**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549**

 

**FORM 10-Q/A**

**Amendment No.1**

 

| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                 |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                        |
|       |       | **For the Quarterly period ended  September 30, 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 of registrant as specified in itscharter)

 

| **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)      |

 

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Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes         ý            No           o

 

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

 

Yes         o            No           ý

 

The number of shares of the registrant’s common stock, $.01 par valueper share, outstanding as of November 6, 2003 was 13,370,877.

 

 

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**EXPLANATORY NOTE**

 

We are filingthis Amendment No. 1 on Form 10-Q/A to correct mathematical errors within thegeographic segment data in Footnote No. 5 to reconcile the nine months endedSeptember 30, 2003 and September 30, 2002 to the six months ended June 30, 2003and June 30, 2002 and the quarters ended September 30, 2003 and September 30,2002. The Company evaluates the results of its geographic segments excludingintercompany royalty income and expense. We are not restating our consolidatedbalance sheets, consolidated statements of operations, or consolidated statementsof cash flows. The Company is not restating Item 2 – Management’s Discussionand Analysis of Financial Condition and Results of Operations, as it is notimpacted by these changes. Accordingly, we are only filing amended Items 1 and6 in their entirety with this amendment. Unless otherwise stated, allinformation contained in this amendment is as of November 14, 2003, the filingdate of our Quarterly Report on Form 10-Q for the fiscal year ended September30, 2003.

 

2

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**META Group, Inc.**

 

**INDEX**

 
| **Part I**  **FINANCIAL INFORMATION** |                                                                                               |
|--------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                       |                                                                                               |   |
| Item 1.                                    | Financial Statements (Unaudited)                                                                   |   |
|                                       |                                                                                               |   |
|                                       | Consolidated Balance Sheets:September 30, 2003 and  December 31, 2002                    |   |
|                                       |                                                                                               |   |
|                                       | Consolidated Statements of OperationsThree and nine  months ended September 30, 2003 and 2002 |   |
|                                       |                                                                                               |   |
|                                       | Consolidated Statements of Cash FlowsNine months ended  September 30, 2003 and 2002           |   |
|                                       |                                                                                               |   |
|                                       | Notes to Consolidated Financial Statements                                                         |   |
|                                       |                                                                                               |   |
| **Part II**                                | **OTHER INFORMATION**                                                                              |   |
|                                       |                                                                                               |   |
| Item 6.                                    | Exhibits and Reports on Form 8-K                                                                   |   |
|                                       |                                                                                               |   |
| **Signature**                              |                                                                                               |

 

 

3

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**PART I -FINANCIAL INFORMATION**

**Item 1.    Financial Statements**

 

**META Group, Inc.**

**CONSOLIDATED BALANCE SHEETS**

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

(Unaudited)

 
| ** **                                                                                                            | ** ** | **September 30,  2003** | ** ** | **December 31,  2002** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                            |       |                         |       |                        |       |
| Current assets:                                                                                                       |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                             |       | $                            | 11,576     |                        | $          | 21,448 |   |
| Accounts receivable, net                                                                                              |       | 25,911                       |       | 33,676                      |       |
| Deferred commissions                                                                                                  |       | 1,562                        |       | 1,221                       |       |
| Other current assets                                                                                                  |       | 1,714                        |       | 2,593                       |       |
| Total  current assets                                                                                                 |       | 40,763                       |       | 58,938                      |       |
|                                                                                                                  |       |                         |       |                        |       |
| Restricted cash                                                                                                       |       | 6,000                        |       | —                      |       |
| Non-current portion of accounts receivable                                                                            |       | 555                          |       | 4,584                       |       |
| Furniture and equipment, net                                                                                          |       | 5,674                        |       | 7,724                       |       |
| Goodwill                                                                                                              |       | 9,731                        |       | 7,483                       |       |
| Other intangibles, net                                                                                                |       | 4,407                        |       | 4,630                       |       |
| Investments and advances                                                                                              |       | 8,997                        |       | 3,997                       |       |
| Other assets                                                                                                          |       | 262                          |       | 321                         |       |
| Total assets                                                                                                          |       | $                            | 76,389     |                        | $          | 87,677 |   |
|                                                                                                                  |       |                         |       |                        |       |
| **Liabilities  and Stockholders’ Equity**                                                                        |       |                         |       |                        |       |
| Current liabilities:                                                                                                  |       |                         |       |                        |       |
| Accounts payable                                                                                                      |       | $                            | 1,345      |                        | $          | 2,447 |   |
| Deferred revenues                                                                                                     |       | 40,757                       |       | 42,400                      |       |
| Borrowings under revolving credit agreement                                                                           |       | —                       |       | 1,049                       |       |
| Current portion of long-term debt                                                                                     |       | —                       |       | 5,111                       |       |
| Notes payable                                                                                                         |       | 198                          |       | 335                         |       |
| Accrued compensation                                                                                                  |       | 5,238                        |       | 2,283                       |       |
| Accrued liabilities                                                                                                   |       | 10,425                       |       | 9,834                       |       |
| Income taxes payable                                                                                                  |       | 690                          |       | 497                         |       |
| Other current liabilities                                                                                             |       | 2,915                        |       | 1,843                       |       |
| Total current liabilities                                                                                             |       | 61,568                       |       | 65,799                      |       |
|                                                                                                                  |       |                         |       |                        |       |
| Non-current portion of deferred revenues                                                                              |       | 2,152                        |       | 6,008                       |       |
| Notes payable                                                                                                         |       | 442                          |       | 589                         |       |
| Other non-current liabilities                                                                                         |       | 1,768                        |       | 1,969                       |       |
| Total liabilities                                                                                                     |       | 65,930                       |       | 74,365                      |       |
|                                                                                                                  |       |                         |       |                        |       |
| Minority interest in consolidated  subsidiaries                                                                       |       | 281                          |       | 96                          |       |
|                                                                                                                  |       |                         |       |                        |       |
| 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 14,017,528 and 13,886,612, respectively |       | 140                          |       | 139                         |       |
| Paid-in capital                                                                                                       |       | 59,990                       |       | 59,706                      |       |
| Accumulated deficit                                                                                                   |       | (49,228                      | )          | (45,892                     | )          |
| Accumulated other comprehensive loss                                                                                  |       | (382                         | )          | (395                        | )          |
| Treasury stock, at cost, 657,016 shares                                                                               |       | (342                         | )          | (342                        | )          |
| Total stockholders’ equity                                                                                       |       | 10,178                       |       | 13,216                      |       |
| Total liabilities and stockholders’ equity                                                                       |       | $                            | 76,389     |                        | $          | 87,677 |   |

