<PAGE>
                                  UNITED STATES
                       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 EXCHANGE ACT OF 1934

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

For the transition period from ____________ to ______________

Commission file number 0-21200

                               MERIDIAN DATA, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                                          77-0188708
(State or other jurisdiction of                            (IRS Employer
  incorporation or organization)                            Identification No.)

5615 Scotts Valley Dr., Scotts Valley, California            95066
   (Address of principal executive office)                (Zip Code)

                               (408) 438-3100
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b)
      of the Act:                                None
Securities registered pursuant to Section 12(g)
      of the Act:                                Common Stock, $0.001 par value
                                                 Preferred Share Purchase Rights
                                                         (Title of Class)

         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 aggregate  market value of the voting stock held by  non-affiliates
of the Registrant as of March 3, 1998, was $30,015,517.81.  The number of shares
of Common Stock, $0.001 par value, outstanding on March 3, 1998, was 8,802,788.

         Documents  incorporated  by reference:  Portions of the Proxy Statement
for  Registrant's  Annual Meeting of Stockholders to be held April 22, 1998, are
incorporated herein by reference into Part III.

Index    begins  on  page  43.  Page 1 of 47

<PAGE>

     THIS ANNUAL REPORT OF FORM 10-K CONTAINS  FORWARD  LOOKING  STATEMENTS THAT
ARE ACCOMPANIED BY CAUTIONARY  STATEMENTS THAT IDENTIFY FACTORS THAT COULD CAUSE
ACTUAL  RESULTS  TO  DIFFER   MATERIALLY  FROM  THOSE  IN  THE  FORWARD  LOOKING
STATEMENTS.

                                     PART I
ITEM 1.  BUSINESS.
HISTORY

         For the purposes of this discussion,  the term "PCI" shall refer to the
operations and business of Parallan  Computer,  Inc. prior to the acquisition of
Meridian  Data,  Inc.  on  December  1, 1994.  The term "MDI" shall refer to the
operations and business of Meridian Data,  Inc. prior to its acquisition by PCI.
Any reference to "Meridian" or the "Company"  shall refer to the  operations and
business  of the Company  subsequent  to the  acquisition  of MDI on December 1,
1994.

         PCI was  founded in 1988 to develop  high-performance,  fault  tolerant
servers for large networks of personal computers.  In the first quarter of 1991,
PCI  commenced  shipment  of  products  to  customers.  In the fall of 1991,  in
response to continuing losses and funding constraints, PCI significantly reduced
expenses, reduced its staff by approximately 50%, and began a search for a major
computer  company as a  strategic  partner.  In June 1992,  PCI  entered  into a
strategic alliance with International Business Machines Corporation ("IBM"). The
strategic   alliance  with  IBM   encompassed   certain   product   development,
manufacturing and support arrangements (the "Agreements"). At the same time, IBM
acquired a  substantial  minority  stock  interest  in PCI.  PCI granted IBM the
exclusive rights to PCI's current and future products and technologies in return
for guaranteed  minimum royalties in 1992 and 1993, and revenue-based  royalties
for 1994 and beyond.  The  Agreements  do not apply to any  technology  acquired
from,  or developed by, MDI.  After the first  quarter of 1994,  sales by IBM of
products  licensed from PCI, net of returns,  were zero.  PCI expected that this
trend would continue for the foreseeable future.

         As a result of management's  expectations  concerning  future royalties
from IBM, PCI downsized and reorganized  its operations  into two segments:  (i)
developing original equipment  manufacturer ("OEM") relationships for its latest
products and (ii)  focusing on  potential  acquisition  opportunities.  Over the
course of several  months,  PCI engaged in  discussions  with several large OEMs
about the sale or licensing of its latest server  technology.  These discussions
ultimately  resulted in the sale of certain  subsets of PCI's server  technology
for $1.5 million in the first  quarter of 1995.  PCI then  narrowed its focus to
identifying potential acquisition candidates.  On December 1, 1994, PCI acquired
all of the  outstanding  shares of MDI.  MDI was a  privately-held  developer of
compact  disc-read only memory ("CD ROM") and compact-disc  recordable  ("CD-R")
systems  and  software  for  both  networks  and  personal  computers.  With the
acquisition  of MDI,  PCI  effectively  ended its reliance on IBM as its primary
source of revenue.  Since  December 1, 1994,  the  Company's  primary  source of
revenue  is from  sales of the  products  of MDI.  Thus,  the  remainder  of the
discussion of the Company's business, industry, operations, or competition under
this Item will refer exclusively to the operations of Meridian.

OVERVIEW

         Meridian Data,  Inc.  provides CD ROM  networking  software and systems
that enable  multiple users on a network to  simultaneously  share CD ROM titles
from their desktops. Networking CD ROMs makes them easier to install, update and
manage, and eliminates the need to physically share CDs among users. The Company
is  committed to an open  systems  approach,  supports a broad array of personal
computer and network operating systems,  and provides seamless desktop access to
networked CD ROMs in  heterogeneous  environments.  The Company believes that an
opportunity  exists to enable  organizations  to provide  access to networked CD
ROMs through  corporate  networks and standard web  browsers.  To meet  customer
demands for integrated  solutions,  the Company  offers  systems  containing the
Company's  networking software and CD ROM servers configured by the Company with
third-party components. However, since the manufacture of CD ROM servers has low
barriers  to  entry,  Meridian  focuses  its CD  ROM  research  and  development
activities  primarily on software  development.  Due to a shift in demand during
1996  from  separate  hardware  and  software  CD ROM  networking  solutions  to
integrated  systems,  the  Company  refocused  its CD ROM  research  towards the
development of systems and away from stand alone software.  The Company's CD ROM
hardware  development efforts also seek to maintain  compatibility with existing
and developing hardware standards. In order to bring its expertise in networking
software and systems, and channel distribution,  to a larger market, the Company
began  development of its first non-CD ROM networking  product in late 1996. The
result of this research was the prototype  Snap!  Server which  premiered at the
DEMO 98 trade show in February  1998.  Snap!  Server is a  protocol-independent,
plug-and-play network storage appliance.

INDUSTRY BACKGROUND

WIDESPREAD  ADOPTION OF CD ROM TECHNOLOGY.  CD ROM, a read-only  optical storage
technology,  has  gained  widespread  acceptance  in recent  years for  computer
applications.  CD ROMs have many advantages over alternate storage technologies,
including cost-effectiveness,  data integrity,  durability and storage capacity.
The Company  estimates that it costs less than $1.00 to produce a copy of CD ROM
capable of holding over 600  megabytes  of data.  For certain  applications,  an
advantage of CD ROM technology is that it is read-only and non-magnetic, so that
it cannot be altered or accidentally erased, thereby ensuring data integrity. CD
ROM technology is rapidly evolving,  and significant  advances have been made in
speed and storage capacity.  In 1995, a new CD ROM standard,  DVD (digital video
disc),  was  announced  which is  expected  to provide 7 to 28 times the storage
capacity of current CD ROMs and will  eventually be recordable and erasable.  In
the  third  quarter  of 1997,  Meridian  began  shipping  its DVD line of CD ROM
systems.

USE  OF CD ROM  TECHNOLOGY  FOR  THE  DISTRIBUTION  OF  INFORMATION.   For  many
applications,  CD ROMs are more  cost-efficient  and practical than  paper-based
delivery alternatives. CD ROM technology increases user productivity by reducing
time spent manually  searching for and updating  information.  Many  information
providers whose  businesses  require the periodic  dissemination of data such as
manuals, catalogs,  directories and tax and legal compilations,  have adopted CD
ROM technology as an effective  distribution  method.  The Company believes that
the  distribution  of  information  on CD ROMs is  complementary  to  commercial
on-line  services  which are often  limited by access  speeds and require  large
investments by  information  providers.  Examples of information  providers that
distribute CD ROMs include the National  Association of Insurance  Commissioners
(NAIC), Commerce Clearing House (CCH) and Disclosure Incorporated.

NETWORKED  CD  ROMS.   Corporations   and  other   organizations  that  purchase
information  on  CD  ROMs   generally  need  to  provide   multiple  users  with
simultaneous access to information stored on those CD ROMs. When CD ROMs are not
networked, businesses must generally purchase multiple copies of each CD ROM set
or physically  transport discs between desktop  computers.  Purchasing  multiple
copies is  usually  not as cost  effective  as  relying  on site  licenses,  and
physically  transporting  discs between desktop  computers can be time-consuming
and can result in misplaced or unreturned  discs.  In addition,  many commercial
databases are distributed on multi-volume sets of discs which require physically
shuffling discs if they are used at a desktop computer with a single drive. As a
result  of  these  and  other  factors,  many  organizations  seek to  implement
networked,  multi-drive  CD ROM  systems.  Networked  CD ROMs can be quickly and
easily  accessed  by  multiple  users  from  their  desktop  computers.  Because
networked  CD ROMs  are  typically  installed  on a single  server,  they can be
efficiently  managed  and  periodically  updated  without  access to  individual
desktop computers.

NEED FOR CD ROM NETWORKING SOFTWARE. While many  organizations increasingly seek
to network CD ROMs, CD ROM technology was not originally designed for multi-user
network access. These organizations  require software  specifically  designed to
enable them to share CD ROMs on a network,  manage  multiple  titles and control
user access.  Controlling  user access is especially  important when information
providers restrict the number of simultaneous users.  Furthermore,  corporations
are continually  upgrading their networks to take advantage of new  technologies
such as Windows NT, and, as a result, CD ROM networking software must be able to
operate in heterogeneous  environments.  In addition to the increasing number of
available  commercial  CD  ROM  titles,  organizations  are  increasingly  using
recordable  CD ROMs that are "write once - read many," to archive or  internally
publish their own data. As a result,  there is an increased number of CD ROMs to
be managed.  Additionally,  organizations  are  implementing  web  technology to
create "intranets" that provide users access to internal information, as well as
public  information on the Internet,  with a consistent,  easy to use interface,
regardless of where the data resides.  The Company  believes that  organizations
will  want to  enable  popular  web  browsers,  such as  Netscape  Navigator  or
Microsoft  Internet  Explorer,  to  access  networked  CD ROMs as part of  their
intranets.

EMERGING  MARKET  FOR  NETWORK  ATTACHED  STORAGE  ("NAS").   NAS  devices   are
specialized  file servers  optimized for network data storage.  Unlike a general
purpose  server  which  handles a variety of tasks,  from running an intranet to
managing e-mail to delivering  mission-critical  database services, NAS products
are optimized for data storage and managing input/output traffic associated with
that task efficiently,  freeing up network server resources for mission critical
applications,  and enhancing  speed on the network  backbone by offloading  data
storage  nearer to users.  According  to  Peripheral  Concepts,  Inc., a leading
storage  research firm, the emerging  market for NAS will grow from $800 million
in 1997 to $1.2  billion  in 1998.  By  delivering  a NAS device  below  $2,000,
Meridian  hopes to  redefine  the NAS market to include  small and  medium-sized
businesses.

THE MERIDIAN SOLUTION

         The Company offers a family of CD ROM networking  software products and
systems that enable organizations to provide multi-user access over a network to
centrally  managed CD ROMs.  Meridian's CD ROM software and systems provide cost
effective  solutions  for  organizations  that  implement CD ROM  technology  by
eliminating  the need to physically  share discs or purchase  multiple copies of
often  expensive  CD ROM titles.  The Company  provides  scalable  solutions  to
address a variety of customer  needs ranging from  workgroup to  enterprise-wide
applications  of CD ROMs.  The  Company's  software  supports  a broad  range of
networking  environments,  including  Novell,  Windows NT and Banyan VINES,  and
desktop operating systems,  including  Windows,  DOS, Macintosh and OS/2, and is
compatible with most major connectivity methodologies and network protocols. The
Company's  client  software is designed to provide  seamless access to shared CD
ROMs by  associating  them with icons on the desktop.  Users do not need to know
where on the network the data  resides or that they are even  accessing CD ROMs.
In  addition,  Meridian's  client  software  allows  users to avoid drive letter
limitations  through its  ability to group  multiple  networked  CD ROMs under a
single  client  drive  letter  which  enables  searches  across  multiple CD ROM
volumes.  Meridian's server software provides a graphical user interface for the
central  management  of all networked CD ROMs.  Load  balancing and disk caching
features   allow  multiple  users  to  access  a  single  CD  ROM  with  optimum
performance,  while  license  metering  ensures  that only the proper  number of
licensed users may access data at any one time.

THE MERIDIAN STRATEGY

         Meridian believes that its customers  currently want to implement "plug
and play" CD ROM networking systems. In response,  the Company introduced its CD
Net  Universal  plug and play  server in 1997,  and offers  other  competitively
priced systems, containing Meridian's networking software. The Company's goal is
to be the leading  provider of one-stop  shopping for CD ROM networking  systems
and software. The key elements of the Company's strategy include:

FOCUS  ON  SOFTWARE  AND  SYSTEMS.  To meet  customer   demands  for  integrated
solutions,  the Company  offers  systems  containing  the  Company's  networking
software  and  CD  ROM  servers  configured  by  the  Company  with  third-party
components. Since the manufacturing of CD ROM servers has low barriers to entry,
Meridian  focuses its CD ROM research and  development  activities  primarily on
software development and integrated systems.

SUPPORT INDUSTRY  STANDARDS.   The Company  provides CD ROM networking  software
that  operates  on a broad  range of desktop  platforms  and  network  operating
systems.  The Company  believes that Microsoft  Windows NT will be  increasingly
popular  for  networks  in the  future  and will be the basis for an  increasing
number of enterprise-wide networks. At the same time, there is a large installed
base of Novell  NetWare LANs. The Company  believes that both operating  systems
will reside  concurrently  in many  network  environments.  Meridian's  software
provides  interoperability between networks making it transparent to the user as
to where the data exists or under which  network  operating  system.  Meridian's
current software also provides a common user interface and set of administrative
tools for popular network operating systems.  The Company believes that it is an
advantage to support multiple  networking  operating  systems,  client operating
systems, connectivity methodologies and network protocols.

