<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to ________________
Commission File Number: 0-9220
METATEC CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1698890
(State of Incorporation) (I.R.S. Employer Identification No.)
7001 Metatec Boulevard
Dublin, Ohio 43017
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (614) 761-2000
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $.10 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Shares held by nonaffiliates
of the Registrant as of March 24, 1998, was $24,181,043.
On March 24, 1998, the Registrant had 6,033,224 Common Shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting of
shareholders to be held on April 23, 1998, which proxy statement was filed with
the Securities and Exchange Commission on March 20, 1998, are incorporated by
reference into Part III, Items 10, 11, 12, and 13 of this Report.
<PAGE> 2
METATEC CORPORATION
FORM 10-K
PART I
ITEM 1. BUSINESS
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GENERAL
Metatec Corporation is a Florida corporation which was incorporated on
September 9, 1976. Metatec Corporation and its subsidiaries are hereinafter
collectively referred to as the "Company." The Company is a leading information
industry services company offering optical disc manufacturing and distribution.
Metatec Manufacturing Services provides CD-ROM (compact disc-read only memory)
and DVD (digital versatile disc) mastering, replication, and distribution
services in addition to providing similar services to radio syndication
customers for audio compact discs ("Audio CDs").
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. 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.
DVD technology represents a new type of optical disc which can hold up
to 4.7 gigabytes of information, or seven times the amount of the current
CD-ROM. It is projected that DVD will replace CD-ROM and expand the utilization
of optical disc with greater graphic and video applications. This expansion will
first require new DVD-ROM drives to be installed in order to have significant
market penetration. DVD drives began to be introduced during 1997.
During 1997, the Company exited its business segment known as the
Access Services Group. This group provided a broad range of software development
and media preparation services for customers creating custom CD-ROM products and
frequently published periodicals on optical media and offered network services
for information publishers desiring integrated worldwide web access to support
their CD-ROM publications. The Company exited this business segment because the
market for providing custom multimedia products was significantly reduced with
the increasingly availability of low-cost software and publishing tools.
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. 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 options on virtually all of their
desktop 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
<PAGE> 3
distribution method for large amounts of information which require less frequent
updating and provides audio, video, text, and graphics capabilities in one
medium.
PRINCIPAL PRODUCTS AND SERVICES
The Company serves as a one-stop source of CD-ROM and DVD solutions.
The Company focuses on increasing revenues from its CD-ROM and DVD manufacturing
services while maintaining its current market position within the mature radio
syndication market. The Company's strategy targets customers which require
turnkey 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.
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>
YEAR ENDED DECEMBER 31,
1997 1996 1995
Sales Percent Sales Percent Sales Percent
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing Services
Group:
CD-ROM ............ $42,025,000 86% $36,096,000 78% $26,945,000 69%
Radio ............. 5,648,000 12 5,325,000 12 5,578,000 14
Access Services
Group(1) ........... 1,261,000 2 4,729,000 10 6,738,000 17
----------- --- ----------- --- ----------- ---
Total Revenues ....... $48,934,000 100% $46,150,000 100% $39,261,000 100%
=========== === =========== === =========== ===
</TABLE>
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(1) This business segment was exited in 1997.
Manufacturing Services Group. 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 began offering DVD-ROM
production in late 1997 with the addition of DVD mastering, reproduction, and
related production equipment. The Company's services performed through the
manufacturing process include conversion of data provided by customers to a
digital format, encoding of the data on a master disc, replication from the
master disc, data verification, quality control testing, and design and printing
of the disc label. The Company provides full-service disc packaging and either
ships the finished product back to its customers or distributes the product to
the ultimate end user on behalf of its customers.
The Company also manufactures Audio CDs 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.
<PAGE> 4
The Company operates from an approximately 205,000 square foot facility
in Dublin, Ohio, of which approximately 100,000 square feet are used for
manufacturing and distribution activities. The Company operates its production
facility seven days a week, 24 hours per day, permitting it to offer one-day
turnaround of a master CD and high quality CD replicas for distribution for its
CD-ROM, DVD, and radio syndication customers. The Company's manufacturing
services include premastering and mastering of the discs, from which duplicate
CD-ROMs, DVDs, and Audio CDs can be made, disc label design and printing,
packaging, and fulfillment services. During the last five 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 1995, the Manufacturing Services Group received ISO 9002 quality
system certification. This certification means that the Company's manufacturing
facilities meet worldwide standards for quality practices. During 1996, the
Company continued a capacity expansion program which doubled the Company's disc
production capacities over 1995 levels. Additional capacity expansion activities
will continue as market demand requires. During 1997, the Company added DVD
mastering and disc production capacity.
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.
The Company does not believe that compliance with federal, state, and
local provisions which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, has had or will have a material effect upon the capital
expenditures, earnings, or competitive position of the Company. The Company does
not anticipate any material capital expenditures for environmental control
facilities for 1998 or 1999.
Marketing. The Company markets it products and services through its own
sales force of approximately 30 employed associates based in San Francisco,
Chicago, Washington, D.C., New York, Denver, Dallas, Boston, Atlanta, and
Seattle, 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
other is processed in a timely manner and all required support materials are in
place.
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 Manufacturing Services Group the Company differentiates itself
from its competitors by providing short-run manufacturing flexibility (including
quick turnaround times), personalized customer service, and complete CD-ROM and
DVD solutions. Many firms demand a manufacturer like the
<PAGE> 5
Company which can provide additional services such as label design and printing,
packaging, and distribution.
EMPLOYEES
The Company employed approximately 390 persons as of March 13, 1998.
Approximately 275 employees are directly involved in the manufacturing and
distribution process, and the remainder are involved in sales, administration,
and support. The Company believes that its relation with its employees is good.
ITEM 2. PROPERTIES
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The Company owns an approximately 205,000 square foot office and
manufacturing facility situated on approximately 20 acres located at 7001
Metatec Boulevard, Dublin, Ohio. The facility houses manufacturing,
distribution, a computer and data services center, and office space. The
manufacturing and distribution space was occupied in January 1997, and the
computer center and office space were occupied mid-1997. The Company's principal
executive offices are located in this facility. The Company also leases office
space in San Francisco, Chicago, Washington, D.C., New York, Denver, Dallas,
Boston, Atlanta, and Seattle.
ITEM 3. LEGAL PROCEEDINGS
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The Company is not a party to any material pending legal proceeding,
nor, to the Company's knowledge, is any material legal proceeding threatened
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The executive officers of the Company and their respective ages and
present positions with the Company are as follows:
<TABLE>
<CAPTION>
Officers Age Present Position(s) with the Company
-------- --- ------------------------------------
<S> <C> <C>
Jeffrey M. Wilkins 53 Chairman of the Board and Chief
Executive Officer
Gregory T. Tillar 45 President and Chief Operating Officer
Julia A. Pollner 35 Vice President-Finance, Secretary and
Treasurer
Alexander P. Deak 37 Vice President and Chief Information
Officer
Christopher L. Winslow 36 Vice President, Manufacturing Services
</TABLE>
Mr. Wilkins has been Chairman of the Board and Chief Executive Officer
of the Company since August 1989.
<PAGE> 6
Mr. Tillar has been President of the Company since February 1995, and
Chief Operating Officer of the Company since April 1993, and was Vice President,
responsible for various operating and sales functions, with the Company since
May 1990.
Ms. Pollner has been Vice President, Finance, Treasurer and Secretary
since May 1997, and has held accounting and finance positions with the Company
since 1987.
Mr. Deak has been Vice President and Chief Information Officer of the
Company since December 1994, and has held information services and product
management positions with the Company since 1990.
Mr. Winslow has been Vice President, Manufacturing Services, of the
Company since 1992. From 1984 to 1992, Mr. Winslow was in sales and product
management with CompuServe Incorporated.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------- -------------------------------------------------------------
MATTERS
-------
The Company's Common Shares are traded on the Nasdaq National Market
system under the symbol META. The following table reflects the range of reported
high and low last sales prices for the Common Shares for the periods indicated.
High Low
---- ---
For the quarter ended 1996
March 31......................... $11.00 $8.50
June 30.......................... 13.25 9.50
September 30..................... 10.75 7.00
December 31...................... 7.88 5.50
For the quarter ended 1997
March 31......................... $7.00 $3.88
June 30.......................... 6.00 2.63
September 30..................... 6.38 5.25
December 31...................... 6.00 4.38
As of March 3, 1998, there were 4,124 holders of record of the Common
Shares, and the last sales price per share on that date, as reported by the
Nasdaq National Market system, was $4.81.
The Company has never paid cash dividends on the Common Shares. The
payment of dividends is within the discretion of the Company's board of
directors and depends upon the earnings, the capital requirements, and the
operating and financial condition of the Company, among other factors. The
Company currently expects to retain its earnings to finance the growth and
development of its business and does not expect to pay cash dividends in the
foreseeable future. See Note 4 of the Notes to Consolidated Financial Statements
regarding restrictions on dividends, which Notes are contained in Item 8 of this
Form 10-K.
<PAGE> 7
ITEM 6. SELECTED FINANCIAL DATA
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales ........................ $48,933,634 $46,150,105 $39,261,463 $28,942,748 $21,318,416
Earnings before income taxes.. $ 1,040,534 $ 3,398,728 $ 4,140,980 $ 2,424,653 $ 1,061,984
Net earnings ................. $ 491,534 $ 2,040,728 $ 2,808,980 $ 1,692,653 $ 1,061,984
Earnings per common share:
Basic .................... $ .07 $ .29 $ 0.44 $ 0.34 $ .26
Diluted .................. $ .07 $ .29 $ 0.44 $ 0.33 $ .25
Weighted average number of
common shares outstanding:
Basic .................... 6,791,836 7,064,194 6,333,706 4,983,879 4,083,153
Diluted .................. 7,189,266 7,159,775 6,441,105 5,066,447 4,211,507
FINANCIAL CONDITION:
Total assets ................. $52,871,893 $52,517,477 $50,076,076 $32,556,004 $19,347,362
Long-term liabilities ........ $ 5,893,410 $ 1,335,105 $ 845,875 $ 7,959,634 $ 151,316
Shareholders' equity ......... $41,194,053 $45,265,791 $43,301,079 $18,276,129 $16,206,703
</TABLE>
<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS
-------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
RESULTS OF OPERATIONS - 1997 COMPARED TO 1996
Net sales in 1997 were at a record level of $48,934,000, an increase of
$2,784,000, or 6% over 1996. This increase resulted primarily from the
Manufacturing Services Group, which includes CD-ROM and Radio Syndication
manufacturing, increasing $6,252,000 to $47,673,000 for 1997, or 15%. The Access
Services Group (formerly known as the New Media Solutions Group), decreased
$3,468,000 to $1,261,000 for 1997, or 73%.
