<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to ________________
Commission File Number: 0-9220
METATEC CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1698890
(State of Incorporation) (I.R.S. Employer Identification No.)
7001 Metatec Boulevard
Dublin, Ohio 43017
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (614) 761-2000
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $.10 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Shares held by nonaffiliates
of the Registrant as of March 29, 1995, was $59,022,992.
On March 29, 1995, the Registrant had 5,272,219 Common Shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting of
shareholders to be held on April 27, 1995, which proxy statement was filed with
the Securities and Exchange Commission on March 29, 1995, are incorporated by
reference into Part III, Items 10, 11, 12, and 13 of this Report.
<PAGE> 2
METATEC CORPORATION
FORM 10-K
PART I
ITEM 1. BUSINESS
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GENERAL
Metatec Corporation, a Florida corporation (Metatec Corporation and
its subsidiaries are hereinafter collectively referred to as the "Company"), is
a leading provider of information distribution services utilizing optical disc
technology. Utilizing this technology, the Company provides compact disc based
products and services to the data distribution and information publishing
markets, publishes and distributes NautilusCD, the first subscription based
monthly multimedia magazine and information service regularly distributed on
compact disc-read only memory ("CD-ROM"), and manufactures and distributes
audio compact discs ("CDs") containing radio programming for major radio
syndication companies.
CD-ROM technology provides the ability to combine audio, video, text,
and graphics in one medium with the capability to store, search, and retrieve
vast quantities of information. One CD-ROM can contain up to 650 megabytes of
data. The Company believes that businesses and individuals are increasingly
turning to CD-ROM technology to organize, store, and disseminate large
quantities of information quickly to widely diversified groups of users.
The Company converts information and data supplied by its customers to
the CD-ROM format and then manufactures, packages, and distributes CD-ROMs
containing this information and data to or on behalf of its customers. In
addition to its manufacturing and distribution services, the Company provides
technical and creative development services to design new CD-ROM applications
for its customers. Published monthly, each issue of NautilusCD includes a
variety of software demonstrations and presentations, shareware, multimedia
applications, graphics/photo resources, audio tracks and music files, a
shopping section, directories and databases, games, educational products, and a
cumulative index. The Company also converts syndicated radio programming from
tape to CD format and then manufactures, packages, and distributes the CDs to
radio stations on behalf of its customers.
The Company was incorporated as a Florida corporation on September 9,
1976, and initially acted as a holding company for subsidiaries engaged in the
insurance business. From 1986 to 1989, the Company's primary business was the
development and sale of real estate. It also engaged in the marketing of
engine treatment products through a majority-owned subsidiary, Quantum
Marketing, Inc., which it disposed of in 1990.
The Company entered the information services business in 1989 by
acquiring a 48% interest in Discsystems, Inc. Discsystems, Inc. purchased the
assets of The Wilkins Company, a compact disc manufacturer which was in a
Chapter 11 bankruptcy proceeding. In 1990, the Company acquired the remaining
52% interest in Discsystems, Inc. and, in 1991, Discsystems, Inc. changed its
name to Metatec/Discovery Systems, Inc. Since 1990, the information services
business has been the principal activity of the Company, and, in 1992, the
Company discontinued its real estate operations through a distribution of its
real estate assets in exchange for all of its outstanding Class B Common
Shares. Prior to this transaction, the holders of the Class B Common Shares
were entitled to elect a majority of the Company's board of directors, and
their vote was required to authorize certain major corporate transactions.
Pursuant to a recapitalization effected in May 1993, the Company's Class B
Common Shares were eliminated as a class of shares.
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INDUSTRY OVERVIEW
The term compact disc denotes a family of optical data storage formats
placed on 4 3/4 inch optical media. The Company manufactures CD-ROMs and audio
CDs which are subsets of the compact disc classification. CD-ROM technology,
which provides audio, video, text, and graphics capabilities in one medium, was
initially used primarily by institutions, such as libraries, for storing and
searching vast quantities of data. More recently, publishers and other
companies have begun using CD-ROMs as an information distribution medium. As
more businesses have sought cost effective ways to disseminate large amounts of
data to widely dispersed groups of users, the use of CD-ROMs has become more
widespread, and in 1991, CD-ROM became one of the fastest-growing segments of
the information services industry. The Company believes that the distribution
of information to individuals and businesses through the use of CD-ROM
technology will increase significantly through the remainder of the 1990s.
CD-ROM drives were first available commercially in the mid-1980s, and,
based on published industry information, the Company believes that the
installed base of CD-ROM disc drives was less than one million in 1990,
approximately two million in 1991, approximately four million in 1992,
approximately 15 million in 1993, more than 20 million in 1994, and is
estimated to be more than 50 million by the end of 1995. A major factor
contributing to the successful establishment of CD-ROM is the degree of
standardization achieved in the early stages of market development. Adherence
to these standards has created a climate of acceptance among both publishers
and device users.
There are more than 15 manufacturers of CD-ROM drives, most of which
are non-U.S. based. Generally, domestic manufacturers of personal computers
now offer CD-ROM drives as standard options on a majority of their models.
MicroSoft Corporation and Apple Computer, Inc. have been particularly active in
promoting the use of CD-ROM technology. Among the most significant recent
industry developments was the establishment in 1991 of a specific standard for
multimedia hardware and software products using the popular Windows(TM)
platform (Windows(TM) is a trademark of Microsoft Corporation). The Multimedia
PC Marketing Council was established to promote multimedia on the Windows(TM)
platform, and to administer the MPC(TM) trademark, which indicates that a
product meets or exceeds MPC standards (MPC(TM) is a trademark of the
Multimedia MPC Marketing Council). This effort is designed to ensure that
MPC(TM) products created by software developers will run on any consumer's
MPC(TM) compatible computer system. This has helped the growth of CD-ROM
products utilizing Intel Corporation processors.
PRINCIPAL PRODUCTS AND SERVICES
The Company is organized into three business divisions which focus on
market specific CD-ROM product offerings. Manufacturing Services provides
CD-ROM mastering, replication, and distribution services. This division also
provides similar services on behalf of the Company's radio syndication
customers with respect to audio CDs. Software Services provides information
publishers with design and development services for CD-ROM based publications
which, in turn, produces manufacturing services revenues for the Company.
Publishing Services produces and publishes NautilusCD, a subscription based
monthly multimedia CD-ROM, and offers related CD-ROM products to the consumer
market. During the last five years, the Company has focused on CD-ROM
manufacturing and software services, has increased subscriber growth for its
NautilusCD product, and has exited the Audio CD manufacturing business except
for the radio syndication market.
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The following table sets forth the revenues from each of the
foregoing activities and their approximate percentage contribution to revenues
during the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------|----------------------------|-------------------------
1994 | 1993 | 1992
--------------------------|----------------------------|-------------------------
Revenue Percent Revenue Percent Revenue Percent
------------ ------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing Services:
CD-ROM . . . . . . $17,949,000 62% $10,918,000 51% $ 6,318,000 37%
Radio . . . . . . 5,666,000 20 5,650,000 27 6,672,000 40
Software Services . . 2,980,000 10 1,281,000 6 556,000 3
Publishing Services . 2,348,000 8 3,113,000 14 1,595,000 10
Audio CD . . . . . . -0- -- 356,000 2 1,736,000 10
----------- ---- ----------- ---- ----------- ----
Total Revenues . . . $28,943,000 100% $21,318,000 100% $16,877,000 100%
=========== ==== =========== ==== =========== ====
</TABLE>
The Company's strategy focuses on growing its CD-ROM Manufacturing
Services, Software Services, and Publishing Services components while
maintaining current market position within the mature radio syndication revenue
component.
MANUFACTURING SERVICES. The Company manufactures CD-ROMs and provides
technical and creative services to design and assist in the marketing of new
CD-ROM applications by its customers. The Company's services performed through
the manufacturing process include conversion of data provided by customers to a
digital format, encoding of the data on a master disc, replication from the
master disc, data verification, quality control testing, and design and
printing of the disc label. The Company provides full-service disc packaging
and either ships the finished product back to its customers or distributes the
product to the ultimate end user on behalf of its customers.
The Company also manufactures audio CDs concentrating its efforts in
the radio syndication programming services market. The radio syndication
customers utilize the Company's quick turn automated production lines, strict
quality control, and end user distribution services to give them a competitive
advantage. The services provided by the Company to radio syndication customers
include conversion of material provided by the customers to a digital format
and creation of a master disc, replication from the master disc, design and
printing of the disc label and the program log, and standardized packaging and
distribution.
The Company operates its automated production facility seven days a
week, 24 hours per day, permitting it to offer one-day turnaround of a master
CD and high quality CD replicas for distribution for both its CD-ROM and radio
syndication customers.
SOFTWARE SERVICES. The Company also works with customers to develop
CD-ROM applications and marketing strategies. This includes software
programming services to develop indexing and user interfaces providing search
and retrieval capabilities. In order to provide software development services,
the Company currently uses search and retrieval software licensed to it by an
independent third party for an indefinite term at a rate tied to the level of
usage of the software. The Company believes that this software will continue
to be available from this supplier and is also available from other suppliers.
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<PAGE> 5
The Company also provides a full range of software services to assist
customers with designing and producing multimedia products integrating text,
video, audio, graphics, and animation.