PURSUE NAS OPPORTUNITIES. The NAS market is estimated to grow from approximately
$800  million in 1997 to $1.2  billion in 1998.  The  Company  believes  that an
opportunity exists to leverage its skills and expertise in networking systems to
the larger market for NAS. Meridian does not believe that there is any competing
product  currently  on  the  market  that  offers  the  same  ease  of  use  and
installation  as the  Company's  Snap!  Server.  See "Risk Factors - New Product
Development."

PURSUE  INTRANET  AND  INTERNET  OPPORTUNITIES.  Today,  businesses  can  access
information via CD ROM databases, via the Internet, or via on-line services such
as America Online. In addition, organizations are implementing web technology to
create  corporate  intranets that provide users with seamless access to internal
information and public information on the Internet,  with a consistent,  easy to
use interface,  regardless of where the data resides.  The Company believes that
CD ROM and Internet/intranet  technologies represent complementary opportunities
for the development of new markets,  and that  organizations will want to access
CD ROMs as part of their intranets.  In 1996, the Company introduced new systems
and software to extend the  functionality  of web servers to manage and meter CD
ROM data, and make  information on CD ROMs accessible in standard HTML format to
web browsers such as Netscape Navigator and Microsoft Internet Explorer.

LEVERAGE  THIRD PARTY  DISTRIBUTION.  The Company  sells  its  products  through
two-tier  distribution,  comprised primarily of large distributors of electronic
hardware and software and key value added resellers ("VARs").  The Company seeks
to minimize any conflict  between third party  distribution  and direct sales by
fulfilling orders through distributors and VARs, except in special circumstances
dictated primarily by customer requests.

EXPAND   INTERNATIONAL   SALES.    The  Company  has  established   several  key
distribution  relationships  in various  countries  in the Pacific Rim. In 1996,
Meridian opened a sales office in the United Kingdom.  This office was closed in
late 1997 due to a change in the Company's European  distribution  strategy.  To
address the needs of international customers, the Company intends to continue to
localize  products  for use in the native  language of targeted  countries.  See
"Risk Factors - Expansion of International Operations."

PRODUCTS

         Meridian provides support for a broad range of networking  environments
(Novell,  Windows NT and Banyan VINES) and desktop operating systems (Windows 95
and Windows 3.x,  DOS,  Macintosh and OS/2),  and is compatible  with most major
connectivity  methodologies  and network  protocols.  The table below  describes
selected principal products, their functions and price ranges:
<TABLE>
<CAPTION>
                                                                                                 INTRODUCTION
           PRODUCTS             DESCRIPTION                                                      DATE              PRICE RANGE (1)
      Software
<S>                             <C>                                                              <C>               <C>
CD Net for NetWare              Client and server software that provides native NetWare
                                volume access for CD ROMS on Novell servers                      Jan. '96          $684
CD Intranet for Windows NT      CD Intranet brings CD ROM and mixed media storage to             Sep. `96          $495
                                business intranets
CD Net for Windows NT           Client and Server software for Windows NT for
                                enterprise-wide CD ROM applications, providing a common          Aug. '95          $684 - $1,308
                                user interface in mixed Novell/NT environments
CD Net Plus                     Windows-based client and server software for dedicated,          May '95           $377-$1,097
                                high performance CD ROM servers on Novell networks
CD Net for VINES                Client and server software providing access to CD ROMs on        Aug. '95          $1,372
                                Banyan VINES servers
CD NetRecord                    Novell NLM for recording CD ROMs over NetWare networks           Jan. '96          $595

      Systems
CD/DVD Net 900 Series Servers   Complete plug and play CD ROM/DVD servers  with 7 to 56 CD       Aug. '95          $6,231-$24,738
                                ROM/DVD drives, featuring Pentium 200 processors, fast
                                Ethernet adapters, for Novell, NT, Intranets, and VINES,
                                available in tower or rack mount enclosures
TNT Servers                     CD ROM/DVD Server with 14 to 28 drives in a flexible             Sep. `97          $7,196 - $16,748
                                configuration of CD ROM, DVD and hard drives, featuring
                                Pentium 200 processors, fast Ethernet, for Windows NT
CD Net Ultimate                 Server designed to support large multi-department networks       Jan. `97          $2,780-$12,956
                                with heavy multimedia content, features automatic disk
                                caching, Pentium 200 processors, 14 to 28 CD ROM/DVD
                                drives, for Windows NT and Novell NetWare
CD Net Universal Server         Plug and play CD ROM server with a built-in Web server           Sep. `97          $1,420 - $4,903
                                enabling easy access to HTML and graphics files of CDs,
                                and remote Web-based system administration.  Available
                                with 7 to 14 CD ROM drives.
CD Net ROMs                     CD ROM subsystems for connection to servers via SCSI               1990            $1,056-$9,388
<FN>
(1) Price range based on domestic end user list price as of January 12, 1998.
</FN>
</TABLE>
NEW PRODUCTS

         In early February 1998, the Company  premiered a prototype of its first
non-CD ROM  product,  Snap!  Server.  This  represents  an entirely  new product
classification  for  the  Company  and  the  marketplace.   Snap!  Server  is  a
protocol-independent,  plug  and  play  network-attached  storage  (NAS)  device
targeted for the PC-LAN environment.  According to Peripheral Concepts, Inc., an
independent  market  research  firm, the market for NAS has been estimated to be
approximately  $800  million in 1997 and is projected to grow to $1.2 billion in
1998. Meridian does not believe that there is any competing product currently on
the market that offers the same ease of use and installation as Meridian's Snap!
Server.  Initially,  the Company  expects that its main  competition  in the NAS
market will come from  established  PC server  vendors (such as Compaq and Dell)
and drive  manufacturers  (such Seagate and Maxtor).  Meridian believes that its
new  Snap!  Server  will  have  significant  cost  advantages  over its  initial
competition.  The Company  estimates that the cost of adding a comparable amount
of  additional  storage to a PC server or network  would run from  approximately
$3,000 to $10,000 or higher,  depending on the server/network  configuration and
downtime. While final pricing has not been set, the Company anticipates that its
Snap! Server will retail for under $2,000. Installation of the Snap! Server will
involve  simply  connecting  the server to an  Ethernet  network  port and power
outlet.  Setup  and  management  will be  handled  by a simple  HTML  interface,
accessed through the user's Internet browser.  In contrast,  the installation of
additional  drives or servers requires several hours of network downtime and the
services of a network  professional,  all of which adds to the  overall  cost of
increasing  storage on networks.  The Snap!  Server must be compatible  with all
major PC networks operating systems (Microsoft,  Novell, and UNIX) and protocols
(TCP/IP, IPX, NetBEUI, HTTP, etc.) concurrently. In addition, it must be able to
work in  mixed  network  environments  with the  same  ease as in  heterogeneous
environments.  Such compatibility may be difficult, if not impossible to obtain.
Failure  to achieve  such  compatibility  could  have an  adverse  effect on the
market's acceptance of the Snap! Server.

         The Company's challenge will be to educate users on the practicality of
implementing NAS compared  against the established  methods of adding storage to
PC servers. As such, the Company's initial competition for the Snap! Server will
come from suppliers of PC server computers, like Dell Computers, Compaq and IBM,
and disk drive  manufacturers,  such as Seagate and Maxtor.  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 the Snap! Server
or adapt more quickly than the Company to new or emerging technologies, evolving
industry  trends or changing  customer  requirements.  Meridian's  Snap!  Server
requires  customers  to change the method in which they  address  the problem of
adding  additional  storage to their PC-LAN networks.  There can be no assurance
that the Company will be successful in educating the market on the  advisability
of  switching  from  adding  additional  drives to their  servers or  additional
servers  to their  PC-LAN  and using a Snap!  Server in their  place.  The Snap!
Server will require a 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
this new product 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, or of Meridian to develop new distribution  channels,  would
have a material adverse effect on the Company's  business,  financial  condition
and  results  of  operations.  See "Risk  Factors -  Dependence  on Third  Party
Distributors; - New Product Development; - Rapid Technological Change; Potential
for Product Defects; - Competition; emerging Markets; Product Concentration."

SALES, MARKETING AND CUSTOMER SERVICE

         The Meridian sales organization is divided into multiple North American
territories,  Europe,  the Middle  East,  Latin  America,  and the Pacific  Rim.
Leading  each  region  is a sales  director  responsible  for  working  with the
Company's major distributors, direct sales of large systems into major accounts,
and OEM sales.  Each  territory  has an assigned  sales  representative,  who is
responsible  for  developing  marketing  programs  with  all  VARs in his or her
territory,  developing new VAR  relationships,  and sales into smaller  accounts
through  the  Company's   VARs.  Each  territory  is  supported  by  a  business
development  team which is responsible for training new VARs on the installation
and support of Meridian  software and systems,  and supporting  existing VARs. A
final level of sales support is provided by sales  engineers who are responsible
for several territories each. The Company's entry level software and systems are
marketed through  advertising and trade shows. The Company seeks to minimize any
conflict between third party  distribution and direct sales by fulfilling orders
through  distributors  and  VARs,  except  in  special  circumstances   dictated
primarily by customer  requests.  The Company's sales personnel that are focused
on the distribution channel work closely with the Company's largest distributors
to ensure that the proper level and mix of inventory  is  maintained,  and works
with the distributor and VAR in developing  cooperative  marketing  programs for
the Company's products.

         To support its sales  efforts,  the  Company's  marketing  organization
focuses on increasing end user demand and creating awareness in the distribution
channel of the Company's products.  The Company's marketing organization focuses
on educating  end users on the  Company's  simple,  cost  effective  solution to
accessing  and  sharing  CD ROMs  and  educating  network  professionals  on the
administration  tools available with CD Net software,  ease of adding new titles
to their CD ROM  library,  and  license  control  and  metering.  The  Company's
marketing program includes direct mail, public relations,  educational seminars,
trade shows,  selected joint marketing  programs,  a home page on the World Wide
Web and advertising in broad industry  publications  such as the PC Week and LAN
Times. The Company's sales and marketing  organization consists of 22 persons as
of December 31, 1997.

         The  Company  anticipates  that it will  begin  shipping  its new Snap!
Server in the second  quarter of 1998.  This will be preceded  by an  intensive,
national  advertising campaign aimed at educating the general business public on
the benefits and ease-of-installation of Meridian's Snap! Server. The failure by
the  Company to  successfully  educate  the market on the  benefits of its Snap!
Server could have a material  adverse effect on Meridian's  business,  financial
condition and results of  operations.  The Snap!  Server will require  different
marketing,  sales and  distribution  strategies  than  those  for the  Company's
current products.  As such, it entails significant new risks to Meridian.  There
can be no assurance that the Company's  distributors  and VARs will choose or be
able to  effectively  market  this new  product or to that the  Company  will be
successful in establishing other modes of marketing, sales, and distribution.  A
failure of the  Company's  distributors  and VARs to  successfully  market  this
product,  or the failure to  establish  other  means of  marketing,  sales,  and
distribution,  would have a material  adverse effect on the Company's  business,
financial condition and results of operations. See "Risk Factors - Dependence on
Third Party  Distributors;  - New  Product  Development;  - Rapid  Technological
Change; Potential for Product Defects; - Competition;  emerging Markets; Product
Concentration."

         The Company's customer service  department  consists of 9 persons as of
December  31,  1997.  The  Company's   customer  support   department   provides
installation  and maintenance  support via telephone,  a Company bulletin board,
ftp  file   server,   and   Internet   support   on  the   World   Wide  Web  at
http://www.meridian-data.com.  Meridian  products  are  sold  with  a  one  year
warranty, which can be extended for an additional fee.

DISTRIBUTION

         Approximately  93% of the  Company's  product  sales are  derived  from
two-tier  distribution  sales to  distributors  and VARs.  Because  the  Company
derives such a  significant  portion of its products  through  distributors  and
VARs,  it is difficult for the Company to determine the identity of the end user
of the Company's products.  The Company's  distribution channel consists of five
North American distributors, including Ingram Micro, Inc., Tech Data Corporation
and Merisel,  Inc. Meridian's VARs generally  concentrate their sales efforts by
region,  such  as  MicroAge  Computers,  or  by  industry,  such  as  Government
Technology  Services,  Inc.  The  Company  opened a sales  office in the  United
Kingdom  in 1996.  This  office  was  closed in late 1997 due to a change in the
Company's European distribution strategy. The Company's systems are installed in
numerous industries,  including government,  education, law and accounting.  The
Company's typical distribution  agreement gives the distributor the right, under
limited circumstances, to return products. In addition, the Company allows price
protection  to  certain  distributors,  to the  extent  that  they  are  holding
inventory at the time the Company announces a price decrease.

         Two  distributors  accounted  for 21%  and  19%,  respectively,  of the
Company's  1997  product  sales.  The loss of either of these  distributors,  or
certain other  distributors or VARs, could have a material adverse effect on the
Company's business,  financial  condition and results of operations.  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 possess
sufficient technical,  marketing and sales resources and must often devote these
resources to a relatively  lengthy sales cycle.  There can be no assurance  that
the Company's  current  distributors and VARs will be able to continue to market
the Company's existing or new products  effectively or that economic  conditions
or industry  demand will not adversely  affect such  distributors  and VARs. New
products may require a 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,  financial  condition and results of  operations.  See "Risk Factors -
Dependence on Third Party Distributors."

RESEARCH AND DEVELOPMENT

         The Company's  research and development  staff consists of 21 engineers
as of  December  31,  1997.  The  Company's  primary  focus  in 1997  was on the
development of its Snap!  Server.  The Snap!  Server is a  protocol-independent,
plug-and-play NAS appliance.  There can be no assurance that Meridian's research
and development efforts will result in the successful  introduction of the Snap!
Server or any other 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;  and  -  New  Product
Development."

         Meridian's CD ROM research and  development  focus in 1997 consisted of
developing new,  entry-level  plug and play CD ROM servers and CD ROM networking
systems, and maintaining  compatibility with evolving industry standards related
to drives (CD ROM and DVD) and network protocols.

