UNITED STATES
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, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Transition period from ______ to ______
Commission File Number 0-27280
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, 1997 was 7,391,355.
Total Number of Pages: 17
Exhibit Index is on Page 15
<PAGE> 2
META Group, Inc.
INDEX
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Page
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Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets:
September 30, 1997 (unaudited) and December 31, 1996 3
Statements of Income (unaudited):
Three months ended September 30, 1997 and 1996 4
Nine months ended September 30, 1997 and 1996
Statements of Cash Flows (unaudited):
Nine months ended September 30, 1997 and 1996 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> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
META Group, Inc.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION> September 30, December 31,
------------- ------------
Assets 1997 1996
------------- ------------
<S> <C> <C>
Current assets: (unaudited)
Cash and cash equivalents $14,210 $19,335
Marketable securities 25,241 15,684
Accounts receivable, net 17,203 18,136
Deferred commissions 1,200 1,475
Deferred tax asset 1,175 1,175
Other current assets 940 481
------- -------
Total current assets 59,969 56,286
Furniture and equipment, net 2,798 2,330
Deferred tax asset 8,668 5,532
Other assets 6,708 6,023
------- -------
Total assets $78,143 $70,171
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 195 $ 837
Accrued compensation and other expenses 2,703 3,721
Deferred revenues 22,596 22,885
------- -------
Total current liabilities 25,494 27,443
======= =======
Stockholders' equity:
Preferred stock -- --
Common stock 78 68
Paid-in capital 49,124 43,088
Retained earnings (accumulated deficit) 3,767 (108)
Treasury stock, at cost (320) (320)
------- -------
Total stockholders' equity 52,649 42,728
------- -------
Total liabilities and stockholders' equity $78,143 $70,171
======= =======
See notes to financial statements.
</TABLE>
<PAGE> 4
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,
1997 1996 1997 1996
-------------------------- -----------------------
<S> <C> <C> <C> <C>
Revenues:
Continuous services $10,713 $8,093 $29,731 $21,933
Other, principally consulting 2,705 1,550 6,236 4,481
------- ------ ------- -------
Total revenues 13,418 9,643 35,967 26,414
------- ------ ------- -------
Operating expenses:
Cost of services and
fulfillment 6,344 4,788 17,714 13,908
Selling and marketing 3,469 2,383 8,580 6,250
General and administrative 1,279 1,000 3,636 2,679
Depreciation and amortization 391 284 1,090 760
------- ------ ------- -------
Total operating expenses 11,483 8,455 31,020 23,597
------- ------- ------- -------
Operating income 1,935 1,188 4,947 2,817
Interest income 571 498 1,537 1,416
------- ------ ------- -------
Income before provision for
income taxes 2,506 1,686 6,484 4,233
Provision for income taxes 936 720 2,609 1,817
------- ------ ------- -------
Net income $ 1,570 $ 966 $ 3,875 $ 2,416
======= ====== ======= =======
Net income per common and
common equivalent share $ .19 $ .12 $ .48 $ .30
======= ====== ======= =======
Weighted average common and common
equivalent shares outstanding 8,082 7,961 8,039 7,983
======= ====== ======= =======
See notes to financial statements.
<TABLE/>
<PAGE> 5
META Group, Inc.
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
</TABLE>
<TABLE>
<CAPTION> For the nine months ended
September 30,
1997 1996
--------------------------
<S> <C> <C>
Operating activities:
Net income $ 3,875 $ 2,416
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,090 760
Deferred income taxes 2,470 1,769
Changes in assets and liabilities:
Accounts receivable 933 (2,509)
Deferred commissions 275 311
Other current assets (459) (32)
Other assets 13 (780)
Accounts payable (642) (280)
Accrued compensation and other expenses (1,018) (797)
Deferred revenues (289) 645
------- -------
Net cash provided by operating activities 6,248 1,503
------- -------
Investing activities:
Capital expenditures (1,558) (1,206)
Investments in marketable securities (9,557)
Investments and advances (698)
------- -------
Net cash used in investing activities (11,813) (1,206)
------- -------
Financing activities:
Proceeds from stock option exercises 292 515
Proceeds from employee stock purchase plan 148 153
Costs related to Initial Public Offering (33)
------- -------
Net cash provided by financing activities 440 635
------- -------
Net (decrease) increase in cash and cash equivalents (5,125) 932
Cash and cash equivalents, beginning of period 19,335 35,525
------- -------
Cash and cash equivalents, end of period $14,210 $36,457
======= =======
See notes to financial statements.
