,909
   Other liabilities                                                             69,102           29,844
                                                                          ---------------------------------
Total current liabilities                                                       486,854          447,914

Deferred taxes                                                                  260,100        2,896,609
Convertible debentures                                                        2,190,000
                                                                                                      --

Stockholders' equity:
   Common stock, no par value, 20,000,000 shares authorized, 11,080,783 and
     10,940,524 issued and outstanding at December 31, 1997 and 1996
                                                                              5,417,151        3,881,605
   Unrealized gains (losses) on available-for-sale securities net of
     deferred taxes of $0 in 1997 and $2,636,509 in 1996                       (499,478)       3,954,764
   Retained deficit                                                          (4,085,578)        (801,302)
                                                                          ---------------------------------
Total stockholders' equity                                                      832,095        7,035,067
                                                                          ---------------------------------
Total liabilities and stockholders' equity                                   $3,769,049      $10,379,590
                                                                          =================================
</TABLE>

See accompanying notes.



                                       5
<PAGE>   6


                                  NetMed, Inc.

                            Statements of Operations


<TABLE>
<CAPTION>
                                                                            YEAR ENDED
                                                                            DECEMBER 31,
                                                            1997                1996               1995
                                                     -------------------------------------------------------
<S>                                                     <C>                <C>               <C>       
Royalty revenue                                         $   893,608        $   102,813       $   48,000

Operating expenses:
   Salaries and benefits                                  1,818,251            838,846          303,105
   Sales and marketing                                      622,060            250,389           74,329
   General and administrative                               612,944            240,562           89,299
   Business development                                     293,952             85,476               --
   Merger (Note 1)                                               --            364,852          106,415
                                                     -------------------------------------------------------
Operating expenses                                        3,347,207          1,780,125          573,149
                                                     -------------------------------------------------------

Operating  loss                                          (2,453,599)        (1,677,312)        (525,149)

Other income (expense):
   Interest income                                           39,442             13,743           16,606
   Interest expense                                         (72,464)              (872)            (264)
   Gain on sale of available-for-sale securities            794,819            664,057               --
   Financing costs                                       (1,106,452)                --               --
   Equity (loss) income in partnerships                          --            (13,451)          49,638
   NSI settlement and common stock
     transactions (Note 3)                                       --                 --        1,715,399
                                                     -------------------------------------------------------
Total other (expense) income                               (344,655)           663,477        1,781,379
                                                     -------------------------------------------------------
(Loss) income before income taxes                        (2,798,254)        (1,013,835)       1,256,230

Income tax liability (benefit)                              486,022           (421,013)         (68,715)
                                                     -------------------------------------------------------
Net (loss) income                                       $(3,284,276)       $  (592,822)      $1,324,945
                                                     =======================================================

(Loss) income per share:
    Basic                                                     $(.30)             $(.09)            $.22
                                                     =======================================================
                                                     =======================================================
    Diluted                                                   $(.30)             $(.09)            $.21
                                                     =======================================================
</TABLE>
See accompanying notes.



                                       6
<PAGE>   7


                                  NetMed, Inc.

                       Statements of Stockholders' Equity


<TABLE>
<CAPTION>
                                                                       
                                                        ADJUSTMENTS TO     RETAINED
                                                       UNREALIZED GAINS    EARNINGS
                                       COMMON STOCK        (LOSSES)        (DEFICIT)      TOTAL
                                     -------------------------------------------------------------
<S>                                      <C>           <C>               <C>            <C>       
Balance, January 1, 1995                 $2,272,025    $        --       $(1,533,425)   $  738,600
   Stock issued and warrants
     exercised                              290,517             --                --       290,517
   Adjustment to unrealized gains
     net of tax                                  --      3,899,617                --     3,899,617
   Net income                                    --             --         1,324,945     1,324,945
                                     -----------------------------------------------------------------
Balance, December 31, 1995                2,562,542      3,899,617          (208,480)    6,253,679
   Stock options exercised                    3,600             --                --         3,600
   Adjustment to unrealized gains
     net of tax                                  --     (1,710,691)               --    (1,710,691)
   Net assets acquired via the
     Merger (Note 1)                        905,463      1,765,838                --     2,671,301
   Deferred compensation
       stock options                        410,000             --                --       410,000
   Net loss                                      --             --          (592,822)     (592,822)
                                     -----------------------------------------------------------------
Balance, December 31, 1996                3,881,605      3,954,764          (801,302)    7,035,067
   Adjustment to unrealized gains
     net of tax                                  --     (4,454,242)               --    (4,454,242)
   Deferred compensation
       Stock options                        455,593             --                --       455,593
   Warrants issued                          850,096             --                --       850,096
   Stock issued                             360,000             --                --       360,000
   Stock received for note (Note 10)       (130,143)            --                --      (130,143)