 

See notes to consolidated financialstatements.

 

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**META Group, Inc.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

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

(Unaudited)

 
| ** **                                                       | ** ** | **For the three months ended****September 30,** | ** ** | **For the nine months ended****September 30,** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                       | ** ** | **2003**                                             | ** ** | **2002**                                            | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| Revenues:                                                        |       |                                                 |       |                                                |       |   |   |   |   |
| Advisory services                                                |       | $                                                    | 18,741     |                                                | $          | 18,843 |   | $ | 56,404 |   | $ | 57,866 |   |
| Strategic consulting                                             |       | 8,802                                                |       | 7,075                                               |       | 24,959 |   | 23,364 |   |
| Published research products                                      |       | 1,348                                                |       | 535                                                 |       | 4,538 |   | 3,585 |   |
| Reimbursable expenses                                            |       | 503                                                  |       | 701                                                 |       | 1,723 |   | 1,962 |   |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| Total revenues                                                   |       | 29,394                                               |       | 27,154                                              |       | 87,624 |   | 86,777 |   |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| Operating expenses:                                              |       |                                                 |       |                                                |       |   |   |   |   |
| Cost of services and fulfillment                                 |       | 15,999                                               |       | 14,491                                              |       | 45,842 |   | 44,201 |   |
| Reimbursable expenses                                            |       | 503                                                  |       | 701                                                 |       | 1,723 |   | 1,962 |   |
| Selling and marketing                                            |       | 7,905                                                |       | 7,932                                               |       | 23,581 |   | 23,495 |   |
| General and administrative                                       |       | 5,805                                                |       | 5,434                                               |       | 16,602 |   | 14,511 |   |
| Depreciation and amortization                                    |       | 1,091                                                |       | 1,607                                               |       | 3,705 |   | 4,742 |   |
| Loss on facilities leases                                        |       | —                                               |       | 2,189                                               |       | — |   | 2,189 |   |
| Restructuring charge                                             |       | —                                               |       | 140                                                 |       | — |   | 362 |   |
| Goodwill impairment loss                                         |       | —                                               |       | 1,178                                               |       | — |   | 2,630 |   |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| Total operating expenses                                         |       | 31,303                                               |       | 33,672                                              |       | 91,453 |   | 94,092 |   |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| Operating loss                                                   |       | (1,909                                               | )          | (6,518                                              | )          | (3,829 | ) | (7,315 | ) |
| Investment impairment loss                                       |       | —                                               |       | (800                                                | )          | — |   | (1,075 | ) |
| Other income (expense), net                                      |       | 23                                                   |       | (64                                                 | )          | 723 |   | (58 | ) |
| Loss before provision for income taxes                           |       | (1,886                                               | )          | (7,382                                              | )          | (3,106 | ) | (8,448 | ) |
| Provision for income taxes                                       |       | 16                                                   |       | 12,948                                              |       | 148 |   | 13,044 |   |
| Minority interest in income of consolidated  subsidiaries        |       | 28                                                   |       | 22                                                  |       | 82 |   | 44 |   |
| Loss before cumulative effect of change in  accounting principle |       | (1,930                                               | )          | (20,352                                             | )          | (3,336 | ) | (21,536 | ) |
| Cumulative effect of change in accounting  principle             |       | —                                               |       | —                                              |       | — |   | (22,206 | ) |
| Net loss                                                         |       | $                                                    | (1,930     | )                                                   | $          | (20,352 | ) | $ | (3,336 | ) | $ | (43,742 | ) |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| Amounts per basic and diluted share:                             |       |                                                 |       |                                                |       |   |   |   |   |
| Loss before cumulative effect of change in  accounting principle |       | $                                                    | (0.14      | )                                                   | $          | (1.56 | ) | $ | (0.25 | ) | $ | (1.65 | ) |
| Cumulative effect of change in accounting  principle             |       | —                                               |       | —                                              |       | — |   | (1.71 | ) |
| Net loss                                                         |       | $                                                    | (0.14      | )                                                   | $          | (1.56 | ) | $ | (0.25 | ) | $ | (3.36 | ) |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| Weighted average number of basic and  diluted shares outstanding |       | 13,334                                               |       | 13,050                                              |       | 13,283 |   | 13,021 |   |

 

See notes to consolidated financialstatements.

