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. [Fee Required]
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. [No Fee Required]
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 (I.R.S. Employer
incorporation or organization) Identification No.)
208 Harbor Drive, Stamford, Connecticut 06912-0061
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 973-6700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 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 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. ( )
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of March 14, 1997 (based on the closing price as quoted
by Nasdaq National Market as of such date) was $92,024,196.
As of March 14, 1997, 6,818,815 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement relating to the Company's
Annual Meeting of Stockholders to be held on May 19, 1997 are incorporated
by reference into Part III hereof.
PART I
ITEM 1. BUSINESS
General
META Group, Inc. ("META Group" or the "Company") 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 ("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 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.
META Group offers clients annual subscriptions to 13 different research
services ("Continuous Services"). These services are focused on specific
areas of IT, IT issues related to a specific vertical market, or specific
needs of those within the IT organization. Recommendations to clients are
based on projections and analyses of important industry trends, experiences
of other companies, events and announcements, key issues and business
practices, as well as new technologies, products and services. The Company
also offers consulting and benchmark services, as well as a variety of
targeted publications.
META Group targets as its clients substantial commercial and governmental
users of IT, as well as IT vendors. As of December 31, 1996, the Company
had over 2,800 subscribers in approximately 1,160 client organizations,
including 32% of the Fortune 500 companies, 68% of the top 25 Fortune 500
companies and all of the top 10 Fortune 500 companies. Approximately
75% of META Group's clients renewed one or more subscriptions during each
of 1996 and 1995.
From time to time, information provided by the Company or statements
made by its employees may contain "forward looking" information which
involve risks and uncertainties. In particular, the statements set forth
under the heading "The META Group Solution" below regarding the Company's
objectives to expand the range of clients it serves, further penetrate its
existing client base, extend its product line and broaden the scope of its
services are "forward looking" statements. The Company's actual results
may vary significantly from those stated in any forward looking statements.
Factors that may cause such differences include, but are not limited to
difficulties in the timely adjustment and/or expansion of the Company's
product offerings to encompass new technologies, difficulties in developing,
acquiring and/or integrating new product offerings, changes in the mix
between domestic and international business, changes in the rates of
<PAGE> 2
customer renewals, difficulties in gaining entry into new markets for the
Company's products and services and limitations on financial and other
resources required to engage in product development and sales and marketing
activities.
Specific comparative financial information may be found in the
Management's Discussion and Analysis section and in the notes to the
financial statements.
META GroupTM, the META Group logo, META DeltasTM, META FaxTM and META
FlashTM are trademarks of the Company. This Report also includes trademarks
and trade names of companies other than META Group.
Industry Background
Businesses and other organizations remain dependent on IT for competitive
success, which has led to sustained growth in IT-related expenditures.
This market growth is being driven by many factors, including intensified
domestic and global competition, the Internet and electronic commerce,
large-scale migration from legacy mainframe systems to distributed
architectures, the accelerating pace of technological change, shortened
product life-cycles, outsourcing and widespread business process
re-engineering and corporate downsizing.
At the same time, the decision-making process involved in the planning,
selection and implementation of IT solutions is growing more complex. Prior
to the emergence of open systems and distributed computing, organizations
faced easier technology choices. Traditionally, IT managers would simply
purchase a vertically integrated solution (hardware, operating system,
applications and services) from one of the large systems vendors. Today,
IT decision-makers must evaluate a variety of new and rapidly evolving
products from multiple vendors and consider the interoperability of these
products with one another and with existing legacy systems.
As IT has become more entwined with day-to-day business operations and
strategic planning, a wider range of individuals are participating in the IT
decision-making process. With the shift to distributed computing, IT
decision making has spread to individual business units. Furthermore, as IT
supports more business-critical functions, IT decision-makers at all levels
are becoming key participants in the planning and implementation of business
decisions and are often being called upon to be strategic drivers of
business and technology innovation. As IT assumes a more business-critical
role, senior executives of organizations are compelled to take a more active
role in IT planning and decision making.
As a result of these trends, there is an increasing need for a level of
IT guidance that often cannot be effectively supported by the internal
resources of a single organization. Organizations are more frequently
turning to outside sources for help with strategic and tactical advice in
planning, selecting and implementing IT; however, historically, available
solutions have had significant limitations. Software and equipment vendors
generally offer advice biased toward their own products or services, while
understating interoperability issues. Many professional service firms and
implementation companies provide technical advice, but they have incentives
<PAGE> 3
to promote solutions that require their services and often have purchasing
and cooperative relationships with particular hardware and software vendors.
Some independent market research firms provide vendor-neutral advice, but
most target technology vendors rather than the user community. Those
market research firms that do target users typically do not offer advice
over a full range of technology offerings. As a result, there is a need
for vendor-neutral, user-focused, broad-based IT market research, coupled
with personalized advice within the specific context of an organization's
business environment and IT requirements.
The META Group Solution
The Company addresses the growing demand for user-focused guidance by
providing vendor-neutral IT research, analysis and advice to substantial
commercial and governmental users of IT. META Group services are also
utilized by IT vendors for help in product positioning, marketing and
market planning as well as for internal IT decision making. META Group
Continuous Services assist clients in making more informed, timely and
cost-effective decisions in the context of the clients' business and
technology environments. Each Continuous Service is highly focused on
enhancing the client's ability to reduce and/or contain the cost of IT,
reduce risk, assess vendor business practices and strategies, evaluate
products and technologies, negotiate with vendors, develop financial
strategies and formulate IT architectures and strategic plans.
META Group differentiates its services from those offered by other
IT research firms by delivering IT industry coverage through more
comprehensive and integrated service segments, a higher level of personal
service and a greater emphasis on client/analyst interaction. To provide
this level of service, the Company maintains a client/analyst ratio no
higher than 50-to-1 in each of its service segments.
The Company's research is designed to alert clients to the sometimes
subtle and unforeseen opportunities and risks inherent in complex IT
business decisions. Although META Group research contains concrete
conclusions and recommendations, a client seeking to understand the complex
IT issues addressed in written research often requires further explanation
and analysis in the context of the client's unique business environment and
IT requirements. Accordingly, all META Group clients have direct access to
the Company's analysts, who adapt the Company's published conclusions and
recommendations to the client's specific IT environment. META Group analysts
are available to clients through direct telephone consultations, customized
on-site and regional executive briefings and in-depth quarterly and annual
conferences, as well as teleconferences addressing significant current IT
developments.
META Group believes its proactive involvement in clients' specific IT
problem solving situations enables it to provide actionable advice. META
Group analysts have real-time access to a broad base of current user
experience spanning vertical industries and related technologies. This
first-hand practical knowledge is disseminated throughout the Company at
weekly meetings of META Group's entire research staff. As a result of this
interaction and broad knowledge base, META Group analysts deliver more
informed conclusions and recommendations. META Group believes that its
interactive approach provides significant value to senior management
and IT decision-makers by enhancing their ability to make sound, practical
and cost-effective decisions.
<PAGE> 4
META Group's objective is to leverage its reputation, comprehensive
research model, knowledge base, customer relationships and domestic and
international sales network to expand the range of clients it serves,
further penetrate its existing client base, extend its product line and
broaden the scope of its services.
Products and Services
META Group's personalized, in-context approach to technology assessment
is offered to clients through several categories of services and products.
Designed to complement each other, these offerings provide flexible access
to the industry's foremost market assessment and analytical expertise.
META Group services and products cover the following categories:
CONTINUOUS SERVICES
CONSULTING AND BENCHMARKING SERVICES
PUBLICATIONS
Continuous Services
META Group believes its Continuous Services provide comprehensive
coverage of virtually all relevant IT and business related issues faced by
its clients. META Group applies a consistent approach to all Continuous
Services by offering a high level of personal service with an emphasis on
client/analyst interaction. All META Group clients have direct access to
the Company's analysts as consultants to adapt the Company's published
conclusions and recommendations to the client's specific IT requirements.
Proactively contacting clients on a regular basis, META Group analysts apply
their knowledge base of product information and user experience to respond
to the unique IT situation of each client with customized, action-oriented
advice and recommendations.
The list prices for the Company's Continuous Services range from $20,000
to $25,000, and are subject to discounts based on a number of factors,
including the number of Continuous Services subscribed to by a client. The
Company's average selling price for a Continuous Service was $15,400 and
$14,200 for the years ended December 31, 1996 and 1995, respectively.
The following deliverables, which involve the direct participation of
META Group research analysts, typically are provided to subscribers to META
Group's Continuous Services as an integral part of such services:
. Telephone Consultations afford each subscriber the unlimited
opportunity to discuss specific issues with META Group analysts.
. Half-day Briefings are held at META Group headquarters or at
client sites and address client-specific issues.
<PAGE> 5
. Strategic Plan Reviews provide META Group analysis and evaluation
of clients' strategic plans.
. Regional Executive Briefings are conducted by each service. These
half-day user roundtables focus on key issues and are held in
major cities throughout the year.
. META Trend Teleconferences are held quarterly by each service to
provide an in-depth analysis of between two and four of that
service's annual "META Trends" (that is, long-term projections of
major industry issues and directions that META Group believes will
impact users, vendors and the IT market).
. Key Event Teleconferences enable clients to participate in
discussions with META Group analysts and are generally held
following key industry events, such as major announcements or
trade shows.
. META Group Conferences address a broad range of tactical and
strategic issues relevant to each service. At least one conference
per service is conducted annually. A conference covering
industry-wide issues is also held annually.
. Written Research Each subscriber to a META Group Continuous
Service receives the following written materials:
. META Deltas consist of three to four analytical briefs,
published monthly, that deliver analysis of major events,
issues, vendor products and strategies, technology and other
pertinent matters.
. META Faxes are concise faxed summaries of META Group's weekly
research meeting, at which industry events are reviewed and
analyzed.
. META Trends is an annual publication featuring three to five
year projections of significant issues and developments that
will affect IT users and vendors.
. META Flash is a faxed bulletin containing analysis of key
industry events or announcements which META Group deems to be
of extraordinary importance.
META Group research is available in print, as well as in the media below.
A rolling three years of research can be viewed and sorted by service, topic
or keyword.
. Internet or Intranet
. Lotus Notes
. CD-ROM
<PAGE> 6
The following is a description of META Group's Continuous Services:
Application Delivery Strategies (ADS) assists organizations in aligning
IT resources with business initiatives through the use of advanced software
technologies. Primary areas of focus include client/server application
packages, enterprise and departmental application infrastructures, systems
integrators, data warehousing, DSS/OLAP, development tools, and process
improvement strategies. Practical examples include integrating customer
management processes across the enterprise, revitalizing core business
practices, integrating legacy applications with data warehousing and
Internet topologies, and supporting market-driven applications within
cost-effective IT frameworks.
