UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Transition period from ______ to ______
Commission File Number 0-27280
META Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-0971675
--------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
208 Harbor Drive, Stamford, Connecticut 06912-0061
---------------------------------------------------
(Address of principal executive offices, including Zip Code)
(203) 973-6700
---------------
(Registrant's telephone number, including area code)
____________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: The number of shares of the
issuer's Common Stock, $.01 par value per share, outstanding as of July 31,
1997 was 7,361,830.
Total Number of Pages: 17
Exhibit Index is on Page 15
<PAGE 2>
META Group, Inc.
INDEX
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Page
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets:
June 30, 1997 (unaudited) and December 31, 1996 3
Statements of Income (unaudited):
Three months ended June 30, 1997 and 1996 4
Six months ended June 30, 1997 and 1996 4
Statements of Cash Flows (unaudited):
Six months ended June 30, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
<PAGE 3>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
META Group, Inc.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
---------------------------
Assets 1997 1996
---------------------------
<S> <C> <C>
Current assets: (unaudited)
Cash and cash equivalents $18,537 $19,335
Marketable securities 19,121 15,684
Accounts receivable, net 14,627 18,136
Deferred commissions 1,503 1,475
Deferred tax asset 1,175 1,175
Other current assets 871 481
------- -------
Total current assets 55,834 56,286
Furniture and equipment, net 2,610 2,330
Deferred tax asset 9,531 5,532
Other assets 6,736 6,023
------- -------
Total assets $74,711 $70,171
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 109 $ 837
Accrued compensation and other expenses 1,419 3,721
Deferred revenues 22,047 22,885
------- -------
Total current liabilities 23,575 27,443
------- -------
Stockholders' equity:
Preferred stock -- --
Common stock 78 68
Paid-in capital 49,181 43,088
Retained earnings (accumulated deficit) 2,197 (108)
Treasury stock, at cost (320) (320)
------- -------
Total stockholders' equity 51,136 42,728
------- -------
Total liabilities and stockholders' equity $74,711 $70,171
======= =======
See notes to financial statements.
<TABLE/>
<PAGE 4>
META Group, Inc.
STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
</TABLE>
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
-----------------------------------------------------
1997 1996 1997 1997
<S> <C> <C> <C> <C>
Revenues:
Continuous services $ 9,846 $7,133 $19,018 $13,840
Other, principally
consulting and
conferences 1,892 1,500 3,531 2,931
------ ------ ------- -------
Total revenues 11,738 8,633 22,549 16,771
------- ------ ------- -------
Operating expenses:
Cost of services and
fulfillment 5,838 4,579 11,370 9,120
Selling and marketing 2,770 2,075 5,111 3,867
General and administrative 1,199 877 2,357 1,679
Depreciation and
amortization 366 251 699 476
------- ------ ------- -------
Total operating expenses 10,173 7,782 19,537 15,142
Operating income 1,565 851 3,012 1,629
Interest income 501 454 966 918
------- ------ ------- ------
Income before provision for
income taxes 2,066 1,305 3,978 2,547
Provision for income taxes 868 574 1,673 1,097
------- ------ ------- -------
Net income $ 1,198 $ 731 $ 2,305 $ 1,450
======= ====== ======= =======
Net income per common and
common equivalent share $ .15 $ .09 $ .29 $ .18
======= ====== ======= =======
Weighted average common and
common equivalent shares
outstanding 8,008 8,003 7,976 7,993
======= ====== ====== ======
See notes to financial statements.
<TABLE/>
<PAGE 5>
META Group, Inc.
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
</TABLE>
<TABLE>
<CAPTION>
For the six months ended
June 30,
-------------------------
1997 1996
-------------------------
<S> <C> <C>
Operating activities:
Net income $2,305 $ 1,450
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 699 476
Deferred income taxes 1,673 1,049
Changes in assets and liabilities:
Accounts receivable 3,509 (504)
Deferred commissions (28) 27
Other current assets (390) (99)
Other assets (81) (328)
Accounts payable (728) (815)
Accrued compensation and other expenses (2,302) (2,122)
Deferred revenues (838) 1,000
------- -------
Net cash provided by operating activities 3,819 134
------- -------
Investing activities:
Capital expenditures (979) (727)
Investments in marketable securities (3,437)
Investments and advances (698)
------- -------
Net cash used in investing activities (5,114) (727)
------- -------
Financing activities:
Proceeds from stock option exercises 349 361
Proceeds from employee stock purchase plan 148 153
Costs related to Initial Public Offering -- (33)
------- -------
Net cash provided by financing activities 497 481
------- -------
Net decrease in cash and cash equivalents (798) (112)
Cash and cash equivalents, beginning of period 19,335 35,525
------- -------
Cash and cash equivalents, end of period $18,537 $35,413
======= =======
See notes to financial statements.
