8-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)   August 14, 2006

A.D.A.M., Inc.

(Exact name of registrant as specified in its charter)

Georgia	0-26962	58-1878070
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)
1600 RiverEdge Parkway, Suite 100
Atlanta, Georgia		30328-4696
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code   770-980-0888

N/A

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE

                This Amendment No. 1 on Form 8-K/A (this “Amendment”) is being filed to set forth the unaudited financial statements of Online Benefits, Inc. and Subsidiaries (OBI) for the six months ended June 30, 2006 and the pro forma financial statements for A.D.A.M., Inc. and Subsidiaries (“the Company”) with respect to the Company’s acquisition of OBI.  This Amendment amends and restates Item 9.01 of the Company’s Current Report on Form 8-K originally filed by the Company with the Securities and Exchange Commission on August 16, 2006 (the “Original Current Report”).

Item 9.01               Financial Statements and Exhibits.

A.            Financial Statements of Business Acquired. 

The financial statements of OBI required to be filed pursuant to this Item 9.01(a) are set forth in Exhibit 99.1 hereof and incorporated herein by reference.

·Unaudited Consolidated Balance Sheet as of June 30, 2006

·Unaudited Consolidated Statements of Operations for the Six Months Ended June 30, 2006 and 2005

·Uanudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005

The audited financial statements of OBI as of and for the years ended December 31, 2005 and 2004 were previously filed as an exhibit to the Original Current Report.

B.            Pro Forma Financial Information. 

The pro forma financial information required to be filed pursuant to this Item 9.01(b) is set forth in Exhibit 99.2 hereof and incorporated herein by reference.

·Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet as of June 30, 2006 

·Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations for the Six Months Ended June 30, 2006 

·Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations for the Year Ended December 31, 2005 

D.            Exhibits.

2.1Agreement and Plan of Merger dated August 14, 2006. *

10.1Credit Agreement dated August 14, 2006. *

10.2Conversion and Registration Rights Agreement dated as of August 14, 2006. *

23.1Consent of Berenson LLP, Independent Auditors.

99.1Financial Statements of Business Acquired.

99.2Pro Forma Financial Information.

*  Previously filed as an exhibit to the Original Current Report.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	A.D.A.M., Inc.
	(Registrant)
Date: November 8, 2006	By:	/s/ KEVIN S. NOLAND
		Kevin S. Noland
		President, Chief Executive Officer
Date: November 8, 2006	By:	/s/ MARK B. ADAMS
		Mark B. Adams Chief Financial Officer and Corporate Secretary

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-113848, No. 333-07785, No. 333-65452, and No. 333-92403) and Form S-3 (No. 333-45294 and No. 333-88540) of A.D.A.M., Inc. (the “Company”) of our report dated June 2, 2006 relating to the consolidated financial statements of OnlineBenefits, Inc. and Subsidiaries as of and for the years ended December 31, 2005 and 2004, which was previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on August 16, 2006.

