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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 0-21200
MERIDIAN DATA, INC.
(Exact name of registrant as specified in its charter)
California 77-0188708
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5615 Scotts Valley Drive, California 95066
- ------------------------------------ -----
(Address of principal executive office) (Zip Code)
(408) 438-3100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding in 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 .
The number of shares of Common Stock, no par value, outstanding on May 15, 1997,
was 9,317,383.
Exhibit index on page 16. Page 1 of 18
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MERIDIAN DATA, INC.
BALANCE SHEETS
March 31, December 31,
(In thousands) 1997 1996
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ASSETS (unaudited)
Current assets:
Cash and cash equivalents $20,348 $24,809
Marketable securities 19,181 14,340
Accounts receivable (net of allowance
for returns and doubtful accounts of
$799 and $512, respectively) 1,504 2,991
Inventories 1,327 1,311
Other assets 55 324
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Total current assets 42,415 43,775
Property and equipment,
less accumulated depreciation 628 653
Other assets 16 817
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$43,059 $45,245
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,995 $ 1,632
Accrued payroll and related expenses 1,082 686
Accrued advertising and promotion 303 506
Other accrued liabilities 1,682 1,191
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Total current liabilities 5,062 4,015
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Shareholders' equity:
Common stock 69,656 69,578
Unrealized gains (loss)on marketable securities (7) 5
Accumulated deficit (31,652) (28,353)
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Total shareholders' equity 37,997 41,230
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$43,059 $45,245
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The accompanying notes are an integral part of these financial statements.
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MERIDIAN DATA, INC.
STATEMENT OF OPERATIONS
Three months ended March 31,
(In thousands, except per share data, unaudited) 1997 1996
- --------------------------------------------------------------------------------
Revenues:
Product sales $ 3,009 $ 7,062
Costs and expenses:
Cost of product sales 1,728 3,167
Research and development 1,853 751
Sales and marketing 2,292 1,764
General and administrative 952 532
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Total costs and expenses 6,825 6,214
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Income (loss) from operations (3,816) 848
Interest income 517 221
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Income (loss) before income taxes (3,299) 1,069
Provision for income taxes - (56)
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Net income (loss) $(3,299) $ 1,013
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Net income (loss) per share $ (0.34) $ 0.12
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Weighted average common shares and
common stock equivalents 9,609 8,706
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The accompanying notes are an integral part of these financial statements.
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MERIDIAN DATA, INC.
STATEMENTS OF CASH FLOWS
Three months ended March 31,
(In thousands, unaudited) 1997 1996
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Cash flows from operating activities:
Net income (loss) $ (3,299) $ 1,013
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Compensation expense related to stock options
issued below market value 6 -
Depreciation and amortization 127 82
Amortization of advance for research and
development arrangements 800 -
Changes in assets and liabilities:
Accounts receivable 1,487 80
Inventories (16) 435
Other assets 270 (138)
Accounts payable 363 (664)
Accrued payroll and related expenses 396 (283)
Other accrued liabilities 288 22
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Net cash provided by operating activities 422 547
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Cash flows from investing activities:
Purchases of property and equipment (102) (127)
Redemption of marketable securities 6,998 8,275
Additions to marketable securities (11,851) (9,239)
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Net cash used in investing activities (4,955) (1,091)
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Cash flows from financing activities:
Issuance of common stock related to stock plans 72 124
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Net decrease in cash and cash equivalents (4,461) (420)
Cash and cash equivalents at:
beginning of period 24,809 11,752
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end of period $ 20,348 $11,332
======= ======
Statement of cash flows supplemental disclosure:
Total cash paid for interest during the period $ 4 $ 3
Total cash paid for taxes during the period 29 39
The accompanying notes are an integral part of these financial statements.
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MERIDIAN DATA, INC.
NOTES TO FINANCIAL STATEMENTS For
The Three Months Ended March 31, 1997, and March
31, 1996
NOTE 1. GENERAL
The accompanying financial information is unaudited, but, in the opinion of
management, reflects all adjustments (which include only normally recurring
adjustments) necessary to present fairly the Company's financial position as of
the dates indicated and the results of operations for the periods then ended.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. While the Company believes that the
disclosures are adequate to make the information presented not misleading, the
financial information should be read in conjunction with the audited financial
statements, and notes thereto for the year ended December 31, 1996 included in
the Company's Annual Report on Form 10-K. Results for the interim period are not
necessarily indicative of the results for the entire year.
NOTE 2. INCOME TAXES
The Company made no provision for income taxes in the first quarter of 1997 due
to a net operating loss. The Company's effective tax rate for the first quarter
of 1996 was approximately 5%. This rate was lower than the expected statutory
rate due to the utilization of net operating loss carryforwards. The Company's
tax liability in the first quarter of 1996 resulted from federal and state
alternative minimum taxes.
