METATEC CORP, 424B3, 1995-05-19

METATEC CORP
424B3, 1995-05-19
PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS

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<PAGE> 1

PROSPECTUS

1,500,000 SHARES

[LOGO]

METATEC
CORPORATION

COMMON SHARES

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

All of the Common Shares, $.10 par value (the "Shares"), offered hereby are
being offered (the "Offering") by Metatec Corporation (the "Company"). The
Shares are quoted on The Nasdaq Stock Market under the trading symbol "META." On
May 18, 1995, the last reported sale price for the Shares, as reported on The
Nasdaq Stock Market, was $11.25 per share.

SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
Per Share...................... $11.25 $0.70 $10.55
- -------------------------------------------------------------------------------------------------
Total(3)....................... $16,875,000 $1,050,000 $15,825,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<FN>

(1) In addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(2) Before deducting estimated offering expenses of $350,000 payable by the
Company. See "Use of Proceeds."
(3) The Company has granted the Underwriters a 30-day option to purchase up to
225,000 additional Shares from the Company on the same terms and conditions
as set forth above solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount, and Proceeds to Company will be $19,406,250,
$1,207,500, and $18,198,750, respectively. See "Underwriting."
</TABLE>
------------------------

The Shares are offered subject to prior sale, when, as, and if issued to
and accepted by the Underwriters, subject to their right to reject any order in
whole or in part and to certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that delivery of certificates for the Shares will be
made at the offices of Legg Mason Wood Walker, Incorporated, Baltimore,
Maryland, on or about May 26, 1995.
------------------------

LEGG MASON WOOD WALKER VAN KASPER & COMPANY
INCORPORATED

May 19, 1995
<PAGE> 2

FIGURE 1-PHOTO
[CD-ROM TITLE PRODUCED BY
METATEC CORPORATION FOR
COMPUSERVE INCORPORATED, WITH RELATED
PACKAGING.]

FIGURE 2-PHOTO
[CD-ROMS PRODUCED BY
METATEC CORPORATION.]

FIGURE 3-PHOTO
[SAMPLE EDITION OF NAUTILUSCD
AND RELATED PACKAGING.]

Metatec Corporation is a leading
provider of CD-ROM manufacturing,
application software, consulting, and
publishing services. As a one-stop
source of CD-ROM solutions, the
Company serves customers in
publishing, communications, high
technology, government, and
professional services.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
at its New York Regional Office, 7 World Trade Center, 13th Floor, New York, New
York 10048; at its Los Angeles Regional Office, 5757 Wilshire Boulevard, Suite
500 East, Los Angeles, California 90036; and at its Chicago Regional Office, 500
West Madison, 14th Floor, Chicago, Illinois 60661. Copies of such material can
be obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Shares are
traded on The Nasdaq Stock Market. Reports, proxy statements and other
information concerning the Company may be inspected at the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
------------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE SHARES
ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary information is qualified by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, the term
"Company" shall include Metatec Corporation and its wholly owned subsidiary,
Metatec/Discovery Systems, Inc. ("Discovery Systems"), and all references in
this Prospectus assume no exercise of the Underwriters' over-allotment option or
of the options to purchase 464,742 Shares that are currently outstanding under
the Company's stock option plans. See "Management -- Stock Option Plans."

THE COMPANY

Metatec Corporation is a leading provider of CD-ROM (compact disc-read only
memory) manufacturing, application software consulting, and publishing services.
The Company targets two principal markets: organizations seeking to publish
information on CD-ROM and personal computer users who own CD-ROM equipped,
multimedia computer systems. As a one-stop source of CD-ROM solutions, the
Company serves approximately 200 customers in publishing, communications, high
technology, government, and professional services.

The Company, which has experienced compounded annual revenue growth of 29%
from 1990 to 1994, is organized into three business divisions:

- Manufacturing Services provides CD-ROM mastering, replication, and
distribution services in addition to providing similar services to radio
syndication customers for audio compact discs ("Audio CDs"). Current customers
include Bell & Howell Publications Systems Company, Digital Equipment
Corporation, and Research Institute of America Inc.

- Software Services provides information publishers with design and
development services for CD-ROM based publications which, in turn, often produce
Manufacturing Services revenues for the Company. Current customers include
Phillips Business Information, Inc., CompuServe Incorporated, and Harcourt Brace
College Publishers.

- Publishing Services produces and publishes NautilusCD, the first
subscription-based monthly multimedia CD-ROM magazine, which has approximately
18,000 subscribers.

CD-ROM technology combines 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, or the
equivalent of approximately 800 high density floppy discs or 300,000 pages of
text. The Company believes that businesses and individuals are increasingly
turning to CD-ROM technology as a cost-effective means of organizing, storing,
and disseminating large quantities of information quickly to widely diversified
groups of users. According to published industry information, the North American
installed base of CD-ROM disc drives increased from less than 1.5 million in
1991 to more than 19 million in 1994, and is estimated to be more than 37
million by the end of 1995. The Company believes that only a small percentage of
applications suitable for CD-ROM have actually been implemented to date for both
individuals and businesses.

The Company's goal is to become the leading provider of information
distribution services utilizing optical disc technology. The Company believes
that the market for information distributed on CD-ROM can be expanded by the use
of communication networks, such as the Internet, to provide interim database and
application updates. The Company intends to begin offering such updating
capability as part of its services during 1995.

The principal offices of the Company are located at 7001 Metatec Boulevard,
Dublin, Ohio 43017, and its telephone number is (614) 761-2000.

THE OFFERING

<TABLE>
<S> <C>
Shares offered................................. 1,500,000 Shares
Shares to be outstanding after the
Offering(1).................................. 6,780,964 Shares
Use of proceeds................................ For repayment of bank indebtedness, expansion of
manufacturing capacity, and general corporate and
working capital purposes. See "Use of Proceeds."
The Nasdaq Stock Market symbol................. META
</TABLE>

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

(1) Includes 600,000 Shares which are subject to risk of forfeiture. See
"Management -- Certain Transactions" and Note 7 of the Notes to Consolidated
Financial Statements.

3
<PAGE> 4

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues............................................... $10,355 $13,615 $16,877 $21,318 $28,943 $6,007 $9,179
Earnings (loss) from continuing operations before
income taxes......................................... (1,149) (1,073) (371) 1,062 2,425 172 879
Income tax benefit (expense)........................... 65 (732) (52) (336)
Net earnings (loss) from continuing operations......... (1,149) (1,008) (371) 1,062 1,693 120 543
Net earnings (loss).................................... 581 (428) (371) 1,062 1,693 120 543
Net earnings (loss) per common share from continuing
operations:
Primary.............................................. $ (0.35) $ (0.30) $ (0.11) $ .25 $ .33 $ .02 $ .10
Fully diluted........................................ $ (0.35) $ (0.30) $ (0.11) $ .21 $ .32 $ .02 $ .10
Primary net earnings (loss) per common share........... $ 0.18 $ (0.13) $ (0.11) $ .25 $ .33 $ .02 $ .10
Weighted average primary number of common shares(2).... 3,312 3,370 3,372 4,261 5,135 5,022 5,409
Pro forma primary net earnings (loss) per common
share(3)............................................. $ .25 $ .10
Weighted average shares used in computing pro forma
primary net earnings (loss) per common share(3)...... 6,635 6,909
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1995
---------------------
AS
ACTUAL ADJUSTED(4)
------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................................................... $ 1,276 $ 4,512
Property, plant and equipment, net.................................................................. 24,689 29,689
Total assets........................................................................................ 32,110 39,457
Long-term debt and capital lease obligations (including current maturities)......................... 8,386 258
Stockholders' equity................................................................................ $18,822 $ 34,297
</TABLE>

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

(1) Since 1990, information distribution services have been the primary business
of the Company, and, in 1992, the Company discontinued its prior real estate
operations. The 1990 amounts have been reclassified to conform with the 1991
presentation which treats prior real estate operations as discontinued.

(2) Includes 196,242 and 524,477 Shares for the years ended December 31, 1993
and 1994, respectively, and 212,042 and 600,000 Shares for the three months
ended March 31, 1994 and 1995, respectively, which are subject to risk of
forfeiture. See "Management -- Certain Transactions" and Note 7 of the Notes
to Consolidated Financial Statements.

(3) Assumes that on January 1, 1994, the Company issued 1,500,000 Shares at the
public offering price of $11.25 per share and used the proceeds to retire
long-term debt, the outstanding balances of which at March 31, 1995
aggregated $8,128,053. See Note 3 of the Notes to Consolidated Financial
Statements. Pro forma primary net earnings per common share for 1994 is
calculated based upon net earnings adjusted for: a reduction in after-tax
interest expense of $230,000 relating to the repayment of the long-term debt
(and a former capital lease refinanced in 1994 with such debt); an increase
in income tax expense of $226,000 resulting from the elimination of the use
of net operating loss carryforwards; and the elimination of the after tax
gain on sale of a marketable security of $64,000. Pro forma primary net
earnings per common share for the three months ended March 31, 1995 is
calculated based upon net earnings adjusted for a $118,000 reduction in
after-tax interest expense related to the repayment of the long-term debt.
See "Use of Proceeds."

(4) Adjusted to give effect to the Offering and the application of the estimated
net proceeds by the Company. See "Use of Proceeds."

4
<PAGE> 5

INVESTMENT CONSIDERATIONS

The securities offered hereby involve certain special investment
considerations. Prospective investors should carefully consider, among other
things, the following factors:

Product Concentration. Revenues from the sale of CD-ROM products and
services constituted a substantial portion of the Company's revenues for 1994,
and such products and services are expected to continue to account for a
substantial portion of the Company's revenues for the foreseeable future. In
addition, the market for publishing of magazines on CD-ROM is still in the early
stages of development. A decline in the demand for CD-ROM products and services,
whether as a result of competition, technological change or otherwise, would
have a material adverse effect on the Company's operating results. Included in
the Company's CD-ROM products and services are Audio CDs for the radio
syndication programming services market. The Company does not anticipate revenue
growth in its radio syndication services because of the maturity of the market,
the Company's existing market share, and increased price competition.

Competition. The Company faces competition in the information distribution
industry from a number of sources, such as traditional print publishers, on-line
distributors of information, CD-ROM manufacturers, and others. The Company's
competitors vary by market segment and include many companies which are larger,
more established, and have substantially more resources than the Company. The
Company does not benefit from patents or proprietary technology, and competition
may increase in the future. See "Business -- Competition."

Pricing. The CD-ROM and Audio CD industries have been characterized by new
manufacturers continually entering the market and by declining prices for
compact discs ("CDs"). CD-ROM prices declined industry-wide in 1994 and are
expected to decline in the future. To date, continuing market growth has offset
increased manufacturing capacity in the CD-ROM industry, and the Company has
been able to maintain its profitability by increasing sales volumes and
improving manufacturing efficiencies. However, the addition of manufacturing
capacity to the industry has continued, and there can be no assurance that
market growth will continue at the same rate, that prices paid to CD-ROM
manufacturers will not continue to decline or that the Company will be able to
continue to improve its manufacturing efficiencies.

Technological Change. The market for information distribution services
incorporating optical disc technology is based upon a sophisticated technology
and is subject to rapid technological change. Current or new competitors may
introduce new products, features or services that could adversely affect the
Company's competitive position. Additionally, there can be no assurance that
over time optical disc technology will not be replaced by another form of
information storage and retrieval technology, such as on-line information
services. To date, the Company has developed product and service enhancements to
address customer requirements and to respond to competitive conditions. However,
the Company must continue to improve its products and related services and
develop and successfully market new products and services in order to remain
competitive. There can be no assurance that it will be able to do so. See
"Business -- Principal Products and Services."

Dependence on Key Personnel. The Company is highly dependent upon the
efforts of certain key personnel, particularly Jeffrey M. Wilkins, its Chairman
of the Board and Chief Executive Officer. The loss of Mr. Wilkins' services to
the Company could have an adverse effect on the Company. The Company has a $1.0
million life insurance policy on Mr. Wilkins' life and has entered into an
employment agreement with him. See "Management."

Single-Site Manufacturing Facility. All of the Company's manufacturing
services are performed at its manufacturing facility in Dublin, Ohio, which
operates seven days a week, 24 hours per day. In the event this facility is
damaged by fire or other casualty, which damage could not be repaired within a
short period of time, the Company's manufacturing services would be
substantially interrupted and such casualty would be detrimental to the
Company's operations. The Company does not maintain business interruption
insurance.

