**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

| **ý**                                                                                                                                                                                                                      | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**        |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                            |                                                                                                |
| **For  the Quarterly period ended March 31, 2003**                                                                                                                                                                              |
|                                                                                                                                                                                                                            |                                                                                                |
| **OR**                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                            |                                                                                                |
| **o**                                                                                                                                                                                                                           | **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 ofregistrant as specified in its charter)

 

| **Delaware**                                                     |   | **06-0971675**                     |
|------------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (IRS Employer  Identification No.) |
|                                                             |   |                               |
| **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 markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

Yes                            ý                                    No                                o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

 

Yes                            o                                    No                                ý

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date: The number of shares of the issuer’s common stock,$.01 par value per share, outstanding as of May 7, 2003 was 13,270,235.

 

 

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**META Group, Inc.**

 

**INDEX**

 
| **Part I**         |    | **FINANCIAL  INFORMATION**                                                                  |
|--------------------|---------|---------------------------------------------------------------------------------------------|
|               |    |                                                                                        |
|               | Item 1. | Financial Statements                                                                        |
|               |    |                                                                                        |
|               |    | Consolidated Balance Sheets:                                                                |
|               |    |                                                                                        | March 31, 2003 (unaudited) and December  31, 2002 |
|               |    |                                                                                        |
|               |    | Consolidated Statements of Operations  (unaudited)                                          |
|               |    |                                                                                        | Three months ended March 31, 2003 and 2002 |
|               |    |                                                                                        |
|               |    | Consolidated Statements of Cash Flows  (unaudited)                                          |
|               |    |                                                                                        | Three months ended March 31, 2003 and 2002 |
|               |    |                                                                                        |
|               |    | Notes  to Consolidated Financial Statements (unaudited)                                     |
|               |    |                                                                                        |
|               | Item 2. | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |
|               |    |                                                                                        |
|               | Item 3. | Quantitative and Qualitative Disclosures About  Market Risk                                 |
|               |    |                                                                                        |
|               | Item 4. | Controls and Procedures                                                                     |
|               |    |                                                                                        |
| **Part II**        |    | **OTHER  INFORMATION**                                                                      |
|               |    |                                                                                        |
|               | Item 6. | Exhibits and Reports on Form 8-K                                                            |
|               |    |                                                                                        |
| **Signature**      |
| **Certifications** |

 

----

 

**PART I****- FINANCIALINFORMATION**

**Item 1****.****           FinancialStatements**

 

**META Group, Inc.**

**CONSOLIDATEDBALANCE SHEETS**

**(in thousands)**

 
|                                                                                                            |   | **March 31,  2003** |   | **December  31,  2002** |   |
|-----------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|-------------------------|--------|
|                                                                                                            |   | **(unaudited)**     |   |                    |   |
| **Assets**                                                                                                      |   |                |   |                    |   |
| Current assets:                                                                                                 |   |                |   |                    |   |
| Cash and cash equivalents                                                                                       |   | $                   | 20,322 |                    | $      | 21,448 |   |
| Accounts  receivable, net                                                                                       |   | 29,435              |   | 33,676                  |   |
| Deferred  commissions                                                                                           |   | 2,082               |   | 1,221                   |   |
| Other  current assets                                                                                           |   | 1,639               |   | 3,880                   |   |
| Total current assets                                                                                            |   | 53,478              |   | 60,225                  |   |
|                                                                                                            |   |                |   |                    |   |
| Non-current  portion of accounts receivable                                                                     |   | 968                 |   | 4,584                   |   |
| Restricted  cash                                                                                                |   | 6,000               |   | —                  |   |
| Furniture  and equipment, net                                                                                   |   | 6,964               |   | 7,724                   |   |
| Goodwill                                                                                                        |   | 7,821               |   | 7,483                   |   |
| Other  intangibles, net                                                                                         |   | 4,414               |   | 4,630                   |   |
| Investments  and advances                                                                                       |   | 3,742               |   | 3,997                   |   |
| Other  assets                                                                                                   |   | 293                 |   | 321                     |   |
| Total  assets                                                                                                   |   | $                   | 83,680 |                    | $      | 88,964 |   |
|                                                                                                            |   |                |   |                    |   |
| **Liabilities  and Stockholders’ Equity**                                                                  |   |                |   |                    |   |
| Current  liabilities:                                                                                           |   |                |   |                    |   |
| Accounts  payable                                                                                               |   | $                   | 1,813  |                    | $      | 2,447 |   |
| Deferred  revenues                                                                                              |   | 46,100              |   | 43,791                  |   |
| Borrowings  under revolving credit agreement                                                                    |   | —              |   | 1,049                   |   |
| Current  portion of long-term debt                                                                              |   | —              |   | 5,111                   |   |
| Current  portion of notes payable                                                                               |   | 80                  |   | 335                     |   |
| Accrued  compensation                                                                                           |   | 2,823               |   | 2,283                   |   |
| Accrued  liabilities                                                                                            |   | 8,261               |   | 8,443                   |   |
| Income  taxes payable                                                                                           |   | 320                 |   | 497                     |   |
| Other  current liabilities                                                                                      |   | 2,898               |   | 3,130                   |   |
| Total  current liabilities                                                                                      |   | 62,295              |   | 67,086                  |   |
|                                                                                                            |   |                |   |                    |   |
| Long-term  portion of deferred revenues                                                                         |   | 5,253               |   | 6,008                   |   |
| Long-term  portion of notes payable                                                                             |   | 542                 |   | 589                     |   |
| Other  non-current liabilities                                                                                  |   | 1,932               |   | 1,969                   |   |
| Total  non-current liabilities                                                                                  |   | 7,727               |   | 8,566                   |   |
|                                                                                                            |   |                |   |                    |   |
| Total  liabilities                                                                                              |   | 70,022              |   | 75,652                  |   |
|                                                                                                            |   |                |   |                    |   |
| Minority  interest                                                                                              |   | 187                 |   | 96                      |   |
| Commitments  and contingencies                                                                                  |   |                |   |                    |   |
| Stockholders’  equity:                                                                                     |   |                |   |                    |   |
| Preferred  stock, $.01 par value per-share, authorized 2,000,000 shares; none issued                            |   | —              |   | —                  |   |
| Common  stock, $.01 par value per-share, authorized 45,000,000 shares, issued  13,908,456 and 13,886,612 shares |   | 139                 |   | 139                     |   |
| Paid-in  capital                                                                                                |   | 59,755              |   | 59,706                  |   |
| Accumulated  deficit                                                                                            |   | (45,781             | )      | (45,892                 | )      |
| Accumulated  other comprehensive loss                                                                           |   | (300                | )      | (395                    | )      |
| Treasury  stock, at cost, 657,016 shares                                                                        |   | (342                | )      | (342                    | )      |
| Total  stockholders’ equity                                                                                |   | 13,471              |   | 13,216                  |   |
| Total  liabilities and stockholders’ equity                                                                |   | $                   | 83,680 |                    | $      | 88,964 |   |

 

See notes toconsolidated financial statements.

 

3

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**META Group, Inc.**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(in thousands, except per-share data)**

(unaudited)

