SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 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 0-27280
META Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-0971675
------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
208 Harbor Drive, Stamford, Connecticut 06912-0061
---------------------------------------------------
(Address of principal executive offices, including Zip Code)
(203) 973-6700
--------------
(Registrant's telephone number, including area code)
____________________________
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: The number of shares of
the issuer's Common Stock, $.01 par value per share, outstanding as of
October 31, 1996 was 6,254,296.
Total Number of Pages: 17
Exhibit Index is on Page 15
<PAGE>
META Group, Inc.
INDEX
Page
----
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets:
September 30, 1996 (unaudited) and December 31, 1995 3
Statements of Income (unaudited):
Three months ended September 30, 1996 and 1995 4
Nine months ended September 30, 1996 and 1995 4
Statements of Cash Flows (unaudited):
Nine months ended September 30, 1996 and 1995 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
META Group, Inc.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(unaudited)
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $36,457 $35,525
Accounts receivable, net 13,056 10,547
Deferred commission 839 1,150
Deferred tax asset 356 616
Other current asset 358 326
------- -------
Total current asset 51,066 48,164
Furniture and equipment, net 2,114 1,668
Deferred tax asset 4,712 2,362
Other assets 942 162
------- -------
Total assets $58,834 $52,356
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 565 $ 845
Accrued compensation and other expenses 2,289 3,086
Deferred revenues 17,202 16,557
------- -------
Total current liabilities 20,056 20,488
------- -------
Stockholders' equity:
Preferred stock -- --
Common stock 67 59
Additional paid-in capital 40,349 35,863
Treasury stock, at cost (320) (320)
Accumulated deficit (1,318) (3,734)
------- -------
Total stockholders' equity 38,778 31,868
------ ------
Total liabilities and stockholders'
equity $58,834 $52,356
======= =======
</TABLE>
<PAGE>
META Group, Inc.
STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Continuous services $ 9,861 $ 6,808 $26,705 $19,075
Other 1,550 696 4,481 1,991
------- ------- ------- -------
Total revenues 11,411 7,504 31,186 21,066
Operating expenses:
Cost of services and fulfillment 5,023 3,820 14,695 11,088
Selling and marketing 3,629 2,202 9,438 6,434
General and administrative 1,287 771 3,476 2,144
Depreciation and amortization 284 171 760 471
------- ------ ------ -------
Total operating expenses 10,223 6,964 28,369 20,137
Operating income 1,188 540 2,817 929
Gain on sale of investment -- -- -- 250
Interest income, net 498 23 1,416 52
------- ------ ------- -------
Income before income taxes 1,686 563 4,233 1,231
Provision (benefit) for income taxes 720 248 1,817 (1,923)
------ ------ ------- -------
Net income $ 966 $ 315 $ 2,416 $ 3,154
======= ======= ======= =======
Net income per share $ .12 $ .06 $ .30 $ .60
Weighted average shares
outstanding 7,961 5,611 7,983 5,247
====== ======= ======= ======
</TABLE>
<PAGE>
META Group, Inc.
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Net income $ 2,416 $3,154
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 760 471
Gain on sale of investment -- (250)
Deferred income taxes 1,769 (1,923)
Changes in assets and liabilities:
Accounts receivable (2,509) (557)
Deferred commissions 311 207
Other current assets (32) (37)
Other assets (780) (67)
Accounts payable (280) (771)
Accrued compensation and other expenses (797) (492)
Deferred revenues 645 1,160
------ ------
Net cash provided by operating activities 1,503 895
------ ------
Investing activities:
Capital expenditures (1,206) (646)
Proceeds from sale of investment -- 265
------ ------
Net cash used in investing activities (1,206) (381)
------ ------
Financing activities:
Proceeds from issuance of preferred stock -- 2,079
Payment of debt -- (250)
Proceeds from stock option exercises 510 128
Proceeds from employee stock purchase plan exercises 153 --
Repurchase of common stock -- (142)
Costs related to Initial Public Offering (33) --
Capital contribution 5 --
------ ------
Net cash provided by financing activities 635 1,815
------ ------
Net increase in cash and cash equivalents 932 2,329
Cash and cash equivalents, beginning of period 35,525 301
------ ------
Cash and cash equivalents, end of period $36,457 $2,630
======= ======
</TABLE>
<PAGE>
META Group, Inc.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Interim Financial Statements
The accompanying unaudited interim financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations
of the Securities and Exchange Commission for reporting on Form 10-Q.