PUBLISHING SERVICES. The Company has developed the first subscription
based multimedia magazine and information service regularly distributed on
CD-ROM. This magazine is called NautilusCD and is published monthly. Each
issue of NautilusCD includes a variety of software demonstrations and
presentations, shareware, multimedia applications, graphics/photo resources,
audio tracks and music files, commentary, a shopping section, directories and
databases, games, educational products, and a cumulative index. Each
NautilusCD disc contains the software necessary for subscribers to
electronically send their comments and ideas to the editors. NautilusCD was
originally published in September 1990 for the Macintosh(R) family of computers
with a compatible CD-ROM drive (Macintosh is a registered trademark of Apple
Computers, Inc.). A Windows(TM) version of the service was introduced in the
first quarter of 1991 and distribution began in November 1991. As of February
28, 1995, NautilusCD had approximately 18,000 subscribers.
The Publishing Services division also produces NautilusCD related
products, such as the best of NautilusCD, and other consumer products. These
products are distributed directly by the Company to consumers via traditional
retail channels, as well as through a variety of promotional programs with
computer equipment manufacturers and direct marketing activities.
MARKETING. The Company markets its CD-ROM Manufacturing and Software
Services through its own sales force of 20 persons who directly contact
prospective and existing customers. The Company has marketing personnel in San
Jose, Chicago, Washington, D.C., New York, Denver, Dallas and Boston, in
addition to Dublin, Ohio, where its principal offices are located.
MANUFACTURING. The Company operates from an approximately 125,000
square foot facility in Dublin, Ohio, of which approximately 60,000 square feet
are used for its manufacturing and distribution activities. From this
facility, the Company manufactures masters from which duplicate CD-ROMs and
audio CDs can be made and replicates CDs from these masters. The Company's
manufacturing services include premastering and mastering of the discs,
replication, disc label design and printing, packaging, and
distribution/fulfillment services. During the last three years, the Company
increased its mastering capacity and converted its disc manufacturing process
from batch processing to monoline, or in-line, manufacturing. The monoline
process moves each disc through the various operations separately, rather than
in a batch, which reduces production time and permits the use of automated
inspection equipment to detect flaws at an early stage, improving quality and
reducing waste. During 1994, the Company completed a capacity expansion
program, which was started in 1993, with the installation of additional and
replacement disc molding, printing and related equipment. This expansion
program more than doubled the disc production capacity for 1994 over 1993
levels and was fully operational in the second half of 1994. All of these
improvements are intended to increase the Company's manufacturing capacity and
efficiency.
The Company utilizes certain patents and technology in its
manufacturing activities which it licenses from third parties and which the
Company believes to be generally available to other manufacturers. Although
only one vendor currently produces a key raw material used by the Company in
its manufacturing process, the Company generally maintains a six-month supply
of this material and has obtained the rights to manufacture the material itself
or through other third parties. The Company has multiple sources for all other
raw materials and supplies used in its manufacturing operations.
COMPETITION. The Company has a number of competitors in each of its
areas of business. Many of the Company's competitors are larger and have
greater financial resources than the Company. In CD-ROM Manufacturing and
Software Services divisions, the Company's strategy is to compete on the basis
of quality, outstanding customer service, including software development
services, and quick turnaround. Many firms demand a manufacturer like the
Company which can provide additional
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services such as label design and printing, packaging, and distribution. The
Company competes effectively in the radio syndication services business, which
has experienced increased price competition, due to its ability to provide high
quality products and quick turnaround time. The Company competes with a
significant number of entities in the Publishing Services area and utilizes
product innovation and production and a variety of marketing programs designed
to maintain its current position.
EMPLOYEES
The Company employed approximately 310 persons as of March 27, 1995.
Approximately 190 employees are directly involved in the manufacturing and
distribution process, approximately 20 employees are directly involved with the
Publishing Services division, approximately 55 employees are involved in the
Software Services division, and the remainder are involved in sales,
administration, and support. The Company believes that its relation with its
employees is good.
ITEM 2. PROPERTIES
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The Company owns an approximately 125,000 square foot office and
manufacturing facility situated on approximately 15 acres located at 7001
Metatec Boulevard, Dublin, Ohio. The Company's principal executive offices are
located in this facility. This property is held subject to a first mortgage in
favor of a bank.
The Company also leases office space in San Jose, Chicago, Washington,
D.C., New York, Denver, Dallas, and Boston.
ITEM 3. LEGAL PROCEEDINGS
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The Company is not a party to any material pending legal proceeding,
nor to the Company's knowledge, is any material legal proceeding threatened
against it.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The executive officers of the Company and their respective ages and
present positions with the Company are as follows:
<TABLE>
<S> <C> <C>
Officers Age Present Position(s) with the Company
-------- --- -------------------------------------
Jeffrey M. Wilkins 50 Chairman of the Board and Chief Executive Officer
Gregory T. Tillar 42 President and Chief Operating Officer
William H. Largent 39 Vice President, Finance, Treasurer, and Chief Financial Officer
Thomas J. Harmon 45 Secretary
</TABLE>
Mr. Wilkins has been the Chairman of the Board and Chief Executive
Officer of the Company since August 1989, and the President and Chief Executive
Officer of the Company's wholly owned subsidiary, Metatec/Discovery Systems,
Inc., since December 1988.
Mr. Tillar has been the President of the Company since February 1995,
and Chief Operating Officer of the Company since April 1993, and has held
various sales management positions with the Company since May 1990.
Mr. Largent has been the Vice President, Finance, and Chief Financial
Officer of the Company since March 1993, and the Treasurer of the Company since
May 1993. From October 1992 to March 1993, Mr. Largent was president of
Liebert Capital Management Corporation, an investment management company. From
April 1990 to September 1992, Mr. Largent was executive vice president of L
Corporation, an affiliate of Liebert Capital Management Corporation.
Mr. Harmon has been the Secretary of the Company since February 1977.
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<PAGE> 8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
------- -------------------------------------------------------------
MATTERS
-------
The Company's Common Shares are traded on the over-the-counter market
under the symbol META. From June 5, 1991 to June 23, 1993, transactions in the
Common Shares were reported on the NASDAQ system. Prior to that time, there
was no established trading market in the Common Shares. Since June 24, 1993,
transactions in the Common Shares have been reported on the NASDAQ National
Market system. The following table reflects the range of reported high and low
last sales prices for the Common Shares, as reported on the NASDAQ National
Market system for the periods after June 23, 1993, or based on the NASDAQ daily
closing price for prior periods, for the periods indicated.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
For the quarter ended 1993
March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8.25 $ 5.00
June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.50 7.50
September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.75 9.25
December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.13 12.63
For the quarter ended 1994
March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16.00 $11.50
June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.75 9.50
September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.25 9.25
December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.75 8.25
</TABLE>
As of March 29, 1995, there were 4,336 holders of record of the
Common Shares.
The Company has never paid cash dividends on the Common Shares. The
payment of dividends is within the discretion of the Company's board of
directors and depends upon the earnings, the capital requirements, and the
operating and financial condition of the Company, among other factors. The
Company currently expects to retain its earnings to finance the growth and
development of its business and does not expect to pay cash dividends in the
foreseeable future. In addition, under the terms of a loan agreement with a
bank, the Company is restricted from paying dividends in excess of 20% of its
consolidated net earnings after tax during each fiscal year. See Note 3 of the
Notes to Consolidated Financial Statements.
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ITEM 6. SELECTED FINANCIAL DATA
------- -----------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues . . . . . . . . . . . . . . . . . $28,942,748 $21,318,416 $16,877,079 $13,614,834 $10,354,585
Earnings (loss) from continuing
operations before income taxes . . . . . $ 2,424,653 $ 1,061,984 $ (370,738) $(1,073,129) $(1,149,172)
Net earnings (loss) from continuing
operations . . . . . . . . . . . . . . . $ 1,692,653 $ 1,061,984 $ (370,738) $(1,008,129) $(1,149,172)
Net earnings (loss) . . . . . . . . . . . . $ 1,692,653 $ 1,061,984 $ (370,738) $ (427,908) $ 581,416
Earnings (loss) per common share from
continuing operations:
Primary . . . . . . . . . . . . . . . . $ 0.33 $ 0.25 $ (0.11) $ (0.30) $ (0.35)
Fully diluted . . . . . . . . . . . . . $ 0.32 $ 0.21 $ (0.11) $ (0.30) $ (0.35)
Primary earnings (loss) per common
share . . . . . . . . . . . . . . . . . . $ 0.33 $ 0.25 $ (0.11) $ (0.13) $ 0.18
Weighted average number of common
shares outstanding:
Primary . . . . . . . . . . . . . . . . 5,134,656 4,260,806 3,371,956 3,370,293 3,311,599
Fully diluted . . . . . . . . . . . . . 5,323,503 4,953,412 3,371,956 3,370,293 3,311,599
FINANCIAL CONDITION:
Total assets . . . . . . . . . . . . . . . $32,556,004 $19,347,362 $12,551,599 $13,920,218 $15,477,694
Long-term debt . . . . . . . . . . . . . . $ 7,644,634 $ 151,316 $ 2,821,969 $ 2,325,284 $ 2,092,379
Stockholders' equity . . . . . . . . . . . $18,276,129 $16,206,703 $ 6,719,711 $ 9,155,949 $ 9,583,857
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS
-------------------------
OVERVIEW
The Company is organized into three business divisions which focus on
market specific CD-ROM product offerings. Manufacturing Services provides
CD-ROM mastering, replication and distribution services in addition to
providing similar services to radio syndication customers for audio CDs.
