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, 1998
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
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
208 Harbor Drive, Stamford, Connecticut 06912-0061
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(Address of principal executive offices, including Zip Code)
(203) 973-6700
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(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, 1998 was 11,338,212.
Total Number of Pages: 18
Exhibit Index is on Page 16
(PAGE)
META Group, Inc.
INDEX
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Page
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Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets:
June 30, 1998 (unaudited) and December 31, 1997 3
Statements of Income (unaudited):
Three months ended June 30, 1998 and 1997 4
Six months ended June 30, 1998 and 1997
Statements of Cash Flows (unaudited):
Six months ended June 30, 1998 and 1997 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 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
<PAGE> 3
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
META Group, Inc.
BALANCE SHEETS
(in thousands)
June 30, December 31,
______________________________________________________________________________
Assets 1998 1997
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<S> <C> <C>
Current assets: (unaudited)
Cash and cash equivalents $10,994 $12,910
Marketable securities 23,327 23,700
Accounts receivable, net 22,562 26,302
Other current assets 5,037 3,967
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Total current assets 61,920 66,879
Marketable securities 10,313 4,046
Furniture and equipment, net 3,278 2,765
Deferred tax asset 5,384 7,759
Other assets 9,160 8,004
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Total assets $90,055 $89,453
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,158 $ 4,917
Deferred revenues 27,926 29,136
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Total current liabilities 30,084 34,053
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Stockholders' equity:
Preferred stock -- --
Common stock 119 118
Paid-in capital 50,898 49,943
Retained earnings 9,274 5,659
Treasury stock, at cost (320) (320)
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Total stockholders' equity 59,971 55,400
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Total liabilities and stockholders' equity $90,055 $89,453
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See notes to financial statements.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
META Group, Inc.
STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
For the three months ended For the six months ended
June 30, June 30,
______________________________________________________________________________
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Continuous services $13,347 $9,846 $26,319 $19,018
Other, principally consulting
and publications 3,113 1,892 5,283 3,531
------- ------- ------- -------
Total revenues 16,460 11,738 31,602 22,549
------- ------- ------- -------
Operating expenses:
Cost of services and fulfillment 7,857 5,838 15,395 11,370
Selling and marketing 4,050 2,770 7,496 5,111
General and administrative 1,437 1,199 2,957 2,357
Depreciation and amortization 453 366 900 699
------- ------- ------- ------
Total operating expenses 13,797 10,173 26,748 19,537
------- ------- ------- -------
Operating income 2,663 1,565 4,854 3,012
Interest income 677 501 1,282 966
------- ------- -------- -------
Income before provision for
income taxes 3,340 2,066 6,136 3,978
Provision for income taxes 1,373 868 2,521 1,673
------- ------ ------- -------
Net income $ 1,967 $ 1,198 $ 3,615 $ 2,305
======= ======= ======= =======
Net income per diluted
common share $ .16 $ .10 $ .29 $ .19
======= ======= ======= =======
Weighted average number of
diluted common shares outstanding 12,570 11,970 12,444 11,853
======= ======= ======= =======
Net income per basic common share $ .17 $ .11 $ .32 $ .22
======= ======= ======= =======
Weighted average number of
basic common shares outstanding 11,261 10,976 11,212 10,585
======= ======= ======= =======
</TABLE>
See notes to financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
META Group, Inc.
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the six months ended
June 30,
______________________________________________________________________________
1998 1997
________________________
<S> <C> <C>
Operating activities:
Net income $3,615 $2,305
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 900 699
Deferred income taxes 2,375 1,673
Changes in assets and liabilities:
Accounts receivable 3,740 3,509
Other current assets (1,070) (418)
Other assets (587) (81)
Accounts payable and accrued expenses (2,759) (3030)
Deferred revenues (1,210) (838)
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Net cash provided by operating activities 5,004 3,819
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Investing activities:
Capital expenditures (1,413) (979)
Investments in marketable securities (5,894) (3,437)
Investments and advances (569) (698)
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Net cash used in investing activities (7,876) (5,114)
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Financing activities:
Proceeds from exercise of stock options 788 349
Proceeds from employee stock purchase plan 168 148
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Net cash provided by financing activities 956 497
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Net decrease in cash and cash equivalents (1,916) (798)
Cash and cash equivalents, beginning of period 12,910 19,335
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Cash and cash equivalents, end of period $10,994 $18,537
======= =======
<TABLE/>
See notes to financial statements.