Accordingly, certain information and footnote disclosures required for
complete financial statements are not included herein. It is recommended
that these financial statements be read in conjunction with the financial
statements and related notes of META Group, Inc. (the "Company") as
reported on the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a
fair presentation of financial position, results of operations and cash
flows at the dates and for the periods presented have been included.
Note 2 - Public Offering of Common Stock and Recapitalization
In December 1995, the Company completed an initial public offering of
2,760,000 shares of common stock at $18 per share (the "Offering"). Prior
to the Offering, there was no public market for the Company's common stock.
The net proceeds of the Offering, after deducting applicable issuance costs
and expenses, were $30,174,000.
In connection with the Offering, the Company (a) increased its
authorized common stock from 1,800,000 shares to 45,000,000 shares,
(b) declared a 4-for-1 split of its common stock in the form of a stock
dividend effective October 5, 1995, and (c) authorized 2,000,000 shares of
new $.01 par value preferred stock.
Note 3 - Income Taxes
During the quarter and nine months ended September 30, 1996, the Company
recorded a tax provision of $720,000 and $1.8 million respectively,
reflecting an effective tax rate of 43%. During the quarter and nine months
ended September 30, 1995, the Company recorded a tax provision of $248,000
and $542,000 respectively, reflecting an effective tax rate of 44%.
Effective January 1, 1995, the Company recognized a benefit of $2,465,000
from the reduction of a substantial portion of the previously established
deferred tax asset valuation allowance, established against the utilization
of future net operating loss carryforwards. Accordingly, this benefit is
reflected in the tax provision for the nine months ended September 30, 1995.
The exercise of non-qualified stock options under the Company's stock
options plans give rise to compensation which is includable in the taxable
income of the recipients and deductible by the Company for federal and state
income tax purposes. Utilization of such deductions increased paid-in
capital $283,000 and $3.9 million during the quarter and nine months ended
September 30, 1996 respectively. In accordance with Accounting Principles
Board Opinion No. 25, compensation resulting from increases in the fair
market value of the Company's common stock subsequent to the date of grant
of the applicable exercised stock options is not recognized as an expense for
financial accounting purposes. As of September 30, 1996, 959,274 shares
remained issuable upon the exercise of outstanding non-qualified stock
options.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion and analysis below contains trend analysis and other
forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors set forth below under "Certain Factors That May Affect Future
Results" and in the Company's other filings with the Securities and
Exchange Commission.
OVERVIEW
META Group is an independent market assessment company providing research
and analysis of developments and trends in the computer hardware, software,
communications and related IT industries to IT users and vendors. IT user
organizations utilize META Group's research, analysis and recommendations
to develop and employ cost-effective strategies for selecting, financing
and implementing timely IT solutions. IT vendors use META Group's services
for help in product positioning, marketing and market planning, as well as
for internal IT decision-making.
Continuous Services subscriptions, which are annually renewable
contracts and generally payable by clients in advance, comprised
approximately 86% of the Company's total revenues for the quarter ended
September 30, 1996 as compared to 91% for the quarter ended September 30,
1995. Billings attributable to the Company's Continuous Services are
initially recorded as deferred revenues and then recognized pro rata
over the contract term. The Company's other revenues are derived from
project consulting, benchmarking, conferences, speaker engagement fees
and publications. The Company's consulting clients typically consist of
Continuous Services clients seeking additional advice tailored to their
individual IT requirements.
One measure of the volume of the Company's business is its annualized
"Contract Value", which the Company calculates as the aggregate annualized
subscription revenue recognized from all Continuous Services contracts
in effect at a given point in time, without regard to the remaining duration
of such contracts. While Contract Value is not necessarily indicative of
future revenues, Contract Value has grown every quarter since the Company's
inception and increased 45% to $39.4 million at September 30, 1996 from
$27.2 million at September 30, 1995. At September 30, 1996, the Company
had over 2,650 Continuous Services subscribers in 1,060 client organizations
worldwide.
The Company's operating expenses consist of cost of services and
fulfillment, selling and marketing expenses, general and administrative
expenses and depreciation and amortization. Cost of services and
fulfillment represents the costs associated with production and delivery of
the Company's products and services and includes the costs of research,
development and preparation of periodic reports, analyst telephone
consultations, executive briefings and conferences, publications,
consulting services, new product development and all associated editorial
and support services. Selling and marketing expenses include the costs of
salaries, commissions and related benefits for such personnel, travel and
promotion. General and administrative expenses include the costs of the
finance and accounting departments, human resources, corporate IT and other
administrative functions of the Company.