NOTE 3. INVENTORIES CONSIST OF THE FOLLOWING (IN THOUSANDS):
March 31, 1997 December 31, 1996
(unaudited)
Raw materials $ 827 $ 885
Work-in-process 500 426
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$1,327 $1,311
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NOTE 4. RESEARCH AND DEVELOPMENT ARRANGEMENT:
In November 1996, the Company entered into an agreement with a
development stage company ("DSC") to partially fund the development of a media
independent software search technology. As envisioned, the product would allow
searches of textual, audio, and video data stored on corporate intranets, the
Internet, or such possible future media such as digital video disc's ("DVD's").
As part of this agreement, Meridian loaned $1 million (the "Loan") to DSC at an
annual rate of 5.96%, due in August of 1997, which was recorded in other assets
at December 31, 1996. In return, the Company received warrants exercisable for
the common stock of DSC, the right to license DSC's software technology, and a
security interest in DSC's technology. As another condition of the Loan to DSC,
Gianluca U. Rattazzi, President and CEO of Meridian Data, Inc. was elected to
the Board of Directors of DSC. In the fourth quarter of 1996, the Company
reduced the carrying value of this Loan by $0.2 million, which represented
Meridian's estimate of the realizability of the Loan at December 31, 1996. At
March 31, 1997, the carrying value of the Loan was reduced by an additional $0.8
million, which reflects Meridian's current estimate of the realizability of the
Loan. This charge was recorded as research and development expense. The Company
does not recognize any interest income from the Loan and Meridian is under no
obligation to advance additional funds to DSC.
NOTE 5. PRO FORMA EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Boards issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (the "Statement").
This statement is effective for the Company's fiscal year ending December 31,
1997. The Statement redefines earnings per share under generally accepted
accounting principles. Under the new standard, primary earnings per share is
replaced by basic earnings per share and fully diluted earnings per share.
There is no material difference between reported earnings (loss) per share in
the statement of operations and what would have been reported had the Company
adopted the Statement for the periods ended March 31, 1997 and 1996.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Meridian provides CD-ROM networking software and systems that enable
multiple users on a network to simultaneously access CD-ROM titles from their
desktops. The Company's software supports a broad array of personal computer and
network operating systems and provides access to networked CD-ROMs in
heterogeneous environments. In addition, to meet customer demands for integrated
solutions, Meridian provides systems containing the Company's networking
software and CD-ROM servers configured by Meridian from third party components.
Because the Company generally ships its software and systems within a
short period after receipt of an order, the Company typically does not have a
material backlog of unfilled orders, and total revenues in any quarter are
substantially dependent on orders booked in that quarter. The Company's
quarterly operating results may also vary significantly depending on other
factors, such as: price and other forms of competition; seasonality; the
introduction of new products by the Company's competitors; market acceptance of
new products; mix of software and systems sales; the long and complex sales
cycle for site licenses; the timing of site license revenue; adoption of new
technologies and standards; the cost, quality and availability of third party
components used in the Company's systems; changes in the Company's distribution
arrangements; and the inability of the Company to accurately monitor end-user
demand for its products due to the sale of products through distributors and
value-added resellers ("VARs"). In 1996, identifiable sales to federal
governmental agencies accounted for approximately 11% of the Company's product
sales, and the Company anticipates that such sales will continue to account for
a significant percentage of the Company's revenues for the foreseeable future.
In the event that there is any reduction or deferral in spending by such
governmental agencies, the Company's quarterly results may be adversely
affected. Moreover, the Company's business has experienced and is expected to
continue to experience seasonality in the form of higher sales for its products
during the quarters ending in September and December and weaker sales during the
quarters ending in March and June. The Company's operating results will also be
affected by the economic condition of the personal computer industry, which has
from time to time experienced cyclical, depressed business conditions, often in
connection with or in anticipation of a decline in general economic conditions.
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties, including, without limitation, risks disclosed under the caption
"Risk Factors" beginning on page 9 of this report; and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements.
RESULTS OF OPERATIONS
REVENUES
PRODUCT SALES
Product sales in the first quarter of 1997 decreased by $4.0 million,
or 57%, over the corresponding period of 1996. The Company's sales in the first
quarter of 1997 were adversely impacted by price competition, the transition
from 6X CD-ROM systems to 12X systems, and lower overall prices on Meridian's
products. In the past, when the Company was faced with a drive speed transition,
Meridian's strategy was to promote those products, typically by way of
discounts, through its distribution channel. In order to regain the Company's
competitive position, management decided to quickly stock rotate the existing 6X
inventory, thus allowing Meridian to concentrate on the new line of high
performance systems introduced in the first quarter. Pricing is very aggressive
in the Company's industry, and the Company expects pricing pressures to continue
through 1997. In response to this heightened competitive environment, Meridian
increased promotional spending and, in late January, reduced prices on its
systems by approximately 30%. The markets for the Company's products are
extremely competitive, and the Company expects that competition will continue to
increase as existing competitors consolidate, change and expand their product
offerings.