/s/ Berenson LLP

New York, New York

November 7, 2006

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EX-99.1

Exhibit 99.1

ONLINE BENEFITS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2006

1

ONLINE BENEFITS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEET

JUNE 30, 2006

ASSETS
Current assets:
Cash and cash equivalents	$	2,665,411
Accounts receivable, net of allowance of $106,000	570,636
Deferred accounts receivable	3,887,595
Prepaid expenses	272,130
Security deposit receivable	240,000
Total current assets	7,635,772
Property and equipment, net of accumulated depreciation of $4,105,000	500,392
Deferred costs	227,753
Intangible assets, net	589,634
Goodwill	348,330
Security deposits	345,986
	$	9,647,867
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Note payable	$	1,500,000
Notes payable, preferred stockholders	1,839,366
Accounts payable	329,552
Accrued expenses and other current liabilities	437,769
Accrued interest	1,535,983
Current portion of capital lease obligations	119,039
Deferred revenue	4,913,204
Total current liabilities	10,674,913
Long-term debt:
Capital lease obligations, net of current portion	112,621
Other liability	82,505
Deferred rent payable	204,556
Redeemable convertible preferred stock:
Series A convertible preferred stock, $0.01 par value, 1,653,528 shares authorized; 1,390,126 shares issued and outstanding	460,419
Series C convertible preferred stock, $0.01 par value; 10,854,260 shares authorized; 9,709,874 shares issued and outstanding	40,027,843
Series D convertible preferred stock, $0.01 par value, 4,888,185 shares authorized; 4,320,886 shares issued and outstanding	10,573,594
Total liabilities	62,136,451
Commitments and contingencies
Stockholders’ deficit:
Series B convertible preferred stock, $0.01 par value; 2,454,365 shares authorized; 2,063,391 shares issued and outstanding	20,633
Common stock, $.01 par value; 20,000,000 shares authorized; 350,639 shares issued and outstanding	3,506
Additional paid-in capital	4,365,878
Accumulated deficit	(56,878,601		)
Total stockholders’ deficit	(52,488,584		)
	$	9,647,867

See notes to unaudited consolidated financial statements.

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ONLINE BENEFITS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	Six Months Ended
	June 30,
	2006			2005
Revenues, net	$	6,670,040		$	6,299,082
Cost of revenue	1,086,236			1,013,459
Gross profit	5,583,804			5,285,623
Operating expenses:
Product development and promotion	874,784			729,855
Research and development	1,066,909			857,947
Selling	1,325,532			1,239,750
General and administrative	1,244,479			1,622,307
Depreciation and amortization	58,223			65,256
Total operating expenses	4,569,927			4,515,115
Income from operations	1,013,877			770,508
Other (income) expense:
Interest expense, net	1,713,527			2,025,893
Other (income) expense	76,595			(10,069		)
Total other expense	1,790,122			2,015,824
Net loss	$	(776,245	)	$	(1,245,316	)

See notes to unaudited consolidated financial statements.

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ONLINE BENEFITS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
	2006			2005
Cash flows from operating activities:
Net loss	$	(776,245	)	$	(1,245,316	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Interest expense, preferred	1,535,308			1,842,849
Minority interest	—			(10,162		)
Depreciation and amortization	183,680			114,202
Provision for bad debt	49,423			43,717
Changes in assets (increase) decrease:
Accounts receivable	(406,911		)	(1,415,610		)
Prepaid expenses and other assets	(45,583		)	(80,476		)
Deferred development costs	8,699			(71,726		)
Changes in liabilities increase (decrease):
Accounts payable	32,450			(65,231		)
Accrued expenses and other current liabilities	(372,152		)	201,627
Accrued interest	131,659			188,977
Deferred revenue	750,905			1,410,836
Deferred rent	(92,187		)	10,746
Net cash provided by operating activities	999,046			924,433
Cash flows from investing activities:
Acquisition of intangible assets	(39,066		)	(533,199		)
Purchase of property and equipment	(248,208		)	(26,796		)
Net cash used by investing activities	(287,274		)	(559,995		)
Cash flows from financing activities:
Proceeds from issuance of common stock	—			16,439
Net cash provided by financing activities	—			16,439
Net increase in cash and cash equivalents	711,772			380,877
Cash and cash equivalents, beginning of period	1,953,639			1,229,577
Cash and cash equivalents, end of period	$	2,665,411		$	1,610,454
Supplemental disclosure of cash flows information:
Cash paid during the period for interest	$	66,202		$	78,574

See notes to unaudited consolidated financial statements.

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ONLINE BENEFITS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2006

1.  Nature of Business:

Online Benefits, Inc. (OBI), a Delaware corporation, develops, markets, licenses, hosts and supports software applications that meet the needs of insurance benefits brokers, HR professionals, employers and their employees throughout the United States.  In addition to its core software applications, OBI also provides FSA and Cobra administration services through Benergy Outsourcing Strategies, Inc. (“Benergy OS”), a wholly-owned subsidiary.