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
TOTAL REVENUES Total revenues increased 52% to $11.4 million in the quarter
ended September 30, 1996 from $7.5 million in the quarter ended
September 30, 1995. Revenues from Continuous Services increased 45% to
$9.9 million in the quarter ended September 30, 1996 from $6.8 million in
the quarter ended September 30, 1995. The increases in total revenues and
revenues from Continuous Services were primarily due to continued expansion
of the Company's domestic sales force, the expansion of the consulting
segment of the business and the growth in international Continuous Services.
The Company increased Contract Value 45% to $39.4 million at September 30,
1996 from $27.2 million at September 30, 1995. The Company grew its
subscriber base 33% to 2,650 Continuous Service subscribers at
September 30, 1996, from 2,000 subscribers at September 30, 1995.
Other revenues, consisting principally of revenues from consulting,
increased 123% to $1.6 million in the quarter ended September 30, 1996
from $696,000 in the quarter ended September 30, 1995, and increased as a
percentage of total revenues to 14% from 9%. The increase in other revenues
was primarily attributable to the expansion of META Group Consulting
activities and the increase in paid attendance at the Company's major
conferences.
Revenues attributable to international clients increased 78% in the
quarter ended September 30, 1996 from the quarter ended September 30, 1995,
and increased as a percentage of total revenues to 27% from 22%. The
increase was equally due to the Company's growth in existing international
markets and to the expansion in the total number of sales representative
organizations. The Company currently has sales representation in 22
countries as of September 30, 1996 versus 17 as of September 30, 1995.
The Company expects that international revenues will increase as a
percentage of total revenues.
COST OF SERVICES AND FULFILLMENT Cost of services and fulfillment increased
31% to $5.0 million in the quarter ended September 30, 1996 from $3.8 million
in the quarter ended September 30, 1995 principally due to increased analyst
staffing and related compensation expense. Cost of services and fulfillment
decreased as a percentage of total revenues to 44% from 51%. This decrease
primarily reflects improvement in the Company's analyst productivity within
its core Continuous Services, as indicated by an increase in the average
client/analyst ratio for these services to 49-to-1 during the quarter ended
September 30, 1996 as compared to a ratio of 44-to-1 during the quarter ended
September 30, 1995. The Company anticipates that the current client to
analyst ratio will decrease slightly as several open analyst positions are
filled during the fourth quarter.
SELLING AND MARKETING EXPENSES Selling and marketing expenses increased 65%
to $3.6 million in the quarter ended September 30, 1996 from $2.2 million in
the quarter ended September 30, 1995 and increased as a percentage of total
revenues to 32% from 29%. The increase was due to increased sales-related
expenses internationally and the growth of the Company's Marketing
department. The Company anticipates continuing increases in the amount of
selling and marketing expenses, but expects that such expenses as a
percentage of total revenues will decrease slightly.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased 67% to $1.3 million in the quarter ended September 30, 1996 from
$771,000 in the quarter ended September 30, 1995 and increased as a
percentage of total revenues to 11% from 10%. The increase in expenses was
principally due to increased finance and accounting staffing, insurance and
professional fees relating to the Company's recent initial public offering,
and costs associated with the accounting and administration for
international sales representative organizations. The Company anticipates
continuing increases over the prior year in the amount of general and
administrative expenses due in part to expenses related to being a public
company, plus continued expansion of international operations, but expects
such expenses to remain constant as a percentage of total revenues.
DEPRECIATION AND AMORTIZATION Depreciation and amortization expense
increased 66% to $284,000 in the quarter ended September 30, 1996, from
$171,000 in the quarter ended September 30, 1995. The increase in
depreciation and amortization expense was principally due to purchases of
computer and office equipment required to support business growth, including
an upgrade this quarter of the telephone system in the Company's Stamford,
CT and Reston, VA offices.
INTEREST INCOME Interest income, net increased to $498,000 in the quarter
ended September 30, 1996 from $23,000 in the quarter ended September 30,
1995 due to an increase in the Company's cash balances resulting from
the sale of securities in connection with the Company's initial public
offering and a positive cash flow from operations during the year ended
December 31, 1995.