Possible Volatility of Stock Price. In the future, the market price of the
Shares may be significantly affected by factors such as the announcement of new
products or services by the Company or its competitors, quarterly variations in
the Company's results of operations, conditions in the Company's markets,
conditions in the financial markets, and conditions in the economy in general.
See "Price Range of Common Shares and

5
<PAGE> 6

Dividend Policy." Additionally, Jeffrey M. Wilkins has certain registration
rights in 1996 with respect to up to 600,000 Shares issued to him in 1993, and
the exercise of such rights could have an adverse effect on the market price of
the Shares at that time. See "Management -- Certain Transactions."

Factors Inhibiting Takeovers. The Company is subject to certain provisions
of Florida law which impose restrictions on the ability of a third party to
effect an unsolicited change in control of the Company. In addition, the
Company's articles of incorporation do not provide for cumulative voting in the
election of directors, and certain other provisions of the articles of
incorporation, including provisions which divide the Company's board of
directors into three separate classes, restrict the ability of shareholders to
remove directors without cause, and require super majority shareholder voting
for certain corporate transactions, may have the effect of delaying or
preventing changes in control or management of the Company. These restrictions
could adversely affect the market price of the Shares. See "Description of
Capital Stock -- Florida Law."

6
<PAGE> 7

USE OF PROCEEDS

The net proceeds to the Company from the Offering are estimated to be
$15,475,000 ($17,849,000 if the Underwriters' over-allotment option is exercised
in full). It is anticipated that approximately $8,057,000 of the net proceeds
will be used for the repayment of bank indebtedness.

Approximately $3,300,000 of this indebtedness is in the form of a term loan
incurred in May 1994. The proceeds of this loan were utilized to construct an
approximately 70,000 square foot expansion to the Company's manufacturing
facility and principal offices, including land acquisition costs. The term loan
matures on December 31, 1999, bears interest at a rate equal to the bank's prime
rate (9% as of May 18, 1995), and provides for equal monthly payments of
principal plus accrued interest. The term loan is secured by all of the
Company's manufacturing and other equipment. The remaining portion of the
indebtedness, approximately $4,757,000, is in the form of a mortgage loan
incurred in September 1994. The proceeds of this loan were utilized to acquire
the Company's existing 55,000 square foot manufacturing facility and principal
offices from Jeffrey M. Wilkins, the Company's Chairman of the Board and Chief
Executive Officer. See "Management -- Certain Transactions." The mortgage loan
matures on January 1, 1998, bears interest at a rate equal to the bank's prime
rate (9% as of May 18, 1995), and provides for 36 equal monthly payments of
principal and interest, with a balloon principal payment due at maturity. The
mortgage loan is secured by the Company's Dublin manufacturing and office
facility.

Approximately $5,000,000 of the net proceeds will be used to increase the
Company's manufacturing capacity by the acquisition of additional mastering and
replication equipment. See "Business -- Manufacturing." The balance of the net
proceeds will be used for general corporate and working capital purposes, which
may include the acquisition or construction of a second-site manufacturing
facility. Pending application of the net proceeds of the Offering to the
purposes described above, the net proceeds will be invested in short-term money
market obligations, commercial paper or other interest bearing marketable
securities.

PRICE RANGE OF COMMON SHARES AND DIVIDEND POLICY

Since June 24, 1993, the Shares have been traded on The Nasdaq Stock Market
under the symbol META. From June 5, 1991 to June 23, 1993, transactions in the
Shares were reported on the Nasdaq over-the-counter market. Prior to that time,
there was no established trading market in the Shares. The following table
reflects the range of the reported high and low sales prices, based on the
Nasdaq daily closing price, for the period indicated, except that for periods
prior to June 24, 1993, the high and low bid prices are shown.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year 1993
First quarter (ended March 31)........................................... $ 8.25 $ 5.00
Second quarter (ended June 30)........................................... 9.50 7.50
Third quarter (ended September 30)....................................... 12.75 9.25
Fourth quarter (ended December 31)....................................... 16.13 12.63
Fiscal Year 1994
First quarter (ended March 31)........................................... $16.00 $11.50
Second quarter (ended June 30)........................................... 12.75 9.50
Third quarter (ended September 30)....................................... 12.25 9.25
Fourth quarter (ended December 31)....................................... 10.75 8.25
Fiscal Year 1995
First quarter (ended March 31)........................................... $14.25 $ 8.75
Second quarter (through May 18).......................................... 14.00 10.75
</TABLE>

As of May 18, 1995, there were 4,300 holders of record of the Shares. On
May 18, 1995, the last reported sale price for the Shares, as reported on The
Nasdaq Stock Market, was $11.25 per share.

The Company has never paid cash dividends on the Shares. The payment of
dividends is within the discretion of the Company's board of directors and
depends upon the earnings, capital requirements, and 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 during each
fiscal year, and is subject to additional financial covenants. At March 31,
1995, the Company was in compliance with all such covenants, including those
which were amended by the bank through December 31, 1995. See Note 3 of the
Notes to Consolidated Financial Statements.

7
<PAGE> 8

CAPITALIZATION

The capitalization of the Company as of March 31, 1995, and as adjusted to
give effect to the Offering and application of the estimated net proceeds
therefrom is set forth below:

<TABLE>
<CAPTION>
MARCH 31, 1995
--------------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt and capital lease obligations....... $ 975 $ 86
------- --------
Long-term debt and capital lease obligations, less current maturities:
Term Loan.............................................................. 2,640 --
Mortgage Loan.......................................................... 4,599 --
Other.................................................................. 172 172
------- --------
Total long-term debt and capital lease obligations, less current
maturities......................................................... 7,411 172
------- --------
Long-term debt and capital lease obligations, including current
maturities(1).......................................................... 8,386 258
------- --------
Shareholders' equity:
Common Shares, $.10 par value; 10,083,500 shares authorized and
5,274,719 shares issued and outstanding (6,774,719 as
adjusted)(2)........................................................ 527 677
Additional paid-in capital............................................... 15,647 30,972
Retained earnings........................................................ 6,584 6,584
------- --------
22,758 38,233
Less Common Shares held in treasury at cost, 2,755 shares................ (36) (36)
Unamortized restricted stock........................................ (3,900) (3,900)
------- --------
Total shareholders' equity............................................. 18,822 34,297
------- --------
Total capitalization..................................................... $27,208 $ 34,555
======= =======
<FN>
- ---------------

(1) See Notes 3 and 4 of the Notes to Consolidated Financial Statements for a
description of the Company's long-term debt and capital lease obligations.

(2) Includes 600,000 Shares issued in March 1993, which are subject to risk of
forfeiture. See "Management -- Certain Transactions" and Note 2 of the Notes
to Consolidated Financial Statements.
</TABLE>

8
<PAGE> 9

SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated financial data included in the following table should be
read in conjunction with the Company's Consolidated Financial Statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Prospectus. The selected
consolidated financial data as of December 31, 1993 and 1994, and for each of
the three years in the period ended December 31, 1994, have been derived from
the Consolidated Financial Statements of the Company audited by Deloitte &
Touche LLP, independent certified public accountants, which are included
elsewhere in this Prospectus. The consolidated financial data for the three
months ended March 31, 1994 and 1995, were derived from unaudited financial
statements. The unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring accruals, that the Company
considers necessary for a fair presentation of the financial position and
results of operations for those periods. The consolidated financial data for the
three months ended March 31, 1995, are not necessarily indicative of the
combined results that may be expected for the full year.

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------- -------------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Revenues.................................. $10,355 $13,615 $16,877 $21,318 $28,943 $ 6,007 $ 9,179
Costs and Expenses:
Cost of products sold................... 7,875 9,933 11,198 12,071 16,301 3,612 5,134
Selling, general and administrative..... 3,426 4,533 5,975 8,226 10,060 2,275 2,992
------- ------- ------- ------- ------- ------- -------
Total costs and expenses.............. 11,301 14,466 17,173 20,297 26,361 5,887 8,126
------- ------- ------- ------- ------- ------- -------
Operating Income (Loss)................... (946) (851) (296) 1,021 2,582 120 1,053
Other Income (Expense):
Interest income......................... 38 143 104 135 55 24 21
Gain on sale of marketable security..... 106
Other -- net............................ 164 49 144 42 62 36 (4)
Interest expense........................ (582) (414) (323) (136) (380) (8) (191)
Pre-acquisition loss of acquired
business interest..................... 177
------- ------- ------- ------- ------- ------- -------
Total other income (expense).......... (203) (222) (75) 41 (157) 52 (174)
------- ------- ------- ------- ------- ------- -------
Earnings (Loss) From Continuing Operations
Before Income Taxes..................... (1,149) (1,073) (371) 1,062 2,425 172 879
Income Tax Benefit (Expense).............. 65 (732) (52) (336)
------- ------- ------- ------- ------- ------- -------
Net Earnings (Loss) From Continuing
Operations.............................. (1,149) (1,008) (371) 1,062 1,693 120 543
Gain on sale of discontinued operations... 248
Earnings from discontinued operations (net
of taxes)............................... 1,730 332
------- ------- ------- ------- ------- ------- -------
Net Earnings (Loss)....................... $ 581 $ (428) $ (371) $ 1,062 $ 1,693 $ 120 $ 543
======= ======= ======= ======= ======= ======= =======
Net Earnings (Loss) Per Common Share from
Continuing Operations
Primary................................. $ (0.35) $ (0.30) $ (0.11) $ .25 $ .33 $ .02 $ .10
Fully diluted........................... $ (0.35) $ (0.30) $ (0.11) $ .21 $ .32 $ .02 $ .10
Net Earnings (Loss) per Common Share:
Primary................................. $ .18 $ (0.13) $ (0.11) $ .25 $ .33 $ .02 $ .10
Fully diluted........................... $ .18 $ (0.13) $ (0.11) $ .21 $ .32 $ .02 $ .10
Weighted Average Number of Common Shares
Outstanding(2)
Primary................................. 3,312 3,370 3,372 4,261 5,135 5,022 5,409
Fully diluted........................... 3,312 3,370 3,372 4,953 5,324 5,022 5,418
Pro forma primary net earnings (loss)
per common share(3)..................... $ .25 $ .10
Weighted average shares used in computing
pro forma net earnings (loss) per common
share(3)................................ 6,635 6,909
BALANCE SHEET DATA:
Working capital........................... $ 2,104 $ 4,222 $ 1,576 $ 5,657 $ 1,536 $ 2,427 $ 1,276
Property, plant and equipment, net........ 5,540 5,741 6,490 9,724 24,082 17,791 24,689
Total assets.............................. 15,478 13,920 12,552 19,347 32,556 24,483 32,110
Long-term debt and capital lease
obligations (including current
maturities)............................. 4,136 2,846 3,645 227 8,620 5,009 8,386
Shareholders' equity...................... 9,584 9,156 6,720 16,207 18,276 16,415 18,822

9
<PAGE> 10
<FN>
- ---------------

(3) Assumes that on January 1, 1994, the Company issued 1,500,000 Shares at the
public offering price of $11.25 per share and used the proceeds to retire
long-term debt, the outstanding balances of which at March 31, 1995
aggregated $8,128,053. See Note 3 of the Notes to Consolidated Financial
Statements. Pro forma primary net earnings per common share for 1994 is
calculated based upon net earnings adjusted for: a reduction in after-tax
interest expense of $230,000 relating to the repayment of the long-term debt
(and a former capital lease refinanced in 1994 with such debt); an increase
in income tax expense of $226,000 resulting from the elimination of the use
of net operating loss carryforwards; and the elimination of the after-tax
gain on sale of a marketable security of $64,000. Pro forma primary net
earnings per common share for the three months ended March 31, 1995 is
calculated based upon net earnings adjusted for a $118,000 reduction in
after-tax interest expense related to the repayment of the long-term debt.
See "Use of Proceeds."

</TABLE>

10
<PAGE> 11

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION 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, often produce Manufacturing Services
revenues. Publishing Services produces and publishes NautilusCD, a subscription
based monthly multimedia CD-ROM magazine. 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 discontinued the Audio CD
manufacturing business except for the radio syndication market.