Software Services provides information publishers with design and development
services for CD-ROM based publications which in turn produces manufacturing
services revenues. Publishing Services produces and publishes NautilusCD, a
subscription based monthly multimedia CD-ROM, and offers related CD-ROM
products to the consumer market. During the last five years the Company has
focused on CD-ROM manufacturing and software services, has increased subscriber
growth for its NautilusCD product, and has exited the Audio CD manufacturing
business except for the radio syndication market.
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<PAGE> 10
The table below illustrates the change in the components of total
revenue for the periods indicated.
<TABLE>
<CAPTION>
Percent
Change
---------------------
Years Ended Dec. 31, 1994 1993
-------------------------------------------- vs. vs.
Revenue (in thousands): 1994 1993 1992 1993 1992
---------- ---------- --------- ---- ----
<S> <C> <C> <C> <C> <C>
Manufacturing Services
CD-ROM $ 17,949 $ 10,918 $ 6,318 64% 73%
Radio Syndication 5,666 5,650 6,672 -- (15)
Software Services 2,980 1,281 556 133 130
Publishing Services 2,348 3,113 1,595 (25) 95
Audio CD 0 356 1,736 -- (79)
------- -------- --------
Total Revenues $ 28,943 $ 21,318 $ 16,877 36 26
------- -------- --------
</TABLE>
The Company's strategy focuses on growing its CD-ROM Manufacturing
Services, Software Services, and Publishing Services components while
maintaining current market share within the mature Radio Syndication revenue
component.
RESULTS OF OPERATIONS
1994 Compared to 1993
REVENUES. Total revenues increased by approximately 36% from
$21,318,000 in 1993 to approximately $28,943,000 in 1994. This increase
resulted from CD-ROM Manufacturing Services and Software Services increasing
approximately a combined $8,730,000 or 72%. This increase was partially offset
by an approximate $765,000 decrease, or 25%, in Publishing Services revenues
and an approximate $356,000 decrease in Audio CD revenues, as the Company no
longer participates in the Audio CD market. Radio Syndication revenue remained
constant in 1994 as compared to 1993. CD-ROM Manufacturing Services and
Software Services revenue increases resulted from the Company's continued focus
on being a significant participant in the business and information services
CD-ROM market segment. The Company increased the number of new customers, and
its existing customers introduced new CD-ROM products and increased the size of
their existing product orders from the Company. Publishing Services revenue
decreased primarily as a result of a drop in sales of the CD-ROM "in-pack"
product. The in-pack product was an introductory version of the
subscription-based NautilusCD product which was packaged and distributed with a
variety of CD-ROM drives.
The number of subscribers to NautilusCD was increased from
approximately 11,100 subscribers as of December 31, 1993 to approximately
17,000 subscribers as of December 31, 1994. This resulted in minimal revenue
growth due to a decrease in the domestic per-issue price of NautilusCD from
$9.95 to $6.95 in early 1994.
COST OF PRODUCTS SOLD. Cost of products sold was 56% of revenues for
1994 as compared to 57% of revenues for 1993. This decrease, which resulted in
a higher gross profit, is primarily attributed to greater manufacturing
efficiencies and increased production volume.
During 1994 the Company completed the capacity expansion program
started in 1993 with the installation of additional disc molding, printing and
related equipment which replaced existing equipment previously in use. This
expansion program, which more than doubled the disc production capacity for
1994 over 1993 levels, was fully operational in the second half of 1994. As
market opportunities are identified that will contribute to revenue and
earnings growth, management will continue to expand capacity.
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<PAGE> 11
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased to $10,060,600, or 35% of revenues, for 1994
as compared to $8,225,564, or 39% of revenues, for 1993. This increase of
$1,835,036 is primarily attributed to increased personnel costs and higher
levels of product advertising and promotion incurred in 1994. Increased
personnel costs resulted primarily from increased staffing in the Manufacturing
Services sales and Software Services software development functions.
INTEREST AND OTHER INCOME. Interest and other income was $222,904 and
$176,494 for 1994 and 1993, respectively. Included in 1994 was a $106,000 gain
on the sale of securities that were acquired prior to 1990. The interest and
other income amounts were primarily a result of investment income from cash and
cash equivalents and other activities during the periods.
INTEREST EXPENSE. Interest expense for 1994 increased to $379,706 as
compared to $135,847 for 1993 as a result of the Company's increase of its
long-term debt from $227,258 at December 31, 1993 to $8,619,969 as of December
31, 1994. This increase in debt is a result of the acquisition of the
Company's primary manufacturing and office facility and expansion of that
facility in 1994.
INCOME TAXES. The income tax expense was $732,000 in 1994. The 1994
provision reflects a benefit of the usage of net operating loss carryforwards
partially offset by the provision for state and local taxes. No significant
net operating loss carryforwards are available for use beyond 1994. No
provision for income taxes was necessary in 1993 due to the utilization of net
operating loss carryforwards from prior years.
NET EARNINGS. 1994 produced net earnings of $1,692,653, or primary
earnings per common share of $.33 and fully diluted earnings per common share
of $.32, as compared to net earnings of $1,061,984, or primary earnings per
common share of $.25 and fully diluted earnings per common share of $.21 for
1993. This improvement was primarily a result of higher revenues and greater
manufacturing efficiencies obtained in 1994. Fully diluted earnings per common
share reflect the treasury stock method utilizing a higher ending market price
of the common stock.
1993 Compared to 1992
REVENUES. Total revenues increased by approximately 26% from
$16,877,000 in 1992 to approximately $21,318,000 in 1993. This increase
resulted from CD-ROM Manufacturing Services, Software Services and Publishing
Services increasing approximately a combined $6,843,000 or 81%. This increase
was partially offset by an approximate $1,022,000 decrease, or 15%, in Radio
Syndication revenues and an approximate $1,380,000 decrease, or 79%, in Audio
CD revenues. CD-ROM Manufacturing Services and Software Services revenue
increases resulted from the Company's continued focus on being a significant
participant in the business and information services CD-ROM market segment.
Publishing Services revenue increased primarily from 1) an increase in the
number of subscribers to NautilusCD from approximately 6,900 subscribers as of
December 31, 1992 to approximately 11,100 subscribers as of December 31, 1993;
and, 2) increased "in-pack" product revenues generated by introductory versions
of NautilusCD packaged in with a variety of CD-ROM drives.
Radio Syndication revenue decreased to approximately $5,650,000 for
1993, or 15% down over 1992, primarily due to lower product pricing. The Audio
CD component of revenue has been exited.
COST OF PRODUCTS SOLD. Cost of products sold was 57% of revenues for
1993 as compared to 66% of revenues for 1992. This decrease, which resulted in
a higher gross profit, is primarily attributed to greater manufacturing
efficiencies, increased production volume and a shift in revenue mix to higher
gross profit CD-ROM products as compared to Audio CD products.
- 11 -
<PAGE> 12
During the fourth quarter of 1993 the Company began the installation
of new disc molding and printing equipment to replace existing equipment. This
new equipment more than doubled the disc production capacity for 1994 over 1993
levels and was fully operational in 1994.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased to $8,225,564, or 39% of revenues, for 1993
as compared to $5,975,451, or 35% of revenues, for 1992. This increase is
primarily attributed to increased personnel costs and higher levels of product
advertising and promotion incurred in 1993. Increased personnel costs resulted
primarily from increased staffing in the sales, customer support and software
services functions.
INTEREST AND OTHER INCOME. Interest and other income was $176,494 and
$248,398 for 1993 and 1992, respectively. These amounts were primarily a
result of investment income from cash and cash equivalents and other
investments held during the periods.
INTEREST EXPENSE. Interest expense for 1993 decreased to $135,847 as
compared to $323,226 for 1992 as a result of the Company's reduction of its
long-term debt from $3,644,941 at December 31, 1992 to $227,258 as of December
31, 1993. This decrease in debt was a result of repayment of debt with net
proceeds from the Company's common stock offering in June 1993.
INCOME TAXES. No provision for income taxes was necessary in 1993 due
to the utilization of net operating loss carryforwards from prior years. No
provision for income taxes was necessary from 1992 due to a loss incurred from
operations.
NET EARNINGS (LOSS). 1993 produced net earnings of $1,061,984, or
primary earnings per common share of $.25 and fully diluted earnings per common
share of $.21, as compared to a loss of $370,738, or primary and fully diluted
loss per common share of $.11, for 1992. This improvement was primarily as a
result of higher revenues and greater manufacturing efficiencies obtained in
1993. Fully diluted earnings per common share reflect the treasury stock
method utilizing a higher ending market price of the common stock.
IMPACT OF INFLATION
The Company's operations are not significantly affected by
inflationary pressures. Although inflation does affect salaries, employee
benefits and other operating expenses, after considering general inflationary
trends, total revenues of the Company produced growth in real terms in 1994 and
1993. Revenues increased primarily due to increased sales of CD-ROM and
related products, rather than increases in inflation.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business in 1994 through cash generated from
operations, incurrence of long-term debt and use of cash balances available.
Historically, the Company also financed business needs through the issuance of
common stock. Cash flow from operating activities was $5,214,971, $3,858,564
and $2,244,615 for 1994, 1993 and 1992, respectively.
In 1994, the Company acquired its principal manufacturing and office
facility from an officer/stockholder for $4,800,000 and constructed an
approximate 65,000 square foot expansion to that facility. The cost of the
expansion, including the land acquired, was approximately $5,500,000. The
acquisition of the facility and expansion construction costs were financed with
long-term debt provided by the Company's primary financial institution of
approximately $8,500,000 with the balance provided by Company funds.