Advanced Information Management Strategies (AIMS) provides early
identification of high-impact technologies that support business
transformation strategies. It encompasses a wide range of both IT and
business issues. Service offerings are focused on electronic commerce,
objects (emphasizing business-process reuse and object oriented
infrastructure), collaborative technologies, workflow products and "new"
media, including documents, images and multimedia. Analysts also assist in
creating cross-functional, customer-focused organizations; seeing organization
through required business transformations; and assessing external resources
such as management consultants, systems integrators and providers of
change-management services.
Enterprise Architecture Strategies (EAS) focuses on the needs of
senior level IT professionals and the fundamentals of planning, designing
and implementing an IT architecture that supports the company's growth
strategy while allowing for a quick response to industry changes and
advancements. By identifying the core issues that link business function to
IT strategy, EAS helps clients to build an adaptive IT foundation that
sustains a company's competitive advantage.
Enterprise Data Center Strategies (EDCS) delivers guidance critical for
integrating heterogeneous vendors, platforms and applications into a
cohesive, cost-effective enterprise data center. Clients benefit from
in-depth analysis and insight into the management, organization, operational
and technical factors behind evolving enterprise architectures, logical data
centers, high-volume transaction processing and database systems, hardware
and software asset management. Particular areas of focus include
migration and implementation strategies, parallel sysplex, Year 2000
compliance, vendor analysis and business practices, and negotiation
strategies.
Global Networking Strategies (GNS) addresses the management and
technical issues raised by changes in corporate network
architectures. Analysts provide insight into emerging trends in technology,
regulation and network-based applications. Primary areas of concentration
include corporate network architectures and services, bandwidth management,
connectivity beyond the enterprise, integrated network and systems
management, voice switching and processing, worldwide regulatory
environments, wireless communications, and network security. Client
benefits include enhanced strategic planning, improved network performance,
better network outsourcing decisions and more effective vendor evaluation.
<PAGE> 7
META Executive Council (MEC) provides a forum for senior IT and business
executives to discuss operational and organizational challenges and
experiences on IT related topics. Membership-directed research topics are
discussed at regional and national meetings and published in monthly
research papers. Customized on-site briefings and one-day planning sessions
are also provided to focus on client and industry issues.
Open Computing & Server Strategies (OCSS) represents a valuable resource
for organizations seeking to support business-critical applications with
scaleable, high-performance open servers. Research provides interactive,
ongoing assistance with the entire spectrum of issues associated with
establishing and maintaining open system - architecture planning,
rightsizing, data warehousing, relational database management systems,
storage subsystems, and identification and evaluation of key vendor partners.
Services & Systems Management Strategies (SSMS) delivers research and
analysis focused on the management of shared computing infrastructures and
applications. Primary areas of coverage include networked systems
management, customer-support operations and outsourcing (including
feasibility studies, vendor negotiation, implementation schedules and
management of service providers). In all cases, analysts pay particular
attention to the organizational, financial, and management implications of
IT's increasing role as an internal vendor of services.
Software Engineering Productivity Strategies (SEPS) is a metrics based
approach to improving the effectiveness of software development and
maintenance. Research focus is in the areas of software measurements and
metrics, processes and improvement strategies, and management tools and
techniques.
Software Product Expertise (SPEX) delivers comprehensive software
product evaluations to IT users and professionals. The Company developed
SPEX in conjunction with CXP International S.A., a French IT research firm.
SPEX clients receive 12 software product evaluation kits each year, each
of which discusses either a technical (e.g., groupware) or functional
(e.g., manufacturing) segment of the software industry.
Workgroup Computing Strategies (WCS) provides research and analysis
to assist organizations in deploying client/server and intranet-related
technologies and applications. Areas of focus include network computing
and Web-based applications, groupware and collaborative computing, mobile
and telecommunting, and total cost of ownership. Additional coverage
includes PC hardware and system software (client, network and server),
Web development and management, and IT organizational issues. Emphasis
is given to the impact of end-user and departmental requirements on systems
developed and deployed by IT.
Continuous Services for Vertical Industries:
. Healthcare Information Technology Strategies (HITS) delivers targeted
research and insight to help IT healthcare professionals successfully
<PAGE> 8
implement long-term IT strategies in a changing regulatory environment.
Specific areas of research include: legacy system transition, decision
support, communications services and other supporting technologies.
. Utility Information Technology Strategies (UITS) focuses on the
operating and business requirements unique to utility companies --
including safety concerns, cost control, system redundancy and
regulatory reporting requirements, while recognizing the urgency with
which utility companies need to develop new business models and
practices to compete in newly deregulated environments.
Consulting and Benchmarking Services
In addition to its Continuous Services, META Group provides traditional
IT consulting in selected areas, as well as custom consulting services
tailored to meet individual client requirements, priced on a per-project
basis. META Group also provides benchmarking and best practices analyses
of technology operations environments.
Consulting. As organizations continue to evaluate core competencies and
look for cost savings through the selective use of outsourcing, IT
organizations are increasingly being positioned as internal service entities
satisfying line-of-business ("LOB") "clients." As a result, today's IT
executive is under pressure to plan a flexible and cost-effective IT
architecture addressing tomorrow's business environment, while remaining
responsive to changing LOB requirements. META Group Consulting ("MGC")
combines technological expertise and extensive research resources to assist
companies in developing and implementing strategic IT architectures. MGC
leverages META Group's research and client relationships to understand user
issues and technology trends, drawing on the expertise of META Group
analysts in all Continuous Services areas. Services include planning
foundation analysis, business and technology requirements analysis, strategy
development, outsourcing strategies, year 2000 compliance migration planning
and procurement strategies.
Benchmarking. META Metrix provides benchmarking and best practices
analyses of technology operating environments by using comparative metrics
to assess effectiveness of IT operations. Its services are provided through
both individual consulting engagements and client-sponsored action groups
to research IT management issues. Taking comprehensive measurements of a
client's technology operations, META Metrix then compares them with those
of other companies and provides detailed analyses to support these
comparisons, explaining what differentiates one client's IT infrastructure
data center, wide-area network, local-area network, client/server from that
of others. META Metrix then delivers summary recommendations on how to
improve the client's specific technology operating environment.
Publications
To address specific needs for detailed information, META Group offers a
variety of topic-specific publications designed to serve both as complements
to our core services and as stand-alone deliverables that meet specific
assessment needs:
<PAGE> 9
. Annual Salary Survey Report
. Software Tools Bulletins
. Computer Finance
In February 1996, the Company entered into an exclusive distribution
agreement with APT Data Group Plc ("APT"), a London based publisher of
magazines, newsletters, and product review bulletins for users and suppliers
of information technology. Under the agreement, the Company has the
exclusive right to market and distribute four of APT's Software Tools
Bulletins in the United States, Canada, and Latin America. These bulletins
provide monthly product and category reviews in the areas of client/server
development, data warehousing, distributed systems management, and object
oriented development. In addition, the Company markets APT's Computer
Finance, a monthly analysis of cost issues faced by large corporate IT users.
The successful assimilation, marketing and sale of new products are
subject to certain risks and uncertainties. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Certain
Factors That May Affect Future Results -- Risks Associated With New Product
Development."
Research and Analysis
The Company employs a consistent, disciplined research and analysis
methodology across the Company's Continuous Services. Each Continuous
Service has a Service Director who is responsible for implementing the
Company's research and analysis methodology in that service. The
development methodology consists of an iterative process of research,
analysis, hypothesis and testing. Analysts conduct extensive primary
research, working with the Company's client base, surveying vendors and
contacting other sources. These activities are supplemented with searches
of numerous trade, financial and other third-party source materials compiled
in the Company's resource center as well as weekly meetings of the entire
META Group research staff, at which findings are presented and scrutinized.
From this research, analysts identify significant patterns and trends,
develop assumptions, test hypotheses and arrive at concrete recommendations
and conclusions to provide to clients. META Group analyst compensation is
based in part on meeting monthly publishing deadlines, as well as proactive
client contact.
The knowledge and experience of the Company's analysts is critical to the
quality of the Company's products and services. To ensure consistency of
positions and analysis across service disciplines, all META Group research
is reviewed by the Company's Research Director. While varying opinions and
philosophical contention among services and research disciplines are
encouraged, final positions and conclusions are consistent. This practice
ensures that the analytical structure and recommendations presented in the
Company's products better enable the various elements of client
organizations to formulate integrated strategies based on coherent
information and analysis.
<PAGE> 10
Sales and Marketing
META Group uses a direct sales force domestically and a network of local
independent sales representative organizations internationally to market
and sell its products and services. The Company's domestic sales force is
comprised of 38 field sales personnel located throughout the United States,
as well as nine telemarketers. The Company currently utilizes independent
sales representative organizations covering the following locations: Canada,
Europe, Far East, Middle East, South America and South Africa. Under the
terms of the Company's international sales representative agreements, sales
representative organizations are assigned exclusive territories and annual
quotas. These international sales representative organizations also perform
selected client service functions, and bill and collect revenues
attributable to international clients. The Company realizes revenues from
the international sales representative organizations at rates of 40% to 60%
of amounts billed to those clients.
As of December 31, 1996, the Company had over 2,800 subscribers in
approximately 1,160 client organizations worldwide, and no single client
accounted for more than 2% of the Company's revenues for the year ended
December 31, 1996. The Company does not believe it is the exclusive
provider of IT research and advisory services to its clients.
In March 1995, META Group entered into an exclusive strategic alliance
agreement with First Albany Corporation ("First Albany"), a financial
services firm. The agreement provides for the distribution of the
Company's written research and analysis, in its original form or as
customized and expanded by First Albany, to First Albany's financial
services customers, which include many institutional investors who are
large IT users. The agreement restricts the Company from marketing its
services to any broker dealer or sell-side firm offering services similar
to those offered by First Albany. The Company is permitted to market and
sell Continuous Services to First Albany buy-side customers. The initial
term of this agreement is four years, annually renewable by First Albany
thereafter, subject to attainment of specified minimum revenue targets.
The Company recognized $425,000 and $275,000 in revenues from this
arrangement in the years ended December 31, 1996 and 1995, respectively.
George McNamee, a director of the Company, is also Chairman and Co-Chief
Executive Officer of First Albany. See Note 12 of Notes to Financial
Statements.
Client Support
META Group is committed to providing a high level of client service as
defined by response time, clarity of advice and quality of communication.
META Group analysts respond to clients' inquiries and concerns as they
arise, and analyst compensation is based in part on client inquiry response
times. Analysts' regular contact with clients through telephone
consultations, briefings and conferences also provides the Company with
feedback which is used in the enhancement of its services. In addition,
the META Group research library frequently performs supporting client-
specific topical searches on particular IT issues. The Company maintains
a key issues database that identifies areas of particular concern to clients
and regularly uses customer satisfaction surveys to refine and enhance the
quality of the services it provides.