<TABLE/>
<PAGE 6>
META Group, Inc.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Interim Financial Statements
- -------------------------------------
The accompanying unaudited interim financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission for reporting on Form 10-Q.
Accordingly, certain information and footnote disclosures required for
complete financial statements are not included herein. It is recommended that
these financial statements be read in conjunction with the financial
statements and related notes of META Group, Inc. (the "Company") as reported
on the Company's Annual Report on Form 10-K for the year ended December 31,
1996. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of
financial position, results of operations and cash flows at the dates and
for the periods presented have been included.
Note 2 - Income Taxes
- ---------------------
During the quarter and six months ended June 30, 1997, the Company
recorded a tax provision of $868,000 and $1.7 million respectively,
reflecting an effective tax rate of 42%. The Company was not required to pay
federal income tax in either quarter due to the utilization of net operating
loss carryforwards. Total deferred tax asset, including the current portion,
increased to $10.7 million at June 30, 1997 from $6.7 million at December 31,
1996 as a result of the recognition of non-qualified stock option exercises
as compensation to employees for tax purposes.
Note 3 - Reclassification
- -------------------------
Under the terms of the Company's international sales representative
agreements, the Company realizes revenues from the international sales
representative organizations at rates of 40% to 60% of amounts billed to
those clients. Revenues and expenses for the quarter and six months ended
June 30, 1996 have been reclassified to conform to the current year
presentation of revenues and expenses attributable to international
operations.
Note 4 - Adoption of FAS 128
- ----------------------------
The Company will adopt the Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128") in the fourth quarter of 1997,
as required. The Company will continue to apply APB Opinion No. 15, "Earnings
Per Share" until the adoption of SFAS 128. The new standard specifies the
computation, presentation and disclosure requirements for earnings per share.
The pro forma earnings per common share computed under the provisions of
SFAS 128 for the quarter ended June 30, 1997 are $.16 basic earnings per
common share and $.15 diluted earnings per common share as compared to $.13
basic earnings per share and $.09 diluted earnings per share for the quarter
ended June 30, 1996. The pro forma earnings per common share computed under
the provisions of SFAS 128 for the six months ended June 30, 1997 are $.33
basic earnings per common share and $.29 diluted earnings per common share,
as compared to $.26 basic earnings per common share and $.18 diluted earnings
per common share for the six months ended June 30, 1996.
<PAGE 7>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below contains trend analysis and other
forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors set forth below under "Certain Factors That May Affect Future Results"
and in the Company's other filings with the Securities and Exchange
Commission.
Overview
META Group is an independent market assessment company providing
research and analysis of developments, trends and organizational issues
relating to the computer hardware, software, communications and related
information technology industries to users and vendors of information
technology ("IT"). IT user organizations utilize META Group's research,
analysis and recommendations to develop and employ cost-effective strategies
for selecting and implementing timely IT solutions and for aligning these
solutions with business priorities. IT vendors use META Group's services for
help in product positioning, marketing and market planning, as well as for
internal IT decision making.
Continuous Services subscriptions, which are annually renewable
contracts and generally payable by clients in advance, comprised
approximately 84% and 83% of the Company's total revenues for the quarters
ended June 30, 1997 and 1996, respectively. Billings attributable to the
Company's Continuous Services are initially recorded as deferred revenues
and then recognized pro rata over the contract term. The Company's other
revenues are derived from project consulting, benchmarking, conferences,
speaker engagement fees and publications. The Company's consulting clients
typically consist of Continuous Services clients seeking additional advice
tailored to their individual IT requirements.
One measure of the volume of the Company's business is its annualized
"Contract Value," which the Company calculates as the aggregate annualized
subscription revenue recognized from all Continuous Services contracts in
effect at a given point in time, without regard to the remaining duration of
such contracts. While Contract Value is not necessarily indicative of future
revenues, Contract Value has grown every quarter since the Company's
inception and increased 38% to $39.4 million at June 30, 1997 from $28.5
million at June 30, 1996. At June 30, 1997, the Company had over 2,930
Continuous Services subscribers in approximately 1,300 client organizations
worldwide.
Continuous Services revenues attributable to international clients are
billed and collected by the Company's international sales representative
organizations. The Company realizes revenues from the international sales
representative organizations at rates of 40% to 60% of amounts billed to
those clients.