 

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**META Group, Inc.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(in thousands)**

(Unaudited)

 
| ** **                                                                       | ** ** | **For the nine months ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2003**                                          | ** ** | **2002** | ** ** |
| ** **                                                                       | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Operating  activities:**                                                       |       |                                              |       |   |   |
| Net loss                                                                         |       | $                                                 | (3,336     | ) | $ | (43,742 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities: |       |                                              |       |   |   |
| Cumulative effect of change in accounting  principle                             |       | —                                            |       | 22,206 |   |
| Depreciation and amortization                                                    |       | 3,705                                             |       | 4,742 |   |
| Provision for doubtful accounts                                                  |       | (600                                              | )          | 944 |   |
| Gain on sale of investments                                                      |       | (615                                              | )          | — |   |
| Impairment loss on investments                                                   |       | —                                            |       | 1,075 |   |
| Goodwill impairment loss                                                         |       | —                                            |       | 2,630 |   |
| Minority interest                                                                |       | 82                                                |       | 44 |   |
| Deferred income taxes                                                            |       | —                                            |       | 12,559 |   |
| Other non-cash charges                                                           |       | 199                                               |       | 85 |   |
| Changes in assets and liabilities:                                               |       |                                              |       |   |   |
| Accounts receivable                                                              |       | 11,946                                            |       | 15,054 |   |
| Deferred commissions                                                             |       | (315                                              | )          | 333 |   |
| Other current assets                                                             |       | 1,665                                             |       | 403 |   |
| Other assets                                                                     |       | 32                                                |       | (169 | ) |
| Accounts payable                                                                 |       | (1,409                                            | )          | (446 | ) |
| Accrued expenses and other current  liabilities                                  |       | 2,936                                             |       | (957 | ) |
| Deferred revenues                                                                |       | (6,664                                            | )          | (10,453 | ) |
| Net cash provided by operating activities                                        |       | 7,626                                             |       | 4,308 |   |
|                                                                             |       |                                              |       |   |   |
| **Investing  activities:**                                                       |       |                                              |       |   |   |
| Capital expenditures                                                             |       | (673                                              | )          | (633 | ) |
| Payments for acquisitions, net of cash  acquired                                 |       | (5,399                                            | )          | (906 | ) |
| Proceeds from sales of investments                                               |       | 888                                               |       | 2,275 |   |
| Net cash (used in) provided by investing  activities                             |       | (5,184                                            | )          | 736 |   |
|                                                                             |       |                                              |       |   |   |
| **Financing  activities:**                                                       |       |                                              |       |   |   |
| Proceeds from exercise of stock options                                          |       | 224                                               |       | — |   |
| Proceeds from employee stock purchase plan                                       |       | 62                                                |       | 82 |   |
| Private placement of common stock                                                |       | —                                            |       | 425 |   |
| Repayment of line of credit                                                      |       | (1,049                                            | )          | (2,025 | ) |
| Repayment of term loan                                                           |       | (5,111                                            | )          | (2,057 | ) |
| Repayment of notes payable                                                       |       | (369                                              | )          | — |   |
| Increase in restricted cash                                                      |       | (6,000                                            | )          | — |   |
| Net cash used in financing activities                                            |       | (12,243                                           | )          | (3,575 | ) |
| Effect of exchange rate changes on cash                                          |       | (71                                               | )          | 827 |   |
| Net (decrease) increase in cash and cash  equivalents                            |       | (9,872                                            | )          | 2,296 |   |
| Cash and cash equivalents, beginning of  period                                  |       | 21,448                                            |       | 21,433 |   |
| Cash and cash equivalents, end of period                                         |       | $                                                 | 11,576     |   | $ | 23,729 |   |

 

See notes to consolidated financialstatements.

 

6

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**META Group, Inc.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 1 - Interim Financial Statements**

 

The accompanying consolidated financial statements include the accountsof META Group, Inc. (the “Company”) and its subsidiaries and have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America for interim financial reporting and with the instructions toForm 10-Q and Article 10 of Regulation S-X. Accordingly, they donot include all of the information and notes required by accounting principlesgenerally accepted in the United States of America for complete financialstatements. Certain prior year amounts have been reclassified to conform to thecurrent year presentation.

 

In the opinion of management, the accompanying consolidated financialstatements contain all adjustments (consisting of normal recurring items)necessary for a fair presentation of results for the interim periods presented.The results of operations for any interim period are not necessarily indicativeof results for the full year. These financial statements and footnotedisclosures should be read in conjunction with the December 31, 2002 auditedconsolidated financial statements and the notes thereto included in theCompany’s Form 10-K/A for the year ended December 31, 2002.

 

The preparation of the financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the amountsreported in the accompanying consolidated financial statements and notes.Actual results could differ from those estimates.

 

**Note 2 - Acquisitions**

 

In 2003 the Company completed several acquisitions in order to gaindirect control over substantially all operations in Europe and create moreuniformity in the Company’s service offerings. Information relating to the acquisitions is as follows:

 

In June 2003, the Company acquired 100%of META Group Italia S.R.L. (“META Group Italy”) for $0.28 million incash.  The operations of META Group Italyhave been included in the consolidated financial statements from the date ofacquisition. The purchase price has been allocated to the assets acquired andthe liabilities assumed, based on estimated fair values at the date ofacquisition. Such allocation resulted in goodwill of $0.4 million recorded inthe Advisory Services segment and $0.1 million related to the customer list ofthe seller, which is being amortized over 7 years.