 
|                                                                      |   | **For the  three months ended  March 31,** |       |
|---------------------------------------------------------------------------|--------|--------------------------------------------|------------|
|                                                                      |   | **2003**                                   |       | **2002** |   |
|                                                                      |   |                                       | ** ** |   | ** ** |
| Revenues:                                                                 |   |                                       |       |   |   |
| Advisory  services                                                        |   | $                                          | 18,382     |   | $ | 18,650 |   |
| Strategic  consulting                                                     |   | 7,458                                      |       | 7,885 |   |
| Published  research products                                              |   | 1,814                                      |       | 1,823 |   |
| Reimbursable expenses                                                     |   | 519                                        |       | 542 |   |
|                                                                      |   |                                       |       |   |   |
| Total  revenues                                                           |   | 28,173                                     |       | 28,900 |   |
|                                                                      |   |                                       |       |   |   |
| Operating  expenses:                                                      |   |                                       |       |   |   |
| Cost  of services and fulfillment                                         |   | 14,230                                     |       | 14,945 |   |
| Reimbursable expenses                                                     |   | 519                                        |       | 542 |   |
| Selling  and marketing                                                    |   | 7,172                                      |       | 8,215 |   |
| General  and administrative                                               |   | 5,089                                      |       | 4,646 |   |
| Depreciation  and amortization                                            |   | 1,332                                      |       | 1,701 |   |
| Restructuring  charge                                                     |   | —                                     |       | 222 |   |
|                                                                      |   |                                       |       |   |   |
| Total  operating expenses                                                 |   | 28,342                                     |       | 30,271 |   |
|                                                                      |   |                                       |       |   |   |
| Operating  loss                                                           |   | (169                                       | )          | (1,371 | ) |
|                                                                      |   |                                       |       |   |   |
| Impairment  loss                                                          |   | —                                     |       | (225 | ) |
| Other  income, net                                                        |   | 350                                        |       | 47 |   |
|                                                                      |   |                                       |       |   |   |
| Income  (loss) before provision (benefit) for income taxes                |   | 181                                        |       | (1,549 | ) |
| Provision  (benefit) for income taxes                                     |   | 82                                         |       | (218 | ) |
| Minority  interest in (loss) income of consolidated subsidiary            |   | (12                                        | )          | 22 |   |
|                                                                      |   |                                       |       |   |   |
| Income  (loss) before cumulative effect of change in accounting principle |   | 111                                        |       | (1,353 | ) |
| Cumulative  effect of change in accounting principle                      |   | —                                     |       | (22,206 | ) |
| Net  income (loss)                                                        |   | $                                          | 111        |   | $ | (23,559 | ) |
|                                                                      |   |                                       |       |   |   |
| Amounts  per fully diluted common share:                                  |   |                                       |       |   |   |
| Income  (loss) before cumulative effect of change in accounting principle |   | $                                          | 0.01       |   | $ | (0.11 | ) |
| Cumulative  effect of change in accounting principle                      |   | —                                     |       | (1.73 | ) |
| Net  income (loss)                                                        |   | $                                          | 0.01       |   | $ | (1.84 | ) |
|                                                                      |   |                                       |       |   |   |
| Amounts  per basic common share:                                          |   |                                       |       |   |   |
| Income  (loss) before cumulative effect of change in accounting principle |   | $                                          | 0.01       |   | $ | (0.11 | ) |
| Cumulative  effect of change in accounting principle                      |   | —                                     |       | (1.73 | ) |
| Net  income (loss)                                                        |   | $                                          | 0.01       |   | $ | (1.84 | ) |
|                                                                      |   |                                       |       |   |   |
| Weighted  average number of basic shares outstanding                      |   | 13,243                                     |       | 12,803 |   |
| Weighted  average number of fully diluted   shares outstanding       |   | 13,664                                     |       | 12,803 |   |

 

See notes toconsolidated financial statements.

 

4

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**META Group, Inc.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(in thousands)**

(unaudited)

 
|                                                                                      |   | **For the  three months ended  March 31,** |   |
|-------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                                      |   | **2003**                                   |   | **2002** |   |
| **Operating  activities:**                                                                |   |                                       |   |   |   |
| Net  income (loss)                                                                        |   | $                                          | 111    |   | $ | (23,559 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by operating activities: |   |                                       |   |   |   |
| Cumulative  effect of change in accounting principle                                      |   | —                                     |   | 22,206 |   |
| Gain  on sale of investment                                                               |   | (315                                       | )      | — |   |
| Depreciation  and amortization                                                            |   | 1,332                                      |   | 1,701 |   |
| Impairment  loss                                                                          |   | —                                     |   | 225 |   |
| Minority  interest in income of consolidated subsidiary                                   |   | (12                                        | )      | 22 |   |
| Other  non-cash charges                                                                   |   | 248                                        |   | 114 |   |
| Deferred  income taxes                                                                    |   | —                                     |   | (455 | ) |
| Changes  in assets and liabilities:                                                       |   |                                       |   |   |   |
| Accounts  receivable                                                                      |   | 8,157                                      |   | 7,990 |   |
| Deferred  commissions                                                                     |   | (846                                       | )      | 296 |   |
| Other  current assets                                                                     |   | 2,135                                      |   | (666 | ) |
| Other  assets                                                                             |   | (5                                         | )      | (43 | ) |
| Accounts  payable                                                                         |   | (737                                       | )      | 1,496 |   |
| Accrued  liabilities                                                                      |   | (219                                       | )      | (5,186 | ) |
| Deferred  revenues                                                                        |   | 1,142                                      |   | 251 |   |
| Net  cash provided by operating activities                                                |   | 10,991                                     |   | 4,392 |   |
|                                                                                      |   |                                       |   |   |   |
| **Investing  activities:**                                                                |   |                                       |   |   |   |
| Capital  expenditures                                                                     |   | (276                                       | )      | (187 | ) |
| Proceeds  from sale of investment                                                         |   | 588                                        |   | — |   |
| Payments  for acquisitions, net of cash acquired                                          |   | —                                     |   | (314 | ) |
| Net  cash provided by (used in) investing activities                                      |   | 312                                        |   | (501 | ) |
|                                                                                      |   |                                       |   |   |   |
| **Financing  activities:**                                                                |   |                                       |   |   |   |
| Increase  in restricted cash                                                              |   | (6,000                                     | )      | — |   |
| Repayment  of line of credit                                                              |   | (1,049                                     | )      | (1,125 | ) |
| Repayment  of term loan                                                                   |   | (5,111                                     | )      | (724 | ) |
| Repayment  of notes payable                                                               |   | (369                                       | )      | — |   |
| Proceeds  from exercise of stock options                                                  |   | 51                                         |   | — |   |
| Net  cash used in financing activities                                                    |   | (12,478                                    | )      | (1,849 | ) |
| Effect  of exchange rate changes on cash:                                                 |   | 49                                         |   | 121 |   |
| Net  (decrease) increase in cash and cash equivalents                                     |   | (1,126                                     | )      | 2,163 |   |
| Cash  and cash equivalents, beginning of period                                           |   | 21,448                                     |   | 21,433 |   |
| Cash  and cash equivalents, end of period                                                 |   | $                                          | 20,322 |   | $ | 23,596 |   |

 

See notes to consolidated financial statements.

 

5

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**META Group, Inc.**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 1 - Interim Financial Statements**

 

The accompanyingunaudited consolidated financial statements include the accounts of META Group,Inc. (the “Company”) and its subsidiaries and have been prepared in accordancewith accounting principles generally accepted in the United States for interimfinancial reporting and with the instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include all ofthe information and notes required by accounting principles generally acceptedin the United States for complete financial statements. Certain prior yearamounts have been reclassified to conform to the current year presentation.

 

In the opinion ofmanagement, the accompanying unaudited consolidated financial statementscontain all adjustments (consisting of normal recurring items) necessary for afair presentation of results for the interim periods presented. The results ofoperations for any interim period are not necessarily indicative of results forthe full year. These financial statements and footnote disclosures should beread in conjunction with the December 31, 2002 audited consolidatedfinancial statements and the notes thereto included in the Company’sForm 10-K for the year ended December 31, 2002.

 

The preparation of thefinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the accompanying consolidatedfinancial statements and notes. Actual results could differ from those estimates.

 

###### **Note2 – Income Statement Classification of Reimbursements for Out-of-PocketExpenses Incurred**

 

During the quarter endedSeptember 30, 2002, the Company adopted EITF No. 01-14, *Income Statement Characterization of ReimbursementsReceived for “Out-of-Pocket” Expenses Incurred*. Reimbursements,including those relating to travel and out-of-pocket expenses and other similarthird party costs, are now included in revenues with an equivalent amount alsoincluded in operating expense for all periods presented.

 

## **Note 3 – Goodwill and OtherIntangible Assets**

 

Effective January 1,2002, the Company adopted Statement of Financial Accounting StandardsNo. 142, *Goodwill and Other IntangibleAssets*(“SFAS 142”). Under SFAS 142, goodwill and intangible assetsdeemed to have indefinite lives will no longer be amortized but will be subjectto impairment tests on an annual basis, or more frequently if certainindicators arise. Other intangible assets will continue to be amortized overtheir useful lives. During the quarter ended March 31, 2003, the remaininguseful lives of intangible assets being amortized were reviewed and deemed tobe appropriate.

 

The goodwill impairmenttest is a two-step process that requires goodwill to be allocated to thereporting units. In the first step, the fair value of the reporting unit iscompared to the carrying value of the reporting unit. If the fair value of thereporting unit is less than the carrying value of the reporting unit, agoodwill impairment may exist, and the second step of the test is performed. Inthe second step, the fair value of the goodwill is compared to the carryingvalue of the goodwill and an impairment loss will be recognized to the extentthat the carrying value of the goodwill exceeds the implied fair value of thegoodwill.

 

6

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The Company completed thesecond step of the impairment test as of September 30, 2002. As a result ofoperating losses in recent history of the Company’s Strategic Consulting andPublished Research Products segments and the overall decline in IT spendingthat began in the second half of 2000 and continued through 2002, the Companydetermined that the goodwill related to the Strategic Consulting and PublishedResearch Products segments was impaired. The respective fair values of thesegments were determined by an independent third party appraiser based onvaluation methods such as the discounted cash flow methodology, the guidelinecompany methodology and the merger and acquisition methodology. Accordingly,the Company recorded a goodwill charge of $22.2 million relating to thecarrying value of the goodwill of these segments as of January 1, 2002. Theimpairment charge was recorded as the cumulative effect of a change inaccounting principle and recorded retroactive to January 1, 2002.

 

In accordance with SFAS142, the Company has selected a date by which the annual impairment test willbe performed, such date being September 30.