The Company's operating expenses consist of cost of services and
fulfillment, selling and marketing expenses, general and administrative
expenses and depreciation and amortization expense. Cost of services and
fulfillment represents the costs associated with production and delivery of
the Company's products and services and includes the costs of research,
development and preparation of periodic reports, analyst telephone
consultations, executive briefings and conferences, publications, consulting
services, new product development and all associated editorial and support
services. Selling and marketing expenses include the costs of salaries,
commissions and related benefits for such personnel, travel and promotion.
General and administrative expenses include the costs of the finance and
accounting departments, legal, human resources, corporate IT and other
administrative functions of the Company.
<PAGE 8>
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
TOTAL REVENUES Total revenues increased 36% to $11.7 million in the quarter
ended June 30, 1997 from $8.6 million in the quarter ended June 30, 1996.
Revenues from Continuous Services increased 38% to $9.8 million in the
quarter ended June 30, 1997 from $7.1 million in the quarter ended June 30,
1996. The increases in total revenues and revenues from Continuous Services
were primarily due to continued expansion of the Company's domestic sales
force, increased average selling prices, and, to a lesser extent, the
recognition of revenue from the Company's three new Continuous Services,
particularly Enterprise Architecture Strategies Service. The Company
increased Contract Value 38% to $39.4 million at June 30, 1997 from $28.5
million at June 30, 1996. The Company grew its subscriber client base 18% to
2,930 Continuous Service clients at June 30, 1997 from 2,490 clients at
June 30, 1996.
Other revenues, consisting principally of revenues from consulting,
increased 26% to $1.9 million in the quarter ended June 30, 1997 from
$1.5 million in the quarter ended June 30, 1996, and decreased as a
percentage of total revenues to 16% from 17%. The increase in other revenues
was primarily attributable to the expansion of META Group Consulting
activities and the growth of the Company's publications division.
Revenues attributable to international clients increased 32% in the
quarter ended June 30, 1997 from the quarter ended June 30, 1996, and
remained constant as a percentage of Continuous Services revenue at 11%.
The increase was due to the Company's growth in existing international
markets and, to a lesser extent, to the expansion in the total number of
sales representative organizations. The Company currently has sales
representation in 25 countries. The Company expects that international
revenues will continue to account for a significant portion of its total
revenues.
COST OF SERVICES AND FULFILLMENT Cost of services and fulfillment increased
27% to $5.8 million in the quarter ended June 30, 1997 from $4.6 million in
the quarter ended June 30, 1996 principally due to increased staffing for
analyst and fulfillment positions and related compensation expense. Cost of
services and fulfillment decreased as a percentage of total revenues to 50%
from 53%. This decrease primarily reflects the growth in the Company's
increased average selling price to $16,400 per Continuous Service
subscription in the quarter ended June 30, 1997 versus $14,000 during the
quarter ended June 30, 1996. Client/analyst ratio for all Continuous
Services decreased to 40-to-1 at June 30, 1997, as compared to a ratio of
41-to-1 at December 31, 1996, as research staffing for the three new
Continuous Services was put in place.
SELLING AND MARKETING EXPENSES Selling and marketing expenses increased 33%
to $2.8 million in the quarter ended June 30, 1997 from $2.1 million in the
quarter ended June 30, 1996 and remained constant as a percentage of total
revenues at 24%. The increase in expenses was principally due to increased
sales-related compensation expense associated with increased domestic
revenues, as well as increased marketing expenditures. While the Company
anticipates continuing increases in the amount of selling and marketing
expenses, it expects that such expenses as a percentage of total revenues will
decrease slightly.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased 37% to $1.2 million in the quarter ended June 30, 1997 from
$877,000 in the quarter ended June 30, 1996 and remained constant as a
percentage of total revenues at 10%. The increase in expenses was
principally due to increased finance, accounting and corporate IT staffing
and expenses required to support the growth of the Company. The Company
anticipates continuing increases over the prior year in the amount of general
and administrative expenses, and expects such expenses to remain relatively
constant as a percentage of total revenues.
DEPRECIATION AND AMORTIZATION Depreciation and amortization expense
increased 46% to $366,000 in the quarter ended June 30, 1997 from $251,000
in the quarter ended June 30, 1996. The increase in depreciation and
amortization expense was principally due to purchases of computer equipment
and office furniture required to support business growth, and the completion
of leasehold improvements associated with the relocation of the Company's
Reston, Virginia and Waltham, Massachusetts offices during late 1996.
