<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, 1996
                                       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)

  California                                               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, 
                                                               no par value
                                                             (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 .

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in  definitive proxy  or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

         The aggregate  market value of the voting stock held by  non-affiliates
of the  Registrant as of February 28, 1997,  was  $42,990,300.00.  The number of
shares of Common  Stock,  no par value,  outstanding  on February 28, 1997,  was
9,619,401.

         Documents  incorporated  by reference:  Portions of the Proxy Statement
for  Registrant's  Annual Meeting of Shareholders to be held April 23, 1997, are
incorporated herein by reference into Part III.




Index begins on page 43.                                           Page 1 of 48.
<PAGE>

                                     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)
the development of original equipment manufacturer ("OEM") relationships for its
latest products; and (ii) to focus 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.   PCI  focused  on  potential
acquisition  candidates who had a significant  market or technological  position
and high year-to-year growth in revenues.

         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 a
significant  opportunity  exists to enable  organizations  to provide  access to
networked  CD ROMs through  corporate  networks and standard web browsers and to
archive or internally  publish their data on networked CD ROMs. 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  research and  development  activities
primarily on software  development.  The Company's hardware  development efforts
revolve around maintaining  compatibility with existing and developing  hardware
standards.  If  industry  standard  CD ROM server  hardware  were to become more
generally available, the Company will be in a position to more easily transition
its revenue stream from a systems-centric basis to a software-centric basis.

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.  According to an independent industry research  organization,  the
worldwide installed base of CD ROM drives has grown from 5 million units in 1992
to over 50 million units in 1995. While much of this growth has been in the home
computer market,  increasingly,  businesses,  government and other organizations
are  implementing CD ROM technology.  In early 1996, a survey was published that
showed that  approximately 95% of the Fortune 1000 companies planned to purchase
CD ROM  drives in 1996.  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.

 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.  According to
an independent research organization, commercial CD ROM titles for professional,
corporate,  library,  educational and in-house publishing applications accounted
for nearly 80% of the total  worldwide CD ROM title  revenue of $10.7 billion in
1994.

 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.

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  offers
competitively  priced  systems,   containing  with  Meridian's  industry-leading
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.  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.  The Company
believes that because the market for networked CD ROMs is at an early stage many
customers  will  continue to prefer  integrated  systems  because of the lack of
commercially  available  CD ROM  servers.  As  industry  standard CD ROM servers
become available,  Meridian  believes that customers will increasingly  purchase
separate CD ROM networking  software to run on these servers.  As a result,  the
Company focuses  substantially  all of its research and  development  efforts on
software and has recently  introduced a variety of software  products for CD ROM
networking to meet anticipated market demand.

 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  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.  It is  estimated  that
intranets will grow at  approximately  three times the rate of the Internet over
the next four years.  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.  In 1996, the Company made the decision
to  pursue  the  OEM  market  for  Meridian's   software  products.   Meridian's
multi-platform,  operating system and product strategy  benefits OEM partners by
providing a single  source for all of their CD ROM  networking  software  needs.
However,  there can be no assurance that such OEM sales will occur. In addition,
the  Company's  strategy  includes   establishing   co-marketing  and  reselling
relationships  with leading CD ROM content  providers.  In  furtherance  of this
strategy,  the Company has agreements with Follett Software Company,  a reseller
of educational databases, and SilverPlatter Software, a provider of health care,
biomedical and academic databases.

 EXPAND INTERNATIONAL SALES. The Company intends to increase international sales
by expanding its international  distribution channel. The Company opened a sales
office in the  United  Kingdom  in 1996 and  intends  to  further  increase  its
presence in the  European  market.  In  addition,  the  Company has  established
several key distribution  relationships in various countries in the Pacific Rim.
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>
PRODUCTS                                                                                       INTRODUCTION
SOFTWARE                        DESCRIPTION                                                    DATE              PRICE RANGE*
<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          $995 - $1,195
CD Intranet for Windows NT      CD Intranet brings CD ROM and mixed media storage to           Sep. `96          $1,495
                                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          $995
                                user interface in mixed Novell/NT environments
CD Net Plus                     Windows-based client and server software for dedicated,        May '95           $545-$1,595
                                high performance CD ROM servers on Novell networks
CD Net for VINES                Client and server software providing access to CD ROMs on      Aug. '95          $1,995
                                Banyan VINES servers
CD NetRecord                    Novell NLM for recording CD ROMs over NetWare networks         Jan. '96          $595
</TABLE>
<TABLE>
<CAPTION>
PRODUCTS                                                                                       INTRODUCTION
SYSTEMS                         DESCRIPTION                                                    DATE               PRICE RANGE*
<S>                             <C>                                                            <C>                <C> 
CD Net 914/956                  Complete plug and play CD ROM servers  with 14 to 56 12x       Aug. '95           $12,330-$48,150
                                CD ROM drives, featuring Pentium 166 processors, fast
                                Ethernet adapters, for Novell, NT, Intranets, and VINES
CD Net 900R                     CD Servers designed for rack mount enclosures, featuring       April 1996         $14,330-$17,660
                                Pentium 166 processors, fast Ethernet adapters, and 12x CD
                                ROM drives
CD Net Systems                  Complete "plug and play" CD ROM servers including              April 1996         $3,815-$13,745
  (807/814)                     Meridian's software ranging in size from departmental to
                                enterprise-wide systems
CD Net ROMs                     CD ROM subsystems for connection to servers via SCSI           1990               $1,065-$17,965
CD NetLink                      A network peripheral including software that allows up to      April `96          $895-$1,195
                                14 CD ROM drives to be connected to a Novell network
                                without a dedicated server
<FN>
 *Price range based on domestic end user list price as of January 27, 1997.
</FN>
</TABLE>
SALES, MARKETING AND CUSTOMER SERVICE

         The Meridian sales organization is divided into multiple North American
territories,  which  aggregate to two sales  regions,  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.  In 1996, Meridian opened a sales office in
the United Kingdom and intends to further  increase its presence in the European
market.

         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.  Based on Meridian's  belief that the CD ROM
networking  market  is still in the  emerging  stage,  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,  an
extensive  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 34 persons as of December 31, 1996.

         The Company's customer service  department  consists of 7 persons as of
December  31,  1996.  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  82% 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  intends to expand  its  international
distribution channel. The Company opened a sales office in the United Kingdom in
1996 and intends to establish additional  distribution  relationships in Europe,
Latin  America,  and the Pacific Rim.  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 25%  and  18%,  respectively,  of the
Company's  1996  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 has invested  significant  resources in the  development of
new  products and expects to continue to make these  investments  in the future.
Meridian  also plans to continue to enhance its products  with new releases that
provide additional features.  The Company's research and development  department
consists  of 20  software  engineers  as of  December  31,  1996.  In 1996,  the
Company's research and development  expenditures were approximately $3.3 million
or 13% of product  sales.  During 1996,  the Company  introduced new software to
extend the  functionality  of corporate  intranets to include CD ROMs,  and make
information on CD ROMs accessible in standard HTML format. In November 1996, the
Company entered into an agreement with a development stage company ("DSC") which
is developing a media independent software search technology. As envisioned, the
product  would  allow  searches  of  textual,  audio,  and video data  stored on
corporate intranets, the Internet, or such possible future media such as digital
video disc's  ("DVD's").  As part of this agreement,  Meridian loaned $1 million
(the "Loan") to DSC. In return,  the Company received warrants  convertible into
the common stock of DSC, the right to license DSC's software  technology,  and a
security interest in DSC's technology.  To the extent that DSC expends the funds
advanced under the Loan, Meridian reduces the carrying value of this  investment
and  records  the  expense  as  research  and   development   expense  based  on
management's  estimate of DSC  development  activities.  The Company  expects to
record  additional  charges to research and  development  expense on a quarterly
basis,  concurrent with DSC's  development  efforts due to uncertainty  over the
future  realization  of the Loan.  Meridian  is under no  obligation  to advance
additional funds to DSC.

     The Company believes that the CD ROM server manufacturing  industry has low
barriers to entry.  Since CD ROM servers are  manufactured  from  off-the  shelf
components, it is difficult to create a significant competitive advantage solely
through  hardware  development.  As a result,  Meridian focuses its research and
development activities primarily on software development. The Company's hardware
development  efforts revolve around maintaining  compatibility with existing and
developing hardware standards.  If industry standard CD ROM server hardware were
to become more  generally  available,  the Company will be in a position to more
easily  transition  its  revenue  stream  from  a  systems-centric  basis  to  a
software-centric basis.
         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.  There can be no assurance that the Company will
be successful in continuing to develop and market on a timely and cost-effective
basis fully  functional  product  enhancements  or new products  that respond to
technological  advances by others,  or that these  products will achieve  market
acceptance.  See  "Risk  Factors - Rapid  Technological  Change;  Potential  for
Product Defects."

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."

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.

         The Company believes that its ability to compete successfully in the CD
ROM  networking  market  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.
Although  the  Company  has  operated  profitably  since  then,  there can be no
assurance that profitable  operations will be sustained.  In late 1996 and early
1997, the Company made several  decisions to address the  disappointing  systems
revenue  growth  experienced  in the last three  quarters  of 1996.  Late in the
fourth  quarter  of  1996,   Meridian   increased  its  sales  and   promotional
expenditures and at the end of January 1997 significantly  reduced system prices
due to  competitive  pressures.  The Company  believes  that it will be at least
several  months at a minimum  before any  positive  revenue  results  from these
actions will become  evident,  if at all. As a result,  the Company  anticipates
that its  earnings  for at least the first  half of 1997 will be below  those of
1996,  and there can be no assurance  that  earnings  will  improve  thereafter.
Because the Company  generally  ships its  software  and systems  within a short
period after receipt of an order, the Company typically does not have a material
backlog of unfilled orders,  and total revenues in any quarter are substantially
dependent  on  orders  booked in that  quarter.  This may  result  in  quarterly
fluctuations  in revenue,  and the  inability  to adjust  expenses to match such
quarterly revenue,  which may lead to substantial  fluctuations in net operating
results.  The Company's  quarterly operating results may also vary significantly
depending on other factors,  including the  introduction  of new products by the
Company's  competitors;  market acceptance of new products;  mix of software and
systems sales; the long and complex sales cycle for site licenses; the timing of
site license  revenue;  adoption of new  technologies  and standards;  price and
other forms of competition;  the cost,  quality and  availability of third party
components used in the Company's systems;  changes in the Company's distribution
arrangements;  and the inability of the Company to  accurately  monitor end user
demand for its products  due to the sale of products  through  distributors  and
value-added  resellers.  In 1996,  identifiable  sales to  federal  governmental
agencies accounted for approximately 11% of the Company's product sales, and the
Company  anticipates  that such sales will continue to account for a significant
percentage of the Company's  revenues for the foreseeable  future.  In the event
that  there is any  reduction  or  deferral  in  spending  by such  governmental
agencies, the Company's quarterly results may be adversely affected.  Similarly,
if such  government  agencies  reduced their  purchases of Meridian  products in
favor  of those of its  competitors,  the  Company's  quarterly  results  may be
adversely  affected.  Moreover,  the Company's  business has  experienced and is
expected to continue to experience  seasonality  in the form of higher sales for
its  products  during the quarters  ending in September  and December and weaker
sales  during the quarters  ending in March and June.  The  Company's  operating
results will also be affected by the economic condition of the personal computer
industry,  which has from time to time experienced cyclical,  depressed business
conditions,  often in connection with or in anticipation of a decline in general
economic  conditions.  In the second  quarter of 1996, the Company sold two site
licenses  totaling  approximately  $330,000.   Meridian  will  attempt  to  sell
additional site licenses,  but there can be no assurance that such licenses will
be successfully  sold. In addition,  due to the long and complex sales cycle for
site licenses,  the future timing of such revenue or its actual  realization can
not be  predicted.  The  failure  to sell  additional  site  licenses  in future
quarters could  adversely  affect the Company's  product sales and gross margin.
Due to all of the foregoing  factors,  the Company's total revenues or operating
results may in one or more future  quarters be below the  expectations  of stock
market analysts and investors.  In such event, the price of the Company's Common
Stock would likely decline, perhaps substantially.  See "Management's Discussion
and analysis of Financial condition and Results of Operations."