<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, 1997. 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. Results for interim periods are not
necessarily indicative of results for the entire year.
Note 2 - Income Taxes
_____________________
During the quarter and six months ended June 30, 1998, the Company
recorded a tax provision of $1.4 million and $2.5 million, respectively,
reflecting an effective tax rate of 41%. The Company's effective tax rate
has declined from 42% in the quarter and six months ended June 30, 1997,
due to the continued expansion of business in states with lower income tax
rates. The Company was not required to pay federal income tax due to the
utilization of net operating loss carryforwards. The total deferred tax
asset, including the current portion (included in "Other current assets"),
decreased to $6.9 million at June 30, 1998 from $9.2 million at December 31,
1997 as the Company utilized its net operating loss carryforwards to offset
taxable income.
Note 3 - Stock Dividend
________________________
On April 27, 1998, the Company's Board of Directors authorized a
three-for-two stock split of the Company's Common Stock, which was effected
in the form of a 50% stock dividend paid on June 11, 1998 to shareholders of
record on May 22, 1998. All share and per share amounts have been
retroactively restated for all periods presented to reflect the stock split.
Accordingly, approximately $40,000 was transferred from paid-in capital to
common stock.
Note 4 - Subsequent Event
_________________________
On July 31, 1998, the Board of Directors approved a Long-Term Incentive
Compensation Plan with a significant retention feature for key management
employees. The Plan will be funded with potential returns from a commitment
by the Company to invest up to $4.0 million in a venture capital fund managed
by JMI Associates, which will co-invest with other JMI venture funds. In
addition, a JMI affiliate concurrently became a full-service client of the
Company. Harry Gruner, a director of the Company, is a managing member of the
general partner of JMI Equity Fund III, L.P.
<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,
principally the Company's Annual Report on Form
10K for the year ended December 31, 1997.
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 ("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.
Continuous Services subscriptions, which are annually renewable contracts
and generally payable by clients in advance, comprised approximately 81% and
84% of the Company's total revenues for the quarters ended June 30, 1998 and
1997, 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, sequentially and year-over-year, every
quarter since the Company's inception and increased 36% to $53.4 million at
June 30, 1998 from $39.4 million at June 30, 1997. At June 30, 1998, the
Company had 3,660 Continuous Services subscribers in approximately 1,600
client organizations worldwide, as compared to 2,930 subscribers in 1,300
organizations at June 30, 1997. 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.
<PAGE> 8
THREE MONTHS ENDED JUNE 30,1998 AND 1997
TOTAL REVENUES Total revenues increased 40% to $16.5 million in the quarter
ended June 30, 1998 from $11.7 million in the quarter ended June 30, 1997.
Revenues from Continuous Services increased 36% to $13.3 million in the
quarter ended June 30, 1998 from $9.8 million in the quarter ended June 30,
1997. The increases in revenues from Continuous Services were primarily due
to continued expansion of the Company's domestic sales force, continued
expansion of the Company's international business, and the recognition of
revenue from the Company's three Continuous Services launched in the first
quarter of 1997, particularly Enterprise Architecture Strategies Service
("EAS"). The Company increased Contract Value 36% to $53.4 million at
June 30, 1998 from $39.4 million at June 30, 1997. The Company grew its
subscriber client base 25% to 3,660 Continuous Service clients at June 30,
1998 from 2,930 clients at June 30, 1997.
Other revenues, consisting principally of revenues from consulting and
publications, increased 65% to $3.1 million in the quarter ended June 30,
1998 from $1.9 million in the quarter ended June 30, 1997, and increased as
a percentage of total revenues to 19% from 16%. The increase in Other
Revenues was primarily attributable to continued expansion of META Group
Consulting activities. Other Revenues grew at a faster rate than Continuous
Services revenue principally due to continued expansion of existing
consulting practices and the hiring of new consulting professionals.