 

In August 2003, the Company acquired100% of META Group UK Holdings Limited (“META Group UK”) for $1.6 million incash.  The operations of META Group UKhave been included in the consolidated financial statements from the date ofacquisition. The purchase price has been allocated to the assets acquired andthe liabilities assumed, based on estimated fair values at the date ofacquisition. Such allocation resulted in goodwill of $0.75 million recorded in theAdvisory Services segment, $0.4 million recorded in the Strategic Consultingsegment and $0.4 million related to the customer list of the seller, which isbeing amortized over 7 years. The allocation of goodwill is based on therespective revenue contribution percentages of the acquired entity to eachsegment.

 

In September 2003, the Company acquired100% of META Group Norway A/S, META Group Sweden AB, META Group Finland OY,META Group Denmark A/S, META Group Northern Europe ApS, and ATEM Netherlands ApS(collectively “Northern Europe”). The purchase price was $3.6 million in cashand 175,000 shares of the Company’s common stock which the Company currentlyanticipates issuance of in the quarter ending December 31, 2003. Thepurchase price, as well as other assets related to Northern Europe,

 

7

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consisting primarily of $2.6million in promissory notes owed to the Company by certain of the sellers ofNorthern Europe and $1.5 million in trade receivables owed to the Company bythe Northern European entities, are included in investments and advances on theconsolidated balance sheet as of September 30, 2003 as the operations ofthe Company’s international subsidiaries, other than Canada, are consolidated ona one month lag. Accordingly, the operations of Northern Europe will beincluded in the consolidated financial statements commencing inOctober 2003.

 

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

 

Effective January 1, 2002, the Company adopted Statement of FinancialAccounting Standards No. 142, *Goodwilland Other Intangible Assets*(“SFAS 142”). Under SFAS 142, goodwilland intangible assets deemed to have indefinite lives will no longer beamortized but will be subject to impairment tests on an annual basis, or morefrequently if certain indicators arise. Other intangible assets will continueto be amortized over their useful lives. During the quarter endedSeptember 30, 2003, the remaining useful lives of intangible assets beingamortized were reviewed and deemed to be appropriate.

 

The goodwill impairment test is a two-step process that requiresgoodwill to be allocated to the reporting units. In the first step, the fairvalue of the reporting unit is compared to the carrying value of the reportingunit. If the fair value of the reporting unit is less than the carrying valueof the reporting unit, a goodwill impairment may exist, and the second step ofthe test is performed. In the second step, the implied fair value of thegoodwill is compared to the carrying value of the goodwill and an impairmentloss will be recognized to the extent that the carrying value of the goodwillexceeds the implied fair value of the goodwill.

 

The Company completed the second step of the impairment test as ofSeptember 30, 2002. As a result of operating losses in recent history ofthe Company’s Strategic Consulting and Published Research Products segments andthe overall decline in IT spending that began in the second half of 2000 andcontinued through 2002, the Company determined that the goodwill related to theStrategic Consulting and Published Research Products segments was impaired.Accordingly, the Company recorded a goodwill charge of $22.2 million relatingto the carrying value of the goodwill of these segments as of January 1,2002. The impairment charge was recorded as the cumulative effect of a changein accounting principle and recorded retroactive to January 1, 2002.Additionally, as a result of the impairment of the Strategic Consulting andPublished Research Products segments, additions to goodwill of the respectivesegments totaling $2.6 million during the nine months ended September 30,2002 were deemed impaired and recorded as an impairment loss during the ninemonths ended September 30, 2002. During the nine months endedSeptember 30, 2003, there were additions of $1.16 million to the AdvisoryServices segment and additions of $0.4 million to the Strategic Consultingsegment resulting from the acquisitions of META Group UK and META Group Italy.The Company completed the annual impairment test for 2003 as ofSeptember 30 which indicated that no impairment losses were warranted asof such date.

 

A summary of the Company’s intangible assets as of September 30,2003 and December 31, 2002 is as follows (amounts in thousands):

 
| ** **                                 | ** ** | **September 30, 2003**   | ** ** |
|--------------------------------------------|------------|-------------------------------|------------|
| ** **                                 | ** ** | **Gross****Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Amortized intangible assets:               |       |                          |       |   |   |   |   |
| Customer lists                             |       | $                             | 5,354      |   | $ | (2,609 | ) | $ | 2,745 |   |
| Intellectual property                      |       | 648                           |       | (335 | ) | 313 |   |
| Non-compete agreement                      |       | 375                           |       | (275 | ) | 100 |   |
| Content databases & other              |       | 2,078                         |       | (829 | ) | 1,249 |   |
| Total                                      |       | $                             | 8,455      |   | $ | (4,048 | ) | $ | 4,407 |   |
|                                       |       |                          |       |   |   |   |   |
| Aggregate amortization expense:            |       |                          |       |   |   |   |   |
| Nine months ended September 30, 2003: |       | $                             | 962        |   |   |   |   |   |

 

8

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| ** **                                             | ** ** | **December 31, 2002**    | ** ** |
|--------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                             | ** ** | **Gross****Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| 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 three months ending  December 31, 2003: |       | $                             | 355        |   |   |   |   |   |
| Year ending December 31, 2004                     |       | 1,323                         |       |   |   |   |   |
| Year ending December 31, 2005                     |       | 1,166                         |       |   |   |   |   |
| Year ending December 31, 2006                     |       | 633                           |       |   |   |   |   |
| Year ending December 31, 2007                     |       | 547                           |       |   |   |   |   |
| Year ending December 31, 2008                     |       | 246                           |       |   |   |   |   |
| Year ending December 31, 2009                     |       | 78                            |       |   |   |   |   |
| Year ending December 31, 2010                     |       | 59                            |       |   |   |   |   |
| Total                                                  |       | $                             | 4,407      |   |   |   |   |   |