         Meridian Data's software does not utilize  calendar dates. As such, the
Company's  software should have no difficulty with Year 2000 issues.  Meridian's
systems, however, are reliant on various network and personal computer operating
systems,  such as MS DOS, Novell NetWare, and Windows 3.11 and NT. To the extent
that those vendors do not adequately solve their Year 2000 issues, the Company's
products,  results of  operations,  cash flow,  and  liquidity  may be adversely
affected.

MANUFACTURING

         The Company  contracts with third parties to  manufacture  its hardware
and software products,  which consist of manufacturing  server subassemblies and
diskette  duplication,  and  printing of manuals and boxes.  Final  assembly and
testing are performed  currently by the Company at its Scotts  Valley  facility.
Finished  products are  distributed  globally from the Scotts Valley facility to
customers.  The Company is dependent on a small number of suppliers  for certain
key  components  and  parts  used  in its  products,  including  CD ROM  drives,
microprocessors,  integrated  circuits and power modules.  In addition,  certain
subassemblies  used in the Company's products are manufactured by a single third
party vendor.  Financial,  market or other developments  adversely affecting the
Company's  key  component   suppliers,   or  the  loss  of  a  key   subassembly
manufacturer,  could  have an  adverse  effect on their  ability  to supply  the
Company with components or assemblies and,  consequently,  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 assembly services could be arranged,  the process of qualifying new suppliers
could be lengthy, and 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. See "Risk
Factors - Dependence on Third Party Suppliers."

         The Company anticipates that the manufacturing of its new Snap! Server,
including  final  assembly  and  testing,  will  contracted  out to third  party
vendors, some of whom are located in Asia. Initially, Meridian will be dependent
on a few third party  contractors to manufacture its Snap!  Server.  Like its CD
ROM  counterparts,  the Snap!  Server  will be  dependent  on a small  number of
suppliers  for  certain key  components  and parts,  including  microprocessors,
integrated circuits and power modules. In addition,  certain  subassemblies used
will be manufactured by a single third party vendor. Financial,  market or other
developments  adversely affecting the Company's key component suppliers,  or the
loss of a key  subassembly  manufacturer,  could have an adverse effect on their
ability to supply the Company with components or assemblies  and,  consequently,
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 assembly  services could be arranged,  the
process  of  qualifying  new  suppliers  would be  lengthy,  and 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. See "Risk Factors - Dependence on
Third Party Suppliers."

COMPETITION

         The markets for the Company's products are extremely  competitive,  and
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.  Many of the  Company's
competitors have entrenched market positions,  established patents,  copyrights,
trade  names,  trademarks  and  intellectual  property  rights  and  substantial
technological  capabilities.  The Company's  current  competitors  in the CD ROM
networking  market  include other  suppliers of CD ROM  networking  software and
hardware   such  as  Procom   Technology,   Microtest,   Inc.  and   Microdesign
International.  The Company also competes  indirectly with suppliers of personal
computers,  like Dell Computers,  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  computers
market. 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.

         Initially,  the Company's  Snap!  Server will compete with  alternative
methods of adding storage to PC-LAN  networks such as adding new PC servers from
companies such as Dell  Computers,  Compaq and IBM, and adding  additional  disk
drives from manufacturers such as Seagate and Maxtor to existing servers.  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 the
Snap!  Server  or  adapt  more  quickly  than  the  Company  to new or  emerging
technologies, evolving industry trends or changing customer requirements.

         The Company believes that its ability to compete successfully in the CD
ROM  networking and NAS markets will depend upon a number of factors both within
and outside of its control,  including price,  quality,  product performance and
features;  timing of new product introductions by the Company, its customers and
competitors;  customer  service and  technical  support;  and the ability of the
Company to respond more quickly than current or potential  competitors to new or
emerging  technologies,   evolving  industry  trends  and  changes  in  customer
requirements  and  to  devote  greater   resources  than  current  or  potential
competitors  to the  development,  promotion  and sale of products.  The Company
believes that it competes favorably with respect to these factors.  There can be
no  assurance  however  that the  Company  will  have the  financial  resources,
technical expertise, or marketing,  sales, distribution and customer service and
technical support capabilities to compete successfully.

                                  RISK FACTORS

         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.
From that point the Company operated profitably until the first quarter of 1997,
when it again  began  incurring  net  losses.  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 in response to competitive
pressures.  Even if unit shipments were to increase in the future,  there can be
no assurance  that prices for the Company's  products will not decrease  further
due to competitive pricing pressures.  Accordingly, the Company may not meet its
total revenue goals and the Company's  results of operations and liquidity would
be materially adversely affected.  As a result of expenses related to completing
the  engineering   development  and  developing  and  implementing  the  initial
marketing campaign of Meridian's new Snap! Server, the Company  anticipates that
it will operate at a substantial net operating loss for 1998.

         The Company  generally  ships its software  and systems  within a short
period after receipt of an order,  therefore the Company typically does not have
a material  backlog of  unfilled  orders.  Accordingly,  total  revenues  in any
quarter are substantially  dependent on orders booked in that quarter.  This may
result in quarterly  fluctuations in revenue.  The Company's  expense levels are
based, in part, on its  expectations  as to future sales. As a result,  if sales
levels are below expectations,  net income may be  disproportionately  affected.
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 the Company's 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 1997,  identifiable sales to federal
governmental  agencies  accounted for approximately 14% 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  and annual  results would 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 would 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.  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."

NEW PRODUCT  DEVELOPMENT.  The Company is actively developing products for entry
into non-CD ROM networking  markets,  such as the new Snap!  Server.  Such entry
entails  substantially  higher  risks to the Company in the form of new and well
established   competition,   and  competitive   dynamics  different  than  those
experienced in the CD ROM networking market. In attempting to successfully enter
the NAS  market  and  other  new  markets,  the  Company  will have to commit to
significant  levels of  engineering,  sales  and  marketing  expenditures.  With
respect to NAS,  Meridian must also  successfully  educate the market concerning
the practicality of changing from conventional  means of adding storage capacity
to PC networks to  installing  its new Snap!  Server.  There can be no assurance
that the Company will be successful  in  developing  and marketing its new Snap!
Server or other new products,  that the Company will not experience difficulties
that  could  delay or  prevent  the  successful  development,  introduction  and
marketing of the new Snap!  Server or other new products,  or that its new Snap!
Server  or other new  products  will  adequately  meet the  requirements  of the
marketplace  and  achieve  market  acceptance.  If the  Company is  unable,  for
technological or other reasons, to develop and introduce its new Snap! Server or
other new products in a timely manner in response to changing market  conditions
or  customer  requirements,   the  Company's  business,  operating  results  and
financial  condition  will  all be  materially  adversely  affected.  Due to the
complexity of the Company's Snap! Server and other contemplated new products and
the  difficulty in gauging the  engineering  effort  required to produce the new
Snap!  Server and other potential new products,  such potential new products are
subject to significant technical risks. There can be no assurance that the Snap!
Server and other  potential new products will be introduced on a timely basis or
at all. In addition,  there can be no assurance that the Company will be able to
offer the  functionality  and  ease-of-use  that it  believes  the Snap!  Server
requires for a successful introduction.  If the new products are delayed, do not
offer the  functionality  and ease-of-use  envisioned,  or do not achieve market
acceptance,  the Company's  business,  operating results and financial condition
will be materially  adversely affected.  As a result of uncertainty with respect
to Snap!  Server  revenues and  anticipated  expenses  required to  successfully
develop and market this product, the Company anticipates that it will operate at
a substantial net loss in 1998.

DEPENDENCE ON THIRD PARTY DISTRIBUTORS. The Company derives substantially all of
its product sales through distributors and VARs. Two distributors  accounted for
21% and 19%,  respectively,  of the Company's  1997 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 from  distributors 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. There can be no assurance that
the  Company's  distributors  and VARs will 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

         The  Company  anticipates  that it will  begin  shipping  its new Snap!
Server in the second  quarter of 1998. The Snap!  Server will require  different
marketing,  sales and  distribution  strategies  than  those  for the  Company's
current products.  As such, it entails significant new risks to Meridian.  There
can be no assurance that the Company's  distributors  and VARs will choose or be
able to  effectively  market  this new  product or to that the  Company  will be
successful in establishing other modes of marketing, sales, and distribution.  A
failure of the  Company's  distributors  and VARs to  successfully  market  this
product,  or the failure to  establish  other  means of  marketing,  sales,  and
distribution,  would have a material  adverse effect on the Company's  business,
financial condition 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
and DVD drives,  microprocessors,  integrated  circuits and power  modules.  The
Company purchases these components  pursuant to periodic  purchase orders,  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.  In the
past,  there has been  unexpected  significant  growth in the  demand for CD ROM
drives, which has caused temporary supply disruptions. 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.

         The Company anticipates that the manufacturing of its new Snap! Server,
including  final  assembly  and  testing,  will  contracted  out to third  party
vendors,  some of whom may be  located  in  Asia.  Initially,  Meridian  will be
dependent on a few third party  contractors.  Like its CD ROM counterparts,  the
Snap!  Server will be dependent  on a small number of suppliers  for certain key
components and parts, including  microprocessors,  integrated circuits and power
modules.  In addition,  certain  subassemblies  used will be  manufactured  by a
single third party vendor.  Financial,  market or other  developments  adversely
affecting  the  Company's  key  component  suppliers,  or  the  loss  of  a  key
subassembly  manufacturer,  could  have an  adverse  effect on their  ability to
supply the Company with components or assemblies and, consequently, could have a
material  adverse effect upon the Company's  business,  financial  condition and
results of operations. The process of qualifying new suppliers would be lengthy,
and 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

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 a manner that 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 such  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  CD ROM  products  are  extremely
competitive.  The  Company  expects  that  competition  will  increase  if  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.

         Initially,  the Company's  Snap!  Server will compete with  alternative
methods of adding storage to PC-LAN  networks such as adding new PC servers from
companies such as Dell  Computers,  Compaq and IBM, and adding  additional  disk
drives from manufacturers such as Seagate and Maxtor to existing servers.  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 the
Snap!  Server  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.

         The Company believes that its ability to compete successfully in the CD
ROM  networking and NAS markets will depend upon a number of factors both within
and outside of its control,  including price,  quality,  product performance and
features;  timing of new product introductions by the Company, its customers and
competitors;  customer  service and  technical  support;  and the ability of the
Company to respond more quickly than current or potential  competitors to new or
emerging  technologies,   evolving  industry  trends  and  changes  in  customer
requirements  and  to  devote  greater   resources  than  current  or  potential
competitors  to the  development,  promotion  and sale of products.  The Company
believes that it competes favorably with respect to these factors.  There can be
no  assurance  however  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.  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  12% of
total  product sales in 1997.  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 part on the  growth  in  market  share  for CD ROM
networking  products  and its  success in the new NAS  market.  While there is a
substantial  installed base of CD ROM drives in the United States, growth in the
CD ROM  networking  market is  primarily in  entry-level  systems with low price
points.  There can be no assurance  that the  Company's  products will be widely
accepted  in  these  emerging  markets.  If  demand  for  the  Company's  CD ROM
networking  products continues to decrease,  the Company's  business,  financial
condition and results of operations would be materially  adversely affected.  In
addition,  if CD ROM server  products were to 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  will be
materially adversely affected.

         The Company's future financial performance will depend in large part on
the  success of its Snap!  Server and  growth in demand  for NAS  products.  The
market for NAS appliances is new and undeveloped. There can be no assurance that
the Company's  products  will be widely  accepted in this  emerging  market.  If
demand for the Snap!  Server fails to develop,  or develops more slowly than the
Company currently anticipates,  the Company's business,  financial condition and
results of operations would 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 no  experience  with the NAS  appliances  market  that the
Company contemplates  entering.  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 stockholders. 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.  Litigation  may be necessary to protect the  Company's  proprietary
rights. Any such litigation may be time-consuming  and costly. 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 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 and NAS appliance industries, 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.

ANTI-TAKEOVER  EFFECT OF STOCKHOLDER  RIGHTS PLAN AND CERTAIN  CHARTER AND BYLAW
PROVISIONS.  In February 1997, the Company's  Board of Directors  authorized the
Company's reincorporation in the State of Delaware (the "Reincorporation").  The
Company's  Reincorporation  was approved by its  stockholders  in April 1997 and
effective in May 1997.

         In July 1997,  the  Company's  Board of  Directors  adopted a Preferred
Shares Rights Plan (the "Rights Plan").  The Rights Plan provides for a dividend
distribution  of one  Preferred  Shares  Purchase  Right  (a  "Right")  on  each
outstanding  share  of the  Company's  Common  Stock.  The  Rights  will  become
exercisable   following  the  tenth  day  after  a  person  or  group  announces
acquisition  of  15% or  more  of  the  Company's  Common  Stock,  or  announces
commencement  of a tender  offer,  the  consummation  of which  would  result in
ownership by the person or group of 15% or more of the  Company's  Common Stock.
The Company will be entitled to redeem the Rights at $0.01 per Right at any time
on or before the tenth day following  acquisition by a person or group of 15% of
more of the Company's Common Stock.

         The Rights Plan and certain provisions of the Company's  Certificate of
Incorporation  and Bylaws may have the effect of making it more  difficult for a
third party to acquire,  or of  discouraging  a third party from  attempting  to
acquire,  control of the Company.  The Company's  Certificate  of  Incorporation
allows the Company to issue  Preferred  Stock without any vote or further action
by the  stockholders,  and certain  provisions of the Company's  Certificate  of
Incorporation  and  Bylaws  specify  procedures  for  director   nominations  by
stockholders and submission of other proposals for  consideration at stockholder
meetings, and eliminate cumulative voting in the election of directors.  Certain
provisions  of  Delaware  law could also delay or make more  difficult a merger,
tender offer or proxy  contest  involving  the Company,  including  Section 203,
which prohibits a Delaware corporation from engaging in any business combination
with any  interested  stockholder  for a period of three  years  unless  certain
conditions are met. The Rights Plan, the possible  issuance of Preferred  Stock,
the procedures required for director  nominations and stockholder  proposals and
Delaware law could have the effect of delaying, deferring or preventing a change
in control of the Company,  including without  limitation,  discouraging a proxy
contest or making more difficult the  acquisition of a substantial  block of the
Company's  Common  Stock.  These  provisions  could  also  limit the price  that
investors  might be willing  to pay in the  future  for shares of the  Company's
Common Stock.