2.  Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of OBI and its subsidiaries, Benergy OS, and Captiva Software, Inc. (“Captiva”).  Benergy OS, incorporated in 2003, at which time operations commenced, became wholly-owned as of December 31, 2005, following the November 2005 purchase of minority interests aggregating 13.8% of common stock that OBI did not already own.  Captiva, a Florida corporation was acquired through the purchase of 100% of its common stock in January 2005 by Captiva Acquisition Corp., which was merged with and into Captiva following the closing of the transaction.  All material intercompany transactions and balances have been eliminated.

3.  Basis of Presentation:

The accompanying unaudited consolidated financial statements as of and for the six months ended June 30, 2006 and 2005 have been prepared in accordance with generally accepted accounting principles in the United States of America.  In the opinion of the Company’s management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial information for the period indicated has been included.  For further information regarding the Company’s accounting policies, refer to the Consolidated Financial Statements and related Notes to Consolidated Financial Statements previously filed as an exhibit to the Original Current Report.  Operating results for interim periods are not necessarily indicative of results to be expected for a full year.

4.  Intangible Assets:

Identifiable intangible assets with finite lives are recorded at cost, less accumulated amortization.   Amortization is computed over the estimated useful lives of the respective assets, generally five years. Intangible assets consist of (i) product technology associated with the acquisition of Captiva and licensed from a third party under a non-exclusive, perpetual license, (ii) the acquisition of Primewire license and (iii) customer lists acquired.  In accordance with SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, OBI records acquired product technology at net realizable value and reviews this technology for impairment on a periodic basis by comparing the estimated net realizable value to the unamortized cost of the technology.

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Intangible assets as of June 30, 2006 consisted of the following:

Intangible assets	$	814,634
Less: accumulated amortization	(225,000		)
	$	589,634

Amortization expense was $75,000 and $0 for the six months ended June 30, 2006 and 2005, respectively.

5.  Commitments and Contingencies:

a.Office leases:

Future minimum lease commitments under one non-cancelable lease with a remaining term in excess of one year, and sublease income from the non-cancelable sublease, for the remainder of 2006 and beyond were as follows:

	Lease commitment		Sublease income
2006	$	668,000	$	251,000
2007	1,361,000		512,000
2008	1,412,000		525,000
2009	1,465,000		539,000
2010	1,530,000		552,000
Thereafter	784,000		268,000
	$	7,220,000	$	2,647,000

b.Equipment leases:

Future minimum lease commitments of certain equipment operating leases for the remainder of 2006 and beyond were as follows:

2006	$	115,000
2007	171,000
2008	68,000
2009	46,000
2010	27,000
Thereafter	5,000
	$	432,000

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c.     Capital leases:

Future minimum lease commitments of certain equipment capital leases for the remainder of 2006 and beyond were as follows:

2006	$	70,350
2007	116,063
2008	65,981
2009	10,662
Future minimum lease payments	263,056
Less – amounts representing interest	(31,396		)
Present value of future minimum lease payments	231,660
Less – current portion	(119,039		)
	$	112,621

d.     Litigation:

OBI is involved with several legal actions arising in the normal course of business as both defendant and as plaintiff. Although the final outcome of these matters cannot be determined, it is the Company’s opinion the final resolution of these matters will not have a material adverse effect on OBI’s financial position.