 

The changes in the carrying amount of goodwill by reportable segmentfor the nine months ended September 30, 2003 are as follows (inthousands):

 
| ** **                            | ** ** | **Advisory Services** | ** ** | **Strategic  Consulting** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|-----------------------|------------|---------------------------|------------|-----------|------------|
|                                  |       |                  |       |                      |       |      |       |
| Balance as of January 1, 2003    |       | $                     | 7,483      |                      | $          | —    |       | $ | 7,483 |   |
| Goodwill acquired                     |       | 1,162                 |       | 403                       |       | 1,565     |       |
| Translation adjustments               |       | 683                   |       | —                    |       | 683       |       |
| Balance as of September 30, 2003 |       | $                     | 9,328      |                      | $          | 403       |       | $ | 9,731 |   |
|                                       |            |                       |            |                           |            |           |            |  |  |  |  |  |

 

9

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**Note 4 –Comprehensive Loss**

 

Comprehensive loss for the three and nine months endedSeptember 30, 2003 and 2002 was as follows (in thousands):

 
| ** **                                      | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                      | ** ** | **2003**                                   | ** ** | **2002**                                  | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                            |       |                                       |       |                                      |       |   |   |   |   |
| Net loss                                        |       | $                                          | (1,930     | )                                         | $          | (20,352 | ) | $ | (3,336 | ) | $ | (43,742 | ) |
| Other comprehensive income (loss), net of  tax: |       |                                       |       |                                      |       |   |   |   |   |
| Foreign currency translation adjustment         |       | (145                                       | )          | 214                                       |       | 13 |   | 189 |   |
|                                            |       |                                       |       |                                      |       |   |   |   |   |
| Comprehensive loss                              |       | $                                          | (2,075     | )                                         | $          | (20,138 | ) | $ | (3,323 | ) | $ | (43,553 | ) |

 

**Note 5 –Segment Reporting (As Restated)**

 

Subsequent tothe issuance of the Company’s third quarter 2003 financial statements, theCompany’s management determined that its segment reporting by geographic areaneeded correction due to mathematical errors, in order to reconcile the ninemonths ended September 30, 2003 and September 30, 2002 to the six months endedJune 30, 2003 and June 30, 2002 and the quarters ended September 30, 2003 andSeptember 30, 2002. As a result, the Company has restated its Form 10-Q tocorrect this information. The Company evaluates the results of its geographicsegments excluding intercompany royalty income and expense.

 

The Company operates in three businesssegments: Advisory Services, Strategic Consulting and Published ResearchProducts. The Company’s operating segments are managed separately, because eachoperating segment represents a strategic business unit that generally offersdistinct products or services. Advisory Services provide comprehensive coverageof relevant information technology and business-related issues faced by itsclients through client/analyst interaction, published conclusions andrecommendations to each client’s specific IT requirements. Strategic Consultingprovides custom consulting services tailored to meet individual clientrequirements. Published Research Products offer various topic-specific reportsdesigned to serve both as complements to the Company’s core services and asstandalone deliverables that meet specific assessment requirements.

 

Theaccounting policies of the operating segments are the same as those describedin Note 4 to the Company’s 2002 Annual Report on Form 10-K/A except that thedisaggregated financial results for the Company’s operating segments have beenprepared using a management approach, which is consistent with the basis andmanner in which the Company’s management internally disaggregates financialinformation for the purposes of assistance in making internal operatingdecisions. The Company evaluates performance based on stand-alone segmentoperating income, defined by the Company as the segment revenues less segmentcost of sales and corporate selling, general and administrative allocations.Selling, general and administrative expenses are allocated ratably based oneach operating segments’ revenues. Management does not allocate corporateassets, capital expenditures, non-operating income (interest income), or incometaxes when measuring segment results.

 