EMPLOYEES

         As of December 31, 1997, the Company  employed 98 individuals,  of whom
28 were employed in manufacturing,  21 in research and development,  26 in sales
and  marketing,  9 in  customer  support,  3 in  product  management,  and 11 in
administration  and finance.  Competition  in the recruiting of personnel in the
computer  and  networking  industry is intense.  The Company  believes  that its
future  success will depend,  in part,  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. None of the Company's employees are represented by
a labor union or are subject to a collective bargaining  agreement.  The Company
believes that relations with its employees are good.

         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.  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. See "Risk Factors - Dependence on
Key Personnel; Management of Growth."

ITEM 2.  PROPERTIES.

         The Company leases its headquarters  office and manufacturing  facility
in Scotts  Valley,  California,  under a  noncancleable  operating  lease  which
expires in 1999. Other than several small regional sales offices,  primarily all
of the Company's  operations are conducted at the Scotts Valley  location.  This
facility is currently being fully utilized.  With respect to the Company's lease
expiring  in  1999,   management  believes  that  the  current  lease  could  be
renegotiated or a suitable new location can be found at terms  acceptable to the
Company.

ITEM 3.  LEGAL PROCEEDINGS

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

         No  matters  were  submitted  to a vote of the  Company's  stockholders
during the quarter ended December 31, 1997.
<PAGE>
                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The  shares of the  Company's  Common  Stock are  listed on the  NASDAQ
National  Market System under the symbol MDCD.  The following  table sets forth,
for the  periods  indicated,  the high and low  sales  price  per  share for the
Company's Common Stock as reported by NASDAQ.

   YEAR ENDED DECEMBER 31, 1997                               HIGH          LOW
   ----------------------------                               ----          ---
   First quarter........................................    $ 7.75        $3.88
   Second quarter.......................................      4.69         3.38
   Third quarter........................................      5.50         3.88
   Fourth quarter.......................................      5.50         3.50

   YEAR ENDED DECEMBER 31, 1996                               HIGH          LOW
   ----------------------------                               ----          ---
   First quarter........................................    $12.69        $8.88
   Second quarter.......................................     19.00         7.50
   Third quarter........................................      9.69         6.63
   Fourth quarter.......................................      8.00         6.38

         As of March 6,  1998,  there  were 98  stockholders  of  record  of the
Company's Common Stock and approximately  4,000 beneficial  owners.  The Company
has never declared or paid any cash dividends on its capital stock.  The Company
currently  intends  to  retain  earnings  for use in its  business  and does not
anticipate paying cash dividends in the foreseeable future.

ITEM 6.  SELECTED FINANCIAL DATA.

         The following is a summary of the Company's unaudited quarterly results
for the four quarters ended December 31, 1997 and 1996. In management's opinion,
these  results  have  been  prepared  on a basis  consistent  with  the  audited
financial  statements  contained  elsewhere herein, and include all adjustments,
consisting  only  of  normal  recurring   adjustments,   necessary  for  a  fair
presentation of the information for the periods  presented.  The information set
forth below is not  necessarily  indicative of the results of future  operations
and  should  be read in  conjunction  with the  financial  statements  and notes
thereto appearing in Item 8 of this report.

                            QUARTERLY FINANCIAL DATA

                                                 1997 QUARTER ENDED
                                     MARCH 31,  JUNE 30,   SEPT. 30,    DEC. 31,
                                (In thousands, except per share data)
Total revenues....................... $ 3,009    $5,547     $ 6,151     $ 5,261
Loss from operations.................  (3,816)     (928)     (1,859)     (3,169)
Net loss ............................  (3,299)     (372)     (1,404)     (2,703)
Net loss per share (basic/diluted)... $ (0.34)   $(0.04)    $ (0.16)    $ (0.31)

                                                 1996 QUARTER ENDED
                                     MARCH 31,  JUNE 30,   SEPT. 30,    DEC. 31,
                                (In thousands, except per share data)
Total revenues....................... $ 7,062    $6,402      $6,652      $6,000
Income from operations ..............     848       951       1,065          45
Net income ..........................   1,013     1,242       1,503         516
Net income per share (basic)......... $  0.13    $ 0.14      $ 0.16      $ 0.05
Net income per share (diluted)....... $  0.12    $ 0.13      $ 0.15      $ 0.05

         The following is a summary of the Company's  results for the five years
ended December 31, 1997. In management's opinion,  these have been prepared on a
basis  consistent  with the audited  financial  statements  contained  elsewhere
herein,  and  include  all  adjustments,  consisting  only of  normal  recurring
adjustments,  necessary  for a fair  presentation  of the  information  for  the
periods presented. The information set forth below is not necessarily indicative
of the results of future  operations and should be read in conjunction  with the
financial statements and notes thereto appearing in Item 8 of this report.
<TABLE>
<CAPTION>
                           FIVE YEAR FINANCIAL SUMMARY
                   (In thousands, except per share data)
                                                                              YEARS ENDED DECEMBER 31,
                                                                      1997        1996        1995        1994       1993
                                                                      ----        ----        ----        ----       ----
<S>                                                                <C>         <C>         <C>         <C>         <C>
Revenues:
 Product sales...................................................  $19,968     $26,116     $23,426     $ 1,957     $   276
 Other revenue...................................................       --          --       1,869       3,954      21,676
                                                                    ------     -------      ------      ------      ------
Total revenues...................................................   19,968      26,116      25,295       5,911      21,952
Cost of product sales and amortization of purchased technology...    9,570      10,162      12,605       1,070          13
Cost of product sales and services to and royalties from IBM.....       --          --          --       4,365      14,801
Income (loss) from operations (1)................................   (9,772)      2,909       1,808     (28,534)      5,956
Net income (loss) (1)............................................   (7,778)      4,274       2,500     (27,507)      6,782
Net income (loss) per share (basic)..............................  $ (0.86)    $  0.47     $  0.32     $ (3.69)    $  1.12
Net income (loss) per share (diluted)............................  $ (0.86)    $  0.44     $  0.30     $ (3.69)    $  0.97
<FN>
1)  Includes a charge for in-process R&D of $21,245 in 1994.
</FN>
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,                                                          1997        1996        1995        1994        1993
                                                                      ----        ----        ----        ----        ----
<S>                                                                <C>         <C>         <C>         <C>         <C>
Cash and cash equivalents........................................  $15,167     $24,809     $11,752     $ 8,692     $ 4,145
Marketable securities............................................   16,722      14,340       5,900       5,077      34,031
Restricted cash..................................................       --          --          --      21,201          --
Working capital..................................................   29,355      39,760      15,788      10,591      36,007
Total assets.....................................................   37,491      45,245      22,823      39,793      41,832
Stockholders' equity.............................................   30,085      41,230      16,373      11,445      37,809
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

GENERAL

         Prior to 1995,  the Company  (then known as  Parallan  Computer,  Inc.)
developed and supported high performance network superservers.  During 1994, the
Company  exited  its prior  business  and  product  line,  which  had  generated
substantial losses. The Company  fundamentally  changed its business in December
1994 with the purchase of Meridian Data,  Inc.  (MDI).  The total purchase price
was $23.1 million.  The  acquisition was accounted for using the purchase method
of accounting  and included $21.2 million  allocated to in-process  research and
development  which was  charged  to  expense  on  December  1,  1994.  Since the
acquisition,  the Company has been engaged in the business of  developing CD ROM
software  products and selling CD ROM  networking  software both  separately and
integrated with CD ROM network servers.

         In order to bring its skills and  expertise in  networking  systems and
channel distribution to a larger market, Meridian embarked on the development of
its first  non-CD ROM  networking  system in late 1996.  In February  1998,  the
Company  premiered a  prototype  of its Snap!  Server at the DEMO 98 show.  This
represents  an  entirely  new  product  classification  for the  Company and the
marketplace.  The  Snap!  Server  is  a  protocol-independent,   plug  and  play
network-attached  storage  ("NAS") device  targeted for the PC-LAN  environment.
Snap!  Server will attempt to provide  superior  ease-of-use and installation of
any  competitive  product  or  competing  method  for  adding  storage to PC LAN
networks. According to Peripheral Concepts, Inc., an independent market research
firm, the market for NAS has been estimated to be approximately  $800 million in
1997 and is projected to grow to $1.2 billion in 1998.  While final  pricing has
not been set,  the  Company  anticipates  that its Snap!  Server will retail for
under $2,000.  There can be no assurance that the Company's current or potential
competitors will not develop products comparable or superior to the Snap! Server
or adapt more quickly than the Company to new or emerging technologies, evolving
industry trends or changing customer requirements. The Snap! Server will require
different  marketing,  sales  and  distribution  strategies  than  those for the
Company's current CD ROM products.  There can be no assurance that the Company's
distributors  and VARs will  choose or be able to  effectively  market  this new
product,  nor  that the  Company  will be  successful  in  developing  alternate
channels of distribution.  Nor can there be any assurance that the Snap!  Server
will be a commercial  success. A failure of the Company's  distributors and VARs
to successfully market the Company's new products, or the failure to develop new
channels of  distribution,  or the failure to obtain market  acceptance  for the
Snap!  Server,  would have a material adverse effect on the Company's  business,
financial condition and results of operations.

         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. Meridian currently has
no orders for the Snap!  Server. 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;
seasonality; mix of software and systems sales; 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 VARs. In 1997, 1996 and 1995,  identifiable  sales to
federal  governmental  agencies  accounted for  approximately  14%, 11% and 17%,
respectively,  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 would 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  would 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.

         The Company utilizes standard,  off-the-shelf  software, for all phases
of its operations, including production, distribution and accounting. Since some
of these  programs  recognize  only the last two  digits of the year in any date
(e.g. "98" for "1998"), some software may fail to operate in 1999 or 2000 if the
software is not reprogrammed or replaced (the "Year 2000 Problem").  The Company
believes that its  suppliers,  distributors,  and customers  also have Year 2000
Problems  which  could  affect  the  Company.  Meridian  is in  the  process  of
developing  a plan to  determine  the  impact  of the Year 2000  Problem  on its
operations. It is not possible, at present, to quantify the overall cost of this
work, or the financial  effect of the Year 2000 Problem if it is not resolved on
a timely  basis  However,  the  company  believes  at  present  that the cost of
addressing  the  Year  2000  Problem  will  not have a  material  effect  on the
Company's financial position, liquidity, or results of operations.

RESULTS OF OPERATIONS

         In late 1996 and early 1997,  the Company  made  several  decisions  to
address the disappointing CD ROM networking  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. Unit shipments
did not increase as anticipated, and, as a result, the Company's sustained a net
operating loss for 1997. In February 1998,  Meridian announced its first, non-CD
ROM  networking  product,  the Snap!  Server.  This  product  is  scheduled  for
commercial  release in the second quarter of 1998. The Company  believes that it
will be several quarters before it achieves  significant  revenues from sales of
the Snap!  Server.  However,  Meridian expenses related to the completion of the
final product and marketing  expenses  related to the  introduction of its Snap!
Server will result in the company  posting a substantial  net operating loss for
1998. See "Risk Factors New Product Development; - Rapid Technological Change; -
Potential  for  Product  Defects;  Competition;  - Emerging  markets;  - Product
concentration."

REVENUES

PRODUCT SALES.  Meridian's product sales decreased from $26.1 million in 1996 to
$20.0 million in 1997.  This  decrease was due to lower  prices,  and lower unit
shipments.  The Company lowered prices  approximately 30% in January of 1997 due
to increased price  competition in the CD ROM networking market and, at the same
time, increased promotional  spending.  Meridian believes that the market for CD
ROM networking  systems has  fundamentally  changed from one in which  customers
purchase integrated, high-end CD ROM servers, to one in which low-cost, plug and
play CD ROM servers, such as Meridian's CD Net Universal line of servers, are in
demand.  Due to this  shift,  Meridian's  sales  mix in 1997  shifted  from  its
high-end  enterprise  systems  to its  entry-level  systems,  such as the CD Net
Universal  server.  However,  due to much lower price points,  the impact on the
Company's  overall  revenue was  insufficient  to offset lower  high-end  system
sales. The Company does not expect that sales from its low-end systems will grow
to the extent required to completely offset lower prices of high-end systems. As
such,  revenues  from the sale of  Meridian's  CD ROM  networking  products  are
anticipated  to be less in  1998  than in  1997.  The  Company's  product  sales
increased  from $23.4  million in 1995 to $26.1  million in 1996, an increase of
approximately  12%,  due to higher  sales in the  first  quarter  of 1996.  This
increase was driven by sales of new software products  released  throughout 1995
and a resulting  increase in the Company's system sales. Sales for the last nine
months of 1996 were flat over the comparable  period of 1995.  During this time,
the Company's revenue mix shifted towards higher software sales and lower system
sales.  This was due to increasing  price  competition on system sales beginning
late in the second quarter of 1996 and a heavy promotional  emphasis on software
products by the Company throughout 1996.

         The  Company's  sales in 1996 were  favorably  impacted by new software
products   released  in  1995.   Included  in  the  Company's  1996  sales  were
approximately $330,000 from the sale of two software site licenses. Beginning in
the second quarter of 1996, and continuing throughout the remainder of the year,
Meridian's revenue mix shifted towards higher software content,  and lower sales
of systems. The Company experienced increased price competition from its largest
competitors for its high-end system sales. As this trend  continued,  Meridian's
revenue growth slowed, while gross margin increased.

         The  Company's  product  sales in early  1995  consisted  primarily  of
DOS-based  products,  some of which  had  become  non-competitive.  Sales  began
increasing  in the  second  quarter  of 1995,  primarily  due to the  commercial
release of the Company's Windows-based CD Net PLUS v6.0 and customer response to
increased advertising.