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EX-99.2

Exhibit 99.2

A.D.A.M., INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED

FINANCIAL STATEMENTS

June 30, 2006

1

A.D.A.M., INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET

JUNE 30, 2006

(in thousands, except share data)

	Historical ADAM, Inc			Pro Forma Adjustments			Pro Forma Combined
Assets
Current assets
Cash and cash equivalents	$	5,148		$	(5,901	)(1)
				900		(2)
				(1,339		)(2)	$	(1,192	)
Short term investments	6,776			—			6,776
Accounts receivable, net	2,646			1,225		(2)	3,871
Inventories	76			—			76
Prepaids and other current assets	366			3,164		(2)	3,530
Deferred financing costs	—			367		(2)	367
Deferred tax asset	221			(221		)(2)	—
Total current assets	15,233			(1,805		)	13,428
Property and equipment, net	241			549		(2)	790
Intangible and other assets, net	934			9,300		(2)	10,234
Goodwill	2,043			29,200		(2)	31,243
Other assets	44			157		(2)	201
Deferred financing costs	—			972		(2)	972
Deferred tax asset, net of current portion	5,279			(3,248		)(2)	2,031
Total assets	$	23,774		$	35,125		$	58,899
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payables and accrued expenses	$	854		$	2,238	(2)	$	3,092
Deferred revenue	3,723			1,584		(2)	5,307
Deferred tax liability	—			65		(2)	65
Current portion of capital lease obligations				137		(2)	137
Current portion of long term debt	21			1,500		(2)	1,521
Total current liabilities	4,598			5,524			10,122
Capital lease obligations, net of current portion	7			154		(2)	161
Deferred rent payable	—			1,364		(2)	1,364
Security deposit	—			83		(2)	83
Note payable	—			25,000		(1)	25,000
Total liabilities	4,605			32,125			36,730
Commitments and contingencies
Shareholders’ equity
Common stock	87			5		(1)	92
Treasury stock, at cost, 269,759 shares	(1,088		)	—			(1,088		)
Additional paid-in capital	50,691			2,995		(1)	53,686
Unrealized loss on investments	(8		)	—			(8		)
Accumulated deficit	(30,513		)	—			(30,513		)
Total shareholders’ equity	19,169			3,000			22,169
Total liabilities and shareholders’ equity	$	23,774		$	35,125		$	58,899

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A.D.A.M., INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED

STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2006

(in thousands, except per share data)

	Historical ADAM, Inc.			Historical Online Benefits, Inc.			Pro Forma Adjustments			Pro Forma Combined
Revenues, net	$	2,715		$	6,670		$	—		$	9,385
Cost of Revenue:
Cost of revenue	319			1,049			—			1,368
Cost of revenue — amortization	190			39			—			229
Total cost of revenue	509			1,088			—			1,597
Gross profit	2,206			5,582			—			7,788
Operating Expenses:
Product and content development	350			1,912			—			2,262
Sales and marketing	454			1,311			—			1,765
General and administrative	565			1,289			372		(9)	2,226
Depreciation and amortization	37			133			183		(3)
							376		(4)
							(75		)(5)	654
Total operating expenses	1,406			4,645			856			6,907
Operating income	800			937			(856		)	881
Other (Income) Expense:
Interest (income) expense, net	(151		)	1,713			(1,535		)(6)
							187		(7)
							1,139		(8)	1,353
	(151		)	1,713			(209		)	1,353
Net income (loss)	$	951		$	(776	)	$	(647	)	$	(472	)
Basic net income (loss) per common share	$	0.11								$	(0.05	)
Basic weighted average number of common shares outstanding	8,430									8,959
Diluted net income (loss) per common share	$	0.10								$	(0.05	)
Diluted weighted average number of common shares outstanding	9,755									8,959

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A.D.A.M., INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2005

(in thousands, except per share data)