   Net loss                                      --             --        (3,284,276)   (3,284,276)
                                     -----------------------------------------------------------------
Balance, December 31, 1997               $5,417,151    $  (499,478)      $(4,085,578)  $   832,095
                                     =================================================================
</TABLE>

See accompanying notes.



                                       7
<PAGE>   8


                                  NetMed, Inc.

                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                  1997              1996             1995
                                                            -----------------------------------------------------
<S>                                                           <C>              <C>              <C>        
OPERATING ACTIVITIES
Net (loss) income                                             $(3,284,276)     $  (592,822)     $ 1,324,945
Adjustments to reconcile net income (loss) to net cash
   provided by (used for) operating activities:
     Depreciation and amortization                                 13,696            7,776            7,496
     Change in deferred taxes                                     484,062         (421,013)         (68,715)
     Gain on settlement and exercise of
       warrants with NSI                                               --               --       (1,402,002)
     Gain on available-for-sale securities                       (794,819)        (664,057)              --
     Compensation on extended stock options                       455,593          410,000               --
     Equity (income) loss in partnership                               --           13,451          (49,638)
     Financing costs                                              850,096               --               --
     Changes in operating assets and liabilities:
       Accounts receivable                                       (170,987)         (55,727)         (42,548)
       Note receivable from stockholder                                --           50,000               --
       Prepaid assets                                               3,186          (27,373)              --
       Accounts payable                                            15,551           47,694           49,931
       Accrued expenses and other liabilities                      81,040          101,398           94,127
         Other liabilities                                         39,258               --               --
                                                            ---------------------------------------------------
Net cash used in operating activities                          (2,307,600)      (1,130,673)         (86,404)

INVESTING ACTIVITIES
Sale of NSI stock                                               1,225,229          750,057               --
Net cash advances to Predecessor Companies in
   contemplation of Merger                                             --         (400,183)              --
Notes receivable - NSI                                                 --           29,637           74,961
Note receivable-COTI                                             (278,499)              --               --
Purchase of furniture and equipment                               (27,925)         (18,494)          (4,260)
Other assets                                                           --             (138)           1,000
                                                            ---------------------------------------------------
Net cash provided by investing activities                         918,805          360,879           71,701

FINANCING ACTIVITIES
Issuance of convertible debentures                              3,000,000               --               --
(Payment) proceeds from margin activity                           (96,909)          96,909               --
Issuance of common stock and warrants exercised                        --            3,600          290,517
                                                            ---------------------------------------------------
Net cash provided by financing activities                       2,903,091          100,509          290,517
                                                            ---------------------------------------------------

Net increase (decrease) in cash                                 1,514,296         (669,285)         275,814

Cash and cash equivalents at beginning
   of period                                                      142,074          811,359          535,545
                                                            ===================================================
Cash and cash equivalents at end of period                    $ 1,656,370      $   142,074     $    811,359
                                                            ===================================================
</TABLE>

See accompanying notes.



                                       8
<PAGE>   9


                                  NetMed, Inc.

                          Notes to Financial Statements

                                December 31, 1997


1.  ORGANIZATION AND BASIS OF PRESENTATION

NetMed, Inc. is engaged in the business of acquiring, developing and marketing
medical and health-related technologies. The Company's revenues are currently
derived principally from the marketing of the PAPNET(R) TestinG System, an
advanced computerized test that pinpoints and magnifies precancerous and
cancerous cells. The Company is also investigating other medical technologies,
including an oxygen concentrator device to be sold in the home healthcare
market.