Continuous Services revenues attributable to international clients
increased 69% in the quarter ended June 30, 1998 from the quarter ended
June 30, 1997, and increased as a percentage of Continuous Services revenue
to 13% from 10%. The increase was due principally to continued expansion of
the Company's international business, the successful international launch of
the EAS service, and, to a lesser extent, the expansion in the total number
of sales representative organizations. The Company has independent sales
representation in 30 countries as of June 30, 1998, compared to 25 countries
as of June 30, 1997. 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
35% to $7.9 million in the quarter ended June 30, 1998 from $5.8 million in
the quarter ended June 30, 1997 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 48%
from 50%. This decrease primarily reflects the increase in the Company's
client/analyst ratio for all Continuous Services, which increased to 44-to-1
at June 30, 1998, as compared to a ratio of 40-to-1 at June 30, 1997. While
the Company anticipates continuing increases in the costs of services and
fulfillment, it expects that such expenses as a percentage of sales will
remain approximately the same.
SELLING AND MARKETING EXPENSES Selling and marketing expenses increased 46%
to $4.1 million in the quarter ended June 30, 1998 from $2.8 million in the
quarter ended June 30, 1997 and increased as a percentage of total revenues
to 25% from 24%. The increase in expenses was principally due to increased
marketing expenditures, sales-related compensation expense associated with
increased domestic revenues, and expansion of the direct marketing sales
channel for publications. The increase in expense as a percent of sales was
principally attributable to additional international travel and market
development (primarily related to the establishment of a European fulfillment
center) associated with expanding the Company's international revenue this
quarter. 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.
<PAGE> 9
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased 20% to $1.4 million in the quarter ended June 30, 1998 from
$1.2 million in the quarter ended June 30, 1997 and decreased as a percentage
of total revenues to 9% from 10%. The increase in expenses was principally
due to increased benefits costs, legal and accounting fees. 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 24% to $453,000 in the quarter ended June 30, 1998 from $366,000 in
the quarter ended June 30, 1997. The increase in depreciation and
amortization expense was principally due to purchases of computer equipment,
leasehold improvements, and office furniture required to support business
growth.
INTEREST INCOME Interest income increased 35% to $677,000 in the quarter
ended June 30, 1998 from $501,000 in the quarter ended June 30, 1997 due to
an increase in the Company's cash and marketable securities balances, which
resulted from a positive cash flow from operations during 1997 and the first
half of 1998. In addition, the Company benefited from the reinvestment of a
portion of its cash into short-term, higher yield marketabe securities.
(See "Liquidity and Capital Resources.")
PROVISION FOR INCOME TAXES Provision for income taxes of $1.4 million was
recorded for the quarter ended June 30, 1998, as compared to a provision of
$868,000 recorded for the quarter ended June 30, 1997, reflecting an
effective tax rate of 41% and 42%, respectively. The Company's effective tax
rate has declined due to the continued expansion of business in states with
lower income tax rates. The Company was not required to pay federal income
tax in either quarter due to the utilization of net operating loss
carryforwards. Total deferred tax asset, including the current portion,
decreased to $6.9 million at June 30, 1998 from $9.2 million at
December 31, 1997 as a result of utilizating existing net operating loss
carryforwards to offset taxable income. Due to the likelihood of the
continued utilization of such net operating loss carryforwards, the Company
does not anticipate having to pay federal income taxes in the next twelve
months.
EARNINGS PER SHARE Diluted EPS increased to $.16 per common share for the
second quarter of 1998 as compared to $.10 for the second quarter of 1997 as
a result of increased net income. For the quarter ended June 30, 1998, the
Company's weighted average number of diluted common shares outstanding were
approximately 12,570,000 shares.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
TOTAL REVENUES Total revenues increased 40% to $31.6 million in the six
months ended June 30, 1998 from $22.5 million in the six months ended
June 30, 1997. Revenues from Continuous Services increased 38% to $26.3
million in the six months ended June 30, 1998 from $19.0 million in the six
months ended June 30, 1997. The increases in total revenues and revenues from
Continuous Services were primarily due to continued expansion of the
Company's domestic sales force, recognition of revenue from the Company's
three Continuous Services launched in the first quarter of 1997,
particularly, EAS, and the growth in international Continuous Services.