This combined net sales increase of $2,784,000 was primarily as a result of
solid CD-ROM replication growth in our Manufacturing Services Group. During 1997
the decision was made to exit the business segment known as the Access Services
Group.
Gross profit was 31% of net sales for 1997 as compared to 36% of net sales for
1996. This decrease is primarily attributed to an under utilization of
manufacturing capacity during 1997. In addition, sales price erosion continued
during 1997.
Selling, general and administrative expenses ("SG&A") increased to $13,974,000,
or 29% of net sales, for 1997 as compared to $13,459,000, or 29% of net sales,
for 1996.
A restructuring charge of $206,000 occurred during 1997. This charge related to
a reorganization and downsizing of the Access Services Group.
Investment income was $49,000 for 1997 as compared to $303,000 for 1996. The
decrease in investment income was a result of lower cash and cash equivalent
balances. Interest expense for 1997 was $74,000 as compared to $19,000 for 1996.
During 1997 the Company borrowed against its revolving line of credit as more
fully discussed in the Financial Condition section.
Income tax expense was $549,000 in 1997, or an effective tax rate of 53%, as
compared to $1,358,000 in 1996, or an effective tax rate of 40%. The 1997
effective tax rate increased due to the non deductibility for income tax
purposes of the additional goodwill which began being charged to earnings in
1996. This goodwill charge was $410,000 and is related to shares earned by an
officer/shareholder which vested in late 1995.
Net earnings for 1997 were $492,000, or basic and diluted earnings per common
share of $.07, as compared to 1996 net earnings of $2,041,000, or basic and
diluted earnings per common share of $.29. This decrease was primarily a result
of lower gross profit, costs associated with exiting the Access Services
business, and a higher effective tax rate as noted above.
RESULTS OF OPERATIONS - 1996 COMPARED TO 1995
Net sales in 1996 were at a record level of $46,150,000, an increase of
$6,889,000, or 18% over 1995. This increase resulted primarily from the
Manufacturing Services Group, which includes CD-ROM and Radio Syndication
manufacturing, increasing $8,898,000 to $41,421,000 for 1996,
<PAGE> 9
or 27%. The Access Services Group (formerly known as the New Media Solutions
Group), decreased $2,009,000 to $4,729,000 for 1996, or 30%.
This combined net sales increase of $6,889,000 was primarily as a result of
solid CD-ROM replication growth in our Manufacturing Services Group. Within the
Access Services Group, development of the Metatec Access product offering was
initiated in midyear 1996. This development activity significantly slowed the
selling process resulting in a sales decrease for 1996. In addition the
NautilusCD product offering was terminated in early 1996.
Gross profit was 36% of net sales for 1996 as compared to 42% of net sales for
1995. This decrease is primarily attributed to an under utilization of
manufacturing capacity during 1996. The Company increased capacity in 1996 in
anticipation of increased volume which did not occur as rapidly as anticipated.
In addition, sales price erosion occurred in 1996 at a rate that was greater
than that experienced in prior years.
SG&A increased to $13,459,000, or 29% of net sales, for 1996 as compared to
$12,121,000, or 31% of net sales, for 1995. This decrease in SG&A expenses as a
percent of net sales was anticipated based upon the goal of management to take
advantage of the existing SG&A support structure put in place in late 1995.
Investment income remained the same for 1996 and 1995 at $303,000. Interest
expense for 1996 was $19,000 as compared to $323,000 for 1995. During 1995 the
Company paid off all of its long-term bank debt utilizing a part of the proceeds
from the 1995 sale of common shares.
Income tax expense was $1,358,000 in 1996, or an effective tax rate of 40%, as
compared to $1,332,000 in 1995, or an effective tax rate of 32%. The 1996
effective tax rate increased due to the non deductibility for income tax
purposes of the additional goodwill which began being charged to earnings in
1996. This goodwill charge was $410,000 and is related to shares earned by an
officer/shareholder which vested in late 1995. The 1995 effective tax rate
reflects a benefit from state investment tax credits.
Net earnings for 1996 were $2,041,000, or basic and diluted earnings per common
share of $.29, as compared to 1995 net earnings of $2,809,000, or basic and
diluted earnings per common share of $.44. This decrease was primarily a result
of lower gross profit, an increase in goodwill expense and a higher effective
tax rate as noted above.
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 sales
of the Company produced growth in real terms in 1997 and 1996. Net sales
increased primarily due to increased sales of CD-ROM and related products,
rather than increases in inflation.
<PAGE> 10
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business in 1997 through cash generated from
operations, the use of debt, and the use of available cash balances.
Historically, the Company also financed business needs through the issuance of
common stock. Cash flow from operating activities was $8,200,000, $8,992,000,
and $5,119,000 for 1997, 1996 and 1995, respectively.
During 1997, the Company installed production mastering equipment that will
produce Digital Versatile Disc ("DVD") masters. An 80,000 square foot building
was completed during 1997. The addition houses the DVD production area,
additional distribution space, a new computer and data services room and
additional office space for anticipated future growth. These additions, along
with recurring capital needs, resulted in the purchase of $8,933,000 in
property, plant and equipment during 1997 as compared to $13,011,000 in 1996 and
$12,235,000 in 1995. The Company will continue to expand its operations in 1998
through the addition of DVD production and related equipment.
In 1996, the Company put in place a new financing facility which provides for a
$15,000,000 revolving loan that will convert in 1998 to a term loan, which will
be due in 2003. At December 31, 1997 $4,500,000 was outstanding on the revolving
loan.
The Company has cash and cash equivalents of $1,381,000 as of December 31, 1997
and additionally, as previously noted, has available $10,500,000 under its
revolving loan agreement. Management believes that these funding sources, plus
cash to be generated from future operations and funds which may be obtained from
future financing activities will provide sufficient capital to meet the current
business needs of the Company which include expanding DVD production
capabilities.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters discussed in
this annual report are forward-looking statements which involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets, services
and related products, prices, and other factors discussed in the Company's
filings with the Securities and Exchange Commission.
STATEMENT OF MANAGEMENT RESPONSIBILITY
The consolidated financial statements of Metatec Corporation are the
responsibility of management, and those statements have been prepared in
accordance with generally accepted accounting principles. All available
information and management's judgment of current conditions and circumstances
have been reflected. Management accepts full responsibility for the accuracy,
integrity and objectivity of the financial information included in this report.
To provide reasonable assurance that assets are safeguarded against loss from
unauthorized use or disposition and that accounting records are reliable for
preparing financial statements, management maintains systems of accounting and
internal controls, including written policies and procedures, which are
communicated to all appropriate levels of the Company. Management believes that
the
<PAGE> 11
Company's accounting and internal control systems provide reasonable assurance
that assets are safeguarded and financial information is reliable.
Maintenance of sound internal control by division of responsibilities is
augmented by internal review programs and an Audit Committee of the Board of
Directors comprised solely of directors independent of management. The Audit
Committee reviews the scope of the audits performed by the independent public
accountants, Deloitte & Touche LLP, together with their audit report and any
recommendations made by them. The independent accountants have free access to
meet with the Audit Committee and Board of Directors with or without management
representatives present.
Jeffrey M. Wilkins
Chairman of the Board and
Chief Executive Officer
Julia A. Pollner
Vice President, Finance
<PAGE> 12
FORWARD LOOKING STATEMENTS; CERTAIN FACTORS AFFECTING FUTURE RESULTS
Any forward looking statements contained in this Form 10-K or any other
reports or documents prepared by the Company or made by management of the
Company involve risks and uncertainties, and are subject to change based on
various important factors. The following factors, among others, in some cases
have affected and in the future could affect the Company's actual financial
performance.
Product Concentration. Revenues from the sale of CD-ROM products and
services constituted substantially all of the Company's revenues for 1997, and
such products and services are expected to continue to account for substantially
all of the Company's revenues for the foreseeable future. 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.
Pricing. The CD-ROM and Audio CD industries have been characterized by
new manufacturers continually entering the market and by declining prices for
CDs. CD-ROM prices declined industry-wide in recent years and are expected to
decline in the future. To date, continuing market growth has offset increased
manufacturing capacity in the CD-ROM industry. 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 or that prices paid
to CD-ROM manufacturers will not continue to decline. In addition, the Company's
pricing of its new products and services may not in all cases be competitive
with the other providers in the marketplace, and some new products and services
may not be profitable.
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.
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.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- ----------------------------------------------------------
Not applicable at this time.