DEPENDENCE ON THIRD PARTY DISTRIBUTORS. The Company derives substantially all of
its product sales through distributors and VARs. Two distributors  accounted for
25% and 18%,  respectively,  of the Company's  1996 product  sales.  The loss of
either of these distributors,  or certain other distributors or VARs, would have
a material  adverse effect on the Company's  business and results of operations.
The  Company's  contractual  relationships  with its  distributors  and VARs can
generally  be canceled  upon  notice to the  Company.  Certain of the  Company's
distributors  and VARs also act as  distributors  for competitors of the Company
and could devote greater effort and resources to marketing competitive products.
In addition,  effective distributors and VARs must devote significant technical,
marketing and sales  resources to an often lengthy sales cycle.  There can be no
assurance  that the  Company's  current  distributors  and VARs will continue to
market  the  Company's  products   effectively  or  that  economic  or  industry
conditions will not adversely  affect such  distributors  and VARs.  Because the
Company sells a significant  portion of its products  through  distributors  and
VARs,  it is  difficult  for the  Company  to  monitor  end user  demand for its
products on a current basis.  Initial  stocking  orders may not be indicative of
long-term end user demand. The Company's  distributors  typically are allowed by
contract to return products,  subject to certain limitations,  without charge or
penalty.  While the Company provides for a reserve for future returns, there can
be no assurance that the reserve will adequately  cover actual product  returns.
Excessive  or  unanticipated  returns  could  materially  adversely  affect  the
Company's business,  liquidity, or results of operations.  The Company's results
of  operations  could  also be  materially  adversely  affected  by  changes  in
distributors' inventory strategies, which could occur rapidly, and in many cases
may not be  related to end user  demand.  New  products  may  require  different
marketing,  sales and  distribution  strategies  than  those  for the  Company's
current products.  There can be no assurance that the Company's distributors and
VARs will  choose or be able to  effectively  market  these new  products  or to
continue to market the Company's existing  products.  A failure of the Company's
distributors and VARs to successfully market the Company's products would have a
material adverse effect on the Company's business and results of operations.

DEPENDENCE ON THIRD PARTY SUPPLIERS.  The Company is dependent on a small number
of suppliers for certain key components  used in its products,  including CD ROM
drives,  microprocessors,  integrated  circuits and power  modules.  The Company
purchases these components pursuant to purchase orders placed from time to time,
does not carry significant inventories of these components, and has no long-term
supply arrangements.  In addition,  certain  subassemblies used in the Company's
products  are  manufactured  by a single third party  vendor.  The loss of a key
supplier or a disruption to the business of a key supplier could have a material
adverse effect upon the Company's  business,  financial condition and results of
operations. Although the Company believes that alternative sources of components
or  subassemblies  could be arranged,  the process of  qualifying  new suppliers
could be lengthy.  There can be no assurance that any additional source would be
available  to the  Company  on a  timely  basis or at a cost  acceptable  to the
Company.  Any disruption or reduction in the future supply of any key components
currently  obtained from limited sources could have a material adverse effect on
the Company's business,  financial condition and results of operations. Over the
last twelve months,  there has been significant  growth in the demand for CD ROM
drives.   These   components  are  only  available  from  a  limited  number  of
manufacturers,  most of  which  are  Japanese  manufacturers.  The  Company  has
experienced in the past, and may experience in the future,  an adverse impact on
the cost in dollars of certain components purchased from Japanese  manufacturers
due to fluctuations in the exchange rate for the yen. Moreover,  the Company has
been required to make spot market  purchases  for certain  components at premium
prices. In the third quarter of 1995, the Company  experienced  temporary delays
in obtaining the drives required for its products. If such delays reoccur or the
Company is required to purchase  components at a higher cost due to  fluctuating
currency exchange rates, spot market shortages or other factors, the Company may
be unable to ship  products on the schedule  anticipated  or may sustain  higher
product  costs  with a  resulting  adverse  effect  on the  Company's  business,
financial condition and results of operations.

RAPID TECHNOLOGICAL  CHANGE;  POTENTIAL FOR PRODUCT DEFECTS.  The market for the
Company's products is characterized by rapid  technological  advances,  evolving
industry  standards in computer  hardware and  software  technology,  changes in
customer  requirements and frequent new product  introductions and enhancements.
The Company's  future  success will depend on its ability to continue to enhance
its current  product line and to continue to develop and  introduce new products
that  keep  pace  with  competitive  product   introductions  and  technological
developments,  satisfy diverse and evolving customer  requirements and otherwise
achieve  market  acceptance.  There can be no assurance that the Company will be
successful in  continuing  to develop and market on a timely and  cost-effective
basis new  products  or  product  enhancements  that  respond  to  technological
advances by others,  or that these products will achieve market  acceptance.  In
addition,  companies in the industry have in the past experienced  delays in the
development,  introduction and marketing of new and enhanced products, and there
can be no assurance that the Company will not  experience  delays in the future.
Any failure by the Company to  anticipate  or respond  adequately  to changes in
technology  and  customer  preferences,  or any  significant  delays in  product
development  or  introduction,  would  have a  material  adverse  effect  on the
Company's business, financial condition and results of operations.

         Due to their complexity and sophistication, the Company's products from
time to time may contain  defects or "bugs"  which can be  difficult to correct.
Furthermore, as the Company continues to develop and enhance its products, there
can be no  assurance  that the  Company  will be able to  identify  and  correct
defects  in such a  manner  as  will  permit  the  timely  introduction  of such
products. Moreover, despite extensive testing, the Company has from time to time
discovered  defects only after its  products  have been  commercially  released.
There can be no assurance that software defects will not cause delays in product
introductions and shipments or loss of or delay in market acceptance,  result in
increased costs, require design modifications,  impair customer satisfaction, or
result in customer returns. Any such event could materially adversely affect the
Company's business, financial condition and results of operations.

         Over  the  past  two  years,  CD  ROM  drive  technology  has  advanced
significantly.  Additionally, the pace of new drive introductions has increased.
As a result,  the  Company  may find  itself  holding an  inventory  of obsolete
drives.  Additionally,  the Company's  contracts with its distributors allow for
product return, or price protection  credits,  based on current inventory levels
of current and obsolete products under certain limited  circumstances.  Meridian
estimates and accrues its required allowance for such occurrences, but there can
be no assurance that actual  inventory  writedowns,  product  returns,  or price
protection credits will not exceed the Company's  estimate.  Such an event could
materially  adversely  affect the Company's  business,  financial  condition and
results of operations.

COMPETITION.  The markets for the Company's products are extremely  competitive.
The Company expects that  competition  will increase as more companies enter the
market and as existing  competitors  continue to change and expand their product
offerings. Pricing is very aggressive in the Company's industry, and the Company
expects  pricing  pressures  to continue to  intensify.  The  Company's  current
competitors  in the CD ROM networking  market include other  suppliers of CD ROM
networking software and hardware such as Procom  Technologies,  Microtest,  Inc.
and  Microdesign  International.  The  Company  also  competes  indirectly  with
suppliers of personal  computers,  such as Dell Computer,  Compaq,  and IBM, and
network  operating  systems  such as  Microsoft  and Novell,  to the extent such
companies  include  CD ROM  networking  utilities  as  part of  their  operating
systems.  The  Company's  potential  competitors  in the  hardware  area include
companies  in the  personal  computer  market and certain CD ROM  manufacturers.
These companies in particular, and the Company's competitors in general, include
large domestic and  international  companies,  many of which have  significantly
greater financial, technical,  manufacturing,  marketing, sales and distribution
resources than the Company. There can be no assurance that the Company's current
or potential  competitors  will not develop  products  comparable or superior to
those  developed by the Company or adapt more quickly than the Company to new or
emerging   technologies,   evolving   industry   trends  or  changing   customer
requirements. There can be no assurance that the Company will have the financial
resources,  technical expertise, or marketing,  sales, distribution and customer
service and technical support capabilities to compete successfully.

EXPANSION OF  INTERNATIONAL  OPERATIONS.  An important  element of the Company's
strategy is to expand its  international  operations.  There can be no assurance
that the Company will be able to successfully localize, market, sell and deliver
its  products  internationally.  The  inability  of the Company to  successfully
expand its international  operations in a timely and cost effective manner could
materially  adversely  affect the Company's  business,  financial  condition and
results of operations.  International  product sales were  approximately  14% of
total  product sales in 1996.  The Company's  business and results of operations
could be materially  adversely affected by risks inherent in conducting business
internationally,  such as changes in currency  exchange  rates,  longer  payment
cycles, difficulties in staffing and managing international operations, problems
in collecting  accounts  receivable,  slower  acceptance of technology  advances
compared  with the United  States,  lack of published  CD ROM content,  seasonal
reductions in business  activity  during the summer months in Europe and certain
other parts of the world,  and tariffs,  duties and other trade barriers.  For a
discussion  of the effect of  fluctuations  in the exchange rate of the Japanese
yen on the cost of certain components used in the Company's products,  see "Risk
Factors - Dependence on Third Party Suppliers."

EMERGING  MARKETS;   PRODUCT  CONCENTRATION.   The  Company's  future  financial
performance  will  depend  in large  part on the  growth  in  demand  for CD ROM
networking  products.  While  there is a  substantial  installed  base of CD ROM
drives in the United States,  the market for CD ROM networking  applications  is
relatively  new and  undeveloped.  There can be no assurance  that the Company's
products will be widely accepted in these emerging markets. If the demand for CD
ROM networking  products  fails to continue to develop,  or develops more slowly
than the Company currently  anticipates,  the demand for the Company's  products
and the Company's business,  financial condition and results of operations would
be materially adversely affected.  In addition, as CD ROM server products become
generally  available,  the Company  anticipates that, as a percentage of product
sales, systems sales will decline and software sales will increase. In the event
that software sales do not increase in an amount  sufficient to offset a decline
in systems sales,  the Company's  business,  financial  condition and results of
operations could be materially adversely affected.

DEPENDENCE ON KEY PERSONNEL; MANAGEMENT OF GROWTH. Due to the specialized nature
of the Company's business, the Company's future success is highly dependent upon
the continued  services of its key engineering  personnel and executive officers
and upon its  ability to attract  and retain  qualified  engineering,  sales and
marketing,   management  and   manufacturing   personnel  for  its   operations.
Competition  for such  personnel is intense.  There can be no assurance that the
Company will be successful in attracting or retaining such  personnel.  The loss
of any key personnel or the Company's  inability to attract and retain qualified
employees  could  have a  material  adverse  effect on the  Company's  business,
financial  condition  and  results  of  operations.  None of the  Company's  key
employees has an employment agreement with the Company, and the Company does not
maintain key man insurance policies on the lives of its key employees.  Although
the  Company's  senior  executives  have  lengthy  experience  in  the  computer
industry,  they  have had only  limited  experience  with the CD ROM  networking
business that was acquired in December  1994. To manage its growth,  the Company
must continue to implement and improve its operational, financial and management
information  systems  and  expand,  train and  manage  its  workforce.  Meridian
believes that success in its industry requires  substantial  capital in order to
maintain the flexibility to take advantage of  opportunities  as they may arise.
The Company may, from time to time, as market and business  conditions  warrant,
invest in or acquire complementary  businesses,  products or technologies.  Such
investment  or  acquisitions  may  be  funded  by  internally   generated  cash,
marketable securities, or additional equity. The sale of additional equity could
result in dilution  in the equity  ownership  of  Meridian's  shareholders.  The
Company's  failure to manage growth  effectively  could have a material  adverse
effect on the Company's business, financial condition and results of operations

DEPENDENCE ON PROPRIETARY  RIGHTS.  The Company's  success  depends in part upon
protecting its  proprietary  technology.  The Company relies on a combination of
intellectual  property  laws,  nondisclosure  agreements  and  other  protective
measures  to protect its  proprietary  information.  There can be no  assurance,
however,  that  the  steps  taken  by the  Company  will be  adequate  to  deter
misappropriation  or  independent  third party  development of its technology or
that  its  intellectual   property  rights  can  be  successfully   defended  if
challenged.  In addition,  the laws of certain foreign  countries do not protect
the Company's intellectual property rights to the same extent as the laws of the
United States. Given the rapid development of CD ROM technology, there can be no
assurance  that  certain  aspects of the  Company's  products do not or will not
infringe  upon the existing or future  proprietary  rights of others or that, if
licenses or rights are required to avoid  infringement,  such licenses or rights
could be obtained or obtained on terms that are  acceptable to the Company.  The
Company is not currently aware of any  infringement  of its proprietary  rights,
nor is it aware of any claims that its products infringe the rights of others.