For a discussion of certain other risks that may affect the Company's
future product sales, see "Risk Factors-Operating losses; Fluctuations in
Quarterly Operating Results," "-Rapid Technological Change;-Potential for
Product Defects" and "-Emerging Markets; Product Concentration."
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COST AND EXPENSES
COST OF SALES
The Company's gross margin decreased from 55% in the first quarter of
1996 to 42% in the first quarter of 1997. This decrease was generally due to
lower prices on Meridian's CD-ROM networking systems, return of 6X products, and
lower unit volume against a higher fixed manufacturing costs. As a result of the
price decrease, the Company's gross margins in 1997 will fall below the gross
margins reported for the comparable periods of 1996.
For a discussion of certain other risks that may affect the Company's
future cost of product sales, see "Risk Factors-Dependence on Third party
Suppliers" and "-Expansion of International Operations; Foreign Currency
Fluctuations."
RESEARCH AND DEVELOPMENT
Total research and development expense increased from $751,000 in the
first quarter of 1996 to $1.8 million for the first quarter of 1997. This
increase was due primarily to charges related to a loan made in the fourth
quarter of 1996 (see below), expenses related to new product development, and
personnel assigned to developing Meridian's recently announced products.
In November 1996, the Company entered into an agreement with a
development stage company ("DSC") which is developing a media independent
software search technology. As envisioned, the product would allow searches of
textual, audio, and video data stored on corporate intranets, the Internet, or
such possible future media such as digital video disc's ("DVD's"). As part of
this agreement, Meridian loaned $1 million (the "Loan") to DSC. In the fourth
quarter of 1996, the Company reduced the carrying value of this Loan by $0.2
million. In the first quarter of 1997, the carrying value of the Loan to DSC was
reduced by an additional $0.8 million, which reflects Meridian's estimate of the
realizability of the Loan of DSC. Meridian is under no obligation to advance
additional funds to DSC. The Company may from time to time make additional
investments in other research and development stage companies which possess
technology complementary to those of Meridian or may license such technology.
The costs of such investments or license may be charged to research and
development.
Meridian recently introduced four new products to solidify the
Company's position as a one stop shop for CD-ROM networking solutions. The first
was a line of ultra-performance CD-ROM networking solutions, providing 12X
performance at 6X prices. In March, the Company announced two products, CD Net
Remote and CD Net Universal. CD Net Remote is a network appliance that
automatically recognizes, configures and provides network access to CD-ROM
drives located on a Novell network. CD Net Universal is a fully loaded, CD-ROM
server that addresses one of the fastest growing segments of the CD-ROM
networking market, protocol independent, entry level, plug-and-play network
servers. Finally, in early April, the Company announced the CD Net Ultimate
product line. These products are targeted at the high-end users who require
extremely rapid access speeds, and are ideal for running multimedia applications
in a networking environment.
The Company believes that due to CD-ROM server hardware increasingly
becoming a commodity item, it is difficult to create a significant competitive
advantage solely through hardware development. As such, the Company devotes
substantially all of its engineering resources towards software development. The
Company's inability to anticipate and respond to technological and market
changes or the Company's failure to incorporate new technologies in a timely
manner could have a material adverse effect on the Company's business. In
addition, there can be no assurance that Meridian's research and development
efforts will result in the introduction of new products or that any of such
products, if developed, will be commercially successful. For a discussion of
certain other risks that may relate to the Company's research and development,
see "Risk Factors-Rapid Technological Change; Potential for Product Defects."
SALES AND MARKETING
Sales and marketing expense increased from $1.8 million in the first
quarter of 1996 to $2.3 million in the first quarter of 1997. This increase was
due to higher advertising, costs incurred in developing new channel marketing
programs, and expanding channel support programs. For the preceding reasons, the
Company anticipates that sales and marketing expenses will increase in the
future both in absolute dollars and as a percent of sales. Sales and marketing
expense consists primarily of payroll and related expense (including
commissions), and advertising related expenses. For a discussion of certain
other risks that may relate to the Company's sales and marketing, see "Risk
Factors-Dependence on Third Party Distributors" and "-Emerging Markets; Product
Concentrations."
GENERAL AND ADMINISTRATIVE
General and administrative expense increased from $532,000 in the first
quarter of 1996 to $952,000 for the corresponding period of 1997. This increase
was primarily due to legal expenses incurred in connection with the Company's
proposed reincorporation in Delaware, higher compensation expense, and
miscellaneous other corporate expenses. General and administrative expenses
consist primarily of payroll, payroll related expenses, and occupancy expenses.
INTEREST INCOME
Interest income increased from $221,000 in the first quarter of 1996 to
$517,000 for the corresponding period of 1997. This increase was due to higher
invested balances. Future interest increases will vary depending on the average
invested balance and interest rates.
INCOME TAXES
The Company made no provision for income taxes in the first quarter of
1997 due to a net operating loss. The Company's effective tax rate for the first
quarter of 1996 was approximately 5%. This rate was lower than the expected
statutory rate due to the utilization of net operating loss carry forwards. The
Company's tax liability in the first quarter of 1996 resulted from federal and
state alternative minimum taxes.