- 12 -
<PAGE> 13
In 1993, the Company completed a public common stock offering that
generated net cash proceeds of $8,297,529. These proceeds, along with cash
generated from operations, enabled the Company to reduce its long-term debt in
1993 and purchase property and equipment. At December 31, 1993 the Company had
$4,849,710 in cash and cash equivalents which, along with net cash provided by
operations during 1994 of $5,214,971, enabled the Company to acquire
approximately $6,820,000 in property and equipment, and acquire and expand the
facility as previously discussed, which completed the capacity expansion and
equipment update program initiated in 1993. The Company will continue to
expand its operations in 1995 through the addition of manufacturing and
distribution capacity.
The Company has cash and cash equivalents of $2,167,518 as of December
31, 1994 and additionally has available $4,000,000 under its revolving loan
agreement (which matures in April of 1995). Management believes that the
revolving loan agreement will be renewed and that these funding sources, plus
cash to be generated from operations, and funds which may be obtained from
future financing activities should provide sufficient capital to meet the
current business needs of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------- -------------------------------------------
Pages 14 to 22.
- 13 -
<PAGE> 14
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
-------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1994, 1993 and 1992 1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $28,942,748 $21,318,416 $16,877,079
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold 16,300,693 12,071,515 11,197,538
Selling, general and administrative 10,060,600 8,225,564 5,975,451
----------- ----------- -----------
Total costs and expenses 26,361,293 20,297,079 17,172,989
----------- ----------- -----------
OPERATING INCOME (LOSS) 2,581,455 1,021,337 (295,910)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 54,616 134,637 103,876
Gain on sale of marketable security 106,000
Other - net 62,288 41,857 144,522
Interest expense (379,706) (135,847) (323,226)
----------- ----------- -----------
Total other income (expense) (156,802) 40,647 (74,828)
----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES 2,424,653 1,061,984 (370,738)
INCOME TAXES 732,000
----------- ----------- -----------
NET EARNINGS (LOSS) $ 1,692,653 $ 1,061,984 $ (370,738)
=========== =========== ===========
NET EARNINGS (LOSS) PER COMMON SHARE:
Primary $.33 $.25 $(0.11)
Fully diluted $.32 $.21 $(0.11)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Primary 5,134,656 4,260,806 3,371,956
Fully diluted 5,323,503 4,953,412 3,371,956
</TABLE>
See notes to consolidated financial statements.
- 14 -
<PAGE> 15
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
--------------------------------------------------------------------------------------------------------
As of December 31, 1994 and 1993 1994 1993
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,167,518 $ 4,849,710
Accounts receivable, net of allowance for doubtful accounts of
$269,000 in 1994 and $235,000 in 1993 4,092,038 2,977,335
Inventory 602,773 350,075
Current portion of long-term notes receivable 11,597 10,869
Prepaid expenses 460,258 458,662
Deferred income taxes 522,000
----------- -----------
Total current assets 7,856,184 8,646,651
----------- -----------
LONG-TERM NOTES RECEIVABLE, LESS CURRENT PORTION 226,225 237,822
----------- -----------
PROPERTY, PLANT AND EQUIPMENT - NET 24,081,612 9,724,330
----------- -----------
OTHER ASSETS:
Goodwill 314,283 539,103
Other 77,700 199,456
----------- -----------
Total other assets 391,983 738,559
----------- -----------
TOTAL ASSETS $32,556,004 $19,347,362
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities
of long-term debt and capital lease obligations $ 975,335 $ 75,942
Accounts payable 2,462,243 622,289
Accrued royalties 559,157 304,395
Accrued personal property taxes 378,210 213,749
Accrued payroll 359,400 199,362
Other accrued expenses 696,956 532,295
Unearned income 888,940 1,041,311
----------- -----------
Total current liabilities 6,320,241 2,989,343
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS CURRENT MATURITIES 7,644,634 151,316
DEFERRED INCOME TAXES 315,000
----------- -----------
Total liabilities 14,279,875 3,140,659
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; authorized
10,000,000 shares; issued 1994 - 5,272,219 shares;
1993 - 5,209,619 shares 527,222 520,962
Additional paid-in capital 15,643,913 15,273,400
Retained earnings 6,041,535 4,348,882
Less:
Common stock held in treasury, at cost, 2,755 shares (36,541) (36,541)
Unamortized restricted stock (3,900,000) (3,900,000)
----------- -----------
Total stockholders' equity 18,276,129 16,206,703
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,556,004 $19,347,362
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- 15 -
<PAGE> 16
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1994, 1993 and 1992
-----------------------------------------------------------------------------------------------------------------------------------
CLASS B ADDITIONAL UNAMORTIZED
COMMON COMMON PAID-IN RETAINED TREASURY RESTRICTED
STOCK STOCK CAPITAL EARNINGS STOCK STOCK TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1991 $ 387,440 $ 1,309 $ 5,918,339 $ 3,657,636 $ (808,775) $ 9,155,949
Treasury shares retired (51,710) (1,049) (756,016) 808,775
Stock options exercised 2,300 32,200 34,500
Purchase of Class B
common stock (2,100,000) (2,100,000)
Net loss (370,738) (370,738)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE,
DECEMBER 31, 1992 338,030 260 5,194,523 3,286,898 (2,100,000) 6,719,711
Issuance of restricted shares 60,000 3,840,000 $(3,900,000)
Stock options exercised 7,932 156,088 164,020
Treasury shares acquired (36,541) (36,541)
Elimination of Class B
common stock (260) (2,099,740) 2,100,000
Shares issued pursuant to
a public offering, net of costs
of $596,979 115,000 8,182,529 8,297,529
Net earnings 1,061,984 1,061,984
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE,
DECEMBER 31, 1993 520,962 $ 0 15,273,400 4,348,882 (36,541) (3,900,000) 16,206,703
===========
Stock options exercised 6,260 176,513 182,773
Tax benefit related to
stock options 194,000 194,000
Net earnings 1,692,653 1,692,653
----------- ----------- ----------- ----------- ----------- -----------
BALANCE,
DECEMBER 31, 1994 $ 527,222 $15,643,913 $ 6,041,535 $ (36,541) $(3,900,000) $18,276,129
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
- 16 -
<PAGE> 17
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
--------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1994, 1993 and 1992 1994 1993 1992
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings (Loss) $ 1,692,653 $ 1,061,984 $ (370,738)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,227,325 2,128,620 2,137,641
Deferred income taxes (207,000)
Gain on sale of marketable security (106,000)
Net (gain) loss on sales of property and equipment 37,305 5,258 (26,172)
Changes in assets and liabilities:
Accounts receivable (1,114,703) (229,096) (440,196)
Inventory (252,698) (25,345) (90,041)
Prepaid expenses and other assets 6,584 190,689 47,529
Accounts payable and accrued expenses 2,083,876 233,171 20,728
Unearned income (152,371) 493,283 247,800
Net assets of discontinued operations 718,064
----------- ----------- -----------
Net cash provided by operating activities 5,214,971 3,858,564 2,244,615
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in long-term notes receivable 10,869 131,629 89,875
Purchase of property, plant and equipment (17,119,750) (5,144,985) (2,213,993)
Proceeds from sale of fixed assets 177,000 3,866 128,316
Decrease (increase) in goodwill 178,000 (78,618)
Proceeds from sale of marketable security 219,576
----------- ----------- -----------
Net cash used in investing activities (16,534,305) (5,009,490) (2,074,420)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 8,750,000 1,536,683
Payment of notes and leases payable (489,631) (3,601,585) (1,487,592)
Proceeds from issuance of stock (net of offering expenses) 8,297,529
Stock options exercised, including tax benefit 376,773 164,020 34,500
Treasury shares acquired (36,541)
----------- ----------- -----------
Net cash provided by financing activities 8,637,142 4,823,423 83,591
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,682,192) 3,672,497 253,786
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,849,710 1,177,213 923,427
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,167,518 $ 4,849,710 $ 1,177,213
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid, net of amounts capitalized $ 379,706 $ 172,311 $ 340,758
=========== =========== ===========
Income taxes paid $ 252,235 $ 118,000
=========== ===========
Assets purchased for the assumption of a liability $ 632,342 $ 183,902 $ 750,000
=========== =========== ===========
Purchase of Class B common stock for transfer of
assets of discontinued operations $ 2,100,000
===========
Elimination of Class B common stock $ 2,100,000
===========
Issuance of 600,000 common restricted shares,
all unamortized $ 3,900,000
===========
</TABLE>
See notes to consolidated financial statements.
- 17 -
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Metatec Corporation and its subsidiaries (the Company).
All significant intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION - The revenues from product sales are recognized at the
time the products are shipped. Subscription revenues are recognized ratably
over the subscription period. For financial reporting purposes, the Company
recognizes profit on service contracts using the percentage of completion
method, measured generally by the percentage of the cost of services
completed to date to total cost of contract services. Earned revenue is
determined on the basis of the profit as computed plus the contract costs
incurred during this period.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of highly
liquid instruments such as certificates of deposit, time deposits, treasury
notes and other money market instruments which generally have maturities
of less than three months. The Company holds cash primarily in one
financial institution.
INVENTORY - Inventory consists primarily of raw materials and are valued at
the lower of cost or market with cost determined by the first-in, first-out
(FIFO) method.
GOODWILL - Goodwill represents the excess of cost over net assets acquired
and was being amortized using the straight-line method over 25 years.