POSSIBLE  VOLATILITY OF STOCK PRICE.  The Company  believes that factors such as
announcements of developments  related to the Company's business,  announcements
by  competitors,  quarterly  fluctuations  in the Company's  financial  results,
conditions in the CD ROM networking industry, changes in the general economy and
other factors could cause the price of the Company's  Common Stock to fluctuate,
perhaps substantially. In addition, in recent years the stock market in general,
and  the  market  for  shares  of  small  capitalization  technology  stocks  in
particular,  have experienced extreme price fluctuations,  which have often been
unrelated to the operating performance of affected companies.  Such fluctuations
could have a material adverse effect on the market price of the Company's Common
Stock.

EMPLOYEES

         As of December 31, 1996, the Company  employed 94 individuals,  of whom
22 were employed in manufacturing,  20 in research and development,  31 in sales
and  marketing,  7 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.  The  Company is  investigating
expanding its operations into vacant office space in the surrounding area. Given
the current real estate market,  management expects that a suitable location can
be found at terms favorable to the Company.

ITEM 3.  LEGAL PROCEEDINGS

     A former  employee  of the  Company  has  claimed  that she was  wrongfully
terminated and seeks  unspecified  monetary damages and fees from Meridian.  The
Company has conducted a review of the circumstances  surrounding this matter and
believes  the claim is without  merit.  Although  the Company  believes  that it
should prevail,  the  uncertainties  inherent in litigation  prevent the Company
from giving any assurance  about the outcome of such  litigation.  Nevertheless,
should the former  employee  prevail in her claim,  the Company does not believe
such a result would have a material  adverse  affect on the Company's  business,
financial condition and results of operations.

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

         No  matters  were  submitted  to a vote of the  Company's  shareholders
during the quarter ended December 31, 1996.

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       44      President, CEO and Director
Charles Joseph             46      Sr. Vice President, Sales and Marketing
Erik E. Miller             36      Sr. Vice President, Finance and CFO
Shmuel Shottan             45      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.  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                  38     Vice President, Advanced Development
Carlo Garbagnati                   37     Vice President, Software Development
Trevor Heathorn                    38     Vice President, Advanced Software
Kenneth Kuo                        46     Vice President, Manufacturing

         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.

                                     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 closing  sales price per share for
the Company's Common Stock as reported by NASDAQ.

    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

    YEAR ENDED DECEMBER 31, 1995                              HIGH          LOW
    ----------------------------                              ----          ---
    First quarter........................................    $ 7.88        $3.63
    Second quarter.......................................      6.63         3.00
    Third quarter........................................     10.50         5.13
    Fourth quarter.......................................     12.75         8.25

         As of February 28, 1997,  there were 109  shareholders of record of the
Company's Common Stock and approximately  2,000 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, 1996 and 1995. 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

                                              1996 QUARTER ENDED
                              MARCH 31,      JUNE 30,     SEPT. 30,     DEC. 31,
                               (UNAUDITED, 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........    $ 0.12        $ 0.13        $ 0.15       $ 0.05

                                              1995 QUARTER ENDED
                             *MARCH 31,      JUNE 30,     SEPT. 30,     DEC. 31,
                              --------       -------      --------     --------
                               (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
Total revenues................  $5,878        $4,961        $6,630       $7,826
Income (loss) from
   operations (1).............     313          (223)          661        1,057
Net income (loss).............     482           (38)          836        1,220
Net income (loss) per share...  $ 0.06        $(0.00)       $ 0.10       $ 0.14

*Total revenue  includes  $1.5 million for certain  Parallan OEM software sales.

1)Income (loss) from operations includes approximately $228,000 in amortization
  of purchased technology in each of the first two quarters of 1995.

                           FIVE YEAR FINANCIAL SUMMARY

                                       YEARS ENDED DECEMBER 31,
                              1996        1995        1994       1993      1992
                              ----        ----        ----       ----      ----
                               (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
 Product sales............ $26,116      $23,426    $ 1,957    $   276   $ 2,470
 Other revenue............       -        1,500          -          -         -
 Product sales and
   services to and 
   royalties from IBM.....       -          369      3,954     21,676     7,303
                            ------       ------      -----     ------     -----
Total revenues............  26,116       25,295      5,911     21,952     9,773
Cost of product sales
  and amortization of
  purchased technology....  10,162       12,605      1,070         13     1,402
Cost of product sales 
  and services to and 
  royalties from IBM......       -            -      4,365     14,801     4,714
Income (loss) from 
  operations (2)..........   2,909        1,808    (28,534)     5,956        (5)
Net Income (loss) (2).....   4,274        2,500    (27,507)     6,782       (48)
Net income (loss) 
  per share (1 & 2)....... $  0.44      $  0.30    $ (3.69)   $  0.97   $ (0.01)

                                              DECEMBER 31,
                              1996       1995       1994       1993        1992
                            ------     ------      -----       ----      ------
Cash and cash equivalents. $24,809    $11,752    $ 8,692    $ 4,145     $11,223
Marketable securities.....  14,340      5,900      5,077     34,031           -
Restricted cash...........       -          -     21,201          -           -
Working capital...........  39,760     15,788     10,591     36,007         865
Total assets..............  45,245     22,823     39,793     41,832      15,485
Shareholders' equity......  41,230     16,373     11,445     37,809       2,096

1) Net loss per share for the year ended December 31, 1992, is based on pro 
   forma weighted average shares and equivalents.
2) Includes a charge for in-process R&D of $21,245 in 1994.

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.  Due to the  fundamental  operational
change in the Company's high performance  network  superserver  business brought
about by the transition from  manufacturing to royalties and service in 1993, to
the  subsequent  exit from  that  business  and  product  line in 1994,  and the
acquisition of MDI on December 1, 1994,  management believes that any comparison
between 1996,  1995,  and 1994 would not be germane to the discussion of 1996 or
1995 operating  results.  Since December 1, 1994, the Company's revenues consist
primarily of the sale of Meridian  products.  MDI's  results of  operations  are
included in those of the Company from December 1, 1994. The following discussion
focuses  primarily  on  material  events  which  occurred  during the year ended
December 31, 1994,  and the material  events and trends for the four quarters of
1996 and 1995.

         Because the Company  generally  ships its software and systems within a
short period after receipt of an order,  the Company  typically  does not have a
material  backlog of  unfilled  orders,  and total  revenues  in any quarter are
substantially  dependent  on  orders  booked  in  that  quarter.  The  Company's
quarterly  operating  results  may also vary  significantly  depending  on other
factors,   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 1996 and 1995,  identifiable  sales to federal  governmental  agencies
accounted for approximately 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  may  be  adversely
affected.  Similarly,  if such  government  agencies  reduced their purchases of
Meridian products in favor of those of its competitors,  the Company's quarterly
results  may  be  adversely  affected.  Moreover,  the  Company's  business  has
experienced and is expected to continue to experience seasonality in the form of
higher  sales for its  products  during the  quarters  ending in  September  and
December  and weaker sales  during the  quarters  ending in March and June.  The
Company's  operating results will also be affected by the economic  condition of
the  personal  computer  industry,  which  has  from  time to  time  experienced
cyclical,  depressed  business  conditions,  often  in  connection  with  or  in
anticipation of a decline in general economic conditions.

RESULTS OF OPERATIONS

         The statement of operations  data on the following  pages for the years
ended December 31, 1996 and 1995 and the balance sheet data at December 31, 1996
and 1995 are derived from the  financial  statements  of the Company  which have
been audited by Price Waterhouse LLP, independent accountants.  The statement of
operations  data for each of the  quarters in the years ended  December 31, 1996
and 1995 and the balance  sheet data for the  quarters  ended March 31, June 30,
and  September  30, 1996 and 1995,  are  derived  from the  unaudited  financial
statements and include all adjustments, consisting of normal recurring accruals,
which  the  management  of  the  Company   considers   necessary  for  the  fair
presentation of the information set forth therein.  The operating results of any
quarter are not  necessarily  indicative of the results that may be expected for
any future period.