*Information by operating segmentis set forth below (in thousands):*

 
| ** **                                      | ** ** | **Advisory  Services** | ** ** | **Strategic  Consulting** | ** ** | **Published  Research  Products** | ** ** | **Unallocated** | ** ** | **Consolidated  Total** | ** ** |
|-------------------------------------------------|------------|------------------------|------------|---------------------------|------------|-----------------------------------|------------|-----------------|------------|-------------------------|------------|
| **Three  months ended September 30, 2003** |       |                   |       |                      |       |                              |       |            |       |                    |       |
|                                            |       |                   |       |                      |       |                              |       |            |       |                    |       |
| Revenues                                        |       | $                      | 18,741     |                      | $          | 8,802                             |       | $               | 1,348      |                    | $          | 503 |   | $ | 29,394 |   |
| Operating income (loss)                         |       | 1,562                  |       | (3,512                    | )          | 41                                |       |            |       | (1,909                  | )          |
| Assets                                          |       |                   |       |                      |       |                              |       | $               | 76,389     |                    | $          | 76,389 |   |
|                                            |       |                   |       |                      |       |                              |       |            |       |                    |       |
| **Three  months ended September 30, 2002** |       |                   |       |                      |       |                              |       |            |       |                    |       |
|                                            |       |                   |       |                      |       |                              |       |            |       |                    |       |
| Revenues                                        |       | $                      | 18,843     |                      | $          | 7,075                             |       | $               | 535        |                    | $          | 701 |   | $ | 27,154 |   |
| Operating loss                                  |       | (4,429                 | )          | (1,343                    | )          | (746                              | )          | —          |       | $                       | (6,518     | ) |
| Assets                                          |       |                   |       |                      |       |                              |       | $               | 78,733     |                    | $          | 78,733 |   |
|                                            |       |                   |       |                      |       |                              |       |            |       |                    |       |
| **Nine  months ended September 30, 2003**  |       |                   |       |                      |       |                              |       |            |       |                    |       |
|                                            |       |                   |       |                      |       |                              |       |            |       |                    |       |
| Revenues                                        |       | $                      | 56,404     |                      | $          | 24,959                            |       | $               | 4,538      |                    | $          | 1,723 |   | $ | 87,624 |   |
| Operating income (loss)                         |       | 4,249                  |       | (8,770                    | )          | 692                               |       |            |       | (3,829                  | )          |
| Assets                                          |       |                   |       |                      |       |                              |       | $               | 76,389     |                    | $          | 76,389 |   |
|                                            |       |                   |       |                      |       |                              |       |            |       |                    |       |
| **Nine Months ended  September 30, 2002**  |       |                   |       |                      |       |                              |       |            |       |                    |       |
|                                            |       |                   |       |                      |       |                              |       |            |       |                    |       |
| Revenues                                        |       | $                      | 57,866     |                      | $          | 23,364                            |       | $               | 3,585      |                    | $          | 1,962 |   | $ | 86,777 |   |
| Operating loss                                  |       | (2,615                 | )          | (4,154                    | )          | (546                              | )          | —          |       | $                       | (7,315     | ) |
| Assets                                          |       |                   |       |                      |       |                              |       | $               | 78,733     |                    | $          | 78,733 |   |

 

10

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Revenues and operating income (loss) by geographic region are asfollows:

 
| ** **                                      | ** ** | **Revenues** | ** ** | **Operating  Income (loss)** | ** ** |
|-------------------------------------------------|------------|--------------|------------|------------------------------|------------|
| **Three  months ended September 30, 2003** |       |         |       |                         |       |
|                                            |       |         |       |                         |       |
| Americas                                        |       | $            | 22,967     |                         | $          | (330 | ) |
| Asia-Pacific                                    |       | 1,343        |       | (1,116                       | )          |
| Europe, Middle East, Africa                     |       | 5,084        |       | (463                         | )          |
| Consolidated Total                              |       | $            | 29,394     |                         | $          | (1,909 | ) |
|                                            |       |         |       |                         |       |
| **Three  months ended September 30, 2002** |       |         |       |                         |       |
|                                            |       |         |       |                         |       |
| Americas                                        |       | $            | 21,633     |                         | $          | (7,374 | ) |
| Asia-Pacific                                    |       | 1,214        |       | 223                          |       |
| Europe, Middle East, Africa                     |       | 4,307        |       | 633                          |       |
| Consolidated Total                              |       | $            | 27,154     |                         | $          | (6,518 | ) |

 
| ** **                                                   | ** ** | **Revenues** | ** ** | **Operating  Income (loss)** | ** ** |
|--------------------------------------------------------------|------------|--------------|------------|------------------------------|------------|
| **Nine  months ended September 30, 2003 (As restated)** |       |         |       |                         |       |
|                                                         |       |         |       |                         |       |
| Americas                                                     |       | $            | 68,060     |                         | $          | (2,408 | ) |
| Asia-Pacific                                                 |       | 4,253        |       | (796                         | )          |
| Europe, Middle East, Africa                                  |       | 15,311       |       | (625                         | )          |
| Consolidated Total                                           |       | $            | 87,624     |                         | $          | (3,829 | ) |
|                                                         |       |         |       |                         |       |
| **Nine  months ended September 30, 2002 (As restated)** |       |         |       |                         |       |
|                                                         |       |         |       |                         |       |
| Americas                                                     |       | $            | 70,918     |                         | $          | (9,189 | ) |
| Asia-Pacific                                                 |       | 3,609        |       | 1,200                        |       |
| Europe, Middle East, Africa                                  |       | 12,250       |       | 674                          |       |
| Consolidated Total                                           |       | $            | 86,777     |                         | $          | (7,315 | ) |

 
| ** **                                                              | ** ** | **Revenues** | ** ** | **Operating  Income (loss)** | ** ** |
|-------------------------------------------------------------------------|------------|--------------|------------|------------------------------|------------|
| **Nine  months ended September 30, 2003 (As originally reported)** |       |         |       |                         |       |
|                                                                    |       |         |       |                         |       |
| Americas                                                                |       | $            | 68,404     |                         | $          | (1,713 | ) |
| Asia-Pacific                                                            |       | 4,162        |       | (847                         | )          |
| Europe, Middle East, Africa                                             |       | 15,058       |       | (1,269                       | )          |
| Consolidated Total                                                      |       | $            | 87,624     |                         | $          | (3,829 | ) |
|                                                                    |       |         |       |                         |       |
| **Nine  months ended September 30, 2002 (As originally reported)** |       |         |       |                         |       |
|                                                                    |       |         |       |                         |       |
| Americas                                                                |       | $            | 71,229     |                         | $          | (8,966 | ) |
| Asia-Pacific                                                            |       | 3,578        |       | 1,208                        |       |
| Europe, Middle East, Africa                                             |       | 11,970       |       | 443                          |       |
| Consolidated Total                                                      |       | $            | 86,777     |                         | $          | (7,315 | ) |

 

11

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**Note 6 –Bank Debt**

 

As ofDecember 31, 2002, the Company had $6.2 million ($5.2 million outstandingunder the term loan and $1 million outstanding under the revolving facility) inborrowings outstanding under its $20 million credit facility with its bank (the“Old Facility”). The Company was in breach of a number of covenants containedin the Old Facility. 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. InJanuary 2003, the Company repaid all amounts outstanding under the OldFacility from its cash on hand.