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, THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------- --------------------------------------
1992 1993 1994 1994 1995
----------------- ----------------- ----------------- ----------------- -----------------
REVENUE PERCENT REVENUE PERCENT REVENUE PERCENT REVENUE PERCENT REVENUE PERCENT
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Manufacturing Services:
CD-ROM............... $6,318 37% $10,918 51% $17,949 62% $3,476 58% $6,318 69%
Radio................ 6,672 40 5,650 27 5,666 20 1,357 22 1,371 15
Software Services...... 556 3 1,281 6 2,980 10 476 8 954 10
Publishing Services.... 1,595 10 3,113 14 2,348 8 698 12 536 6
Audio CD............... 1,736 10 356 2 0 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Revenues......... $16,877 100% $21,318 100% $28,943 100% $6,007 100% $9,179 100%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

The Company focuses on increasing revenues from its CD-ROM Manufacturing
Services, Software Services, and Publishing Services divisions while maintaining
its current market position within the mature radio syndication market. The
Company's revenue has grown at a compound annual rate of 29% from 1990 to 1994.
During 1994, the Company completed the first stage of a capacity expansion
program started in 1993 with the installation of additional and replacement
state-of-the-art disc molding, printing, and related equipment. This expansion
program, which more than doubled the disc production capacity as compared to
1993 levels, became fully operational in the second half of 1994. The Company is
planning additional expansion of manufacturing capacity in 1995. See "Use of
Proceeds" and "Business -- Manufacturing."

11
<PAGE> 12

RESULTS OF OPERATIONS

Three Months Ended March 31, 1995 Compared to Three Months Ended March 31,
1994

Total revenues increased by approximately 53% from $6,007,000 for the three
months ended March 31, 1994 to approximately $9,179,000 for the three months
ended March 31, 1995. This increase resulted from CD-ROM Manufacturing Services
and Software Services, with revenues of approximately $6,318,000 and $954,000
respectively, increasing approximately a combined $3,320,000, or 84%. This
increase was partially offset by an approximate $162,000 decrease, or 23%, in
Publishing Services revenues. Included in Manufacturing Services are radio
syndication revenues of approximately $1,371,000, which remained constant for
the three months ended March 31, 1995 as compared to the same period of the
prior year. CD-ROM Manufacturing Services and Software Services revenue
increases resulted from the Company's continued focus on the business and
information services CD-ROM market. Publishing Services revenue decreased
primarily as a result of a drop in sales of a product consisting of six
different back issues of NautilusCD.

The number of subscribers to NautilusCD increased from approximately 11,300
as of March 31, 1994 to approximately 17,800 as of March 31, 1995. This resulted
in minimal revenue growth in subscription sales due to a decrease in the
domestic per-issue price of NautilusCD from $9.95 to $6.95 in the second quarter
of 1994.

Cost of products sold was 56% of revenues for the three months ended March
31, 1995 as compared to 60% of revenues for the same period of the prior year.
This decrease in the cost of products sold is primarily attributed to greater
manufacturing efficiencies and increased production volumes.

Selling, general and administrative expenses increased to $2,991,855, or
33% of revenues, for the three months ended March 31, 1995 as compared to
$2,274,869 or 38% of revenues, for the three months ended March 31, 1994. This
increase of $716,986 is primarily attributed to increased personnel costs,
higher outside sales office costs, increased depreciation, and higher occupancy
costs as a result of the Company's increased corporate office space. Increased
personnel costs resulted primarily from increased staffing in the sales and
administrative functions.

Interest and other income for the three months ended March 31, 1995 was
$17,276 as compared to $60,721 for the three months ended March 31, 1994. This
decrease is attributed to lower cash balances available for investment purposes
in the three months ended March 31, 1995 as compared to the same period of the
prior years.

Interest expense for the three months ended March 31, 1995 was $190,871 as
compared to $8,281 for the three months ended March 31, 1994. This increase is
attributed to higher long-term debt balances (including current maturities)
which were incurred as a result of the purchase and expansion of the Company's
primary manufacturing and office facility.

For the three months ended March 31, 1995 an income tax provision of
$336,600 was applied to earnings before income taxes based upon management's
estimate of the full year 1995 expected income tax rate of approximately 38%.
For the three months ended March 31, 1994 an income tax provision of $51,600 was
applied to earnings before income taxes based upon management's estimate of the
full year 1994 expected income tax rate of approximately 30%. The 1994 expected
income tax rate was lower than the 1995 expected income tax rate primarily due
to the use of the net operating loss carryforwards in 1994.

For the three months ended March 31, 1995 net earnings were $542,618
compared to $120,424 for the three months ended March 31, 1994. Net earnings per
common share was $0.10 for the three months ended March 31, 1995 as compared to
$0.02 for the same period of the prior year. The increase in the weighted
average number of shares from 5,021,595 for the three months ended March 31,
1994 to 5,408,670 for the three months ended March 31, 1995 is primarily a
result of Shares earned under the Restricted Share Agreement with an executive
officer of the Company. See "Management--Certain Transactions."

12
<PAGE> 13

1994 Compared to 1993

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 the elimination
of approximately $356,000 in Audio CD revenues. 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 the business and information services CD-ROM market. 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, an introductory version of the
subscription-based NautilusCD product which was packaged and distributed with a
variety of CD-ROM drives in 1993.

The number of subscribers to NautilusCD increased from approximately 11,100
as of December 31, 1993 to approximately 17,000 as of December 31, 1994. This
resulted in minimal revenue growth in subscription sales 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 was 56% of revenues for 1994 as compared to 57% of
revenues for 1993. This decrease is primarily attributed to greater
manufacturing efficiencies and increased production volume.

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 expenditures on product advertising and promotion in 1994.
Increased personnel costs resulted primarily from increased sales personnel in
the Manufacturing Services division and software development personnel in the
Software Services division.

Interest and other income was $222,904 and $176,494 for 1994 and 1993,
respectively. Included in interest and other income for 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 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 was a result of the acquisition of the Company's primary manufacturing and
office facility and expansion of that facility in 1994.

The income tax expense was $732,000 in 1994. The 1994 provision reflects a
benefit 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 were $1,692,653 for 1994, with primary earnings per share of
$.33 and fully diluted earnings per share of $.32, as compared to net earnings
of $1,061,984 for 1993, with primary earnings per share of $.25 and fully
diluted earnings per share of $.21. Fully diluted earnings per share reflect the
treasury stock method utilizing a higher ending market price of the Shares.

1993 Compared to 1992

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%. CD-ROM Manufacturing Services and
Software Services revenue increases resulted from the Company's continued focus
on the business and information services CD-ROM market. Publishing Services
revenue increased primarily from 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 increased "in-pack"
product revenues generated by introductory versions of NautilusCD packaged with
a variety of CD-ROM drives. Radio

13
<PAGE> 14

syndication revenue decreased to approximately $5,650,000 for 1993, or 15% down
from 1992, primarily due to lower product pricing.

Cost of products sold was 57% of revenues for 1993 as compared to 66% of
revenues for 1992. This decrease 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.

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 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 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 Share offering in June 1993.

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 for 1992 due to a loss incurred from operations.

Net earnings were $1,061,984 for 1993, with primary earnings per share of
$.25 and fully diluted earnings per share of $.21, as compared to a loss of
$370,738 for 1992, with primary and fully diluted loss per share of $.11. Fully
diluted earnings per share reflect the treasury stock method utilizing a higher
ending market price of the Shares.

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 the first quarter of
1995 and 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, long-term debt, and available cash balances. In 1993, the Company
also financed its business needs through the issuance of Shares. Cash flow from
operating activities was $5,214,971, $3,858,564 and $2,244,615 for 1994, 1993
and 1992, respectively. For the three months ended March 31, 1995, the Company
financed its business through cash generated from operations of $496,971 and
available cash balances.

In 1994, the Company acquired its principal manufacturing and office
facility from Jeffrey M. Wilkins for $4,800,000 and constructed an approximately
70,000 square foot expansion to that facility. See "Management -- Certain
Transactions." 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 $8,400,000, with the balance
provided by Company funds.

In 1993, the Company completed a public Share offering that generated net
proceeds of $8,297,529. Those 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,

14
<PAGE> 15

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 first stage of the capacity expansion and equipment update program
initiated in 1993. The Company has initiated the second stage of the capacity
expansion program through the placement of mastering and replication purchase
orders. The Company's obligation under these purchase commitments as of March
31, 1995 totalled approximately $2,762,000. The mastering and replication
equipment is scheduled for delivery and installation in the second half of 1995.
See "Business -- Manufacturing." The Company is also considering construction or
acquisition of a second-site manufacturing facility. See "Use of Proceeds."

The Company had cash and cash equivalents of $2,167,518 as of December 31,
1994, and $807,001 as of March 31, 1995, and additionally has $4,000,000
available under its revolving loan agreement (which matures in April 1996). With
the availability of its line of credit, the net proceeds from the Offering, and
funds generated from operations, the Company believes that it has sufficient
liquidity and capital resources to meet its capital expenditure requirements and
operating needs for the foreseeable future.

15
<PAGE> 16

BUSINESS
INDUSTRY OVERVIEW

The principal methods for the distribution of business information
currently include print, CD-ROM, and on-line services. CD-ROM technology was
initially used primarily by institutions, such as libraries, for storing and
searching vast quantities of data. Although print remains the dominant vehicle
for business information distribution, publishers and other companies are
increasingly using CD-ROM as a cost effective and portable format for
distributing and providing access to large amounts of information, including
multimedia applications and interactive software, to widely dispersed groups of
users. In 1993, CD-ROM became one of the fastest-growing segments of the
information services industry.

CD-ROM drives were first available commercially in the mid-1980s, and,
based on published industry information, the North American installed base of
CD-ROM disc drives increased from less than 1.5 million in 1991 to more than 19
million in 1994, and is estimated to be more than 37 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. Domestic manufacturers of personal computers now
offer CD-ROM drives as standard equipment on virtually all of their desk-top
models.

As a method of distributing business information, on-line services lend
themselves to information which requires frequent or continuous updating. CD-ROM
is a more cost-effective distribution method for large amounts of information
which require less frequent updating and provides audio, video, text, and
graphics capabilities in one medium.

The Company believes that only a small percentage of applications suitable
for CD-ROM have actually been implemented to date for both individuals and
businesses. As a result of the proliferation of CD-ROM drives through the
embracement of CD-ROM technology by major computer hardware and software firms
and the untapped number of applications of CD-ROM technology, the Company
believes that the distribution of information to individuals and businesses
through the use of CD-ROM technology will continue to increase significantly.

STRATEGY

The Company's strategy is to target customers which require turn-key CD-ROM
publication services. Such customers generally have time-sensitive and recurring
information distribution requirements and evolving technical and creative needs,
demand high quality disc manufacturing, and may require fulfillment and
distribution services directed to the ultimate user base. As an established
independent manufacturer with the ability to produce efficiently the smaller
production runs generally required by CD-ROM orders, the Company believes that
it is strategically positioned to satisfy the needs of CD-ROM producers which
require responsive turnaround on smaller orders and a high degree of
personalized support and design services.

PRINCIPAL PRODUCTS AND SERVICES

Through its three business divisions which focus on market specific CD-ROM
product offerings, the Company serves as a one-stop source of CD-ROM solutions.
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 discontinued the Audio CD manufacturing business except for that
business which is related to the radio syndication market.

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

16
<PAGE> 17

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 for the radio syndication
programming services market. Radio syndication customers utilize the Company's
quick turn automated production lines, strict quality control, and end user
distribution services to provide them a competitive advantage. The Company
provides a full range of services to radio syndication customers from digital
format conversion to fulfillment.

The Company operates its automated production facility seven days a week,
24 hours per day in a state-of-the-art facility, 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 provides a full range of software services
to assist customers with designing and producing multimedia products integrating
text, video, audio, graphics, and animation. These services include working with
customers to develop CD-ROM applications and marketing strategies from technical
and business consultation through the conversion of raw data to the final
replication of information on disc. For example, the Company provides software
programming services to develop indexing and user interfaces providing search
and retrieval capabilities. Such user interfaces allow an ultimate end user to
manipulate efficiently the information being distributed. 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 other
suppliers. The services provided by the Company's Software Services division
often result in customers using the Company's Manufacturing Services division
for, among other things, replication, printing, and fulfillment of a given
project.

Publishing Services. The Company has developed the first subscription-based
multimedia magazine regularly distributed on CD-ROM. Each issue of NautilusCD,
which is published monthly, 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. NautilusCD also
contains the software necessary for subscribers to send their comments and ideas
electronically to the editors. NautilusCD was originally published in September
1990 for the Macintosh(R) family of computers (Macintosh(R) is a registered
trademark of Apple Computer, Inc.). A Windows(TM) version of the service was
introduced in the first quarter of 1991 and distribution began in November 1991
(Windows(TM) is a registered trademark of Microsoft Corporation). As of March
31, 1995, NautilusCD had approximately 18,000 subscribers. In addition, certain
software tools developed by the Publishing Services division are utilized in
services provided by the Company's other divisions.