PROVISION FOR INCOME TAXES During the quarter ended September 30, 1996,
the Company recorded a tax provision of $720,000, reflecting an effective
tax rate of 43%. During the quarter ended September 30, 1995, the Company
recorded a tax provision of $248,000, reflecting an effective tax rate of
44%.
EARNINGS PER SHARE EPS increased to $.12 per common share for the third
quarter of 1996 as compared to $.06 per common share the third quarter of
1995. The Company's weighted average shares outstanding increased 42%
to 7,961,000 shares in the third quarter of 1996 from 5,611,000 shares
in the third quarter of 1995 as a result of the Company's initial
public offering in December 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
TOTAL REVENUES Total revenues increased 48% to $31.2 million in the nine
months ended September 30, 1996 from $21.1 million in the nine months ended
September 30, 1995. Revenues from Continuous Services increased 40% to
$26.7 million in the nine months ended September 30, 1996 from $19.1 million
in the nine months ended September 30, 1995. The increases in total revenues
and revenues from Continuous Services were primarily due to continued
expansion of the Company's domestic sales force, the expansion of the
consulting segment of the business and the growth in international Continuous
Services clients.
Other revenues, consisting principally of revenues from consulting,
increased 125% to $4.5 million in the nine months ended September 30, 1996
from $2.0 million in the nine months ended September 30, 1995, and increased
as a percentage of total revenues to 14% from 10%. The increase in other
revenues was primarily attributable to the expansion of META Group Consulting
activities and the increase in paid attendance at the Company's major
conferences.
Revenues attributable to international clients increased 67% in the nine
months ended September 30, 1996 from the nine months ended September 30,
1995, and increased as a percentage of total revenues to 26% from 22%.
The increase was equally due to the Company's growth in existing
international markets and to the expansion in the total number of sales
representative organizations. The Company currently has sales representation
in 22 countries versus 17 countries as of September 30, 1995. The Company
expects that international revenues will continue to increase as a
percentage of its total revenues.
COST OF SERVICES AND FULFILLMENT Cost of services and fulfillment increased
33% to $14.7 million in the nine months ended September 30, 1996 from
$11.1 million in the nine months ended September 30, 1995 principally due
to increased analyst staffing and related compensation expense. Cost of
services and fulfillment decreased as a percentage of total revenues to
47% from 53%. This decrease primarily reflects improvement in the Company's
analyst productivity within its core Continuous Services, as indicated by an
increase in the average client/analyst ratio for these services to 48-to-1
during the nine months ended September 30, 1996 as compared to a ratio of
43-to-1 during the nine months ended September 30, 1995. The Company
anticipates that the current client to analyst ratio will decrease slightly
as several open analyst positions are filled during future quarters.
SELLING AND MARKETING EXPENSES Selling and marketing expenses increased
47% to $9.4 million in the nine months ended September 30, 1996 from
$6.4 million in the nine months ended September 30, 1995 but decreased as
a percentage of total revenues to 30% from 31%. The increase in expenses
was principally due to increased sales-related expenses associated with
increased revenues both domestically and internationally. The Company
anticipates continuing increases in the amount of selling and marketing
expenses, but expects that such expenses will remain constant as a
percentage of total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased 62% to $3.5 million in the nine months ended September 30, 1996
from $2.1 million in the nine months ended September 30, 1995 and increased
as a percentage of total revenues to 11% from 10%. The increase in expenses
was principally due to increased finance and accounting staffing, insurance
and professional fees relating to the Company's recent initial public
offering, and costs associated with the accounting and administration
for international sales representative organizations. The Company
anticipates continuing increases over the prior year in the amount of
general and administrative expenses due in part to expenses related to being
a public company, plus continued expansion of international operations, but
expects such expenses to remain constant as a percentage of total revenues.
DEPRECIATION AND AMORTIZATION Depreciation and amortization expense
increased 61% to $760,000 in the nine months ended September 30, 1996 from
$471,000 in the nine months ended September 30, 1995. The increase in
depreciation and amortization expense was principally due to purchases of
computer and office equipment required to support business growth.
INTEREST INCOME Interest income, net increased to $1.4 million in the nine
months ended September 30, 1996 from $52,000 in the nine months ended
September 30, 1995 due to an increase in the Company's cash balances
resulting from the sale of securities in connection with the Company's
initial public offering, a positive cash flow from operations during the
year ended December 31, 1995 and the nine months ended September 30, 1996,
and the sale of Series B Convertible Preferred Stock during 1995.