<PAGE> 11
The Company sells Continuous Services pursuant to renewable one-year
subscription agreements, which are generally paid in full at the start of
the subscription period. During both 1996 and 1995, approximately 75% of the
Company's client organizations renewed one or more subscriptions. However,
there can be no assurance that the Company will be able to sustain its
client retention rates at historical levels. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Competition
The Company experiences competition in the market for IT research and
analysis products and services from other independent providers of similar
services, as well as the internal planning and marketing staffs of the
Company's current and prospective clients. The Company's principal direct
competitor, Gartner Group, Inc. ("Gartner Group"), has a substantially
longer operating history, is significantly larger and has considerably
greater financial resources and market share than the Company. The Company
also competes indirectly against other information providers, including
electronic and print media companies and consulting firms. The Company's
indirect competitors could choose to compete directly against the Company
in the future. Many of the Company's direct and indirect competitors have
substantially greater financial, information gathering and marketing
resources than the Company. In addition, although the Company believes that
it has established a significant market presence, there are few barriers to
entry into the Company's market, and new competitors could readily seek to
compete against the Company in one or more market segments addressed by the
Company's Continuous Services. Increased competition could adversely affect
the Company's operating results through pricing pressure and loss of market
share. There can be no assurance that the Company will be able to continue to
compete successfully against existing or new competitors.
The Company believes that the principal competitive factors in its
industry are quality of research and analysis applied in context of client
IT environments, timely delivery of relevant information, client support
and responsiveness, the ability to offer products that meet changing market
needs for information and analysis, and price. The Company believes it
competes favorably with respect to each of these factors.
Employees
As of December 31, 1996, the Company employed 245 persons, including 119
research analysis and fulfillment personnel (including 64 analysts), 64
sales and marketing personnel and 62 administrative and operational
personnel. Of these employees, 135 are located at the Company's
headquarters in Stamford, Connecticut, 100 are located at other domestic
facilities and ten are located overseas. None of the Company's employees is
represented by a collective bargaining arrangement, and the Company has
experienced no work stoppages. The Company considers its relations with its
employees to be good. All employees are granted stock options upon hiring.
<PAGE> 12
The Company's future success depends in large part on the ability to
continue to motivate and retain highly qualified employees, including
management personnel, and to attract and retain a significant number of
additional qualified personnel, including research analysts, sales personnel
and product development and operations staff. Competition for qualified
personnel in the Company's industry is intense, and many of the companies
with which META Group competes for qualified personnel, including Gartner
Group, have substantially greater financial and other resources than the
Company. Furthermore, competition for qualified personnel can be expected
to become more intense as competition in the Company's industry increases.
There can be no assurance that the Company will be able to recruit, retain
and motivate a sufficient number of qualified personnel to compete
successfully. The loss of any of the Company's senior management personnel,
particularly Dale Kutnick, or any material failure to recruit, retain and
motivate a sufficient number of qualified personnel would have a material
adverse effect on the Company.
ITEM 2. PROPERTIES
The Company's headquarters are located in approximately 63,000 square
feet of office space in Stamford, Connecticut. This facility accommodates
research, marketing, sales, customer support and corporate administration.
The lease on this facility expires in 2001. The Company also leases office
space in nine other locations to support its research, sales and other
administrative functions. The Company believes that its existing facilities
are adequate for its current needs and that additional facilities are
available for lease to meet future needs.
ITEM 3. LEGAL PROCEEDINGS
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.
The complaint relates to a marketing agreement with the consultant providing
for the marketing and distribution by the consultant, on behalf of the
Company, of a CD-ROM product containing META Group research and analysis
which is at least one year old. The complaint alleges that the agreement
covers distribution of research and analysis through on-line services and
asserts a breach of the agreement and related oral agreements by the
Company, as well as related tort claims. The complaint seeks both
injunctive relief and unspecified damages, which could be substantial.
The Company believes the claim to be without merit and intends to vigorously
defend the suit, however there can be no assurance that these claims will
not be upheld. As discovery is ongoing, the Company is still considering
filing counterclaims.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of 1996.
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "METG" since its initial public offering (the "Offering")
at $18.00 per share on December 1, 1995. Prior to the Offering, there was
no established public trading market for the Company's shares.
On March 14, 1997, the closing price of the Company's Common Stock was
$21.75, as reported by the Nasdaq National Market. On that date, there
were approximately 90 holders of record of the Company's Common Stock and
at least 1,000 beneficial holders, based on information obtained from the
Company's transfer agent.
The Company has never paid cash dividends on its Common Stock. Any future
declaration and payment of dividends will be subject to the discretion of
the Company's Board of Directors, will be subject to applicable law and will
depend upon the Company's results of operations, earnings, financial
condition, contractual limitations, cash requirements, future prospects and
other factors deemed relevant by the Company's Board of Directors.
The following table reflects the range of high and low bid quotations,
as reported on the Nasdaq National Market, for META Group Common Stock, by
quarter since the Offering:
<TABLE>
<CAPTION>
High Low
---- ---
1996:
- -----
<S> <C> <C>
Fourth Quarter $34.50 $25.50
Third Quarter $28.25 $20.50
Second Quarter $32.75 $22.50
First Quarter $33.25 $22.00
1995:
- -----
Fourth Quarter $33.25 $20.75
</TABLE>
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the financial
statements of the Company, and should be read in connection with those
statements, which are included herein.
<TABLE>
<CAPTION>
Year Ended December 31,
1992 1993 1994 1995 1996
(In thousands, except per-share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Continuous services $6,595 $10,266 $16,160 $22,334 $30,769
Other, principally consulting and
conferences 894 716 1,255 3,001 6,197
------------------------------------------
Total revenues 7,489 10,982 17,415 25,335 36,966
------------------------------------------
Operating expenses:
Cost of services and fulfillment 4,875 7,488 11,073 14,515 18,908
Selling and marketing 1,793 2,838 6,680 6,329 8,797
General and administrative 1,245 1,612 1,949 2,180 3,728
Depreciation and amortization 208 233 441 676 1,086
-------------------------------------------
Total operating expenses 8,121 12,171 20,143 23,700 32,519
-----------------------------------------------
Operating income (loss) (632) (1,189) (2,728) 1,635 4,447
-------------------------------------------
Other income (expense):
Gain on sale of investment 250
Interest income 3 18 16 217 1,909
Interest expense (65) (57) (66) (19)
--------------------------------------------
Total other income (expense) (62) (39) (50) 448 1,909
-------------------------------------------
Income (loss) before provision
(benefit) for income tax (694) (1,228) (2,778) 2,083 6,356
Provision (benefit) for income tax (1,547) 2,730
-------------------------------------------
Net income (loss) $ (694) $(1,228) $(2,778) $3,630 $3,626
===========================================
Net income (loss) per common
and common equivalent share $ (.46) $ (.69) $ (1.31) $ .68 $ .45
============================================
Weighted average number of
common and common
equivalent shares outstanding 1,515 1,770 2,118 5,376 7,995
===========================================
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 320 $ 737 $ 301 $35,525 $19,335
Marketable securities 15,684
Working capital (deficit) (3,559) (4,518) (7,102) 27,676 28,843
Total assets 4,898 7,997 11,385 52,356 70,171
Deferred revenues 6,322 9,901 13,484 16,557 22,885
Total debt 857 784 250
Redeemable convertible preferred
stock 1,500
Total stockholders' equity
(deficiency) (3,142) (4,503) (7,226) 31,868 42,728
</TABLE>
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 IT users and vendors. 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 83% and
88% of the Company's total revenues for the years ended December 31, 1996
and 1995, respectively. Billings attributable to the Company's Continuous
Services are initially recorded as deferred revenues and then recognized
pro rata over the contract term. Approximately 75% of the Company's clients
renewed one or more subscriptions during each of 1996 and 1995, however,
this client retention rate is not necessarily indicative of the rate of
retention of the Company's revenue base. 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.
The Company has experienced revenue growth each year since its inception
in 1989, and its total revenues increased at a compound annual growth rate
of 49% per annum to $37.0 million in 1996 from $7.5 million in 1992. The
Company attributes the increase in total revenues to the quality and
timeliness of its research and analysis of IT industry developments, the
introduction of additional Continuous Services products and the expansion of
the Company's domestic and international markets, as well as a growing
market demand for research and analysis as technologies and systems become
increasingly complex. Notwithstanding the growth in total revenues, the
Company incurred substantial operating losses from 1992 through 1994 due to
the need to establish a base level of analyst capacity in each of its
service segments and its desire to expand the number of services offered.
While these investments in analyst capacity had a negative impact on the
Company's operating results, the Company believed that they were necessary
in order to meet market demand. The Company was profitable for the years
ended December 31, 1996 and 1995.
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 40% to $35.3 million at December 31, 1996 from
$25.2 million at December 31, 1995. At December 31, 1996, the Company had
over 2,800 Continuous Services subscribers in approximately 1,160 client
organizations worldwide.
<PAGE> 16
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 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 and general and administrative
expenses. 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.
Results of Operations
The following table sets forth certain financial data as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1994 1995 1996
<S> <C> <C> <C>
Revenues:
Continuous services 93% 88% 83%
Other revenues, principally consulting
and conferences 7 12% 17
---------------------------
Total revenues 100 100 100
---------------------------
Operating expenses:
Cost of services and fulfillment 64 57 51
Selling and marketing 38 25 24
General and administrative 11 9 10
Depreciation and amortization 3 3 3
---------------------------
Total operating expenses 116 94 88
---------------------------
Operating income (loss) (16) 6 12
---------------------------
Other income (expense):
Gain on sale of investment 1
Interest income 1 5
Interest expense
-----------------------------
Total other income (expense) 2 5
------------------------------
Income (loss) before provision
(benefit) for income tax (16) 8 17
Provision (benefit) for income tax (6) 7
-----------------------------
Net income (loss) (16)% 14% 10%
-----------------------------
</TABLE>
<PAGE> 17
Years Ended December 31, 1996 and December 31, 1995
Total Revenues. Total revenues increased 46% to $37.0 million in the year
ended December 31, 1996 from $25.3 million in the year ended December 31,
1995. Revenues from Continuous Services increased 38% to $30.8 million in
the year ended December 31, 1996 from $22.3 million in the year ended
December 31, 1995. The increases in total revenues and revenues from
Continuous Services were primarily due to continued expansion of the
Company's domestic sales force, increases in average selling prices, as well
as growing worldwide market acceptance of the Company's products. The
Company increased average selling prices 8.5% to $15,400 in 1996 from
$14,200 in 1995 by continuing to broaden research coverage within its
existing Continuous Services. The Company grew its subscriber client base
33% to 2,800 Continuous Service clients at December 31, 1996 from 2,100
clients at December 31, 1995.
Other revenues, consisting principally of revenues from consulting and
conferences, increased 106% to $6.2 million in the year ended December 31,
1996 from $3.0 million in the year ended December 31, 1995, and increased
as a percentage of total revenues to 17% from 12%. The increase in other
revenues was primarily attributable to the expansion of META Group
Consulting activities and, to a lesser extent, the introduction of several
new publications and the increase in paid attendance at the Company's major
conferences.