On December 5, 1996, the Company's shareholders approved an Agreement and Plan
of Merger (the "Merger Agreement") whereby Cytology Indiana, Inc., Indiana
Cytology Review Company, ER Group, Inc., CCWP Partners, Inc. (CCWP), and
Carolina Cytology, Inc. (the "Predecessor Companies") were merged with and into
the Company (the "Merger"). The Merger was effective on December 16, 1996 and
the Company issued, in the aggregate, 4,849,988 shares of its common stock,
without par value, in exchange for the issued and outstanding shares of the
Predecessor Companies. Under terms of the Merger Agreement, the Company changed
its name from Papnet of Ohio, Inc. to NetMed, Inc

Prior to the Merger, Papnet of Ohio, Inc. and each of the Predecessor Companies
(except for CCWP) held long-term territorial license agreements ("License
Agreement") issued by Neuromedical Systems, Inc. (NSI). The License Agreements
provide the right to sell the "PAPNET(R) System" and the "PAPNET(R) Service", as
described below, in OhIo, Kentucky, Missouri, Georgia, North Carolina and the
Standard Metropolitan Area of Chicago. As a result of the Merger, and in
accordance with an agreement with NSI, the individual License Agreements held by
Papnet of Ohio, Inc. and the Predecessor Companies will be exchanged for a
single License Agreement ("Amended License") that encompasses the same
territories covered by the individual License Agreements. While the Company and
NSI have agreed on the general form of the Amended License, which the Company
has agreed to execute with certain modifications, no final agreement has been
executed as of December 31, 1997.

NSI, founded in 1988, is a healthcare technology company focused on diagnostic
screening applications to aid in the early detection of certain cancers. NSI's
first and to date only product, the PAPNET(R) System, was approved for
commercial use in the United States by the Food and Drug Administration (the
"FDA") on November 8, 1995. The PAPNET(R) Service permits laboratories to submit
Pap smear slides to one of NSI's central facilities for processinG by the
PAPNET(R) System. NSI's objective is to establish the use of its PAPNET(R)
System as the new standard of cAre in cervical cancer screening.




                                       9
<PAGE>   10


                                  NetMed, Inc.

                    Notes to Financial Statements (continued)


 1.   ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

The Merger of the Company and the Predecessor Companies occurred in connection
with the initial registration of the Company's common stock with the Securities
and Exchange Commission (SEC) which resulted in the public trading of the
Company's common stock. The Merger was accounted for at historical cost based on
the guidance in SEC Staff Accounting Bulletins 48 and 97. The results of
operations of the Predecessor Companies have been combined with those of the
Company on a prospective basis commencing at the date of Merger. The following
displays summarized pro forma results of operations assuming the Merger
transaction occurred on January 1, 1995:


                                                   PRO FORMA
                                             YEAR ENDED DECEMBER 31
                                             1996               1995
                                     ------------------- ------------------
Royalty revenue                         $    222,002        $     84,000
Operating loss                            (2,153,257)           (641,788)
Net (loss) income                         (1,032,865)          2,484,546
Net (loss) income per share                     (.10)                .23

The Company received the following assets and assumed the following liabilities
at the Merger date:

Cash                                    $     41,000
Accounts receivable                           44,000
NSI common stock                           4,457,000
                                     -------------------
Totals assets                             $4,542,000

Payable to Net Med, Inc.                 $   441,000
Accrued liabilities                           27,000
Deferred taxes                             1,256,000
Minority interest                            146,000
                                     -------------------
                                           1,870,000
                                     -------------------
Net equity at Merger                      $2,672,000
                                     ===================

The payable to the Company was offset against a related receivable from the
Predecessor Companies recorded on the books of the Company at the date of
Merger. In addition, the minority interest represented NetMed's interest in two
partnerships controlled by certain predecessor companies (see Note 2).




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<PAGE>   11

                                  NetMed, Inc.

                    Notes to Financial Statements (continued)



2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from these estimates.

CASH EQUIVALENTS

The Company considers all short-term deposits and highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.

FURNITURE AND EQUIPMENT

Furniture and equipment consists of office furniture and computer equipment
recorded at cost which is being depreciated on an accelerated method over
estimated useful lives ranging from three to seven years.

ROYALTY REVENUE

Pursuant to the License Agreement, the Company is entitled to receive a
calculated royalty or a specified percentage of NSI's annual slide processing
revenues less certain expenses, up to specific annual monetary limits for each
licensee. Royalty revenue is recognized as earned based on the License
Agreement.