 

A summary of theCompany’s intangible assets as of March 31, 2003 and December 31, 2002 is asfollows (amounts in thousands):

 
|                                             |   | **March 31, 2003**          |   |
|--------------------------------------------------|--------|-----------------------------|--------|
|                                             |   | **(unaudited)**             |   |
|                                             |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   | **Total** |   |
| Amortized  intangible assets:                    |   |                        |   |   |   |   |   |
| Customer  lists                                  |   | $                           | 4,542  |   | $ | (2,021 | ) | $ | 2,521 |   |
| Intellectual  property                           |   | 605                         |   | (252 | ) | 353 |   |
| Non-compete  agreement                           |   | 375                         |   | (226 | ) | 149 |   |
| Content  databases & other                   |   | 2,075                       |   | (684 | ) | 1,391 |   |
| Total                                            |   | $                           | 7,597  |   | $ | (3,183 | ) | $ | 4,414 |   |
|                                             |   |                        |   |   |   |   |   |
| Aggregate  amortization expense:                 |   |                        |   |   |   |   |   |
| Three  months ended March 31, 2003               |   |                        |   |   |   | $ | 307 |   |
|                                             |   |                        |   |   |   |   |   |
|                                             |   | **December 31, 2002**       |   |
|                                             |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   | **Total** |   |
| Amortized  intangible assets:                    |   |                        |   |   |   |   |   |
| Customer  lists                                  |   | $                           | 4,395  |   | $ | (1,750 | ) | $ | 2,645 |   |
| Intellectual  property                           |   | 561                         |   | (206 | ) | 355 |   |
| Non-compete  agreement                           |   | 375                         |   | (202 | ) | 173 |   |
| Content  databases & other                   |   | 2,068                       |   | (611 | ) | 1,457 |   |
| Total                                            |   | $                           | 7,399  |   | $ | (2,769 | ) | $ | 4,630 |   |
|                                             |   |                        |   |   |   |   |   |
| Aggregate  amortization expense:                 |   |                        |   |   |   |   |   |
| Twelve  months ended December 31, 2002           |   |                        |   |   |   | $ | 1,335 |   |
|                                             |   |                        |   |   |   |   |   |
| Estimated  amortization expense:                 |   |                        |   |   |   |   |   |
| Remaining  nine months ending December 31, 2003: |   | $                           | 917    |   |   |   |   |   |
| Year  ending December 31, 2004                   |   | 1,198                       |   |   |   |   |   |
| Year  ending December 31, 2005                   |   | 1,048                       |   |   |   |   |   |
| Year  ending December 31, 2006                   |   | 554                         |   |   |   |   |   |
| Year  ending December 31, 2007                   |   | 469                         |   |   |   |   |   |
| Year  ending December 31, 2008                   |   | 228                         |   |   |   |   |   |
| Total                                            |   | $                           | 4,414  |   |   |   |   |   |

 

 

7

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The changes in thecarrying amount of goodwill by reportable segment for the three months endedMarch 31, 2003 is as follows (in thousands):

 
|                           |   | **Advisory Services** |   | **Strategic  Consulting** |   | **Published  Research  Products** |   | **Total** |   |
|--------------------------------|--------|-----------------------|--------|---------------------------|--------|-----------------------------------|--------|-----------|--------|
|                           |   |                  |   |                      |   |                              |   |      |   |
| Balance  as of January 1, 2003 |   | $                     | 7,483  |                      | $      | —                            |   | $         | — |   | $ | 7,483 |   |
| Translation  adjustments       |   | 338                   |   | —                    |   | —                            |   | 338       |   |
| Balance  as of March 31, 2003  |   | $                     | 7,821  |                      | $      | —                            |   | $         | — |   | $ | 7,821 |   |

 

 

###### **Note4 – Comprehensive Income (Loss)**

 

Comprehensive income(loss) for the three months ended March 31, 2003 and 2002 was as follows (inthousands):

 
|                                     |   | **Three  months ended  March 31,** |   |
|------------------------------------------|--------|------------------------------------|--------|
|                                     |   | **(unaudited)**                    |   | **(unaudited)** |   |
|                                     |   | **2003**                           |   | **2002** |   |
|                                     |   |                               |   |   |   |
| Net  income (loss):                      |   | $                                  | 111    |   | $ | (23,559 | ) |
| Other  comprehensive income (loss):      |   |                               |   |   |   |
| Foreign  currency translation adjustment |   | 95                                 |   | 24 |   |
|                                     |   |                               |   |   |   |
| Comprehensive  income (loss)             |   | $                                  | 206    |   | $ | (23,535 | ) |

 

###### **Note5 – Segment Reporting**

 

The Company operates inthree business segments: Advisory Services, Strategic Consulting and PublishedResearch Products. The Company’s operating segments are managed separately,because each operating segment represents a strategic business unit thatgenerally offers distinct products or services. Advisory Services providecomprehensive coverage of relevant information technology and business-relatedissues faced by its clients through client/analyst interaction, publishedconclusions and recommendations to each client’s specific IT requirements.Strategic Consulting provides custom

 

8

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consulting servicestailored to meet individual client requirements. Published Research Productsoffer various topic-specific reports designed to serve both as complements tothe Company’s core services and as standalone deliverables that meet specificassessment requirements.

 

The accounting policiesof the operating segments are the same as those described in Note 4 to theCompany’s 2002 Annual Report on Form 10-K except that the disaggregatedfinancial results for the Company’s operating segments have been prepared usinga management approach, which is consistent with the basis and manner in whichthe Company’s management internally disaggregates financial information for thepurposes of assistance in making internal operating decisions. The Companyevaluates performance based on standalone segment operating income, defined bythe Company as the segment revenues less segment cost of sales and corporateselling, general and administrative allocations. Selling, general andadministrative expenses are allocated ratably based on each operating segments’revenues. Management does not allocate corporate assets, capital expenditures,non-operating income (interest income), or income taxes when measuring segmentresults.

 

Information by operatingsegment is set forth below (in thousands):

* *
|                                   |   | **Advisory  Services** |   | **Strategic  Consulting** |   | **Published  Research  Products** |   | **Unallocated** |   | **Consolidated  Total** |   |
|----------------------------------------|--------|------------------------|--------|---------------------------|--------|-----------------------------------|--------|-----------------|--------|-------------------------|--------|
| **Three  months ended March 31, 2003** |   |                   |   |                      |   |                              |   |            |   |                    |   |
|                                   |   |                   |   |                      |   |                              |   |            |   |                    |   |
| Revenues                               |   | $                      | 18,382 |                      | $      | 7,458                             |   | $               | 1,814  |                    | $      | 519 |   | $ | 28,173 |   |
| Operating  income (loss)               |   | 2,156                  |   | (2,832                    | )      | 507                               |   |            |   | (169                    | )      |
| Assets                                 |   |                   |   |                      |   |                              |   | 83,680          |   | 83,680                  |   |
|                                   |   |                   |   |                      |   |                              |   |            |   |                    |   |
| **Three  months ended March 31, 2002** |   |                   |   |                      |   |                              |   |            |   |                    |   |
|                                   |   |                   |   |                      |   |                              |   |            |   |                    |   |
| Revenues                               |   | $                      | 18,650 |                      | $      | 7,885                             |   | $               | 1,823  |                    | 542    |   | $ | 28,900 |   |
| Operating  income (loss)               |   | 1,708                  |   | (3,238                    | )      | 159                               |   |            |   | (1,371                  | )      |
| Assets                                 |   |                   |   |                      |   |                              |   | 128,477         |   | 128,477                 |   |
|                                        |        |                        |        |                           |        |                                   |        |                 |        |                         |        |  |  |  |  |  |

 

Revenues and operatingincome (loss) by geographic region is as follows:

 
|                                   |   | **Revenue** |   | **Operating  Income (loss)** |   |
|----------------------------------------|--------|-------------|--------|------------------------------|--------|
| **Three  months ended March 31, 2003** |   |        |   |                         |   |
|                                   |   |        |   |                         |   |
| Americas                               |   | $           | 22,234 |                         | $      | 2 |   |
| Asia-Pacific                           |   | 1,077       |   | (48                          | )      |
| Europe,  Middle East, Africa           |   | 4,862       |   | (123                         | )      |
| Consolidated  Total                    |   | $           | 28,173 |                         | $      | (169 | ) |
|                                   |   |        |   |                         |   |
| **Three  months ended March 31, 2002** |   |        |   |                         |   |
|                                   |   |        |   |                         |   |
| Americas                               |   | $           | 23,363 |                         | $      | (2,086 | ) |
| Asia-Pacific                           |   | 1,179       |   | 441                          |   |
| Europe,  Middle East, Africa           |   | 4,358       |   | 274                          |   |
| Consolidated  Total                    |   | $           | 28,900 |                         | $      | (1,371 | ) |

 

9

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###### **Note6 – Bank Debt**