MARKETING

The Company markets its products and services, other than NautilusCD,
through its own sales force of 20 employed associates based in San Jose,
Chicago, Washington, D.C., New York, Denver, Dallas and Boston, in addition to
Dublin, Ohio, where its principal offices are located. These associates are
responsible for maintaining relationships with existing customers and developing
new business relationships. The associates are supported by a customer service
staff that is responsible for ensuring that each order is processed in a timely
manner and all required support materials are in place. The Company believes
that its high-quality manufacturing capability, customer responsiveness, and
effective customer service have contributed to customer loyalty. The Company's
base of approximately 200 customers is diversified and no one customer accounted
for more than 7% of 1994 sales. The Company markets NautilusCD through direct
mail with advertising and promotional support.

17
<PAGE> 18

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
manufacturing and distribution activities. The Company's manufacturing services
include premastering and mastering of discs, from which duplicate CD-ROMs and
Audio CDs can be made, disc label design and printing, packaging, distribution,
and 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 Company believes that its
increased mastering capacity is a competitive advantage, allowing the Company to
react more responsively to customer timing requirements. The monoline process,
which moves each disc through the various operations separately, reduces
production time, permits the production of automated inspection equipment to
detect flaws at an early stage, and improves quality. Each replicating machine
is self-contained, eliminating the need for establishing and maintaining a
separate production area clean room. In 1994, the Manufacturing Services group
began the process for ISO 9000 quality system certification, which is targeted
for completion in 1995.

With the installation of additional and replacement disc molding, printing
and related equipment during 1994, the Company completed the first stage of a
capacity expansion program which was started in 1993. This expansion program
more than doubled production capacity from 1993 levels and was fully operational
in the second half of 1994. The Company intends to apply approximately
$5,000,000 of the proceeds of the Offering to increase manufacturing capacity in
1995 through the acquisition of additional mastering and replication equipment.

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 lines of business.
Many of the Company's competitors are larger and have greater financial
resources than the Company. The Company believes that the principal competitive
factors in the CD-ROM marketplace consist of service, quality, and reliability
for the timely delivery of products. These factors, in addition to price, also
affect the Audio CD marketplace. The Company believes it competes favorably with
respect to these factors in the CD-ROM market and the radio syndication segment
of the Audio CD market.

In its CD-ROM Manufacturing and Software Services divisions, the Company
differentiates itself from its competitors by providing short-run manufacturing
flexibility (including quick turnaround times), personalized customer service,
software development services, and complete CD-ROM solutions. Many firms demand
a manufacturer like the Company which can provide additional services such as
label design and printing, packaging, and distribution. In the Publishing
Services division, the Company competes based on product innovation and content.

ASSOCIATES

The Company employed approximately 320 associates as of May 5, 1995.
Approximately 190 associates are directly involved in the manufacturing and
distribution process, approximately 55 associates are involved in the Software
Services division, approximately 20 associates are directly involved with the
Publishing Services division, and the remainder are involved in sales,
administration, and support. The Company believes that its relations with its
associates are good.

18
<PAGE> 19

PROPERTIES

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 mortgage in favor
of a bank. See "Use of Proceeds." The Company also leases office space in San
Jose, Chicago, Washington, D.C., New York, Denver, Dallas, and Boston.

LEGAL PROCEEDINGS

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.

CORPORATE BACKGROUND

The Company was incorporated as a Florida corporation on September 9, 1976.
Since 1990, information distribution services have been the primary business of
the Company. Prior to that time, the Company's primary business was the
development and sale of real estate. The Company entered the business of
information distribution services in 1989 by acquiring a 48% interest in
Discsystems, Inc., a company in which Jeffrey M. Wilkins, the Company's Chairman
of the Board and Chief Executive Officer, also acquired a 4% interest.
Discsystems, Inc. purchased the assets of The Wilkins Company, a compact disc
manufacturer which was in a Chapter 11 bankruptcy proceeding. Mr. Wilkins was
President and a shareholder of The Wilkins Company. In 1990, the Company
acquired the remaining 52% interest in Discsystems, Inc. from Mr. Wilkins and
such company's other shareholders, and, in 1991, Discsystems, Inc. changed its
name to Metatec/ Discovery Systems, Inc. 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 such time,
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.

19
<PAGE> 20

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
POSITIONS HELD
NAME AGE WITH THE COMPANY
- ------------------------- ---- ----------------------------------------------------------
<S> <C> <C>
Jeffrey M. Wilkins 50 Chairman of the Board, Chief Executive Officer, and
Director
Gregory T. Tillar 42 President, Chief Operating Officer, and Director
William H. Largent 39 Vice President, Finance, Treasurer, Chief Financial
Officer, and Director
Thomas J. Harmon 45 Secretary
Alexander P. Deak 34 Vice President and Chief Information Officer
James E. Lang 56 Vice President, Manufacturing Operations
John R. Rue 36 Vice President, Software Services
Brad D. Warnick 42 Vice President, Publishing Services
Christopher L. Winslow 33 Vice President, Manufacturing Services
A. Grant Bowen 64 Director
E. David Crockett 58 Director
Peter J. Kight 38 Director
Jerry D. Miller 59 Director
James V. Pickett 53 Director
</TABLE>

Jeffrey M. Wilkins has been Chairman of the Board, Chief Executive Officer,
and a director of the Company since August 1989. In 1969, Mr. Wilkins founded
CompuServe Incorporated, a provider of computer-based information services, and
for 15 years served as its Chairman of the Board, President, and Chief Executive
Officer. Mr. Wilkins holds bachelor's and master's degrees in electrical
engineering.

Gregory T. Tillar has been President of the Company since February 1995,
Chief Operating Officer of the Company since April 1993, a director of the
Company since April 1995, and has held various sales management positions with
the Company since May 1990. Mr. Tillar was previously with CompuServe
Incorporated for 11 years in its business services division in a variety of
field sales and management positions. During his last four years with
CompuServe, Incorporated, Mr. Tillar served as Vice President of Sales, managing
24 branch offices located throughout the United States.

William H. Largent has been Vice President, Finance and Chief Financial
Officer of the Company since March 1993, Treasurer of the Company since May
1993, and a director of the Company since May 1990. From October 1992 to March
1993, Mr. Largent was President of Liebert Capital Management Corporation, an
investment management company, and from April 1990 to September 1992, he was
Executive Vice President of L Corporation, an investment management affiliate of
Liebert Capital Management Corporation. Mr. Largent also serves as a director of
AmeriLink Corporation.

Thomas J. Harmon has been Secretary of the Company since February 1977. Mr.
Harmon was also a director of the Company from 1983 to 1994.

Alexander P. Deak has been Chief Information Officer of the Company since
December 1994, and has held information services and product management
positions with the Company since 1990. Prior to joining the Company, Mr. Deak
was in field account management and support, technical support management, and
corporate technical support with CompuServe Incorporated.

20
<PAGE> 21

James E. Lang, Ph.D., has been Vice President, Manufacturing Operations, of
the Company since April 1993, and has supervised the Company's manufacturing
operations since September 1991. Prior to joining the Company, Dr. Lang was a
manufacturing consultant in the compact disc industry for two years, a
production manager for Denon Digital Industries, a compact disc manufacturer in
Madison, Georgia, for two years, and a director of videodisc mastering and
director of information storage systems at the CBS Technology Center for seven
years. Dr. Lang holds a Ph.D. degree in Materials Science.

John R. Rue has been Vice President, Software Services, of the Company
since January 1994, and has held various Manufacturing Services and Software
Services management positions with the Company since 1990. From 1982 to 1990,
Mr. Rue was in field sales management and was Director, Network Services, with
CompuServe Incorporated.

Brad D. Warnick has been Vice President, Publishing Services, of the
Company since October 1994, and has held various product development and
management positions with the Company since 1989.

Christopher L. Winslow has been Vice President, Manufacturing Services, of
the Company since July 1994, and has held various product management positions
with the Company since 1992. From 1984 to 1992, Mr. Winslow was in sales and
product management with CompuServe Incorporated.

A. Grant Bowen has been a director of the Company since 1991. Mr. Bowen has
served as a financial consultant since March 1986. Mr. Bowen also serves as a
director of State Savings Bank.

E. David Crockett has been a director of the Company since 1994. Mr.
Crockett has been a General Partner of Aspen Venturers, a venture capital firm
for high technology start-up companies, since April 1991. From December 1987 to
April 1991, Mr. Crockett was Vice President of 3i Ventures, which was also a
venture capital firm for high technology start-up companies. Mr. Crockett also
serves as a director of Herman Miller Corporation and Cornerstone Imaging, Inc.

Peter J. Kight has been a director of the Company since 1994. Mr. Kight has
been the Chairman, Chief Executive Officer, and President of Checkfree
Corporation, a company that provides a nationwide electronic bill paying system,
since January 1981. Mr. Kight also serves as a director of Danninger Medical
Technology, Inc.

Jerry D. Miller has been a director of the Company since 1976. Mr. Miller
has been the President of D&D Properties, Inc. and the President of MGB, Inc.,
both of which are engaged in the real estate business, since May 1992. Mr.
Miller was the President and Treasurer of the Company from its incorporation in
1976 to May 1993, and was the Chairman of the Board from June 1978 to August
1989.

James V. Pickett has been a director of the Company since April 1995. Mr.
Pickett has been the Managing Director of the real estate investment group of
Banc One Capital Corp., a subsidiary of Banc One Holding Corporation, since
February 1993, and the President of Pickett Realty Advisors, Inc., an asset
management firm for hotel owners, since December 1991. Mr. Pickett has also been
the President of a group of affiliated companies and partnerships, collectively
known as The Pickett Companies, involved in the development, management, and
ownership of hotels, since 1965. In February 1991, a group of these entities, PH
Management Corporation ("PHMC"), DCP Development Company ("DCP"), PHA Limited
Partnership ("PHA"), and PC Development Limited Partnership ("PCD"), filed a
Chapter 11 petition with the United States Bankruptcy Court for reorganization.
In April 1992, the consolidated plan of reorganization for these entities was
confirmed by the Bankruptcy Court. PHMC and PCD are continuing entities carrying
out the plan of reorganization. PHA and DCP were dissolved as part of the plan.
Mr. Pickett also serves as a director of Wendys International, Inc. and PHMC,
which controls PSH Master L.P.I.

21
<PAGE> 22

Board of Directors' Terms and Committees; Officers' Terms

The Company's Board of Directors is divided into three classes, with each
class elected to serve a staggered three-year term, and with the term of office
of one class of directors to expire at each annual meeting of shareholders. The
Board of Directors is currently classified as follows: Class I Directors (term
expiring in 1997) -- William H. Largent, E. David Crockett, and Peter J. Kight;
Class II Directors (term expiring in 1998) -- Gregory T. Tillar, Jerry D.
Miller, and James V. Pickett; and Class III Directors (term expiring in
1996) -- Jeffrey M. Wilkins and A. Grant Bowen. The classified Board of
Directors may increase the difficulty of, or discourage, a business combination
or an attempt to gain control of the Company that is not approved by the Board
of Directors.

The Board of Directors has established an Executive Committee, a
Compensation Committee, and a Finance and Audit Committee. The Executive
Committee, whose current members are Jeffrey M. Wilkins, Gregory T. Tillar,
William H. Largent, and A. Grant Bowen, may exercise all of the authority of the
Board of Directors between its meetings. The Compensation Committee, whose
current members are A. Grant Bowen, Jerry D. Miller, E. David Crockett, and
James V. Pickett, is responsible for administering the Company's two stock
option plans and may exercise the authority of the Board of Directors with
respect to the compensation of employees of the Company. The Audit and Finance
Committee, whose current members are A. Grant Bowen, Jerry D. Miller, Peter J.
Kight, and James V. Pickett, is responsible for the appointment of the
independent auditors, the annual audit of the Company's accounts by the
independent auditors, and all related matters, along with other activities
undertaken by such committee.

Subject to an employment agreement with Mr. Wilkins, the Company's
executive officers are elected annually by, and serve at the discretion of, the
Board of Directors. See "Management -- Employment Agreement with Mr. Wilkins."