<TALBE/>
<PAGE> 6
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, 1996. 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 - Income Taxes
- ---------------------
During the quarter and nine months ended September 30, 1997, the Company
recorded a tax provision of $936,000 and $2.6 million, respectively,
reflecting an effective tax rate of 37% and 40%, respectively. The Company's
effective tax rate has declined due to the continued expansion of business
in states with lower income tax rates. The Company was not required to pay
federal income tax due to the utilization of net operating loss carryforwards.
The total deferred tax asset, including the current portion, increased to
$9.8 million at September 30, 1997, from $6.7 million at December 31, 1996
as a result of the recognition of non-qualified stock option exercises as
compensation to employees for tax purposes.
Note 3 - Reclassification
- -------------------------
Under the terms of the Company's international sales representative
agreements, the Company realizes revenues from the international sales
representative organizations at rates of 40% to 60% of amounts billed to
those clients. Revenues and expenses for the quarter and nine months ended
September 30, 1996 have been reclassified to reflect the current year
presentation of revenues attributable to international operations on a
net basis.
Note 4 - Adoption of FAS 128
- ----------------------------
The Company will adopt the Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS128") in the fourth quarter of 1997,
as required. The Company will continue to apply APB Opinion No. 15, "Earnings
Per Share" until the adoption of SFAS 128. The new standard specifies the
computation, presentation and disclosure requirements for earnings per share.
The pro forma earnings per common share computed under the provisions of
SFAS 128 for the quarter ended September 30, 1997 are $.21 basic earnings per
common share and $.19 diluted earnings per common share as compared to
$.16 basic earnings per share and $.12 diluted earnings per share for the
quarter ended September 30, 1996. The pro forma earnings per common share
computed under the provisions of SFAS128 for the nine months ended
September 30, 1997 are $.54 basic earnings per common share and $.48 diluted
earnings per common share, as compared to $.41 basic earnings per common
share and $.30 diluted earnings per common share for the nine months ended
September 30, 1996.
<PAGE> 7
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, trends and organizational issues relating to
the computer hardware, software, communications and related information
technology industries to users and vendors of information technology ("IT").
IT user organizations utilize META Group's research, analysis and
recommendations to develop and employ cost-effective strategies for
selecting and implementing timely IT solutions and for aligning these
solutions with business priorities. 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 80% and
84% of the Company's total revenues for the quarters ended September 30, 1997
and 1996, respectively. 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 32% to $42.9 million at September 30, 1997 from
$32.4 million at September 30, 1996. At September 30, 1997, the Company had
over 3,100 Continuous Services subscribers in approximately 1,325 client
organizations worldwide.
Continuous Services revenues attributable to international clients are
billed and collected by the Company's international sales representative
organizations. The Company realizes revenues from the independent
international sales representative organizations at rates of 40% to 60% of
amounts billed to those clients.
The Company's operating expenses consist of cost of services and
fulfillment, selling and marketing expenses, general and administrative
expenses and depreciation and amortization expense. 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, legal, human resources, corporate IT and other
administrative functions of the Company.
<PAGE> 8
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
TOTAL REVENUES Total revenues increased 39% to $13.4 million in the quarter
ended September 30, 1997 from $9.6 million in the quarter ended September 30,
1996. Revenues from Continuous Services increased 32% to $10.7 million in the
quarter ended September 30, 1997 from $8.1 million in the quarter ended
September 30, 1996. The increases in total revenues and revenues from
Continuous Services were primarily due to continued expansion of the
Company's international business, increased average selling prices, and the
recognition of new revenue from the Company's three new Continuous
Services, particularly Enterprise Architecture Strategies Service. The
Company increased Contract Value 32% to $42.9 million at September 30, 1997
from $32.4 million at September 30, 1996. The Company grew its subscriber
client base 19% to 3,160 Continuous Service clients at September 30, 1997
from 2,650 clients at September 30, 1996.