 

As of December 31, 2002,the Company had $6.2 million ($5.2 million outstanding under the term loan and$1 million outstanding under the revolving facility) in borrowings outstandingunder its $20 million credit facility with its bank (the “Old Facility”). TheOld Facility had a borrowing base equal to 80% of the Company’s eligibleaccounts receivable. Interest was payable at the rate of LIBOR plus 2.5% or thehigher of the Prime Rate or the Federal Funds Rate plus 0.5%. The Old Facilitywas collateralized by the Company’s accounts receivable and required payment ofa commitment fee payable quarterly, in arrears, of 0.25% based on the average,daily, unused portion of the Revolving Facility. The Old Facility contained anumber of covenants that, among other things, restricted the ability of theCompany to incur additional indebtedness, pay dividends or other distributions,dispose of certain assets, enter into sale and leaseback transactions, createliens, make certain investments, acquisitions or mergers, and that otherwiserestrict corporate activities. In addition, the Company was required tomaintain certain financial covenants, including a leverage ratio covenant, afixed charge ratio covenant, a consolidated net income covenant and a minimumEBITDA covenant. The Company was not in compliance with these covenants as ofDecember 31, 2002. Under the terms of the Old Facility, each such covenantbreach constituted an event of default pursuant to which the Company’s bankmay, by notice to the Company, terminate the bank’s lending commitments to theCompany and declare all obligations of the Company under the facility due andpayable immediately. As the Company was in default under the Old Facility as ofDecember 31, 2002, all outstanding borrowings were classified as a currentliability on the consolidated balance sheet as of December 31, 2002. In January2003, the Company repaid all amounts outstanding under the Old Facility fromits cash on hand.

 

On March 12, 2003, theCompany received a waiver of all prior covenant defaults. Additionally on March12, 2003, the Company executed a new $6 million amended and restated creditagreement with its bank (the “Amended Facility”). The Amended Facility replacesthe Old Facility and consists of a $6 million revolving credit facility. Underthe Amended Facility, interest on any outstanding borrowings will be payable atthe rate of LIBOR plus 1.5% or the higher of the Prime Rate or the FederalFunds Rate plus 0.5%. The Amended Facility is fully collateralized by a $6 millioncash deposit with its bank. This amount is reflected as restricted cash on theCompany’s consolidated balance sheet as of March 31, 2003. The Amended Facilitycontains a number of covenants that, among other things, restricts the abilityof the Company to create liens, dispose of assets, and otherwise restrictscorporate activities. The Amended Facility matures in November 2004.  As of March 31, 2003, there was $0.9 millionused under the Amended Facility in the form of letters of credit issued on behalfof one of the Company's independent sales representative organizations and assecurity for a portion of the Company's Stamford, CT and Reston, VA premisesleases.  There were no borrowingsoutstanding as of March 31, 2003.

 

###### **Note7 – Stock-Based Compensation**

 

The Company has threeactive stock-based employee compensation plans, which are described more fullyin Note 13 to the Company’s 2002 Annual Report on Form 10-K. The Companyaccounts for those plans under the recognition and measurement principles ofAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees”, and related Interpretations. No stock-based employee compensationcost is reflected in net income (loss), as all options granted under thoseplans had an exercise price equal to the market value of the underlying commonstock on the date of grant. The following table illustrates the effect on netincome (loss) and earnings (loss) per share if the Company had applied the fairvalue recognition provisions of Statement of Financial Accounting Standards No.123, “Accounting for Stock-Based Compensation” to stock-based employeecompensation (in thousands, except per share data):

 

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|                                                                                                                            |   | **Three  Months Ended** |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                            |   | **(unaudited)**         |   |
|                                                                                                                            |   | **March 31,  2003**     |   | **March 31,  2002** |   |
|                                                                                                                            |   |                    |   |   |   |
| Reported  net income (loss)                                                                                                     |   | $                       | 111    |   | $ | (23,559 | ) |
| Deduct:  Total stock based employee compensation expense determined under fair value  based methods for all awards, net of tax: |   | (765                    | )      | (423 | ) |
| Pro  forma net loss                                                                                                             |   | $                       | (654   | ) | $ | (23,982 | ) |
|                                                                                                                            |   |                    |   |   |   |
| Net  income (loss) per share                                                                                                    |   |                    |   |   |   |
| Reported                                                                                                                        |   |                    |   |   |   |
| Basic                                                                                                                           |   | $                       | 0.01   |   | $ | (1.84 | ) |
| Diluted                                                                                                                         |   | $                       | 0.01   |   | $ | (1.84 | ) |
|                                                                                                                            |   |                    |   |   |   |
| Pro  forma                                                                                                                      |   |                    |   |   |   |
| Basic                                                                                                                           |   | $                       | (0.05  | ) | $ | (1.87 | ) |
| Diluted                                                                                                                         |   | $                       | (0.05  | ) | $ | (1.87 | ) |
|                                                                                                                                 |        |                         |        |  |  |  |  |  |  |

 

###### **Note8 – Impairment Loss**

 

During the quarter endedMarch 31, 2002, the Company recorded a $225,000 impairment loss on itsinvestment in Spikes Cavell & Co. (“Spikes Cavell”), a UK based businessthat went into receivership in September 1999. Spikes Cavell’s most significantasset was an earn-out due from a third party that purchased a portion of itsbusiness. The amount of the earn-out was calculated based on the third party’sfinancial results for the three years ended December 31, 2001 and wasultimately settled late in the first quarter of 2003. During 2002 andcontinuing through the quarter ended March 31, 2003, the Company helddiscussions with and obtained from Spikes Cavell’s liquidator updated financialinformation regarding the status of the claims filed in the liquidationproceeding and the estimated assets that the liquidator expected to receive onbehalf of Spikes Cavell. Based on those discussions and a review of theunderlying financial data provided by the liquidator, the Company adjusted itscarrying value down to the estimated amounts to be realized upon the finalliquidation of Spikes Cavell. This resulted in a $225,000 impairment lossduring the quarter ended March 31, 2002 and an additional loss of $150,000recognized during the quarter ended September 30, 2002. During the quarterended March 31, 2003, the Company received final proceeds of $588,000 andrecognized a gain of $315,000, which is included in other income, net, on theconsolidated statement of operations for the quarter ended March 31, 2003.

 

###### **Note9 – Restructuring charge**

 

In February 2002, theCompany announced a restructuring whereby it reduced its workforce by 43persons (representing 7% of the workforce at the time). As a result of therestructuring, the Company incurred a $222,000 restructuring charge during thequarter ended March 31, 2002 for severance payments made during the quarterended March 31, 2002.

 

###### **Note10 – Contingencies and Guarantees**

 

*Contingencies:*

 

Other than ordinaryroutine litigation incidental to the Company’s business, the Company is not a party,nor is any of its property subject to, any pending legal proceedings.

 

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*Lettersof Credit:*

 

As of March 31, 2003, theCompany had a $115,000 standby letter of credit (an “LC”) issued on behalf of oneof the Company’s independent sales representative organizations (the“Distributor”). The LC was issued as security against the borrowings of theDistributor and arose as a result of previous defaults on such borrowings. Anyfuture default by the Distributor may trigger the LC being called. The LC has asix month term and expires in June 2003.

 

*Commitments:*

 

As of March 31, 2003, theCompany has a liability for severance payments owed to the former ChiefExecutive Officer of the Company. The total liability is approximately $460,000and will be paid throughout 2003.

 

*Guarantees:*

 

As of March 31, 2003, theCompany has the following guarantees in place:

 

•                  In1998, the Company provided a corporate guarantee to the landlord of one of itscurrent sales representative organizations guaranteeing lease payments to thelandlord in an annual amount of 120,000 BPS (approximately $190,000). Anyfuture default on the lease by the sales representative organization maytrigger the guarantee being called. The guarantee expires in January 2013. Themaximum potential amount of future payments (undiscounted) the Company could berequired to make under the guarantee is approximately $1.9 million.

 

•                  InSeptember 2000 the Company provided a corporate guarantee in the amount of €62,000(approximately $66,000) guaranteeing lease payments to the landlord of one ofthe Company’s former independent sales representative organizations. In January2002, the landlord called the guarantee. The claim is currently beingnegotiated with the landlord. The Company is currently uncertain as to whenthis issue will be resolved. As of March 31, 2003, the Company had accrued forthis guarantee.