EXECUTIVE COMPENSATION

Set forth below is summary information regarding the annual and long-term
compensation of the Company's chief executive officer and its only other
executive officers whose annual compensation exceeded $100,000 during fiscal
1994:
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-----------------
ANNUAL COMPENSATION SHARES UNDERLYING
NAME AND -------------------- OPTIONS OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) GRANTED(2) COMPENSATION(3)
- ------------------------------------ ---- -------- -------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Jeffrey M. Wilkins 1994 $250,000 $127,286 $ 1,230
Chairman of the Board and 1993 $250,000 $ 57,447 $ 1,225
Chief Executive Officer 1992 $174,231 $ 10,000
Gregory T. Tillar 1994 $125,231 $ 82,000 20,000 $ 1,622
President and Chief 1993 $100,000 $ 57,956 10,000 $ 1,042
Operating Officer 1992 $102,692 $ 26,875
William H. Largent 1994 $108,231 $ 65,000 20,000 $ 900
Vice President-Finance, Treasurer, 1993 $ 82,696 $ 15,393 20,000
and Chief Financial Officer 1992
<FN>
- ---------------

(1) Bonuses, other than for Mr. Wilkins which are paid pursuant to his
employment agreement with the Company, were earned pursuant to an Incentive
Compensation Plan for certain key executives of the Company selected by the
chief executive officer. Pursuant to this plan, an individual target
incentive amount for each executive and a target amount for the Company's
net income was established. Each participating executive was paid a bonus in
an amount ranging from 65% to 140% of his target incentive amount based on
his percentage of the target net income actually achieved by the Company.
All bonuses under the Incentive Compensation Plan require approval by the
Compensation Committee.

(2) This column sets forth the number of Shares subject to options granted
during the indicated year pursuant to the Company's 1990 Stock Option Plan.
See "Management -- Stock Option Plans."

22
<PAGE> 23

(3) Represents amounts contributed by the Company as matching contributions to
its 401(k) retirement plan.

</TABLE>

OPTION GRANTS IN 1994

The following table sets forth all grants of stock options to the executive
officers named in the Summary Compensation Table during fiscal 1994:

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SHARES OPTIONS EXERCISE ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE PRICE APPRECIATION(2)
OPTIONS EMPLOYEES IN PER EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR SHARE(1) DATE 5% 10%
- ------------------------ ---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey M. Wilkins -0- -0- -0- -0- -0- -0-
Gregory T. Tillar 20,000 13.1% $11.50 4/27/04 $144,600 $366,600
William H. Largent 20,000 13.1% $11.50 4/27/04 $144,600 $366,600
<FN>
- ---------------

(1) The per share exercise price is equal to the fair market value of the Shares
on the date of grant.

(2) The dollar amounts under the 5% and 10% columns in the table are the result
of calculations required by the rules of the Commission.
</TABLE>

AGGREGATED OPTION EXERCISES IN 1994 AND YEAR END OPTION VALUES

The following table sets forth stock option exercises during fiscal 1994 by
the executive officers named in the Summary Compensation Table and the value of
in-the-money stock options held by those individuals as of December 31, 1994:

<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/94 AT 12/31/94(2)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED(1) UNEXERCISABLE UNEXERCISABLE
------------------ --------------- ----------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Jeffrey M. Wilkins -0- -0- -0- -0-
Gregory T. Tillar -0- -0- 30,000/20,000 $198,750/$0
William H. Largent -0- -0- 20,000/20,000 $82,500/$0
<FN>
- ---------------

(1) Aggregate market value of the Shares covered by the option less the
aggregate price paid by the executive officer.

(2) The value of in-the-money options was determined by subtracting the exercise
price from the closing price of the Shares on December 31, 1994.
</TABLE>

EMPLOYMENT AGREEMENT WITH MR. WILKINS

The Company and Mr. Wilkins are parties to an Amended and Restated
Employment Agreement (the "Employment Agreement") pursuant to which Mr. Wilkins
is serving as Chairman of the Board and Chief Executive Officer of the Company.
The Employment Agreement continues until terminated by the parties. The
Employment Agreement may be terminated by the Company for "Cause" (defined as
dishonesty constituting a felony) or because of Mr. Wilkins' long-term
disability, by Mr. Wilkins for "Good Reason" (defined as any material reduction
in authority, title, or responsibility, any reduction in compensation or
benefits or any assignment of additional duties), or by either party upon at
least one year's notice. Under the Employment Agreement, Mr. Wilkins is entitled
to an annual base salary of $250,000, fringe benefits to be determined by the
Board of Directors of the type which are typically provided to chief executive
officers of similarly situated companies, and an annual bonus equal to five
percent of the net pre-tax profit of the Company (calculated without
consideration of any such bonuses paid or payable to Mr. Wilkins) during each
fiscal year beginning with fiscal year 1993. Upon termination of the Employment
Agreement, unless the termination is by the Company for Cause or unless the
termination is a voluntary termination by Mr. Wilkins

23
<PAGE> 24

without Good Reason, Mr. Wilkins is entitled to receive a single payment equal
to his full annual salary in effect at the time, he is entitled to continue
receiving the annual bonuses for the three fiscal years of the Company ending
after the date of termination, and the Company is to continue providing group
life and group health insurance coverage for a one-year period after the date of
termination.

The Company has the option to purchase all of Mr. Wilkins' Shares at fair
market value upon Mr. Wilkins' death or long-term disability or upon his
voluntary termination other than for Good Reason or upon the Company's
termination for Cause. For a period of three years after termination of his
employment, Mr. Wilkins is prohibited from competing against the Company unless
he is terminated by the Company without Cause or he voluntarily resigns for Good
Reason.

COMPENSATION OF DIRECTORS

Employee directors receive no additional compensation for service on the
Board of Directors or its committees. Directors of the Company who are not also
employees of the Company receive a fee of $500 per board or committee meeting
attended in person and $125 per board or committee meeting attended through
telephonic communication. In addition, directors of the Company who are not
officers or employees of the Company or any of its subsidiaries receive stock
options pursuant to the Company's 1992 Directors' Stock Option Plan. See
"Management -- Stock Option Plans."

STOCK OPTION PLANS

The Company has adopted a 1990 Stock Option Plan, a 1990 Directors' Stock
Option Plan, and a 1992 Directors' Stock Option Plan (together referred to as
the "Plans").

Pursuant to the 1990 Stock Option Plan, options may be granted to any of
the full-time employees of the Company or its subsidiaries and, in the case of
options not intended to qualify as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), directors of
subsidiaries (other than directors of such subsidiaries who are also directors
of the Company). The option price of options granted under the 1990 Stock Option
Plan which are intended to qualify as incentive stock options under Section 422
of the Code may not be less than the fair market value of the Shares subject
thereto on the date the option is granted. The option price of any other options
granted under such plan may not be less than 50% of the fair market value of the
Shares subject thereto on the date the option is granted. A total of 510,000
Shares have been reserved for issuance (subject to anti-dilution adjustments)
under such plan, and options for 501,550 Shares have been granted. As of May 18,
1995, options to purchase 347,950 Shares were outstanding, with an option price
ranging between $1.50 and $11.50 per share.

The 1990 Stock Option Plan, as well as the other Plans, is administered by
the Compensation Committee of the Company's Board of Directors (the
"Compensation Committee"), none of whom are eligible to participate in the 1990
Stock Option Plan. Such committee has exclusive authority, consistent with law
and the terms of 1990 Stock Option Plan, to designate recipients of options to
be granted thereunder and to determine the number and type of options and the
number of Shares subject thereto.

The 1990 Directors' Stock Option Plan expired in 1992, and no additional
options may be granted under such plan. As of May 18, 1995, options to purchase
7,500 Shares were outstanding, with an option price ranging between $1.75 and
$2.67 per share.

Pursuant to the 1992 Directors' Stock Option Plan, options are granted to
directors of the Company who are not employees of the Company or its
subsidiaries. Currently, a total of five directors are eligible for options
under the 1992 Directors' Stock Option Plan. Promptly following each annual
meeting of shareholders of the Company, each eligible director is automatically
granted an option to purchase 2,500 Shares. These options are fully vested at
the time of grant and must be exercised within five years of the date of grant.
In addition, each person who was an eligible director immediately following the
1994 annual meeting of shareholders and each person who for the first time
becomes an eligible director after the 1994 annual meeting of shareholders and
before the day after the 1996 annual meeting of shareholders is automatically
granted an option, on a one-time basis, to purchase 10,000 Shares (the "One-Time
Options"). The One-Time Options have five-year

24
<PAGE> 25

terms and vest in equal annual installments over a four-year period. The option
price of any Shares subject to an option under the 1992 Directors' Stock Option
Plan is the fair market value of the Shares on the date the option is granted.
The 1992 Directors' Stock Option Plan provides for certain early vesting and
additional exercise rights with respect to a director who has reached the age of
70 and who thereafter ceases to be an eligible director under the plan for any
reason other than death or discharge for cause. A total of 160,000 Shares
(subject to anti-dilutive adjustments) have been reserved for issuance under
such plan, and options for 109,292 Shares have been granted. As of May 18, 1995,
options to purchase 109,292 Shares were outstanding, with an option price
ranging between $3.69 and $11.50 per share.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Company's Compensation Committee are Jerry D. Miller, A.
Grant Bowen, E. David Crockett, and James V. Pickett. Until May 1993, prior to
his appointment to the Compensation Committee, Mr. Miller served as President of
the Company. There are no interlocking relationships between any executive
officers of the Company and any entity whose directors or executive officers
serve on the Company's Board of Directors or Compensation Committee, except that
Jeffrey M. Wilkins, the Company's Chairman and Chief Executive Officer, serves
as a director and member of the compensation committee of Checkfree Corporation.
Peter J. Kight, a director of the Company, is an executive officer of Checkfree
Corporation.

CERTAIN TRANSACTIONS

In connection with the Company's 1990 acquisition of all of the shares of
Discovery Systems held by two former directors of the Company and by Jeffrey M.
Wilkins, the Company's Chairman of the Board and Chief Executive Officer, and in
exchange for Mr. Wilkins' surrender of an option to purchase 48% of the shares
of Discovery Systems, the Company agreed to issue an indefinite number of Shares
to Mr. Wilkins on a deferred basis pursuant to an escrow arrangement intended to
continue until the first quarter of 1996. In March 1993, the Company and Mr.
Wilkins agreed to terminate this deferred share arrangement and effectively cap
the number of Shares which could be received by Mr. Wilkins as a result of the
termination of his original option by issuing 600,000 Shares to him. These
Shares were issued to Mr. Wilkins subject to a risk that he will forfeit the
Shares if his employment is terminated by the Company for Cause or by Mr.
Wilkins without Good Reason (as these terms are defined in Mr. Wilkins'
employment agreement with the Company) on or before February 29, 1996, and
subject to a risk that he will forfeit all or part of the Shares under a formula
based primarily on the pre-tax profits of Discovery Systems. Under that formula,
an amount equal to 48% of the pre-tax profit or loss of Discovery Systems for
each of the years 1991 through 1995, calculated with adjustments relating to
certain intercompany transactions (including the cost of any capital provided by
the Company) is discounted from the end of such year to December 31, 1989. The
discounted amount is then divided by $2.67 per share (the Company's book value
per share as of December 31, 1989) to determine a share number for that year
(with the share number expressed as a negative number for any years in which
Discovery Systems had a pre-tax loss). The share numbers for the five years
ending with 1995 are then added together and that total is reduced by the result
obtained when $480,000 (representing the option purchase price payable by Mr.
Wilkins under his surrendered option) is divided by the fair market value of one
Share on December 31, 1995, to determine the total number of Shares, if any,
earned over the five-year period. If that total number is less than 600,000,
then the difference is the number of Shares which are automatically forfeited by
Mr. Wilkins. At March 31, 1995, 600,000 Shares had been tentatively earned by
Mr. Wilkins under the formula. This number may decrease depending upon the
pre-tax profit or loss of Discovery Systems for 1995. In addition, the Company
has agreed to (a) register any unforfeited Shares at Mr. Wilkins' request, (b)
pay Mr. Wilkins a bonus in an amount equal to any tax savings resulting to the
Company from the issuance of the Shares and the payment of such bonus, up to the
amount of Mr. Wilkins' individual tax liability with respect to the issuance of
the Shares to him, and (c) use its best efforts to effect an underwriting of a
number of the unforfeited Shares sufficient to enable Mr. Wilkins to cover any
related tax liability to the extent not covered by the bonus described in (b),
above. However, the Company does not anticipate the need to pay Mr. Wilkins the
above described bonus or to effect an underwriting with respect to the issuance
of the unforfeited Shares.