         Approximately  93% of the  Company's  product  sales are  derived  from
two-tier  distribution sales to distributors and VARs. Two distributors,  Ingram
Micro, Inc. and TechData Corporation,  accounted for 21% and 19%,  respectively,
of Meridian's 1997 product sales.  The loss of any of these customers would have
a  material  adverse  effect  on the  Company's  results  of  operations.  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."

OTHER REVENUE.  Other revenue totaling $1.9 million in 1995 consisted  primarily
of a non-recurring sale of OEM software relating to the Company's former network
superservers product line.

GROSS MARGIN

         Gross margin decreased from 61% in 1996 to 52% in 1997 due to the price
reduction  announced in January 1997,  lower software sales,  and a shift in the
Company's  system  mix to  low-end  systems.  Gross  margin  on  product  sales,
exclusive of amortization of purchased technology, increased from 48% in 1995 to
61% in 1996. This increase was due to the higher proportion of software sales in
the  Company's  revenue mix in relation to systems  sales,  site  licenses,  and
increased price/performance ratios for CD ROM drives. The Company's gross margin
was 46% in 1995, including amortization of purchased technology of $455,000.

         As a result of the  continuing  shift in the  Company's  product  sales
towards  systems  with lower  price  points  and  continued  pricing  pressures,
Meridian anticipates that gross margins from its CD ROM networking products will
decrease in 1998.  While final  pricing  has not been  established,  the Company
anticipates  that its new Snap!  Server will  generate  lower  margins  than its
existing CD ROM products.

         For a discussion  of certain  risks  affecting  cost of sales and gross
margins,  see "Risk  Factors -  Dependence  on Third  Party  Suppliers"  and " -
Expansion of International Operations; Foreign Currency Fluctuations."

OPERATING EXPENSES

RESEARCH  AND  DEVELOPMENT.  Research and  development  expense in 1997 was $6.3
million,  an increase of approximately $3.0 million over 1996. This increase was
due to costs  incurred in developing  Meridian's new Snap!  Server.  The Company
anticipates that research and development  expenses will continue to increase as
it  completes  work on the Snap!  Server  and begins  development  on its second
generation  Snap!  Server.  Research  and  development  expense in 1996 was $3.3
million,  an increase of $0.8 million over 1995. This increase was due to higher
payroll and  overhead  expenses,  and the  amortization  of an advance made to a
development stage company ("DSC"). In June of 1997, DSC repaid the advance. This
was recorded as a credit against research and development expense. Also included
in the Company's  research and  development  expense for 1997 was a $1.0 million
charge for the  acquisition of technology to be used in the Snap!  Server.  This
charge was offset by the receipt of the proceeds from the advance.  Research and
development  expense consists of salaries and related  expenses  incurred in the
development  of  the  Company's  products,   as  well  as  expenses  related  to
consultants and prototype material purchased in the development of the Company's
new  products.  For a  discussion  of  certain  risks  related to  research  and
development,  see "Risk  Factors - Rapid  Technological  Change;  Potential  for
Product Defects."

         In February 1998, the Company premiered a prototype of its first non-CD
ROM  product,  the Snap!  Server.  Meridian's  Snap  Server  attempts to provide
superior  ease-of-use and  installation of any competitive  product or competing
method for adding  storage to PC LAN  networks.  As such,  it must be compatible
with all major PC networks operating systems  (Microsoft,  Novell, and UNIX) and
protocols (TCP/IP, IPX, NetBEUI, HTTP, etc.) concurrently.  In addition, it must
be  able  to work  in  mixed  network  environments  with  the  same  ease as in
heterogeneous  environments.   Such  compatibility  may  be  difficult,  if  not
impossible  to  obtain.  Failure  to achieve  such  compatibility  could have an
adverse effect on the market's  acceptance of the Snap! Server.  There can be no
assurance that the Company's  current or potential  competitors will not develop
products  comparable or superior to the Snap!  Server or adapt more quickly than
the  Company  to new or  emerging  technologies,  evolving  industry  trends  or
changing customer  requirements.  Meridian's failure to successfully develop and
introduce the Snap! Server would have a material adverse effect on the Company's
business,  financial  condition and results of  operations.  See "Risk Factors -
Dependence  on Third  Party  Distributors;  - New Product  Development;  - Rapid
Technological  Change;  Potential for Product Defects;  - Competition;  Emerging
Markets; Product Concentration."

SALES AND MARKETING.  Sales and marketing expense consists  primarily of payroll
and related expenses,  including commissions,  and advertising related expenses.
Sales and  marketing  expense in 1997 was $11.0  million,  an  increase  of $3.5
million over 1996.  This increase was primarily  due to higher  advertising  and
related  expenditures,  increased  payroll,  and  expenses  related to marketing
studies of the NAS market.  As a result of planned  expenditures  related to the
introduction of the Snap!  Server,  the Company expects that sales and marketing
expenses will increase  substantially  in 1998. The Snap!  Server will require a
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  this new
product or to continue to market the Company's existing products.  Nor can their
be any  assurance  that  the  Company  will  successfully  develop  any such new
channels.  A failure  of the  Company's  distributors  and VARs to  successfully
market the Company's  products,  or the failure to develop alternate channels of
distribution for the Snap!  Server,  would have a material adverse effect on the
Company's business, financial condition and results of operations.

         Sales and  marketing  expense was $7.5 million in 1996,  an increase of
approximately  $1.3 million,  over 1995. This increase was due to higher payroll
and related expenses,  and increased advertising and promotional  expenses.  The
increase in advertising  and promotional  expenses was primarily  related to the
heightened  competitive  environment  which  began  in  early  1996.  Sales  and
marketing  expense  was  $6.2 in 1995.  In the  later  part of 1995 the  Company
expanded its marketing efforts, increased its product introduction expenses, and
shifted its  advertising  from  vertical  niche  periodicals  to broad  industry
publications, such as PC Week and LAN Times.

         For a discussion of certain risks relating to sales and marketing,  see
"Risk  Factors  -  Dependence  on Third  Party  Distributors"  and " -  Emerging
Markets; Product Concentration"; - "New Product Development."

GENERAL  AND  ADMINISTRATIVE.   General  and  administrative   expense  consists
primarily of payroll and related  expenses and occupancy  expenses.  General and
administrative  expense was approximately  $2.8 million in 1997 and $2.2 million
in both 1996 and 1995.  The increase  between 1997 and 1996 was primarily due to
higher payroll expenses and costs incurred with the Company's reincorporation in
Delaware.  General  and  administrative  expense is expected to increase in 1998
both in absolute dollars and as a percent of sales.

OTHER INCOME AND EXPENSE

INTEREST INCOME AND EXPENSE.

         Interest income  increased to $2.0 million in 1997 due to twelve months
of interest  earnings on funds  provided by a public  offering of the  Company's
Common Stock in April 1996.  Interest  income  increased to $1.6 million in 1996
due to a partial year's earnings on the stock proceeds. Interest income was $0.8
million in 1995 due to lower invested balances. Interest income will decrease in
the future as the Company expends funds for the development and marketing of its
Snap! Server and other products.

INCOME TAXES

         The Company had no tax liability in 1997 due to the net operating loss.
The Company's  estimated  effective tax rate for 1996 and 1995 was approximately
5% and 3%  respectively.  This rate is lower than the statutory  rate due to the
utilization  of net operating  loss  carryforwards.  The Company's tax liability
results primarily from federal and state  alternative  minimum taxes, as well as
state  franchise  taxes.  At December 31, 1997,  the Company has a net operating
loss   carryforward   for  U.S.   federal  and  state  income  tax  purposes  of
approximately  $21.0 and $7.0 million,  respectively,  which expire between 1998
and 2012.  The net  operating  loss  carryforward  includes  approximately  $8.9
million of tax deductions resulting from the exercise of employee stock options.
The tax benefit of this  deduction,  when  realized,  will be accounted for as a
credit to  stockholders'  equity  rather than as a  reduction  in the income tax
provision.   The  Company  has  federal  research  and  development  tax  credit
carryovers  of  approximately  $1.5 million at December  31,  1997,  that expire
primarily  in 2003  through  2012.  The  Company's  net  operating  losses,  tax
deductions  and credit  carryforwards  may be limited by changes in ownership as
defined under the Internal  Revenue Code.  Based on the Company's  evaluation of
the weight of available evidence, it cannot conclude that it is more likely than
not that deferred  income tax assets will be realized and therefore has provided
a full deferred income tax valuation allowance at December 31, 1997.

CAPITAL RESOURCES AND LIQUIDITY

     Meridian's  source  of  liquidity  in 1997  was from  cash and  investments
available at December 31, 1996. The Company's negative cash flow from operations
in 1997 was  principally  due to the net operating  loss,  which  included costs
related  to  the  development  of  the  Snap!   Server,   adjusted  for  noncash
depreciation and amortization  charges, the amortization of advance for research
and  development  arrangements,  and an  increase  in  accrued  expenses.  These
adjustments were partially  offset by an increase in inventories.  The Company's
capital expenditures for 1997 were approximately $0.5 million. Meridian's source
of cash flow from operations for 1996 was principally net income from operations
adjusted for noncash  depreciation and amortization charges and the amortization
of advance for research and  development  arrangements.  These were offset by an
increase in accounts  receivable  due to the timing of sales,  and a decrease in
accounts  payable and accrued payroll related  expenses.  The Company's  capital
expenditures for 1996 were approximately  $0.5 million.  The Company's source of
cash flow from  operations for 1995 was  principally  net income from operations
adjusted for noncash depreciation and amortization charges. These were offset by
an increase in accounts receivable due to higher sales, payment of restructuring
expenses accrued at December 31, 1994, and a decrease in deferred revenues.  The
Company's capital  expenditures for 1995 were approximately  $0.4 million.  Also
included in cash flows from  investing  activities  in 1995 was $1.8 million for
cash  released  from  the  restricted  escrow  account  set  up as  part  of the
acquisition of MDI.

         The Company's entry into the NAS market will entail the expenditures of
substantial  funds  for the  completion  of the  Snap!  Server,  implementing  a
nation-wide  marketing campaign,  and developing  distribution  channels for the
Snap!  Server.  These  expenditures may be funded by internally  generated cash,
marketable securities, debt, or additional equity. The sale of additional equity
could result in dilution in the equity ownership of the Company's stockholders.

         Meridian believes that success requires substantial capital in order to
maintain the flexibility to take advantage of  opportunities  as they arise. The
Company  may,  from time to time,  as market and  business  conditions  warrant,
invest in or acquire  complementary  businesses,  products or  technologies,  or
develop  products  in-house  which  leverage  off the  Company's  experience  in
networking software and server development.  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 the Company's stockholders.

         At  December  31,  1997,   Meridian's  principal  source  of  liquidity
consisted of cash and marketable  securities totaling $31.9 million and accounts
receivable  of $2.9  million.  The Company  believes  that its current  cash and
marketable securities,  and accounts receivable will satisfy its working capital
and capital expenditure requirements at least through the end of 1998.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         Certain information required by this Item is included in Item 6 of Part
II  of  this  Report  under  the  heading  "Quarterly  Financial  Data"  and  is
incorporated herein by reference. All other information required by this Item is
included  on  pages  26 to 28 in  Item  14 of  Part  IV of  this  report  and is
incorporated herein by reference.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURES.

         None
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Information  regarding the Directors of the Company is  incorporated by
reference  from the  information  set forth under the caption  "Proposal  No. 1:
Election of  Directors"  in the  Company's  Proxy  Statement for the 1998 Annual
Meeting of  Stockholders  to be filed with the Commission  within 120 days after
the  end of the  Company's  year  ended  December  31,  1997  (the  "1998  Proxy
Statement").  Information  with respect to Directors and Officers of the Company
required by Item 405 of Regulation S-K is incorporated  herein by reference from
information  set forth under the  caption  "Filing of Reports by  Directors  and
Officers" in the 1998 Proxy Statement.

EXECUTIVE AND OTHER OFFICERS OF THE COMPANY

         The  executive  officers of the Company who are elected by and serve at
the discretion of the Board of Directors, and their ages are as follows:

EXECUTIVE OFFICERS

NAME                       AGE   POSITION
----                       ---   -----------------------------------------------
Gianluca U. Rattazzi        45   President, Chief Executive Officer and Director
Charles Joseph              47   Executive Vice President, Sales and Marketing
Erik E. Miller              37   Sr. Vice President, Finance and CFO
Shmuel Shottan              46   Sr. Vice President, Engineering and CTO

         DR.  RATTAZZI  co-founded  the  Company in July 1988.  He has served as
President and a director of the Company since  inception and was appointed Chief
Executive  Officer in October 1992. From 1985 to 1988, Dr. Rattazzi held various
executive level positions at Virtual  Microsystems,  Inc., a computer peripheral
networking  company,  most recently as  President.  Dr.  Rattazzi  holds an M.S.
degree in  Electrical  Engineering  and  Computer  Science  from  University  of
California, Berkeley and a Ph.D. in Physics from University of Rome, Italy.

         MR.  JOSEPH  joined the  Company  as Sr.  Vice  President  of Sales and
Marketing in November  1996,  and was promoted to  Executive  vice  President in
1997.  Prior to  joining  the  Company,  Mr.  Joseph  served as  Executive  Vice
President and General Manager for Trimble  Navigation from 1992 through November
1996. Mr. Joseph holds an MA and BA degree in English  Literature from Marquette
University.

         MR.  MILLER  joined the Company as  Controller  in February  1992.  Mr.
Miller was appointed Vice  President,  Finance in October 1992,  Chief Financial
Officer in January 1993,  and Senior Vice  President in October 1996. Mr. Miller
served as  Director  of  Finance  and  Administration  for  Granger-Telettra,  a
microwave telecommunications company, from September 1988 to February 1992.
Mr. Miller holds a B.S. in Accounting from University of California, Berkeley.