CAPITAL RESOURCES AND LIQUIDITY
Meridian's cash flow from operations for the first three months of 1997
was adversely impacted by the net loss of $3.3 million. This loss was offset by
a reduction in accounts receivable, an increase in accrued liabilities and
expenses, and noncash depreciation and amortization charges. At March 31, 1997,
the Company's principal source of liquidity consisted of cash and marketable
securities totaling $39.5 million. Meridian believes that its current cash
and marketable securities will satisfy its working capital and capital
expenditures at least through the first quarter of 1998.
Meridian believes that success in its industry requires substantial
capital in order to maintain the flexibility to take advantage of opportunities
as they may arise. The Company may, from time to time, as market and business
conditions warrant, invest in or acquire complementary businesses, products or
technologies. The costs of such investments could be charged to expense. Such
investment or acquisitions may be funded by internally generated cash,
marketable securities, or additional equity. The sale of additional equity would
result in dilution in the equity ownership of the Company's shareholders.
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RISKS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION
TO THE OTHER INFORMATION PRESENTED IN THIS REPORT. THIS REPORT CONTAINS FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD
LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE
NOT LIMITED TO, THE FOLLOWING RISK FACTORS.
OPERATING LOSSES; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company
fundamentally changed its business in December 1994 with the purchase of
Meridian Data, Inc. During 1994, the Company exited its prior business and
product line, which had generated substantial losses. In the first half of 1995,
the Company incurred an operating loss, excluding certain non-recurring revenue.
Although the Company has operated profitably until the first quarter of 1997,
there can be no assurance that profitable operations will return. In late 1996
and early 1997, the Company made several decisions to address the disappointing
systems revenue growth experienced in the last three quarters of 1996. Late in
the fourth quarter of 1996, Meridian increased its sales and promotional
expenditures and at the end of January 1997 significantly reduced system prices
due to competitive pressures. The Company believes that it will be at least
several months at a minimum before any positive revenue results from these
actions will become evident, if at all. As a result, the Company anticipates
that its earnings for at least the first half of 1997 will be below those of
1996, and there can be no assurance that earnings will improve thereafter.
Because the Company generally ships its software and systems within a short
period after receipt of an order, the Company typically does not have a material
backlog of unfilled orders, and total revenues in any quarter are substantially
dependent on orders booked in that quarter. This may result in quarterly
fluctuations in revenue, and the inability to adjust expenses to match such
quarterly revenue, which may lead to substantial fluctuations in net operating
results. The Company's quarterly operating results may also vary significantly
depending on other factors, including the introduction of new products by the
Company's competitors; market acceptance of new products; mix of software and
systems sales; the long and complex sales cycle for site licenses; the timing of
site license revenue; adoption of new technologies and standards; price and
other forms of competition; the cost, quality and availability of third party
components used in the Company's systems; changes in the Company's distribution
arrangements; and the inability of the Company to accurately monitor end user
demand for its products due to the sale of products through distributors and
value-added resellers. In 1996, identifiable sales to federal governmental
agencies accounted for approximately 11% of the Company's product sales, and the
Company anticipates that such sales will continue to account for a significant
percentage of the Company's revenues for the foreseeable future. In the event
that there is any reduction or deferral in spending by such governmental
agencies, the Company's quarterly results may be adversely affected. Similarly,
if such government agencies reduced their purchases of Meridian products in
favor of those of its competitors, the Company's quarterly results may be
adversely affected. Moreover, the Company's business has experienced and is
expected to continue to experience seasonality in the form of higher sales for
its products during the quarters ending in September and December and weaker
sales during the quarters ending in March and June. The Company's operating
results will also be affected by the economic condition of the personal computer
industry, which has from time to time experienced cyclical, depressed business
conditions, often in connection with or in anticipation of a decline in general
economic conditions. In the second quarter of 1996, the Company sold two site
licenses totaling approximately $330,000. Meridian will attempt to sell
additional site licenses, but there can be no assurance that such licenses will
be successfully sold. In addition, due to the long and complex sales cycle for
site licenses, the future timing of such revenue or its actual realization can
not be predicted. The failure to sell additional site licenses in future
quarters could adversely affect the Company's product sales and gross margin.
Due to all of the foregoing factors, the Company's total revenues or operating
results may in one or more future quarters be below the expectations of stock
market analysts and investors. In such event, the price of the Company's Common
Stock would likely decline, perhaps substantially. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON THIRD PARTY DISTRIBUTORS. The Company derives substantially all of
its product sales through distributors and VARs. Two distributors accounted for
25% and 18%, respectively, of the Company's 1996 product sales. The loss of
either of these distributors, or certain other distributors or VARs, would have
a material adverse effect on the Company's business and results of operations.
The Company's contractual relationships with its distributors and VARs can
generally be canceled upon notice to the Company. Certain of the Company's
distributors and VARs also act as distributors for competitors of the Company
and could devote greater effort and resources to marketing competitive products.