25
<PAGE> 26

In September 1994, the Company purchased from Jeffrey M. Wilkins
approximately seven acres of land and the approximately 55,000 square foot
office and manufacturing facility situated thereon located at 7001 Metatec
Boulevard, Dublin, Ohio (the "Dublin Facility"). Prior to that time, the Dublin
Facility was leased by the Company from Mr. Wilkins as part of its manufacturing
facility and principal executive offices. The Dublin Facility was purchased
pursuant to the terms of an option to purchase which was contained in the lease
for the Dublin Facility. This option provided that the Company could purchase
the Dublin Facility at any time prior to the expiration of the lease term for a
purchase price equal to the lesser of (a) $4.8 million or (b) an amount equal to
the value in use of the Dublin Facility, as determined by an MAI appraiser,
reduced by $660,000 (the value of Company improvements in use at the time the
option was granted) and without consideration of any improvements made by the
Company after January 1, 1994. Pursuant to the foregoing formula, the purchase
price paid to Mr. Wilkins was $4.8 million. The Company also paid expenses in
connection with the purchase totaling $4,710, none of which were paid to Mr.
Wilkins. The lease was cancelled in connection with the purchase of the Dublin
Facility. During 1994, and prior to the cancellation of the lease and
consummation of the purchase, the Company paid Mr. Wilkins $378,900 for rent of
the Dublin Facility.

The lease which was in effect on the date of purchase was entered into
effective March 1, 1994, and modified certain provisions of the prior lease
between the Company and Mr. Wilkins. Prior to March 1994, the Dublin Facility
was leased to Discovery Systems by Mr. Wilkins under a lease with a term
expiring December 31, 1997. The prior lease was guaranteed by the Company, and
provided for annual rent increases based on increases in the Consumer Price
Index. Mr. Wilkins had granted the Company an option to purchase the Dublin
Facility at any time prior to November 16, 1996, for a purchase price
established by an MAI appraiser, less a commission amount of not less than three
percent that would have been charged by a commercial real estate broker upon the
sale of the Dublin Facility. The prior lease, the Company's guaranty, and the
related purchase option agreement were terminated on the effective date of the
new lease. Under the new lease, which had a 15-year term, Mr. Wilkins agreed to
cap the rent at $48,519 per month, extend the term of the Company's purchase
option to coincide with the lease term, and cap the purchase price payable upon
exercise of the purchase option. Consistent with the prior lease, the Company
paid all taxes, utility charges, and insurance premiums related to the Dublin
Facility. Total rent paid to Mr. Wilkins under the leases was $481,800,
$526,717, and $378,900 for 1992, 1993, and 1994, respectively.

In February 1994, the Company purchased from Olde Poste Properties, an Ohio
general partnership, approximately eight acres of land adjacent to the Dublin
Facility for purposes of expanding the Dublin Facility to increase the Company's
manufacturing and distribution capacity. The purchase price for the land was
$645,300, and the Company paid expenses in connection with the purchase totaling
approximately $48,700, including the commission payable to the seller's broker,
the conveyance fee, and the premium for owner's title insurance. Mr. Wilkins is
a general partner of Olde Poste Properties; however, Mr. Wilkins did not
participate in the negotiations of any terms of the acquisition. Such terms were
established by other partners of Olde Poste Properties and other officers of the
Company.

The Company believes the terms of the lease and purchase of the Dublin
Facility from Mr. Wilkins and the purchase of adjacent land from Olde Poste
Properties were no less favorable to it than it could obtain from independent
third parties.

During 1992 and 1993, the Company leased certain equipment from Mr. Wilkins
for a monthly rental of $17,000. The lease expired on December 31, 1993, and on
January 1, 1994, the Company purchased the equipment for $578,000, which the
Company believes was no less favorable to it than it could obtain from
independent third parties for similar equipment.

On March 30, 1993, the Company entered into a severance agreement with
Jerry D. Miller, pursuant to which he resigned from his positions as president
and treasurer of the Company on May 20, 1993, following the 1993 annual meeting
of shareholders. Under the agreement, the Company paid Mr. Miller severance
compensation at the rate of $7,500 a month during the remainder of 1993, plus a
lump sum payment of $45,000. Mr. Miller continues to serve as a director of the
Company, and has been nominated for re-election at the Company's 1995 annual
meeting of shareholders.

26
<PAGE> 27

In accordance with an agreement in principle entered into in December 1992,
on March 10, 1993, the Company distributed all of the outstanding common shares
of its subsidiary, Silco Real Estate Exchange, Inc. ("Silco"), to Darla D. Lang
and Denise Hunter, daughters of Jerry D. Miller who was at that time the
President of the Company and who continues to serve as a director of the
Company. The Silco shares were distributed in exchange for all of the Company's
outstanding Class B common shares, par value $.10 a share (the "Class B
Shares"). The exchange was completed pursuant to the terms of a Share Exchange
Agreement among the Company, Silco, Ms. Lang, Ms. Hunter, and Messrs. Wilkins
and Miller, individually and as Trustees under a Voting Trust Agreement dated
August 8, 1990, for the benefit of Ms. Lang and Ms. Hunter (the "Exchange
Agreement"). The exchange was valued at approximately $2,100,000 based upon
independent appraisals of the Class B Shares and the Company's real estate
assets. Prior to the exchange, the Company contributed and transferred control
of substantially all of its real estate assets to Silco (the "Contributed
Assets"), so that at the time of the exchange, Silco was the owner of
substantially all of the Company's remaining real estate operations and related
assets. Under the Exchange Agreement, Silco assumed all obligations and
liabilities relating to the Contributed Assets (the "Assumed Liabilities") and
agreed to indemnify the Company against the Assumed Liabilities. In addition,
Ms. Lang and Ms. Hunter have guaranteed Silco's obligations with respect to all
of the Assumed Liabilities, and Mr. Miller has guaranteed Silco's obligations
with respect to a portion of the Assumed Liabilities, under a Guaranty and
Indemnification Agreement executed pursuant to the Exchange Agreement. On May
20, 1993, the Company's articles of incorporation were amended to, among other
things, eliminate the Class B Shares (none of which were outstanding at the
time) and combine all of the Company's authorized common shares into one class.

On April 26, 1993, the Company sold to MGB, Inc., a corporation in which
Ms. Lang and Ms. Hunter are the sole shareholders ("MGB"), the Company's entire
interest in Lunn Woods Partnership, a Florida general partnership engaged in
real estate activities, including any rights of the Company accruing after
February 28, 1993, with respect to the partnership interest, for a purchase
price of $319,444, an amount equal to the book value of that partnership
interest on the books of the Company as of February 28, 1993. MGB paid to the
Company at the closing of the sale an amount equal to 20% of the total purchase
price for the partnership interest plus interest on the total purchase price at
the rate of 6.5% per annum from March 1, 1993, through the closing. The balance
of the purchase price, $255,555, is to be paid pursuant to a promissory note
with interest at the rate of 6.5% per annum, in 60 consecutive monthly
installments of principal and interest payable beginning in May 1993, with the
amount of the first 59 such installments determined based upon a 15-year
amortization schedule and the entire unpaid balance of the note being payable on
the date of the 60th such installment in April 1998. The promissory note is
secured by a security interest in the partnership interest and personally
guaranteed by Ms. Lang and Ms. Hunter.

During 1994, E. David Crockett, a director of the Company, was paid a
consulting fee by the Company in the amount of $3,500 for providing business
planning services to the Company. In addition, Focus, Inc., the president of
which is Dan R.E. Thomas, a former director of the Company, was paid a
consulting fee by the Company in the amount of $61,179 for providing business
planning services to the Company.

27
<PAGE> 28

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information as of May 18, 1995, with
respect to the beneficial ownership of the Shares by (i) each shareholder known
by the Company to be the beneficial owner of more than 5% of the Shares, (ii)
each director and each executive officer named in the Executive Compensation
Table (see "Management -- Executive Compensation"), and (iii) all executive
officers and directors as a group:

<TABLE>
<CAPTION>
PERCENTAGE OWNED
------------------------
SHARES BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- ----------------------------------------------------- --------------------- ---------- ---------
<S> <C> <C> <C>
Jeffrey M. Wilkins................................... 626,619(2) 11.9% 9.2%
7001 Metatec Boulevard
Dublin, Ohio 43017
Wells Fargo Bank, N.A................................ 268,700(3) 5.1 4.0
464 California Street
San Francisco, California 94163
Gregory T. Tillar.................................... 60,286 1.1 *
William H. Largent................................... 47,711 * *
A. Grant Bowen....................................... 32,373 * *
E. David Crockett.................................... 11,500 * *
Peter J. Kight....................................... 7,500 * *
Jerry D. Miller...................................... 161,500(4) 3.1 2.4
James V. Pickett..................................... 15,600(5) * *
All executive officers and directors
as a group (14 persons)............................ 1,119,300 21.2 16.5
<FN>
- ---------------

* Less than 1%.

(1) Except as otherwise indicated in the notes to this table, the persons named
in the table have sole voting and investment power with respect to all
Shares owned by them. This table does not include options for Shares which
are not currently exercisable or not exercisable within 60 days of May 18,
1995.

(2) Includes 600,000 Shares subject to a risk of forfeiture. See
"Management -- Certain Transactions."

(3) Holdings as of December 31, 1994, based upon a Schedule 13G filed with the
Securities and Exchange Commission on February 14, 1995.

(4) Includes 13,000 Shares owned by Mr. Miller's spouse. Does not include
117,986 Shares owned by the adult children or grandchildren of Mr. Miller,
for which Mr. Miller disclaims beneficial ownership.

(5) Includes 1,000 Shares owned by a corporation controlled by Mr. Pickett and
members of his family.
</TABLE>

DESCRIPTION OF CAPITAL STOCK

The aggregate number of shares of capital stock which the Company has
authority to issue is 10,083,500 Shares, all of which are common shares, $.10
par value. As of May 18, 1995, there were 5,280,964 Shares outstanding.

COMMON SHARES

The holders of Shares are entitled to receive such dividends as may be
declared by the Company's board of directors out of funds legally available
therefor. Upon dissolution or liquidation, holders of the Shares are entitled to
a ratable share of the net assets of the Company after payment to creditors. All
outstanding Shares are, and the shares offered hereby will be, fully paid and
nonassessable. Holders of the Shares are entitled to one vote for each Share
held of record for the election of directors and on all other matters submitted
to the vote of shareholders. The Shares are not redeemable, and the holders of
the Shares do not have cumulative voting rights in the election of directors or
preemptive rights with respect to the issuance of the Company's securities.

28
<PAGE> 29

The Company's Amended and Restated Articles of Incorporation (the "Restated
Articles") provide that the number of directors may be fixed or changed by a
resolution adopted by two-thirds in number of the board members then in office.
Additionally, a director may not be removed from office without cause except by
the affirmative vote of holders of at least 50% of the Shares. However, if the
removal of a director without cause is approved by two-thirds in number of the
board members then in office, then the 50% voting requirement will not apply and
a director may be removed without cause under Florida law if the votes cast by
the shareholders in favor of the director's removal exceed the votes cast in
opposition of the director's removal at a meeting at which a quorum is present.
This provision could have an anti-takeover effect because it could prevent
someone who does not satisfy these special voting requirements from either
increasing the number of directors and filling the new seats with enough
directors to constitute a majority of the board or from removing existing
directors without cause and replacing them with enough directors to constitute a
majority of the board.

The Restated Articles provide that special shareholder meetings may be
called by the board of directors or by holders of Shares entitled to exercise
25% or more of the voting power of the Company. This provision prevents a
shareholder from calling a special shareholder meeting to alter the composition
of the board or to effect any other corporate transaction unless holders of at
least 25% of the outstanding Shares were in favor of calling such meeting. This
requirement makes calling a special shareholders meeting more difficult and
therefore could have an anti-takeover effect.

The Restated Articles provide for a classified board of directors.
Directors are divided into three classes, designated as Class I, Class II and
Class III, as nearly equal in number as possible. At each annual meeting of
shareholders, one class of directors is elected for a three-year term. This
provision could have an anti-takeover effect because, assuming there are no
vacancies on the board of directors, it will take two annual elections of
directors to gain control of a majority of the positions on the board of
directors.

The Restated Articles require the affirmative vote of not less than 60% of
the outstanding Shares prior to effecting (a) a merger, consolidation or share
exchange of the Company with or into any other corporation, or (b) the sale,
lease, exchange or other disposition of all or substantially all of the assets
of the Company. However, such 60% voting requirement would not be applicable if
the Company's board of directors has approved the transaction by two-thirds or
more of its members. This provision could have an anti-takeover effect because
transactions not approved by two-thirds or more of the members of the board of
directors will require a higher approval percentage from shareholders than
transactions approved by two-thirds or more of the members of the board of
directors. The Restated Articles also require the affirmative vote of holders of
not less than 60% of the outstanding Shares to amend such 60% voting
requirements or the provisions of the Restated Articles relating to the number
of directors, their removal without cause or their election into three classes.
These provisions could also have an anti-takeover effect.