Effective April 1, 1993, the Company reduced the amortization period to
15 years prospectively from April 1, 1993, based upon a current evaluation
by the Company. During 1994, the Company recognized the tax benefit of
acquired net operating loss carryforwards and, accordingly, reduced goodwill
by such benefit totaling $178,000.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded
at cost. The cost of maintenance and repairs is charged against results of
operations as incurred. Property, plant and equipment are depreciated using
the straight-line method over the estimated useful lives of the related
assets which range from three to thirty years. For income tax purposes,
accelerated methods are used for all eligible assets. Interest costs
capitalized were $96,000 in 1994.
ADVERTISING - The Company expenses advertising costs as incurred.
Advertising expense was $784,039, $401,577 and $192,380 for 1994, 1993 and
1992, respectively.
INCOME TAXES - During 1993, the Company changed its method of accounting for
income taxes in accordance with Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" (see Note 6). Prior to January 1,
1993, the Company accounted for income taxes in accordance with Accounting
Principles Board Opinion No. 11.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK - Earnings (loss) per share is
computed based on the weighted average number of common shares outstanding
during the period, including, when their effect is dilutive, common stock
equivalents consisting of shares subject to stock options and contingently
issuable shares of stock.
<TABLE>
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31
----------------------------------------------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Land $ 1,289,129
Buildings and improvements 9,429,599
Machinery and equipment 14,425,553 $ 8,973,887
Furniture and fixtures 1,845,433 986,469
Computer equipment and
related software 3,880,956 2,727,122
Transportation equipment 12,725 4,199
Leaseshold improvements 802,205 827,381
Equipment installation-in-progress 62,139 3,091,369
----------- -----------
Total 31,747,739 16,610,427
Less accumulated depreciation (7,666,127) (6,886,097)
----------- -----------
Net property, plant and equipment $24,081,612 $ 9,724,330
=========== ===========
</TABLE>
<TABLE>
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt consists of the following:
December 31
----------------------------------------------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Term loan - interest at 1/2% in excess
of prime (total of 9% at December 31,
1994), due in monthly installments
to 1999 $ 3,540,000
Mortgage loan, interest at 1/2% in
excess of prime (total of 9% at
December 31, 1994), due in monthly
installments to 1998 4,800,000
-----------
Total 8,340,000
Capital lease obligations (see Note 4) 279,969 $ 227,258
Less current maturities (975,335) (75,942)
----------- -----------
Long-term debt and capital lease
obligations, less current maturities $ 7,644,634 $ 151,316
=========== ===========
</TABLE>
The Company has a loan agreement with a bank that provides for advances of
$4,000,000 on an unsecured revolving loan. The revolving loan bears
interest at prime and is due April 30, 1995. No amounts were outstanding on
the revolving loan at December 31, 1994. The term loan and mortgage loan
are secured by the property, plant and equipment of the Company. Effective
February 1, 1995, the interest rate on the term loan was reduced to prime.
The loan agreements contain restrictive covenants which, among others,
- 18 -
<PAGE> 19
require the Company to maintain a certain level of tangible net worth, limit
dividends to 20% of net earnings, maintain certain financial ratios and limit
capital expenditures. Certain of these covenants were violated in 1994 and
were subsequently waived through December 31, 1995.
<TABLE>
<CAPTION>
Long-term debt, excluding capital lease obligations, matures as follows:
---------------------------------------------------------------------------
<S> <C>
Year ending December 31:
1995 $ 889,100
1996 903,591
1997 919,323
1998 4,967,986
1999 660,000
------------
Total $ 8,340,000
============
</TABLE>
4. LEASES
The Company leases office equipment under noncancellable capital lease
agreements expiring at various dates through 1999. Maintenance, insurance,
and tax expenses are the responsibility of the Company under the agreements.
The Company also leased certain equipment under a capital lease agreement
with an officer/stockholder of the Company which was purchased by the
Company during 1994.
The Company previously leased its principal manufacturing and office
facility from an officer/stockholder under an operating lease. In 1994 the
Company entered into a new capital lease for the facilities and then
subsequently exercised an option in the lease agreement to purchase the
facilities from the officer/stockholder for $4,800,000. Total rent expense
under the operating lease was $87,786, $526,717 and $481,800 for 1994, 1993
and 1992, respectively. Total lease payments under the capital lease were
$291,114 in 1994.
The future annual minimum lease payments under all capital leases, together
with the present value of the minimum lease payments, and the future minimum
rental payments required under all operating leases that have initial or
remaining lease terms in excess of one year are as follows:
<TABLE>
Capital Leases Operating Leases
--------------------------------------------------------------------
<S> <C> <C>
Year ending December 31:
1995 $ 103,409 $ 121,088
1996 86,394 105,572
1997 69,378 34,642
1998 45,371 8,426
1999 13,088
---------- ----------
Total mimimum lease payments 317,640 $ 269,728
==========
Less amount representing interest (37,671)
----------
Present value of net minimum
payments (see Note 3) $ 279,969
==========
</TABLE>
<TABLE>
The following assets capitalized under lease agreements are included in
property, plant and equipment at December 31, 1994 and 1993:
<CAPTION>
1994 1993
---------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $ 543,469 $ 543,469
Computer equipment and
related software 84,399 84,399
Furiniture and fixtures 400,895 268,552
---------- ----------
Total 1,028,763 896,420
Less accumulated depreciation (706,677) (681,330)
---------- ----------
Total $ 322,086 $ 215,090
========== ==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Self-Insurance - The Company is self-insured with respect to medical and
dental claims. The Company has obtained stop-loss insurance for
claims in excess of $35,000 per individual per year and $1,000,000 lifetime
maximum per individual. The Company has recorded an estimated liability at
December 31, 1994 and 1993 of $170,000 and $142,700, respectively, for
self-insured claims incurred but not reported.
6. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This standard
requires, among other things, recognition of future tax benefits, measured
by enacted tax rates, attributable to deductible temporary differences
between the financial statement basis and income tax basis of assets and
liabilities and net operating loss carryforwards to the extent realization
is more likely than not. There was no cumulative effect of adopting SFAS
No. 109 on the Company's consolidated financial statements since the Company
provided a 100% valuation allowance against net deferred tax assets recorded
as of January 1, 1993.
Income tax expense (benefit) for 1994 is as follows:
--------------------------------------------------------------------
Federal:
Current $ 778,000
Deferred (207,000)
-----------
Total Federal 571,000
State and local 161,000
-----------
Total $ 732,000
===========
In 1993, no tax provision was necessary as the Company utilized a net
operating loss carryforward. In 1992, no tax provision was established as
the Company was in a net loss position.
- 19 -
<PAGE> 20
A reconciliation of recorded Federal income tax expense to the expected
expense computed by applying the Federal statutory rate of 34% in 1994 to
income before income taxes follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
<S> <C>
Expected expense at statutory rate $ 824,000
State and local taxes including other - net 114,000
Reversal of valuation allowance (367,000)
-----------
Total $ 571,000
===========
</TABLE>
<TABLE>
Deferred income taxes recorded in the consolidated balance sheets at
December 31, 1994 and 1993 consist of the following:
<CAPTION>
--------------------------------------------------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Deferred tax assets:
AMT carryforwards (no expiration date) $ 403,000
Net operating loss carryforwards 122,000 $ 627,000
Allowance for doubtful accounts 92,000 80,000
Accrued self-insurance account 58,000 48,000
Other 4,000 12,000
Valuation allowance (545,000)
------------ ------------
Total deferred tax assets 679,000 222,000
------------ ------------
Deferred tax liabilities:
Depreciation 438,000 222,000
Other - net 34,000
------------ ------------
Total deferred tax liabilities 472,000 222,000
------------ ------------
Net deferred assets $ 207,000 $ 0
============ ============
</TABLE>
During 1994, the Company eliminated the valuation allowance based on its
assessment that realization of its deferred tax assets is more likely than
not given the nature and expected timing of its temporary differences and
the recent and expected future profitable operations of the Company. The
valuation allowance was reduced during 1993 by approximately $115,000 which
reflected the usage of a portion of the net operating loss carryforwards to
offset income before income taxes.
The Company has available net operating loss carryforwards for tax purposes
of approximately $360,000 which expire in 2005 which may only be used to
offset future taxable income of Metatec/Discovery Systems, Inc. (a
wholly-owned subsidiary of the Company).
7. EMPLOYMENT AGREEMENT AND BENEFIT PLAN
The Company has an employment agreement with an executive officer/
stockholder of the Company. The agreement continues until terminated by the
executive or the Company and provides for a lump sum payment of one year's
compensation upon termination. The executive is entitled to an annual cash
bonus in addition to base salary.
The same executive officer/stockholder was issued 600,000 common shares
under a Restricted Share Agreement (the Agreement) dated March 23, 1993.
These shares were issued subject to a risk of forfeiture of all of the
shares if his employment is terminated by the Company for cause or by the
officer/stockholder without good reason (as those terms are defined in the
Employment Agreement) on or before February 29, 1996. These shares are also
subject to a risk of forfeiture of all or part of the shares as determined
pursuant to an earnings formula as defined in the Agreement. Additionally,
the Company has agreed to pay the officer/stockholder an amount equal to any
tax savings resulting to the Company from the issuance and vesting of the
shares and the payment of such additional amount, up to the amount of the
officer's/stockholder's individual tax liability.
At December 31, 1994, 524,447 common shares have been earned by the
officer/stockholder in accordance with the Agreement. Any shares issued
under this contingent arrangement will be treated as adjustments to goodwill
and be amortized over the remaining amortization period using the
straight-line method.