 

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**Item2****.**           **MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*Thediscussion and analysis below contains trend analysis and other forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933 andSection 21E of the Securities Exchange Act of 1934, which are subject to anumber of risks and uncertainties. These forward-looking statements aretypically denoted in this Quarterly Report on Form 10-Q by words such asanticipate, believe, could, estimate, expect, intend, may, plan, project,should or will and similar words (as well as other words or expressionsreferencing future events, conditions or circumstances). Actual results coulddiffer materially from those projected in the forward-looking statements as aresult of the risk factors, including the risk factors set forth below under“Certain Factors That May Affect Future Results.” This discussion should beread in conjunction with the consolidated financial statements and relatednotes for the periods specified. Further reference should be made to theCompany’s other filings with the Securities and Exchange Commission,principally the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2002.*

 

**Overview**

 

META Group, Inc. and itssubsidiaries, 1422722 Ontario Inc. (“META Group Canada”), The Sentry Group,Inc., META Group Australia Holdings PTY Limited (“META Group Australia”), METAGroup Singapore PTE Limited (“META Group Singapore”), Abundant Strategy SDN.BHD(“META Group Malaysia”), META Group France S.A. (“META Group France”), METAGroup AG (“META Germany”) and MG (Bermuda) Ltd. (collectively the “Company”) isa leading provider of information technology (“IT”) research, advisoryservices, and strategic consulting. The Company’s goal is to help clients bemore efficient, effective, and timely in their use of IT to achieve theirbusiness goals.

 

The Company has threeoperating business segments: Advisory Services, Strategic Consulting andPublished Research Products.  TheAdvisory Services segment provides annually renewable subscription services(focused on specific areas of IT, the special needs of the CIO and otherswithin the IT organization, or the distinct IT/business issues of specificindustry markets and the public sector), service analyst briefing engagements,and conferences. Supplementing these services are the Company’s Infusionprograms, which provide an important bridge between traditional AdvisoryServices that examine broader industry issues and Strategic Consulting whichdrills into specific projects for a given client. The Strategic Consultingsegment offers project consulting services that address clients’ business andtechnology challenges. A significant portion of Strategic Consulting clientsare also Advisory Services subscribers. The Published Research Products segmentincludes research reports and online resources which offer thorough marketresearch, practical executive/operational guides and in-depth IT productevaluations.

 

Advisory Servicesrevenues, which generally are annually renewable contracts and payable byclients in advance, constituted approximately 65.3% and 64.5% of the Company’stotal revenues for the quarters ended March 31, 2003 and 2002, respectively.Advisory Services revenues attributable to international clients are billed andcollected by the Company’s independent sales representative organizations andits wholly-owned subsidiaries in Canada, Australia, Singapore, Malaysia, Franceand Germany. The Company realizes Advisory Service revenues from theinternational sales representative organizations at rates of 40% - 75% ofamounts billed to those clients.

 

One measure of the volumeof the Company’s Advisory Services business is its annualized “Contract Value,”which the Company calculates as the aggregate annual value of retainersubscription services contracts in force at a given point in time, withoutregard to the remaining duration of such contracts. Previously, the Companycomputed Contract Value based on the annualized value of Advisory

 

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Services revenuerecognized from all Advisory Services contracts in effect at a given point intime. The previous year’s Contract Value has been recomputed using the newmethodology. Contract Value is not necessarily indicative of future AdvisoryServices revenues. Contract Value was $69 million at March 31, 2003 versus$71.7 million at March 31, 2002, a 3.7% decrease.

 

Revenues from StrategicConsulting engagements comprised approximately 26.5% and 27.3% of the Company’stotal revenues for the quarters ended March 31, 2003 and 2002, respectively.The majority of the Company’s Strategic Consulting clients consist of AdvisoryServices clients seeking additional advice tailored to their individual ITrequirements.

 

Revenues from PublishedResearch Products comprised approximately 6.4% and 6.3% of the Company’s totalrevenues for the quarters ended March 31, 2003 and 2002, respectively.

 

The Company’s operatingexpenses consist of cost of services and fulfillment, selling and marketingexpenses, general and administrative expenses and depreciation andamortization. Cost of services and fulfillment represents the costs associatedwith production and delivery of the Company’s products and services andincludes the costs of research, development, preparation of periodic reports,analyst telephone consultations, executive briefings and conferences, researchreports, consulting services, new product development, and all associatededitorial and support services. Selling and marketing expenses include thecosts of salaries, commissions, and related benefits for selling and marketingpersonnel as well as travel and promotion, and bad debt expense associated withaccounts and notes receivable. General and administrative expenses include thecosts of the finance and accounting departments, in addition to the legal,human resources, corporate IT and other administrative functions of theCompany.

 

**THREE MONTHS ENDED MARCH 31, 2003 AND2002**

 

REVENUES  Total revenues decreased****2.5% to $28.2 million in the quarter ended March 31, 2003 from$28.9 million in the quarter ended March 31, 2002.

 

Revenues from AdvisoryServices, which generally are derived from annually renewable contracts payableby clients in advance, decreased 1.4% to****$18.4 million in the quarter ended March31, 2003 from $18.7 million in the quarter ended March 31, 2002, and increasedas a percentage of total revenues to 65.3% from 64.5%. The decrease in revenuesfrom Advisory Services was principally due to decreased subscriptions to theCompany’s Advisory Services as a result of lower IT spending resulting fromgeneral economic conditions, as well as competitive pricing pressure in the ITindustry. As the Company recognizes subscription revenues ratably over theunderlying contract period, Advisory Services revenues were adversely impactedduring the quarter ended March 31, 2003 when compared to the quarter endedMarch 31, 2002 by the continued decrease in billings that began in the secondhalf of 2000. The decrease in Advisory Services revenues was partially offset byconference revenues during the quarter ended March 31, 2003 versus the sameperiod in the previous year due principally to the Company’s ability to securevendor sponsorships at the Company’s METAMorphosis events in the quarter endedMarch 31, 2003. Advisory Services revenues attributable to internationalclients increased 15.4% to $3.8 million in the quarter ended March 31, 2003from $3.3 million the quarter ended March 31, 2002, and increased as apercentage of Advisory Services revenue to 20.7% from 17.7%. The increase wasdue principally to increases in Advisory Services revenue in META Group Germanyand the Company’s independent sales representative organizations, coupled witha decrease in the Company’s domestic Advisory Services revenue. The Companycurrently expects decreases in IT spending and pricing pressure to continue toimpact its Advisory Service revenue for the foreseeable future.

 

Strategic Consultingrevenues, which is comprised of project consulting services that addressclients’ business and technology challenges, decreased 5.4% to $7.5 million inthe quarter ended March 31, 2003 from $7.9 million in the quarter ended March31, 2002, and decreased as a percentage of total

 

14

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revenues to 26.5% from27.3%. The decrease was principally due to a decrease in consulting revenue inthe US and Canada as a result of customer delays which did not allow theCompany to complete certain consulting engagements, the inability to replacecompleted consulting engagements with new engagements, and from competitivepricing pressure on the Company’s consulting practice. The decreases werepartially offset by increases in consulting revenue in Germany and France. TheCompany currently expects decreases in IT spending and pricing pressure tocontinue to impact its Strategic Consulting revenues for the foreseeablefuture.

 

Published ResearchProducts revenues, which result from the sale of products offering thoroughmarket research, practical executive/operational guides and in-depth IT productevaluations, remained constant at $1.8 million during the quarters ended March31, 2003 and 2002 and increased as a percentage of total revenues to 6.4% from6.3%. The Company experienced an increase in domestic Published ResearchProducts revenue due principally to the timing of the completion and deliveryof certain of the Company’s products in 2003 versus 2002. This increase wasoffset by a decrease in international Published Research Products revenuesduring the quarter ended March 31, 2003 versus the same period in the previousyear. The Company currently expects decreases in IT spending and pricingpressure to continue to impact its Published Research Products revenue for theforeseeable future.

 

COST OF SERVICES AND FULFILLMENT  Cost of services and fulfillment, includingreimbursable expenses, decreased 4.8% to $14.7 million in the quarter endedMarch 31, 2003 from $15.5 million in the quarter ended March 31, 2002 anddecreased as a percentage of total revenues to 52.4% from 53.6%. The decreasewas principally due to decreased payroll and payroll related costs (salaries,benefits and bonus expense) for analyst, consultant and fulfillment positionsas a result of the reductions in headcount that occurred in February 2002, andreduced travel expenses attributable to both the decrease in headcount andother cost control measures.

 

SELLING AND MARKETINGEXPENSES  Selling andmarketing expenses decreased 12.7% to $7.2 million in the quarter ended March31, 2003 from $8.2 million in the quarter ended March 31, 2002 and decreased asa percentage of total revenues to 25.5% from 28.4%. The decrease in selling andmarketing expenses was principally due to decreased commission expense as aresult of lower commissions paid to the Company’s sales personnel during 2002as a result of the decrease in sales that occurred during 2002 versus 2001. Asthe Company amortizes commission payments over the subscription period in whichthe related Advisory Services revenues are amortized to income, the Companyexperienced a decrease in commission expense during the quarter ended March 31,2003 versus the same period in the previous year.