<PAGE> 10
Other Revenues increased 50% to $5.3 million in the six months ended
June 30, 1998 from $3.5 million in the six months ended June 30, 1997, and
increased as a percentage of total revenues to 17% from 16%. The increase in
Other Revenues was primarily attributable to the expansion of META Group
Consulting activities.
Continuous Services Revenues attributable to international clients
increased 64% in the six months ended June 30, 1998 from the six months
ended June 30, 1997, and increased as a percentage of Continuous Services
revenues to 13% from 11%. The increase was due principally to continued
expansion of the Company's international business, the successful
international launch of the EAS service, and the expansion in the total
number of sales representative organizations.
COST OF SERVICES AND FULFILLMENT Cost of services and fulfillment increased
35% to $15.4 million in the six months ended June 30, 1998 from $11.4 million
in the six months ended June 30, 1997 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
49% from 50%, primarily due to the increase in the Company's client/analyst
ratio for all Continuous Services, which increased 44-to-1 at June 30, 1998,
as compared to a ratio of 40-to-1 at June 30, 1997.
SELLING AND MARKETING EXPENSES Selling and marketing expenses increased 47%
to $7.5 million in the six months ended June 30, 1998 from $5.1 million in
the six months ended June 30, 1997 and increased as a percentage of total
revenues to 24% from 23%. The increase in expenses was principally due to
increased sales-related compensation expense associated with increased
domestic revenues and the expansion of the direct marketing sales channel
for publications, as well as increased marketing and conference promotion
expenses.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased 25% to $3.0 million in the six months ended June 30, 1998 from
$2.4 million in the six months ended June 30, 1997 and decreased as a
percentage of total revenues to 9% from 10%. The increase in expenses was
principally due to increased benefits costs, facilities expense, professional
development and legal expenses.
DEPRECIATION AND AMORTIZATION Depreciation and amortization expense
increased 29% to $900,000 in the six months ended June 30, 1998 from
$699,000 in the six months ended June 30, 1997. The increase in depreciation
and amortization expense was principally due to purchases of computer
equipment and office furniture required to support business growth.
INTEREST INCOME Interest income increased 33% to $1.3 million in the
six months ended June 30, 1998 from $966,000 in the six months ended
June 30, 1997 due to an increase in the Company's cash and marketable
securities balances resulting from a positive cash flow from operations
during 1997 and the first half of 1998.
PROVISION FOR INCOME TAXES Provision for income taxes of $2.5 million was
recorded for the six months ended June 30, 1998, as compared to a provision
of $1.7 million recorded for the six months ended June 30, 1997, reflecting
an effective tax rate of 41% and 42%, respectively. The Company was not
required to pay federal income tax in either quarter due to the utilization
of net operating loss carryforwards.
EARNINGS PER SHARE Diluted EPS increased to $.29 per common share for the
first half of 1998 as compared to $.19 for the first half of 1997 as a
<PAGE> 11
result of increased net income. For the six months ended June 30, 1998, the
Company's weighted average number of diluted common shares outstanding were
approximately 12,444,000 shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $5.0 million of cash from operations during the
six months ended June 30, 1998, compared with $3.8 million of cash generated
from operations in the six months ended June 30, 1997. The increase in cash
generated from operations in 1998 is primarily due to increased net income
and the collection of the December 31, 1997 accounts receivable, partially
offset by payment of employee bonuses in the first half of 1998.
The Company used $1.4 million of cash in the six months ended June 30,
1998, compared with $979,000 in the six months ended June 30, 1997, 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, 1998, the Company had no material commitments for capital
expenditures; however, the Company is currently planning a significant
upgrade of internal systems within the next twelve months. The total cash
outlay for the project is not expected to exceed $1.0 million.
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 $1 million
to $5 million and held to maturity.
As of June 30, 1998, the Company had cash and cash equivalents of
$11.0 million, marketable securities of $33.6 million and working capital
of $31.8 million. The Company believes that existing cash balances and
anticipated cash flows from operations will be sufficient to meet its
working capital and capital expenditure requirements for the forseeable
future.
Impact of the Year 2000 Issue
The Company has commenced efforts to ensure that the computer systems
and applications upon which it relies for internal operations and external
communications with clients and others will function properly beyond 1999.