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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<TABLE>
METATEC CORPORATION
- ---------------------------------------------------------------------------------------
<CAPTION>
CONSOLIDATED BALANCE SHEETS At December 31,
----------------------------
1997 1996
- --------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,381,057 $ 2,214,755
Accounts receivable, net of allowance for doubtful accounts of $301,000 and $321,000 7,215,178 6,710,596
Inventory 1,155,519 948,738
Prepaid expenses 362,801 435,451
Prepaid income taxes -- 25,279
Current portion of long-term note receivable 364,087 13,202
Deferred income taxes 327,000 484,000
----------- -----------
Total current assets 10,805,642 10,832,021
Long-term note receivable, less current portion 186,562 200,648
Property, plant and equipment - net 38,629,006 37,776,085
Goodwill - net 3,250,683 3,708,723
----------- -----------
TOTAL ASSETS $52,871,893 $52,517,477
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,058,587 $ 2,942,565
Accrued royalties 1,109,257 1,080,400
Accrued personal property taxes 809,399 659,879
Other accrued expenses 814,569 567,675
Accrued payroll 567,315 398,160
Accrued income taxes 249,747
Unearned income 73,778 205,143
Current maturities of long-term debt and capital lease obligations 101,778 62,759
----------- -----------
Total current liabilities 5,784,430 5,916,581
Long-term debt and capital lease obligations, less current maturities 4,578,410 55,105
Deferred income taxes 1,315,000 1,280,000
----------- -----------
Total liabilities 11,677,840 7,251,686
----------- -----------
Shareholders' equity:
Common stock, $.10 par value; authorized 10,083,500 shares;
issued 1997 - 7,108,479 shares; 1996 - 7,073,353 shares 710,848 707,336
Additional paid-in capital 34,102,325 33,935,853
Retained earnings 11,382,777 10,891,243
Treasury stock, at cost; 1997 - 912,755 shares; 1996 - 38,655 shares (5,001,897) (268,641)
----------- -----------
Total shareholders' equity 41,194,053 45,265,791
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $52,871,893 $52,517,477
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 14
<TABLE>
METATEC CORPORATION
- -------------------------------------------------------------
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31,
-----------------------------------------------
1997 1996 1995
- ------------------------------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 491,534 $ 2,040,728 $ 2,808,980
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 7,914,342 6,963,466 4,533,907
Deferred income taxes 192,000 742,000 261,000
Stock awards for employees 31,480 20,775
Gain on sale of marketable securities (25,900)
Net loss on sales of property, plant and equipment 54,962 59,738 144,711
Changes in assets and liabilities:
Accounts receivable (504,582) (429,136) (2,189,422)
Inventory (206,781) (63,631) (282,334)
Prepaid expenses and other assets 97,929 145,541 (146,013)
Accounts payable and accrued expenses 257,285 (321,814) 532,644
Unearned income (131,365) (165,278) (518,519)
----------- ------------ ------------
Net cash provided by operating activities 8,196,804 8,992,389 5,119,054
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in long-term note receivable (336,799) 12,375 11,597
Purchase of property, plant and equipment (8,566,133) (12,523,821) (11,740,876)
Proceeds from the sale of property, plant and equipment 83,434 7,545 348,300
Decrease in goodwill
Proceeds from the sale of marketable securities 103,600
----------- ------------ ------------
Net cash used in investing activities (8,819,498) (12,503,901) (11,277,379)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock, net of offering expenses 17,914,782
Increase in long-term debt and capital lease obligations 4,500,000
Payment of long-term debt and capital lease obligations (116,252) (75,870) (8,426,235)
Stock options exercised, including tax benefit 138,504 135,309 401,188
Treasury stock acquired (4,733,256) (232,100)
----------- ------------ ------------
Net cash provided (used) by financing activities (211,004) (172,661) 9,889,735
----------- ------------ ------------
Increase (decrease) in cash and cash equivalents (833,698) (3,684,173) 3,731,410
Cash and cash equivalents at beginning of year 2,214,755 5,898,928 2,167,518
----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,381,057 $ 2,214,755 $ 5,898,928
=========== ============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 65,197 $ 18,676 $ 322,959
=========== ============ ============
Income taxes paid $ 64,785 $ 1,042,081 $ 730,271
=========== ============ ============
Increase in goodwill related to 600,000 restricted
common shares earned $ 3,900,000
============
Assets purchased for the assumption of a liability $ 367,137 $ 487,651 $ 494,232
=========== ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 15
<TABLE>
METATEC CORPORATION
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Additional
Common Paid-in Retained Treasury Unamortized
Stock Capital Earnings Stock Restricted Stock Total
- ------------------------------------------------ -------- ----------- ----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 $527,222 $15,643,913 $ 6,041,535 $ (36,541) $(3,900,000) $18,276,129
Net earnings 2,808,980 2,808,980
Share issued pursuant to a public offering, net
of costs of $283,968 172,500 17,742,282 17,914,782
Restricted shares earned 3,900,000 3,900,000
Stock options exercised 5,752 225,436 231,188
Tax benefit relating to stock options 170,000 170,000
-------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1995 705,474 33,781,631 8,850,515 (36,541) 0 43,301,079
Net earnings 2,040,728 2,040,728
Treasury shares acquired (232,100) (232,100)
Stock awards for employees 266 20,509 20,775
Stock options exercised 1,596 111,713 113,309
Tax benefit relating to stock options 22,000 22,000
-------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1996 707,336 33,935,853 10,891,243 (268,641) 0 45,265,791
Net earnings 491,534 491,534
Treasury shares acquired (4,733,256) (4,733,256)
Stock awards for employees 641 30,839 31,480
Stock options exercised 2,871 127,633 130,504
Tax benefit relating to stock options 8,000 8,000
-------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1997 $710,848 $34,102,325 $11,382,777 $(5,001,897) $ 0 $41,194,053
======== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 16
<TABLE>
METATEC CORPORATION
- ---------------------------------------------------
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS Years Ended December 31,
---------------------------------------------
1997 1996 1995
- --------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $48,933,634 $46,150,105 $39,261,463
Cost of sales 33,815,791 29,543,583 22,904,728
----------- ----------- -----------
Gross profit 15,117,843 16,606,522 16,356,735
Selling, general and administrative expenses 13,974,357 13,459,012 12,120,839
Restructuring expenses 206,000 0 0
----------- ----------- -----------
OPERATING EARNINGS 937,486 3,147,510 4,235,896
Other income and (expense):
Investment income 49,459 302,705 302,642
Other - net 127,329 (32,811) (74,599)
Interest expense (73,740) (18,676) (322,959)
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 1,040,534 3,398,728 4,140,980
Income taxes 549,000 1,358,000 1,332,000
----------- ----------- -----------
NET EARNINGS $ 491,534 $ 2,040,728 $ 2,808,980
=========== =========== ===========
NET EARNINGS PER COMMON SHARE:
Basic $ 0.07 $ 0.29 $ 0.44
=========== =========== ===========
Diluted $ 0.07 $ 0.29 $ 0.44
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 6,791,836 7,064,194 6,333,706
=========== =========== ===========
Diluted 7,189,266 7,159,775 6,441,105
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements.
Management believes those estimates and assumptions utilized in preparing the
financial statements are reasonable. Actual results could differ from these
estimates.
Nature of Operations - The operations of the Company are in the information
industry primarily providing optical disc manufacturing and distribution in
addition to software development and related network services, for specific
customers primarily in North America, with a majority of the customers under
contract. The Company maintains one manufacturing, sales, distribution and
development facility with sales offices located in ten different locations
around the United States. The revenues from product sales are recognized at the
time the products are shipped. Subscription revenues are recognized ratably over
the subscription period. For software development services, the Company
recognizes profit using the percentage of completion method, measured by the
percentage of the cost of services completed to date compared to total planned
cost of services. Earned revenue is determined on the basis of the profit
recognized plus the contract costs incurred during the period.
Major Customer - The Company had one customer that accounted for approximately
11.5% of net sales in 1996; no other customer accounted for greater than 10% of
net sales for any of the three years in the period ended December 31, 1997.
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 carrying amounts reported in the balance sheet approximate
fair value. The Company holds cash primarily in one financial institution.
Inventory - Inventory consists primarily of raw materials and spare parts and
are valued at the lower of cost or market with cost determined by the first-in,
first-out method.
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.
Goodwill - Goodwill represents the excess of cost over net assets acquired and
is being amortized using the straight-line method over 15 years. At December 31,
1995 goodwill and shareholders'equity were increased $3,900,000 to reflect the
vesting of the restricted shares earned by an officer/shareholder. The
additional $3,900,000 in goodwill, beginning in 1996, is being amortized using
the straight-line method through 2005. Accumulated amortization was $1,106,226
and $648,186 on December 31, 1997 and 1996, respectively.
At each balance sheet date, a determination is made by management to ascertain
whether goodwill has been impaired based on several criteria, including, but not
limited to, revenue trends, undiscounted operating cash flows and other
operating factors. For the years presented there has been no impairment of
goodwill.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," which uses the
<PAGE> 18
liability method to calculate deferred 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 carry forwards to the extent realization is more likely than not.
Advertising - The Company expenses advertising costs as incurred. Advertising
expense was $26,963, $197,440 and $370,157 for 1997, 1996 and 1995,
respectively.
Net Earnings Per Common Share - Effective December 31, 1997, the Company adopted
SFAS No. 128, "Earnings per Share", which requires retroactive adoption for all
periods presented. Under SFAS 128, basic net earnings per common share is
computed based on the weighted average number of common shares outstanding
during the period. Diluted net earnings per common share is computed similarly
but including the effect of stock options.
2. RESTRUCTURING CHARGES
During 1997 the Company made a decision to exit its business of providing
publishing tools and software development services. As a result of this action
the company incurred restructuring charges of $206,000 primarily for severance
and termination benefits.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31:
1997 1996
Land $ 1,779,573 $ 1,779,573
Buildings and improvements 18,085,187 11,256,453
Machinery and equipment 29,802,219 26,325,653
Furniture and fixtures 2,930,663 2,486,517
Computer equipment
and related software 5,784,275 6,129,627
Transportation equipment 28,665 35,898
Equipment installation
and building in progress 880,291 5,346,382
------------ ------------
Total 59,290,873 53,360,103
Less accumulated
depreciation (20,661,867) (15,584,018)
------------ ------------
Net property, plant
and equipment $ 38,629,006 $ 37,776,085
============ ============
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consists of the following at
December 31:
1997 1996
Revolving line of credit $ 4,500,000
Capital lease obligations 180,188 $ 117,864
Less current maturities (101,778) (62,759)
----------- ---------
Long-term debt and capital
lease obligations $ 4,578,410 $ 55,105
=========== =========
<PAGE> 19
The Company has an agreement with a bank that provides for advances of
$15,000,000 on an unsecured revolving loan. The revolving loan bears interest at
1.5% in excess of the London Interbank Offered Rate ("LIBOR") (at December 31,
1997 the 90 day LIBOR was at 5.8125 %) and is due December 31, 1998. $4,500,000
was outstanding on the revolving loan at December 31, 1997. On December 31, 1998
the Company has the option of paying off the revolving loan outstanding balance,
if any, or rolling the balance into a term loan due December 31, 2003 with
interest at 1.5 % in excess of LIBOR and monthly principal payments of $250,000,
plus accrued interest. The loan agreement contains restrictive covenants which,
among others, require the Company to maintain a certain level of tangible net
worth, maintain certain financial ratios and limit capital expenditures. At
December 31, 1997 approximately $1,900,000 of retained earnings was available
for distribution.
The estimated fair value of the Company's long-term obligations approximated
their carrying amount at December 31, 1997, based on current market prices for
the same or similar issues.
5. LEASES
The Company leases office equipment under non-cancelable capital lease
agreements expiring at various dates through 2001. Maintenance, insurance, and
tax expenses are the responsibility of the Company under the agreements.
Operating lease expense was $370,597, $342,635 and $293,897 for 1997, 1996 and
1995, respectively.
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:
Year ending December 31: CAPITAL LEASES OPERATING LEASES
1998 106,748 301,096
1999 74,465 66,851
2000 5,115 67,743
2001 45,592
-------- --------
Total minimum lease payments 186,328 $481,282
========
Less amount representing
interest (6,140)
--------
Present value of net
minimum payments $180,188
========
The Company is also the lessor of certain of its main office facilities to an
unrelated third party, under an operating lease which expires December 31, 1998.