 

GENERAL ANDADMINISTRATIVE EXPENSES General and administrative expenses increased 9.5% to $5.1 millionduring the quarter ended March 31, 2003 from $4.6 million in the quarter endedMarch 31, 2002, and increased as a percentage of total revenues to 18.1% from16.1%. The increase in general and administrative expenses was due principallyto increased salary and benefits expenses as a result of additional managementpersonnel put in place during the second half of 2002 across several geographicregions in order to increase local management oversight in the regions.

 

DEPRECIATION ANDAMORTIZATION Depreciation and amortization expense decreased 21.7% to $1.3 millionduring the quarter ended March 31, 2003 from $1.7 million in the quarter endedMarch 31, 2002 and decreased as a percentage of total revenues to 4.7% from5.9%. The decrease was principally due to lower depreciation expense as aresult of the decrease in capital expenditures that occurred during 2001 and2002.

 

RESTRUCTURING CHARGE  In February 2002,  the Company announced a restructuring whereby it reduced itsworkforce by 43 persons (representing 7% of the workforce at the time). As aresult of the restructuring, the Company incurred a $222,000 restructuringcharge during the quarter ended March 31, 2002 for severance payments madeduring the quarter ended March 31, 2002. There were no restructuring charges duringthe quarter ended March 31, 2003.

 

15

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IMPAIRMENT LOSS  During the quarter ended March 31, 2002, theCompany recorded a $225,000 impairment loss on its investment in Spikes Cavell& Co. (“Spikes Cavell”), a UK based business that went into receivership inSeptember 1999. Spikes Cavell’s most significant asset was an earn-out due froma third party that purchased a portion of its business. The amount of theearn-out was calculated based on the third party’s financial results for thethree years ended December 31, 2001. During the quarter ended March 31, 2002,the Company held discussions with and obtained from Spikes Cavell’s liquidatorupdated financial information regarding the status of the claims filed in theliquidation proceeding and the estimated assets that the liquidator expected toreceive on behalf of Spikes Cavell. Based on those discussions and a review ofthe underlying financial data provided by the liquidator, the Company adjustedits carrying value down to the estimated amounts to be realized upon the finalliquidation of Spikes Cavell. This resulted in a $225,000 impairment loss.There was no impairment loss during the quarter ended March 31, 2003.

 

OTHER INCOME, NET  Other income, net, increased to $350,000during the quarter ended March 31, 2003 from $47,000 during the quarter endedMarch 31, 2002. The increase is principally due to a $315,000 gain recognizedon the final settlement of the Company’s investment in Spikes Cavell. See Note 9to the consolidated financial statements.

 

PROVISION FORINCOME TAXES   During the quarter ended March 31,2003, the Company recorded a provision for income taxes of $82,000 versus anincome tax benefit of $218,000 during the quarter ended March 31, 2002.

 

LIQUIDITY AND CAPITALRESOURCES

 

The Company funds itsoperations primarily through cash generated from operations, and, to a lesserextent, from borrowings under its credit facility and from the sale of itscommon stock. The Company generated approximately $11 million of cash fromoperations during the three months ended March 31, 2003, compared to $4.4million of cash generated from operations in the same period of 2002. Theincrease in cash generated from operations was principally due to decreases inbonuses paid during the quarter ended March 31, 2003 versus the quarter endedMarch 31, 2002, improved operating results, decreases in other current assets,and, to a lesser extent, from cash collections on outstanding accountsreceivable. Such decreases were partially offset by a decrease in the Company’saccounts payable balances at March 31, 2003 versus March 31, 2002.

 

The Company used $0.3million of cash in the three months ended March 31, 2003, compared to $0.2million in the same period of 2002, for capital expenditures consisting offurniture, equipment, computers and related software and Web siteinfrastructure. The purchases that were made during the quarter ended March 31,2003 were made principally to support the Company’s Web site and network infrastructure.The Company currently expects that additional purchases of equipment will bemade during 2003 and that such expenditures will remain approximately the samewhen compared to the 2002 levels. The Company has no material commitments forcapital expenditures; however, the Company anticipates that it will continue toupgrade its internal systems to support its business.

 

During the quarter endedMarch 31, 2002, the Company recorded a $225,000 impairment loss on itsinvestment in Spikes Cavell & Co. (“Spikes Cavell”), a UK based businessthat went into receivership in September 1999. Spikes Cavell’s most significantasset was an earn-out due from a third party that purchased a portion of itsbusiness. During 2002 and continuing through the quarter ended March 31, 2003,the Company held discussions with and obtained from Spikes Cavell’s liquidatorupdated financial information regarding the status of the claims filed in theliquidation proceeding and the estimated assets that the liquidator expected toreceive on behalf of Spikes Cavell. During the quarter ended March 31, 2003,the Company received final

 

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proceeds of $588,000 andrecognized a gain of $315,000, which is included in other income, net, on theconsolidated statement of operations for the quarter ended March 31, 2003.

 

As of December 31, 2002,the Company had $6.2 million ($5.2 million outstanding under the term loan and$1 million outstanding under the revolving facility) in borrowings outstandingunder its $20 million credit facility with its bank (the “Old Facility”). TheOld Facility had a borrowing base equal to 80% of the Company’s eligibleaccounts receivable. Interest was payable at the rate of LIBOR plus 2.5% or thehigher of the Prime Rate or the Federal Funds Rate plus 0.5%. The Old Facilitywas collateralized by the Company’s accounts receivable and required payment ofa commitment fee payable quarterly, in arrears, of 0.25% based on the average,daily, unused portion of the Revolving Facility. The Old Facility contained anumber of covenants that, among other things, restricted the ability of theCompany to incur additional indebtedness, pay dividends or other distributions,dispose of certain assets, enter into sale and leaseback transactions, createliens, make certain investments, acquisitions or mergers, and that otherwiserestrict corporate activities. In addition, the Company was required tomaintain certain financial covenants, including a leverage ratio covenant, afixed charge ratio covenant, a consolidated net income covenant and a minimumEBITDA covenant. The Company was not in compliance with these covenants as ofDecember 31, 2002. Under the terms of the Old Facility, each such covenantbreach constituted an event of default pursuant to which the Company’s bankmay, by notice to the Company, terminate the bank’s lending commitments to theCompany and declare all obligations of the Company under the facility due andpayable immediately. As the Company was in default under the Old Facility as ofDecember 31, 2002, all outstanding borrowings were classified as a currentliability on the consolidated balance sheet as of December 31, 2002. In January2003, the Company repaid all amounts outstanding under the Old Facility fromits cash on hand.

 

On March 12, 2003, theCompany received a waiver of all prior covenant defaults. Additionally on March12, 2003, the Company executed a new $6 million amended and restated creditagreement with its bank (the “Amended Facility”). The Amended Facility replacesthe Old Facility and consists of a $6 million revolving credit facility. Underthe Amended Facility, interest on any outstanding borrowings will be payable atthe rate of LIBOR plus 1.5% or the higher of the Prime Rate or the FederalFunds Rate plus 0.5%. The Amended Facility is fully collateralized by a $6million cash deposit with its bank. This amount is reflected as restricted cashon the Company’s consolidated balance sheet as of March 31, 2003. The AmendedFacility contains a number of covenants that, among other things, restricts theability of the Company to create liens, dispose of assets, and otherwiserestricts corporate activities. The Amended Facility matures in November2004.  As of March 31, 2003, there was$0.9 million used under the Amended Facility in the form of letters of creditissued on behalf of one of the Company's independent sales representativeorganizations and as security for a portion of the Company's Stamford, CT andReston, VA premises leases.  There wereno borrowings outstanding as of March 31, 2003.

 

During the quarter endedMarch 31, 2003, the Company paid $368,000 in satisfaction of the terms of notespayable held by certain former shareholders of META Group Germany. The noteswere acquired when the Company acquired the remaining interest in META GroupGermany in September 2002. As of March 31, 2003, $622,000 remains payable underthe notes, which are payable through January 2006.

 

During the quarter endedMarch 31, 2002, the Company paid $0.4 million in cash to The Verity Group(“Verity”), an IT consulting company, as additional contingent considerationearned during the year ended December 31, 2001. The consideration was recordedas additional goodwill. There are no additional contingent considerationpayments remaining under the terms of the Verity purchase agreement.

 

As of March 31, 2003, theCompany had a $115,000 standby letter of credit (an “LC”) issued on behalf ofone of the Company’s independent sales representative organizations (the“Distributor”). The LC was issued as security against the borrowings of theDistributor and arose as a result of previous defaults on such borrowings. Anyfuture default by the Distributor may trigger the LC being called. The LC

 

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has a six month term andexpires in June 2003.

 

As of March 31, 2003, theCompany has the following guarantees in place:

 

•                  In1998, the Company provided a corporate guarantee to the landlord of one of itscurrent sales representative organizations guaranteeing lease payments to thelandlord in an annual amount of 120,000 BPS (approximately $190,000). Anyfuture default on the lease by the sales representative organization maytrigger the guarantee being called. The guarantee expires in January 2013. Themaximum potential amount of future payments (undiscounted) the Company could berequired to make under the guarantee are approximately $1.9 million.