	Historical ADAM, Inc.			Historical Online Benefits, Inc.			Pro Forma Adjustments			Pro Forma Combined
Revenues, net	$	10,054		$	13,116		$	—		$	23,170
Cost of Revenue:
Cost of revenue	1,354			2,123			—			3,477
Cost of revenue — amortization	709			133			—			842
Total cost of revenue	2,063			2,256			—			4,319
Gross profit	7,991			10,860			—			18,851
Operating Expenses:
Product and content development	1,456			3,014			—			4,470
Sales and marketing	1,965			2,450			—			4,415
General and administrative	2,140			3,534			745		(9)	6,419
Depreciation and amortization	184			331			366		(3)
							754		(4)
							(150		)(5)	1,485
Total operating expenses	5,745			9,329			1,715			16,789
Operating income	2,246			1,531			(1,715		)	2,062
Other (Income) Expense:
Interest (income) expense, net	644			3,675			(3,288		)(6)
							293		(7)
							2,278		(8)	3,602
Other (income)	—			277			—			277
	644			3,952			(717		)	3,879
Income (loss) before income taxes	1,602			(2,421		)	(998		)	(1,817		)
Income Tax (Benefit) Expense	(5,460		)	—			—			(5,460		)
Net income (loss)	$	7,062		$	(2,421	)	$	(998	)	$	3,643
Basic net income per common share	$	0.87								$	0.42
Basic weighted average number of common shares outstanding	8,108									8,637
Diluted net income per common share	$	0.75								$	0.36
Diluted weighted average number of common shares outstanding	9,468									9,997

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A.D.A.M., INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED

FINANCIAL STATEMENTS
JUNE 30, 2006

Note A.  General

On August 14, 2006, A.D.A.M., Inc. (ADAM) acquired all of the outstanding capital stock of Online Benefits, Inc. and Subsidiaries (OBI) from the shareholders thereof, for an aggregate purchase price of $32.5 million, which is comprised of $28 million in cash, $1.5 million assumed debt from OBI, and 529,100 shares of the Company’s common stock having a value of $3 million, pursuant to the Agreement and Plan of Merger dated as of August 14, 2006.

In connection with this acquisition, the Company entered into a credit agreement (Credit Agreement) with CapitalSource Finance LLC (Lender), which provides for the following:

Description	Terms
$2.0 million revolver	Principal repayable in full in August 2011; interest at LIBOR plus 4% or the prime rate plus 2.75%, payable quarterly in arrears; revolver unused facility fee of 0.5% per annum of the average daily balance of the unused portion, payable monthly in arrears
$20.0 million term loan	Principal repayable in quarterly installments of varying amounts ($1.0 million from December 2007 through September 2008, $1.25 million through September 2010, and $1.5 million through June 2011), interest same as revolver; prepayment premium of either 2% (prior to first anniversary) or 1% (between first and second anniversary) of prepaid amount
$5.0 million convertible note	Principal repayable in full in August 2011; interest at LIBOR plus 2.5% or the prime rate plus 1.25%, payable quarterly in arrears; prepayment premium same as term loan; all or any portion of the principal balance is convertible at the option of the Lender into 785,279 shares of common stock of the Company

In connection with the Credit Agreement, the Company entered into a Conversion and Registration Rights Agreement dated as of August 14, 2006 (Conversion Agreement) which specifies terms applicable to the conversion of the convertible note and provides the Lender with certain registration rights with respect to the shares issuable on conversion of the convertible note.

In addition to the above terms, there is a provision for a prepayment of 50% Excess Cash Flow, as defined in the Credit Agreement.  The Credit Agreement is secured by (i) a first lien on all existing and future tangible and intangible assets and personal property and equity stock of the Company and any existing and future subsidiaries, and (ii) a pledge of 100% of the Company’s subsidiaries’ capital stock. The Credit Agreement contains other customary financial covenants.

The historical financial information, included here in the unaudited pro forma condensed combined consolidated financial statements, was derived from the respective historical financial statements of ADAM and OBI.  Certain line items of OBI were reclassified to conform to ADAM’s presentation.  The accompanying unaudited pro forma balance sheet as of June 30, 2006 is presented for illustrative purposes assuming the acquisition occurred on June 30, 2006.  The accompanying unaudited pro forma statements of operations for the six months ended June 30, 2006 and for the year ended December 31, 2005 is presented for illustrative purposes assuming the acquisition occurred as of January 1, 2006 and 2005, respectively.