The Company presently believes that the computer systems and programs upon
which it relies for its internal operations and external communications are
Year 2000 compliant. There can be no assurance, however, that further
assessment of the Company's internal systems and applications will not
indicate that additional efforts to assure Year 2000 compliance are
necessary, and such efforts may be costly and may divert the Company's
resources from other product development or infrastructure improvement
programs. Further, there can be no assurance that the systems operated by
other companies upon which the Company relies will be Year 2000 complaint on
a timely basis. The Company's business, financial condition or results of
operations could be materially adversely affected by the failure of the
Company's internal systems and applications to properly operate or manage
data beyond 1999.
<PAGE> 12
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, expense levels relative to the Company's total
revenues, net operating loss carryforwards, and planned capital expenditures)
constitute forward-looking statements and are made under the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
Company's actual results of operations and financial condition have varied
and may in the future vary significantly from those stated in any
forward-looking statements. Factors that may cause such differences include,
without limitation, the risks, uncertainties and other information discussed
below, as well as the accuracy of the Company's internal estimates of revenue
and operation expense levels. Each of these factors, and others, are
discussed from time to time in the filings made by the Company with the
Securities and Exchange Commission.
The Company's future operating results are subject to substantial
risks and uncertainties. The Company currently derives most of its revenues
from subscriptions to its Continuous Services. As a result, any decline in
the Company's ability to secure subscription renewals may have a material
adverse effect on the Company's results of operations. The Company's ability
to secure subscription renewals, at favorable average selling prices, as well
as to successfully market and sell its consulting services, is dependent upon
the Company's ability to deliver consistent, high-quality and timely analysis
and advice with respect to issues, developments and trends that clients view
as important. The Company's successful delivery of such analysis and advice
is, in turn, dependent upon many factors, including, among other things: its
ability to recruit and retain highly talented professionals in a competitive
job market, to understand and anticipate rapidly changing technologies and
market trends so as to keep its analysis focused on the changing needs of
its clients, and to deliver products and services of sufficiently high
quality and timeliness to withstand competition from competitors which may
have greater financial, information gathering and marketing resources than
the Company. The Company's ability to market and sell its products and
services could also be adversely affected by the emergence of new competitors
into one or more of the market segments addressed by the Company's products
and services, which could cause pricing pressure and loss of market share.
In addition, a significant portion of the Company's revenues are attributable
to international clients, which may be adversely affected by factors
including difficulties in developing and managing relationships with
independent international sales representative organizations, reliance on
sales entities which the Company does not control, greater difficulty in
maintaining direct client contact, fluctuations in exchange rates, adverse
political and economic conditions, tariffs and other trade barriers, longer
accounts receivable collection cycles and adverse tax consequences. The
Company's future financial results also depend in part on the development or
acquisition of new products and services, which may not successfully be
achieved due to the inherent costs and risks associated with development,
assimilation and marketing of a new product or service, as well as the
Company's limited experience in introducing new products and services.
Furthermore, the Company's quarterly operating results may fluctuate
significantly due to various factors. Since a disproportionately large
portion of the Company's Continuous Services contracts expire in the
fourth quarter of each year, the Company incurs operating expenses in the
fourth quarter at a higher level than would otherwise be required by its
sequential growth, and such increased expenses are not normally offset
immediately by higher revenues. In addition, the Company's operating results
may fluctuate as a result of a variety of other factors, including the level
and timing of renewals of subscriptions to Continuous Services, the timing
and amount of business generated by the Company, the mix of domestic versus
international business, the timing of the development, introduction and
marketing of new products and services, the timing of the acquisition and
<PAGE> 13
integration into the Company of new business, products and services, the
timing of the hiring of research analysts and consultants, the cost of
addressing, or the failure to address, the ability of the Company's
computer systems and applications to function properly beyond 1999, 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.
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, 1997, 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. Subsequent to June 30, 1998, the Company and its
Chief Executive Officer reached a settlement with the former consultant in
which the suit was dismissed with prejudice. The settlement did not have a
material effect on the financial statements of the Company.
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 27, 1998, the Company held its Annual Meeting of Stockholders.