Minimum future rentals under this lease to be received are approximately
$438,000.
6. 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
$50,000 per individual per year and $1,000,000 lifetime maximum per individual.
The Company has recorded an estimated liability for self-insured claims incurred
but not reported at December 31, 1997 and 1996 of $202,000 and $214,000,
respectively. The Company is also self insured with respect to short term
disability claims.
<PAGE> 20
Property, plant and equipment - The Company has commitments under contracts for
the purchase of property, plant and equipment. Portions of such contracts at
December 31, 1997 are not reflected in the consolidated financial statements.
These unrecorded commitments amounted to approximately $2,428,000.
7. INCOME TAXES
The components of income tax expense (benefit) were as follows:
1997 1996 1995
Federal:
Current $279,000 $ 511,000 $ 793,000
Deferred 101,000 554,000 549,000
-------- ---------- ----------
Total Federal 380,000 1,065,000 1,342,000
-------- ---------- ----------
State and Local:
Current 78,000 105,000 278,000
Deferred 91,000 188,000 (288,000)
-------- ---------- ----------
Total State and Local 169,000 293,000 (10,000)
-------- ---------- ----------
Total $549,000 $1,358,000 $1,332,000
======== ========== ==========
In 1995 the state and local income tax expense was reduced by a state investment
tax credit which resulted in a net benefit for the year of $500,000 of which
$288,000 will reduce future years state tax payable.
Significant differences between income taxes recorded for financial reporting
purposes and income taxes calculated using the Federal statutory rate of 34% are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Tax expense at statutory rate $354,000 $1,155,000 $1,408,000
State and local tax expense (benefit),
net of federal benefit 111,000 194,000 (7,000)
Non deductible goodwill 156,000 156,000 18,000
Other (72,000) (147,000) (87,000)
-------- ---------- ----------
Total $549,000 $1,358,000 $1,332,000
======== ========== ==========
</TABLE>
Deferred income taxes recorded in the consolidated balance sheets at December
31, 1997 and 1996 consist of the following:
1997 1996
Deferred tax assets:
State tax credit (expires 1998) $ 222,000 $ 288,000
AMT carryforwards (no expiration date) 36,000 193,000
Allowance for doubtful accounts 134,000 132,000
Net operating loss carryforwards 112,000 118,000
Inventory 90,000
Other 131,000 88,000
---------- ----------
Total deferred tax assets 725,000 819,000
---------- ----------
<PAGE> 21
Deferred tax liabilities:
Depreciation 1,684,000 1,546,000
Other 29,000 69,000
---------- ----------
Total deferred tax liabilities 1,713,000 1,615,000
---------- ----------
Net deferred tax (liability) $ (988,000) $ (796,000)
========== ==========
The Company has available net operating loss carry forwards for tax purposes of
approximately $252,000 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).
Based on management's projection of income the Company will more likely than not
realize such benefits of such state tax credits.
8. EMPLOYMENT AGREEMENT AND BENEFIT PLAN
The Company has an employment agreement with an executive officer/shareholder 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 the
occurrence of certain events. The executive is entitled to an annual cash bonus
in addition to base salary.
The same executive officer/shareholder was issued 600,000 common shares under a
Restricted Share Agreement (the "Agreement") dated March 23, 1993. These shares
were earned in accordance with the agreement as of December 31, 1995. The shares
issued under this agreement were treated as an adjustment to goodwill at
December 31, 1995 in the amount of $3,900,000. The goodwill is being amortized
beginning in 1996, using the straight-line method, over a ten year period ending
in 2005.
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
$170,300, $170,700 and $68,900 for 1997, 1996 and 1995, respectively. The
Company contribution is 40% of the associate's contribution up to maximum of 2%
of the associate's annual compensation. The funds are invested in mutual funds.
The company initiated a discretionary common stock award program for employees
during 1996. The value of the 1997 and 1996 stock awards was $31,480 and
$20,775, respectively.
9. STOCK OPTION PLANS
In 1992, the Company established a Directors' Stock Option Plan under which a
maximum of 210,000 Common Shares may be issued. This Plan, as amended,
automatically grants 2,500 options to each non-employee director on the day
after the Company's annual meeting of shareholders. These options are fully
vested on the grant date. In addition, for each non-employee director, when they
first become a director, the Plan automatically grants 10,000 one time options.
This one time option vests in equal installments over a four year period. As of
December 31, 1997, there have been 152,425 options granted of which 7,500 were
forfeited, 22,345 were exercised and 97,580 are 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 Company established the 1990 Stock Option Plan under which a maximum of
1,010,000 Common Shares may be issued. This Plan, as amended, is available to
officers and key
<PAGE> 22
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). As of
December 31, 1997, there have been 1,587,850 options granted of which 584,700
were forfeited, 222,575 were exercised and 88,875 are exercisable.
In February 1997, the Compensation Committee, which administers the plan,
approved a stock option exchange program for employees holding options
previously granted under the 1990 Stock Option Plan. Under this program,
employees were given the opportunity to exchange their options having exercise
prices above the then-current fair market value for the Company's common shares
(which was $4.38 at that time) for new options having an exercise price equal to
such current fair market value. However, all new options would be subject to a
four-year vesting schedule in which an equal number of options would vest each
year. The stock option exchange was contingent upon the grantee of the new
option terminating, effective as of the grant date, existing options for the
same number of common shares. Under this stock option exchange program, a total
of 350,000 new options were granted at an exercise price of $4.38 (subject to
the above-described vesting schedule), and the same number of existing options
were terminated.
The Company's Compensation Committee has the authority to grant incentive
options and non-qualified options. Only officers and other key employees of the
Company or its subsidiary corporations are eligible for grants of incentive
options.
At December 31, 1997, no incentive options had been granted. Both incentive and
non-qualified options vest over a period of from one to four years from the date
of grant, and are not exercisable after 10 years from the date of grant. The
option price of an incentive option is equal to the fair market value of the
shares at the time the incentive option is granted.
The following summarizes all stock option transactions from January 1, 1995
through December 31, 1997:
<TABLE>
<CAPTION>
Per Share Weighted Average
Shares Option Price Exercise Price
<S> <C> <C> <C>
Outstanding at December 31, 1994 425,592 $1.50 to $11.50 $7.56
Granted 51,825 $9.37 to $11.25 $10.43
Exercised (57,515) $1.50 to $11.50 $4.02
Terminated (14,425) $11.50 $11.50
--------
Outstanding at December 31, 1995 405,477 $1.50 to $11.50 $8.29
Granted 268,100 $6.63 to $12.88 $9.96
Exercised (15,961) $1.50 to $11.50 $7.10
Terminated (11,750) $9.37 to $11.50 $10.58
--------
Outstanding at December 31, 1996 645,866 $1.50 to $12.88 $8.97
Granted 806,000 $4.13 to $6.00 $5.19
Exercised (28,711) $1.75 to $5.50 $4.55
Terminated (520,000) $4.38 to $11.50 $9.03
--------
Outstanding at December 31, 1997 903,155 $1.50 to $12.88 $5.70
========
<CAPTION>
1997 1996 1995
Weighted Average Exercise Price $ 5.70 $ 8.97 $ 8.29
======== ======== ========
Common Shares Exercisable 186,455 546,216 338,652
======== ======== ========
</TABLE>
<PAGE> 23
The weighted average fair value of options granted during 1997, 1996 and 1995
were $4.03, $5.42 and $5.83, respectively.
At December 31, 1997, 186,455 common shares under option were exercisable and
65,075 and 6,850 common shares (total of 71,925) were reserved for future grant
under the 1992 Directors' Stock Option Plan and the 1990 Stock Option Plan,
respectively.
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation costs for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement No. 123, the Company's net earnings and net earnings per common share,
net of related income tax benefits, would have resulted in the amounts as
reported below. In determining the estimated fair value of each option granted
on the date of grant, the Company uses the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in the years
ended December 31, 1997, 1996 and 1995, respectively: dividend yield of 0%;
expected volatility of 56%, 49% and 50%; risk-free interest rates of 6.4%, 6.4%
and 5.3%; and expected life of 6 years.
1997 1996 1995
Net earnings -
As reported $ 491,534 $2,040,728 $2,808,980
Pro forma $(661,075) $1,186,304 $2,607,636
Earnings per share -
As reported
Basic $ 0.07 $ 0.29 $ 0.44
Diluted $ 0.07 $ 0.29 $ 0.44
Pro forma
Basic $ (0.10) $ 0.17 $ 0.41
Diluted $ (0.09) $ 0.17 $ 0.40
The pro forma amounts are not representative of the effects on reported net
earnings or earnings per common share for future years.
The following table summarizes information about options outstanding at December
31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-Average
Range of Remaining Weighted-Average Weighted-Average
Exercise Prices Number Contractual Life Exercise Price Number Exercise Price
<S> <C> <C> <C> <C> <C>
$1.50 - $1.75 67,500 2.2 $ 1.57 67,500 $ 1.57
$3.50 - $4.38 321,700 8.9 $ 4.34 17,500 $ 4.04
$5.88 - $6.00 412,500 9.2 $ 6.00 15,000 $ 6.00
$7.75 - $11.00 25,355 2.2 $10.65 22,855 $10.61
$11.25 - $12.88 76,100 1.7 $11.52 63,600 $11.57
------- -------
903,155 $ 5.70 186,455
======= =======
</TABLE>
<PAGE> 24
10. RELATED PARTY TRANSACTIONS
In 1996, the Company purchased, for cash, real estate from a partnership in
which an officer/shareholder of the Company is a partner. The tract of land
acquired included approximately five acres and the purchase price totaled
approximately $485,000. The land which is adjacent to the existing manufacturing
facility, will be used for future expansion.
11. SUBSEQUENT EVENTS
During January 1998 the Company repurchased 162,500 common shares for
approximately $791,000 under a repurchase plan authorized by the board of
directors.
12. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1997
Net Sales $11,678,574 $12,007,932 $11,890,865 $13,356,263
Gross Profit 3,625,987 3,991,610 3,402,072 4,098,174
Net Earnings (204,011) 367,528 51,735 276,282
Net Earnings per
common share:
Basic $ (0.03) $ 0.05 $ 0.01 $ 0.04
Diluted $ (0.03) $ 0.05 $ 0.01 $ 0.04
1996
Net Sales $12,204,455 $10,975,017 $10,804,766 $12,165,867
Gross Profit 5,177,959 4,007,079 3,491,640 3,929,844
Net Earnings 1,043,731 549,467 131,480 316,050
Net Earnings per
common share:
Basic $ 0.15 $ 0.08 $ 0.02 $ 0.04
Diluted $ 0.15 $ 0.08 $ 0.02 $ 0.04
</TABLE>
13. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure about Segments
of an Enterprise and Related Information," which will require adoption in 1998.