The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have actually occurred if the acquisition had been completed as of that date, or of future results of operation of the combined company.  The unaudited pro forma condensed combined financial information presented is based on, and should be read in conjunction with, the historical financial statements and the related notes thereto for both ADAM and OBI.

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The allocation of the purchase price consideration paid at closing to the assets acquired and liabilities assumed included in the pro forma condensed combined financial information was based upon estimates of the fair market value of the acquired assets and assumed liabilities in accordance with FAS 141. The fair values assigned to the intangibles acquired were formulated based on an independent third-party valuation.

The purchase price of the acquisition is set forth below (in thousands):

Debt assumed	$	1,500
Issuance of common stock	3,000
Cash paid	28,000
Total consideration paid to sellers	32,500
Additional cash paid for transaction costs	1,401
Total purchase price	$	33,901

The estimate of the fair value of the assets acquired and liabilities assumed as set forth below (in thousands):

Assets acquired:
Current assets	$	5,289
Property and equipment	549
Intangible asset – customer list	8,800
Intangible asset – technology	500
Long-term assets	157
Total assets acquired	15,295

Liabilities assumed:
Current liabilities	(5,459		)
Non-current liabilities	(1,601		)
Deferred income tax liabilities	(3,534		)
Total liabilities assumed	(10,594		)
Net assets acquired	4,701
Costs in excess of net assets acquired (recorded goodwill)	29,200
Total fair value of net assets acquired and goodwill	$	33,901

The results of operations of OBI will be consolidated with the results of operations of ADAM for all periods subsequent to the acquisition date of August 14, 2006.

Note B.  Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet

The accompanying unaudited pro forma condensed combined consolidated balance sheet assumes the acquisition occurred as of June 30, 2006 and reflects the following pro forma adjustments:

(1)    To record the cost of acquisition for OBI from $20.0 million of term note issued, $5.0 million of proceeds of convertible note, the issuance of 529,100 shares of the Company’s common stock valued at $3.0 million, $4.5 million of cash paid at closing to the sellers, and $1.4 million in transaction costs.

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(2)    To record the estimate of the fair value of the assets acquired and liabilities assumed as set forth below (in thousands):

Assets acquired:
Current assets	$	5,289
Property and equipment	549
Intangible asset – customer list	8,800
Intangible asset – technology	500
Long-term assets	157
Total assets acquired	15,295

Liabilities assumed:
Current liabilities	(5,459		)
Non-current liabilities	(1,601		)
Deferred income tax liabilities	(3,534		)
Total liabilities assumed	(10,594		)
Net assets acquired	4,701
Costs in excess of net assets acquired (recorded goodwill)	29,200
Total fair value of net assets acquired and goodwill	$	33,901

Deferred financing costs recorded by the Company related to obtaining financing for the acquisition were $1.3 million.

Note C.  Unaudited Pro Forma Condensed Combined Consolidated Statements of Operations

The accompanying unaudited pro forma condensed combined consolidated statements of operations have been prepared assuming the acquisition occurred as of January 1, 2006 and 2005, respectively and reflects the following pro forma adjustments:

(3)To record amortization of deferred financing fees over the terms of the term notes.

(4)To record amortization of intangible assets resulting from the allocation of the cost of acquisition.  The acquired intangibles are being amortized on a straight-line basis over 15 years for customer lists and 3 years for developed technology.

(5)To reverse amortization of intangible asset - customer list that was being amortized on OBI’s historical financial statements and revalued in purchase accounting.

(6)To record the elimination of preferred interest expense related to preferred stock debt.

(7)To record the reduction of interest income related to ADAM’s investments on the cash used at closing for the acquisition.

(8)To record the additional interest expense related to the issuance of the term loan in the amount of $20 million with interest calculated at Libor + 4% and issuance of $5 million of convertible notes with interest calculated at Libor + 2.5%.

(9)To record stock-based compensation expense related to options issued at closing to employees.

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