 

•                  InSeptember 2000 the Company provided a corporate guarantee in the amount of€62,000 (approximately $66,000) guaranteeing lease payments to the landlord ofone of the Company’s former independent sales representative organizations. InJanuary 2002, the landlord called the guarantee. The claim is currently beingnegotiated with the landlord. The Company is currently uncertain as to whenthis issue will be resolved.

 

As of March 31, 2003, theCompany has a liability for severance payments owed to the former ChiefExecutive Officer of the Company. The total liability is approximately $460,000and will be paid throughout 2003.

 

In 2001 META GroupGermany acquired a minority equity interest in META Group Northern Europe inthe form of an equity investment and a 3-year promissory note. In 2001, METAGroup Northern Europe entered into an agreement with one of the Company’sindependent sales representative organizations, META Group Norway, to purchasea majority interest in META Group Norway for total consideration of $1.4million.

 

As of March 31, 2003,approximately $780,000 in consideration remains outstanding for the purchase ofa majority interest in META Group Norway. The Company currently anticipatesthat it will fund the remaining outstanding consideration in the first half of2003.

 

In February 2002, theCompany announced a strategic reorganization to align the Company’s resourceswith current market demand and to better position the Company forprofitability. As part of the reorganization, the Company reduced its workforceby 43 persons (representing 7% of the workforce at the time). The Companyincurred a $222,000 restructuring charge during the quarter ended March 31,2002 for severance payments made during the quarter ended March 31, 2002. Therewere no restructuring charges during the quarter ended March 31, 2003.

 

As of March 31, 2003, theCompany had cash and cash equivalents of $20.3 million, restricted cash of $6million, and negative working capital of $8.8 million. The increase in theCompany’s cash balances (including restricted cash) during the quarter endedMarch 31, 2003 is due principally to collections of its accounts receivable andincreases in deferred revenues, and, to a lesser extent, as a result ofcost-containment measures including, but not limited to, management ofdiscretionary expenditures and employee expense policies. These increases werepartially offset by the repayment of all outstanding borrowings under itscredit facility and payments against outstanding notes payable.

 

The Company generated netincome of $0.1 million for the quarter ended March 31, 2003, and a loss beforethe cumulative effect of a change in accounting principle of $1.4 million forthe quarter ended March 31, 2002. To maintain profitability, the Company willneed to, among other things, achieve revenue growth and/or maintain expensesbelow revenue levels. The Company cannot be certain whether, or when, any ofthese will occur. If the Company fails to either achieve sufficient revenuegrowth or maintain expenses below revenue levels, any such failure will likelyresult in continued losses that would have a material adverse effect on theCompany’s financial results and condition.

 

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The Company currentlybelieves existing cash balances, anticipated cash flows from operations andborrowings under its credit facility will be sufficient to meet its workingcapital, capital expenditure and credit facility payment requirements for thenext 12 months. The Company currently intends to continue its efforts tomonitor its accounts receivable collections and manage expenses. The Companyalso currently believes that decreases in and delays of IT spending as a resultof general economic conditions and competitive pricing pressure are likely tocontinue to negatively impact its business for the foreseeable future.

 

The following summarizesthe Company’s contractual obligations and other commitments as of March 31,2003 and the effect such obligations are currently expected to have on itsliquidity and cash flow in future periods (in thousands):

 
|                                                |   | **Twelve  Months Ending December 31,** |   |
|-----------------------------------------------------|--------|----------------------------------------|--------|
|                                                |   | **2003 (1)**                           |   | **2004** |   | **2005** |   | **2006** |   | **2007** |   | **Thereafter** |   |
| Operating  leases                                   |   | $                                      | 4,487  |   | $ | 5,591 |   | $ | 4,823 |   | $ | 4,326 |   | $ | 4,466 |   | $ | 2,334 |   |
| Payments  due under employment/severance agreements |   | 563                                    |   | 233 |   |   |   |   |   |   |   |   |   |
| Notes  payable                                      |   |                                   |   | 348 |   | 248 |   | 26 |   |   |   |   |   |
|                                                |   | $                                      | 5,050  |   | $ | 6,172 |   | $ | 5,071 |   | $ | 4,352 |   | $ | 4,466 |   | $ | 2,334 |   |

 

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(1)Represents nine months ending December 31, 2003

 

**Critical Accounting Policies**

 

Our significantaccounting policies are described in Note 4 to our consolidated financialstatements included in our Annual Report on Form 10-K for the year endedDecember 31, 2002, filed with the SEC on March 28, 2003. However, certain ofour accounting policies are particularly important to the portrayal of ourfinancial position and results of operations and may require the application ofsignificant judgment by our management; as a result they are subject to aninherent degree of uncertainty. In applying those policies, our management usesits judgment to determine the appropriate assumptions to be used in thedetermination of certain estimates. Those estimates are based on our historicalexperience, our observance of trends in the industry, information provided byour customers and information available from other outside sources, asappropriate. Our critical accounting policies include:

 

•             Revenue Recognition – Revenues from ourAdvisory Services are recognized on a straight-line basis over the subscriptioncontract period, generally one year. All subscription contracts are billable atsigning, absent special terms granted on a limited basis from time to time. Assuch, our policy is to record at the time of signing of an Advisory Servicessubscription contract the fees receivable and related deferred revenues for thefull amount of the subscription contract. Accounts receivable and deferredrevenues that extend beyond a 12-month period have been classified on theconsolidated balance sheets as non-current. We also record the related salescommission obligation upon the signing of the subscription contract andamortize the corresponding deferred commission expense over the subscriptionperiod in which the related Advisory Services revenues are earned and amortizedto income. We recognize revenue on Strategic Consulting engagements as the workis performed and the services are rendered utilizing the percentage ofcompletion method or based on time and materials on a contract by contractbasis. Revenues from Published Research Products are recognized at the time theapplicable product is  delivered.Additionally, we record reductions to revenue for estimated customercancellations.

 

•             AccountsReceivable Allowance – Wegenerally evaluate our accounts receivable on a monthly

 

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basis. As part of our analysis, we examine our collections history, theage of the receivables in question, any specific customer collection issuesthat we have identified, and general market conditions. At March 31, 2003 and2002, our total accounts receivable balance was $30.4 million and $33.6million, respectively. Based upon our analysis of estimated recoveries andcollections associated with the receivables balances, we have $2.3 million and$2.4 million of accounts receivable reserves at March 31, 2003 and 2002,respectively. The determination of the amount of the accounts receivablereserves is subject to significant levels of judgment and estimation by ourmanagement. If circumstances change or economic conditions deteriorate, we mayneed to increase the reserve.

 

•             Investment Recoverability – We follow apractice to review our individual investments for impairment on a quarterlybasis. This review includes the examination of the estimated market value ofeach specific investment using peer group market comparables of public companies.Additionally, we review the business climate of each investee, its historicalfinancial results, its projected cash flow, its plans for the future and thelikelihood of achieving such plans. Based on such review, a determination ismade on a case-by-case basis as to whether an investment is deemed to bepermanently impaired and therefore requires an adjustment to the carryingvalue. As a result of our review, there were no provisions for impairment inthe quarter ended March 31, 2003. For the quarter ended March 31, 2002, werecorded a $225,000 impairment loss on our investment in Spikes Cavell. We willcontinue to evaluate our investments for impairment every quarter, and based onour review, may record additional impairment losses should the facts and circumstancesin existence at that time merit such an adjustment.

 

•             Deferred Tax Asset Recoverability – Duringthe year ended December 31, 2002, we recorded a full valuation allowanceagainst our deferred tax assets as a result of our losses over the recenthistory. We considered future taxable income versus the cumulative lossesincurred during the previous three years and determined that, in light of thecumulative losses over our recent history, we could not support a conclusionthat realization of the existing deferred tax assets was more likely than not.During the quarter ended March 31, 2003, there was no change in in thecircumstances described above. Should we determine that we would be able torealize our deferred tax assets in the future, an adjustment will be made tothe balance of the valuation allowance.

 

•             Goodwill Impairment - EffectiveJanuary 1, 2002, we adopted Statement of Financial Accounting StandardsNo. 142, *Goodwill and Other IntangibleAssets*(“SFAS 142”). SFAS 142 provides guidance on the financialaccounting and reporting for acquired goodwill and other intangible assets.Under SFAS 142, goodwill and intangible assets deemed to have indefinite liveswill no longer be amortized but will be subject to impairment tests on anannual basis, or more frequently if certain indicators arise. Intangible assetswith finite lives will continue to be amortized over their useful lives.

 

With respect to ourintangible assets with finite lives, during the quarter ended March 31, 2003,we assessed the remaining useful lives of such assets and deemed them to beappropriate.