At such Annual Meeting the stockholders of the Company voted on the election
of two Class III Directors to serve for a three-year term and until their
successors have been duly elected and qualified. The number of votes cast
for the re-election of each of the Class III Directors listed below was as
follows:
Nominees Number of Shares
- -------- ----------------
For Withhold Authority
--- ------------------
George McNamee 6,780,201 89,149
Michael Simmons 6,836,400 32,950
Each of Dale Kutnick, Francis J. Saldutti, Marc Butlein and Harry S. Gruner
continued as Directors of the Company after the Annual Meeting of
Stockholders.
The amendment and restatement of the Corporation's 1995 Stock Plan
(the "Amended and Restated 1995 Plan") to (i) increase the number of shares
of Common Stock of the Company issuable over the term of the Plan by
1,500,000 shares to 3,000,000 shares in the aggregate and (ii) extend the
exercise period after death from 180 days to one year for "incentive" stock
<PAGE> 14
options granted after the date the stockholders of the Corporation approve
the Amended and Restated 1995 Plan was adopted and approved with 4,408,500
shares voting in favor, 2,001,303 shares voting against, 5,621 shares
abstaining and 453,876 shares counted as unvoted.
Item 5. Other Information.
-----------------
The Company's By-laws establish an advance notice procedure with regard
to stockholder proposals not included in the Company's proxy statement.
In general, proposals of stockholders intended for inclusion in the proxy
statement to be furnished to all stockholders entitled to vote at the next
Annual Meeting of Stockholders of the Corporation must be received at the
Corporation's principal executive offices not later than December 11, 1998
nor earlier than November 11, 1998 and contain certain specified information.
In order to curtail controversy as to the date on which a proposal was
received by the Corporation, it is suggested that proponents submit their
proposals by certified mail, return receipt requested to META Group, Inc.,
208 Harbor Drive, Stamford, Connecticut 06912-0061, Attention: Secretary.
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.
On June 12, 1998, the Company filed a Current Report on Form 8-K
announcing that the Company effected a three-for-two stock split in the form
of a 50% stock dividend paid on June 11, 1998 to stockholders of record
on May 22, 1998.
<PAGE> 15
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 14, 1998 By: /s/ Bernard F. Denoyer
-----------------------
Bernard F. Denoyer
Senior Vice President, Finance, Chief
Financial Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer)
<PAGE> 16
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
_______ __________________________________________________ _____________
11.1 Statement re computation of per-share earnings 17
27.1 Financial Data Schedule 18
__________________
<PAGE> 17
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,
_______________________________________________________________________________
1998 1997 1998 1997
______________________ ______________________
<S> <C> <C> <C> <C>
Net income.................... $1,967,000 $1,198,000 $3,615,000 $2,305,000
========== ========== ========== ==========
Weighted average number of common
and common equivalent shares
outstanding:
Common shares
outstanding during the period 11,261,272 10,975,694 11,211,746 10,584,765
Common share equivalents
-- options to purchase common
shares 1,308,283 994,127 1,232,257 1,267,983
---------- ---------- ---------- ----------
Total 12,569,555 11,969,820 12,444,003 11,852,748
========== ========== ========== ==========
Net income per diluted
common share $.16 $.10 $.29 $.19
==== ==== ==== ====
Net income per basic
common share $.17 $.11 $.32 $.22
==== ==== ==== ====
<TABLE/>
17
17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 0 10,994
<SECURITIES> 0 23,327
<RECEIVABLES> 0 23,088
<ALLOWANCES> 0 (526)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 61,920
<PP&E> 0 6,263
<DEPRECIATION> 0 (2,985)
<TOTAL-ASSETS> 0 90,055
<CURRENT-LIABILITIES> 0 30,084
<BONDS> 0 0
0 0
0 0
<COMMON> 0 119
<OTHER-SE> 0 89,936
<TOTAL-LIABILITY-AND-EQUITY> 0 90,055
<SALES> 0 0
<TOTAL-REVENUES> 16,460 31,602
<CGS> 7,857 15,395
<TOTAL-COSTS> 7,857 15,395
<OTHER-EXPENSES> 5,940 11,353
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 3,340 6,136
<INCOME-TAX> (1,373) (2,521)
<INCOME-CONTINUING> 1,967 3,615
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,967 3,615
<EPS-PRIMARY> .17 .32
<EPS-DILUTED> .16 .29
</TABLE>