 

InMarch 2003 the Company received a waiver of all prior covenant defaults.Additionally in March 2003 the Company executed a new $6 million amendedand restated credit agreement with its bank (the “Amended Facility”). TheAmended Facility replaced the Old Facility and consists of a $6 millionrevolving credit facility. Under the Amended Facility, interest on anyoutstanding borrowings will be payable at the rate of LIBOR, as determined bythe bank, plus 1.5% or the higher of the Prime Rate or the Federal Funds Rateplus 0.5%. The Amended Facility is fully collateralized by a $6 million cashdeposit with its bank. This cash deposit is reflected as restricted cash on theCompany’s consolidated balance sheet as of September 30, 2003. The AmendedFacility contains a number of covenants that, among other things, restricts theability of the Company to create liens; dispose of assets; consolidate with, beacquired by or enter into a merger agreement or into any binding agreement todo any of the foregoing which is not contingent on obtaining the consent of thebank, other than mergers in which the Company shall be the surviving companyafter such merger is effective; materially change the nature of the Company’sbusiness; alter or modify the Company’s name, structure or status or change itsfiscal year. The Amended Facility contains no financial covenants, and maturesin November 2004. As of September 30, 2003, there was $0.8 millionused under the Amended Facility in the form of letters of credit issued onbehalf of one of the Company’s independent sales representative organizationsand as security for a portion of the Company’s Stamford, CT and Reston, VApremises leases. There were no borrowings outstanding as of September 30,2003.

 

**Note 7 –Stock-Based Compensation**

 

The Company has three active stock-based employee compensation plans,which are described more fully in Note 13 to the Company’s 2002 Annual Reporton Form 10-K/A. The Company accounts for those plans under the recognition andmeasurement principles of Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees”, and related Interpretations. Nostock-based employee compensation cost is reflected in net loss, as all optionsgranted under those plans had an exercise price equal to the market value ofthe underlying common stock on the date of grant. The following tableillustrates the effect on net loss and loss per share if the Company hadapplied the fair value recognition provisions of Statement of FinancialAccounting Standards No. 123, “Accounting for Stock-Based Compensation” tostock-based employee compensation (in thousands, except per share data):

 

12

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| ** **                                                                                                                      | ** ** | **Three Months Ended  (unaudited)  September 30,** | ** ** | **Nine Months Ended  (unaudited)  September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                                                                      | ** ** | **2003**                                                | ** ** | **2002**                                               | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                                                      | ** ** | ** **                                              | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Reported net  loss                                                                                                              |       | $                                                       | (1,930     | )                                                      | $          | (20,352 | ) | $ | (3,336 | ) | $ | (43,742 | ) |
| Deduct:  Total stock based employee compensation expense determined under fair value  based methods for all awards, net of tax: |       | (557                                                    | )          | (645                                                   | )          | (1,898 | ) | (1,613 | ) |
| Pro forma  net loss                                                                                                             |       | $                                                       | (2,487     | )                                                      | $          | (20,997 | ) | $ | (5,234 | ) | $ | (45,355 | ) |
|                                                                                                                            |       |                                                    |       |                                                   |       |   |   |   |   |
| Net loss per  share                                                                                                             |       |                                                    |       |                                                   |       |   |   |   |   |
| Reported                                                                                                                        |       |                                                    |       |                                                   |       |   |   |   |   |
| Basic and  Diluted                                                                                                              |       | $                                                       | (0.14      | )                                                      | $          | (1.56 | ) | $ | (0.25 | ) | $ | (3.36 | ) |
|                                                                                                                            |       |                                                    |       |                                                   |       |   |   |   |   |
| Pro forma                                                                                                                       |       |                                                    |       |                                                   |       |   |   |   |   |
| Basic and Diluted                                                                                                               |       | $                                                       | (0.19      | )                                                      | $          | (1.61 | ) | $ | (0.39 | ) | $ | (3.48 | ) |

 

**Note 8 –Net Income Per Share**

 

The following table sets forth the computation of net income per sharefor the three and nine months ended September 30, 2003 and 2002 (inthousands except per share data):

 
| ** **                                                                                   | ** ** | **Three****months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2003**                                      | ** ** | **2002**                                  | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                                         |       |                                          |       |                                      |       |   |   |   |   |
| Net loss                                                                                     |       | $                                             | (1,930     | )                                         | $          | (20,352 | ) | $ | (3,336 | ) | $ | (43,742 | ) |
|                                                                                         |       |                                          |       |                                      |       |   |   |   |   |
| Average number of shares outstanding during  the period                                      |       | 13,334                                        |       | 13,050                                    |       | 13,283 |   | 13,021 |   |
| Add common share equivalents — options to  purchase common shares and contingent shares |       | —                                        |       | —                                    |       | — |   | — |   |
| Total                                                                                        |       | 13,334                                        |       | 13,050                                    |       | 13,283 |   | 13,021 |   |
|                                                                                         |       |                                          |       |                                      |       |   |   |   |   |
| Amounts per basic and diluted share:                                                         |       |                                          |       |                                      |       |   |   |   |   |
| Loss before cumulative effect of change in  accounting principle                             |       | $                                             | (0.14      | )                                         | $          | (1.56 | ) | $ | (0.25 | ) | $ | (1.65 | ) |
| Cumulative effect of change in accounting  principle                                         |       | —                                        |       | —                                    |       | — |   | (1.71 | ) |
| Net loss                                                                                     |       | $                                             | (0.14      | )                                         | $          | (1.56 | ) | $ | (0.25 | ) | $ | (3.36 | ) |