INCOME TAXES

The Company accounts for income taxes using the liability method under Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes."
Deferred items are determined based on differences between the financial
reporting and tax basis of assets and liabilities, and are measured using the
enacted rates and laws that will be in effect when the differences are expected
to reverse.



                                       11
<PAGE>   12

                                  NetMed, Inc.

                    Notes to Financial Statements (continued)



2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK-BASED COMPENSATION

The Company accounts for stock compensation arrangements in accordance with APB
Opinion No. 25, "Accounting for Stock issued to Employees." The pro forma
information regarding net income and earnings per share as required by Statement
of Financial Accounting Standards No.123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") is disclosed in "Note 5 - Stock Options and
Warrants."

RECLASSIFICATION

Certain amounts presented for 1996 and 1995 have been reclassified to conform to
the 1997 presentation

NET (LOSS) INCOME PER SHARE

In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements. The
following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                       1997               1996             1995
                                                 ------------------ ----------------- ---------------
<S>                                               <C>                  <C>             <C>       
Net (loss) income                                 $(3,284,276)         $(592,822)      $1,324,945
                                                 ================== ================= ===============

Weighted average shares                            10,963,978          6,263,924        5,895,981
Effect of dilutive stock options
     and warrants                                       N/A               N/A             453,613

                                                 ------------------ ----------------- ---------------
                                                   10,963,978          6,263,924        6,349,594
                                                 ================== ================= ===============

Basic earnings per share                              $(.30)             $(.09)            $.22
                                                 ================== ================= ===============

Diluted earnings per share                            $(.30)             $(.09)            $.21
                                                 ================== ================= ===============
</TABLE>





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<PAGE>   13


                                  NetMed, Inc.

                    Notes to Financial Statements (continued)



2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The outstanding convertible debentures (see Note 4) were not included in the
diluted earnings per share calculation for 1997 because the effect would be
antidilutive.

3.  INVESTMENT IN NSI

The Company owns stock in NSI as a result of the exercise of warrants and
settlement of certain claims with NSI. The investment is classified as
available-for-sale and is carried at fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of stockholders' equity.
NSI trades publicly on the NASDAQ NMS under the symbol "NSIX." The Company sold
140,000 and 43,000 shares of NSI stock which resulted in a gain of $794,819 and
$664,057 during 1997 and 1996, respectively, which was reported as other income.
In addition, the Company used 106,635 shares in exchange for a reduction of
$450,000 in the debentures payable more fully described in Note 4.

As of December 31, 1997, the Company owned 450,611 shares of NSI stock at a cost
of $1,766,821 of which 368,365 shares are pledged as additional security for the
debentures payable. The NSI common stock has been recorded in the accompanying
balance sheet based on its $2.81 closing price on December 31, 1997.

The exercise of the warrants in NSI was completed in 1995 utilizing a cashless
exercise provision in the warrant agreement. This resulted in a gain of $652,250
which has been reported as other income. As a result of settling certain claims
with NSI in December 1995, the Company received 53,939 shares of NSI stock
resulting in a gain of $749,752 which is recorded in other income. In addition,
the Company was allocated the right to purchase 65,000 shares of NSI stock at
NSI's initial public offering. The Company purchased and sold the entire 65,000
shares for $1,292,363 during 1995 resulting in a realized gain of $313,397 which
has been recorded as other income.



                                       13
<PAGE>   14
                                  NetMed, Inc.

                    Notes to Financial Statements (continued)



 4.   CONVERTIBLE DEBENTURES

In August 1997, the Company issued $3,000,000 of 6% Convertible Debentures (the
"Debentures") resulting in net proceeds to the Company of $2,743,644 and
recorded associated one time expenses of $1,106,452. The expenses included
$750,000 in discount calculated as of the closing date, $100,000 for the cost of
warrants issued to placement agents and the purchasers of the Debentures,
$170,000 in placement fees and $87,000 in professional, stock exchange and
registration fees associated with the Debentures and subsequent registration
statement. The Company has reserved 1,500,000 shares for the conversion of the
Debentures.