Substantially all associates are enrolled in a Company-sponsored defined
contribution plan established under Section 401(k) of the Internal Revenue
Code. The plan was established in 1993 and the Company contribution was
approximately $49,393 and $41,500 for 1994 and 1993, respectively. The
Company contribution is 20% of the associate's contribution up to maximum of
1% of the associates annual compensation. The funds are invested in mutual
funds.
8. STOCK OPTION PLANS
The Company implemented two stock option plans effective July 1, 1990. The
first plan, the 1990 Directors' Stock Option Plan, was available only to
directors who were not employees or officer/stockholders of the Company. As
of December 31, 1994, there have been 27,500 options granted of which 7,500
were exercisable. The plan expired in 1992 and no additional options may be
granted under this Plan. All options under the 1990 Director's Plan were
fully vested on the first anniversary date of the grant.
In 1992, an additional Directors' Stock Option Plan was implemented under
which a maximum of 160,000 Common Shares may be issued. This Plan, as
amended, provides for each person who is an eligible director on the day
after the Company's annual meeting of stockholders to be automatically
granted an option for 2,500 shares, vesting on the grant date, and each
person who first becomes an eligible director will automatically receive a
one time grant of options for 10,000 shares. This one time option vests in
equal installments over a four year period. At December 31, 1994 84,292
shares were exercisable.
The option price of shares subject to an option for the Directors' Stock
Option Plans is the fair market value of the shares at the time the option
is granted. No options issued are exercisable after five years from the
date of grant.
The second plan, the 1990 Stock Option Plan, is available to
officer/stockholders and key employees of the Company or its subsidiary
- 20 -
<PAGE> 21
corporations and, in the case of non-qualified options, directors of
subsidiaries of the Company (other than directors of such subsidiaries who
are also directors of the Company). The maximum aggregate number of common
shares which may be granted under the 1990 Stock Option Plan is 510,000
shares.
The Company's Compensation Committee, which administers the plan, has the
authority to grant incentive options and non-qualified options. Only
officer/stockholders and other key employees of the Company or its
subsidiary corporations are eligible for grants of incentive options. At
December 31, 1994, no incentive options had been granted. An option vests
one year from the date of grant, and is not exercisable after 10 years from
the date of grant. The option price is equal to the fair market value of
the shares at the time the option is granted.
The following summarizes all stock option transactions from January 1, 1992
through December 31, 1994:
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Option Aggregate
Shares Price Amount
------- ---------------- -------------
<S> <C> <C> <C>
Outstanding at
December 31, 1991 256,500 $1.50 to $2.67 $ 410,075
Granted 42,555 $1.75 TO $3.69 129,738
Exercised (23,000) $1.50 (34,500)
Expired (24,000) $1.50 (36,000)
------- ------------
Outstanding at
December 31, 1992 252,055 $1.50 TO $3.69 469,313
Granted 90,370 $5.50 TO $10.50 501,493
Exercised (79,633) $1.50 TO $3.69 (164,020)
Expired (500) $6.00 (3,000)
------- ------------
Outstanding at
December 31, 1993 262,292 $1.50 to $10.50 803,786
Granted 229,425 $10.00 to $11.50 2,630,888
Exercised (62,600) $1.50 to $6.00 (182,773)
Expired (3,525) $6.00 to $11.50 (35,038)
------- ------------
Outstanding at
December 31, 1994 425,592 $1.50 to $11.50 $ 3,216,863
======= ============
</TABLE>
At December 31, 1994, 274,692 common shares under option were exercisable
and 67,575 and 33,100 common shares (total of 100,675) were reserved for
future grant under the 1992 Directors' Stock Option Plan and the 1990 Stock
Option Plan, respectively.
9. RELATED PARTY TRANSACTIONS
Effective April 26, 1993, the Company sold its interest in a partnership
(which primarily held real estate) for a note receivable in the amount of
$255,555. The note was received from a corporation which is wholly-owned by
the adult daughters of a director/stockholder of the Company. The note
bears interest at 6.5% and is payable in monthly installments of principal
and interest of $2,226 with the balance due in 60 months.
<TABLE>
10. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended
--------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ----------- -----------
1994
<S> <C> <C> <C> <C>
Revenues $ 6,006,937 $ 6,538,579 $ 7,694,259 $ 8,702,973
Gross Profit 2,394,453 2,802,730 3,378,152 4,066,720
Net Earnings 120,424 308,625 384,962 878,642
Net Earnings
per common
share
Primary $ 0.02 $ 0.06 $ 0.08 $ 0.17
Fully diluted $ 0.02 $ 0.06 $ 0.08 $ 0.17
1993
Revenues $ 5,044,767 $ 4,946,001 $ 5,526,458 $ 5,801,190
Gross Profit 2,163,048 2,151,234 2,415,841 2,516,778
Net Earnings 291,218 193,225 276,657 300,884
Net Earnings
per common
share
Primary $ 0.08 $ 0.05 $ 0.06 $ 0.06
Fully diluted $ 0.08 $ 0.05 $ 0.06 $ 0.06
</TABLE>
- 21 -
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Metatec Corporation:
We have audited the accompanying consolidated balance sheets of Metatec
Corporation and its subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Metatec Corporation and its
subsidiaries at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
February 15, 1995
Columbus, Ohio
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE.
-------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
-------- ----------------------------------------------
Information required under this Item with respect to directors is
contained in the Company's proxy statement which was filed with the Securities
and Exchange Commission on March 29, 1995, and is hereby incorporated herein by
reference. Information regarding the executive officers of the Company may be
found under the caption "Executive Officers of the Company" in Part I and is
also incorporated by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
-------- ----------------------
Information required under this Item is contained in the Company's
proxy statement which was filed with the Securities and Exchange Commission on
March 29, 1995, and is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-------- --------------------------------------------------------------
Information required under this Item is contained in the Company's
proxy statement which was filed with the Securities and Exchange Commission on
March 29, 1995, and is hereby incorporated herein by reference.
- 22 -
<PAGE> 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in the Company's
proxy statement which was filed with the Securities and Exchange Commission on
March 29, 1995, and is hereby incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
-------- ------------------------------------------------------------
8-K
---
<TABLE>
<S> <C>
(a)(1) Financial Statements
--------------------
The following financial statements of the Company are included
in Item 8:
Consolidated Balance Sheets as of December 31, 1994 and 1993
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)(2) Financial Statement Schedules
-----------------------------
The following independent auditors' report and financial
statement schedule for the years ended December 31, 1994, 1993
and 1992 are included in this report following the signatures
and should be read in conjunction with the Consolidated
Financial Statements included in Item 8:
Independent Auditors' Report on Financial Statement Schedules
Schedule II - Consolidated Valuation and Qualifying Accounts
All other financial statement schedules have been omitted
because they are not applicable or the required information is
included in the Company's consolidated financial statements
or notes thereto.
</TABLE>
- 23 -
<PAGE> 24
<TABLE>
<CAPTION>
(a)(3) Listing of Exhibits
-------------------
<S> <C> <C>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
------- ---------------------- ----------------------------------------
3(a) Amended and Restated Amendment No. 2 to Registration
Articles of Incorporation Statement on Form S-1, File No. 33-60878
of Metatec Corporation (see Exhibit 3(a) therein).
3(b) Amended and Restated By-laws Registration Statement on Form S-1, File
of Metatec Corporation No. 33-60878 (see Exhibit 3(d) therein).
4 Form of Share Certificate Amendment No. 2 to Registration
Statement on Form S-1, File No.
33-60878 (see Exhibit 4 therein).
10(a) Share Exchange Agreement dated Current Report on Form 8-K, filed with the
March 10, 1993, among Metatec Securities and Exchange Commission on
Corporation, Darla D. Lang, March 25, 1993 (see Exhibit 1 therein).
Denise Hunter, Jeffrey M. Wilkins
and Jerry D. Miller, as voting
trustees, and Silco Real Estate
Exchange, Inc.
10(b)* Metatec Corporation 1990 Registration Statement on Form S-8, File
Directors' Stock Option Plan and No. 33-48021 (see Exhibit 4(d) therein).
Amendment No. 1 thereto
10(c)* Amended and Restated Employment Annual Report on Form 10-K for the fiscal
Agreement dated March 23, 1993, year ended December 31, 1992 (See Exhibit
between Metatec Corporation and 10(h) therein).
Jeffrey M. Wilkins
10(d)* Metatec Corporation 1990 Stock Annual Report on Form 10-K for the fiscal
Option Plan year ended December 31, 1991 (see Exhibit
10(k) therein).
10(e)* Amendment No. 1 to Metatec Registration Statement on Form S-8, File
Corporation 1990 Stock Option No. 33-84022 (see Exhibit 4(d) therein).
Plan
10(f)* Amendment No. 2 to Metatec Annual Report on Form 10-K for the fiscal
Corporation 1990 Stock Option year ended December 31, 1992 (see Exhibit
Plan 10(k) therein).
10(g)* Amendment No. 3 to Metatec Annual Report on Form 10-K for the fiscal
Corporation 1990 Stock Option year ended December 31, 1993 (see Exhibit
Plan 10(g) therein).
</TABLE>
- 24 -
<PAGE> 25
<TABLE>
<S> <C> <C>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
------- ---------------------- ----------------------------------------
10(h)* Metatec Corporation 1992 Registration Statement on Form S-8, File
Directors' Stock Option Plan No. 33-52700 (see Exhibit 4(c)
therein).
10(i)* Amendment No. 1 to Metatec Annual Report on Form 10-K for the fiscal
Corporation 1992 Directors' Stock year ended December 31, 1993 (see Exhibit
Option Plan 10(i) therein).