In addition, effective distributors and VARs must devote significant technical,
marketing and sales resources to an often lengthy sales cycle. There can be no
assurance that the Company's current distributors and VARs will continue to
market the Company's products effectively or that economic or industry
conditions will not adversely affect such distributors and VARs. Because the
Company sells a significant portion of its products through distributors and
VARs, it is difficult for the Company to monitor end user demand for its
products on a current basis. Initial stocking orders may not be indicative of
long-term end user demand. The Company's distributors typically are allowed by
contract to return products, subject to certain limitations, without charge or
penalty. While the Company provides for a reserve for future returns, there can
be no assurance that the reserve will adequately cover actual product returns.
Excessive or unanticipated returns could materially adversely affect the
Company's business, liquidity, or results of operations. The Company's results
of operations could also be materially adversely affected by changes in
distributors' inventory strategies, which could occur rapidly, and in many cases
may not be related to end user demand. New products may require different
marketing, sales and distribution strategies than those for the Company's
current products. There can be no assurance that the Company's distributors and
VARs will choose or be able to effectively market these new products or to
continue to market the Company's existing products. A failure of the Company's
distributors and VARs to successfully market the Company's products would have a
material adverse effect on the Company's business and results of operations.
DEPENDENCE ON THIRD PARTY SUPPLIERS. The Company is dependent on a small number
of suppliers for certain key components used in its products, including CD ROM
drives, microprocessors, integrated circuits and power modules. The Company
purchases these components pursuant to purchase orders placed from time to time,
does not carry significant inventories of these components, and has no long-term
supply arrangements. In addition, certain subassemblies used in the Company's
products are manufactured by a single third party vendor. The loss of a key
supplier or a disruption to the business of a key supplier could have a material
adverse effect upon the Company's business, financial condition and results of
operations. Although the Company believes that alternative sources of components
or subassemblies could be arranged, the process of qualifying new suppliers
could be lengthy. There can be no assurance that any additional source would be
available to the Company on a timely basis or at a cost acceptable to the
Company. Any disruption or reduction in the future supply of any key components
currently obtained from limited sources could have a material adverse effect on
the Company's business, financial condition and results of operations. Over the
last twelve months, there has been significant growth in the demand for CD ROM
drives. These components are only available from a limited number of
manufacturers, most of which are Japanese manufacturers. The Company has
experienced in the past, and may experience in the future, an adverse impact on
the cost in dollars of certain components purchased from Japanese manufacturers
due to fluctuations in the exchange rate for the yen. Moreover, the Company has
been required to make spot market purchases for certain components at premium
prices. In the third quarter of 1995, the Company experienced temporary delays
in obtaining the drives required for its products. If such delays reoccur or the
Company is required to purchase components at a higher cost due to fluctuating
currency exchange rates, spot market shortages or other factors, the Company may
be unable to ship products on the schedule anticipated or may sustain higher
product costs with a resulting adverse effect on the Company's business,
financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE; POTENTIAL FOR PRODUCT DEFECTS. The market for the
Company's products is characterized by rapid technological advances, evolving
industry standards in computer hardware and software technology, changes in
customer requirements and frequent new product introductions and enhancements.
The Company's future success will depend on its ability to continue to enhance
its current product line and to continue to develop and introduce new products
that keep pace with competitive product introductions and technological
developments, satisfy diverse and evolving customer requirements and otherwise
achieve market acceptance. There can be no assurance that the Company will be
successful in continuing to develop and market on a timely and cost-effective
basis new products or product enhancements that respond to technological
advances by others, or that these products will achieve market acceptance. In
addition, companies in the industry have in the past experienced delays in the
development, introduction and marketing of new and enhanced products, and there
can be no assurance that the Company will not experience delays in the future.
Any failure by the Company to anticipate or respond adequately to changes in
technology and customer preferences, or any significant delays in product
development or introduction, would have a material adverse effect on the
Company's business, financial condition and results of operations.
Due to their complexity and sophistication, the Company's products from
time to time may contain defects or "bugs" which can be difficult to correct.
Furthermore, as the Company continues to develop and enhance its products, there
can be no assurance that the Company will be able to identify and correct
defects in such a manner as will permit the timely introduction of such
products. Moreover, despite extensive testing, the Company has from time to time
discovered defects only after its products have been commercially released.
There can be no assurance that software defects will not cause delays in product
introductions and shipments or loss of or delay in market acceptance, result in
increased costs, require design modifications, impair customer satisfaction, or
result in customer returns. Any such event could materially adversely affect the
Company's business, financial condition and results of operations.
Over the past two years, CD ROM drive technology has advanced
significantly. Additionally, the pace of new drive introductions has increased.