         In late 1996 and early 1997,  the Company  made  several  decisions  to
address the disappointing  systems revenue growth  experienced in the last three
quarters of 1996.  Late in the fourth  quarter of 1996,  Meridian  increased its
sales and promotional  expenditures and at the end of January 1997 significantly
reduced system prices due to competitive pressures. The Company believes that it
will be at least several months at a minimum before any positive revenue results
from these  actions  will become  evident,  if at all. As a result,  the Company
anticipates  that its earnings for at least the first half of 1997 will be below
those  of 1996,  and  there  can be no  assurance  that  earnings  will  improve
thereafter.  See  "Results of  Operations  - Revenues",  "- Gross  Margin",  and
"Operating Expenses - Sales and Marketing".
<TABLE>
<CAPTION>
                                                    QUARTER ENDED          YEAR ENDED
                                 MAR. 31,   JUNE 30,  SEPT. 30,   DEC. 31,    DEC. 31,
                                    1996       1996       1996       1996        1996
STATEMENT OF OPERATIONS DATA:             (IN THOUSANDS, EXCEPT PER SHARE DATA)
 <S>                              <C>        <C>       <C>         <C>        <C>
 Revenues -
   Product sales..................$7,062     $6,402    $ 6,652     $6,000     $26,116
                                   -----      -----     ------      -----      ------
 Costs and expenses:
   Cost of product sales.......... 3,167      2,331      2,431      2,233      10,162
   Research and development.......   751        770        821        973       3,315
   Sales and marketing............ 1,764      1,835      1,801      2,120       7,520
   General and administrative.....   532        515        534        629       2,210
                                   -----      -----     ------      -----      ------
    Total costs and expenses...... 6,214      5,451      5,587      5,955      23,207
                                   -----      -----     ------      -----      ------
 Income from operations...........   848        951      1,065         45       2,909
 Interest income..................   221        350        520        499       1,590
                                   -----      -----     ------      -----      ------
 Income before income taxes....... 1,069      1,301      1,585        544       4,499
 Provision for income taxes.......   (56)       (59)       (82)       (28)       (225)
                                   -----      -----     ------      -----      ------
 Net income ......................$1,013     $1,242    $ 1,503     $  516     $ 4,274
                                   =====      =====     ======      =====      ======
 Net income per share.............$ 0.12     $ 0.13    $  0.15     $ 0.05     $  0.44
                                   =====      =====     ======      =====      ======
 Weighted average common shares
  and equivalents................. 8,706      9,892     10,041      9,936       9,692
                                   =====      =====     ======      =====      ======
</TABLE>
<TABLE>
<CAPTION>
                                               AS A PERCENTAGE OF TOTAL REVENUES
                                               ---------------------------------  
<S>                                <C>        <C>        <C>        <C>         <C>
Revenues -
   Product sales.................. 100.0%     100.0%     100.0%     100.0%      100.0%
                                   -----      -----      -----      -----       -----
 Costs and expenses:
   Cost of product sales..........  44.8       36.4       36.5       37.2        38.9
   Research and development.......  10.7       12.1       12.4       16.2        12.7
   Sales and marketing............  25.0       28.7       27.1       35.3        28.8
   General and administrative.....   7.5        8.0        8.0       10.5         8.5
                                   -----      -----      -----      -----       -----
    Total costs and expenses......  88.0       85.2       84.0       99.2        88.9
                                   -----      -----      -----      -----       -----
 Income from operations...........  12.0       14.8       16.0        0.8        11.1
 Interest income..................   3.1        5.5        7.8        8.3         6.1
                                   -----      -----      -----      -----       -----
 Income before income taxes.......  15.1       20.3       23.8        9.1        17.2
 Provision for income taxes.......  (0.8)      (0.9)      (1.2)      (0.5)       (0.9)
                                   -----      -----      -----      -----       -----
 Net income.......................  14.3%      19.4%      22.6%       8.6%       16.3%
                                   =====      =====      =====      =====       =====
</TABLE>
<TABLE>
<CAPTION>
                                  MAR. 31,   JUNE 30,  SEPT. 30,   DEC. 31,
                                     1996       1996       1996       1996
<S>                               <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
 Cash and cash equivalents and 
   marketable securities..........$18,185    $39,500    $39,236    $39,149
 Working capital.................. 16,824     38,959     39,934     39,760
 Total assets..................... 22,454     44,765     45,195     43,775
 Shareholders' equity............. 17,499     39,702     40,653     41,230
</TABLE>
<TABLE>
<CAPTION>
                                               QUARTER ENDED               YEAR ENDED
                                 MAR. 31,   JUNE 30,  SEPT. 30,   DEC. 31,    DEC. 31,
                                    1995       1995       1995       1995        1995
STATEMENT OF OPERATIONS DATA:             (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                               <C>        <C>        <C>        <C>        <C>
 Revenues:
   Product sales..................$4,378     $4,592     $6,630     $7,826     $23,426
   Other revenue.................. 1,500        369          -          -       1,869
                                   -----      -----      -----      -----      ------
     Total revenues............... 5,878      4,961      6,630      7,826      25,295
                                   -----      -----      -----      -----      ------
 Costs and expenses:
   Cost of product sales.......... 2,604      2,508      3,285      3,753      12,150
   Amortization of purchased 
     technology...................   229        226          -          -         455
   Research and development.......   700        524        610        640       2,474
   Sales and marketing............ 1,413      1,472      1,525      1,828       6,238
   General and administrative.....   619        454        549        548       2,170
                                   -----      -----      -----      -----      ------
     Total costs and expenses..... 5,565      5,184      5,969      6,769      23,487
                                   -----      -----      -----      -----      ------
 Income (loss) from operations....   313       (223)       661      1,057       1,808
 Interest income..................   184        185        203        204         776
                                   -----      -----      -----      -----      ------
 Income (loss) before income
   taxes..........................   497        (38)       864      1,261       2,584
 Provision for income taxes.......   (15)         -        (28)       (41)        (84)
                                   -----      -----      -----      -----      ------
 Net income (loss)................$  482     $  (38)    $  836     $1,220     $ 2,500
                                   =====      =====      =====      =====      ======
 Net income (loss) per share......$ 0.06     $(0.00)    $ 0.10     $ 0.14     $  0.30
                                   =====      =====      =====      =====      ======
 Weighted average common shares 
   and equivalents................ 8,204      7,841      8,471      8,664       8,416
                                   =====      =====      =====      =====      ======
</TABLE>
<TABLE>
<CAPTION>
                                               AS A PERCENTAGE OF TOTAL REVENUES
                                               ---------------------------------  
 <S>                               <C>        <C>        <C>        <C>         <C>
 Revenues:
   Product sales..................  74.5%      92.6%     100.0%     100.0%       92.6%
   Other revenue..................  25.5        7.4          -          -         7.4
                                   -----      -----      -----      -----       -----
     Total revenues............... 100.0      100.0      100.0      100.0       100.0
                                   -----      -----      -----      -----       -----
 Costs and expenses:
   Cost of product sales..........  44.3       50.6       49.5       48.0        48.0
   Amortization of purchased 
     technology...................   3.9        4.5          -          -         1.8
   Research and development.......  11.9       10.6        9.2        8.2         9.8
   Sales and marketing............  24.0       29.7       23.0       23.3        24.7
   General and administrative.....  10.6        9.1        8.3        7.0         8.6
                                   -----      -----      -----      -----       -----
     Total costs and expenses.....  94.7      104.5       90.0       86.5        92.9
                                   -----      -----      -----      -----       -----
 Income (loss) from operations....   5.3       (4.5)      10.0       13.5         7.1
 Interest income..................   3.2        3.7        3.0        2.6         3.1
                                   -----      -----      -----      -----       -----
 Income (loss) before income 
   taxes..........................   8.5       (0.8)      13.0       16.1        10.2
 Provision for income taxes.......  (0.3)         -       (0.4)      (0.5)       (0.3)
                                   -----      -----      -----      -----       -----
 Net income (loss)................   8.2%      (0.8)%     12.6%      15.6%        9.9%
                                   =====      =====      =====      =====       =====
</TABLE>
<TABLE>
<CAPTION>
                                  MAR. 31,   JUNE 30,  SEPT. 30,   DEC. 31,
                                     1995       1995       1995       1995
<S>                               <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
 Cash and cash equivalents and 
   marketable securities..........$15,852    $14,795    $16,033    $17,652
 Working capital.................. 13,302     13,496     14,302     15,788
 Total assets..................... 21,029     18,770     21,118     22,253
 Shareholders' equity............. 13,981     14,008     14,854     16,373
</TABLE>

REVENUES

 PRODUCT SALES. 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 mixed 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. In response to the heightened competitive environment,  Meridian increased
promotional spending in the fourth quarter of 1996 and, in January 1997, reduced
prices on its systems by  approximately  33%.  As a result of the  January  1997
price decreases, the Company expects that its revenues will be sequentially down
from the fourth quarter of 1996 through at least the first two quarters of 1997,
and there can be no assurance that revenues will improve thereafter.

         The  Company's  sales  in the  first  quarter  of 1996  were  favorably
impacted by new software  products released over the prior twelve months. In the
second  quarter  of 1996,  sales  decreased  from the prior  quarter  due to the
heightened  Company and customer  focus on Meridian's  software  products.  This
resulted in a shift in Meridian's  revenue mix towards higher software  content,
and lower sales of systems.  Included in the Company's  second quarter sales was
approximately $330,000 from the sale of two software site licenses. Sales in the
third and fourth  quarters of 1996 continued the trend from the second  quarter,
exacerbated  by  increased  price   competition   from  the  Company's   largest
competitors.  The  Company's  revenue mix  continued  its shift  towards  higher
software  content  and  lower  sales  of  systems.  As this  trend  accelerated,
Meridian's revenue growth slowed, while gross margin increased.

         Approximately  82% 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 25% and 18%,  respectively,
of Meridian's 1996 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."

         The  Company's  product  sales in the first  quarter of 1995  consisted
primarily of DOS-based products,  some of which had become  non-competitive.  In
the second quarter of 1995, sales increased 5% over the first quarter  primarily
due to the commercial release in June 1995 of the Company's Windows-based CD Net
PLUS v6.0 and  customer  response to increased  advertising.  Sales in the third
quarter of 1995 increased 44% over the second quarter primarily as a result of a
full  quarter  of sales of CD Net PLUS  v6.0,  customer  response  to  increased
advertising,  the  introduction of companion  releases for Windows NT and Banyan
Vines networking  environments,  and federal government  purchases at the end of
its fiscal year.  Fourth quarter sales  increased 18% over the third quarter due
to the  impact  of  calendar  year-end  business  purchases  and the  continuing
favorable reception of the products introduced in the second and third quarters.

         Product  sales to non-IBM  customers in 1994 totaled $2.0 million which
consisted  of $0.2  million  of sales and  service  revenue  related  to non-IBM
Parallan  customers and $1.8 million of Meridian  product sales for the month of
December 1994.

 OTHER REVENUE. Other revenue totaling $1.5 million in the first quarter of 1995
consisted  of a  non-recurring  sale of OEM software  relating to the  Company's
former network  superservers  product line. In the second quarter of 1995, other
revenue of $0.4 million  resulted from the  recognition of project  revenue that
had been attributed to the Company's former product line and deferred from 1993.
The Company  does not expect any  additional  revenues  from its former  product
line.



<PAGE>


PRODUCT SALES AND SERVICES TO AND ROYALTIES FROM IBM

         There were no product sales and service to, and  royalties  from IBM in
1996. Product sales and services to and royalties from IBM were $0.4 million and
$4.0  million  in 1995 and 1994,  respectively.  Revenue  related to IBM in 1995
consisted of project  revenue  deferred from 1993.  No future  product sales and
services to, or royalties from IBM are expected.

GROSS MARGIN

         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.  In January 1997,  Meridian  lowered prices on its CD ROM networking
systems  by  approximately  33%  due  to  competitive  pressures.   The  Company
anticipates that this will result in a reduction in its gross margin  percentage
in 1997.

         Gross margin was 55%, 64%, 63%, and 63% in the four sequential quarters
of 1996,  respectively.  Throughout 1996, gross margin was favorably impacted by
the increase in the proportion of Meridian's  revenues  derived from the sale of
stand-alone software products, sales of site licenses in the second quarter, and
increased price/performance ratios for CD ROM drives

         Gross margin, excluding other revenue and including the amortization of
purchased technology,  was 35%, 40%, 50% and 52% in the four sequential quarters
of 1995,  respectively.  During the first quarter of 1995,  the Company's  gross
margin was adversely  impacted by a general decrease in prices for the Company's
products,  particularly due to competition for low-end networked CD ROM systems,
and additional reserves for inventory  obsolescence.  The Company's gross margin
generally  increased  after the first  quarter of 1995 as a result of  increased
sales of the  Company's  stand  alone  software  products,  the  increase in the
product mix to higher  margin  systems  with higher  software  content,  and the
completion  in the  second  quarter  of  1995  of  the  cost  reduction  program
implemented in the first quarter of 1995. The Company's  gross margin  increased
in the  second  half of 1995 as  compared  to the first  half of 1995 due to the
completion  in  the  second  quarter  of  1995  of   amortization  of  purchased
technology.  Technology  acquired in the  purchase of Meridian  Data,  Inc.  was
amortized over its estimated useful life of seven months,  beginning at December
1, 1994.  Amortization of purchased technology was $0.5 million for 1995, all of
which occurred in the first half of 1995.  Another factor  affecting  Meridian's
gross  margin  in  1995  was the  declining  cost of  purchasing  CD ROM  drives
manufactured  in  Japan,  reflecting  changes  in  exchange  rates  for the yen,
increased price competition, and availability.

     Cost of sales in 1994 was  entirely  due to the  inclusion  of one month of
Meridian cost of sales in the Company's results of operations.

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

AMORTIZATION OF PURCHASED TECHNOLOGY

         There was no amortization  expense in 1996.  Technology acquired in the
purchase of MDI was amortized  over its  estimated  useful life of seven months,
beginning in December 1994.  Purchased  technology had been completely amortized
by June 30, 1995.