     MR.  SHOTTAN  joined  the  Company  in  September  1993 as Vice  President,
Engineering  and Chief  Technical  Officer.  In October  1996,  Mr.  Shottan was
promoted to Sr. Vice President. Prior to joining the Company, Mr. Shottan served
in various  executive and managerial  positions at AST Research,  Inc.  ("AST"),
most  recently  as Director of Server  Development  from 1989 to 1993.  Prior to
joining AST, Mr. Shottan was with ICL North American Development  Operations,  a
manufacturer of UNIX departmental  servers, from 1982 to 1989. Mr. Shottan holds
a B.S. in Electrical Engineering from Technion,  Israel Institute of Technology,
Haifa, Israel.

OFFICERS

NAME                       AGE   POSITION
----                       ---   -----------------------------------------------
Luciano Dalle Ore           39   Vice President, Advanced Development
Carlo Garbagnati            38   Vice President, Software Development
Trevor Heathorn             39   Vice President, Advanced Software
Kenneth Kuo                 47   Vice President, Manufacturing
Greg Swope                  39   Vice President, Sales

         MR.  DALLE ORE joined the  Company  in June 1996 as Vice  President  of
Advanced  Development.  Prior to joining  the  Company,  Mr.  Dalle Ore was Vice
President  of  Research  and  Development  of  Sextant  Corporation,  a  process
manufacturing  software developer from 1994 through 1996. From 1991 to 1994, Mr.
Dalle Ore was Director of Marketing for MAI Systems." Mr. Dalle Ore holds a BSEE
from Purdue University and a MSEE from Stanford University.

     MR.  GARBAGNATI  joined the Company in November 1988 as Manager of Software
Engineering and was promoted to Director of Software  Systems in August 1993. In
January 1995, he became Vice President,  Software  Development.  Mr.  Garbagnati
holds a B.S. in Electrical  Engineering  from Northrop  University  and an MS in
Electrical Engineering from Stanford University.

     MR.  HEATHORN  joined  the  Company in August  1988 as Manager of  Software
Engineering and was one of the Company's original employees. In August 1993, Mr.
Heathorn  was  promoted  to director of  Advanced  Software  Development  and in
January 1995 to Vice President,  software Development. Mr. Heathorn holds a B.A.
in Engineering and an M.A. in Engineering from Cambridge University, England.

     MR.   KUO  joined  the   Company  in  January   1990  as  Vice   President,
Manufacturing.  From 1986 to 1989,  Mr. Kuo was the Senior  Manager,  Operations
Engineering  at Sun  Microsystems,  Inc.  Mr.  Kuo  holds a B.S.  in  Electrical
Engineering   from  National  Taiwan   University  and  an  M.S.  in  Electrical
Engineering and Computer Science from the University of Cincinnati,  Cincinnati,
Ohio.

     MR. SWOPE joined the Company in November 1995 as Director of OEM Sales.  In
1997 he was promoted to Vice President,  Sales. From 1988 to 1995 Mr. Swope held
various sales and marketing  positions  with The Santa Cruz  Operation,  Inc., a
UNIX networking  software  company.  Mr. Swope holds a B.S. in Computer Sciences
and Business Administration from California State University, Chico.

DISCLOSURE WITH REGARD TO DELINQUENT FILINGS

         Section  16(a) of the Exchange Act  requires  the  Company's  executive
officers  and  directors,  and  persons  who own  more  than  ten  percent  of a
registered class of the Company's equity securities,  to file certain reports of
ownership with the SEC and with the National  Association of Securities Dealers.
Such  officers,  directors  and  stockholders  are also required by SEC rules to
provide the Company with copies of all Section 16(a) forms that they file. Based
solely on its  review of copies of such forms  received  by the  Company,  or on
written  representations  from certain reporting  persons,  the Company believes
that, during the period from January 1, 1997 to December 31, 1997, its executive
officers,  directors  and ten percent  stockholders  filed all required  Section
16(a) reports on a timely basis.

ITEM 11. EXECUTIVE COMPENSATION.

         Information   regarding  executive   compensation  is  incorporated  by
reference from the  information set forth under the caption  "Executive  Officer
Compensation" in the 1998 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         Information  regarding  security ownership of certain beneficial owners
and management is incorporated by reference from the information set forth under
the caption "Record Date and Share Ownership" in the 1998 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Information regarding certain relationships and related transactions is
incorporated  by  reference  from the  information  set forth  under the caption
"Certain Transactions" in the 1998 Proxy Statement.
<PAGE>
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K.

       (a) The following documents are filed as part of this Report:

1. FINANCIAL STATEMENTS. The following financial statements  of the Company  and
   the Report of Independent Accountants, are included in Part IV of this report
   on the pages indicated.                                            
   Report of Independent Accountants....................................      29
   Balance Sheets as of December 31, 1997 and 1996......................      30
   Statements of Operations for the years ended December 31, 1997,
   1996, and 1995.......................................................      31
   Statements of Stockholders' Equity for the years ended December 31,
   1997, 1996, and 1995.................................................      32
   Statements of Cash Flows for the years ended December 31, 1997,
   1996, and 1995.......................................................      33
   Notes to Financial Statements........................................      34

2. FINANCIAL STATEMENT SCHEDULE.  The following financial statement schedule
   of the Company as of and for the years ended December 31, 1997,  1996 and
   1995,  and the Report of Independent  Accountants on Financial  Statement
   Schedule  (page 45) are  included  in Part IV of this Report on the pages
   indicated.   This  financial   statement   schedule  should  be  read  in
   conjunction  with the Financial  Statements,  and notes  thereto,  of the
   Company.

   SCHEDULES    TITLE
      II        Valuation and Qualifying Accounts.......................      46
                Schedules  not listed  above have  been omitted  because
                they are not applicable, not required, or the information
                required to be set forth therein is included in the
                Financial Statements or notes thereto.

3. EXHIBITS (in accordance with Item 601 of Regulation S-K).
  (a)
    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.
    2.2   Agreement and Plan of Merger between Meridian Data, Inc., a California
          corporation,  and Meridian Data, Inc., a Delaware  corporation,  dated
          May  29,1997  previously  filed  as  Exhibit  2.2 to  Registration  of
          Securities of Certain  Successor  Issues on Form 8-B and  incorporated
          herein by reference.
    3.1   Certificate  of  Incorporation  of  Meridian  Data,  Inc.,  a Delaware
          corporation,  previously  filed  as  Exhibit  3.1 to  Registration  of
          Securities of Certain  Successor  Issues on Form 8-B and  incorporated
          herein by reference.
    3.2   Bylaws of Meridian  Data,  Inc.,  a Delaware  corporation,  previously
          filed  as  Exhibit  3.2  to  Registration  of  Securities  of  Certain
          Successor Issues on Form 8-B and incorporated herein by reference..
    4.1   Specimen Common Stock  certificate of Meridian Data,  Inc., a Delaware
          corporation,  previously  filed as Exhibit 4.1 to the Quarterly Report
          on Form 10-Q for the period ended September 30, 1997, and incorporated
          herein by reference.
    4.2   Fourth Article of Certificate of Incorporation of Meridian Data, Inc.,
          a  Delaware  corporation  (see Exhibit 3.1)
    9.1   Stockholders  Agreement,   dated  as  of  June  1,  1992,   among  IBM
          Corporation,  Parallan  Computer,  Inc. and  certain  stockholders  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 by and among Meridian Data, Inc., a
          Delaware corporation,  and its directors and officers previously filed
          as Exhibit 10.1B to  Registration  of Securities of Certain  Successor
          Issues on Form 8-B 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  stockholders  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.
   10.10  Master  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.
   10.11  Secured  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.
   10.13  Master  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.
   10.14  Master  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.
   10.15  Amendment to the Master Work Agreement and Marketing  Agreement  dated
          as of  March  31,  1994,  between  Parallan  Computer,  Inc.  and  IBM
          Corporation.
   10.16  Meridian 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.
   10.17  Stock Option Assignment and Exercise Agreement between the Registrant,
          International  Business Machines  Corporation and certain stockholders
          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.
   10.18  Meridian 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.
   10.19  Meridian Data,  Inc. 1997  Incentive  Stock Plan and form of agreement
          thereunder  previously  filed  as  Exhibit  10.19 to  Registration  of
          Securities of Certain  Successor  Issues on Form 8-B and  incorporated
          herein by reference.
   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                                             47

  (b) Reports on Form 8-K.

                 None

  (c)  Exhibits.

                 See Item 14(a)3 above.

  (d)  Financial Statement Schedule.

                 See Item 14(a)2 above.
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Meridian Data, Inc.

In our opinion,  the accompanying  balance sheets and the related  statements of
operations,  of  stockholders'  equity and of cash flows present fairly,  in all
material respects, the financial position of Meridian Data, Inc. at December 31,
1997 and 1996,  and the results of its operations and its cash flows for each of
the three years in the period  ended  December  31,  1997,  in  conformity  with
generally accepted  accounting  principles.  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 of these  statements  in  accordance  with  generally  accepted  auditing
standards which 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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
San Jose, California
January 30, 1998
<PAGE>
                               MERIDIAN DATA, INC.
                                 BALANCE SHEETS
                      (in thousands, except per share data)

                                                    December 31,
                                               1997             1996
ASSETS                                       ------           ------
Current assets:
     Cash and cash equivalents              $15,167          $24,809
     Marketable securities                   16,722           14,340
     Accounts receivable (net of allowance
        for returns and doubtful accounts
        of $543 and $512, respectively)       2,949            2,991
     Inventories                              1,795            1,311
     Other assets                               128              324
                                             ------           ------
         Total current assets                36,761           43,775

Property and equipment at cost,
   less accumulated depreciation                714              653
Other assets                                     16              817
                                             ------           ------
                                            $37,491          $45,245
                                             ======           ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                       $ 2,371          $ 1,632
     Accrued payroll and related expenses     1,787              686
     Accrued advertising and promotion        1,353              506
     Other accrued liabilities                1,895            1,191
                                             ------           ------
         Total current liabilities            7,406            4,015
                                             ------           ------

Commitments (Note 4)

Stockholders' equity:
     Preferred stock, $0.001 par value,
         5,000 shares authorized, and
         no shares outstanding                   --               --
     Common stock, $0.001 par value,
         35,000 shares authorized,
         8,785 and 9,590 shares issued
         and outstanding                          9           69,578
     Additional paid-in capital              66,207               --
     Unrealized gains on marketable
         securities                              --                5
     Accumulated deficit                    (36,131)         (28,353)
                                             ------           ------
         Total stockholders' equity          30,085           41,230
                                             ------           ------
                                            $37,491          $45,245
                                             ======           ======

The accompanying notes are an integral part of these financial statements.
<PAGE>
                              MERIDIAN DATA, INC.
                            STATEMENTS OF OPERATIONS

                                 YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
 (In thousands, except per share data)     1997        1996        1995
-----------------------------------------------------------------------
Revenues:
     Product sales                      $19,968     $26,116     $23,426
     Other revenue                           --          --       1,869
                                         ------      ------      ------
         Total revenues                  19,968      26,116      25,295
                                         ------      ------      ------
Costs and expenses:
     Cost of product sales                9,570      10,162      12,605
     Research and development             6,340       3,315       2,474
     Sales and marketing                 10,980       7,520       6,238
     General and administrative           2,850       2,210       2,170
                                         ------      ------      ------
         Total costs and expenses        29,740      23,207      23,487
                                         ------      ------      ------
Income (loss) from operations            (9,772)      2,909       1,808
Interest income                           1,994       1,590         776
                                         ------      ------      ------
Income (loss) before income taxes        (7,778)      4,499       2,584
Provision for income taxes                   --        (225)        (84)
                                         ------      ------      ------
Net income (loss)                       $(7,778)    $ 4,274     $ 2,500
                                         ======      ======      ======

Net income (loss) per share:
         Basic                          $ (0.86)    $  0.47     $  0.32
                                         ======      ======      ======
         Diluted                        $ (0.86)    $  0.44     $  0.30
                                         ======      ======      ======

Weighted average common shares
     and equivalents:
         Basic                            9,061       9,066       7,835
                                         ======      ======      ======
         Diluted                          9,061       9,686       8,296
                                         ======      ======      ======

The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
                              MERIDIAN DATA, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)
<CAPTION>
                                                   Additional  Unrealized                        Total
                                 Common Stock      Paid-in     gains (losses)    Accumulated     Stockholders'
                               Shares    Amount    Capital     on investments    Deficit         Equity
<S>                             <C>     <C>        <C>        <C>               <C>             <C>
Balance at December 31, 1994..  7,506   $46,620    $    --     $ (48)            $(35,127)       $11,445
Common stock issued
   under stock plans..........    473       587         --        --                   --            587
Compensation expense related
   to stock options issued
   below market ..............     --        30         --        --                   --             30
Net unrealized gains on
   investments................     --        --         --        54                   --             54
Options exchanged in
   connection with the
   acquisition of MDI.........     --     1,757         --        --                   --          1,757
Net income....................     --        --         --        --                2,500          2,500
                               -------------------------------------------------------------------------
Balance at December 31, 1995..  7,979    48,994         --         6              (32,627)        16,373
Common stock issued under
   stock plans................    259       978         --        --                   --            978
Compensation expense related
   to stock options issued
   below market...............     --        36         --        --                   --             36
Unrealized losses on
   investments................     --        --         --        (1)                  --             (1)
Common Stock issued in a 
   Public Offering, net of
   issuance expenses..........  2,645     36,841        --        --                   --         36,841
Common Stock repurchased...... (1,293)   (17,271)       --        --                   --        (17,271)
Net income....................     --         --        --        --                4,274          4,274
                              --------------------------------------------------------------------------
Balance at December 31, 1996..  9,590     69,578        --         5              (28,353)        41,230
Reincorporation in Delaware...     --    (69,568)   69,568        --                   --             --
Common stock issued under
   stock plans................    223        --        598        --                   --            598
Compensation expense related
   to stock options issued
   below market...............     --        --          6        --                   --              6
Unrealized losses on
   investments................     --        --         --        (5)                  --             (5)
Common Stock repurchased...... (1,028)       (1)    (3,965)       --                   --         (3,966)
Net loss......................     --        --         --        --               (7,778)        (7,778)
                              --------------------------------------------------------------------------
Balance at December 31, 1997..  8,785     $   9     66,207     $  --             $(36,131)       $30,085
                              ==========================================================================
The accompanying notes are an integral part of these financial statements.