SFAS 131 requires companies to define and report financial and descriptive
information about its operating segments. It also establishes standards for
related disclosure about products and services, geographic areas, and major
customers.
The company is presently evaluating the applicability of SFAS 131 to its
operations.
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Metatec Corporation:
We have audited the accompanying consolidated balance sheets of Metatec
Corporation and its subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Metatec Corporation and its
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
February 11, 1998
Columbus, Ohio
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE.
-------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
- -------- ----------------------------------------------
Information required under this Item with respect to directors is
contained in the Company's proxy statement which was filed with the Securities
and Exchange Commission on March 20, 1998, and is hereby incorporated herein by
reference. Information regarding the executive officers of the Company may be
found under the caption "Executive Officers of the Company" in Part I and is
also incorporated by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
Information required under this Item is contained in the Company's
proxy statement which was filed with the Securities and Exchange Commission on
March 20, 1998, and is hereby incorporated herein by reference.
<PAGE> 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
Information required under this Item is contained in the Company's
proxy statement which was filed with the Securities and Exchange Commission on
March 20, 1998, and is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Information required under this Item is contained in the Company's
proxy statement which was filed with the Securities and Exchange Commission on
March 20, 1998, and is hereby incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
- -------- ------------------------------------------------------------
8-K
---
(a)(1) Financial Statements
--------------------
The following financial statements of the Company are included
in Item 8:
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Earnings for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)(2) Financial Statement Schedules
-----------------------------
The following independent auditors' report and financial
statement schedule for the years ended December 31, 1997, 1996
and 1995 are included in this report following the signatures
and should be read in conjunction with the Consolidated
Financial Statements included in Item 8:
Independent Auditors' Report on Financial Statement Schedule
Schedule II - Consolidated Valuation and Qualifying Accounts
All other financial statement schedules have been omitted
because they are not applicable or the required information is
included in the Company's consolidated financial statements or
notes thereto.
<PAGE> 27
(a)(3) Listing of Exhibits
-------------------
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------
<S> <C> <C>
3(a) Amended and Restated Amendment No. 2 to Registration
Articles of Incorporation Statement on Form S-1, File No. 33-
of Metatec Corporation 60878 (see Exhibit 3(a) therein).
3(b) Amended and Restated By-laws Registration Statement on Form S-1,
of Metatec Corporation File No. 33-60878 (see Exhibit 3(d)
therein).
4 Form of Share Certificate Amendment No. 2 to Registration
Statement on Form S-1, File No.
33-60878 (see Exhibit 4 therein).
10(a)* Metatec Corporation 1990 Registration Statement on Form S-8,
Directors' Stock Option Plan File No. 33-48021 (see Exhibit 4(d)
and Amendment No. 1 thereto therein).
10(b)* Amended and Restated Employment Annual Report on Form 10-K for the
Agreement dated March 23, 1993, fiscal year ended December 31, 1992
between Metatec Corporation and (See Exhibit 10(h) therein).
Jeffrey M. Wilkins
10(c)* First Amendment to Amended Annual Report on Form 10-K for the
and Restated Employment fiscal year ended December 31, 1995
Agreement dated March 21, (See Exhibit 10(c) therein).
1996, between Metatec
Corporation and Jeffrey M.
Wilkins
10(d)* Metatec Corporation 1990 Annual Report on Form 10-K for the
Stock Option Plan fiscal year ended December 31, 1991
(see Exhibit 10(k) therein).
10(e)* Amendment No. 1 to Metatec Registration Statement on Form S-8,
Corporation 1990 Stock Option File No. 33-48022 (see Exhibit 4(d)
Plan therein).
10(f)* Amendment No. 2 to Metatec Annual Report on Form 10-K for the
Corporation 1990 Stock Option fiscal year ended December 31, 1992
Plan (see Exhibit 10(k) therein).
10(g)* Amendment No. 3 to Metatec Annual Report on Form 10-K for the
Corporation 1990 Stock Option fiscal year ended December 31, 1993
Plan (see Exhibit 10(g) therein).
10(h)* Amendment No. 4 to Metatec Annual Report on Form 10-K for the
Corporation 1990 Stock Option fiscal year ended December 31, 1995
Plan (See Exhibit 10(h) therein).
10(i)* Amendment No. 5 to Metatec Contain herein.
Corporation 1990 Stock Option
Plan
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------
<S> <C> <C>
10(j)* Metatec Corporation 1992 Registration Statement on Form S-8,
Directors' Stock Option Plan File No. 33-5200 (see Exhibit 4(c)
therein).
10(k)* Amendment No. 1 to Metatec Annual Report on Form 10-K for the
Corporation 1992 Directors' fiscal year ended December 31, 1993
Stock Option Plan (see Exhibit 10(i) therein).
10(l)* Amendment No. 2 to Metatec Annual Report on Form 10-K for the
Corporation 1992 Directors' fiscal year ended December 31, 1995
Stock Option Plan (see Exhibit 10(k) therein).
10(m)* Amendment No. 3 to Metatec Annual Report on Form 10-K for the
Corporation 1992 Directors' fiscal year ended December 31, 1995
Stock Option Plan (see Exhibit 10(i) therein).
10(n)* Amendment No. 4 to Metatec Annual Report on Form 10-K for the
Corporation 1992 Directors' fiscal year ended December 31, 1996
Stock Option Plan (see Exhibit 10(m) therein).
10(o)* Metatec Corporation 1992 Annual Report on Form 10-K for the
Incentive Compensation Plan fiscal year ended December 31, 1992
(see Exhibit 10(p) therein).
10(p)* Metatec Corporation Directors Contained herein.
Deferred Compensation Plan
10(q) Form of Indemnification Agreement Annual Report on Form 10-K for the
between Metatec Corporation and fiscal year ended December 31, 1992
each of its officers and directors (see Exhibit 10(q) therein).
10(r) Patent License Agreement for Amendment No. 1 to Registration
Disc Products dated July 1, Statement on Form S-1, File No. 33-
1986, between Metatec/ 60878 (see Exhibit 10(t) therein).
Discovery Systems, Inc. and
Discovision Associates
10(s) CD Disc License Agreement Amendment No. 1 to Registration
dated January 1, 1986, Statement on Form S-1, File No. 33-
between U.S. Philips 60878 (see Exhibit 10(u) therein).
Corporation and Metatec/
Discovery Systems, Inc.
10(t) Optical Disc Corporation NPR Amendment No. 1 to Registration
Technology License Agreement Statement on Form S-1, File No. 33-
between Optical Disc Corp- 60878 (see Exhibit 10(v) therein).
oration and Metatec/Discovery
Systems effective March 2,
1992
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------
<S> <C> <C>
10(u) Loan Agreement dated Quarterly Report on Form 10-Q for the
December 31, 1996, between fiscal quarter ended June 30, 1997
Metatec Corporation and The (see Exhibit 10(a) therein).
Huntington National Bank
21 Subsidiaries of Metatec Annual Report on Form 10-K for the
Corporation fiscal year ended December 31, 1993
(see Exhibit 21 therein).
23 Consent of Deloitte & Touche Contained herein.
LLP
24(a) Powers of Attorney for Peter J. Annual Report on Form 10-K for the
Kight, E. David Crockett, and fiscal year ended December 31, 1994
A. Grant Bowen (see Exhibit 24 therein).
24(b) Powers of Attorney for Jerry D. Annual Report on Form 10-K for the
Miller fiscal year ended December 31, 1993
(see Exhibit 24 therein).
24(c) Power of Attorney for James Annual Report on Form 10-K for the
V. Pickett fiscal year ended December 31, 1995
(see Exhibit 24(c) therein).
24(d) Power of Attorney for Joseph Contained herein.
F. Keeler, Jr.
27 Financial Data Schedule Contained herein.
</TABLE>
*Executive compensation plans and arrangements required to be filed pursuant to
Item 601(b)(10) of Regulation S-K.
(b) Reports on Form 8-K
-------------------
The Company did not file any Form 8-K current reports during
the fourth quarter of the Company's year ended December 31,
1997.
(c) Exhibits
--------
The exhibits in response to this portion of Item 14 are
submitted following the signatures.
(d) Financial Statement Schedules
-----------------------------
The financial statement schedule and the independent auditors'
report thereon are submitted following the signatures.
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
METATEC CORPORATION
Date: March 30, 1998 By /s/Jeffrey M. Wilkins
---------------------
Jeffrey M. Wilkins, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Jeffrey M. Wilkins Chairman of the Board, March 30, 1998
- ---------------------------- Chief Executive Officer
Jeffrey M. Wilkins (principal executive
officer) and Director
/s/Gregory T. Tillar President, Chief Operating March 30, 1998
- ---------------------------- Officer and Director
Gregory T. Tillar
/s/Julia A. Pollner Executive Vice President, Secretary, March 30, 1998
- ---------------------------- Treasurer, Chief Financial
Julia A. Pollner Officer (principal
financial officer and principal
accounting officer) and Director
Director March 30, 1998
- ----------------------------
E. David Crockett
Peter J. Kight* Director March 30, 1998
- ----------------------------
Peter J. Kight
Jerry D. Miller* Director March 30, 1998
- ----------------------------
Jerry D. Miller
A. Grant Bowen* Director March 30, 1998
- ----------------------------
A. Grant Bowen
James V. Pickett* Director March 30, 1998
- ----------------------------
James V. Pickett
Joseph F. Keeler, Jr.* Director
- ----------------------------
Joseph F. Keeler, Jr.
</TABLE>
*Jeffrey M. Wilkins, by signing his name hereto, does sign this
document on behalf of the person indicated above pursuant to a Power of Attorney
duly executed by such person.