<Page 9>
INTEREST INCOME Interest income increased to $501,000 in the quarter ended
June 30, 1997 from $454,000 in the quarter ended June 30, 1996 due to an
increase in the Company's cash balances, which resulted from a positive
cash flow from operations during 1996 and the first half of 1997.
PROVISION FOR INCOME TAXES Provision for income taxes of $868,000 was
recorded for the quarter ended June 30, 1997, as compared to a provision of
$574,000 recorded for the quarter ended June 30, 1996, reflecting an
effective tax rate of 42% and 44%, respectively. The Company was not required
to pay federal income tax in either quarter due to the utilization of net
operating loss carryforwards. Total deferred tax asset, including the current
portion, increased to $10.7 million at June 30, 1997 from $6.7 million at
December 31, 1996 as a result of the recognition of non-qualified stock
option exercises as compensation to employees for tax purposes.
EARNINGS PER SHARE EPS increased to $.15 per common share for the second
quarter of 1997 as compared to $.09 for the second quarter of 1996 as a
result of increased net income. For the quarter ended June 30, 1997, the
Company's weighted average shares outstanding were 8,008,000 shares.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
TOTAL REVENUES Total revenues increased 34% to $22.5 million in the six
months ended June 30, 1997 from $16.8 million in the six months ended
June 30, 1996. Revenues from Continuous Services increased 37% to $19.0
million in the six months ended June 30, 1997 from $13.8 million in the six
months ended June 30, 1996. The increases in total revenues and revenues
from Continuous Services were primarily due to continued expansion of the
Company's domestic sales force, increased average selling prices, and the
growth in international Continuous Services.
Other revenues, consisting principally of revenues from consulting,
increased 20% to $3.5 million in the six months ended June 30, 1997 from
$2.9 million in the six months ended June 30, 1996, and decreased as a
percentage of total revenues to 16% from 17%. The increase in other revenues
was primarily attributable to the growth of the Company's publications
division.
Revenues attributable to international clients increased 64% in the six
months ended June 30, 1997 from the six months ended June 30, 1996, and
increased as a percentage of Continuous Services revenues to 11% from 10%.
The increase was due to both the Company's growth in existing
international markets and to the expansion in the total number of sales
representative organizations. The Company currently has sales representation
in 25 countries.
COST OF SERVICES AND FULFILLMENT Cost of services and fulfillment increased
25% to $11.4 million in the six months ended June 30, 1997 from $9.1 million
in the six months ended June 30, 1996 principally due to increased staffing
for analyst and fulfillment positions and related compensation expense.
During the first half of 1997, the Company launched three new Continuous
Services, while there were no development costs associated with these services
in the same period of the prior year. Cost of services and fulfillment
decreased as a percentage of total revenues to 50% from 54%, primarily due to
the increase in average selling prices.
SELLING AND MARKETING EXPENSES Selling and marketing expenses increased
32% to $5.1 million in the six months ended June 30, 1997 from $3.9 million
in the six months ended June 30, 1996 and remained constant as a percentage
of total revenues at 23%. The increase in expenses was principally due to
increased sales-related compensation expense associated with increased
domestic revenues as well as increased marketing and promotional expenses
relating to the launching of the three new services.
<Page 10>
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased 40% to $2.4 million in the six months ended June 30, 1997 from
$1.7 million in the six months ended June 30, 1996 and remained constant
as a percentage of total revenues at 10%. The increase in expenses was
principally due to increased finance, accounting and corporate IT staffing
and expenses required to support the Company's continued growth.
DEPRECIATION AND AMORTIZATION Depreciation and amortization expense
increased 47% to $699,000 in the six months ended June 30, 1997 from
$476,000 in the six months ended June 30, 1996. The increase in depreciation
and amortization expense was principally due to purchases of computer
equipment and office furniture required to support business growth, and the
completion of leasehold improvements associated with the relocation of the
Company's Reston, Virginia and Waltham, Massachusetts offices during late
1996.
INTEREST INCOME Interest income increased to $966,000 in the six months
ended June 30, 1997 from $918,000 in the six months ended June 30, 1996 due
to an increase in the Company's cash balances resulting from a positive cash
flow from operations during 1996 and the first half of 1997.