</TABLE>
<PAGE>
                              MERIDIAN DATA, INC.
                            STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                                      Year ended December 31,
                                                    1997        1996       1995
-------------------------------------------------------------------------------
Cash flows from operating activities:
   Net income (loss)                            $ (7,778)   $  4,274    $ 2,500
   Adjustments to reconcile net income
        (loss) to net cash provided by
        (used in) operating activities:
      Compensation expense related to stock
           options issued below market value           6          36         30
      Depreciation and amortization                  474         401        685
      Amortization of advance for research and   
           development arrangements                  800         200         --
      Changes in assets and liabilities:
         Accounts receivable                          42        (219)      (801)
         Inventories                                (484)       (193)        75
         Other assets                                197        (199)         7
         Advance for research and development
            arrangement                               --      (1,000)        --
         Accounts payable                            739        (787)       508
         Accrued payroll and related expenses      1,101        (756)       411
         Accrued advertising and promotion           847          76        (79)
         Other accrued liabilities                   704        (398)    (1,515)
                                                 -------     -------     ------
            Net cash provided by (used in)
               operating activities               (3,352)      1,435      1,821
                                                 -------     -------     ------
Cash flows from investing activities:
     Purchases of property and equipment            (535)       (485)      (404)
     Restricted cash released from restricted
        escrow account                                --          --      1,825
     Redemption of marketable securities          37,547      11,978      5,115
     Additions to marketable securities          (39,934     (20,419)    (5,884)
                                                 -------     -------     ------
           Net cash provided by (used in)
              investing activities                (2,922)     (8,926)       652
                                                 -------     -------     ------
Cash flows from financing activities:
     Repurchase of Common Stock                   (3,966)    (17,271)        --
     Issuance of Common Stock, net                    --      36,841         --
     Issuance of Common Stock related to
        stock plans                                  598         978        587
                                                 -------     -------     ------
           Net cash provided by (used in)
              financing activities                (3,368)     20,548        587
                                                 -------     -------     ------
Net (decrease) increase in cash and
     cash equivalents                             (9,642)     13,057      3,060
Cash and cash equivalents at beginning of year    24,809      11,752      8,692
                                                 -------     -------     ------
Cash and cash equivalents at end of year        $ 15,167    $ 24,809    $11,752
                                                 =======     =======     ======
Supplemental disclosure of cash
   flow information:
        Cash paid during the year for:
                  Interest                      $      8    $     18    $    20
                  Taxes                               32         126         32

The accompanying notes are an integral part of these financial statements.
<PAGE>
                               MERIDIAN DATA, INC.
         NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
                              1997, 1996, AND 1995

NOTE 1 _ THE COMPANY:

         Meridian Data,  Inc. (the "Company" or  "Meridian"),  formerly known as
Parallan  Computer,  Inc., was incorporated in 1988 and is currently  engaged in
the development of CD ROM and CD R networking  products for Novell,  Windows NT,
and Banyan  networking  environments,  and related client software.

NOTE 2 _ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

         Cash  equivalents  consist  of  highly  liquid  investment  instruments
purchased  with original  maturities of three months or less. The carrying value
of cash and cash equivalents  approximates their estimated fair market value. At
December 31, 1997 and 1996,  the  Company's  marketable  securities,  consisting
primarily  of  government  and  corporate  bonds,  certificates  of deposit  and
commercial  paper, are classified as available for sale and are reported at fair
market value based on quoted market prices, which approximates cost.
Any unrealized gains or losses recorded as a separate component of stockholders'
equity.

CONCENTRATION OF CREDIT RISK

         Financial   instruments  which  potentially   subject  the  Company  to
concentrations  of  credit  risk  consist   principally  of  unsecured  accounts
receivable  and  investments  in  government  and high  grade  corporate  bonds,
certificates  of deposit,  and  commercial  paper.  The Company  places its cash
primarily in investment  accounts under professional  management.  The Company's
investment  policy limits the amount of credit  exposure to any one issuer.  The
Company's  investment  policy  also  attempts  to limit  interest  rate  risk by
restricting any concentration of maturities.  Meridian's accounts receivable are
primarily derived from sales to distributors and value added resellers (VARs) in
the United  States.  The Company  performs  ongoing  credit  evaluations  of its
customers'  financial  condition and  maintains an allowance  for  uncollectible
accounts based upon the expected  collectibility of all accounts  receivable and
has not experienced  material losses to date. At December 31, 1997 and 1996, two
customers accounted for 44% and five customers accounted for 50%,  respectively,
of the Company's gross accounts receivable.

INVENTORIES

         Inventories  are  valued  at the  lower of  cost,  using  the  first-in
first-out method, or market.

RESEARCH AND DEVELOPMENT COSTS

         The Company  charges  research and  development  costs to operations as
incurred.  Statement of Financial  Accounting  Standards No. 86 "Accounting  for
Costs of Computer Software to be Sold,  Leased, or Otherwise  Marketed" requires
capitalization  of  certain  software   development  costs  after  technological
feasibility of software is established upon the completion of the working model.
Development  costs incurred by the Company after completion of the working model
and  prior to  commercial  release  have  been  insignificant  and all  software
development costs since 1993 have been expensed as incurred.

PROPERTY AND EQUIPMENT

         Property and equipment, including leasehold improvements, are stated at
cost.  Depreciation and amortization is computed using the straight-line  method
over the estimated useful lives of the assets, generally one to three and a half
years.  Amortization of leasehold  improvements is computed using the shorter of
the  remaining  terms  of  the  leases  or the  estimated  useful  lives  of the
improvements.

INCOME TAXES

         Income taxes are computed using the asset and liability  method.  Under
this method,  deferred income tax assets and liabilities are determined based on
the  differences  between the  financial  reporting  and tax bases of assets and
liabilities and are measured using currently enacted tax rules and laws.

REVENUE RECOGNITION

         Product  revenues  are  recognized  upon  shipment  to the  customer or
delivery  to a third  party  shipper.  Revenue  from  sales to  distributors  is
recognized net of an allowance for product returns, price protection,  and other
adjustments   which  may  be  required  under  the  Company's   agreements  with
distributors.

         During  1997,  two  customers,  consisting  of two large  distributors,
accounted for 21% and 19% of Meridian's  1997 product  sales.  During 1996,  two
customers, consisting of two large distributors accounted for 25% and 18% of the
company's 1996 product sales.  During 1995, three  customers,  consisting of two
large distributors and one VAR of electronic hardware and software in the United
States,  accounted for 19%, 13%, and 9% of Meridian's 1995 product sales. Export
sales in 1997, 1996, and 1995 were $2.6 million,  $3.6 million, and $2.5 million
respectively, primarily to the Pacific Rim, Europe and South America.

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE

     The Company adopted  Statement of Financial  Accounting  Standards No. 128,
"Earnings  per Share"  ("SFAS 128") during the year ended  December 31, 1997 and
retroactively restated all prior periods under SFAS 128. Basic net income (loss)
per  share is  computed  using the  weighted  average  number  of common  shares
outstanding  during the period.  Diluted net income (loss) per share is computed
using the weighted  average number of common and potential  common shares during
the period.  Potential common shares consist of the incremental  shares issuable
upon the  exercise  of stock  options and  warrants  (using the  treasury  stock
method).  Potential  common  shares are excluded from the  computation  if their
effect is anti-dilutive. Options to purchase 2,007,310 shares of common stock at
prices ranging from $0.03 to $15.13 per share were  outstanding  during the year
ended December 31, 1997 but were not included in the  computation of diluted EPS
because the options would have been antidilutive.

USE OF ESTIMATES

     The  preparation  of financial  statements  in  accordance  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect  the  reported  amounts  of  assets  and  liabilities,
disclosures  of contingent  assets and  liabilities at the date of the financial
statements  and the  reported  revenue and  expenses  during the period.  Actual
results could differ from estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures  about  Segments of an Enterprise  and Related  Information."  This
statement  establishes  standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The disclosures prescribed by SFAS 131 will be effective for the year
ending  December 31, 1998.  Management  does not anticipate a material impact on
the financial statements from the adoption of SFAS 131.

         In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting  Comprehensive  Income." SFAS 130 establishes standards for reporting
and  displaying  comprehensive  income  and  its  components  in a  full  set of
general-purpose  financial  statements.  The disclosures  prescribed by SFAS 130
will be effective  for the year ending  December 31, 1998.  Management  does not
anticipate a material  impact of the financial  statements  from the adoption of
SFAS 130.

NOTE 3 _ BALANCE SHEET DETAIL (IN THOUSANDS):


                                                     DECEMBER 31,
                                                   1997        1996
Marketable securities:                          -------      ------
 United States government and agencies...      $  4,862    $  2,696
 Corporate...............................        24,735      28,936
 Other...................................         1,962       6,328
                                                -------     -------
                                                 31,559      37,960
 Less securities classified as cash
    equivalents..........................       (14,837)    (23,620)
                                                -------     -------
                                               $ 16,722    $ 14,340
                                                =======     =======
Inventories:
      Raw materials and purchased parts...     $  1,390    $    885
      Work in process.....................          405         426
                                                -------     -------
                                               $  1,795    $  1,311
                                                =======     =======
Property and equipment:
      Computers and purchased software....     $  1,459    $    953
      Machinery and equipment.............          190         167
      Furniture and fixtures..............          144         181
      Leasehold improvements..............           69          26
                                                -------     -------
                                                  1,862       1,327
      Less accumulated depreciation and
      amortization........................       (1,148)       (674)
                                                -------     -------
                                               $    714    $    653
                                                =======     =======

NOTE 4 _ COMMITMENTS:

         The Company rents its offices,  manufacturing,  and research facilities
under  noncancelable  operating  leases which expire in 1997 through  1999.  The
Company's lease  agreement  requires that the Company pay certain other expenses
such as property taxes, insurance, and common area maintenance. Rent expense for
all operating leases was $0.5 million,  $0.4 million, and $0.4 million for 1997,
1996,  and  1995,   respectively.   Future  minimum  lease  payments  due  under
noncancelable  operating  leases  at  December  31,  1997  are  as  follows  (in
thousands):

     YEAR ENDING:              OPERATING LEASES
     ------------              ----------------
     1998......................           $ 337
     1999......................             337
                                           ----
     Total minimum lease
     payments..................           $ 674
                                           ====

NOTE 5 _ 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.
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 due to uncertainty  regarding the
realizability  of  the  Loan.  These  charges  were  recorded  as  research  and
development  expense.  The Loan was repaid in full by DSC in June of 1997.  This
was recorded as a credit against research and development expense.

         In May 1997 the Company purchased a software  technology license for $1
million.  The cost of the acquired  technology was charged against  research and
development expense during the second quarter of 1997.

NOTE 6 _ STOCKHOLDERS EQUITY:

STOCK OPTION PLANS

     The Company has  reserved  3,725,642  shares of Common  Stock for  issuance
under the  Company's  various  stock  option  plans (the  "Plans").  The options
granted may be either incentive stock options to employees or nonstatutory stock
options  to  employees  or  consultants,  at  the  discretion  of the  Board  of
Directors.  The  Board  also  has the  discretion  to  grant  to  employees  and
consultants  stock  purchase  rights for shares of stock  reserved  for issuance
under the Plans. Terms and conditions of stock options and stock purchase rights
are set by the Board of Directors.

         Stock options granted to date generally become  exercisable at the rate
of 25% per year.  Shares  purchased  under stock purchase  rights are subject to
repurchase by the Company.  The Company's right of repurchase  expires  ratably,
subject to  continued  employment,  over a four year period.  To date,  no stock
purchase rights have been granted.

1995 DIRECTOR STOCK OPTION PLAN

         The Company has reserved 100,000 of Common Stock for issuance under the
Company's  1995  Director  stock  option plan (the "1995  Plan").  The 1995 Plan
provides for the automatic  grant of a  nonstatutory  option to purchase  12,500
shares of the Company's common stock to each outside Director upon their initial
election to the Board of Directors (the "First  Option").  Upon each  subsequent
re-election to the Board, the outside  Director  receives an additional grant to
purchase 5,000 shares of the Company's common stock (the  "Subsequent  Option").
All options are granted at fair market  value of the Common Stock on the date of
grant.

         The 1995 Plan  provides  that the First Option vests at the rate of 25%
per year on the  anniversary  of the grant date.  Each  Subsequent  Option vests
ratably over eight months following the month of grant.

         Stock option  activity under the above Plans for years 1997,  1996, and
1995, is as follows:
<TABLE>
                                                               OPTIONS OUTSTANDING
                                                     ---------------------------------------
<CAPTION>
                                           SHARES                 WEIGHTED
                                        AVAILABLE                  AVERAGE
                                        FOR GRANT       SHARES       PRICE       PRICE RANGE
                                       ----------    ---------    --------    --------------
<S>                                    <C>           <C>          <C>         <C>
Balance at December 31, 1994..........     40,770    1,254,923       $2.53    $0.03 - $ 7.50
 1995 Director Option Plan............    100,000           --         n/a
 Increase in 1988 Plan................    500,000           --         n/a
 Options granted......................   (658,600)     658,600       $5.09    $4.00 - $10.00
 Options canceled.....................    153,200     (153,200)      $3.46    $1.18 - $ 7.50
 Options exercised....................         --     (439,764)      $1.06    $0.03 - $ 6.13
 Options expired......................    (65,114)          --       $1.18    $1.18 - $ 7.50
                                         --------    ---------
Balance at December 31, 1995..........     70,256    1,320,559       $4.25    $0.03 - $10.00
 Increase in 1988 Plan................    300,000           --         n/a
 Options granted......................   (401,600)     401,600       $8.69    $7.25 - $15.13
 Options canceled.....................    173,389     (173,389)      $7.20    $1.18 - $15.13
 Options exercised....................         --     (214,819)      $3.09    $0.03 - $ 8.50
 Options expired......................    (33,592)          --       $1.18    $1.18 - $ 1.18
                                         --------    ---------
Balance at December 31, 1996..........    108,453    1,333,951       $5.45    $0.03 - $15.13
 1997 Stock Option Plan...............    900,000           --         n/a
 Options granted...................... (1,260,584)   1,260,584       $3.51    $3.38 - $ 5.00
 Options canceled.....................    471,703     (471,703)      $7.19    $1.18 - $11.38
 Options exercised....................         --     (115,522)      $4.55    $3.69 - $ 7.44
 Options expired......................     (2,911)          --       $1.18    $1.18 - $ 1.18
                                         --------    ---------
Balance at December 31, 1997..........    216,661    2,007,310       $4.00    $0.03 - $15.13
                                          =======    =========
</TABLE>
                                                      WEIGHTED
                                                       AVERAGE
                                            SHARES       PRICE       PRICE RANGE
                                           -------    --------    --------------
Options exercisable at December 31, 1997   776,927       $4.37    $0.03 - $15.13

         On April 23, 1997, the Compensation Committee of the Board of Directors
approved an offer to all employees  permitting an election to amend options with
exercise  prices in excess of $3.38 to  change  the  exercise  price to the fair
market value of the Company's common stock on that date, which was $3.38 subject
to a new vesting schedule. Options for the purchase of a total of 366,184 shares
were canceled and re-granted.