PROVISION FOR INCOME TAXES During the nine months ended September 30, 1996,
the Company recorded a tax provision of $1.8 million, reflecting an
effective tax rate of 43%. During the nine months ended September 30,1995,
the Company recorded a tax provision of $542,000, reflecting an effective
tax rate of 44%, offset by a benefit of $2,465,000 relating to the reduction
of a substantial portion of the previously established deferred tax asset
valuation allowance, established against the utilization of future net
operating loss carryforwards.
EARNINGS PER SHARE EPS increased to $.30 per common share for the third
quarter of 1996 as compared to $.13 for the third quarter of 1995
(pre tax benefit), as a result of increased operating income. The Company's
weighted average shares outstanding increased 52% to 7,983,000 shares in
the nine months ended September 30, 1996 from 5,247,000 shares in the
nine months ended September 30, 1995 as a result of the Company's
initial public offering in December 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $1.4 million of cash from operations during the
quarter ended September 30, 1996 compared with $368,000 of cash used in
operations in the quarter ended September 30, 1995.
The Company generated $1.5 million of cash from operations during the
nine months ended September 30, 1996 compared with $895,000 of cash generated
from operations in the nine months ended September 30, 1995.
The Company regularly invests excess funds in short-term investments,
such as repurchase agreements, short-term commercial paper and money market
funds.
The Company used $479,000 of cash in the quarter ended September 30,
1996 and $291,000 in the quarter ended September 30, 1995 for the purchase
of furniture, equipment, computers and related software for use by the
Company's employees.
The Company used $1.2 million of cash in the nine months ended
September 30, 1996 and $646,000 in the nine months ended September 30, 1995
for the purchase of furniture, equipment, computers and related software for
use by the Company's employees. The Company expects that additional
purchases of equipment will be made as the Company's employee base grows.
As of September 30, 1996, the Company had no material commitments for
capital expenditures.
In December 1995, the Company received net proceeds (after deducting
underwriting commissions and discounts and applicable offering expenses)
of $30.2 million relating to its initial public offering of 2,760,000 shares
of Common Stock. The Company expects to use the net proceeds for general
corporate purposes, including working capital and product development. A
portion of the net proceeds may also be used for strategic alliances and the
acquisition of businesses, products and technologies that are complementary
to those of the Company.
As of September 30, 1996, the Company had cash and cash equivalents of
$36.5 million and working capital of $31.0 million. The Company believes
that existing cash balances and anticipated cash flows from operations will
be sufficient to meet its working capital and capital expenditure
requirements at least through the next twelve months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company does not provide forecasts of the future financial
performance of the Company. However, from time to time, information
provided by the Company or statements made by its employees may contain
"forward-looking" information that involve risks and uncertainties.
In particular, statements contained in this Form 10-Q that are not
historical facts (including, but not limited to, statements concerning
international revenues, anticipated operating expense levels and such
expense levels relative to the Company's total revenues) constitute
forward-looking statements and are made under the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company's
actual results of operations and financial condition have varied and may
in the future vary significantly from those stated in any forward-looking
statements. Factors that may cause such differences include, without
limitation, the risks, uncertainties and other information discussed
below, as well as the accuracy of the Company's internal estimates
of revenue and operating expense levels. Each of these factors, and
others, are discussed from time to time in the filings made by the
Company with the Securities and Exchange Commission.
The Company's future operating results are subject to substantial risks
and uncertainties. The Company currently derives most of its revenues from
subscriptions to its Continuous Services. As a result, any decline in the
Company's ability to secure subscription renewals may have a material adverse
effect on the Company's results of operations. The Company's ability to
secure subscription renewals, as well as to successfully market and sell its
consulting services, is dependent upon the Company's ability to deliver
consistent, high-quality and timely analysis and advice with respect to
issues, developments and trends that clients view as important. The
Company's successful delivery of such analysis and advice is, in turn,
dependent upon many factors, including, among other things: its ability to
recruit and retain highly talented professionals in a competitive job market,
to understand and anticipate rapidly changing technologies and market trends
so as to keep its analysis focused on the changing needs of its clients, and
to deliver products and services of sufficiently high quality and timeliness
to withstand competition from competitors which may have greater financial,
information gathering and marketing resources than the Company. The
Company's ability to market and sell its products and services could also be
adversely affected by the emergence of new competitors into one or more of
the market segments addressed by the Company's products and services, which
could cause pricing pressure and loss of market share. In addition, an
increasingly significant portion of the Company's revenues are attributable
to international clients, which may be adversely affected by factors
including difficulties in developing and managing relationships with
international sales representative organizations, reliance on sales entities
which the Company does not control, greater difficulty in maintaining direct
client contact, fluctuations in exchange rates, adverse political and
economic conditions, tariffs and other trade barriers, longer accounts
receivable collection cycles and adverse tax consequences. The Company's
future financial results also depend in part on the development or
acquisition of new products and services, which may not successfully be
achieved due to the inherent costs and risks associated with acquisition,
development, assimilation and marketing of a new product or service, as well
as the Company's limited experience in introducing new products and services.