PROVISION FOR INCOME TAXES Provision for income taxes of $1.7 million was
recorded for the six months ended June 30, 1997, as compared to a provision
of $1.1 million recorded for the six months ended June 30, 1996, reflecting
an effective tax rate of 42% and 43%, respectively. The Company was not
required to pay federal income tax in either quarter due to the utilization
of net operating loss carryforwards. Total deferred tax asset, including the
current portion, increased to $10.7 million at March 31, 1997 from $6.7
million at December 31, 1996 as a result of the recognition of non-qualified
stock option exercises as compensation to employees for tax purposes.
EARNINGS PER SHARE EPS increased to $.29 per common share for the first half
of 1997 as compared to $.18 for the first half of 1996 as a result of
increased net income. For the six months ended June 30, 1997, the Company's
weighted average shares outstanding were 7,976,000 shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $3.8 million of cash from operations during six
months ended June 30, 1997, compared with $134,000 of cash generated from
operations in the six months ended June 30, 1996. The increase in cash
generated from operations in 1997 is primarily due to increased net income
and the collection of the December 31, 1996 accounts receivable, partially
offset by payment of 1996 bonuses in the first quarter of 1997.
The Company used $979,000 of cash in the six months ended June 30, 1997,
compared with $727,000 in the six months ended June 30, 1996, for the
purchase of furniture, equipment, computers and related software for use by
the Company's employees. The Company expects that additional purchases of
equipment will be made as the Company's employee base continues to grow.
As of June 30, 1997, the Company had no material commitments for capital
expenditures.
The Company regularly invests excess funds in investment-grade
short-term commercial paper, debt instruments, and money market funds. As
these investments generally have terms of less than three months, they are
included under the caption "Cash and cash equivalents" in the balance sheets.
In addition, the Company invests in other short-term (less than one year
maturity), high quality investment grade marketable debt securities.
Generally, these securities are purchased in denominations of $5 million and
held to maturity.
<PAGE 11>
As of June 30, 1997, the Company had cash and cash equivalents of $18.5
million, marketable securities of $19.1 million and working capital of $32.3
million. The Company currently has an unused $1.0 million bank line of
credit. The Company believes that existing cash balances and anticipated cash
flows from operations will be sufficient to meet its working capital and
capital expenditure requirements at least through the following twelve months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company does not provide forecasts of the future financial
performance of the Company. However, from time to time, information provided
by the Company or statements made by its employees may contain
"forward-looking" information that involve risks and uncertainties. In
particular, statements contained in this Form 10-Q that are not historical
facts (including, but not limited to, statements concerning international
revenues, anticipated operation expense levels and such expense levels
relative to the Company's total revenues) constitute forward-looking
statements and are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results of
operations and financial condition have varied and may in the future vary
significantly from those stated in any forward-looking statements. Factors
that may cause such differences include, without limitation, the risks,
uncertainties and other information discussed below, as well as the accuracy
of the Company's internal estimates of revenue and operation expense levels.
Each of these factors, and others, are discussed from time to time in the
filings made by the Company with the Securities and Exchange Commission.
The Company's future operating results are subject to substantial risks
and uncertainties. The Company currently derives most of its revenues from
subscriptions to its Continuous Services. As a result, any decline in the
Company's ability to secure subscription renewals may have a material adverse
effect on the Company's results of operations. The Company's ability to
secure subscription renewals, at favorable average selling prices, as well as
to successfully market and sell its consulting services, is dependent upon
the Company's ability to deliver consistent, high-quality and timely analysis
and advice with respect to issues, developments and trends that clients view
as important. The Company's successful delivery of such analysis and advice
is, in turn, dependent upon many factors, including, among other things:
its ability to recruit and retain highly talented professionals in a
competitive job market, to understand and anticipate rapidly changing
technologies and market trends so as to keep its analysis focused on the
changing needs of its clients, and to deliver products and services of
sufficiently high quality and timeliness to withstand competition from
competitors which may have greater financial, information gathering and
marketing resources than the Company. The Company's ability to market and
sell its products and services could also be adversely affected by the
emergence of new competitors into one or more of the market segments
addressed by the Company's products and services, which could cause pricing
pressure and loss of market share. In addition, a significant portion of the
Company's revenues are attributable to international clients, which may be
adversely affected by factors including difficulties in developing and
managing relationships with international sales representative organizations,
reliance on sales entities which the Company does not control, greater
difficulty in maintaining direct client contact, fluctuations in exchange
rates, adverse political and economic conditions, tariffs and other trade
barriers, longer accounts receivable collection cycles and adverse tax
consequences. The Company's future financial results also depend in part on
the development or acquisition of new products and services, which may not
successfully be achieved due to the inherent costs and risks associated with
development, assimilation and marketing of a new product or service, as well
as the Company's limited experience in introducing new products and services.