FLORIDA LAW

The Company is subject to Sections 607.0901 and 607.0902 of the Florida
Business Corporation Act. In general, Section 607.0901 restricts the ability of
a greater than 10% shareholder of a company from engaging in a wide range of
specified transactions between such company and such shareholder or a person or
entity controlled by or in control of such shareholder. The statute provides
that such a transaction must be approved by the affirmative vote of the holders
of two-thirds of such company's voting shares, unless it is approved by a
majority of the disinterested directors. Section 607.0902 restricts the ability
of a third party to effect an unsolicited change in control of a company. In
general, the statute provides that shares acquired in a transaction which
effects a certain threshold change in the ownership of a company's voting shares
(a "control share acquisition") have the same voting rights as shares held by
the acquiring person prior to the acquisition only to the extent granted by a
resolution adopted by shareholders in a prescribed manner. These statutory
provisions may have an anti-takeover effect by deterring unsolicited offers or
delaying changes in control or management of the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Shares is The Huntington Trust
Company, N.A.

29
<PAGE> 30

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part, the Underwriters named below have agreed, severally
and not jointly, through Legg Mason Wood Walker, Incorporated and Van Kasper &
Company, the Representatives (the "Representatives") of the Underwriters, to
purchase from the Company, and the Company has agreed to sell to the
Underwriters, the number of Shares set forth opposite the name of the respective
Underwriter at the Price to Public less the Underwriting Discount set forth on
the cover page of this Prospectus.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS COMMON SHARES
- ------------------------------------------------------------------------------ -------------
<S> <C>
Legg Mason Wood Walker, Incorporated.......................................... 312,500
Van Kasper & Company.......................................................... 312,500
Alex. Brown & Sons Incorporated............................................... 45,000
Dean Witter Reynolds Inc. .................................................... 45,000
A.G. Edwards & Sons, Inc. .................................................... 45,000
Goldman, Sachs & Co. ......................................................... 45,000
Hambrecht & Quist LLC......................................................... 45,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............................ 45,000
Montgomery Securities......................................................... 45,000
Oppenheimer & Co., Inc. ...................................................... 45,000
Robertson, Stephens & Company, L.P. .......................................... 45,000
Smith Barney Inc. ............................................................ 45,000
Advest, Inc. ................................................................. 25,000
Robert W. Baird & Co. Incorporated............................................ 25,000
William Blair & Co. .......................................................... 25,000
J.C. Bradford & Co. .......................................................... 25,000
The Chicago Corporation....................................................... 25,000
Cowen & Company............................................................... 25,000
Dain Bosworth Incorporated.................................................... 25,000
Gerard Klauer Mattison & Co. ................................................. 25,000
Jefferies & Company, Inc. .................................................... 25,000
McDonald & Company Securities, Inc. .......................................... 25,000
Needham & Company, Inc. ...................................................... 25,000
The Ohio Company.............................................................. 25,000
Piper Jaffray Inc. ........................................................... 25,000
Punk, Ziegel & Knoell, L.P. .................................................. 25,000
The Robinson-Humphrey Company, Inc. .......................................... 25,000
Soundview Financial Group, Inc. .............................................. 25,000
Wessels, Arnold & Henderson................................................... 25,000
-------------
Total............................................................... 1,500,000
============
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the Shares offered hereby, if any of the
Shares are purchased.

The Underwriters have advised the Company that they propose to offer all or
a part of the Shares offered hereby directly to the public at the Price to
Public set forth on the cover page of this Prospectus, that they may offer
shares to certain dealers at a price which represents a concession of $0.42 per
share, and that they may allow, and such dealers may reallow, a concession of
not more than $0.10 per share to certain other dealers. After the commencement
of the Offering, the Price to Public and the concessions may be changed.

30
<PAGE> 31

The Company has granted the Underwriters a 30-day option to purchase up to
225,000 additional Shares at the Price to Public less the Underwriting Discount
set forth on the cover page of this Prospectus. The Underwriters may exercise
the option only to cover over-allotments. To the extent the Underwriters
exercise the option, each of the Underwriters will have a firm commitment,
subject to certain conditions, to purchase the same percentage of additional
Shares as the percentage of the initial 1,500,000 Shares offered hereby to be
purchased by that Underwriter.

The Company has agreed to indemnity the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.

The executive officers and directors of the Company have agreed that they
will not, without the prior written consent of the Representatives, offer, sell
or otherwise dispose of any Shares owned by them during the 120-day period
following the date of this Prospectus, except for certain private transactions
and for transfers to family members or related trusts, subject to the 120-day
restriction, and that a certain director of the Company may sell, in addition,
up to 10,000 Shares in the aggregate. The Company has agreed not to offer, sell,
or otherwise dispose of any Shares during the 120-day period following the
closing of the Offering, except that the Company may grant options pursuant to
existing option plans in accordance with past practice, and issue Shares upon
the exercise of options, subject to certain limitations.

In connection with the Offering, the Underwriters and selling group members
(if any) that currently act as market makers for the Shares may engage in
"passive market making" in the Shares on The Nasdaq Stock Market in accordance
with Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon the
satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also Nasdaq Stock Market market makers
in the security being distributed to engage in limited market making
transactions during the period when Rule 10b-6 under the Exchange Act would
otherwise prohibit such activity. In general, under Rule 10b-6A, any Underwriter
or selling group member (if any) engaged in passive market making in the Shares
(i) may not effect transactions in, or display bids for, the Shares at a price
that exceeds the highest bid for the Shares displayed on The Nasdaq Stock Market
by a market maker that is not participating in the distribution of the Shares,
(ii) may not have net daily purchases of the Shares that exceed 30% of its
average daily trading volume in such Shares for the two full consecutive
calendar months immediately preceding the filing date of the Registration
Statement of which this Prospectus forms a part, and (iii) must identify its
bids as bids made by a passive market maker.

LEGAL MATTERS

Certain legal matters in connection with the issuance of the Shares offered
hereby will be passed upon for the Company by Baker & Hostetler, Columbus, Ohio,
and for the Underwriters by Pepper, Hamilton & Scheetz, Philadelphia,
Pennsylvania.

EXPERTS

The consolidated financial statements as of December 31, 1994 and 1993, and
for each of the three years in the period ended December 31, 1994, included in
this Prospectus and the related consolidated financial statement schedule
included elsewhere in the Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the Registration Statement, and have been included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.

31
<PAGE> 32

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information pertaining to the Company and
the securities offered hereby, reference is hereby made to the Registration
Statement, including the exhibits and the financial statement schedules filed
therewith. Statements contained herein concerning the provisions of any
documents filed as an exhibit to the Registration Statement are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
These documents may be examined without charge at the public reference
facilities maintained by the Commission in Washington, D.C., and copies thereof
may be obtained therefrom upon payment of the prescribed fees.

32
<PAGE> 33

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1993 and 1994 and March
31, 1995 (unaudited)................................................................ F-3
Consolidated Statements of Operations for the years ended December 31, 1992, 1993 and
1994 and for the three months ended March 31, 1994 and 1995 (unaudited)............. F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1992,
1993 and 1994 and for the three months ended March 31, 1995 (unaudited)............. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993 and
1994 and for the three months ended March 31, 1994 and 1995 (unaudited)............. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 34

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, 1993 and 1994, 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, 1993 and 1994, 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.

DELOITTE & TOUCHE LLP
February 15, 1995
Columbus, Ohio

F-2
<PAGE> 35

METATEC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------- MARCH 31,
1993 1994 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 4,849,710 $ 2,167,518 $ 807,001
Accounts receivable, net of allowance for doubtful
accounts of $235,000 in 1993, $269,000 in 1994 and
$291,000 in 1995................................... 2,977,335 4,092,038 4,075,987
Inventory............................................. 350,075 602,773 786,916
Current portion of long-term notes receivable......... 10,869 11,597 11,797
Prepaid expenses...................................... 458,662 460,258 604,150
Deferred income taxes................................. 522,000 532,000
----------- ----------- -----------
Total current assets.......................... 8,646,651 7,856,184 6,817,851
----------- ----------- -----------
LONG-TERM NOTES RECEIVABLE, LESS CURRENT PORTION........ 237,822 226,225 223,195
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT -- NET.................... 9,724,330 24,081,612 24,689,100
----------- ----------- -----------
OTHER ASSETS:
Goodwill.............................................. 539,103 314,283 302,403
Other................................................. 199,456 77,700 77,700
----------- ----------- -----------
Total other assets............................ 738,559 391,983 380,103
----------- ----------- -----------
TOTAL ASSETS............................................ $19,347,362 $32,556,004 $32,110,249
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease
obligations........................................ $ 75,942 $ 975,335 $ 975,635
Accounts payable...................................... 622,289 2,462,243 1,406,485
Accrued royalties..................................... 304,395 559,157 573,552
Accrued personal property taxes....................... 213,749 378,210 467,985
Accrued payroll....................................... 199,362 359,400 511,060
Other accrued expenses................................ 532,295 411,585 395,141
Unearned income....................................... 1,041,311 888,940 766,606
Accrued income taxes.................................. 285,371 445,459
----------- ----------- -----------
Total current liabilities..................... 2,989,343 6,320,241 5,541,923
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS
CURRENT MATURITIES.................................... 151,316 7,644,634 7,410,829
DEFERRED INCOME TAXES................................... 315,000 335,000
----------- ----------- -----------
Total liabilities............................. 3,140,659 14,279,875 13,287,752
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; authorized 10,083,500
shares; issued 1993 -- 5,209,619 shares;
1994 -- 5,272,219 shares; 1995 -- 5,274,719
shares............................................. 520,962 527,222 527,472
Additional paid-in capital............................ 15,273,400 15,643,913 15,647,413
Retained earnings..................................... 4,348,882 6,041,535 6,584,153
Less:
Common stock held in treasury, at cost, 2,755
shares........................................... (36,541) (36,541) (36,541)
Unamortized restricted stock....................... (3,900,000) (3,900,000) (3,900,000)
----------- ----------- -----------
Total stockholders' equity.................... 16,206,703 18,276,129 18,822,497
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $19,347,362 $32,556,004 $32,110,249
========== ========== ==========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 36

METATEC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES.......................... $16,877,079 $21,318,416 $28,942,748 $6,006,937 $9,178,622
COSTS AND EXPENSES:
Cost of products sold........... 11,197,538 12,071,515 16,300,693 3,612,484 5,133,954
Selling, general and
administrative............... 5,975,451 8,225,564 10,060,600 2,274,869 2,991,855
----------- ----------- ----------- ---------- ----------
Total costs and expenses..... 17,172,989 20,297,079 26,361,293 5,887,353 8,125,809
----------- ----------- ----------- ---------- ----------
OPERATING INCOME (LOSS)........... (295,910) 1,021,337 2,581,455 119,584 1,052,813
----------- ----------- ----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income................. 103,876 134,637 54,616 24,212 21,649
Gain on sale of marketable
security..................... 106,000
Other -- net.................... 144,522 41,857 62,288 36,509 (4,373)
Interest expense................ (323,226) (135,847) (379,706) (8,281) (190,871)
----------- ----------- ----------- ---------- ----------
Total other income
(expense).................. (74,828) 40,647 (156,802) 52,440 (173,595)
----------- ----------- ----------- ---------- ----------
EARNINGS (LOSS) BEFORE INCOME
TAXES........................... (370,738) 1,061,984 2,424,653 172,024 879,218
INCOME TAXES...................... 732,000 51,600 336,600
----------- ----------- ----------- ---------- ----------
NET EARNINGS (LOSS)............... $ (370,738) $ 1,061,984 $ 1,692,653 $ 120,424 $ 542,618
========== ========== ========== ========= =========
NET EARNINGS (LOSS) PER COMMON
SHARE:
Primary......................... $ (0.11) $ .25 $ .33 $ .02 $ .10
Fully diluted................... $ (0.11) $ .21 $ .32 $ .02 $ .10
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Primary......................... 3,371,956 4,260,806 5,134,656 5,021,595 5,408,670
Fully diluted................... 3,371,956 4,953,412 5,323,503 5,021,595 5,417,918
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 37

METATEC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
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
Stock options exercised
(unaudited).............. 250 3,500 3,750
Net earnings (unaudited)... 542,618 542,618
-------- ----------- ---------- ----------- ----------- -----------
BALANCE, MARCH 31, 1995
(unaudited)................ $527,472 $15,647,413 $6,584,153 $ (36,541) $(3,900,000) $18,822,497
======== ========== ========= ========== =========== ==========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 38