As a result, the Company may find itself holding an inventory of obsolete
drives. Further, the Company's contracts with its distributors allow for product
return, or price protection credits, based on current inventory levels of
current and obsolete products under certain limited circumstances. Meridian
estimates and accrues its required allowance for such occurrences, but there can
be no assurance that actual inventory writedowns, product returns, or price
protection credits will not exceed the Company's estimate. Such an event could
materially adversely affect the Company's business, financial condition and
results of operations.
COMPETITION. The markets for the Company's products are extremely competitive.
The Company expects that competition will increase as more companies enter the
market and as existing competitors continue to change and expand their product
offerings. Pricing is very aggressive in the Company's industry, and the Company
expects pricing pressures to continue to intensify. The Company's current
competitors in the CD ROM networking market include other suppliers of CD ROM
networking software and hardware such as Procom Technologies, Microtest, Inc.
and Microdesign International. The Company also competes indirectly with
suppliers of personal computers, such as Dell Computer, Compaq, and IBM, and
network operating systems such as Microsoft and Novell, to the extent such
companies include CD ROM networking utilities as part of their operating
systems. The Company's potential competitors in the hardware area include
companies in the personal computer market and certain CD ROM manufacturers.
These companies in particular, and the Company's competitors in general, include
large domestic and international companies, many of which have significantly
greater financial, technical, manufacturing, marketing, sales and distribution
resources than the Company. There can be no assurance that the Company's current
or potential competitors will not develop products comparable or superior to
those developed by the Company or adapt more quickly than the Company to new or
emerging technologies, evolving industry trends or changing customer
requirements. There can be no assurance that the Company will have the financial
resources, technical expertise, or marketing, sales, distribution and customer
service and technical support capabilities to compete successfully.
EXPANSION OF INTERNATIONAL OPERATIONS. An important element of the Company's
strategy is to expand its international operations. There can be no assurance
that the Company will be able to successfully localize, market, sell and deliver
its products internationally. The inability of the Company to successfully
expand its international operations in a timely and cost effective manner could
materially adversely affect the Company's business, financial condition and
results of operations. International product sales were approximately 14% of
total product sales in 1996. The Company's business and results of operations
could be materially adversely affected by risks inherent in conducting business
internationally, such as changes in currency exchange rates, longer payment
cycles, difficulties in staffing and managing international operations, problems
in collecting accounts receivable, slower acceptance of technology advances
compared with the United States, lack of published CD ROM content, seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world, and tariffs, duties and other trade barriers. For a
discussion of the effect of fluctuations in the exchange rate of the Japanese
yen on the cost of certain components used in the Company's products, see "Risk
Factors - Dependence on Third Party Suppliers."
EMERGING MARKETS; PRODUCT CONCENTRATION. The Company's future financial
performance will depend in large part on the growth in demand for CD ROM
networking products. While there is a substantial installed base of CD ROM
drives in the United States, the market for CD ROM networking applications is
relatively new and undeveloped. There can be no assurance that the Company's
products will be widely accepted in these emerging markets. If the demand for CD
ROM networking products fails to continue to develop, or develops more slowly
than the Company currently anticipates, the demand for the Company's products
and the Company's business, financial condition and results of operations would
be materially adversely affected. In addition, if CD ROM server products become
generally available, the Company anticipates that, as a percentage of product
sales, systems sales could decline and software sales may increase. In the event
that software sales do not increase in an amount sufficient to offset a decline
in systems sales, the Company's business, financial condition and results of
operations could be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL; MANAGEMENT OF GROWTH. Due to the specialized nature
of the Company's business, the Company's future success is highly dependent upon
the continued services of its key engineering personnel and executive officers
and upon its ability to attract and retain qualified engineering, sales and
marketing, management and manufacturing personnel for its operations.
Competition for such personnel is intense. There can be no assurance that the
Company will be successful in attracting or retaining such personnel. The loss
of any key personnel or the Company's inability to attract and retain qualified
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. None of the Company's key
employees has an employment agreement with the Company, and the Company does not
maintain key man insurance policies on the lives of its key employees. Although
the Company's senior executives have lengthy experience in the computer
industry, they have had only limited experience with the CD ROM networking
business that was acquired in December 1994. To manage its growth, the Company
must continue to implement and improve its operational, financial and management
information systems and expand, train and manage its workforce. Meridian
believes that success in its industry requires substantial capital in order to
maintain the flexibility to take advantage of opportunities as they may arise.
The Company may, from time to time, as market and business conditions warrant,
invest in or acquire complementary businesses, products or technologies. Such
investment or acquisitions may be funded by internally generated cash,
marketable securities, or additional equity. The sale of additional equity could
result in dilution in the equity ownership of Meridian's shareholders. The
Company's failure to manage growth effectively could have a material adverse
effect on the Company's business, financial condition and results of operations
DEPENDENCE ON PROPRIETARY RIGHTS. The Company's success depends in part upon
protecting its proprietary technology. The Company relies on a combination of
intellectual property laws, nondisclosure agreements and other protective
measures to protect its proprietary information. There can be no assurance,
however, that the steps taken by the Company will be adequate to deter
misappropriation or independent third party development of its technology or
that its intellectual property rights can be successfully defended if
challenged. In addition, the laws of certain foreign countries do not protect
the Company's intellectual property rights to the same extent as the laws of the
United States. Given the rapid development of CD ROM technology, there can be no
assurance that certain aspects of the Company's products do not or will not
infringe upon the existing or future proprietary rights of others or that, if
licenses or rights are required to avoid infringement, such licenses or rights
could be obtained or obtained on terms that are acceptable to the Company. The
Company is not currently aware of any infringement of its proprietary rights,
nor is it aware of any claims that its products infringe the rights of others.