By /s/ Jeffrey M. Wilkins March 30, 1998
------------------------------------
Jeffrey M. Wilkins, Attorney In Fact
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Metatec Corporation:
We have audited the consolidated financial statements of Metatec Corporation and
subsidiaries as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, and have issued our report thereon dated
February 11, 1998; such report is included elsewhere in this Form 10-K. Our
audits also included the consolidated financial statement schedule of Metatec
Corporation and subsidiaries, listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
March 30, 1998
Columbus, Ohio
<PAGE> 32
METATEC CORPORATION AND SUBSIDIARIES
SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------------------------
CHARGED
BALANCE AT TO COSTS CHARGED TO BALANCE AT
BEGINNING OF AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
<S> <C> <C> <C> <C>
1997
ALLOWANCE FOR DOUBTFUL
ACCOUNTS RECEIVABLE $321,000 $ 7,000 $ 27,000 $301,000
======== ======== ======== ========
1996
ALLOWANCE FOR DOUBTFUL
ACCOUNTS RECEIVABLE $338,000 $124,382 $141,382 $321,000
======== ======== ======== ========
1995
ALLOWANCE FOR DOUBTFUL
ACCOUNTS RECEIVABLE $269,000 $ 86,694 $ 17,694 $338,000
======== ======== ======== ========
</TABLE>
<PAGE> 33
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------
<S> <C> <C>
3(a) Amended and Restated Amendment No. 2 to Registration
Articles of Incorporation Statement on Form S-1, File No. 33-
of Metatec Corporation 60878 (see Exhibit 3(a) therein).
3(b) Amended and Restated By-laws Registration Statement on Form S-1,
of Metatec Corporation File No. 33-60878 (see Exhibit 3(d)
therein).
4 Form of Share Certificate Amendment No. 2 to Registration
Statement on Form S-1, File No.
33-60878 (see Exhibit 4 therein).
10(a)* Metatec Corporation 1990 Registration Statement on Form S-8,
Directors' Stock Option Plan File No. 33-48021 (see Exhibit 4(d)
and Amendment No. 1 thereto therein).
10(b)* Amended and Restated Employment Annual Report on Form 10-K for the
Agreement dated March 23, 1993, fiscal year ended December 31, 1992
between Metatec Corporation and (See Exhibit 10(h) therein).
Jeffrey M. Wilkins
10(c)* First Amendment to Amended Annual Report on Form 10-K for the
and Restated Employment fiscal year ended December 31, 1995
Agreement dated March 21, (See Exhibit 10(c) therein).
1996, between Metatec
Corporation and Jeffrey M.
Wilkins
10(d)* Metatec Corporation 1990 Annual Report on Form 10-K for the
Stock Option Plan fiscal year ended December 31, 1991
(see Exhibit 10(k) therein).
10(e)* Amendment No. 1 to Metatec Registration Statement on Form S-8,
Corporation 1990 Stock Option File No. 33-48022 (see Exhibit 4(d)
Plan therein).
10(f)* Amendment No. 2 to Metatec Annual Report on Form 10-K for the
Corporation 1990 Stock Option fiscal year ended December 31, 1992
Plan (see Exhibit 10(k) therein).
10(g)* Amendment No. 3 to Metatec Annual Report on Form 10-K for the
Corporation 1990 Stock Option fiscal year ended December 31, 1993
Plan (see Exhibit 10(g) therein).
10(h)* Amendment No. 4 to Metatec Annual Report on Form 10-K for the
Corporation 1990 Stock Option fiscal year ended December 31, 1995
Plan (See Exhibit 10(h) therein).
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------
<S> <C> <C>
10(i)* Amendment No. 5 to Metatec Contain herein.
Corporation 1990 Stock Option
Plan
10(j)* Metatec Corporation 1992 Registration Statement on Form S-8,
Directors' Stock Option Plan File No. 33-5200 (see Exhibit 4(c)
therein).
10(k)* Amendment No. 1 to Metatec Annual Report on Form 10-K for the
Corporation 1992 Directors' fiscal year ended December 31, 1993
Stock Option Plan (see Exhibit 10(i) therein).
10(l)* Amendment No. 2 to Metatec Annual Report on Form 10-K for the
Corporation 1992 Directors' fiscal year ended December 31, 1995
Stock Option Plan (see Exhibit 10(k) therein).
10(m)* Amendment No. 3 to Metatec Annual Report on Form 10-K for the
Corporation 1992 Directors' fiscal year ended December 31, 1995
Stock Option Plan (see Exhibit 10(i) therein).
10(n)* Amendment No. 4 to Metatec Annual Report on Form 10-K for the
Corporation 1992 Directors' fiscal year ended December 31, 1996
Stock Option Plan (see Exhibit 10(m) therein).
10(o)* Metatec Corporation 1992 Annual Report on Form 10-K for the
Incentive Compensation Plan fiscal year ended December 31, 1992
(see Exhibit 10(p) therein).
10(p)* Metatec Corporation Directors Contained herein.
Deferred Compensation Plan
10(q) Form of Indemnification Agreement Annual Report on Form 10-K for the
between Metatec Corporation and fiscal year ended December 31, 1992
each of its officers and directors (see Exhibit 10(q) therein).
10(r) Patent License Agreement for Amendment No. 1 to Registration
Disc Products dated July 1, Statement on Form S-1, File No. 33-
1986, between Metatec/ 60878 (see Exhibit 10(t) therein).
Discovery Systems, Inc. and
Discovision Associates
10(s) CD Disc License Agreement Amendment No. 1 to Registration
dated January 1, 1986, Statement on Form S-1, File No. 33-
between U.S. Philips 60878 (see Exhibit 10(u) therein).
Corporation and Metatec/
Discovery Systems, Inc.
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------
<S> <C> <C>
10(t) Optical Disc Corporation NPR Amendment No. 1 to Registration
Technology License Agreement Statement on Form S-1, File No. 33-
between Optical Disc Corp- 60878 (see Exhibit 10(v) therein).
oration and Metatec/Discovery
Systems effective March 2,
1992
10(u) Loan Agreement dated Quarterly Report on Form 10-Q for the
December 31, 1996, between fiscal quarter ended June 30, 1997
Metatec Corporation and The (see Exhibit 10(a) therein).
Huntington National Bank
21 Subsidiaries of Metatec Annual Report on Form 10-K for the
Corporation fiscal year ended December 31, 1993
(see Exhibit 21 therein).
23 Consent of Deloitte & Touche Contained herein.
LLP
24(a) Powers of Attorney for Peter J. Annual Report on Form 10-K for the
Kight, E. David Crockett, and fiscal year ended December 31, 1994
A. Grant Bowen (see Exhibit 24 therein).
24(b) Powers of Attorney for Jerry D. Annual Report on Form 10-K for the
Miller fiscal year ended December 31, 1993
(see Exhibit 24 therein).
24(c) Power of Attorney for James Annual Report on Form 10-K for the
V. Pickett fiscal year ended December 31, 1995
(see Exhibit 24(c) therein).
24(d) Power of Attorney for Joseph Contained herein.
F. Keeler, Jr.
27 Financial Data Schedule Contained herein.
</TABLE>
<PAGE> 1
EXHIBIT 10(i)
AMENDMENT NO. 5
TO
METATEC CORPORATION
1990 STOCK OPTION PLAN
The Metatec Corporation 1990 Stock Option Plan, as previously amended
by Amendment No. 1 dated May 1, 1992, Amendment No. 2 dated February 22, 1993,
Amendment No. 3 dated March 21, 1994, and Amendment No. 4 dated October 26, 1995
(collectively, the "Plan"), is hereby amended pursuant to the following
provisions:
Section 1. Definitions.
All capitalized terms used in this amendment which are not otherwise
defined herein shall have the respective meanings given such terms in the Plan.
Section 2. Nonqualified Options - Termination of Relationship.
Section 5(c)(v) of the Plan is hereby amended to read in its entirety
as follows:
Except as provided in Section 9, below, if the Grantee ceases
to be an officer or employee of the Company or any of its subsidiary
corporations or a director of a subsidiary corporation of the Company
by reason of his death, disability, retirement, resignation,
replacement, or any other reason, then the Nonqualified Option or any
unexercised portion of the Nonqualified Option which otherwise is
exercisable shall terminate unless it is exercised within three months
after the date the Grantee ceases to be such an officer, employee or
director (but in no event after expiration of the original term of the
Nonqualified Option); provided that: (A) if the Grantee ceases to be
such an officer, employee or director by reason of the Grantee's death,
the three-month period shall instead be a one-year period; and (B) the
Committee may at any time, in its discretion, extend the termination
date of any Nonqualified Option for any length of time up to one year
after the date the Grantee ceases to be such an officer, employee or
director (but in no event after the expiration of the original term of
the Nonqualified Option).
Section 3. Effective Date; Construction.
The effective date of this amendment is July 16, 1997, and this
amendment shall be deemed to be a part of the Plan as of such date. In the event
of any inconsistencies between the provisions of the Plan and this amendment,
the provisions of this amendment shall control. Except as modified by this
amendment, the Plan shall continue in full force and effect without change.
<PAGE> 1
EXHIBIT 10(p)
METATEC CORPORATION
DIRECTORS DEFERRED COMPENSATION PLAN
Section 1. Purpose. The purposes of the Metatec Corporation Directors
Deferred Compensation Plan (the "Plan") are to encourage directors of Metatec
Corporation (the "Company") who are not employees of the Company to continue
their service to the Company and to assist the Company in attracting and
retaining highly qualified directors.
Section 2. Definitions. For purposes of the Plan, the following terms
shall have the following meanings, respectively:
"Additions" means the credits applied to Deferred Compensation Accounts
as provided in Section 4 of the Plan.
"Adjustment Date" means December 31 of each Plan Year, beginning with
the second Plan Year.
"Beneficiary" means the person or persons designated in writing as such
and filed with the Company by a Participant at any time pursuant to the Plan.
Any such designation may be withdrawn or changed in writing (without the consent
of the Beneficiary), but only the last designation on file with the Company
shall be effective.
"Board" means the Board of Directors of the Company.
"Deferral Notice" has the meaning set forth in Section 4(b) of the
Plan.
"Deferred Compensation Account" means the separate Deferred
Compensation Account established for each Participant pursuant to Section 4 of
the Plan.
"Effective Date" means February 12, 1998.
"Eligible Compensation" means, to the extent applicable to any
Participant, all Quarterly Fees and all Meeting Fees. The extent to which a
Participant may defer a component of Eligible Compensation shall be based upon
such Participant's eligibility to receive such Eligible Compensation (as
determined under applicable agreements or compensation policies of the Company
from time to time) and the provisions and limitations applicable under the Plan.
Notwithstanding the foregoing, Eligible Compensation shall not include any
compensation for services performed prior to the delivery of an appropriate
Deferral Notice.
"Eligible Director" means any director of the Company who is not an
employee or officer of the Company or any subsidiary of the Company.
"Meeting Fees" means, with respect to any period, the fees for
attendance at meetings of the Board or committees of the Board (exclusive of
payments for reimbursement of expenses) which, absent a deferral election under
the Plan, would be payable to a Participant during such period.
"Participant" has the meaning set forth in Section 3 of the Plan.