 

With respect to ourgoodwill recorded as of January 1, 2002, we completed the implementation of FAS142 as of September 30, 2002. Based on the completion of the test, it was determinedthat the goodwill associated with our Strategic Consulting and PublishedResearch Products segments were impaired as of January 1, 2002. Accordingly, werecorded a goodwill charge of $22.2 million relating to the carrying value ofthe goodwill of these segments as of January 1, 2002. The impairment charge wasrecorded as the cumulative effect of a change in accounting principle andrecorded retroactive to January 1, 2002.

 

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As of March 31, 2003, wehave on our consolidated balance sheet goodwill of $7.8 million associated withthe Advisory Services segment. In accordance with SFAS 142, we have selected adate by which the annual impairment test will be performed, such date beingSeptember 30. We will test this goodwill more frequently if certain indicatorsarise.

 

**CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS**

 

From time to time,information provided by the Company or statements made by its employees maycontain “forward-looking” statements. In particular, this Form 10-Q contains forward-looking statements madepursuant to the safe harbor provisions of the Private Securities LitigationReform Act of 1995.  Suchforward-looking statements include statements concerning:

 

•             information technology spending;

•             general economic conditions;

•             competitive pricing pressure

•             anticipated expense levels relative to theCompany’s total revenues

•             working capital;

•             capital expenditures and capitalrequirements;

•             cash flows and cash balances;

 

Forward-looking statementsalso include statements that are not historical facts or statements using wordssuch as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”,“likely”, “may”, “opportunity”, “plan”, “potential”, “project”, “should” or“will”.

 

Forward-lookingstatements are neither promises nor guarantees, but involve risks anduncertainties that could have a material adverse effect on the Company’sbusiness, results of operations and financial condition or cause actual resultsto differ materially from those set forth in the forward-lookingstatements.  These risks anduncertainties include:

 

•             the Company’s ability to manage expenselevels;

•             general economic conditions;

•             decreases and delays in informationtechnology spending;

•             product pricing limiting the potentialmarket for the Company’s Advisory Services, Strategic Consulting services andPublished Research products;

•             the level and timing of subscriptionrenewals to the Company’s Research and Advisory services;

•             the level and timing of non-recurringStrategic Consulting engagements;

•             the level and timing of production anddelivery of Published Research products;

•             market acceptance of and demand for theCompany’s products and services and the timing thereof, both domestically andinternationally;

•             the Company’s ability to increase itspenetration of existing customers and expand to additional customers;

•             the Company’s ability to deliverconsistent, high-quality and timely analysis and advice to its clients;

•             the Company’s ability to recruit, retainand develop research analysts, consultants, management and administrativestaff;

•             the Company’s ability to anticipatechanging market needs;

•             fluctuations in the Company’s operatingresults

•             changes in competitive conditions in theCompany’s industry;

•             the integration of new businesses into theCompany’s operations;

 

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•             the Company’s ability to manage and fundits international operations;

•             the Company’s ability to find distributorsfor its products and services internationally;

•             political and social turmoil in foreignmarkets and other international risks;

•             goodwill and any impairment thereof;

•             strategic investments and any impairmentthereof;

•             volatility and unpredictability of theCompany’s stock price; and

•             other risks detailed in the Company’sfilings with the Securities and Exchange Commission, including those discussedin the Company’s annual report on Form 10-K for the year ended December 31,2002.

 

Readers are cautioned notto place undue reliance on these forward-looking statements, which speak onlyas of the date the statements were made. Readers are also advised to consider such forward-looking statements inlight of the risks and uncertainties discussed above.  The Company undertakes no obligation to update anyforward-looking statements contained in the Quarterly Report on Form 10-Q.

 

**Item 3****.**                       **QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

The Company’s exposure tomarket risk for changes in interest rates relates primarily to borrowings underits $6 million amended and restated credit facility. As of March 31, 2003,there were no borrowings outstanding under this facility. In the event theCompany draws on the facility, interest is computed on outstanding borrowings atthe rate of LIBOR plus 1.5% or the higher of the Prime Rate or the FederalFunds Rate plus 0.5%. The Company believes that an increase or a decrease often percent in the effective interest rate on available borrowings on itsfacility, if fully utilized, would not have a material effect on future resultsof operations.

 

The Company is exposed tomarket risk as it relates to changes in the market value of its strategicinvestments. The Company made investments in and advances to companies inparallel or synergistic industries to that of the Company’s. During the quarterended March 31, 2002, the Company recorded $0.2 million impairment losses onits investment in Spikes Cavell. There were no impairment losses recognizedduring the quarter ended March 31, 2003. As of March 31, 2003, the Company hadinvestments and advances totaling $3.7 million. These investments and advancesare inherently risky because the investee companies are private companies thatare typically in the early development stages. Adverse changes in marketconditions, like those experienced during the latter half of the year endedDecember 31, 2000 through March 2003, and poor operating results of theunderlying investments may result in the Company incurring additional losses oran inability to recover the remaining value of its investments and advances.

 

The Company is exposed tomarket risk as it relates to foreign currency exchange rates. Revenues andexpenses in foreign currencies translate into higher or lower revenues andexpenses in U.S. dollars as the U.S. dollar weakens or strengthens againstforeign currencies. Changes in foreign currency exchange rates may thereforenegatively affect the Company’s consolidated revenues and expenses. Currencytransaction gains or losses arising from transactions in currencies other thanthe functional currency of the Company’s foreign subsidiaries are included inthe results of operations. Such gains and losses were not material to theCompany’s consolidated results of operations during the quarters ended March31, 2003 and 2002. The Company has not entered into foreign currency forwardexchange contracts or other derivative financial instruments to hedge theeffects of adverse fluctuations in foreign currency exchange rates.

 

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**Item 4****.**                       **CONTROLS AND PROCEDURES**

 

The Company evaluated thedesign and operation of its disclosure controls and procedures to determinewhether they are effective in ensuring that the disclosure of requiredinformation is timely made in accordance with the Exchange Act and the rulesand forms of the Securities and Exchange Commission. This evaluation was madeunder the supervision and with the participation of management, including theCompany’s principal executive officer and principal financial officer withinthe 90-day period prior to the filing of this Quarterly Report onForm 10-Q. Although the Company believes its pre-existing disclosurecontrols and procedures were adequate to enable it to comply with itsdisclosure obligations, as a result of such review, the Company implementedminor changes, primarily to formalize and document procedures already in place.The Company also established a disclosure committee, which consists of certainmembers of the Company’s senior management. The Company’s disclosure controlsand procedures, as defined at Exchange Act Rules 13a-14(c) and 15d-14(c),are effective to ensure that information required to be disclosed by theCompany in reports that it files under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in Securities andExchange Commission rules and forms.

 

## ***Changes in Internal Controls***

 

There have been nosignificant changes in the Company’s internal controls or other factors thatcould significantly affect internal controls subsequent to the date the Companycarried out this evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 

**PART II****- OTHER INFORMATION**

 

Item6.             Exhibitsand Reports on Form 8-K.

 

(a)                                  Exhibits.

 
| **Exhibit  Number** |   | **Description**                                                          |
|---------------------|--------|--------------------------------------------------------------------------|
|                |   |                                                                     |
| 3.1(1)              |   | Amended and Restated  Certificate of Incorporation of the Company        |
| 3.2                 |   | Amended and Restated  Bylaws of the Company (as of May 1, 2003)          |
| 11.1                |   | Statement regarding  computation of per-share earnings                   |
| 99.1                |   | Certification pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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(1) Incorporatedherein by reference to the exhibits to the Company’s Registration Statement onForm S-1 (File No. 33-97848).

 

(b)                                 Reportson Form 8-K.

 

There were no reports onForm 8-K filed during the quarter ended March 31, 2003.

 

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**SIGNATURE**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Company has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   |         | **META Group, Inc.** |
|--------|--------------|----------------------|
|   |         |                 |   |
|   |         |                 |   |
| Date:  | May 15, 2003 | By:                  | /s/ John A. Piontkowski |
|   |         |                 | John A. Piontkowski |
|   |         |                 | Executive Vice  President, Chief Financial Officer, Treasurer and Secretary |
|   |         |                 | (Principal Financial  and Accounting Officer) |
|        |              |                      |  |  |

 

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**CERTIFICATIONS**

 

I, Alfred J. Amoroso,certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of META Group, Inc.;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)              designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)             evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)              presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)              allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b)             anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

Date:

May 15, 2003

 

 
| /s/ Alfred J. Amoroso                                                |   |
|----------------------------------------------------------------------|--------|
| Chief Executive Officer  and President (Principal Executive Officer) |

 

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**CERTIFICATIONS**

 

I, John A. Piontkowski,certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of META Group, Inc.;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)              designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)             evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)              presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)              allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b)             anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officer and I have indicated in this quarterly reportwhether or not there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 

Date:

May 15, 2003

 

 
| /s/ John A. Piontkowski                                |   |
|--------------------------------------------------------|--------|
| Executive Vice  President and                          |
| Chief Financial Officer  (Principal Financial Officer) |

 

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