10(j)* Metatec Corporation 1992 Annual Report on Form 10-K for the fiscal
Incentive Compensation Plan year ended December 31, 1992 (see Exhibit
10(p) therein).
10(k) Form of Indemnification Agreement Annual Report on Form 10-K for the fiscal
between Metatec Corporation and year ended December 31, 1992 (see Exhibit
each of its officers and 10(q) therein).
directors
10(l) Restricted Share Agreement dated Annual Report on Form 10-K for the fiscal
March 23, 1993, between Metatec year ended December 31, 1992 (see Exhibit
Corporation and Jeffrey M. 10(r) therein).
Wilkins
10(m) Amendment to Restricted Share Amendment No. 1 to Registration
Agreement dated April 8, 1993, Statement on Form S-1, File No. 33-60878
between Metatec Corporation and (see Exhibit 10(o) therein).
Jeffrey M. Wilkins
10(n) Agreement for Sale of Partnership Annual Report on Form 10-K for the fiscal
Interest dated March 29, 1993, year ended December 31, 1992 (see Exhibit
among Metatec Corporation, MGB, 10(s) therein).
Inc., Darla D. Lang, and Denise
Hunter
10(o) Severance Agreement dated Annual Report on Form 10-K for the fiscal
March 30, 1993, between Metatec year ended December 31, 1992 (see Exhibit
Corporation and Jerry D. 10(t) therein).
Miller
10(p) Patent License Agreement for Disc Amendment No. 1 to Registration
Products dated July 1, 1986, Statement on Form S-1, File No. 33-60878
between Metatec/ Discovery (see Exhibit 10(t) therein).
Systems, Inc. and Discovision
Associates
10(q) CD Disc License Agreement dated Amendment No. 1 to Registration
January 1, 1986, Statement on Form S-1, File No. 33-60878
between U.S. Philips (see Exhibit 10(u) therein).
Corporation and Metatec/
Discovery Systems, Inc.
</TABLE>
- 25 -
<PAGE> 26
<TABLE>
<S> <C> <C>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
------- ---------------------- ----------------------------------------
10(r) Optical Disc Corporation NPR Amendment No. 1 to Registration
Technology License Agreement Statement on Form S-1, File No. 33-60878
between Optical Disc Corporation (see Exhibit 10(v) therein).
and Metatec/Discovery Systems
effective March 2, 1992
10(s) Real Estate Purchase Contract Annual Report on Form 10-K for the fiscal
dated January 19, 1994, between year ended December 31, 1993 (see Exhibit
Metatec Corporation and Olde 10(s) therein).
Poste Properties
10(t) Lease and Option Agreement dated Current Report on Form 8-K filed with the
March 1, 1994, between Metatec Securities and Exchange Commission on
Corporation and Jeffrey M. March 28, 1995 (see Exhibit 10(a)
Wilkins therein).
10(u) Real Estate Purchase Agreement Current Report on Form 8-K filed with the
dated September 1, 1994, between Securities and Exchange Commission on
Metatec Corporation and Jeffrey March 28, 1995 (see Exhibit 10(b)
M. Wilkins. therein).
10(v) Loan Agreement dated May 13, Current Report on Form 8-K filed with the
1994, between The Huntington Securities and Exchange Commission on
National Bank, Metatec March 28, 1995 (see Exhibit 10(c)
Corporation, and therein).
Metatec/Discovery Systems, Inc.
10(w) First Amendment to Loan Agreement Current Report on Form 8-K filed with the
dated September 1, 1994, between Securities and Exchange Commission on
The Huntington National Bank, March 28, 1995 (see Exhibit 10(d)
Metatec Corporation, and therein).
Metatec/Discovery Systems, Inc.
10(x) Second Amendment to Loan Current Report on Form 8-K filed with the
Agreement dated February 1, 1995, Securities and Exchange Commission on
between The Huntington National March 28, 1995 (see Exhibit 10(e)
Bank, Metatec Corporation, and therein).
Metatec/Discovery Systems, Inc.
</TABLE>
- 26 -
<PAGE> 27
<TABLE>
<S> <C> <C>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
------- ---------------------- ----------------------------------------
21 Subsidiaries of Metatec Annual Report on Form 10-K for the fiscal
Corporation year ended December 31, 1993 (see Exhibit
21 therein).
23 Consent of DELOITTE & TOUCHE LLP Contained herein.
24 Powers of Attorney For Messrs. Crockett, Kight, and Bowen,
powers of attorney are contained herein.
For Messrs. Miller, Gingrich, and Thomas,
powers of attorney are incorporated by
reference to Annual Report on Form 10-K
for the fiscal year ended December 31,
1993 (see Exhibit 24 therein).
27 Financial Data Schedule Contained herein.
<FN>
*Executive compensation plans and arrangements required to be filed pursuant to Item 601(b)(10) of Regulation S-K.
(b) Reports on Form 8-K
-------------------
The Company did not file any Form 8-K current reports during
the fourth quarter of the Company's year ended December 31,
1994.
(c) Exhibits
--------
The exhibits in response to this portion of Item 14 are
submitted following the signatures.
(d) Financial Statement Schedules
-----------------------------
The financial statement schedule and the independent auditors'
report thereon are submitted following the signatures.
</TABLE>
- 27 -
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
METATEC CORPORATION
Date: March 30, 1995 By/s/Jeffrey M. Wilkins
-----------------------------------------
Jeffrey M. Wilkins, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Jeffrey M. Wilkins Chairman of the Board, March 30, 1995
------------------------------------- Chief Executive Officer
Jeffrey M. Wilkins (principal executive
officer) and Director
/s/William H. Largent Vice President - Finance, March 30, 1995
------------------------------------- Treasurer, Chief Financial
William H. Largent Officer and Director (principal
financial officer and principal
accounting officer)
E. David Crockett* Director March 30, 1995
------------------------------------
E. David Crockett
Peter J. Kight* Director March 30, 1995
--------------------------------------
Peter J. Kight
Jerry D. Miller* Director March 30, 1995
--------------------------------------
Jerry D. Miller
Herbert O. Gingrich* Director March 30, 1995
----------------------------------
Herbert O. Gingrich
A. Grant Bowen* Director March 30, 1995
---------------------------------
A. Grant Bowen
Dan R.E. Thomas* Director March 30, 1995
--------------------------------
Dan R. E. Thomas
<FN>
*Jeffrey M. Wilkins, by signing his name hereto, does sign this
document on behalf of the person indicated above pursuant to a Power of
Attorney duly executed by such person.
By /s/ Jeffrey M. Wilkins March 30, 1995
------------------------------------
Jeffrey M. Wilkins, Attorney In Fact
</TABLE>
- 28 -
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Metatec Corporation:
We have audited the consolidated financial statements of Metatec Corporation
and subsidiaries as of December 31, 1994 and 1993, and for each of the three
years in the period ended December 31, 1994, and have issued our report thereon
dated February 15, 1995; such report is included elsewhere in this Form 10-K.
Our audits also included the consolidated financial statement schedule of
Metatec Corporation and subsidiaries, listed in Item 14. This consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
February 15, 1995
Columbus, Ohio
<PAGE> 30
METATEC CORPORATION AND SUBSIDIARIES
SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS
ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------------------------
Charged to
Balance at Costs Charged to Balance At
Beginning of and Other End Of
Description Period Expenses Accounts Deductions Period
<S> <C> <C> <C> <C>
1994
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
$235,000 $178,679 $144,679 $269,000
======== ======== ======== ========
1993
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
$206,000 $112,578 $ 83,578 $235,000
======== ======== ======== ========
1992
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
$208,000 $120,100 $122,100 $206,000
======== ======== ======== ========
</TABLE>
<PAGE> 31
EXHIBIT INDEX
-------------
<TABLE>
<S> <C> <C>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
------- ---------------------- ----------------------------------------
3(a) Amended and Restated Amendment No. 2 to Registration
Articles of Incorporation Statement on Form S-1, File No. 33-60878
of Metatec Corporation (see Exhibit 3(a) therein).
3(b) Amended and Restated By-laws Registration Statement on Form S-1, File
of Metatec Corporation No. 33-60878 (see Exhibit 3(d) therein).
4 Form of Share Certificate Amendment No. 2 to Registration
Statement on Form S-1, File No.
33-60878 (see Exhibit 4 therein).
10(a) Share Exchange Agreement dated Current Report on Form 8-K, filed with the
March 10, 1993, among Metatec Securities and Exchange Commission on
Corporation, Darla D. Lang, March 25, 1993 (see Exhibit 1 therein).
Denise Hunter, Jeffrey M. Wilkins
and Jerry D. Miller, as voting
trustees, and Silco Real Estate
Exchange, Inc.
10(b) Metatec Corporation 1990 Registration Statement on Form S-8, File
Directors' Stock Option Plan and No. 33-48021 (see Exhibit 4(d) therein).
Amendment No. 1 thereto
10(c) Amended and Restated Employment Annual Report on Form 10-K for the fiscal
Agreement dated March 23, 1993, year ended December 31, 1992 (See Exhibit
between Metatec Corporation and 10(h) therein).
Jeffrey M. Wilkins
10(d) Metatec Corporation 1990 Stock Annual Report on Form 10-K for the fiscal
Option Plan year ended December 31, 1991 (see Exhibit
10(k) therein).
10(e) Amendment No. 1 to Metatec Registration Statement on Form S-8, File
Corporation 1990 Stock Option No. 33-84022 (see Exhibit 4(d) therein).