Furthermore, the Company's quarterly operating results may fluctuate
significantly due to various factors. Since a disproportionately large
portion of the Company's Continuous Services contracts expire in the fourth
quarter of each year, the Company incurs operating expenses in the fourth
quarter at a higher level than would otherwise be required by its sequential
growth, and such increased expenses are not normally offset immediately by
higher revenues. In addition, the Company's operating results may fluctuate
as a result of a variety of other factors, including the level and timing of
renewals of subscriptions to Continuous Services, the timing and amount of
business generated by the Company, the mix of domestic versus international
business, the timing of the development, introduction and marketing of new
products and services, the timing of the hiring of research analysts, changes
in the spending patterns of the Company's target clients, changes in market
demand for IT research and analysis and competitive conditions in the
industry. Due to these factors, the Company believes period-to-period
comparisons of results of operations are not necessarily meaningful and
should not be relied upon as an indication of future results of operations.
The potential fluctuations in the Company's operating results make it likely
that, in some future quarter, the Company's operating results will be below
the expectations of securities analysts and investors, which would have a
material adverse effect on the price of the Company's Common Stock.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
As disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, in November, 1995, a complaint was filed in the
Bridgeport Judicial District of the Superior Court of Connecticut by a
former consultant to the Company naming the Company and its Chief Executive
Officer as defendants. There have been no material developments in this
matter during the quarter ended September 30, 1996.
The Company is a party to certain other legal proceedings. However,
the Company believes that none of these proceedings is likely to have a
material adverse effect on the Company's business, results of operations
or financial condition.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
--------
Exhibit
Number Description
------ -----------
11.1 Statement re-Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company for the quarter
ending September 30, 1996.
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
META Group, Inc.
Date: November 14, 1996 By: /s/ Bernard F. Denoyer
---------------------------
Bernard F. Denoyer
Vice President, Finance,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
- ------- ---------------------------------------------- ------------
11.1 Statement re-Computation of Per Share Earnings 16
27.1 Financial Data Schedule 17
- -----------------
<PAGE>
EXHIBIT 11.1
META Group, Inc.
EXHIBIT TO ANNUAL REPORT ON FORM 10-Q
Computation of Per Share Earnings
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income................ $966,000 $315,000 $2,416,000 $3,154,000
Weighted average number of
common and common equivalent
shares outstanding:
Average number of common
shares outstanding
during the period....... 6,205,945 3,319,189 5,837,806 2,922,550
Add common share
equivalents--options
to purchase common shares. 1,754,907 2,292,031 2,145,523 2,324,196
--------- --------- --------- ---------
Total common
shares outstanding... 7,960,852 5,611,220 7,983,329 5,246,746
========= ========= ========= =========
Net income per common share. $.12 $.06 $.30 $.60
==== ==== ==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 0 36,457
<SECURITIES> 0 0
<RECEIVABLES> 0 13,503
<ALLOWANCES> 0 (447)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 51,066
<PP&E> 0 3,918
<DEPRECIATION> 0 (1,804)
<TOTAL-ASSETS> 0 58,834
<CURRENT-LIABILITIES> 0 20,056
<BONDS> 0 0
0 0
0 0
<COMMON> 0 67
<OTHER-SE> 0 38,711
<TOTAL-LIABILITY-AND-EQUITY> 0 58,834
<SALES> 0 0
<TOTAL-REVENUES> 11,411 31,186
<CGS> 5,023 14,695
<TOTAL-COSTS> 5,023 14,695
<OTHER-EXPENSES> 5,200 13,674
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1 17
<INCOME-PRETAX> 1,686 4,233
<INCOME-TAX> (720) (1,817)
<INCOME-CONTINUING> 966 2,416
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 966 2,416
<EPS-PRIMARY> .12 .30
<EPS-DILUTED> .12 .30
</TABLE>