Net revenues attributable to international clients increased 100% in the
year ended December 31, 1996 from the year ended December 31, 1995, and
increased as a percentage of total Continuous Services revenues to 10% from
7%. The increase was primarily due to the Company's increased presence in
existing international markets. 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 30% to $18.9 million in the year ended December 31, 1996 from
$14.5 million in the year ended December 31, 1995 principally due to
increased analyst staffing and related compensation expense required to
support the Company's growth both domestically and internationally and, to
a lesser extent, due to the development and launch of three new Continuous
Services, bringing the Company's product offerings to 13 at the end of 1996.
Costs of services and fulfillment decreased as a percentage of total
revenues to 51% from 57%. This decrease primarily reflects improvement in
the Company's analyst productivity, as indicated by an increase in the
Company's average client/analyst ratio to 48-to-1 in its seven core services
during the year ended December 31, 1996 from 42-to-1 during the year ended
December 31, 1995. This decreased percentage also reflects improved average
selling prices discussed above.
Selling and Marketing Expenses. Selling and marketing expenses increased
39% to $8.8 million in the year ended December 31, 1996 from $6.3 million in
the year ended December 31, 1995 but decreased as a percentage of total
revenues to 24% from 25%. The increase in expenses was principally due to
increased sales-related compensation expense associated with increased
revenues, the establishment of a direct marketing distribution channel, and
higher market and promotion expenditures related to the launch of new
services and publications. The Company anticipates continuing increases in
<PAGE> 18
the amount of selling and marketing expenses as it continues to grow by
expanding the scope of its product offerings, and it expects that such
expenses as a percentage of total revenues will remain constant.
General and Administrative Expenses. General and administrative expenses
increased 71% to $3.7 million in the year ended December 31, 1996 from
$2.2 million in the year ended December 31, 1995 and increased as a
percentage of total revenues to 10% from 9%. The increase in expenses was
principally due to growth of corporate staffing and increases in insurance
premiums, investor relations and professional fees, which grew as a result
of the additional requirements related to the Company becoming publicly
traded at the end of 1995. In addition, higher facilities costs were
incurred in connection with the Company's expansion into larger offices in
Reston, VA and Waltham, MA. The Company anticipates continuing increases
in the amount of general and administrative expenses and expects such
expenses to decrease slightly as a percentage of total revenues.
Depreciation and Amortization. Depreciation and amortization expense
increased 61% to $1.1 million in the year ended December 31, 1996 from
$676,000 in the year ended December 31, 1995. The increase in depreciation
and amortization expense was principally due to office furnishings and
equipment purchases required to support business growth and the expansion to
larger offices in Reston, VA and Waltham, MA during 1996.
Gain on Sale of Investment. The Company recognized a $250,000 gain on the
sale of an investment in the year ended December 31, 1995. This investment
was in common stock of a former client that was received as consideration
for consulting services provided in 1991.
Interest Income. Interest income increased to $1.9 million in the year
ended December 31, 1996 from $217,000 in the year ended December 31, 1995
due to an increase in the Company's balances of cash and marketable
securities, resulting from the sale of securities in connection with the
Company's initial public offering and from positive cash flows from
operations.
Provision for Income Taxes. The Company recorded a provision for income
taxes of $2.7 million and $918,000, reflecting an effective tax rate of 43%
and 44%, during the years ended December 31, 1996 and 1995, respectively.
During the year ended December 31, 1995, the Company recorded a $2.5 million
benefit associated with the reduction of a substantial portion of the
Company's deferred tax asset valuation allowance. The Company's
profitability during 1995 and expected future taxable income made the
Company believe that it is more likely than not that its deferred tax assets
would be realized.
Years Ended December 31, 1995 and December 31, 1994
Total Revenues. Total revenues increased 45% to $25.3 million in the year
ended December 31, 1995 from $17.4 million in the year ended December 31,
1994. Revenues from Continuous Services increased 38% to $22.3 million in
the year ended December 31, 1995 from $16.2 million in the year ended
December 31, 1994. The increases in total revenues and revenues from
<PAGE> 19
Continuous Services were primarily due to continued expansion of the
Company's domestic sales force, increases in average selling prices, as well
as growing worldwide market acceptance of the Company's products. The
Company increased average selling prices 13% to $14,200 in 1995 from $12,600
in 1994 by continuing to broaden research coverage within its existing
Continuous Services. The Company grew its subscriber client base 27% to 2,100
Continuous Service clients at December 31, 1995 from 1,650 clients at
December 31, 1994.
Other revenues, consisting principally of revenues from consulting and
conferences, increased 139% to $3.0 million in the year ended December 31,
1995 from $1.3 million in the year ended December 31, 1994, and increased
as a percentage of total revenues to 12% from 7%. The increase in other
revenues was primarily attributable to the expansion of META Group
Consulting activities and, to a lesser extent, the introduction of the META
Metrix benchmarking service and the increase in paid attendance at the
Company's major conferences.
Net revenues attributable to international clients increased 51% in the
year ended December 31, 1995 from the year ended December 31, 1994, and
increased as a percentage of total Continuous Service revenues to 7% from 4%.
The increase was primarily due to the Company's increased presence in
existing international markets and, to a lesser extent, the expansion in the
total number of sales representative organizations.
Cost of Services and Fulfillment. Cost of services and fulfillment
increased 31% to $14.5 million in the year ended December 31, 1995 from
$11.1 million in the year ended December 31, 1994 principally due to
increased analyst staffing and related compensation expense and, to a lesser
extent, due to the development and launch of two new Continuous Services
increasing the Company's product offerings to ten at the end of 1995. Costs
of services and fulfillment decreased as a percentage of total revenues to
57% from 64%. This decrease primarily reflects improvement in the Company's
analyst productivity, as indicated by an increase in the Company's average
client/analyst ratio to 42-to-1 during the year ended December 31, 1995 from
40-to-1 during the year ended December 31, 1994. This decreased percentage
also reflects improved average selling prices discussed above.
Selling and Marketing Expenses. Selling and marketing expenses decreased
5% to $6.3 million in the year ended December 31, 1995 from $6.7 million in
the year ended December 31, 1994 and decreased as a percentage of total
revenues to 25% from 38%. The decrease in expenses was due to a
non-recurring charge of $1.5 million in 1994 attributable to the realignment
of the Company's international sales representative organizations, offset by
increased sales-related compensation expense associated with increased
revenues. Excluding this charge, sales and marketing expenses as a percentage
of total revenues would have been 32% in 1994.
General and Administrative Expenses. General and administrative expenses
increased 12% to $2.2 million in the year ended December 31, 1995 from
$1.9 million in the year ended December 31, 1994 but decreased as a
percentage of total revenues to 9% from 11%. The increase in expenses was
principally due to increased finance, accounting and corporate IT
<PAGE> 20
staffing and higher facilities cost associated with the Company's Stamford,
Connecticut headquarters occupied in the fourth quarter of 1994.
Depreciation and Amortization. Depreciation and amortization expense
increased 53% to $676,000 in the year ended December 31, 1995 from $441,000
in the year ended December 31, 1994. The increase in depreciation and
amortization expense was principally due to office furnishings and equipment
purchases required to support business growth and the relocation to the
Company's new Stamford, Connecticut headquarters in the fourth quarter of
1994.
Gain on Sale of Investment. The Company recognized a $250,000 gain on the
sale of an investment in the year ended December 31, 1995. This investment
was in common stock of a former client that was received as consideration
for consulting services provided in 1991.
Interest Income/Expense. Interest income increased to $217,000 in the year
ended December 31, 1995 from $16,000 in the year ended December 31, 1994 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 the
sale of Series B Convertible Preferred Stock as well as positive cash flows
from operations. Interest expense decreased to $19,000 in the year ended
December 31, 1995 from $66,000 in the year ended December 31, 1994 due to
the repayment of the Company's indebtedness in February 1995.
Provision for Income Taxes. During the year ended December 31, 1995, the
Company recorded a $2.5 million benefit associated with the reduction of a
substantial portion of the Company's deferred tax asset valuation allowance.
The Company's profitability during 1995 and expected future taxable income
made the Company believe that it is more likely than not that its deferred
tax assets would be realized, whereas these assets were fully reserved in
1994. Partially offsetting this benefit in 1995 was an income tax provision
of $918,000. During 1994, the tax benefits provided on operating losses were
fully reserved.
Liquidity and Capital Resources
The Company has funded its operations to date primarily through its
initial public offering, cash generated from operations, the private sale of
$3.6 million of Preferred Stock and proceeds from the exercise of Common
Stock options. 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
1,860,000 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 continue to be
used for strategic alliances and the acquisition of businesses, products and
technologies that are complementary to those of the Company. The Company
generated $6.1 million and $3.7 million of cash from operations during the
years ended December 31, 1996 and 1995 respectively. The Company used
$373,000 of cash to fund operations during the year ended December 31, 1994.
The Company used $1.7 million, $1.1 million and $1.1 million of cash in
the years ended December 31, 1996, 1995 and 1994, respectively for the
purchase of furniture, equipment, computers and related software for use by
<PAGE> 21
the Company's employees. The Company expects that additional purchases of
equipment will be made as the Company's employee base grows. As of December
31, 1996, the Company had no material commitments for capital expenditures.
In addition, in the year ended December 31, 1995 the Company generated
$265,000 from the sale of an investment.
During the year ended December 31, 1996, the Company made equity
investments and advances to several companies in parallel or synergistic
industries. The balance of the Company's investments and advances at
December 31, 1996 was $4.9 million and $960,000, respectively.
In December 1996, the Company made an equity investment of $1.7 million in
APT Data Group Plc. ("APT"), an independent publisher of magazines,
newsletters and product review bulletins for users and suppliers of IT.
Under an exclusive distribution agreement made earlier in 1996, the Company
markets five of APT's publications in the United States, Canada and Latin
America.
In December 1996, the Company also made an equity investment of $2.5
million in Spikes Cavell & Co. Spikes Cavell tracks the United Kingdom and
European IT and telecommunications markets, supplying market intelligence to
technology vendors. The Company believes that its access to this research
will allow for broader market perspective in these areas.
In November 1996, the Company aquired all of the assets of DeBoever
Architectures, Inc., which provides IT architecture planning and
implementation advisory services. The existing practice was merged into the
Company's portfolio of Continous Services.
The Company regularly invests excess funds in high quality short-term
investments, such as repurchase agreements, short-term commercial paper 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 sheet.
In addition, the Company invests in other short-term (less than one year
maturity), high quality marketable debt securities. Generally, these
securities are purchased in denominations of $5 million and held to maturity.
No losses have been experienced on such investments.