"Plan Year" means the calendar year; provided that the initial Plan
Year shall be the period beginning on the Effective Date and ending on December
31, 1998, both dates inclusive, and if the
<PAGE> 2
Plan is terminated on a date other than the last day of a calendar year, the
final Plan Year shall be that portion of such calendar year which ends on the
termination date.
"Quarterly Fees" means, with respect to any period, the fixed fees
which, absent a deferral election under the Plan, would be payable to a
Participant by the Company on a quarterly basis during such period.
Other capitalized terms used in the Plan are defined in other sections
of the Plan and shall have the respective meanings given those terms in such
other sections.
Section 3. Participants. Each Eligible Director shall be eligible for
participation in the Plan. An Eligible Director who elects to make deferrals
pursuant to Section 4 shall be deemed to be a "Participant" under the Plan. A
Participant shall continue to participate in the Plan until his status as a
Participant is terminated by either a complete distribution of his Deferred
Compensation Account pursuant to the terms of the Plan or by written directive
of the Company.
Section 4. Deferred Compensation Accounts.
(a) Establishment of Deferred Compensation Accounts. The Company shall
establish a Deferred Compensation Account for each Participant. Each such
Deferred Compensation Account shall be a bookkeeping account only, maintained as
part of the books and records of the Company.
(b) Election of Participant. With respect to each Plan Year, a
Participant may elect to have a percentage or fixed dollar amount of his
Eligible Compensation for that Plan Year allocated to his Deferred Compensation
Account and paid on a deferred basis pursuant to the terms of the Plan. Any
Eligible Director who desires to be a Participant under the Plan for a Plan Year
must submit to the Company before the beginning of such Plan Year a written
election substantially in the form attached to the Plan as Exhibit A or such
other form as may hereafter be prescribed by the Board from time to time (each,
a "Deferral Notice"). Notwithstanding the preceding sentence: (i) any Eligible
Director may make such an election for the first Plan Year by completing and
delivering to the Company a Deferral Notice at any time during the 30-day period
beginning on the Effective Date; and (ii) an Eligible Director who first becomes
eligible to participate in the Plan after the Effective Date may make such an
election for the then-current Plan Year by completing and delivering to the
Company a Deferral Notice at any time during the 30-day period beginning on the
date on which he first becomes eligible to participate in the Plan; provided
that each Deferral Notice shall apply only to Eligible Compensation payable to
the Participant for services performed after the date on which the Deferral
Notice is received by the Company. To the extent that a Participant completes a
Deferral Notice in accordance with the provisions of this subsection for any
Plan Year, such Deferral Notice shall irrevocably remain in effect for that Plan
Year and shall remain in effect for all subsequent Plan Years until revoked by
the Participant or a new effective Deferral Notice is delivered to the Company
by the Participant.
(c) Allocations. If a Deferral Notice is submitted to the Company in
accordance with Section 4(b), above, then during the applicable Plan Year, the
Company shall allocate to the applicable Participant's Deferred Compensation
Account the percentage or dollar amount of Eligible Compensation specified in
the Deferral Notice.
(d) Adjustment of Account Balances. As of each Adjustment Date, for
each Participant who has a balance in his Deferred Compensation Account, the
Company shall credit such Participant's Deferred Compensation Account with
Additions calculated at an assumed interest rate (the "Assumed Rate") equal to
the average interest rate at which the Company borrowed funds, or had the right
to borrow funds, from a commercial lender during the Plan Year containing that
Adjustment Date (the "Borrowing Rate"), determined by calculating the average of
the respective Borrowing Rates in effect on the first day of each calendar month
during the Plan year; provided that if on the first day of any such calendar
month the Company has no arrangement in place for borrowing funds from a
commercial
<PAGE> 3
lender, then the Borrowing Rate as of that date shall be deemed to be the lesser
of the Prime Rate or the LIBOR Rate (each as defined below) as of that date. The
amount of Additions to be credited to a Participant's Deferred Compensation
Account as of each Adjustment Date shall be determined by multiplying the
Participant's Deferred Compensation Account balance as of the previous
Adjustment Date (i.e., the sum of the amounts previously allocated to the
Deferred Compensation Account under the preceding subsections of this Section 4
and all prior Additions) by the applicable Assumed Rate. The crediting of
Additions shall occur so long as there is a balance in the Participant's
Deferred Compensation Account as of the applicable Adjustment Date regardless of
whether the Participant's service as a director of the Company has terminated.
The Board may prescribe any reasonable method or procedure to account for
Additions.
For purposes of the Plan: (i) the term "Prime Rate" shall mean, as of
any date, the prime commercial rate of interest of The Huntington National Bank,
Columbus, Ohio, as announced by such bank from time to time, which is in effect
as of that date; and (ii) the term "LIBOR Rate" shall mean, as of any date, a
rate of interest which is 1.25% in excess of the rate of interest which is being
offered as of that date by one or more prime banks in the London interbank
market for 30-day deposits of U.S. dollars; provided that if any such
determination date is not a business day, then the Prime Rate and the LIBOR Rate
as of that date shall be deemed to be the Prime Rate and the LIBOR Rate as of
the immediately preceding business day. The Prime Rate and the LIBOR Rate shall
be determined by the Company, in its discretion, and such determinations shall
be binding upon all Participants.
(e) Participant's Rights in Accounts. A Participant's only right with
respect to his Deferred Compensation Account (and amounts allocated thereto)
shall be to receive payments in accordance with the provisions of Section 5 of
the Plan.
Section 5. Payment of Deferred Benefits.
(a) Time of Payment. Distribution of a Participant's Deferred
Compensation Account shall commence within 30 days of the date of the
Participant's termination of service as a Director, whether due to resignation,
retirement, death, or otherwise.
(b) Method of Distribution. A Participant must elect in the applicable
Deferral Notice to have his Deferred Compensation Account distributed to the
Participant either in a single lump sum payment or, if the Deferred Compensation
Account exceeds $25,000 at the time distribution commences, in substantially
equal annual installments over a period of not more than 10 years. Each such
election shall be irrevocable. To the extent that a Deferred Compensation
Account is distributed in installment payments, the undisbursed portions of such
account shall continue to be credited with Additions in accordance with the
applicable provisions of Section 4(d), which Additions shall be paid with the
annual installment payments. In addition, if, as of any Adjustment Date, the
amount allocated to a Participant's Deferred Compensation Account is less than
$1,000, the Company may elect to pay such amount to the Participant and reduce
the balance of his Deferred Compensation Account to zero. A Participant may
elect different methods of distribution for the separate portions of his
Deferred Compensation Account relating to each separate Deferral Notice, if
applicable; provided that (i) a Participant shall not be able to modify the
method of distribution for any portion of his Deferred Compensation Account
after the related Deferral Notice is submitted to the Company; and (ii) the
$25,000 threshold described above with respect to installment payments shall
apply to each such separate election made by a Participant, if applicable. All
distributions of a Participant's Deferred Compensation Account shall be made in
cash.
(c) Hardship Distributions. Prior to the time a Participant's Deferred
Compensation Account becomes payable, the Company, in its sole discretion, may
elect to distribute all or a portion of such account in the event such
Participant requests a distribution due to severe financial hardship. For
purposes of this Plan, severe financial hardship shall be deemed to exist in the
event the Board determines, in its sole discretion, that a Participant needs a
distribution to meet immediate and serious
<PAGE> 4
financial needs resulting form a sudden or unexpected illness or accident of the
Participant or a member of the Participant's family, loss of the Participant's
property due to casualty, or other extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant. A
distribution based on financial hardship shall not exceed the amount required to
meet the financial need created by the hardship and shall be made in cash.
(d) Designation of Beneficiary. After the death of a Participant, his
Deferred Compensation Account shall be paid to the Beneficiary designated by the
Participant. If there is no designated Beneficiary or no designated Beneficiary
surviving at a Participant's death, payment of the Participant's Deferred
Compensation Account shall be made to the Participant's estate. The Company may
elect, in its sole discretion, to make such payment in a lump sum or in
substantially equal annual installments over a period of not more than the
shorter of (i) 10 years, or (ii) if the Company had previously commenced annual
installment payments to the Participant, the number of years remaining in that
payment schedule.
(e) Taxes. In the event any taxes are required by law to be withheld or
paid from any payments made pursuant to the Plan, the Company shall have the
right to withhold such amounts from such payments.
(f) Risk of Forfeiture. Notwithstanding any provision of the Plan to
the contrary, a Participant's right to receive payment of his entire Deferred
Compensation Account (or the right to receive any future payments, if payment of
such Account has commenced) shall be forfeited automatically if he: (a) resigns
his position as a director of the Company and at any time during the one-year
period following such resignation becomes a director of any of the Company's
competitors; (b) is nominated and elected to serve as a director of the Company,
but, for reasons other than family or personal health considerations, declines
to serve in such capacity; or (c) he is removed as a director of the Company.
Section 6. Assignment or Alienation. The right of a Participant,
Beneficiary or any other person to any payments under this Plan may not be
assigned, transferred, pledged or encumbered except by will or by the laws of
descent and distribution.
Section 7. Plan Administration. The Plan shall be administered by the
Board, which shall have the right to interpret and construe the Plan and to
determine all questions of eligibility and status, rights and benefits of
Participants and all other persons claiming benefits under the Plan, and all
provisions of the Plan and all Deferral Notices. In all cases, the Board's
determination shall be final and binding upon all parties. The Board shall have
absolute discretion in administering the Plan.
Notwithstanding the preceding paragraph of this section: (a) no
Participant shall have the right to participate in any decision of the Board (or
any committee thereof) affecting or relating to any then-existing interest of
that Participant under the Plan, other than a decision to terminate the Plan or
to amend the Plan; and (b) the Board may delegate to any committee of the Board,
or to the Chairman of the Board or any other officer of the Company, any or all
of the Board's authority under the Plan, including without limitation the
Board's authority under this section, and in the event of any such delegation,
the committee or officer, as the case may be, shall have all rights, powers, and
authority of the Board with respect to the matters so delegated.
Section 8. Unsecured and Unfunded Obligation. Notwithstanding any
provisions of the Plan to the contrary, the Company's obligations under the Plan
shall constitute unfunded, unsecured promises by the Company to make the
payments provided for in the Plan. No provision shall at any time be made with
respect to segregating any assets of the Company for payment of any amounts
under the Plan. No Participant, Beneficiary or any other person shall have any
interest in any particular assets of the Company by reason of the right to
receive a payment under the Plan and any such Participant, Beneficiary or other
person shall have only the rights of a general unsecured creditor of the Company
<PAGE> 5
with respect to any rights under the Plan. Nothing contained in the Plan shall
constitute a guaranty by the Company or any other entity or person that the
assets of the Company shall be sufficient to pay any benefit hereunder.