Other revenues, consisting principally of revenues from consulting,
increased 75% to $2.7 million in the quarter ended September 30, 1997 from
$1.6 million in the quarter ended September 30, 1996, and increased as a
percentage of total revenues to 20% from 16%. The increase in other revenues
was primarily attributable to the expansion of META Group Consulting
activities and, to a lesser extent, the growth of the Company's publications.
Revenues attributable to international clients increased 64% in the
quarter ended September 30, 1997 from the quarter ended September 30, 1996,
and increased as a percentage of Continuous Services revenue to 13% from
10%. The increase was due to the Company's growth in existing international
markets. The Company currently has sales representation in 29 countries.
The Company expects that international revenues will continue to account for
a significant portion of its total revenues.
COST OF SERVICES AND FULFILLMENT Cost of services and fulfillment increased
33% to $6.3 million in the quarter ended September 30, 1997 from $4.8 million
in the quarter ended September 30, 1996, principally due to increased
staffing for analyst, consultant, and fulfillment positions and related
compensation expense. Cost of services and fulfillment decreased as a
percentage of total revenues to 47% from 50%. This decrease primarily
reflects the growth in the Company's increased average selling price to
$16,400 per Continuous Service subscription in the quarter ended September 30,
1997 versus $14,900 during the quarter ended September 30, 1996. Average
selling prices did not increase versus the quarter ended June 30, 1997.
Client/analyst ratio for all Continuous Services decreased to 41-to-1 at
September 30, 1997, as compared to a ratio of 43-to-1 at September 30, 1996,
as research staffing for the three new Continuous Services was put in place.
SELLING AND MARKETING EXPENSES Selling and marketing expenses increased 46%
to $3.5 million in the quarter ended September 30, 1997 from $2.4 million in
the quarter ended September 30, 1996, and increased as a percentage of total
revenues to 26% from 25%. The increase in expenses was principally due to
increased sales-related compensation and promotion expenses associated with
increased international revenues, as well as increased domestic marketing
expenditures associated with the launch of three new services. While the
Company anticipates continuing increases in the amount of selling and
marketing expenses, it expects that such expenses as a percentage of total
revenues will decrease slightly.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased 28% to $1.3 million in the quarter ended September 30, 1997 from
$1.0 million in the quarter ended September 30, 1996 and remained constant
as a percentage of total revenues at 10%. The increase in expenses was
principally due to increased finance, accounting and corporate IT staffing
and expenses required to support the growth of the Company. The Company
anticipates continuing increases over the prior year in the amount of general
and administrative expenses, and expects such expenses to decline slightly
as a percentage of total revenues.
DEPRECIATION AND AMORTIZATION Depreciation and amortization expense
increased 38% to $391,000 in the quarter ended September 30, 1997 from
$284,000 in the quarter ended September 30, 1996. The increase in
depreciation and amortization expense was principally due to purchases of
computer equipment and office furniture required to support business growth,
<PAGE> 9
and the completion of leasehold improvements associated with the relocation
of the Company's Reston, Virginia and Waltham, Massachusetts offices during
late 1996.
INTEREST INCOME Interest income increased to $571,000 in the quarter ended
September 30, 1997 from $497,000 in the quarter ended September 30, 1996 due
to an increase in the Company's cash balances, which resulted from a positive
cash flow from operations during 1996 and the first nine months of 1997.
PROVISION FOR INCOME TAXES Provision for income taxes of $936,000 was
recorded for the quarter ended September 30, 1997, as compared to a provision
of $720,000 recorded for the quarter ended September 30, 1996, reflecting an
effective tax rate of 37% and 43%, respectively. The Company's effective tax
rate has declined due to the continued expansion of business in states with
lower income tax rates. The Company was not required to pay federal income
tax in either quarter due to the utilization of net operating loss
carryforwards. Total deferred tax asset, including the current portion,
increased to $9.8 million at September 30, 1997 from $6.7 million at
December 31, 1996, as a result of the recognition of non-qualified stock
option exercises as compensation to employees for tax purposes.