As of December 31, 1996, the Company had cash and cash equivalents of
$19.3 million, marketable securities valued at $15.7 million, and working
capital of $28.8 million. The Company has periodically utilized short-term
revolving bank lines of credit to fund cash requirements, however, not since
the initial public offering in 1995. The Company currently has an unused
$1.0 million bank line of credit. The Company believes that the net proceeds
from the sale of the Common Stock by the Company in the initial public
offering, together with existing cash balances and anticipated cash flows
from operations, will be sufficient to meet its working capital and capital
expenditure requirements at least through 1997.
<PAGE> 22
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 involves risks and uncertainties. In particular, statements
contained in this Form 10-K which 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
within this Form 10-K, as well as the accuracy of the Company's internal
estimates of revenue and operating expense levels.
The following discussion of the Company's risk factors should be read in
conjunction with the financial statements and related notes thereto. The
following factors, among others, could cause actual results to differ
materially from those contained in forward looking statements contained or
incorporated by reference in this report and presented by management from
time to time. Such factors, among others, may have a material adverse effect
upon the Company's business, results of operations and financial conditions.
Dependence on Renewals of Subscription-Based Services
Approximately 83% and 88% of the Company's total revenues in 1996 and 1995,
respectively, were derived from subscriptions to the Company's Continuous
Services. 75% of the Company's Continuous Service clients renewed one or
more subscriptions in 1996 and 1995. There can be no assurance that the
Company will be able to sustain such subscription renewal rates. The
Company's ability to secure subscription renewals is dependent upon, among
other things, its ability to deliver, through its Continuous Services,
consistent, high-quality and timely analysis and advice with respect to
issues, developments and trends that clients view as important. In order to
deliver valuable analysis and advice on a sustained basis, the Company must,
among other things, recruit and retain a large and growing number of highly
talented professionals in a very competitive job market, understand and
anticipate market trends so as to keep its analysis focused on the changing
needs of its clients, and deliver products and services of sufficiently high
quality and timeliness to withstand competition. There can be no assurance
that the Company will be able to sustain the necessary level of performance
to maintain its subscription renewal rates at their historical levels. Any
material decline in subscription renewal rates from their historical levels
would have a material adverse effect on the Company's operating results.
Potential Fluctuations in Operating Results
The Company's operating results have fluctuated in the past and may
fluctuate significantly in the future 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
<PAGE> 23
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 new 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, 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.
Risks Associated with International Operations
Net revenues attributable to international clients represented
approximately 10% and 7% of the Company's total Continuous Services revenues
for the years ended December 31, 1996 and 1995, respectively. The Company's
products are sold internationally through a network of 23 independent sales
representative organizations. Conducting international sales through
independent sales representative organizations entails a significantly
greater risk than domestic sales through a direct employee sales force for a
number of reasons, including a greater accounts receivable collection risk
because payment for services is made by the Company's international sales
representative organizations, rather than the client. As such, outstanding
collections are at risk if an international distributor is experiencing
financial hardship. In addition, the Company's international operations are
subject to numerous inherent challenges and risks, including developing and
managing relationships with international sales representative organizations,
reliance by the Company on sales entities which it does not control, greater
difficulty in maintaining direct client contact, fluctuations in exchange
rates, political and economic conditions in various jurisdictions, tariffs
and other trade barriers, longer accounts receivable collection cycles and
potentially adverse tax consequences.
The Company expects that international operations will continue to account
for a significant portion of its revenues and intends to continue to expand
its international operations. Expansion into new geographic territories can
be expected to require considerable management and financial resources and
may negatively impact the Company's near-term results of operations.
There can be no assurance that factors such as those discussed above will
not have a material adverse effect on the Company.
<PAGE> 24
Risks of Failing to Anticipate Changing Market Needs
The Company's success will depend in part upon its ability to anticipate
rapidly changing technologies and market trends and to adapt its Continuous
Services to meet the changing information and analysis needs of IT users.
The IT industry which META Group seeks to analyze is characterized by
frequent and often dramatic changes, including the introduction of new
products and obsolescence of others, shifting strategies and market
positions of major industry participants, paradigm shifts with respect to
system architectures and other fundamental issues and changing objectives
and expectations of IT users and vendors. This environment of rapid and
continuous change presents significant challenges to the Company's ability
to provide its clients with current and timely analysis and advice on issues
of importance to them. Meeting these challenges requires the commitment of
substantial resources, and any failure to continue to provide, through the
Company's Continuous Services, insightful and timely analysis of developments
and assessment of technologies and trends in a manner that meets changing
market needs could materially and adversely affect the Company's future
operating results.
Dependence on Ability to Attract and Retain Qualified Personnel
In order to execute its strategy successfully, the Company will be
required to attract and retain a significant number of additional qualified
personnel, including research analysts, sales personnel and product
development and operations staff. Competition for qualified personnel in the
Company's industry is intense, and many of the companies with which META
Group competes for qualified personnel, including Gartner Group, have
substantially greater financial and other resources than the Company.
Furthermore, competition for qualified personnel can be expected to become
more intense as competition in the Company's industry increases. There can
be no assurance that the Company will be able to recruit, retain and
motivate a sufficient number of qualified personnel to compete successfully.
Any material failure to recruit, retain and motivate a sufficient number of
qualified personnel would have a material adverse effect on the Company.
Competition
The Company competes in the market for information products and services
directly with other independent providers of similar services and indirectly
with the internal planning and marketing staffs of current and prospective
client organizations. The Company's principal direct competitor, Gartner
Group, has a substantially longer operating history, is significantly larger
and has considerably greater financial resources and market share than the
Company. The Company also competes indirectly with other information
providers, including electronic and print media companies and consulting
firms. The Company's indirect competitors, many of which have substantially
greater financial, information gathering and marketing resources than the
Company, could choose to compete directly against the Company in the future.
In addition, there are few barriers to entry into the Company's market, and
new competitors could readily seek to compete against the Company in one or
more market segments addressed by the Company's Continuous Services.
Increased competition could adversely affect the Company's operating results
through pricing pressure and loss of market share. There can be no assurance
<PAGE> 25
that the Company will be able to continue to compete successfully against
existing or new competitors.
Risks Associated With New Product Development
The Company's future success will depend in part on its ability to develop
or acquire new products and services that address specific industry and
business organization sectors, changes in client requirements and
technological changes in the IT industry. The process of internally
researching, developing, launching and gaining client acceptance of a new
product or service, or assimilating and marketing an acquired product or
service, is inherently risky and costly. The Company has had limited
experience introducing new products and services and there can be no
assurance that its efforts to introduce new, or assimilate acquired,
products or services, will be successful. During 1996, the Company invested
$4.9 million in acquiring minority interests in several companies whose
products, services and/or distribution channels may be synergistic. The
Company has had limited experience in managing investments of this type and
there can be no assurance a return will be realized.
Dependence on Key Personnel
The Company's future success depends in large part on the continued
service of its key management, research, sales, product development and
operations personnel and on its ability to continue to motivate and retain
highly qualified employees. In particular, the loss of Dale Kutnick,
President, Chief Executive Officer and Research Director, or any of the
Company's other senior management personnel could have a material adverse
effect on the Company.
Risk of Product Pricing Limiting Potential Market
The Company's pricing strategy may limit the potential market for the
Company's Continuous Services to substantial commercial and governmental
users of IT, as well as IT vendors. As a result, the Company may be required
to reduce prices for its Continuous Services or to introduce new products
with lower prices in order to expand its market share. These actions could
have a material adverse effect on the Company's business and results of
operations.
Management of Growth
Since inception, the Company has experienced substantial changes in its
operations, as a result of the expansion and growth of the Company's
business, which have placed significant demands on the Company's management,
administrative, operational and financial resources. The Company's ability
to manage growth, should it continue to occur, will require the Company to
continue to implement and improve its operational, financial and management
information systems and to motivate and effectively manage an evolving
workforce. If the Company's management is unable to effectively manage a
changing and growing business, the quality of the Company's products, its
ability to retain key personnel and its results of operations could be
materially adversely affected.
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed in the following Index to Financial
Statements are filed as a part of this Annual Report on 10-K under
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K.
INDEX TO FINANCIAL STATEMENTS
META GROUP, INC.
Page
Independent Auditors' Report F-1
Balance Sheets at December 31, 1996 and 1995 F-2
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-3
Statements of Changes in Stockholders'
Equity for the years ended December 31, 1996,
1995 and 1994 F-4
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-5
Notes to Financial Statements F-6
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE> 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item may be found under the sections
captioned "Election of Directors," "Occupations of Directors and Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's Proxy Statement (the "1997 Proxy Statement") for the Company's
Annual Meeting of Stockholders to be held on May 19, 1997, and is
incorporated herein by reference. The 1997 Proxy Statement will be filed
with the Securities and Exchange Commission not later than 120 days after
the close of the Company's year ended December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item may be found under the section
captioned "Compensation And Other Information Concerning Directors And
Officers" in the 1997 Proxy Statement, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item may be found under the section
captioned "Management And Principal Holders Of Voting Securities" in the
1997 Proxy Statement, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item may be found under the section
captioned "Certain Relationships and Related Transactions" in the 1997 Proxy
Statement, and is incorporated herein by reference.
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements are included in Item 8 of this report:
Page
Independent Auditors' Report F-1
Balance Sheets at December 31, 1996 and 1995 F-2
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-3
Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 F-4
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-5
Notes to Financial Statements F-6
(a)(2) Financial Statement Schedule.
The following financial statement schedule for the Company is
filed as part of this report:
Schedule II - Valuation and Qualifying Accounts S-1
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
accompanying Financial Statements or notes thereto.
<PAGE> 29
(a)(3) List of Exhibits.
The following exhibits are filed as part of, and incorporated by
reference into this Annual Report on Form 10-K:
Exhibit
Number Description
- ------- -----------
3.1(1) Amended and Restated Certificate of Incorporation of the Company
3.2(1) Amended and Restated By-Laws of the Company
4.1(1) Specimen certificate representing the Common Stock
10.1(1)* 1995 Stock Plan
10.2(2)* Form of Incentive Stock Option Agreement under the 1995 Stock Plan
10.3(2)* Form of Non-Qualified Stock Option Agreement under the 1995 Stock
Plan
10.4(1)* 1995 Employee Stock Purchase Plan
10.5(3)* 1995 Employee Stock Purchase Plan Enrollment Authorization Form
10.6(1)* 1995 Non-Employee Director Stock Option Plan
10.7(2)* Form of Non-Qualified Stock Option Agreement under the 1995 Non-
Employee Director Stock Option Plan of the Registrant
10.8(1)(4)* Agreement between First Albany Corporation and the Company dated
March 30, 1995
10.9(1)* Restated and Amended 1989 Stock Option Plan, as amended
10.10(1)* Form of Incentive Stock Option Agreement under 1989 Stock Option
Incentive Plan
10.11(1)* Form of Certificate and Agreement under Restated and Amended 1989
Stock Option Plan
10.12(1)* 1993 Stock Option and Incentive Plan, as amended
10.13(1)* Form of Certificate and Agreement under 1993 Stock Option and
Incentive Plan
10.14(1)* Form of Warrant under the Restated and Amended 1989 Stock Option
Plan and 1993 Stock Option and Incentive Plan
10.15(1) Form of International Sales Representative Agreement
10.16(1) Office Lease between International Business Machines Corporation
and the Company dated August 1, 1994
11.1** Statement re computation of per share earnings
23.1** Consent of Deloitte & Touche LLP
24.1** Power of Attorney (see page 31)
27.1** Financial Data Schedule
- ------
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-97848).