Section 9. No Enlargement of Rights. Neither the Plan nor any
participation in the Plan shall confer on any Eligible Director any right to
continue as a director of the Company, nor restrict or interfere with any rights
of the shareholders of the Company to terminate such directorship.
Section 10. Amendment and Termination of the Plan. The Plan may be
amended at any time and from time to time, by a resolution of the Board, in any
manner which it deems desirable, provided that no amendment shall adversely
affect the accrued benefits of any Participant under the Plan. In addition, the
Plan may be terminated at any time, by a resolution of the Board, without
providing any advance notice to any Participant, and in the event of termination
of the Plan, the Company shall have the right to distribute all amounts then
allocated to the Participants' Deferred Compensation Accounts.
Section 11. Genders and Numbers. When permitted or required by the
context, each pronoun used in the Plan includes the same pronoun in other
genders and numbers, and each noun used in the Plan includes the same noun in
other numbers.
Section 12. Incapacity of Recipient. If a Participant or Beneficiary is
declared incompetent and a guardian, conservator or other person legally charged
with the care of his person or of his estate is appointed, any benefits under
the Plan to which such Participant or Beneficiary is entitled shall be paid to
such guardian, conservator or other person legally charged with the care of his
person or his estate. Except as provided above, when the Company, in its sole
discretion, determines that a Participant or Beneficiary is unable to manage his
financial affairs, the Company may, but shall not be required to, make
distributions to any one or more of the spouse, lineal ancestors or descendants
or other closest living relatives of such Participant or Beneficiary who
demonstrates to the satisfaction of the Company the propriety of making such
distributions. Any payment made under this section shall be in complete
discharge of any liability under the Plan for such payment. The Company shall
not be required to see to the application of any such distribution made to any
person.
Section 13. Effective Date; Governing Law. The Plan, which is effective
as of the Effective Date, shall be construed in accordance with and governed by
the laws of the State of Ohio.
<PAGE> 6
Exhibit A
METATEC CORPORATION
DIRECTORS DEFERRED COMPENSATION PLAN
DEFERRAL NOTICE
1. Election. In accordance with the provisions of the Metatec Corporation
Directors Deferred Compensation Plan (the "Plan"), I hereby elect to
defer _______ percent or $___________ of the Eligible Compensation (as
defined in the Plan) payable to me for services as a Director of
Metatec Corporation (the "Company") for the Plan Year ____ (as defined
in the Plan). This election supersedes any prior deferral election made
by me under the Plan and shall remain in effect for subsequent Plan
Years until terminated or a new deferral election is made pursuant to
the Plan.
2. Method of Payment. Subject to the provisions of the Plan and the
following paragraph of this section 2, I hereby elect to receive the
distribution of my Deferred Compensation Account (as defined in the
Plan) in the following form of payment:
______ A single lump sum payment, or
______ Substantially equal annual installments over a period of
_____ years (not to exceed 10).
I understand that, in the event that my Deferred Compensation Account
balance at the time that I am eligible for a distribution under the
Plan is $25,000 or less, I shall automatically receive distribution of
my entire Deferred Compensation Account in a single lump sum payment.
Further, I acknowledge that my Deferred Compensation Account is subject
to complete forfeiture pursuant to Section 5(f) of the Plan.
3. Designation of Beneficiary. I hereby designate ____________________ as
my primary Beneficiary (as defined in the Plan) and ___________________
as my contingent Beneficiary(ies) to receive any amounts payable under
the Plan in the event of my death.
4. Acknowledgement. I hereby acknowledge receipt of a copy of the Plan and
that my election to defer Eligible Compensation under the Plan is
irrevocable with respect to amounts which are deferred under the Plan.
5. Successor. The Plan and this deferral notice shall be binding upon me,
the Beneficiaries designated above, and my heirs, personal
representatives, successors and assigns.
Date: , 199
--------------- - ------------------------------
Signature
------------------------------
Printed Name
<PAGE> 1
EXHIBIT 23
Consent of DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-48021, No. 33-52700, No. 33-80172, No. 33-84022, No. 33-71080, No. 33-80170,
No. 333-3125 and No. 333-31027 on Form S-8 and Registration Statement No.
333-3123 on Form S-3 of Metatec Corporation of our reports dated February 11,
1998, included and incorporated by reference in this Annual Report on Form 10-K
of Metatec Corporation for the year ended December 31, 1997.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
March 30, 1998
Columbus, Ohio
<PAGE> 1
EXHIBIT 24(d)
Power of Attorney for Joseph F. Keeler, Jr.
Know all men by these presents that the undersigned director of Metatec
Corporation, a Florida corporation (the "Company"), hereby constitutes and
appoints Jeffrey M. Wilkins and Julia A. Pollner, and each of them (with full
power to each of them to act along), as my true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for me and in my
name, place, and stead, in my capacity as director of the Company, to execute
the Company's Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Company's fiscal year ended December 31,
1997, and for each fiscal year thereafter, and any amendments thereto, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them or their or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
/s/ J.F. Keeler, Jr. Director
- ------------------------------ ------------------------------
Signature Position(s) with the Company
J.F. Keeler, Jr.
- ------------------------------
Print Name
February 4, 1998
- ------------------------------
Date of Execution
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEET DATED AS OF DECEMBER 31, 1997, AND ITS CONSOLIDATED
STATEMENT OF OPERATIONS, CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY, AND
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997, WHICH
FINANCIAL STATEMENTS ARE INCLUDED IN ITEM 8 OF THIS REPORT, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,381,057
<SECURITIES> 0
<RECEIVABLES> 7,516,178
<ALLOWANCES> 301,000
<INVENTORY> 1,155,519
<CURRENT-ASSETS> 10,805,642
<PP&E> 59,290,873
<DEPRECIATION> 20,661,867
<TOTAL-ASSETS> 52,871,893
<CURRENT-LIABILITIES> 5,784,430
<BONDS> 5,893,410
0
0
<COMMON> 710,848
<OTHER-SE> 40,483,205
<TOTAL-LIABILITY-AND-EQUITY> 52,871,893
<SALES> 48,933,634
<TOTAL-REVENUES> 48,933,634
<CGS> 33,815,791
<TOTAL-COSTS> 47,996,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,000
<INTEREST-EXPENSE> 73,740
<INCOME-PRETAX> 1,040,534
<INCOME-TAX> 549,000
<INCOME-CONTINUING> 491,534
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 491,534
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 185,027 574,282 480,398
<SECURITIES> 0 0 0
<RECEIVABLES> 6,310,358 5,649,147 5,333,508
<ALLOWANCES> 297,000 291,000 291,000
<INVENTORY> 928,272 850,620 962,450
<CURRENT-ASSETS> 8,335,808 7,671,727 7,745,775
<PP&E> 59,959,027 59,685,140 56,809,477
<DEPRECIATION> (20,166,748) (18,958,206) (17,208,232)
<TOTAL-ASSETS> 51,685,222 52,072,518 51,139,741
<CURRENT-LIABILITIES> 5,977,136 6,251,526 5,153,477
<BONDS> 3,157,287 1,426,592 1,450,896
0 0 0
0 0 0
<COMMON> 710,369 708,026 707,630
<OTHER-SE> 41,840,430 43,686,374 43,827,738
<TOTAL-LIABILITY-AND-EQUITY> 51,685,222 52,072,518 51,139,741
<SALES> 35,577,371 23,686,507 11,678,574
<TOTAL-REVENUES> 35,577,371 23,686,507 11,678,574
<CGS> 24,557,702 16,068,909 8,052,587
<TOTAL-COSTS> 35,135,230 23,354,544 11,972,122
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> (8,000) 2,000 2,000
<INTEREST-EXPENSE> 29,852 11,639 2,184
<INCOME-PRETAX> 472,251 300,017 (324,011)
<INCOME-TAX> 257,000 136,500 (120,000)
<INCOME-CONTINUING> 215,251 163,517 (204,011)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 215,251 163,157 (204,011)
<EPS-PRIMARY> 0.03 0.02 (0.03)
<EPS-DILUTED> 0.03 0.02 (0.03)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEET DATED AS OF DECEMBER 31, 1996, AND ITS CONSOLIDATED
STATEMENT OF OPERATIONS, CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY, AND
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996, WHICH
FINANCIAL STATEMENTS ARE INCLUDED IN ITEM 8 OF THIS REPORT, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 2,214,755 4,505,284 5,930,492 6,954,138
<SECURITIES> 0 0 0 0
<RECEIVABLES> 7,031,596 5,563,219 5,903,030 5,782,977
<ALLOWANCES> 321,000 312,000 335,000 311,000
<INVENTORY> 948,738 991,796 802,773 951,219
<CURRENT-ASSETS> 10,832,021 11,498,574 13,109,014 14,221,908
<PP&E> 53,360,103 49,833,174 45,553,796 43,151,665
<DEPRECIATION> 15,584,018 (14,571,572) (12,949,551) (11,344,966)
<TOTAL-ASSETS> 52,517,477 50,788,055 49,859,792 50,291,693
<CURRENT-LIABILITIES> 5,916,581 4,431,957 3,767,075 4,975,703
<BONDS> 1,335,105 1,215,270 1,095,135 960,999
0 0 0 0
0 0 0 0
<COMMON> 707,336 706,927 706,799 705,924
<OTHER-SE> 44,558,455 44,433,901 44,290,783 43,649,067
<TOTAL-LIABILITY-AND-EQUITY> 52,517,477 50,788,055 49,859,792 50,291,693
<SALES> 46,150,105 33,984,238 23,179,472 12,204,455
<TOTAL-REVENUES> 46,150,105 33,984,238 23,179,472 12,204,455
<CGS> 29,543,583 21,307,560 13,994,434 7,026,496
<TOTAL-COSTS> 43,002,595 31,305,508 20,638,796 10,498,501
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 124,382 114,000 134,000 95,000
<INTEREST-EXPENSE> 18,676 16,193 5,473 2,789
<INCOME-PRETAX> 3,398,728 2,903,678 2,683,198 1,749,731
<INCOME-TAX> 1,358,000 1,179,000 1,090,000 706,000
<INCOME-CONTINUING> 2,040,728 1,724,678 1,593,198 1,043,731
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 2,040,728 1,724,678 1,593,198 1,043,731
<EPS-PRIMARY> .29 .25 .23 0.15
<EPS-DILUTED> .29 .25 .23 0.15
</TABLE>