<PAGE>


COST OF PRODUCT SALES AND SERVICES TO, AND ROYALTIES FROM IBM

         There was no cost  associated  with product  sales and services to, and
royalties  from IBM in 1996 or 1995.  The cost of product sales and services to,
and  royalties  from IBM in 1994  exceeded  the  level of  product  sales due to
manufacturing overhead expenses which were geared to a higher level of shipments
than occurred.

OPERATING EXPENSES

     RESEARCH AND DEVELOPMENT. Research and development expense in 1996 was $3.3
million,  an increase of $0.8 million,  or 34%, over 1995. This increase was due
to higher payroll, overhead expenses, and the amortization of an advance made to
a development  stage company ("DSC"),  developing a media  independent  software
search technology.  As envisioned,  the product would allow searches of textual,
audio,  and video data stored on  corporate  intranets,  the  Internet,  or such
possible future media such as digital video disc's ("DVD's").  In November 1996,
the Company  entered  into an  agreement  with DSC.  As part of this  agreement,
Meridian  loaned $1 million  (the  "Loan") to DSC,  which was  recorded in other
assets.  In return,  the Company received  warrants  convertible into the common
stock of DSC, the right to license  DSC's  software  technology,  and a security
interest in DSC's technology.  To the extent that DSC expends the funds advanced
under the Loan,  Meridian  reduces the  carrying  value of this  investment  and
recognizes the expense as research and  development  expense.  As a result,  the
Company recorded $0.2 million in research and development expense which reflects
Meridian's  estimate of the development  activities of DSC through  December 31,
1996.  The  Company  expects  to  record  additional  charges  to  research  and
development expense concurrent with DSC's development efforts due to uncertainty
over the future  realization  of the Loan.  Meridian is under no  obligation  to
advance  additional  funds to DSC. The Company expects  research and development
expense to increase in 1997 both in absolute dollars and as a percent of sales.

         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 CD ROM  networking  software and extensions of its
system offerings.  Research and development  expense was $0.8 million in each of
the first three quarters of 1996, and $1.0 million for the fourth quarter.  This
represents approximately 11%, 12%, 12%, and 16% of product sales,  respectively.
For a discussion of certain risks related to research and development, see "Risk
Factors - Rapid Technological Change; Potential for Product Defects."

         Research and development expense was $0.7 million,  $0.5 million,  $0.6
million and $0.6 million for the four quarters of 1995,  representing  16%, 11%,
9% and 8% of product  sales,  respectively.  Research  and  development  expense
declined  in  absolute  dollars  in the  second  quarter  of 1995 from the first
quarter due to reductions in the number of research and development  consultants
and  employees  as  a  result  of  organizational  changes  made  following  the
acquisition of Meridian Data, Inc.  Research and development  expense  increased
moderately  in the  second  half of 1995 as a result of higher  spending  on new
products which were subsequently released in late 1995 and early 1996.

         Meridian believes that, as CD ROM server hardware  increasingly becomes
a commodity  item,  it will be  difficult  to create a  significant  competitive
advantage  through  hardware   development.   Therefore,   the  Company  devotes
substantially all of its engineering resources towards software development. For
a discussion  of certain risks  related to research and  development,  see "Risk
Factors Rapid Technological Change; Potential for Product Defects."

         In 1994,  research and  development  expenses were $3.5  million.  This
includes  approximately  $188,000 of research and development expense related to
Meridian  products incurred in the month of December 1994. The remaining expense
was  related to the  Company's  development  of a new server for IBM,  which IBM
eventually declined to accept.

SALES AND MARKETING.  Sales and marketing expense consists  primarily of payroll
and related expenses,  including commissions,  and advertising related expenses.
Sales  and  marketing  expense  was  $7.5  million  in  1996,  and  increase  of
approximately  $1.3  million,  or 21% over  1995.  This  increase  was to higher
payroll  and  related  expenses,   and  increased  advertising  and  promotional
expenses.  Sales and  marketing  expense was $1.8  million for each of the first
three quarters of 1996, and $2.1 million in the fourth quarter. This represented
approximately  25%, 29%,  27%, and 35% of product  sales,  respectively.  In the
fourth quarter of 1996,  Meridian  substantially  increased is  promotional  and
advertising  expenditures to counteract decreasing revenues and increasing price
competition.  In 1997,  the  Company  intends  to  increase  the level of sales,
marketing , and technical  support that  Meridian  offers its  distribution  and
reseller  partners.  As such, the Company  anticipates  that sales and marketing
expenses will  increase in the future both in absolute  dollars and as a percent
of sales.

         Sales and  marketing  expense  was $1.4  million,  $1.5  million,  $1.5
million and $1.8 million in the four  quarters of 1995,  representing  32%, 32%,
23% and 23% of products sales, respectively.  In the last six months 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."

         Sales and  marketing  expense in 1994  primarily  consisted of expenses
incurred in market research in support of the Company's next  generation  server
and sales efforts to license that server to other companies.

GENERAL  AND  ADMINISTRATIVE.   General  and  administrative   expense  consists
primarily of payroll and related  expenses and occupancy  expenses.  General and
administrative  expense was  approximately  $2.2  million in both 1995 and 1996.
General and  administrative  expense was $0.5 million in each of the first three
quarters  of  1996,  and  $0.6  million  in  the  fourth  quarter.  General  and
administrative  expenses  increased in the fourth quarter due to higher overhead
expenses.  General  and  administrative  expense is expected to increase in 1997
both in absolute dollars and as a percent of sales.

         General and administrative expense was $0.6 million, $0.5 million, $0.5
million and $0.5 million in the four quarters of 1995, representing 14%, 10%, 8%
and  7%  of  product   sales,   respectively.   The   decrease  in  general  and
administrative  expense in the second quarter of 1995 was primarily due to lower
compensation expense.

         General and  administrative  expense for 1994  consisted  primarily  of
payroll and related expenses and occupancy expenses.

IN-PROCESS RESEARCH AND DEVELOPMENT ACQUIRED IN MDI ACQUISITION

         After  allocating the purchase price to net tangible  assets,  acquired
technology,   which  represented  MDI's  current  products,  was  valued  by  an
independent  appraiser  using a risk adjusted cash flow model.  Under the model,
future cash flows were discounted  taking into account risks related to existing
and future  markets and an  assessment  of the life  expectancy  of the acquired
technology.  This analysis resulted in an allocation of $0.5 million to acquired
technology,  which was capitalized in other assets. The acquired  technology was
amortized over seven months, beginning December 1, 1994.

         With  respect to MDI's  in-process  R&D at December  1, 1994,  none had
reached a stage where feasibility,  delivery,  or product features were certain.
Prior to the acquisition by the Company,  MDI had begun developing  applications
and system  software for  Windows.  However,  MDI's  experience  developing  and
marketing Windows-based  applications or systems was minimal.  Acquired research
and development in-process was valued by an independent appraiser using the same
methodology as the acquired  technology.  Expected future cash flows  associated
with acquired in-process R&D were discounted considering risks and uncertainties
related to the  viability  of the  products,  to the work  required to establish
feasibility,  and to the completion of products that will be ultimately marketed
by the Company.  This  analysis  resulted in an  allocation  of $21.2 million to
acquired in-process research and development expense.  This amount, which is not
deductible for tax purposes, was charged to operating expense at the acquisition
date.



<PAGE>


1994 RESTRUCTURING COSTS

         In 1994,  Meridian  recorded two  restructuring  charges  totaling $2.2
million.  The total charge included $1.5 million in non-cash charges relating to
the  write-off  of fixed  assets  and  prepaid  expenses  and $0.7  million  for
anticipated  cash  charges.  The first charge of $1.4 million was accrued in the
second  quarter of 1994 and was related to the  downturn  in business  with IBM.
This charge consisted  primarily of the write down of fixed assets  identifiable
with  Meridian's  relationship  with  IBM,  estimated  carrying  costs of excess
capacity, and a provision for noncancleable purchase commitments. In December of
1994, with the acquisition of MDI, the Company took an additional charge against
earnings  of $0.8  million.  This  charge was  primarily  related  to  occupancy
expenses incurred in connection with terminating the lease on the Mountain View,
California,  office,  severance pay for certain employees,  and the write-off of
certain fixed assets. The total number of employees terminated due to reductions
during 1994 was 61.  These  employees  responsibilities  covered all  functional
departments. Restructuring actions were completed during 1995.

OTHER INCOME AND EXPENSE

INTEREST INCOME AND EXPENSE.

         Interest income increased to $1.6 million in 1996 due to funds provided
by a public  offering of the  Company's  Common  Stock in April  1996.  Interest
income  decreased  from $1.6  million in 1994 to $0.8 million in 1995 due to the
use of funds  required in acquiring MDI.  Interest  income could decrease in the
future if the  Company  were to acquire  another  company or  technology,  or if
interest rates were to decline.

INCOME TAXES

         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,  1996,  the Company has a net
operating   loss   carryforward   for  U.S.   federal  income  tax  purposes  of
approximately  $13.8  million  that  expires  between  2005  and  2009.  The net
operating  loss  carryforward   includes   approximately  $8.7  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
shareholders' equity rather than as a reduction in the income tax provision. The
Company  has  federal   research  and  development  tax  credit   carryovers  of
approximately  $0.9 million at December 31, 1996, that expire  primarily in 2003
through 2010.  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, 1996.

         Meridian  did not have income tax expense in 1994 due to net  operating
losses.  The  Company  did  not  record  any  benefit  of  these  losses  due to
uncertainty  as to their  realization.  The charge for  purchased  research  and
development of $21.2 million in 1994 was not deductible for tax purposes.

CAPITAL RESOURCES AND LIQUIDITY

         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 account  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.

         On April 30,  1996,  the Company  completed  an  offering of  2,645,000
shares  of its  Common  Stock at an  offering  price of $15.00  per  share  (the
"Offering").  The  net  proceeds  from  the  Offering  were  $36.8  million.  In
conjunction with the Offering,  the Company acquired an option to repurchase 1.2
million shares of Common Stock from certain  shareholders  (the  "Option").  The
Company  exercised the Option on May 1, 1996 for an aggregate of $16.7  million.
The balance of the net proceeds  from the Offering  were $20.1  million and were
invested in marketable securities.

     Meridian believes that success in its industry 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
extensive  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 shareholders.

         At  December  31,  1996,   Meridian's  principal  source  of  liquidity
consisted of cash and marketable  securities totaling $39.1 million and accounts
receivable  of $3.0  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 1997.

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  29 to 41 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

                                    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 1997 Annual
Meeting of  Shareholders  to be filed with the Commission  within 120 days after
the  end of the  Company's  year  ended  December  31,  1996  (the  "1997  Proxy
Statement").  Information  regarding  the  executive  officers of the Company is
incorporated  by  reference  from the  information  set forth  under the caption
"Executive  Officers  of the  Company"  at the  end of  Part I of  this  report.
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
1997 Proxy Statement.

DISCLOSURE WITH REGARD TO DELINQUENT FILINGS

         Based  solely on a review of Forms 3, 4, and 5 furnished to the Company
during 1996, Meridian believes that no officer, director, or 10% shareholder was
delinquent in filing any Form 3, 4, or 5.



<PAGE>


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 1997 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 1997 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 1997 Proxy Statement.