POSSIBLE VOLATILITY OF STOCK PRICE. The Company believes that factors such as
announcements of developments related to the Company's business, announcements
by competitors, quarterly fluctuations in the Company's financial results,
conditions in the CD ROM networking industry, changes in the general economy and
other factors could cause the price of the Company's Common Stock to fluctuate,
perhaps substantially. In addition, in recent years the stock market in general,
and the market for shares of small capitalization technology stocks in
particular, have experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. Such fluctuations
could have a material adverse effect on the market price of the Company's Common
Stock.
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders was held on April 23, 1997. Matters voted on
at that meeting were the election of directors, the adoption of the Company's
1997 Incentive Stock Option Plan, a proposal to increase the number of shares
authorized under the Company's 1992 Employee Stock Purchase Plan, to approve the
reincorporation of the company from California to Delaware, and the confirmation
of Price Waterhouse LLP as the Company's independent accountants for the 1997
fiscal year. Tabulation for each proposal and individual director were as
follows:
Proposal I Election of directors
FOR WITHHELD
Charlie Bass 7,919,216 321,185
Peter R. Johnson 7,918,086 322,315
Gianluca U. Rattazzi 7,920,866 319,535
Mario M. Rosati 7,911,536 328,865
Pierluigi Zappacosta 7,918,936 321,465
Proposal II To approve the adoption of the Company's 1997 Incentive
Stock Option Plan and reserve 900,000 shares of Common
Stock for issuance thereunder.
FOR AGAINST ABSTAIN NO VOTE
2,576,423 1,169,262 37,470 4,457,246
<PAGE>
Proposal III To approve an amendment to the Company's 1992 Employee
Stock Purchase Plan to increase the number of shares of
Common Stock reserved for issuance thereunder.
FOR AGAINST ABSTAIN NO VOTE
3,258,946 480,989 43,220 4,457,246
Proposal IV To approve the reincorporation of the Company from
California to Delaware.
FOR AGAINST ABSTAIN NO VOTE
2,418,762 1,491,293 28,900 4,301,446
Proposal V To confirm the appointment of Price Waterhouse LLP as
the Company's independent accountants for the 1997 fiscal
year.
FOR AGAINST ABSTAIN NO VOTE
8,188,640 22,761 29,000 --
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
2.0 Agreement and Plan of Reorganization among Parallan Computer, Inc., PAC
Acquisition Subsidiary, Inc. and Meridian Data, Inc. dated December 1, 1994
previously filed as Exhibit 2 to the Current Report on Form 8-K and
incorporated herein by reference.
3.1 Restated Articles of Incorporation of Parallan Computer, Inc. previously
filed as Exhibit 3.1A to Registration Statement on Form S-1 (Registration
No. 33-57976) and incorporated herein by reference.
31.a Certificate of Amendment of the Articles of Incorporation of Parallan
Computer, Inc., previously filed as Exhibit 3.1a to the Quarterly Report on
Form 10-Q for the period ended March 31, 1995, and incorporated by
reference.
3.1b Restated Certificate of Incorporation of Meridian Data, Inc. previously
filed as Exhibit 3.1b to the Quarterly Report of Form 10-Q for the period
ended march 31, 1995, and incorporated herein by reference.
3.2 Bylaws of Parallan Computer, Inc. previously filed as Exhibit 3.2 to
Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
4.1 Specimen Common Stock certificate of Meridian Data, Inc. previously filed
as Exhibit 4.1 to the Quarterly Report on Form 10-Q for the period ended
March 31, 1995, and incorporated herein by reference.
9.1 Shareholders Agreement, dated as of June 1, 1992, among IBM Corporation,
Parallan Computer, Inc. and certain shareholders of Parallan Computer, Inc.
previously filed as Exhibit 9.1 to Registration Statement on Form S-1
(Registration No. 33-57976) and incorporated herein by reference.
10.1 Form of Indemnification Agreement for directors and officers previously
filed as Exhibit 10.1 to Registration Statement on Form S-1 (Registration
No. 33-57976) and incorporated herein by reference.
10.2 Restated and Amended 1988 Incentive Stock Plan and forms of agreements
thereunder previously filed under Registration Statement on Form S-8
(Registration No. 333-3934) and incorporated herein by reference.
10.3 1992 Incentive Stock Plan and form of agreement thereunder previously filed
as Exhibit 10.3 to Registration Statement on Form S-1 (Registration No.