1992 EMPLOYEE STOCK PURCHASE PLAN

         In October 1992,  the Company  adopted the 1992 Employee Stock Purchase
Plan (Purchase Plan). Under the Purchase Plan, an eligible employee may purchase
shares of Common Stock from the Company through payroll  deductions of up to 10%
of their base compensation plus commission, at a price per share equal to 85% of
the fair market  value as of the first day or the last day,  whichever is lower,
of each six-month  offering period under the Purchase Plan. The offering periods
commence on May 1 and  November 1. The Company has  reserved  300,000  shares of
Common Stock for issuance under the Purchase Plan. At December 31, 1997, 221,133
shares of Common  Stock had been  issued  under the  Purchase  Plan,  and 78,867
shares remain available for future issuance under the Purchase Plan.

STOCK COMPENSATION

         The Company  accounts for its employee stock option plans in accordance
with the  provisions of Accounting  Principles  Board Opinion No. 25. In October
1995, the Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting   Standards  No.  123  ("FAS  123"),   "Accounting   for  Stock-Based
Compensation  " which  established a fair value based method of  accounting  for
employee stock option plans. The Company elected to adopt the disclosure  method
of FAS 123. Had compensation cost for the Company's option plans been determined
based on the fair  value at the  grant  dates,  as  prescribed  in FAS 123,  the
Company's  pro forma net income  (loss) and pro forma  diluted net income (loss)
per share would have been as follows: (in thousands):

                                                    1997         1996
                                                  ------        -----
         Net income (loss):
              As reported                        $(7,778)      $4,274
                                                  ======        =====
              Pro forma                          $(9,210)      $3,246
                                                  ======        =====
         Diluted net income (loss) per share:     
              As reported                        $ (0.86)      $ 0.44
                                                  ======        =====
              Pro forma                          $ (1.02)      $ 0.34
                                                  ======        =====

         The fair value of stock  options  and stock  purchase  plan  rights was
determined  using  the  Black-Sholes  option  pricing  model  incorporating  the
following range of assumptions in the calculations:

                                         STOCK OPTIONS     STOCK PURCHASE PLAN
                                         -------------     -------------------
     Expected life                          4.51 years               0.5 years
     Interest rate at date of grant       6.0% to 6.7%            5.2% to 5.5%
     Volatility at date of grant                   95%             64% to  98%
     Dividend yield                                 0%                      0%

         The  following   table   summarizes   information   about  all  options
outstanding as December 31, 1997:
<TABLE>
<CAPTION>
                               Options Outstanding                    Options Exercisable
                  --------------------------------------------     -------------------------
                                      Weighted Average
   Range of                    -------------------------------              Weighted Average
Exercise prices      Number    Remaining Life   Exercise Price      Number    Exercise price
---------------   ---------    -------------------------------     -------  ----------------
<S>               <C>          <C>              <C>                <C>       <C>
 $0.03 - $ 1.18     121,381         4.8 years           $ 0.47     121,381            $ 0.47
 $3.38 - $ 4.56   1,367,919         8.9    "            $ 3.51     317,883            $ 3.73
 $5.00 - $ 6.50     481,660         7.1    "            $ 5.75     305,308            $ 5.88
 $7.50 - $15.13      36,350         6.9    "            $10.85      32,355            $11.12
                  ---------    --------------           ------     -------            ------
 $0.03 - $15.13   2,007,310         8.2 years           $ 4.00     776,927            $ 4.37
                  =========    ==============           ======     =======            ======
</TABLE>
         Because  additional stock options are expected to be granted each year,
the above pro forma  disclosures are not  representative of pro forma effects on
reported financial results for future years.

PREFERRED SHARE PURCHASE RIGHTS

         At  December  31,  1997,  there were  outstanding  8,784,715  rights to
purchase Series A Participating  Preferred Stock ("Preferred Stock"). The rights
were issued as a dividend on August 25, 1997 to stockholders of record as of the
close of business on that date.  Each right entitles the holder to purchase from
the  Company  a unit (one  one-thousandth)  of  Preferred  Stock at $30 per unit
subject to adjustment. The rights are not exercisable or transferable apart from
the common stock until 10 days after a person or group (a)  acquires  beneficial
ownership of 15% or more of the Company's common stock or (b) announces a tender
or exchange  offer,  the  consummation  of which would  result in ownership by a
person or group of 15% or more of the Company's  common  stock.  Each right will
entitle the holder,  under certain  circumstances  (acquiring person becomes the
beneficial  owner of 15% or more of the  Company's  common  shares  outstanding,
merger or sale of 50% or more of the Company's consolidated assets), to acquire,
at half the value,  common stock of the Company or common stock of the acquiring
person.  The rights expire August 11, 2007 and are redeemable  prior to the time
an acquiring  person  acquires 15% or more of the Company's  common stock at one
cent per right. At December 31, 1997,  5,000,000  shares of Preferred Stock were
authorized  but unissued and were  reserved  for issuance  upon  exercise of the
rights.

NOTE 7 _ FEDERAL AND STATE INCOME TAXES:

     The provision for income taxes in 1997,  1996,  and 1995 was as follows (in
thousands):

                        YEARS ENDED DECEMBER 31,
                       1997      1996      1995
                       ----      ----      ----
Federal:
 Current............   $ --      $167      $ 62
 Deferred...........     --        --        --
                       ----      ----      ----
                         --       167        62
State:
 Current............     --        58        22
 Deferred...........     --        --        --
                       ----      ----      ----
                         --        58        22
                       ----      ----      ----
                       $ --      $225      $ 84
                       ====      ====      ====

         Deferred  tax  assets at  December  31,  1997 and 1996,  consist of the
following (in thousands):
                                                        DECEMBER 31,
                                                       1997         1996
Deferred tax assets:
 Federal and state loss carryforwards.........     $  7,200      $ 4,850
 Tax credit carryforwards.....................        1,484        1,417
 Inventory reserves and basis differences.....          396          294
 Depreciation and amortization................          (75)         154
 Other........................................        1,995        1,384
                                                    -------       ------
                                                     11,000        8,099
 Deferred tax asset valuation allowance.......      (11,000)      (8,099)
                                                    -------       ------
Total net deferred tax assets.................     $     --      $    --
                                                    =======       ======


     Following  is a  reconciliation  of the  effective  income  tax rates  from
operations and the statutory federal income tax rate:

                                                      YEARS ENDED DECEMBER 31,
                                                    1997        1996      1995
                                                    ----        ----      ----
Statutory federal income tax rate.................   (35)%        35 %      35 %
State income taxes, net of federal benefit........    --           6         6 
Current year loss not benefited...................    35          --        --
Other.............................................    --          (1)       --
Change in valuation allowance.....................    --         (35)      (38)
                                                    ----        ----      ----
Effective tax rate................................    -- %         5 %       3 %
                                                    ====        ====      ====

         At December 31, 1997, the Company has a net operating loss carryforward
for U.S. federal and state income tax purposes of  approximately  $21.0 and $7.0
million,  respectively,  which expire  between 1998 and 2012.  The net operating
loss  carryforward  includes   approximately  $8.9  million  of  tax  deductions
resulting from the exercise of employee  stock options.  The tax benefit of this
deduction,  when  realized,  will be accounted for as a credit to  stockholders'
equity rather than as a reduction in the income tax  provision.  The Company has
federal  research and development tax credit  carryovers of  approximately  $1.5
million at December 31, 1997,  that expire in 2003 through  2012.  The Company's
net operating losses, tax deductions and credit  carryforwards may be limited by
changes in ownership as defined under the Internal  Revenue  Code.  Based on the
Company's  evaluation  of the weight of  available  evidence it can not conclude
that it is more likely than not that deferred income tax assets will be realized
and  therefore the Company has  provided a full  deferred  income  tax valuation
allowance at December 31, 1997.

NOTE 8 _ RELATED PARTY TRANSACTIONS:

         In  connection  with the  Company's  stock  offering on April 30, 1996,
Meridian entered into an agreement to acquire and exercise an option held by IBM
to  purchase   1,229,932  shares  of  outstanding   Common  Stock  from  certain
stockholders of the Company,  including Bass Associates, an original investor in
the Company.  Pursuant to the closing of the  offering,  Meridian  exercised the
option and acquired  1,229,932  shares of Common Stock,  including 66,544 shares
from Bass Associates,  for $11.396 per share. Dr. Bass,  General Partner of Bass
Associates  and  Chairman  of  the  Board  of  Meridian  Data,  Inc.,  disclaims
beneficial ownership of the shares held by Bass Associates, except to the extent
of his  proportional  interest  therein.  The shares  acquired were  immediately
retired.
<PAGE>
                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                       MERIDIAN DATA, INC.

Date:  March 10, 1998       /s/ GIANLUCA U. RATTAZZI
                                Gianluca U. Rattazzi,
                                President, Chief Executive Officer, and Director

Date:  March 10, 1998       /s/ ERIK E. MILLER
                                Erik E. Miller,
                                Sr. Vice-President, Finance, and
                                Chief Financial Officer

         KNOW ALL  THESE  PERSONS  BY THESE  PRESENTS,  that each  person  whose
signature  appears below  constitutes and appoints Gianluca U. Rattazzi and Erik
E. Miller and each of them, jointly and severally,  his attorneys-in-fact,  each
with full power of substitution,  for him in any capacities, to sign any and all
amendments  to this  Report on Form 10-K,  and to file the same,  with  exhibits
thereto and other  documents in connection  therewith,  with the  Securities and
Exchange  Commission,  hereby  ratifying  and  confirming  all  that  each  said
attorneys-in-fact  or his substitute or substitutes,  may do or cause to be done
by virtue hereof.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

SIGNATURE                    TITLE                                DATE
---------                    ----------------------------------   --------------
/s/ CHARLIE BASS             Chairman of the Board                March 10, 1998
------------------------
   (Charlie Bass)

/s/ GIANLUCA RATTAZZI        President, Chief Executive Officer   March 10, 1998
------------------------     and Director
   (Gianluca Rattazzi)

/s/ ERIK E. MILLER           Sr. Vice-President, Finance, Chief   March 10, 1998
------------------------     Financial Officer (Principal 
   (Erik E. Miller)          Financial and Accounting Officer)

/s/ PETER R. JOHNSON         Director                             March 10, 1998
------------------------
    (Peter R. Johnson)

/s/ MARIO ROSATI             Director                             March 10, 1998
------------------------
   (Mario Rosati)

/s/ PIERLUIGI ZAPPACOSTA     Director                             March 10, 1998
------------------------
   (Pierluigi Zappacosta)
<PAGE>
                               MERIDIAN DATA, INC.
                                INDEX TO EXHIBITS

EXHIBIT     ITEM                                                       PAGE
-------     ----------------------------------                         ----
     23     Consent of Independent Accountants.........................  44
     24     Power of attorney..........................................  42
<PAGE>
                                                                      EXHIBIT 23

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statements on Form S-8 (No. 33-62084,  33-89162, and 333-3934) of Meridian Data,
Inc. of our report dated  January 30, 1998  appearing  in this Annual  Report on
Form 10-K.  We also consent to the  incorporation  by reference of our report on
the Financial Statement Schedule, appearing in this Form 10-K.

PRICE WATERHOUSE LLP
San Jose, California
March 10, 1997
<PAGE>
                 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL
                               STATEMENT SCHEDULE

To the Board of Directors and Stockholders of Meridian Data, Inc.

Our audits of the financial statements of Meridian Data, Inc. referred to in our
report dated January 30, 1998, appearing in this Annual Report on Form 10-K also
included an audit of the Financial  Statement  Schedule  listed in Item 14(a) of
this Form 10-K.  In our  opinion,  the  Financial  Statement  Schedule  presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements.

PRICE WATERHOUSE LLP
San Jose, California
January 30, 1998
<PAGE>
                                                                     SCHEDULE II

                               MERIDIAN DATA, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
                                 (IN THOUSANDS)

                                    BALANCE AT  CHARGED TO    CHARGED    BALANCE
                                  BEGINNING OF   COSTS AND    AGAINST     AT END
                                          YEAR    EXPENSES   RESERVES    OF YEAR
DECEMBER 31, 1995
 Inventory Reserves..................     $841      $   --    $  (223)      $618
 Allowance for Doubtful Accounts.....      200          --         --        200
 Sales Returns and Allowances........      660       2,214     (2,304)       570

DECEMBER 31, 1996
 Inventory Reserves..................     $618      $   57    $    --       $675
 Allowance for Doubtful Accounts.....      200          --        (14)       186
 Sales Returns and Allowances........      570       1,570     (1,814)       326

DECEMBER 31, 1997
 Inventory Reserves..................     $675      $  643     $ (703)      $615
 Allowance for Doubtful Accounts.....      186          50         --        236
 Sales Returns and Allowances........      326       2,598     (2,617)       307