EARNINGS PER SHARE EPS increased to $.19 per common share for the third
quarter of 1997 as compared to $.12 for the third quarter of 1996 as a
result of increased net income. For the quarter ended September 30, 1997,
the Company's weighted average shares outstanding were 8,082,000 shares.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
TOTAL REVENUES Total revenues increased 36% to $36.0 million in the nine
months ended September 30, 1997, from $26.4 million in the nine months ended
September 30, 1996. Revenues from Continuous Services increased 36% to
$29.7 million in the nine months ended September 30, 1997 from $21.9 million
in the nine months ended September 30, 1996. The increases in total revenues
and revenues from Continuous Services were primarily due to continued
expansion of the Company's domestic sales force, growth in international
business, increased average selling prices, and the 1997 launch of the three
new Continuous Services.
Other revenues, consisting principally of revenues from consulting,
increased 39% to $6.2 million in the nine months ended September 30, 1997,
from $4.5 million in the nine months ended September 30, 1996, and remained
constant as a percentage of total revenues at 17%. The increase in other
revenues was primarily attributable to the growth of META Group consulting.
Revenues attributable to international clients increased 75% in the nine
months ended September 30, 1997, from the nine months ended September 30,
1996, and increased as a percentage of Continuous Services revenues to 13%
from 10%. The increase was due to the Company's growth in existing
international markets. The Company currently has independent sales
representation in 29 countries.
COST OF SERVICES AND FULFILLMENT Cost of services and fulfillment increased
27% to $17.7 million in the nine months ended September 30, 1997 from
$13.9 million in the nine months ended September 30, 1996 principally due
to increased staffing for analyst, consultant, and fulfillment positions and
related compensation expense. During the first quarter of 1997, the Company
launched three new Continuous Services, while there were no development costs
associated with these services in the same period of the prior year. Cost of
services and fulfillment decreased as a percentage of total revenues to 49%
from 53%, primarily due to the increase in average selling prices.
SELLING AND MARKETING EXPENSES Selling and marketing expenses increased
37% to $8.6 million in the nine months ended September 30, 1997 from
$6.3 million in the nine months ended September 30, 1996, and remained
constant as a percentage of total revenues at 24%. The increase in expenses
was principally due to increased sales-related compensation expense
associated with increased domestic revenues as well as increased marketing
and promotional expenses relating to the launching of the three new services.
<PAGE> 10
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased 36% to $3.6 million in the nine months ended September 30, 1997
from $2.7 million in the nine months ended September 30, 1996, and remained
constant as a percentage of total revenues at 10%. The increase in expenses
was principally due to increased finance, accounting and corporate IT
staffing and expenses required to support the Company's continued growth.
DEPRECIATION AND AMORTIZATION Depreciation and amortization expense
increased 43% to $1.1 million in the nine months ended September 30, 1997,
from $760,000 in the nine months ended September 30, 1996. The increase in
depreciation and amortization expense was principally due to purchases of
computer equipment and office furniture required to support business growth,
and the completion of leasehold improvements associated with the relocation
of the Company's Reston, Virginia and Waltham, Massachusetts offices during
late 1996.
INTEREST INCOME Interest income increased to $1.5 million in the nine months
ended September 30, 1997, from $1.4 million in the nine months ended
September 30, 1996, due to an increase in the Company's cash balances
resulting from a positive cash flow from operations during 1996 and the
first nine months of 1997.
PROVISION FOR INCOME TAXES Provision for income taxes of $2.6 million was
recorded for the nine months ended September 30, 1997, as compared to a
provision of $1.8 million recorded for the nine months ended September 30,
1996, reflecting an effective tax rate of 40% and 43%, respectively. The
Company's effective tax rate has declined due to the continued expansion of
business in states with lower income tax rates. The Company was not required
to pay federal income tax due to the utilization of net operating loss
carryforwards. Total deferred tax asset, including the current portion,
increased to $9.8 million at March 31, 1997 from $6.7 million at
December 31, 1996 as a result of the recognition of non-qualified stock
option exercises as compensation to employees for tax purposes.