METATEC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, 1994 MARCH 31,
---------------------------------------- -------------------------
1992 1993 1994 1994 1995
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings (loss)...................................... $ (370,738) $ 1,061,984 $ 1,692,653 $ 120,424 $ 542,618
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 2,137,641 2,128,620 3,227,325 613,006 1,022,520
Deferred income taxes.................................. (207,000) (10,000)
Gain on sale of marketable security.................... (106,000)
Net (gain) loss on sales of property and equipment..... (26,172) 5,258 37,305 (6,986) 12,435
Changes in assets and liabilities:
Accounts receivable.................................. (440,196) (229,096) (1,114,703) 71,281 16,051
Inventory............................................ (90,041) (25,345) (252,698) (186,453) (184,143)
Prepaid expenses and other current assets............ 47,529 190,689 6,584 (18,227) (153,892)
Accounts payable and accrued expenses................ 20,728 233,171 2,083,876 276,841 (626,284)
Unearned income...................................... 247,800 493,283 (152,371) (131,020) (122,334)
Net assets of discontinued operations................ 718,064
----------- ----------- ------------ ----------- -----------
Net cash provided by operating activities.......... 2,244,615 3,858,564 5,214,971 738,866 496,971
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in long-term notes receivable................... 89,875 131,629 10,869 2,646 2,830
Purchase of property, plant and equipment................ (2,213,993) (5,144,985) (17,119,750) (8,810,848) (1,927,763)
Proceeds from sale of fixed assets....................... 128,316 3,866 177,000 150,000 297,200
Decrease (increase) in goodwill.......................... (78,618) 178,000
Proceeds from sale of marketable security................ 219,576
----------- ----------- ------------ ----------- -----------
Net cash used in investing activities.............. (2,074,420) (5,009,490) (16,534,305) (8,658,202) (1,627,733)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable................................ 1,536,683 8,750,000 4,800,000
Payment of notes and leases payable...................... (1,487,592) (3,601,585) (489,631) (18,408) (233,505)
Proceeds from issuance of stock (net of offering
expenses).............................................. 8,297,529
Stock options exercised, including tax benefit........... 34,500 164,020 376,773 88,051 3,750
Treasury shares acquired................................. (36,541)
----------- ----------- ------------ ----------- -----------
Net cash provided by financing activities.......... 83,591 4,823,423 8,637,142 4,869,643 (229,755)
----------- ----------- ------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 253,786 3,672,497 (2,682,192) (3,049,693) (1,360,517)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 923,427 1,177,213 4,849,710 4,849,710 2,167,518
----------- ----------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 1,177,213 $ 4,849,710 $ 2,167,518 $ 1,800,017 $ 807,001
========== ========== =========== ========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid, net of amounts capitalized................ $ 340,758 $ 172,311 $ 379,706 $ 8,281 $ 190,871
========== ========== =========== ========== ==========
Income taxes paid........................................ $ 118,000 $ 252,235 $ 4,000 $ 180,119
========== =========== ========== ==========
Assets purchased for the assumption of a liability....... $ 750,000 $ 183,902 $ 632,342
========== ========== ===========
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.

F-6
<PAGE> 39

METATEC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED

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 $192,380, $401,577 and $784,039 for 1992, 1993 and 1994,
respectively. For the three months ended March 31, 1994 and 1995, advertising
costs were $172,353 and $151,624 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.

UNAUDITED INTERIM FINANCIAL REPORTING -- In the opinion of management, the
unaudited information as of and for the three months ended March 31, 1994 and
1995 includes all adjustments (consisting solely of normal recurring accruals)
the Company considers necessary for a fair presentation of such interim
financial statements in accordance with generally accepted accounting
principles. The results of

F-7
<PAGE> 40

METATEC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED

operations for interim periods are not necessarily indicative of results for any
other interim period or the full year.

2. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Land........................................ $ 1,292,679 $ 1,292,679
Buildings and improvements.................. 9,426,049 9,427,388
Machinery and equipment..................... $ 8,973,887 14,425,553 14,144,185
Furniture and fixtures...................... 986,469 1,845,433 1,882,911
Computer equipment and related software..... 2,727,122 3,880,956 4,144,657
Transportation equipment.................... 4,199 12,725 12,725
Leasehold improvements...................... 827,381 802,205 815,533
Equipment installation-in-progress.......... 3,091,369 62,139 1,073,872
----------- ----------- -----------
Total............................. 16,610,427 31,747,739 32,793,950
Less accumulated depreciation............... (6,886,097) (7,666,127) (8,104,850)
----------- ----------- -----------
Net property, plant and equipment........... $ 9,724,330 $24,081,612 $24,689,100
========== ========== ==========
</TABLE>

3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31
----------------------- MARCH 31,
1993 1994 1995
--------- ----------- ----------
<S> <C> <C> <C>
Term loan, interest at 1/2% in excess of prime
(total of 9% at December 31, 1994 and March 31,
1995), due in monthly installments to 1999...... $ 3,540,000 $3,360,000
Mortgage loan, interest at 1/2% in excess of
prime (total of 9% at December 31, 1994 and
March 31, 1995), due in monthly installments to
1998............................................ 4,800,000 4,768,053
--------- ----------- ----------
Total................................... 8,340,000 8,128,053
Capital lease obligations (see Note 4)............ $ 227,258 279,969 258,411
Less current maturities........................... (75,942) (975,335) (975,635)
--------- ----------- ----------
Long-term debt and capital lease obligations, less
current maturities.............................. $ 151,316 $ 7,644,634 $7,410,829
========= ========== =========
</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 or March 31, 1995. 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 and the mortgage loan were reduced
to prime.

The loan agreement contains restrictive covenants which, among others,
require the Company to maintain a certain level of tangible net worth, limit
dividends to 20% of net earnings, maintain certain financial

F-8
<PAGE> 41

METATEC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED

ratios and limit capital expenditures. In 1994, the Company was not in
compliance with certain of these covenants which were accordingly amended by the
bank through December 31, 1995.

Long-term debt, excluding capital lease obligations, matures as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<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>

There were no significant changes in maturities of long-term debt at March
31, 1995.

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
executive 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 executive 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 executive officer/stockholder for $4,800,000. Total rent
expense under the operating lease was $481,800, $526,717 and $87,786 for 1992,
1993 and 1994, 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>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
------------------------ ------------------------
DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
1994 1995 1994 1995
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Year ending December 31:
1995.................................. $103,409 $ 77,557 $121,088 $ 84,924
1996.................................. 86,394 86,394 105,572 105,572
1997.................................. 69,378 69,378 34,642 34,642
1998.................................. 45,371 45,371 8,426 8,426
1999.................................. 13,088 13,088
------------ --------- ------------ ---------
Total minimum lease payments............ $317,640 $ 291,788 $269,728 $ 233,564
========== ========
Less amount representing interest....... (37,671) (33,377)
------------ ---------
Present value of net minimum payments
(see Note 3).......................... $279,969 $ 258,411
========== ========
</TABLE>

F-9
<PAGE> 42

METATEC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED

The following assets capitalized under lease agreements are included in
property, plant and equipment at December 31, 1993 and 1994 and March 31, 1995:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1993 1994 1995
--------- ---------- ----------
<S> <C> <C> <C>
Machinery and equipment.................. $ 543,469 $ 543,469 $ 543,469
Computer equipment and related
software............................... 84,399 84,399 84,399
Furniture and fixtures................... 268,552 400,895 400,895
--------- ---------- ----------
Total.................................. 896,420 1,028,763 1,028,763
Less accumulated depreciation............ (681,330) (706,677) (719,631)
--------- ---------- ----------
Total.................................... $ 215,090 $ 322,086 $ 309,132
========= ========= =========
</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, 1993
and 1994 and March 31, 1995 of $142,700, $171,000 and $171,000, respectively,
for self-insured claims incurred but not reported.

Property, plant and equipment -- The Company has commitments under
contracts for the purchase of property and equipment. Portions of such contracts
not completed at March 31, 1995 are not reflected in the Consolidated Financial
Statements. These unrecorded commitments amounted to approximately $2,762,152.

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) is as follows:

<TABLE>
<CAPTION>
1994
------------
<S> <C>
Federal:
Current....................................................... $ 778,000
Deferred...................................................... (207,000)
------------
Total Federal.............................................. 571,000
State and local............................................... 161,000
------------
Total......................................................... $ 732,000
==========
</TABLE>

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.

F-10
<PAGE> 43

METATEC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED

A reconciliation of recorded Federal income tax expense to the expected
expense computed by applying the Federal statutory rate of 34% to income before
income taxes follows:

<TABLE>
<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>

The Company expects a combined 38% income tax rate for 1995. Deferred
income taxes recorded in the consolidated balance sheets at December 31, 1993
and 1994 consist of the following:

<TABLE>
<CAPTION>
1993 1994
--------- --------
<S> <C> <C>
Deferred tax assets:
AMT carryforwards (no expiration date)...................... $403,000
Net operating loss carryforwards............................ $ 627,000 122,000
Allowance for doubtful accounts............................. 80,000 92,000
Accrued self-insurance account.............................. 48,000 58,000
Other....................................................... 12,000 4,000
Valuation allowance......................................... (545,000)
--------- --------
Total deferred tax assets........................... 222,000 679,000
--------- --------
Deferred tax liabilities:
Depreciation................................................ 222,000 438,000
Other -- net................................................ 34,000
--------- --------
Total deferred tax liabilities...................... 222,000 472,000
--------- --------
Net deferred assets........................................... $ 0 $207,000
========= ========
</TABLE>

There is no significant change in the components of net deferred tax assets
and liabilities at March 31, 1995.

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

F-11
<PAGE> 44

METATEC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED

all of the shares if his employment is terminated by the Company for cause or by
the executive 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 and March 31, 1995, 524,447 and 600,000, respectively
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
$41,500, $49,393, $10,123 and $15,763 for 1993, 1994 and the three months ended
March 31, 1994 and 1995, 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, and March 31, 1995 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 and March 31, 1995 24,292 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
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
and March 31, 1995, no incentive options had been granted. An option vests one
year from the date of grant, and is

F-12
<PAGE> 45

METATEC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED

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 March 31, 1995:

<TABLE>
<CAPTION>
AGGREGATE
SHARES OPTION 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
Granted............................................. 26,825 $9.37 to $11.25 265,450
Exercised........................................... (2,500) $1.50 (3,750)
Expired............................................. (1,175) $11.50 (13,513)
------- ----------
Outstanding at March 31, 1995....................... 448,742 $1.50 to $11.50 $3,465,050
======= =========
</TABLE>

At December 31, 1994, 181,900 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.

At March 31, 1995, 179,400 common shares under option were exercisable and
67,575 and 7,450 common shares (total of 75,025) 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 purchase price of $319,444 for cash and
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.

Effective January 19, 1994, the Company purchased, for cash, real estate
from a partnership, in which an officer/stockholder of the Company is a partner.
The tract of land included approximately eight acres and the purchase price
totalled approximately $694,000. The land was used for the expansion at the
existing facility.

F-13
<PAGE> 46

METATEC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED

10. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
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
1994
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
1995
Revenues..................................... $9,178,622
Gross Profit................................. 4,044,668
Net Earnings................................. 542,618
Net Earnings per common share
Primary................................... $ 0.10
Fully diluted............................. $ 0.10
</TABLE>

F-14
<PAGE> 47

<TABLE>
<S> <C>
FIGURE 4 - PHOTO [LOGO]
[Metatec personnel operating
mastering equipment.]

FIGURE 5 - PHOTO
[Metatec personnel presenting
software services capabilities.]

The Company currently is organized into FIGURE 6 - PHOTO
three business divisions: [Metatec personnel
discussing NautilusCD.]
- - 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 of CD-ROM based publications,
which, in turn, often produce
Manufacturing Services revenues for the
Company.

- - PUBLISHING SERVICES produces and publishes
NautilusCD.
</TABLE>
<PAGE> 48

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

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY STATE TO ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Investment Considerations............. 5
Use of Proceeds....................... 7
Price Range of Common Shares and
Dividend Policy..................... 7
Capitalization........................ 8
Selected Consolidated Financial
Data................................ 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 11
Business.............................. 16
Management............................ 20
Principal Shareholders................ 28
Description of Capital Stock.......... 28
Underwriting.......................... 30
Legal Matters......................... 31
Experts............................... 31
Additional Information................ 32
Index to Consolidated Financial
Statements.......................... F-1

- ---------------------------------------------
- ---------------------------------------------
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------
1,500,000 SHARES

[LOGO]

COMMON SHARES
------------------------
PROSPECTUS
------------------------

LEGG MASON WOOD WALKER
INCORPORATED

VAN KASPER & COMPANY

MAY 19, 1995
- ------------------------------------------------------
- ------------------------------------------------------