The Debentures are convertible into Common Stock at a conversion price equal to
80% of the average closing price of the Common Stock for the three business days
immediately preceding such time as the debentures are converted (75% after March
31, 1998) and mature August 13, 2000. The Debentures may also be redeemed for
cash at the Company's option. Interest is accrued and at the option of the
Company may be paid in cash or converted to Common Stock at the same prices as
above. As of December 31, 1997, Debentures with a total principal amount of
$360,000 had been converted into 150,000 shares of Common Stock.

The Debentures were originally secured by 475,000 shares of common stock of
Neuromedical Systems, Inc. owned by the Company (the "NSI Shares"). During 1997,
the Company exchanged 106,635 NSI Shares for a reduction of $450,000 in the
Debentures payable. If at anytime between February 1, 1998 and March 31, 1998,
the conversion price is $3.00 or less, the holders of the Debentures may elect
to exercise their conversion rights for NSI Shares, rather than common stock of
the Company, at a discount that would produce a 25% return on an annualized
basis.

In connection with this financing, the Company issued warrants to the purchasers
of the Debentures and to placement agents. The warrants are exercisable at any
time prior to August 13, 2000 at exercise prices of $7.79 per share (for up to
150,000 shares) and $9.35 per share (for up to 65,000 shares).

In February, 1998, the conversion price discount was modified to 22.5% from
April 1 through June 30, 1998, and 25% thereafter; and the period during which
the Debenture holders may convert into NSI Shares was extended to June 30, 1998.




                                       14
<PAGE>   15
                                  NetMed, Inc.

                    Notes to Financial Statements (continued)


5.  STOCK OPTIONS AND WARRANTS

The Company's 1995 Stock Option Plan (the "Stock Option Plan") provides for the
granting of options that may either meet the requirements of Section 422
("Incentive Options") of the Internal Revenue Code of 1986, as amended (the
"Code") or not meet such requirements ("Nonqualified Options"). Key employees,
officers, and directors of, and consultants and advisors who render services to,
the Company are eligible to receive options under the Stock Option Plan. The
following represents the activity for the Stock Option Plan for the year ended
December 31, 1997:

<TABLE>
<CAPTION>
                                                                        Options Granted
                                                    -------------------------------------------------------
                                                    Equal to     Less than     Greater than      Total
                                                     Market     Market Value   Market Value     Options
                                                      Value                                   Granted 1997
         --------------------------------------------------------------------------------------------------
<S>                                                    <C>        <C>            <C>            <C>    
         Options Granted                               --         313,667        225,000        538,667
         Weighted-average fair value                   --          $5.25          $2.08           N/A
         Weighted-average exercise price               --          $6.76          $9.54           N/A
         Weighted-average contract life in years       --           9.1            9.33           N/A
         Compensation expense                          --        $431,593             --       $431,593
</TABLE>

At December 31, 1997 there are 55,750 options exercisable at a weighted-average
exercise price of $7.09. The number of shares available for grants under the
Stock Option Plan was 211,333 and 300,000 at December 31, 1997 and 1996,
respectively.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1995,
1996 and 1997: risk-free interest rate of 6% for 1995 and 1996 and 5.75% for
1997; no dividend yield; volatility factor of the expected market price of the
Company's common stock of .62 for 1995 and 1996 and .44 for 1997 and expected
lives ranging from 2 to 5 years.

If the Company had elected to recognize compensation cost based on the fair
value of options at the grant date as prescribed by SFAS No. 123, the following
displays what reported net income (loss) and per share amounts would have been:



                                       15
<PAGE>   16

                                  NetMed, Inc.

                    Notes to Financial Statements (continued)



5.    STOCK OPTIONS AND WARRANTS (CONTINUED)


<TABLE>
<CAPTION>
                                                     PRO FORMA YEARS ENDED DECEMBER 31
                                               1997               1996                1995
                                        ------------------------------------------------------------
<S>                                     <C>                <C>                     <C>        
Net (loss) income                       $(4,035,573)       $    (873,866)          $ 1,257,467
Diluted (loss) income per share               $(.37)               $(.14)                 $.20
</TABLE>

The pro forma financial effects of applying SFAS No. 123 are not likely to be
representative of the pro forma effects on reported results of operations for
future years.