EARNINGS PER SHARE EPS increased to $.48 per common share for the first
nine months of 1997 as compared to $.30 for the first nine months of 1996
as a result of increased net income. For the nine months ended
September 30, 1997, the Company's weighted average shares outstanding were
8,039,000 shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $6.2 million of cash from operations during nine
months ended September 30, 1997, compared with $1.5 million of cash generated
from operations in the nine months ended September 30, 1996. The increase in
cash generated from operations in 1997 is primarily due to increased net
income and the collection of the December 31, 1996 accounts receivable,
partially offset by payment of 1996 bonuses in the first quarter of 1997.
The Company used $1.6 million of cash in the nine months ended
September 30, 1997, compared with $1.2 million in the nine months ended
September 30, 1996, 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 continues to grow. As of September 30, 1997, the Company had
no material commitments for capital expenditures.
The Company regularly invests excess funds in investment-grade, short-term
commercial paper, debt instruments, and money market funds. As these
investments generally have terms of less than three months, they are included
under the caption "Cash and cash equivalents" in the balance sheets.
In addition, the Company invests in high quality investment grade
marketable debt securities. Generally, these securities are purchased in
denominations of $5 million and held to maturity.
<PAGE> 11
As of September 30, 1997, the Company had cash and cash equivalents of
$14.2 million, marketable securities of $25.2 million and working capital of
$34.5 million. The Company currently has an unused $1.0 million bank line of
credit. 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 following 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 operation 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 operation 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, at favorable average selling prices, 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, a 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
independent 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 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,
<PAGE> 12
changes in the spending patterns of the Company's target clients, the
Company's accounts receivable collection experience, 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> 13
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, 1996, 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, 1997.
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, 1997.
<PAGE> 14
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 12, 1997 By:/s/ Bernard F. Denoyer
-------------------------
Bernard F. Denoyer
Vice President, Finance,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting
Officer)
<PAGE> 15
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> 16
EXHIBIT 11.1
META Group, Inc.
EXHIBIT TO ANNUAL REPORT ON FORM 10-Q
Computation of Net Income Per Common Share
</TABLE>
<TABLE>
<CAPTION> For the three months ended For the nine months ended
September 30, September 30,
1997 1996 1997 1996
---------------------- -------------------------
<S> <C> <C> <C> <C>
Net income $1,570,000 $966,000 $3,875,000 $2,416,000
---------- -------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding:
Average number of common shares
outstanding during the period 7,362,209 6,205,945 7,156,903 5,837,806
Add common share equivalents -- options
to purchase common shares 719,638 1,754,907 881,901 2,145,523
------- --------- ------- ---------
Total common shares outstanding 8,081,847 7,960,852 8,038,804 7,983,329
--------- --------- --------- ---------
Net income per common and common
equivalent share $.19 $.12 $.48 $.30
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 0 14,210
<SECURITIES> 0 25,241
<RECEIVABLES> 0 17,863
<ALLOWANCES> 0 (660)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 59,969
<PP&E> 0 5,350
<DEPRECIATION> 0 (2,552)
<TOTAL-ASSETS> 0 78,143
<CURRENT-LIABILITIES> 0 25,494
<BONDS> 0 0
0 0
0 0
<COMMON> 0 78
<OTHER-SE> 0 52,571
<TOTAL-LIABILITY-AND-EQUITY> 0 78,143
<SALES> 0 0
<TOTAL-REVENUES> 13,418 35,967
<CGS> 6,344 17,714
<TOTAL-COSTS> 6,344 17,714
<OTHER-EXPENSES> 5,139 13,306
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 2,506 6,484
<INCOME-TAX> (936) (2,609)
<INCOME-CONTINUING> 1,570 3,875
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,570 3,875
<EPS-PRIMARY> .19 .48
<EPS-DILUTED> .19 .48
</TABLE>