 

Diluted earnings per share for the three months endedSeptember 30, 2003 and 2002 excludes 1,453,297 and 462,950 common stockequivalents (options and warrants), respectively, because they areanti-dilutive. Diluted earnings per share for the nine months endedSeptember 30, 2003 and 2002 excludes 1,243,529 and 308,628 common stockequivalents (options and warrants), respectively, because they areanti-dilutive.

 

13

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**Note 9 –Impairment Loss**

 

During the nine months ended September 30, 2002, the Companydetermined that, based on estimates of future cash flows and other availablemarket data, several of its investments in and advances to companies inparallel industries were impaired. Accordingly, the Company recorded animpairment loss of $1.1 million. There was no impairment loss during the ninemonths ended September 30, 2003.

 

**Note 10 –Restructuring Charge**

 

During the quarter ended September 30, 2002, META Group Germanyreduced its workforce and recorded a $140,000 restructuring charge forseverance payments that were made during the quarter ended December 31,2002. Additionally, in February 2002, the Company announced arestructuring whereby it reduced its workforce by 43 persons (representing 7%of the workforce at the time). As a result of the restructuring, the Companyincurred a $222,000 restructuring charge during the quarter endedMarch 31, 2002 for severance payments made during the quarter endedMarch 31, 2002.

 

**Note 11 –Contingencies and Guarantees**

 

*Contingencies:*

 

*Otherthan ordinary routine litigation incidental to the Company’s business, the Companyis not a party, nor is any of its property subject to, any pending legalproceedings.*

* *

*Letters of Credit:*

* *

*As ofSeptember 30, 2003, the Company had a $115,000 standby letter of credit(an “LC”) issued on behalf of one of the Company’s independent salesrepresentative organizations (the “Distributor”). The LC was issued as securityagainst the borrowings of the Distributor and arose as a result of previousdefaults on such borrowings. Any future default by the Distributor may triggerthe letter of credit being called. The LC has a six-month term and expires inDecember 2003. In June 2003 the Company recorded a charge of $25,000(reflected in general and administrative expenses on the Company’s consolidatedstatements of operations for the nine months ended September 30, 2003)equal to the estimated fair value of the guarantee upon its issuance. InNovember 2003, the Company renewed the LC for a six-month term expiring inJune 2004.*

* *

*Guarantees:*

* *

*InSeptember 2000 the Company provided a corporate guarantee in the amount ofEuro 62,000 (approximately $72,000) for lease payments to the landlord of oneof the Company’s former independent sales representative organizations. InJanuary 2002, the landlord called the guarantee. The claim is currentlybeing negotiated with the landlord. The Company is currently uncertain as towhen this issue will be resolved. As of September 30, 2003, the Companyhas $61,000 accrued for this guarantee.*

* *

*14*

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* *

# **PART II - OTHERINFORMATION**

 

Item 6.    Exhibits and Reports on Form 8-K.

 

(a)           Exhibits.

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                                   |
|--------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1 (1)            |       | Amended and Restated Certificate of Incorporation of the Company                                                                                  |
| 3.2 (2)            |       | Amended and Restated Bylaws of the Company (as of May 1, 2003)                                                                               |
| 31.1               |       | Certification of the Principal Executive Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                  |
| 31.2               |       | Certification of the Principal Financial Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                  |
| 32                 |       | Certification of the Principal Executive Officer and Principal  Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |

 

----

(1)          Incorporated herein by reference to theexhibits to the Company’s Registration Statement on Form S-1 (File No.33-97848).

(2)          Incorporated herein by reference to theexhibits to the Company’s Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2003 filed on May 15, 2003 (File No. 0-27280)

 

15

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(b)           Reports on Form 8-K.

 

On August 11, 2003, the Company filed a report on Form 8-K datedAugust 7, 2003, in connection with a release of the Company’s results ofoperations for the quarter ended June 30, 2003.

 

On August 14, 2003, the Company filed a report on Form 8-K datedMay 5, 2003, containing the transcript from the conference call regardingthe earnings and financial performance for the Company for the quarter endedMarch 31, 2003.

 

On August 14, 2003, the Company filed a report on Form 8-K datedAugust 7, 2003, containing the transcript from the conference callregarding the earnings and financial performance for the Company for thequarter ended June 30, 2003.

 

16

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**SIGNATURE**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Company has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                                      | **META Group, Inc.** |
|-------------------------------------------|----------------------|
|                                      |                 |   |
|                                      |                 |   |
| Date:   July 20, 2004 | By:                  | /s/ John W. Riley |   |
|                                      |                 | John W. Riley |
|                                      |                 | Vice President, Chief Financial  Officer, Treasurer and Secretary  (Principal Financial and Accounting Officer) |

 

17

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