33-57976) and incorporated herein by reference.
10.4 1992 Key Employee Stock Plan and form of agreement thereunder previously
filed as Exhibit 10.4 to Registration Statement on Form S-1 (Registration
No. 33-57976) and incorporated herein by reference.
10.5 Amended and Restated 1992 Employee Stock Purchase Plan and form of
subscription agreement thereunder previously filed as Exhibit 10.5 to the
Quarterly Report on Form 10-Q for the period ended March 31, 1995, and
incorporated herein by reference.
10.6 Registration Rights Agreement between the Registrant and certain of the
Registrant's shareholders previously filed as Exhibit 10.6 to Registration
Statement on Form S-1 (Registration No. 33-57976) and incorporated herein
by reference.
10.7 Custodial Agreement dated as of May 12, 1992 between Parallan Computer,
Inc., IBM Corporation and File-PROTEK, Inc. previously filed as Exhibit
10.7 to Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
10.8 Share Purchase Agreement dated as of May 15, 1992 between Parallan
Computer, Inc., and IBM Corporation, as amended, previously filed as
Exhibit 10.8 to Registration Statement on Form S-1 (Registration No.
33-57976) and incorporated herein by reference.
10.9 Marketing Agreement dated as of June 1, 1992 between Parallan Computer,
Inc. and IBM Corporation previously filed as Exhibit 10.9 to Registration
Statement on Form S-1 (Registration No. 33-57976) and incorporated herein
by reference.
<PAGE>
10.10Master Work Agreement dated as of June 1, 1992 between Parallan Computer,
Inc. and IBM Corporation previously filed as Exhibit 10.10 to Registration
Statement on Form S-1 (Registration No. 33-57976) and incorporated herein
by reference.
10.11Secured Loan Agreement dated as of June 1, 1992 between Parallan Computer,
Inc. and IBM Credit Corporation previously filed as Exhibit 10.11 to
Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
10.12Lease Agreement dated as of October 26, 1992 between Parallan Computer,
Inc. and South Bay/Copley Joint Venture previously filed as Exhibit 10.12
to Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
10.13Master Equipment Lease dated as of June 29, 1990 between Parallan
Computer, Inc. and Western Technology Investment previously filed as
Exhibit 10.13 to Registration Statement on Form S-1 (Registration No.
33-57976) and incorporated herein by reference.
10.14Master Equipment Lease dated as of January 15, 1993 between Parallan
Computer, Inc. and Phoenix Leasing Incorporated previously filed as Exhibit
10.14 to Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
10.15Amendment to the Master Work Agreement and Marketing Agreement dated as of
March 31, 1994, between Parallan Computer, Inc. and IBM Corporation.
10.16Meridian Data, Inc. 1987 Incentive Stock Plan and form of subscription
agreement thereunder previously filed as Exhibit 4.3 to Registration
Statement on Form S-8 (Registration No. 33-89162) and incorporated herein
by reference.
10.17Stock Option Assignment and Exercise Agreement between the Registrant,
International Business Machines Corporation and certain shareholders of the
Registrant dated March 6, 1996 previously filed as Exhibit 10.17 to the
Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference.
10.18Meridian Data, Inc. 1995 Director Stock Plan and form of subscription
agreement thereunder previously filed as Exhibit 4.3 to the Registration
Statement on Form S-8 (Registration No, 333-2622) and incorporated herein
by reference.
11 Computation of net income (loss) per share
16.1 Letter regarding change in accountants previously filed as Exhibit 16.1 to
Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
27 Financial Data Schedule
(b) Reports on Form 8-K.
none
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
MERIDIAN DATA, INC.
Date: May 15, 1997 /s/ GIANLUCA U. RATTAZZI
Gianluca U. Rattazzi,
President and Chief
Executive Officer.
Date: May 15, 1997 /s/ ERIK E. MILLER
Erik E. Miller, Sr. Vice
President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer.
<PAGE>
MERIDIAN DATA, INC.
INDEX TO EXHIBITS
Exhibit Item Page
11 Computation of net income (loss) per share 17
27 Financial Data Schedule 18
<PAGE>
EXHIBIT 11
MERIDIAN DATA, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
- -------------------------------------------------------------------------------
Three months ended March 31,
(In thousands, except per share data) 1997 1996
- -------------------------------------------------------------------------------
Net income (loss)............................. $(3,299) $1,013
====== =====
Weighted average shares outstanding :
Common stock.................................. 9,609 8,002
Common stock issuable upon exercise of
options 0 704
------ -----
Weighted average common shares
and equivalents............................ 9,609 8,706
====== =====
Net Income (loss) per share................... $ (0.34) $ 0.12
====== =====
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
MERIDIAN DATA, INC.
Financial Data Schedule
Article 5 of Regulation SX
This schedule contains summary financial information extracted from the
Quarterly Report on Form 10-Q for the period ended March 31, 1997 and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<CIK> 0000864568
<NAME> Meridian Data, Inc.
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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