Plan
10(f) Amendment No. 2 to Metatec Annual Report on Form 10-K for the fiscal
Corporation 1990 Stock Option year ended December 31, 1992 (see Exhibit
Plan 10(k) therein).
10(g) Amendment No. 3 to Metatec Annual Report on Form 10-K for the fiscal
Corporation 1990 Stock Option year ended December 31, 1993 (see Exhibit
Plan 10(g) therein).
10(h) Metatec Corporation 1992 Registration Statement on Form S-8, File
Directors' Stock Option Plan No. 33-52700 (see Exhibit 4(c)
therein).
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
------- ---------------------- ----------------------------------------
10(i) Amendment No. 1 to Metatec Annual Report on Form 10-K for the fiscal
Corporation 1992 Directors' Stock year ended December 31, 1993 (see Exhibit
Option Plan 10(i) therein).
10(j) Metatec Corporation 1992 Annual Report on Form 10-K for the fiscal
Incentive Compensation Plan year ended December 31, 1992 (see Exhibit
10(p) therein).
10(k) Form of Indemnification Agreement Annual Report on Form 10-K for the fiscal
between Metatec Corporation and year ended December 31, 1992 (see Exhibit
each of its officers and 10(q) therein).
directors
10(l) Restricted Share Agreement dated Annual Report on Form 10-K for the fiscal
March 23, 1993, between Metatec year ended December 31, 1992 (see Exhibit
Corporation and Jeffrey M. 10(r) therein).
Wilkins
10(m) Amendment to Restricted Share Amendment No. 1 to Registration
Agreement dated April 8, 1993, Statement on Form S-1, File No. 33-60878
between Metatec Corporation and (see Exhibit 10(o) therein).
Jeffrey M. Wilkins
10(n) Agreement for Sale of Partnership Annual Report on Form 10-K for the fiscal
Interest dated March 29, 1993, year ended December 31, 1992 (see Exhibit
among Metatec Corporation, MGB, 10(s) therein).
Inc., Darla D. Lang, and Denise
Hunter
10(o) Severance Agreement dated Annual Report on Form 10-K for the fiscal
March 30, 1993, between Metatec year ended December 31, 1992 (see Exhibit
Corporation and Jerry D. Miller 10(t) therein).
10(p) Patent License Agreement for Disc Amendment No. 1 to Registration
Products dated July 1, 1986, Statement on Form S-1, File No. 33-60878
between Metatec/ Discovery (see Exhibit 10(t) therein).
Systems, Inc. and Discovision
Associates
10(q) CD Disc License Agreement dated Amendment No. 1 to Registration
January 1, 1986, Statement on Form S-1, File No. 33-60878
between U.S. Philips (see Exhibit 10(u) therein).
Corporation and Metatec/
Discovery Systems, Inc.
10(r) Optical Disc Corporation NPR Amendment No. 1 to Registration
Technology License Agreement Statement on Form S-1, File No. 33-60878
between Optical Disc Corporation (see Exhibit 10(v) therein).
and Metatec/Discovery Systems
effective March 2, 1992
</TABLE>
<PAGE> 33
<TABLE>
<S> <C> <C>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
------- ---------------------- ----------------------------------------
10(s) Real Estate Purchase Contract Annual Report on Form 10-K for the fiscal
dated January 19, 1994, between year ended December 31, 1993 (see Exhibit
Metatec Corporation and Olde 10(s) therein).
Poste Properties
10(t) Lease and Option Agreement dated Current Report on Form 8-K filed with the
March 1, 1994, between Metatec Securities and Exchange Commission on
Corporation and Jeffrey M. March 28, 1995 (see Exhibit 10(a)
Wilkins therein).
10(u) Real Estate Purchase Agreement Current Report on Form 8-K filed with the
dated September 1, 1994, between Securities and Exchange Commission on
Metatec Corporation and Jeffrey March 28, 1995 (see Exhibit 10(b)
M. Wilkins. therein).
10(v) Loan Agreement dated May 13, Current Report on Form 8-K filed with the
1994, between The Huntington Securities and Exchange Commission on
National Bank, Metatec March 28, 1995 (see Exhibit 10(c)
Corporation, and therein).
Metatec/Discovery Systems, Inc.
10(w) First Amendment to Loan Agreement Current Report on Form 8-K filed with the
dated September 1, 1994, between Securities and Exchange Commission on
The Huntington National Bank, March 28, 1995 (see Exhibit 10(d)
Metatec Corporation, and therein).
Metatec/Discovery Systems, Inc.
10(x) Second Amendment to Loan Current Report on Form 8-K filed with the
Agreement dated February 1, 1995, Securities and Exchange Commission on
between The Huntington National March 28, 1995 (see Exhibit 10(e)
Bank, Metatec Corporation, and therein).
Metatec/Discovery Systems, Inc.
21 Subsidiaries of Metatec Annual Report on Form 10-K for the fiscal
Corporation year ended December 31, 1993 (see Exhibit
21 therein).
23 Consent of DELOITTE & TOUCHE LLP Contained herein.
24 Powers of Attorney For Messrs. Crockett, Kight, and Bowen,
powers of attorney are contained herein.
For Messrs. Miller, Gingrich, and Thomas,
powers of attorney are incorporated by
reference to Annual Report on Form 10-K
for the fiscal year ended December 31,
1993 (see Exhibit 24 therein).
27 Financial Data Schedule Contained herein.
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-48021, No. 33-52700, No. 33-80172, No. 33-84022, No. 33-71080 and No.
33-80170 of Metatec Corporation on Form S-8 of our reports dated February 15,
1995, included in this Annual Report on Form 10-K of Metatec Corporation
for the year ended December 31, 1994.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
March 29, 1995
Columbus, Ohio
<PAGE> 1
EXHIBIT 24
Powers of Attorney
The powers of attorney for E. David Crockett, Peter J. Kight, and A.
Grant Bowen are contained herein. The powers of attorney for Jerry D.
Miller, Herbert O. Gingrich, and Dan R.E. Thomas are incorporated by
reference to Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (see Exhibit 24 therein).
<PAGE> 2
POWER OF ATTORNEY
Know all men by these presents that the undersigned director or
officer of Metatec Corporation, a Florida corporation (the "Company"), hereby
constitutes and appoints Jeffrey M. Wilkins, Thomas J. Harmon, and William H.
Largent, and each of them (with full power to each of them to act along), as my
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for me and in my name, place, and stead, in my capacity as
director or officer of the Company, to execute the Company's Form 10-K Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Company's fiscal year ended December 31, 1994, for each fiscal year
thereafter, and any amendments thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as I might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
The undersigned director or officer of the Company has executed and
delivered this Power of Attorney on March 24, 1995.
/s/E. David Crockett Director
------------------------- -------------------------
Signature Position(s) with the Company
E. David Crockett
-------------------------
Print Name
<PAGE> 3
POWER OF ATTORNEY
Know all men by these presents that the undersigned director or
officer of Metatec Corporation, a Florida corporation (the "Company"), hereby
constitutes and appoints Jeffrey M. Wilkins, Thomas J. Harmon, and William H.
Largent, and each of them (with full power to each of them to act along), as my
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for me and in my name, place, and stead, in my capacity as
director or officer of the Company, to execute the Company's Form 10-K Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Company's fiscal year ended December 31, 1994, for each fiscal year
thereafter, and any amendments thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as I might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
The undersigned director or officer of the Company has executed and
delivered this Power of Attorney on March 24, 1995.
/s/Peter J. Kight Director
------------------------- -------------------------
Signature Position(s) with the Company
Peter J. Kight
-------------------------
Print Name
<PAGE> 4
POWER OF ATTORNEY
Know all men by these presents that the undersigned director or
officer of Metatec Corporation, a Florida corporation (the "Company"), hereby
constitutes and appoints Jeffrey M. Wilkins, Thomas J. Harmon, and William H.
Largent, and each of them (with full power to each of them to act along), as my
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for me and in my name, place, and stead, in my capacity as
director or officer of the Company, to execute the Company's Form 10-K Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Company's fiscal year ended December 31, 1994, for each fiscal year
thereafter, and any amendments thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as I might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
The undersigned director or officer of the Company has executed and
delivered this Power of Attorney on March 24, 1995.
/s/A. Grant Bowen Director
----------------------------- -----------------------------
Signature Position(s) with the Company
A. Grant Bowen
-----------------------------
Print Name
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEET DATED AS OF DECEMBER 31, 1994, AND ITS CONSOLIDATED
STATEMENT OF OPERATIONS, CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY, AND
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1994, WHICH
FINANCIAL STATEMENTS ARE INCLUDED IN ITEM 8 OF THIS REPORT, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,167,518
<SECURITIES> 0
<RECEIVABLES> 4,361,038
<ALLOWANCES> 269,000
<INVENTORY> 602,773
<CURRENT-ASSETS> 7,856,184
<PP&E> 31,747,739
<DEPRECIATION> 7,666,127
<TOTAL-ASSETS> 32,556,004
<CURRENT-LIABILITIES> 6,320,241
<BONDS> 8,619,969
<COMMON> 527,222
0
0
<OTHER-SE> 17,748,907
<TOTAL-LIABILITY-AND-EQUITY> 32,556,004
<SALES> 28,942,748
<TOTAL-REVENUES> 28,942,748
<CGS> 16,300,693
<TOTAL-COSTS> 26,361,293
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 178,679
<INTEREST-EXPENSE> 379,706
<INCOME-PRETAX> 2,424,653
<INCOME-TAX> 732,000
<INCOME-CONTINUING> 1,692,653
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,692,653
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