The following is a summary of the stock option activity for a prior
non-qualified plan (no additional options may be granted under this plan) for
the three years ended December 31, 1997:

                                           NUMBER OF          WEIGHTED AVERAGE
                                            SHARES            EXERCISE PRICE
                                          ------------------------------------

NON-QUALIFIED PLAN
Outstanding at January 1, 1995               405,600              $ 1.32

Issued                                        16,000              $11.00
Expired                                       56,000              $ 1.38
                                          ----------------

Outstanding at December 31, 1995             365,600              $ 1.74

Issued                                        56,000              $ 1.55
Exercised                                     21,200              $ 1.53
Expired                                       64,000              $ 1.53
                                          ----------------

Outstanding at December 31, 1996             336,400              $ 1.76

Issued                                        16,000              $ 3.25
Exercised                                      8,400              $ 1.83
Expired                                       16,000              $ 3.25
                                          ----------------

Outstanding at December 31, 1997             328,000              $ 1.76
                                          ================

Exercisable at December 31, 1995             349,600              $ 1.31
Exercisable at December 31, 1996             336,400              $ 1.76
Exercisable at December 31, 1997             328,000              $ 1.76

The exercisable options for the non-qualified plan had a remaining
weighted-average contract life of 2.9 years.



                                       16
<PAGE>   17

                                  NetMed, Inc.

                    Notes to Financial Statements (continued)



 5.    STOCK OPTIONS AND WARRANTS (CONTINUED)

During 1997 and 1996, the company extended the expiration date of 16,000 and
56,000 options, respectively, due to expire near the end of the year. Accounting
Principles Board Opinion No. 25 requires that extended options be treated as if
they were a new grant. The exercise price set for these options was below the
market price at the date of grant and resulted in $24,000 in 1997 and $410,000
in 1996 in compensation expense. These options had a weighted-average fair value
and a weighted-average exercise price of $2.11 and $3.25 for the 1997 extension
and $7.60 and $1.55 for the 1996 extension, respectively.

As of December 31, 1997, there were outstanding 286,020 warrants to purchase
common stock at exercise prices from $.875 per share to $9.35 per share. The
following is a summary of warrant activity for the three years ended December
31, 1997:

                                                NUMBER OF     WEIGHTED AVERAGE 
                                                  SHARES      EXERCISE PRICE
                                                ------------------------------

Outstanding at January 1, 1995                   255,040             $.93

Exercised                                       (184,200)            $.90
                                                -----------

Outstanding at December 31, 1995
    and December 31, 1996                         71,020            $1.25

Issued during 1997                               215,000            $8.26
                                                -----------
Outstanding and exercisable at December 31,
   1997                                          286,020            $6.46
                                                ===========





                                       17
<PAGE>   18


                                  NetMed, Inc.

                    Notes to Financial Statements (continued)



6.  INCOME TAXES

Significant components of deferred tax assets and liabilities are as follows:

                                             1997                1996
                                        --------------------------------

Loss carryforwards                      $  1,132,251         $   580,162
Unrealized gains on investments                   --          (2,636,509)
Gain on NSI warrants                        (260,100)           (260,100)
Stock options issued                         346,237             164,000
Valuation allowance provided              (1,218,388)                 --
                                        --------------------------------
Net deferred tax liability              $         --         $(2,152,447)
                                        ================================

At December 31, 1997, the Company had unused NOL carryforwards for tax purposes
of approximately $329,000, $320,000, $211,000, $711,000 and $1,380,000 which
expire in 2007, 2008, 2009, 2010 and 2011 respectively.

At December 31, 1997, a full valuation allowance was recorded due to the lack of
deferred tax liabilities, historical income and tax planning strategies. For
1996, due to the existence of a significant deferred tax liability, a valuation
allowance was not required.

The reconciliation of income tax computed at the statutory rate to the recorded
tax provision (benefit) is:

<TABLE>
<CAPTION>
                                                           1997              1996              1995
                                                      ---------------- ----------------- -----------------
<S>                                                        <C>              <C>               <C>      
Tax provision (benefit) at statutory rate                  $(951,406)       $(344,704)        $ 427,118
Benefit of state loss carryforward                          (108,189)         (76,309)               --
Permanent differences:
     Convertible discount and interest                       313,670               --                --
     Other permanent                                          13,559               --                --
Recognition of previously reserved tax
   assets                                                         --               --          (495,833)
Valuation allowance provided                               1,218,388               --                --
                                                      ---------------- ----------------- -----------------
Total tax provision (benefit)                             $  486,022        $(421,013)        $ (68,715)
                                                      ================ ================= =================
</TABLE>




                                       18
<PAGE>   19

                                  NetMed, Inc.