(2) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-8 (File No. 333-1854).
(3) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on form S-8 (File No. 33-80539).
(4) Confidential treatment obtained as to certain portions.
* Indicates a management contract or any compensatory plan, contract or
arrangement.
** Filed herewith.
<PAGE> 31
(b) Reports On Form 8-K
There were no reports on Form 8-K filed by the Company for the quarter
ended December 31, 1996.
(c) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) set forth above.
<PAGE> 32
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.
META Group, Inc.
Date: March 28, 1997 By:/s/ Dale Kutnick
----------------------
Dale Kutnick
President and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of META Group, Inc., hereby
severally constitute and appoint Dale Kutnick and Bernard F. Denoyer, and
each of them singly, our true and lawful attorneys, with the power to them
and each of them singly, to sign for us and in our names in the capacities
indicated below, any amendments to this Report on Form 10-K, and generally
to do all things in our names and on our behalf in such capacities to enable
META Group, Inc. to comply with the provisions of the Securities Exchange
Act of 1934, as amended, and all the requirements of the Securities and
Exchange Commission.
<PAGE> 33
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, in the capacities indicated, on the 28th day of March, 1997.
Signature Title(s)
--------- --------
/s/ Dale Kutnick President, Chief Executive Officer
- ------------------------------ (Principal Executive Officer) and Director
Dale Kutnick
/s/ Bernard F. Denoyer Vice President, Finance, Chief Financial
- ------------------------------ Officer and Treasurer (Principal Financial
Bernard F. Denoyer Officer and Principal Accounting Officer)
/s/ Marc Butlein Director
- ------------------------------
Marc Butlein
/s/ Francis J. Saldutti Director
- ------------------------------
Francis J. Saldutti
/s/ Harry S. Gruner Director
- ------------------------------
Harry S. Gruner
/s/ Michael Simmons Director
- ------------------------------
Michael Simmons
/s/ George C. McNamee Director
- ------------------------------
George C. McNamee
<PAGE> F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
META Group, Inc.
Stamford, Connecticut
We have audited the accompanying balance sheets of META Group, Inc. as of
December 31, 1996 and 1995, and the related statements of operations, changes
in stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996. Our audits also included the financial
statement schedule listed at Item 14(a)2. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of META Group, Inc. as of 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. Also in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
February 7, 1997
<PAGE> F-2
<TABLE>
<CAPTION>
META GROUP, INC.
BALANCE SHEETS
(In thousands, except share data)
December 31,
----------------
1996 1995
----- -----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $19,335 $35,525
Marketable securities 15,684
Accounts receivable, less allowance for doubtful
accounts of $751 and $433 18,136 10,547
Deferred commissions 1,475 1,150
Deferred tax asset 1,175 616
Other current assets 481 326
-------------------
Total current assets 56,286 48,164
Furniture and equipment, net 2,330 1,668
Deferred tax asset 5,532 2,362
Other assets 6,023 162
-------------------
Total assets $70,171 $52,356
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 837 $ 845
Accrued compensation and other expenses 3,721 3,086
Deferred revenues 22,885 16,557
-----------------------
Total current liabilities 27,443 20,488
-----------------------
Commitments and contingencies (See Note 7)
Stockholders' equity:
Preferred stock, $.01 par value, authorized
2,000,000 shares; none issued
Common stock, $.01 par value, authorized
45,000,000 shares; issued 6,764,160 and
5,921,120 shares 68 59
Paid-in capital 43,088 35,863
Accumulated deficit (108) (3,734)
Treasury stock, at cost, 431,344 shares (320) (320)
-----------------------
Total stockholders' equity 42,728 31,868
-----------------------
Total liabilities and stockholders' equity $70,171 $52,356
========================
</TABLE>
See notes to financial statements.
<PAGE> F-3
<TABLE>
<CAPTION>
META GROUP, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Continuous services $30,769 $22,334 $16,160
Other, principally consulting and conferences 6,197 3,001 1,255
------------------------------
Total revenues 36,966 25,335 17,415
------------------------------
Operating expenses:
Cost of services and fulfillment 18,908 14,515 11,073
Selling and marketing 8,797 6,329 6,680
General and administrative 3,728 2,180 1,949
Depreciation and amortization 1,086 676 441
------------------------------
Total operating expenses 32,519 23,700 20,143
------------------------------
Operating income (loss) 4,447 1,635 (2,728)
Other income (expense):
Gain on sale of investment 250
Interest income 1,909 217 16
Interest expense (19) (66)
------------------------------
Total other income (expense) 1,909 448 (50)
------------------------------
Income (loss) before provision (benefit)
for income tax 6,356 2,083 (2,778)
Provision (benefit) for income tax 2,730 (1,547)
-------------------------------
Net income (loss) $ 3,626 $ 3,630 $ (2,778)
================================
Net income (loss) per common and common
equivalent share $ .45 $ .68 $ (1.31)
===============================
Weighted average number of common and
common equivalent shares outstanding 7,995 5,376 2,118
===============================
</TABLE>
See notes to financial statements
<PAGE> F-4
<TABLE>
<CAPTION>
META GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
Convertible Accumu-
Preferred Stock Common Stock Paid-in lated Treasury Stock
Total Shares Amount Shares Amount Capital Deficit Shares Amount
----- ------ ------ ------- ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $(4,503) 2,326 $23 $238 $(4,586) (285) $(178)
Exercise of stock options 55 299 3 52
Net loss (2,778) (2,778)
-------------------------------------------------------------------------------
Balance, December 31, 1994 (7,226) 2,625 26 290 (7,364) (285) (178)
Issuance of Series B
Preferred Stock 2,079 85 $2,079
Exercise of stock options 255 716 7 248
Repurchase of common stock (142) (146) (142)
Issuance of IPO shares 30,207 1,860 19 30,188
Conversion of Series B
Preferred Stock (85) (2,079) 339 3 2,076
Conversion of Series A
Preferred Stock 1,500 346 4 1,496
Exercise of Warrants 134 35 134
Income tax benefit from
stock options exercised 1,431 1,431
Net income 3,630 3,630
-------------------------------------------------------------------------------
Balance, December 31, 1995 31,868 5,921 59 35,863 (3,734) (431) (320)
Exercise of stock option 621 827 8 613
Costs related to the IPO (33) (33)
Issuance of shares under
employee stock purchase
plan 322 16 1 321
Income tax benefit from
stock options exercised 6,324 6,324
Net income 3,626 3,626
--------------------------------------------------------------------------------
Balance, December 31, 1996 $42,728 6,764 $68 $43,088 $ (108) (431) $(320)
================================================================================
</TABLE>
See notes to financial statements.
<PAGE> F-5
<TABLE>
<CAPTION>
META GROUP, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 3,626 $ 3,630 $(2,778)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,086 676 441
Provision for bad debts 318 142 (3)
Deferred income taxes 2,682 (1,547)
Gain on sale of investment (250)
Gain on sale of fixed assets (9)
Changes in assets and liabilities:
Accounts receivable (7,907) (2,005) (2,882)
Deferred commissions (325) (148) (358)
Other current assets (155) (304) 22
Other assets (36) (91) 40
Accounts payable (8) 24 553
Accrued compensation and other expenses 548 530 1,009
Deferred revenues 6,328 3,073 3,583
--------------------------------
Net cash provided by (used in) operating
activities 6,148 3,730 (373)
--------------------------------
Investing activities:
Capital expenditures (1,739) (1,054) (1,084)
Investment in marketable securities (15,684)
Investments and advances (5,825)
Proceeds from sale of investment 265
--------------------------------
Net cash used in investing activities (23,248) (789) (1,084)
--------------------------------
Financing activities:
Proceeds (costs) related to the IPO (33) 30,207
Proceeds from issuance of preferred stock 2,079 1,500
Borrowings 250
Payments of debt (250) (784)
Proceeds from employee stock purchase plan 322
Proceeds from exercise of stock options 621 255 55
Proceeds from exercise of Warrants 134
Repurchase of common stock (142)
---------------------------------
Net cash provided by financing activities 910 32,283 1,021
---------------------------------
Net increase (decrease) in cash and
cash equivalents (16,190) 35,224 (436)
Cash and cash equivalents at beginning
of year 35,525 301 737
--------------------------------
Cash and cash equivalents at end of year $19,335 $35,525 $ 301
===============================
Supplemental information:
Cash paid during the year for interest $ 23 $ 62
================================
Cash paid during the year for income taxes $ 48
================================
</TABLE>
See notes to financial statements.
<PAGE> F-6
NOTES TO FINANCIAL STATEMENTS
1. Business Description
META Group, Inc. (the "Company") 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 ("IT") industries to IT
users and vendors. IT user organizations utilize the Company'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 the Company's services
for help in product positioning, marketing and market planning, as well as
for internal IT decision making.
The Company's domestic revenues are generated by a direct sales force
calling on IT user and vendor clients. International marketing and sales are
performed by independent sales representative organizations. 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 1995 and 1994 have been reclassified to reflect
the current year presentation of revenues attributable to international
operations on a net basis. This reclassification does not affect operating
income or net income for any period.
Revenues from international sales representative organizations,
primarily in Europe, accounted for approximately 10%, 7% and 4% of the
Company's total Continuous Services revenues for the years ended December
31, 1996, 1995 and 1994, respectively.
2. Significant Accounting Policies
Revenue and Commission Expense Recognition Continuous Services revenues
are recognized on a straight line basis over the contract period, generally
one year. All contracts are billable at signing, absent special terms granted
on a limited basis from time to time. As such, the Company's policy is to
record at the time of signing of a Continuous Services contract the fees
receivable and related deferred revenues for the full amount of the contract.
The Company also records the related commission obligation upon the signing
of the contract and amortizes the corresponding deferred commission expense
over the contract period in which the related Continuous Services revenues
are earned and amortized to income. All contracts are non-cancelable and
non-refundable, except for government contracts which have a 30-day
cancellation clause. Historically, such cancellations have not been
significant. Other revenues, consisting principally of consulting and
conferences, are recognized at the time the related service is rendered.
Product Development All costs incurred in the development of new
products and services are expensed as incurred.
<PAGE> F-7
Furniture and Equipment Furniture and equipment is stated at cost.
Depreciation is computed using the straight line method over the estimated
useful lives of the respective assets which range from three to seven years.
Income Taxes Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the income tax basis
of the Company's assets and liabilities as measured by the enacted tax rates.