                                     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.                      PAGE
  Report of Independent Accountants.........................................  29
  Balance Sheets as of December 31, 1996 and 1995...........................  30
  Statements of Operations for the years ended December 31, 1996, 1995, 
    and 1994................................................................  31
  Statements of Shareholders' Equity for the years ended December 31, 
    1996, 1995, and 1994....................................................  32
  Statements of Cash Flows for the years ended December 31, 1996, 1995,
    and 1994................................................................  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, 1996,  1995 and
  1994, and the Report of Independent  Accountants on Financial  Statements
  Schedule  (page 46) 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                                                        PAGE
     II        Valuation and Qualifying Accounts............................  47

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).
2.0  Agreement and Plan of  Reorganization  among Parallan  Computer,  Inc., PAC
     Acquisition Subsidiary, Inc. and Meridian Data, Inc. dated December 1, 1994
     previously  filed  as  Exhibit  2 to the  Current  Report  on Form  8-K and
     incorporated herein by reference.
3.1  Restated Articles of Incorporation of Parallan  Computer,  Inc.  previously
     filed as Exhibit 3.1A to Registration  Statement on Form S-1  (Registration
     No. 33-57976) and incorporated herein by reference.
3.1a Certificate  of  Amendment  of the  Articles of  Incorporation  of Parallan
     Computer, Inc., previously filed as Exhibit 3.1a to the Quarterly Report on
     Form  10-Q for the  period  ended  March  31,  1995,  and  incorporated  by
     reference.
3.1b Restated  Certificate of  Incorporation  of Meridian Data, Inc.  previously
     filed as Exhibit 3.1b to the  Quarterly  Report of Form 10-Q for the period
     ended march 31, 1995, and incorporated herein by reference.
3.2  Bylaws of  Parallan  Computer,  Inc.  previously  filed as  Exhibit  3.2 to
     Registration   Statement  on  Form  S-1  (Registration  No.  33-57976)  and
     incorporated herein by reference.
4.1  Specimen Common Stock  certificate of Meridian Data, Inc.  previously filed
     as Exhibit 4.1 to the  Quarterly  Report on Form 10-Q for the period  ended
     March 31, 1995, and incorporated herein by reference.
9.1  Shareholders  Agreement,  dated as of June 1, 1992,  among IBM Corporation,
     Parallan Computer, Inc. and certain shareholders of Parallan Computer, Inc.
     previously  filed as  Exhibit  9.1 to  Registration  Statement  on Form S-1
     (Registration No. 33-57976) and incorporated herein by reference.
10.1 Form of  Indemnification  Agreement for  directors and officers  previously
     filed as Exhibit 10.1 to Registration  Statement on Form S-1  (Registration
     No. 33-57976) and incorporated herein by reference.
10.2 Restated  and Amended  1988  Incentive  Stock Plan and forms of  agreements
     thereunder  previously  filed  under  Registration  Statement  on Form  S-8
     (Registration No. 333-3934) and incorporated herein by reference.
10.3 1992 Incentive Stock Plan and form of agreement thereunder previously filed
     as Exhibit 10.3 to  Registration  Statement on Form S-1  (Registration  No.
     33-57976) and incorporated herein by reference.
10.4 1992 Key Employee  Stock Plan and form of agreement  thereunder  previously
     filed as Exhibit 10.4 to Registration  Statement on Form S-1  (Registration
     No. 33-57976) and incorporated herein by reference.
10.5 Amended  and  Restated  1992  Employee  Stock  Purchase  Plan  and  form of
     subscription  agreement thereunder  previously filed as Exhibit 10.5 to the
     Quarterly  Report on Form 10-Q for the period  ended  March 31,  1995,  and
     incorporated herein by reference.
10.6 Registration  Rights  Agreement  between the  Registrant and certain of the
     Registrant's  shareholders previously filed as Exhibit 10.6 to Registration
     Statement on Form S-1 (Registration  No. 33-57976) and incorporated  herein
     by reference.
10.7 Custodial  Agreement  dated as of May 12, 1992 between  Parallan  Computer,
     Inc., IBM Corporation and  File-PROTEK,  Inc.  previously  filed as Exhibit
     10.7 to Registration  Statement on Form S-1 (Registration No. 33-57976) and
     incorporated herein by reference.
10.8 Share  Purchase  Agreement  dated  as of  May  15,  1992  between  Parallan
     Computer,  Inc.,  and IBM  Corporation,  as  amended,  previously  filed as
     Exhibit  10.8 to  Registration  Statement  on Form  S-1  (Registration  No.
     33-57976) and incorporated herein by reference.
10.9 Marketing  Agreement  dated as of June 1, 1992 between  Parallan  Computer,
     Inc. and IBM Corporation  previously  filed as Exhibit 10.9 to Registration
     Statement on Form S-1 (Registration  No. 33-57976) and incorporated  herein
     by reference.
10.10Master Work Agreement dated as of June 1, 1992 between  Parallan  Computer,
     Inc. and IBM Corporation  previously filed as Exhibit 10.10 to Registration
     Statement on Form S-1 (Registration  No. 33-57976) and incorporated  herein
     by reference.
10.11Secured Loan Agreement dated as of June 1, 1992 between Parallan  Computer,
     Inc.  and IBM  Credit  Corporation  previously  filed as  Exhibit  10.11 to
     Registration   Statement  on  Form  S-1  (Registration  No.  33-57976)  and
     incorporated herein by reference.
10.12Lease  Agreement  dated as of October 26, 1992 between  Parallan  Computer,
     Inc. and South Bay/Copley  Joint Venture  previously filed as Exhibit 10.12
     to  Registration  Statement on Form S-1  (Registration  No.  33-57976)  and
     incorporated herein by reference.
10.13Master  Equipment  Lease  dated  as  of  June  29,  1990  between  Parallan
     Computer,  Inc.  and  Western  Technology  Investment  previously  filed as
     Exhibit  10.13 to  Registration  Statement  on Form S-1  (Registration  No.
     33-57976) and incorporated herein by reference.
10.14Master  Equipment  Lease  dated as of January  15,  1993  between  Parallan
     Computer, Inc. and Phoenix Leasing Incorporated previously filed as Exhibit
     10.14 to Registration Statement on Form S-1 (Registration No. 33-57976) and
     incorporated herein by reference.
10.15Amendment to the Master Work Agreement and Marketing  Agreement dated as of
     March 31, 1994, between Parallan Computer, Inc. and IBM Corporation.
10.16Meridian  Data,  Inc. 1987  Incentive  Stock Plan and form of  subscription
     agreement  thereunder  previously  filed  as  Exhibit  4.3 to  Registration
     Statement on Form S-8 (Registration  No. 33-89162) and incorporated  herein
     by reference.
10.17Stock Option  Assignment  and Exercise  Agreement  between the  Registrant,
     International Business Machines Corporation and certain shareholders of the
     Registrant  dated March 6, 1996  previously  filed as Exhibit  10.17 to the
     Annual  Report on Form  10-K for the year  ended  December  31,  1995,  and
     incorporated herein by reference.
10.18Meridian  Data,  Inc.  1995  Director  Stock Plan and form of  subscription
     agreement  thereunder  previously  filed as Exhibit 4.3 to the Registration
     Statement on Form S-8 (Registration  No, 333-2622) and incorporated  herein
     by reference.
11   Statement re: computation of net income (loss) per share.  See page 44.
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.
23   Consent of Independent Accountants.  See page 45.
24   Power of attorney (see page 42).  See page 42.
27   Financial Data Schedule.  See page 48.

         (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 Shareholders of Meridian Data, Inc.

In our opinion,  the accompanying  balance sheets and the related  statements of
operations,  shareholders' equity and cash flows present fairly, in all material
respects, the financial position of Meridian Data, Inc. at December 31, 1996 and
1995, and the results of its operations and its cash flows for each of the three
years in the period ended  December  31,  1996,  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 28, 1997



<PAGE>
MERIDIAN DATA, INC.
BALANCE SHEETS
                                                       December 31,
                                                   1996             1995
                                                 ------           ------
ASSETS                                               (in thousands)
Current assets:
   Cash and cash equivalents                    $24,809          $11,752
   Marketable securities                         14,340            5,900
   Accounts receivable (net of
     allowance for returns and
     doubtful accounts of $512
     and $770, respectively)                      2,991            2,772
   Inventories                                    1,311            1,118
   Other assets                                     324              126
                                                 ------           ------
       Total current assets                      43,775           21,668

Property and equipment at cost,
 less accumulated depreciation                      653              569
Other assets                                        817               16
                                                 ------           ------
                                                $45,245          $22,253
                                                 ======           ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                              $ 1,632          $ 2,419
  Accrued payroll and related expenses              686            1,442
  Accrued advertising and promotion                 506              430
  Other accrued liabilities                       1,191            1,589
                                                 ------           ------
       Total current liabilities                  4,015            5,880
                                                 ------           ------

Commitments and contingencies (Note 5)

Shareholders' equity:
  Common stock, no par value, 35,000 shares
   authorized, 9,590 and 7,979 shares issued
   and outstanding                               69,578           48,994
  Unrealized gains on marketable securities           5                6
  Accumulated deficit                           (28,353)         (32,627)
                                                 ------           ------
       Total shareholders' equity                41,230           16,373
                                                 ------           ------
                                                $45,245          $22,253
                                                 ======           ======





The accompanying notes are an integral part of these financial statements.



MERIDIAN DATA, INC.
STATEMENTS OF OPERATIONS                                 YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)   1996             1995              1994
--------------------------------------------------------------------------------
Revenues:
     Product sales                   $26,116          $23,426           $ 1,957
     Other revenue                         -            1,500                 -
     Product sales and services to 
        and royalties from IBM             -              369             3,954
                                      ------           ------            ------
         Total revenues               26,116           25,295             5,911
                                      ------           ------            -------
Costs and expenses:
     Cost of product sales            10,162           12,150               995
     Amortization of purchased
        technology                         -              455                75
     Cost of product sales and
        services to and royalties
        from IBM                           -                -             4,365
     Research and development          3,315            2,474             3,516
     Sales and marketing               7,520            6,238             1,107
     General and administrative        2,210            2,170               974
     Acquired in-process research 
        and development                    -                -            21,245
     Restructuring charges                 -                -             2,168
                                      ------           ------            ------
         Total costs and expenses     23,207           23,487            34,445
                                      ------           ------            ------

Income (loss) from operations          2,909            1,808           (28,534)
Realized losses on marketable
   securities                              -                -              (544)
Interest income                        1,590              776             1,571
                                      ------           ------            ------
Income (loss) before income taxes      4,499            2,584           (27,507)
Provision for income taxes              (225)             (84)                -
                                      ------           ------            ------
Net income (loss)                    $ 4,274          $ 2,500          $(27,507)
                                      ======           ======           =======
Net income (loss) per share          $  0.44          $  0.30          $  (3.69)
                                      ======           ======           =======
Weighted average common 
   shares and equivalents              9,692            8,416            7 ,455
                                      ======           ======           =======













The accompanying notes are an integral part of these financial statements.


<PAGE>


<TABLE>
<CAPTION>
MERIDIAN DATA, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
                                                   Unrealized                        Total
                                 Common Stock      losses on      Accumulated    Shareholders'
                               Shares    Amount   investments       Deficit         Equity
<S>                             <C>    <C>           <C>          <C>           <C>
Balance at December
      31, 1993...............   7,364  $ 45,429      $   -        $ (7,620)     $ 37,809
Common stock issued
   under stock plans.........     142       248          -               -           248
Compensation expense
    related to stock
    options issued below
   market....................       -       137          -               -           137
Net unrealized losses on
   investments...............       -         -        (48)              -           (48)
Options assumed in the
   acquisition of MDI........       -       806          -               -           806
Net loss.....................       -         -          -         (27,507)      (27,507)
                              ----------------------------------------------------------
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
                        ================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.