                    Notes to Financial Statements (continued)


7.  NOTE RECEIVABLE FROM STOCKHOLDER

On October 14, 1994, the Company loaned one of its officers and stockholders
$50,000, at prime plus 1/2% interest. Under the loan agreement, effective with
the Merger described in Note 1, the loan was deemed a bonus and converted into
compensation during the year ended December 31,1996.

8.  NOTE RECEIVABLE FROM CERAM OXYGEN TECHNOLOGIES, INC.

On March 3, 1997, the Company entered an agreement with CeramPhysics,
Inc.("Ceram") pursuant to which the Company has the right to acquire control of
a newly-organized corporation, Ceram Oxygen Technologies, Inc ("COTI") holding a
worldwide license to Ceram's patented oxygen generation technology, which is
exclusive as to all applications except oxygen sensors and fuel cells. Pursuant
to the agreement, the Company will work with and loan up to $300,000 to Ceram to
complete the fabrication and testing of a ceramic element incorporating the
licensed technology, which will be capable of generating oxygen of a purity and
in quantities suitable for medical use. Ceram has pledged the patents as
additional security for the note. As of December 31, 1997, the Company has
advanced $278,499 under the note.

9.  LEASES

The Company leases facilities and equipment under operating leases. Commitments
for these leases approximate $109,000, $106,000, $94,000, $85,000 and $43,000
for the years ending December 31, 1998, 1999, 2000, 2001 and 2002, respectively.
Rent expense for the years ended December 31, 1997, 1996 and 1995 was $68,798,
$41,677 and $19,537 respectively.

In September 1997, the Company entered into a net lease with Muirfield Square,
Ltd. for 4,900 square feet of office space in which the Company's principal
offices are located. The lease term is for five years at an annual rent of
$53,900 for the first year, escalating annually at the rate of 3% over the term,
and renewable for an additional 5 year term at an annual rental of $60,660.
Certain officers and directors own a majority of the membership interests in
Muirfield Square, Ltd. The Company believes that the lease is on terms at least
as favorable to the Company as available for office space of a similar size and
quality in the locality.

10. NOTE RECEIVABLE

In April 1997, the Company completed a transaction to accept 16,331 shares of
Company stock for payment of a note receivable valued at $130,143. The number of
shares received in the exchange was based on the market value of the shares in
November 1996 when the method of settling the note was negotiated. The note was
charged to common stock on the accompanying balance sheet as the shares were
retired.




                                       19
<PAGE>   20



                                   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 on Form 10-K/A
No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized.

                                                  NetMed, Inc.


Date:  April 30,1998                              By: /s/ DAVID J. RICHARDS
                                                     ---------------------------
                                                  David J. Richards, President

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K/A No. 1 has been signed below by the following persons 
on behalf of the Registrant and in the capacities indicated on the 30th day 
of April, 1998.

         Signature                          Title


         /s/ DAVID J. RICHARDS               President and Director
         --------------------------------
             David J. Richards


             *KENNETH B. LEACHMAN             Vice President - Finance 
         --------------------------------     and Treasurer
             Kenneth B. Leachman              (Principal Financial and 
                                               Accounting Officer)

             *WILLIAM J. KELLY, JR.           Vice President, Secretary 
         --------------------------------     and General Counsel
             William J. Kelly, Jr.            


             *S. TREVOR FERGER                Director
         --------------------------------
             S. Trevor Ferger


             *CECIL J. PETITTI                Director
         --------------------------------
             Cecil J. Petitti


             *JAMES F. ZID                    Director
         --------------------------------
             James F. Zid


             *MICHAEL S. BLUE                 Director
         --------------------------------
             Michael S. Blue


             *ROBERT J. MASSEY                Director
         --------------------------------
             Robert J. Massey


    *By: /s/ DAVID J. RICHARDS
         --------------------------------
         David J. Richards, Attorney in fact




                                       20