Cash Equivalents and Marketable Securities Cash and cash equivalents
include cash on hand and all investments in highly liquid instruments
purchased with original maturities of three months or less. Investments with
original maturates of more than three months are classified as Marketable
Securities. Marketable securities are considered "held-to-maturity" and
valued at cost, which approximates market. The Company intends to hold all
marketable securities investments to maturity.
Net Income (Loss) Per Common and Common Equivalent Share Net income
loss) per common and common equivalent share is based on the weighted average
number of common and common equivalent shares including preferred stock
(when dilutive) outstanding during the year computed in accordance with the
treasury stock method.
Concentration of Credit Risk Statement of Financial Accounting Standards
No. 105, "Disclosure of Information about Financial Instruments with Off-
Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk", requires disclosure of any significant off-balance-sheet and credit
risk concentrations. The Company has no significant off-balance-sheet
concentration of credit risk such as foreign exchange contracts, options
contracts or other foreign hedging arrangements. The Company invests the
majority of its cash balances in short-term, high quality marketable debt
securities, managed by two financial institutions. The Company's accounts
receivable balances are primarily domestic. No single client accounted for
greater than 2% of revenues or represents a significant credit risk to the
Company.
Fair Value of Financial Instruments Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of the fair value of certain financial instruments for
which it is practicable to estimate that value. The carrying amount of all
of the Company's cash and cash equivalents, and marketable securities,
approximates fair value due to the short-term maturity of those investments.
Adoption of Statement of Financial Standard Accounting No. 123 In 1996,
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
SFAS 123 encourages, but does not require companies to record at fair value
compensation cost for stock-based employee compensation plans. The Company
has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the quoted market price of the Company's stock at
the date of the grant over the amount an employee must pay to acquire the
stock.
<PAGE> F-8
Management Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
3. Public Offering of Common Stock and Recapitalization
In December 1995, the Company completed an initial public offering of
1,860,000 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.
4. Furniture and Equipment
Furniture and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1996 1995
---- ----
<S> <C> <C>
Leasehold improvements $ 152 $ 65
Computer equipment 3,727 2,826
Furniture and fixtures 573 489
-----------------------
4,452 3,380
Less: accumulated depreciation (2,122) (1,712)
-----------------------
$2,330 $1,668
=======================
</TABLE>
<PAGE> F-9
5. Other Assets
<TABLE>
<CAPTION>
Other assets at December 31, 1996, include the following (in thousands):
Equity Investment Advances
----------------- ---------
<S> <C> <C>
APT Data Group Plc. $1,692
Spikes Cavell & Co. 2,552
APT Data Services, Inc. 150 $200
META CXP LLC 83 200
Market Perspectives Inc. 279
DeBoever Architectures, Inc. 109 500
Rubin Systems, Inc. 60
---------------------------------
Total $4,865 $960
=================================
</TABLE>
In December 1996, the Company made an equity investment of $1.7 million
in APT Data Group Plc. ("APT"), an independent publisher of magazines,
newsletters and product review bulletins for users and suppliers of IT.
Under an exclusive distribution agreement made earlier in 1996, the Company
markets five of APT's publications in the United States, Canada and Latin
America.
In December 1996, the Company also made an equity investment of $2.5
million in Spikes Cavell & Co. Spikes Cavell tracks the United Kingdom and
European IT and telecommunications markets, supplying market intelligence to
technology vendors. The Company's access to this research will allow for
broader market perspective in these areas.
In November 1996, the Company aquired all of the assets of DeBoever
Architectures, Inc., which provides IT architecture planning and
implementation advisory services. The existing practice was merged into the
Company's protfolio of Continous Services.
All of the investments listed above are for less than a 20% stock
ownership interest in the investee. As the Company does not exert significant
influence in of any of the investees, all investments are accounted for on
the cost basis.
6. Other Income
During the year ended December 31, 1995, the Company recognized a $250,000
gain (proceeds of $265,000) on the sale of an investment. This investment
was in common stock of a former client that was received as consideration
for consulting services provided in 1991.
7. Commitments and Contingencies
Lease Commitments:
<PAGE> F-10
The Company leases office facilities and equipment under noncancelable
operating leases. Future minimum lease payments relative to these agreements
are as follows (in thousands):
Year ending December 31,
1997.........................................................$1,492
1998..........................................................1,504
1999..........................................................1,482
2000..........................................................1,402
2001..........................................................1,125
------
$7,005
======
Total rent expense included in the statements of operations was $1.3
million, $1.1 million and $605,000 for years ended December 31, 1996, 1995,
and 1994, respectively.
Contingencies:
The Company is a party to certain legal proceedings other than as
described below. 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. Accordingly, no provision for any
liability has been made in the accompanying financial statements.
In November 1995, a complaint was filed against the Company relating to
a marketing agreement with a third party. The complaint alleges a breach of
the agreement by the Company, as well as related tort claims. The complaint
seeks both injunctive relief and unspecified damages, which could be
substantial. The Company believes the claim to be without merit and intends
to vigorously defend the suit; however there can be no assurance that these
claims will not be upheld. The Company believes an unsuccessful outcome on
this matter to be remote and, accordingly, no provision for any liability
has been made in the accompanying financial statements.
8. Income Taxes
A reconciliation of the income tax provision from the amount computed
using the federal statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax (benefit) at statutory rate $2,161 $ 708 $(945)
State taxes, net of federal benefit 429 149
Other 140 61
Benefit of net operating loss not recognized 945
Impact of valuation allowance (2,465)
===========================
$2,730 $(1,547) $ --
===========================
</TABLE>
<PAGE> F-11
The principal components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
December 31,
------------
1996 1995
---- ----
Deferred tax liabilities:
Depreciation $ (21) $ (83)
Other (57) (57)
Deferred tax assets:
Accrued liabilities 876 598
Allowance for doubtful accounts 305 53
Capitalization of product development costs 41 23
Net operating loss carryforwards 6,412 2,899
-----------------
Deferred tax asset 7,556 3,433
Valuation allowance (849) (455)
------------------
Net deferred tax asset $6,707 $2,978
==================
The Company had a valuation allowance of $2,920,000 at December 31, 1994
against its deferred tax assets primarily as a result of a significant net
operating loss carryforward position. The Company believed that, due to the
expected future Federal taxable income, it was more likely than not that a
substantial portion of these deferred tax benefits would be realized, and
therefore, the valuation allowance was reduced to $455,000 effective
January 1, 1995. Accordingly, the Company included a benefit of $2,465,000
for this reduction in its tax provision for 1995. During the year ended
December 31, 1996, the Company increased the valuation allowance by $394,000,
which represents the tax effect of the state net operating loss carryforwards
generated in 1996.
At December 31, 1996, the Company has net operating loss carryforwards
for federal income tax purposes of $15.9 million expiring in 2004 through
2009.
The exercise of non-qualified stock options and the disqualifying
dispositions of incentive stock options under the Company's stock option
plans gives 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. The tax benefit recognized from the utilization of such
deductions increased paid-in capital by $6.3 million and $1.4 million during
the years ended December 31, 1996 and 1995, 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 December
31, 1996, 960,674 shares were issuable upon the exercise of outstanding
non-qualified stock options. During January 1997, 312,000 non-qualified
options were exercised resulting in additional tax compensation deductions
of approximately $7.8 million.
<PAGE> F-12
9. Preferred Stock
In July 1994, the Company's stockholders authorized an amendment to the
Company's Certificate of Incorporation creating 200,000 shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock"). Each share of
Series A Preferred Stock had one vote per share and accrued a dividend of 8%
per year, payable at the Company's option in cash or additional shares
of Series A Preferred Stock. The dividends were cumulative and were to be
paid commencing December 31, 1996 and thereafter in the event that the
Company had not made an initial public offering. In July 1994, an investor
purchased $1,500,000 (86,406 shares at $17.36) of Series A Preferred Stock.
In conjunction with the Company's initial public offering in 1995, all of the
Series A Preferred Stock automatically converted into 345,624 shares of
common stock and all accrued dividends were extinguished.
In connection with the Series A Preferred Stock sale in July 1994, the
Company issued to the investor two Series A Convertible Preferred Stock
Warrants (the "Warrants"). One Warrant was for the purchase of up to 4,091
shares of Series A Preferred Stock at an exercise price of $17.36 per share.
The other Warrant was for the purchase of up to 4,773 shares of Series A
Preferred Stock at an exercise price determined based upon a formula as set
forth in the Warrants. The weighted average exercise price for this Warrant
was $13.16 per share. The Warrants were to expire July 12, 2004. In December
1995, the Warrants were exercised for total proceeds of $134,000. The shares
of Series A Preferred Stock issued upon the exercise of the Warrants
automatically converted into 35,456 common shares.
In July 1995, the Company's stockholders authorized an amendment to the
Company's Certificate of Incorporation creating 85,000 shares of Series B
Convertible Preferred Stock (the "Series B Preferred Stock"). In July and
August 1995, investors purchased $2,078,629 (84,842 shares at $24.50 per
share) of Series B Preferred Stock. Of this amount, First Albany purchased
75,000 shares for $1,837,500 (see Note 12, Related Party Transactions).
Each share of Series B Preferred Stock had one vote per share. The
Series B Preferred Stock was (a) convertible into common stock at the option
of the holders of shares thereof at a specified conversion price, which
conversion price was subject to adjustment under certain antidilution
provisions and (b) automatically convertible upon the occurrence of certain
events. In connection with the Company's initial public offering, all of the
Series B Preferred Stock automatically converted into 339,368 shares of
common stock.
The Company currently has authorized 2,000,000 shares of undesignated
Preferred Stock, $.01 par value. No shares have been issued.
<PAGE> F-13
10. Stock Options and Incentive Plans
The Company's 1995 Stock Plan, 1993 Stock Option and Incentive Plan,
and the 1989 Stock Option Plan (the "Plans") provided for grants to
employees, directors and consultants of incentive stock options ("ISOs")
and non-qualified stock options ("NQSOs"), for the purchase of up to
1,500,000, 1,600,000 and 3,600,000 shares of the Company's common stock,
respectively. ISOs were granted at an exercise price of not less than fair
market value while certain NQSOs were granted at an exercise price of less
than fair market value. Fair market value was determined by the Company's
Board of Directors. The shares issued upon exercise of options granted under
the Plans are subject to a right of first offer in favor of the Company
whereby the Company has the right, at its option, to purchase such shares on
the same terms and conditions of any bona fide offer by third party. Such
right of first offer terminated upon the effective date of the initial public
offering. The Board of Directors determined the date(s) at which options
vest and become exercisable. Upon adoption of the 1995 Stock Plan, the 1993
Stock Option and Incentive Plan and the 1989 Stock Option Plan were
terminated, except as to outstanding stock options. At December 31, 1996,
960,674 shares were issuable upon the exercise of outstanding NQSOs. All
other stock options outstanding were ISOs.