<PAGE>
MERIDIAN DATA, INC.
STATEMENTS OF CASH FLOWS
                                                   Year ended December 31,
(In thousands)                                   1996       1995        1994
----------------------------------------------------------------------------
Cash flows from operating activities:
   Net income (loss)                          $ 4,274    $ 2,500    $(27,507)
Adjustments to reconcile net income
   (loss) to net cash provided by 
   (used in) operating activities:
     Restructuring charges                          -          -       1,714
     Acquired in-process research 
       and development                              -          -      21,245
     Compensation expense related
       to stock options issued below
       market value                                36         30         137
     Depreciation and amortization                401        685         754
     Amortization of advance for research
       and development arrangements               200          -           -
     Changes in assets and liabilities,
       net of the effect of an acquisition
       in 1994:
          Accounts receivable                    (219)      (801)      1,474
          Inventories                            (193)        75         895
          Other assets                           (199)         7          43
          Advance for research and
            development arrangement            (1,000)         -           -
          Accounts payable                       (787)       508        (392)
          Accrued payroll and related expenses   (756)       411      (1,505)
          Accrued advertising and promotion        76        (79)        509
          Other accrued liabilities              (398)    (1,515)         42
          Deferred IBM development revenue          -          -        (365)
                                              -------     ------     -------
            Net cash provided by (used in)
              operating activities              1,435      1,821      (2,956)
                                              -------     ------     -------
Cash flows from investing activities:
   Purchases of property and equipment           (485)      (404)       (578)
   Net cash acquired from an acquisition            -          -         128
   Restricted cash released from restricted
     escrow account                                 -      1,825           -
   Restricted cash to support notes payable
     issued in connection with an acquisition       -          -     (21,201)
   Redemption of marketable securities         11,978      5,115      32,994
   Additions to marketable securities         (20,419)    (5,884)     (4,088)
                                               ------     ------     -------
            Net cash (used in) provided
              by investing activities          (8,926)       652       7,255
                                               ------     ------     -------
Cash flows from financing activities:
   Repurchase of Common Stock                 (17,271)         -           -
   Issuance of Common Stock, net               36,841          -           -
   Issuance of Common Stock related
     to stock plans                               978        587         248
                                               ------     ------     -------
            Net cash provided by
              financing activities             20,548        587         248
                                               ------     ------     -------
Net increase in cash and cash equivalents      13,057      3,060       4,547
Cash and cash equivalents at beginning of year 11,752      8,692       4,145
                                               ------     ------     -------
Cash and cash equivalents at end of year      $24,809    $11,752    $  8,692
                                               ======     ======     =======


The accompanying notes are an integral part of these financial statements.

                               MERIDIAN DATA, INC.
         NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
                              1996, 1995, AND 1994

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.

         Prior to the Company's  acquisition of Meridian Data,  Inc.  ("MDI") in
December 1994 (Note 9), the Company  developed and  supported  high  performance
network superservers and enterprise  networking software for local and wide-area
networks under several agreements with International  Business Machines ("IBM"),
which provided a framework  whereby the Company  designed and developed  network
servers and software for IBM to manufacture and market in exchange for licensing
fees and royalties. Based on management's expectations with respect to potential
future  revenues from IBM, the Company  restructured  its  operations  away from
reliance on IBM in the second quarter of 1994.

NOTE 2 _ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

         Cash equivalents  consist of highly liquid investment  instruments 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, 1996
and  1995,  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 shareholders'
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, 1996 and 1995, five
customers  accounted  for 50% and  54%,  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.  Contract and service  revenue is recognized  over the term of the
respective agreements, generally on a percentage of completion basis.

         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.  During 1994, no customers  accounted for greater
than 10% of non-IBM revenue. Export sales in 1996 and 1995 were $3.6 million and
$2.6  million,  respectively,  primarily  to the Pacific  Rim,  Europe and South
America.

NET INCOME (LOSS) PER SHARE

         Net income  (loss) per share is based on the  weighted  average  Common
Stock  outstanding  and dilutive  common  equivalent  shares (using the treasury
stock method). Common equivalents shares include stock options and warrants.

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.

RECLASSIFICATIONS

     Certain information in the 1995 financial  statements has been reclassified
to confirm with the 1996 financial statement presentation.

NOTE 3 _ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

                                     YEAR ENDED DECEMBER 31,
                                      1996     1995    1994
                                      ----     ----    ----
CASH PAID DURING THE YEAR FOR             (IN THOUSANDS)
         Interest................      $18      $20     $12
         Taxes...................      126       32      35

<PAGE>

NOTE 4 _ BALANCE SHEET DETAIL (IN THOUSANDS):
                                                       DECEMBER 31,
                                                     1996        1995
Marketable securities:                            -------      ------
 United States government and agencies.....      $  2,696     $ 2,580
 Corporate.................................        28,936      11,081
 Other.....................................         6,328         561
                                                  -------      ------
                                                   37,960      14,222
 Less securities classified as 
      cash equivalents.....................       (23,620)     (8,322)
                                                  -------      ------
                                                 $ 14,340     $ 5,900
                                                  =======      ======
Inventories:
      Raw materials and purchased parts....      $    885     $   647
      Work in process......................           426         471
                                                  -------      ------
                                                 $  1,311     $ 1,118
                                                  =======      ======
Property and equipment:
      Computers and purchased software.....      $    953     $   487
      Machinery and equipment..............           167         227
       Furniture and fixtures..............           181         109
      Leasehold improvements...............            26          18
                                                  -------      ------
                                                    1,327         841
      Less accumulated depreciation
           and amortization................          (674)       (272)
                                                  -------      ------
                                                 $    653     $   569
                                                  =======      ======

NOTE 5 _ COMMITMENTS AND CONTINGENCIES:

         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 $0.4 million,  $0.4 million, and $0.2 million for 1996,
1995,  and  1994,   respectively.   Future  minimum  lease  payments  due  under
noncancelable  operating  leases  at  December  31,  1996  are  as  follows  (in
thousands):

YEAR ENDING:              OPERATING LEASES
------------              ----------------
1997.............................   $  515
1998.............................      385
1999.............................      337
                                     -----
Total minimum lease payments.....   $1,237
                                     =====

     A former  employee  of the  Company  has  claimed  that she was  wrongfully
terminated and seeks  unspecified  monetary damages and fees from Meridian.  The
Company has conducted a review of the circumstances  surrounding this matter and
believes  the claim is without  merit.  Although  the Company  believes  that it
should prevail,  the  uncertainties  inherent in litigation  prevent the Company
from giving any assurance  about the outcome of such  litigation.  Nevertheless,
should the former  employee  prevail in her claim,  the Company does not believe
such a result would have a material  adverse  affect on the Company's  business,
financial condition and results of operations.

NOTE 6 _ 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 and
annual  rate of 5.96%,  due in August of 1997,  and which was  recorded in other
assets.  In return,  the Company received  warrants  convertible into the common
stock of DSC, the right to license  DSC's  software  technology,  and a security
interest in DSC's technology.  As another condition of the Loan to DSC, Gianluca
U. Rattazzi,  President and CEO of Meridian Data,  Inc. was elected to the Board
of Directors of DSC. To the extent that DSC expends the funds advanced under the
Loan,  Meridian reduces the carrying value of this investment and recognizes the
expense as research and development  expense.  As a result, the Company recorded
$0.2 million in research  and  development  expense  which  reflects  Meridian's
estimate of the  development  activities of DSC through  December 31, 1996.  The
Company  does not  recognize  any  interest  income  from the Loan.  The Company
expects  to record  additional  charges  to  research  and  development  expense
concurrent  with DSC's  development  efforts due to uncertainty  over the future
realization of the Loan.  Meridian is under no obligation to advance  additional
funds to DSC.

NOTE 7 _ STOCKHOLDERS EQUITY:

1988 AND 1992 STOCK OPTION PLANS

         The Company has reserved  1,350,394 and 670,320 shares of Common Stock,
respectively,  for issuance under the Company's 1988 and 1992 stock option plans
(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% of the  total  shares  on the first  anniversary  of the  grant  date and
thereafter at the rate of one  forty-eighth  of the total shares each full month
for 36 months  thereafter.  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.

         The 1992 Plan was  terminated in May 1992 and  accordingly,  no further
option  grants will be made under the Plan.  Any options  issued under this Plan
which are subsequently canceled are returned to the Plan and immediately expire.
Termination of the Plan,  however,  does not affect options  previously  granted
thereunder.

         In February  1996,  the Company  issued  employees  options to purchase
30,503  shares of Common  Stock with an  exercise  price of  $11.375  per share,
contingent  upon  shareholder  approval  of an  increase in the number of shares
reserved  for  issuance  under the 1988 Plan.  The  increase was approved at the
Company's  1996 Annual  Meeting of  Shareholders  when the fair market  value of
Meridian's  Common Stock was $15.125.  These options vest ratably  through March
2000 and contained a  compensatory  element in the amount of $114,000,  which is
being recognized during vesting period.

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.

1987 MERIDIAN DATA INCENTIVE STOCK PLAN

         Under  the  terms of the  Company's  acquisition  of MDI,  the  Company
assumed options to acquire approximately 1,176,800 shares of MDI common stock at
prices  ranging  from  $0.10 to $1.25 per  share.  These  options  automatically
converted into options to purchase  598,288 shares of the Company's common stock
at prices ranging from $0.197 to $2.460 per share.  Stock options  granted under
this plan generally become exercisable at the rate of 33% of the total shares on
the  first  anniversary  of the  grant  date and  thereafter  at the rate of one
twenty-fourth of the total shares each full month for 24 months thereafter. This
Plan was  terminated  effective  with the  acquisition of MDI by the Company and
accordingly,  no further  option grants will be made under the Plan. Any options
issued under this Plan which are subsequently  canceled are returned to the Plan
and  immediately  expire.  Termination  of the Plan,  however,  does not  affect
options previously granted thereunder.

KEY EMPLOYEE STOCK PLAN

         In  June  1992,  the  Company  issued  to  certain  key  employees  and
consultants  options to purchase 206,640 shares of Common Stock with an exercise
price of $1.00 per share,  of which 178,000  shares  vested.  At the date of the
issuance of the options,  the Board of Directors determined that the fair market
value of the Common Stock was $5.00 per share.  The Company  recognized  $30,000
and $137,000 of compensation expense in 1995 and 1994, respectively,  related to
stock options  issued below fair market value under the Key Employee Stock Plan.
The Key Employee Stock Plan was terminated in December 1992 and accordingly,  no
further option grants will be made under this Plan.

         Stock option  activity under the above Plans for years 1996,  1995, and
1994, is as follows:
<TABLE>
<CAPTION>
                                                               OPTIONS OUTSTANDING
                                       SHARES         --------------------------------------
                                       AVAILABLE                 WEIGHTED
                                       FOR GRANT      SHARES  AVERAGE PRICE     PRICE RANGE
                                       ---------     -------  -------------    --------------
<S>                                    <C>        <C>             <C>          <C>
Balance at December 31, 1993........... 245,270      581,899      $ 5.90       $0.025-$22.500
 Additional shares assumed 
      under Meridian stock plan........ 598,288            -      $ 1.05
 Options granted.......................(555,667)     555,667      $ 5.74       $4.000-$12.625
 Meridian options assumed..............(598,288)     598,288      $ 1.05       $0.197-$ 2.460
 Options canceled...................... 372,084     (372,084)     $10.93       $0.025-$22.500
 Options exercised.....................       -     (108,847)     $ 0.15       $0.025-$ 7.500
 Options expired....................... (20,917)                  $ 0.62       $0.025-$ 1.000
                                       --------    ---------  
Balance at December 31, 1994...........  40,770    1,254,923      $ 2.53       $0.025-$ 7.500
 1995 Director Option Plan............. 100,000            -       
 Increase in 1988 Plan................. 500,000            -
 Options granted.......................(658,600)     658,600      $ 5.09       $4.000-$10.000
 Options canceled...................... 153,200     (153,200)     $ 3.46       $1.180-$ 7.500
 Options exercised.....................       -     (439,764)     $ 1.06       $0.025-$ 6.125
 Options expired....................... (65,114)           -      $ 1.18       $1.180-$ 7.500
                                       ---------     -------
Balance at December 31, 1995...........  70,256    1,320,559      $ 4.25       $0.025-$10.000
 Increase in 1988 Plan................. 300,000            -
 Options granted.......................(401,600)     401,600      $ 8.69       $7.250-$15.125
 Options canceled...................... 173,389     (173,389)     $ 7.20       $1.180-$15.125
 Options exercised.....................       -     (214,819)     $ 3.09       $0.025-$ 8.500
 Options expired....................... (33,592)           -      $ 1.18       $1.180-$ 1.180
                                       --------    ---------
Balance at December 31, 1996........... 108,453    1,333,951      $ 5.45       $0.025-$15.130
                                       ========    =========
Options exercisable at December 31,
  1996.................................              540,675      $ 4.33       $0.025-15.130
                                                   =========
</TABLE>