Furthermore, the Company's quarterly operating results may fluctuate
significantly due to various factors. Since a disproportionately large
portion of the Company's Continuous Services contracts expire in the fourth
quarter of each year, the Company incurs operating expenses in the fourth
quarter at a higher level than would otherwise be required by its sequential
growth, and such increased expenses are not normally offset immediately by
higher revenues. In addition, the Company's operating results may fluctuate
as a result of a variety of other factors, including the level and timing of
renewals of subscriptions to Continuous Services, the timing and amount of
business generated by the Company, the mix of domestic versus international
business, the timing of the development, introduction and marketing of new
products and services, the timing of the hiring of research analysts,
<PAGE 12>
changes in the spending patterns of the Company's target clients, the
Company's accounts receivable collection experience, changes in market demand
for IT research and analysis and competitive conditions in the industry. Due
to these factors, the Company believes period-to-period comparisons of
results of operations are not necessarily meaningful and should not be relied
upon as an indication of future results of operations. The potential
fluctuations in the Company's operating results make it likely that, in some
future quarter, the Company's operating results will be below the
expectations of securities analysts and investors, which would have a
material adverse effect on the price of the Company's Common Stock.
<PAGE 13>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
As disclosed in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, in November, 1995, a complaint was filed in
the Bridgeport Judicial District of the Superior Court of Connecticut by
a former consultant to the Company naming the Company and its Chief Executive
Officer as defendants. There have been no material developments in this
matter during the quarter ended June 30, 1997.
The Company is a party to certain other legal proceedings.
However, the Company believes that none of these proceedings is likely to
have a material adverse effect on the Company's business, results of
operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
On May 19, 1997, the Company held its Annual Meeting of
Stockholders, at which the stockholders of the Company voted on the election
of two Class II Directors to serve for a three-year term or until successors
are elected and qualified. The number of votes cast for the re-election of
each of the Class II Directors listed below was as follows:
Nominees Number of Shares
- -------- ----------------
For Withhold Authority
--- ------------------
Marc Butlein 5,905,624 164,335
Harry S. Gruner 5,907,824 162,135
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
Exhibit
Number Description
------- ------------
11.1 Statement re-computation of per-share earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Company for
the quarter ending June 30, 1997.
<PAGE 14>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
META Group, Inc.
Date: August 12, 1997 By:/s/ Bernard F. Denoyer
--------------------------
Bernard F. Denoyer
Vice President, Finance,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting
Officer)
<Page 15>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
- --------------- ----------------------------- ---------------
11.1 Statement re computation of per-share earnings 16
27.1 Financial Data Schedule 17
____________
<Page 16>
EXHIBIT 11.1
</TABLE>
<TABLE>
<CAPTION>
META Group, Inc.
EXHIBIT TO ANNUAL REPORT ON FORM 10-Q
Computation of Net Income Per Common Share
For the three months ended For the six months ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income $1,198,000 $731,000 $2,305,000 $1,450,000
Weighted average number of common
and common equivalent shares outstanding:
Average number of common shares
outstanding during the period 7,317,358 5,757,886 7,056,625 5,655,394
Add common share equivalents -- options
to purchase common shares 690,630 2,245,209 919,746 2,337,682
---------- --------- --------- ----------
Total common shares outstanding 8,007,988 8,003,095 7,976,371 7,993,076
---------- --------- --------- ----------
Net income per common and common
equivalent share $.15 $.09 $.29 $.18
---- ---- ---- ----
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 0 18,537
<SECURITIES> 0 19,121
<RECEIVABLES> 0 15,137
<ALLOWANCES> 0 (510)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 55,834
<PP&E> 0 4,788
<DEPRECIATION> 0 (2,178)
<TOTAL-ASSETS> 0 74,711
<CURRENT-LIABILITIES> 0 23,575
<BONDS> 0 0
0 0
0 0
<COMMON> 0 78
<OTHER-SE> 0 51,058
<TOTAL-LIABILITY-AND-EQUITY> 0 74,711
<SALES> 0 0
<TOTAL-REVENUES> 11,738 22,549
<CGS> 5,838 11,370
<TOTAL-COSTS> 5,838 11,370
<OTHER-EXPENSES> 4,335 8,167
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 2,066 3,978
<INCOME-TAX> (868) (1,673)
<INCOME-CONTINUING> 1,198 2,305
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,198 2,305
<EPS-PRIMARY> .15 .29
<EPS-DILUTED> .15 .29
</TABLE>