<TABLE>
<CAPTION>
Options Option Price Range
------- -----------------
<S> <C> <C>
Outstanding January 1, 1994 2,998,000 $ .15 - $ .95
Granted 543,600 1.25 - 2.00
Exercised (299,044) .15 - 1.25
Canceled (116,220) .625 - 2.00
--------------------------------------
Outstanding December 31, 1994 3,126,336 .15 - 2.00
Granted 301,500 2.00 - 10.63
Exercised (714,864) .15 - 2.00
Canceled (135,540) .375 - 4.75
----------------------------------------
Outstanding December 31, 1995 2,577,432 .15 - 10.63
Granted 443,370 20.625 - 33.25
Exercised (827,524) .15 - 24.75
Canceled (105,259) .95 - 26.50
----------------------------------------
Outstanding December 31, 1996 2,088,019 .15 - $33.25
========================================
Exercisable:
December 31, 1996 1,470,665
=========
December 31, 1995 2,007,822
=========
In October 1995, the Company adopted the 1995 Stock Plan, 1995
Non-Employee Director Stock Option Plan, and 1995 Employee Stock Purchase
Plan. Details of the Plans are as follows:
1995 Stock Plan. The Company's 1995 Stock Plan (the "1995 Plan") was
adopted by the Board of Directors and approved by the Company's stockholders
on October 2, 1995. The 1995 Plan provides for the issuance of a maximum of
1,500,000 shares of common stock pursuant to the grant to employees of ISOs
and the grant of NQSOs, stock awards or opportunities to make direct
purchases of stock in the Company to employees, consultants, directors and
officers of the Company.
1995 Non-Employee Director Stock Option Plan. The 1995 Non-Employee
Director Stock Option Plan (the "Director Option Plan") was adopted by the
Board of Directors and approved by the Company's stockholders on October 2,
1995. The Director Option Plan provides for the grant of NQSOs to purchase a
maximum of 150,000 shares of common stock of the Company to non-employee
directors of the Company. All options granted under the Director Option Plan
<PAGE> F-15
will have an exercise price equal to the fair market value of common stock
on the date of grant. The term of each option will be for a period of ten
years from the date of grant.
1995 Employee Stock Purchase Plan. The 1995 Employee Stock Purchase Plan
(the "1995 Purchase Plan") was adopted by the Board of Directors and approved
by the Company's stockholders on October 2, 1995. The 1995 Purchase Plan
provides for the issuance of a maximum of 250,000 shares of common stock
pursuant to the exercise of non-transferable options granted to participating
employees. The exercise price for the option is 85% of the lesser of the
market price of the Company's common stock on the first or last day of the
semi-annual plan period. The Company issued 15,516 shares under the 1995
Purchase Plan during 1996.
The following table summarizes information about stock options outstanding
at December 31, 1996:
</TABLE>
<TABLE>
<CAPTION>
OPTIONS GRANTED OPTIONS EXERCISED
----------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AS OF 12/31/96 LIFE PRICE AS OF 12/31/96 PRICE
- -------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ .15 -$ .15 782,250 2.58 years $ .1500 782,250 $ .1500
.165- 1.25 529,203 5.44 years .8909 519,133 .8839
2.00 - 22.375 558,096 7.46 years 9.3906 140,174 2.7869
22.75 - 33.25 218,470 9.53 years 24.5976 29,108 24.9361
===============================================================
.15 - 33.25 2,088,019 5.34 years $5.3656 1,470,665 $1.1510
===============================================================
</TABLE>
The estimated fair value of options granted during 1996 and 1995 was
$13.08 per share and $2.21 per share, respectively. The Company applies
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option and purchase plans. No compensation cost
has been recognized for the Company's fixed stock option plans and stock
purchase plan. Had compensation cost for the Company's stock option plans
and stock purchase plan been determined based on the fair value at the option
grant dates for awards in accordance with the accounting provisions of SFAS
123, the Company's net income and earnings per share for the years ended
December 31, 1996 and 1995, would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Net income applicable to common shareholders: 1996 1995
---- ----
<C> <C> <C>
As reported $3,626 $3,630
Pro forma 2,396 3,512
Net income per common share and common share equivalent:
As reported $ .45 $.68
Pro forma .30 .65
</TABLE>
<PAGE> F-15
The fair value of options granted under the Company's fixed stock
option plans during 1996 and 1995 was estimated on the dates of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used: dividend yield of zero, expected volatility of
approximately 59%, risk free interest rate of approximately 5.8%, and
expected lives of option grants of approximately 4.3 years. Pro forma
compensation cost related to shares purchased under the 1995 Employee Stock
Purchase Plan is measured based on the discount from market value. The
effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future pro forma effects. SFAS 123 does not apply to awards prior to 1995,
and additional awards in future years are anticipated.
During the year ended December 31, 1995, the Company completed the
repurchase of 146,000 shares of its common stock for $142,000. The terms of
the repurchase agreement were established in 1992 and the transactions
completed prior to the Company's initial public offering.
11. Employee 401(k) Savings Plan
The Company has a tax-deferred employee 401(k) savings plan covering
substantially all employees. Contributions by the Company are made at the
Company's discretion. No contributions have been made by the Company under
this plan.
12. Related Party Transactions
In March 1995, the Company entered into an exclusive strategic alliance
agreement with First Albany Corporation ("First Albany"), a financial
services firm. The agreement provides for the distribution of the Company's
written research and analysis, in its original form or as customized and
expanded by First Albany, to First Albany's financial services customers,
which include many institutional investors who are large IT users. The
agreement restricts the Company from marketing its services to any broker
dealer or sell-side firm offering services similar to those offered by First
Albany. The Company is permitted to market and sell Continuous Services to
First Albany buy-side customers. The initial term of this agreement is
four years, annually renewable by First Albany thereafter, subject to
attainment of specified minimum revenue targets. The Company recognized
$425,000 and $275,000 in revenues from this arrangement during the years
ended December 31, 1996 and 1995, respectively. First Albany was the owner
of 75,000 shares of the Series B Preferred Stock, which converted
automatically to 300,000 shares of common stock in connection with the
Company's initial public offering (see Note 9, Preferred Stock). George
McNamee, a director of the Company, is also Chairman and Co-Chief Executive
Officer of First Albany.
<PAGE> S-1
<TABLE>
<CAPTION>
SCHEDULE II
META GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions
--------------------------
Charged Charged
Balance at (Credited)to (Credited) Balance
Beginning of Costs and to Other at End
Period Expenses Accounts Deductions of Period
------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts $ 433 $ 318 $ 751
Valuation allowance for deferred
tax asset $ 455 $ 394 $ 849
============================================================
Year ended December 31, 1995:
Allowance for doubtful accounts $ 297 $ 142 $6 $ 433
============================================================
Valuation allowance for deferred
tax asset $2,920 $(2,465) $ 455
============================================================
Year ended December 31, 1994:
Allowance for doubtful accounts $ 300 $ (3) $ 297
=============================================================
Valuation allowance for deferred
tax asset $1,865 $ 1,055 $2,920
============================================================
</TABLE>
<PAGE>
META GROUP, INC.
INDEX TO EXHIBITS FILED WITH FORM 10-K
YEAR ENDED DECEMBER 31, 1996
Exhibit
Number Description
- ------- -------------------------------------------------
3.1(1) Amended and Restated Certificate of Incorporation of the Company
3.2(1) Amended and Restated By-Laws of the Company
4.1(1) Specimen certificate representing the Common Stock
10.1(1)* 1995 Stock Plan
10.2(2)* Form of Incentive Stock Option Agreement under the 1995
Stock Plan
10.3(2)* Form of Non-Qualified Stock Option Agreement under the
1995 Stock Plan
10.4(1)* 1995 Employee Stock Purchase Plan
10.5(3)* 1995 Employee Stock Purchase Plan Enrollment Authorization
Form
10.6(1)* 1995 Non-Employee Director Stock Option Plan
10.7(2)* Form of Non-Qualified Stock Option Agreement under the
1995 Non-Employee Director Stock Option Plan of the
Registrant
10.8(1)(4)* Agreement between First Albany Corporation and the
Company dated March 30, 1995
10.9(1)* Restated and Amended 1989 Stock Option Plan, as amended
10.10(1)* Form of Incentive Stock Option Agreement under 1989 Stock
Option Incentive Plan
10.11(1)* Form of Certificate and Agreement under Restated and
Amended 1989 Stock Option Plan
10.12(1)* 1993 Stock Option and Incentive Plan, as amended
10.13(1)* Form of Certificate and Agreement under 1993 Stock Option
and Incentive Plan
10.14(1)* Form of Warrant under the Restated and Amended 1989 Stock
Option Plan and 1993 Stock Option and Incentive Plan
10.15(1) Form of International Sales Representative Agreement
<PAGE>
10.16(1) Office Lease between International Business Machines
Corporation and the Company dated August 1, 1994
11.1** Statement re computation of per share earnings
23.1** Consent of Deloitte & Touche LLP
24.1** Power of Attorney (see page 31)
27.1** Financial Data Schedule
________
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1(File No. 33-97848).
(2) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-8 (File No. 333-1854).
(3) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on form S-8 (File No. 33-80539).
(4) Confidential treatment obtained as to certain portions.
* Indicates a management contract or any compensatory plan, contract or
arrangement.
** Filed herewith.
<PAGE>
EXHIBIT 11.1
META GROUP, INC.
EXHIBIT TO ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
Computation of Net Income (Loss) Per Common Share
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
------------- -------------- -------------
<S> <C> <C> <C>
Net income (loss) $3,626,000 $3,630,000 $(2,778,000)
===================================================
Weighted average number of
common and common equivalent
shares outstanding:
Average number of common shares
outstanding during the period 5,950,425 3,223,926 2,118,024
Add common share equivalents --
options to purchase common share
2,044,863 2,152,291
==================================================
7,995,288 5,376,217 2,118,024
==================================================
Net income (loss) per common and
common equivalent share $.45 $.68 $(1.31)
==================================================
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in META Group, Inc.'s
Registration Statement Nos. 33-80539 and 333-1854 on Form S-8 of our report
dated February 7, 1997 and appearing on page F-1 of the Annual Report on Form
10-K for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 19,335
<SECURITIES> 15,684
<RECEIVABLES> 18,887
<ALLOWANCES> (751)
<INVENTORY> 0
<CURRENT-ASSETS> 56,286
<PP&E> 4,452
<DEPRECIATION> (2,122)
<TOTAL-ASSETS> 70,171
<CURRENT-LIABILITIES> 27,443
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 42,660
<TOTAL-LIABILITY-AND-EQUITY> 70,171
<SALES> 0
<TOTAL-REVENUES> 36,966
<CGS> 18,908
<TOTAL-COSTS> 18,908
<OTHER-EXPENSES> 13,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,356
<INCOME-TAX> 2,730
<INCOME-CONTINUING> 3,626
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,626
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