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  200,000  shares of
Common Stock for issuance under the Purchase Plan. At December 31, 1996, 114,163
shares of Common  Stock had been  issued  under the  Purchase  Plan,  and 85,837
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  net  income  and pro  forma  net loss per  share  would  have been as
follows: (in thousands)
                                      1996             1995
                                      ----             ----
         Net income:
              As reported           $4,274           $2,500
                                    ======           ======
              Pro forma             $3,246           $1,983
                                    ======           ======
         Net income per share:
              As reported           $ 0.44           $ 0.30
                                    ======           ======
              Pro forma             $ 0.33           $ 0.24
                                    ======           ======

         The fair value was  determined  using the  Black-Sholes  option pricing
model incorporating the following range of assumptions in the calculations:

         Expected life                      4.51 years
         Interest rate at date of grant     6%
         Volatility at date of grant        0.6566 to 1.0853
         Dividend yield                     0%

         The  following   table   summarizes   information   about  all  options
outstanding as December 31, 1996:

                              Options Outstanding          Options Exercisable
   Range of                     Weighted Average             Weighted Average
Exercise prices    Number Remaining Life  Exercise Price  Number  Exercise price
--------------- --------- ------------------------------  ------- --------------
$ 0.025-$ 1.18    104,342 5.1 years       $ 0.22          104,342   $ 0.22
$ 4.000-$ 6.50    871,059 7.8    "        $ 4.72          377,563   $ 4.46
$ 7.250-$10.00    310,850 9.4    "        $ 8.15           33,445   $ 8.64
$11.380-$15.13     47,700 9.2    "        $12.55           25,325   $13.60
                ---------                                 -------
$ 0.025-$15.13  1,333,951 8.0 years       $ 5.45          540,675   $ 4.33
                =========                                 =======

         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.

NOTE 8 _ FEDERAL AND STATE INCOME TAXES:

     The provision for income taxes in 1996,  1995,  and 1994 was as follows (in
thousands):
                          YEARS ENDED DECEMBER 31,
                        1996        1995        1994
                        ----        ----        ----
Federal:
 Current...........    $ 167       $  62      $    -
 Deferred..........        -           -           -
                        ----        ----       -----
                         167          62           -
State:
 Current...........       58          22           -
 Deferred..........        -           -           -
                        ----        ----       -----
                          58          22           -
                        ----        ----       -----
                       $ 225       $  84      $    -
                        ====        ====       =====

         Deferred  tax  assets at  December  31,  1996 and 1995,  consist of the
following (in thousands):

                                                     DECEMBER 31,
                                                 1996          1995
                                                 ----          ----
Deferred tax assets:
 Federal and state loss carryforwards.........$ 4,850       $ 6,536
 Tax credit carryforwards.....................  1,417         1,417
 Inventory reserves and basis differences.....    294           269
 Depreciation and amortization................    154           267
 Other........................................  1,384         1,190
                                               ------        ------
                                                8,099         9,679
 Deferred tax asset valuation allowance....... (8,099)       (9,679)
                                               ------        ------
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,
                                                   1996    1995     1994
                                                   ----    ----     ----
Statutory federal income tax rate............        35%     35%     (35)%
State income taxes, net of federal benefit...         6       6       (6)
Operating loss carryforwards not recognized..         -       -        7
Write off of in-process R&D costs............         -       -       31
Other........................................        (1)      -        3
Change in valuation allowance................       (35)    (38)       -
                                                    ---     ---      ---
Effective tax rate...........................         5%      3%       - %
                                                    ===     ===      ===

         At December 31, 1996, the Company has a net operating loss carryforward
for U.S. federal income tax purposes of approximately $13.8 million that expires
between  2005  and  2009.   The  net  operating   loss   carryforward   includes
approximately  $8.7  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 shareholders'  equity rather than as a reduction
in the income tax provision.  The Company has federal  research and  development
tax credit  carryovers of approximately  $0.9 million at December 31, 1996, that
expire in 2003 through 2010. 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  has provided a full
deferred income tax valuation allowance at December 31, 1996.

NOTE 9 _ ACQUISITION OF MDI:

         On December 1, 1994, the Company acquired all outstanding shares of MDI
for a total purchase price of $23.1  million,  including  notes payable of $21.1
million,  acquisition  costs of $1.2 million and $0.8 million related to assumed
stock options.  This  acquisition was accounted for under the purchase method of
accounting.  MDI was a privately held developer and  manufacturer of networkable
compact  disc-read-only  memory (CD ROM) and  compact  disc-write  (CD R) server
products.   The  purchase  price  was  allocated  to  the  assets  acquired  and
liabilities  assumed  based  upon  their  estimated  fair  values at the date of
acquisition.  The excess of the purchase price over the fair market value of the
net tangible assets acquired  aggregated  approximately  $21.7 million, of which
$21.2  million was  allocated to in-process  research and  development  and $0.5
million was  allocated  to acquired  technology.  The  acquired  technology  was
amortized  on a  straight-line  basis over its  estimated  useful  life of seven
months.  The  statement  of  operations  for the year ended  December  31,  1994
included  charges of $21.2  million  for  in-process  research  and  development
purchased in connection with the acquisition.  MDI's operating results have been
included in the statement of operations from the date of acquisition.

         Acquired technology, which represented MDI's then current products, was
valued by an independent  appraiser using a risk adjusted cash flow model. Under
the model,  future cash flows were discounted  taking into account risks related
to existing and future  markets and  assessment  of the life  expectancy  of the
purchased  technology.  This analysis resulted in the allocation of $0.5 million
to acquired technology, which was capitalized in other assets.

         The acquired  in-process research and development had not yet reached a
stage  where  technological  feasibility,  delivery,  or product  features  were
certain at December 1, 1994. MDI's  development  focus was to develop CD ROM and
CD R networking  products for Microsoft's  Windows.  At December 1, 1994,  MDI's
experience with Window's based  applications  was limited.  Acquired  in-process
research and development  was valued by an independent  appraiser using the same
methodology as acquired  technology.  Expected future cash flows associated with
in-process  research  and  development  were  discounted  considering  risks and
uncertainties related to the viability,  work required to establish feasibility,
and to the  completion  of  products  that will be  ultimately  marketed  by the
Company.  This analysis resulted in the allocation of $21.2 million to purchased
in-process  research and development.  This amount,  which is not deductible for
tax purposes, was charged to operations at the acquisition date.

         The following  unaudited pro forma information  reflects the results of
operations for the year ended December 31, 1994 as if the acquisition of MDI had
occurred  as of the  beginning  of 1993,  and after  giving  effect  to  certain
adjustments, including amortization of acquired technology, lost interest income
and related income tax effects.  The pro forma information  excludes the effects
of the  nonrecurring  charge  of  $21.2  million  for  in-process  research  and
development. These pro forma results have been prepared for comparative purposes
only and do not purport to be  indicative of what  operating  results would have
been had the  acquisition  actually  taken place at the  beginning of 1993 or of
operating results which may occur in the future.

                     YEAR ENDED DECEMBER 31, 1994
          (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenue.....................      $24,132
Net loss....................       (7,611)
Loss per share..............      $ (1.02)
Shares outstanding..........        7,455

NOTE 10 _ 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
shareholders 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.


NOTE 11 _ SUBSEQUENT EVENTS (UNAUDITED):

1997 STOCK OPTION PLAN

         Subsequent  to December,  31, 1996 the Board of  Directors  adopted the
1997 Stock Option Plan (the "97 Plan") and has reserved 900,000 shares of Common
Stock for issuance under the 97 Plan, pending shareholder approval.  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 97 Plan.  Terms and  conditions  of stock  options and stock  purchase
rights are set by the Board of Directors.  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 options or stock purchase rights have been granted.


<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 3, 1997                         /s/ GIANLUCA U. RATTAZZI
                                             ------------------------
                                             Gianluca U. Rattazzi,
                                             President, Chief Executive Officer,
                                             and Director

Date:  March 3, 1997                         /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 3, 1997
------------------------
Charlie Bass

/s/ GIANLUCA RATTAZZI       President, Chief Executive Officer     March 3, 1997
------------------------    and Director
Gianluca Rattazzi

/s/ ERIK E. MILLER          Vice-President, Finance, Chief         March 3, 1997
------------------------    Financial Officer (Principal Financial
Erik E. Miller              and Accounting Officer)

/s/PETER R JOHNSON          Director                               March 3, 1997
------------------------
Peter R. Johnson

/s/ MARIO ROSATI            Director                               March 3, 1997
------------------------
Mario Rosati

/s/ PIERLUIGI ZAPPACOSTA     Director                              March 3, 1997
------------------------
Pierluigi Zappacosta



<PAGE>


                               MERIDIAN DATA, INC.
                                INDEX TO EXHIBITS

   EXHIBIT            ITEM                                                 PAGE
   -------            ----                                                 ----
   11 Statement re: Computation of net income (loss) per share.........      44
   23 Consent of Independent Accountants...............................      45
   24 Power of attorney................................................      42



<PAGE>


                                                                      EXHIBIT 11

                               MERIDIAN DATA, INC.
                 COMPUTATION OF NET INCOME (LOSS) PER SHARE (1)
                            YEARS ENDED DECEMBER 31,
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                    1996      1995       1994
                                                  ------    ------    -------
Net income (loss)............................... $ 4,274   $ 2,500   $(27,507)
                                                  ======    ======    =======
Weighted average shares outstanding:
    Common Stock................................   9,067     7,835      7,455
    Common Stock issuable upon exercise of
         options and warrants...................     625       581          -
                                                  ------    ------    -------
Weighted average common shares and equivalents..   9,692     8,416      7,455
                                                  ======    ======    =======
Net income (loss) per share..................... $  0.44   $  0.30   $  (3.69)
                                                  ======    ======    =======

(1) This Exhibit should be read in conjunction with Note 2 of Notes to Financial
    Statements.


<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 28, 1997  appearing  in this Annual  Report on
Form 10-K.  We also consent to the  incorporation  by reference of our report on
the Financial Statements Schedule, appearing in this Form 10-K.

PRICE WATERHOUSE LLP
San Jose, California
March 3, 1997



<PAGE>


                 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL
                               STATEMENT SCHEDULE

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

Our audits of the financial statements of Meridian Data, Inc. referred to in our
report dated January 28, 1997, 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 28, 1997



<PAGE>
                                                                    SCHEDULE II

<TABLE>
<CAPTION>
                               MERIDIAN DATA, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
                                 (IN THOUSANDS)

                                  BALANCE AT    CHARGED TO    CHARGED
                                 BEGINNING OF   COSTS AND     AGAINST    OTHER    BALANCE AT
                                    YEAR        EXPENSES      RESERVES    (1)     END OF YEAR
                                 ------------   ----------    --------   -----    -----------
<S>                                <C>          <C>          <C>           <C>      <C>
DECEMBER 31, 1994
 Inventory Reserves............... $ 529            -            (8)       320      $ 841
 Allowance for Doubtful Accounts..     -            -             -        200        200
 Sales Returns and Allowances.....     -            -             -        660        660

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
-----------
<FN>
(1)      Reserves acquired with the acquisition of MDI.
</FN>
</TABLE>