META GROUP INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K

(Mark One)
(x) Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934.

For the Fiscal Year Ended: December 31, 1997

or

( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934.

For the transition period from to

Commission File Number: 0-27280
_____________________________________________

META Group, Inc.
(Exact name of registrant as specified in its charter)

Delaware 06-0971675
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

208 Harbor Drive, Stamford, Connecticut 06912-0061
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (203) 973-6700

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
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(Title of class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (X)

The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 20, 1998 (based on the closing price as quoted by
Nasdaq National Market as of such date) was $168,490,236.

As of March 20, 1998, 7,453,666 shares of the registrant's common stock were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement relating to the Company's Annual
Meeting of Stockholders to be held on May 27, 1998 are incorporated by
reference into Part III hereof.
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PART I
ITEM 1. BUSINESS

General

META Group, Inc. ("META Group" or the "Company") is an independent market
assessment company providing research and analysis of developments, trends
and organizational issues relating to the computer hardware, software,
communications and related information technology ("IT") industries to IT
users and vendors. IT user organizations utilize META Group's research,
analysis and recommendations to develop and employ cost-effective strategies
for selecting and implementing timely IT solutions and for aligning these
solutions with business priorities. IT vendors use META Group's services for
help in product positioning, marketing and market planning, as well as for
internal IT decision making.

META Group offers clients annual subscriptions to 13 different research
services ("Continuous Services"). These services are focused on specific
areas of IT, IT issues related to a specific vertical market, or specific
needs of those within the IT organization. Recommendations to clients are
based on projections and analyses of important industry trends, experiences
of other companies, events and announcements, key issues and business
practices, as well as new technologies, products and services. The Company
also offers consulting and benchmark services, as well as a variety of
targeted publications.

META Group targets as its clients substantial commercial and governmental
users of IT, as well as IT vendors. As of December 31, 1997, the Company had
over 3,400 subscribers in approximately 1,400 client organizations, including
34% of the Fortune 500 companies, 76% of the top 25 Fortune 500 companies and
all of the top 10 Fortune 500 companies. During each of 1997, 1996 and 1995,
approximately 75% of META Group's clients renewed one or more subscriptions.

From time to time, information provided by the Company or statements made
by its employees may contain "forward-looking" information which involve
risks and uncertainties. In particular, the statements set forth under the
heading "The META Group Solution" below regarding the Company"s objectives
to expand the range of clients it serves, further penetrate its existing
client base, extend its product line and broaden the scope of its services
are "forward-looking" statements. The Company's actual results may vary
significantly from those stated in any forward-looking statements. Factors
that may cause such differences include, but are not limited to, difficulties
in the timely adjustment and/or expansion of the Company's product offerings
to encompass new technologies, difficulties in developing, acquiring and/or
integrating new product offerings, difficulties in attracting and retaining
qualified personnel, competition, changes in the mix between domestic and
international business, changes in the rates of customer renewals
difficulties in gaining entry into new markets for the Company's products
and services and limitations on financial and other resources required to
engage in product development and sales and marketing activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Factors That May Affect Future Results" for a

discussion of certain factors which may cause actual results to vary
significantly from those stated in any forward-looking statement.

Specific comparative financial information may be found in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in the notes to the financial statements.

META GROUP(R) is a registered trademark of the Company. The META GROUP
logoTM, METATM, META DELTASTM, META FAXTM, META FLASHTM, and META TRENDSTM are
trademarks of the Company. This report also includes trademarks and trade
names of companies other than META Group.

Industry Background

Businesses and other organizations remain dependent on IT for competitive
success, which has led to sustained growth in IT-related expenditures. This
market growth is being driven by many factors, including intensified domestic
and global competition, the Internet and electronic commerce, large-scale
migration from legacy mainframe systems to distributed architectures, the
accelerating pace of technological change, shortened product life-cycles,
outsourcing and widespread business process re-engineering and corporate
downsizing.

At the same time, the decision-making process involved in the planning,
selection and implementation of IT solutions is growing more complex. Prior
to the emergence of open systems and distributed computing, organizations
faced easier technology choices. Traditionally, IT managers would simply
purchase a vertically integrated solution (hardware, operating system,
applications and services) from one of the large systems vendors. Today,
IT decision-makers must evaluate a variety of new and rapidly evolving
products from multiple vendors and consider the interoperability of these
products with one another and with existing legacy systems.

As IT has become more entwined with day-to-day business operations and
strategic planning, a wider range of individuals are participating in the IT
decision-making process. With the shift to distributed computing, IT decision
making has spread to individual business units. Furthermore, as IT supports
more business-critical functions and businesses increasingly interact with
customer/suppliers through the Internet/World Wide Web, IT decision-makers at
all levels are becoming key participants in the planning and implementation
of business decisions and are often being called upon to be strategic
drivers of business and technology innovation. As IT assumes a more
business-critical role, senior executives of organizations are compelled to
take a more active role in IT planning and decision making.

As a result of these trends, there is an increasing need for a level of
IT guidance that often cannot be effectively supported by the internal
resources of a single organization. Organizations are more frequently
turning to outside sources for help with strategic and tactical advice in
planning, selecting and implementing IT; however, historically, available
solutions have had significant limitations. Software and equipment vendors
generally offer advice biased toward their own products or services, while
often understating interoperability issues. Many professional service firms
and implementation companies provide technical advice, but they have
incentives to promote solutions that require their services and often have
purchasing and cooperative relationships with particular hardware and

software vendors. Some independent market research firms provide
vendor-neutral advice, but most target technology vendors rather than the
user community. Those market research firms that do target users typically
do not offer advice over a full range of technology offerings. As a result,
there is a need for vendor-neutral, user-focused, broad-based IT market
research, coupled with personalized advice within the specific context of
an organization's business environment and IT requirements.

The META Group Solution

The Company addresses the growing demand for user-focused guidance by
providing vendor-neutral IT research, analysis and advice to substantial
commercial and governmental users of IT. META Group services are also
utilized by IT vendors for help in product positioning, marketing and market
planning as well as for internal IT decision making. META Group Continuous
Services assist clients in making more informed, timely and cost-effective
decisions in the context of the clients' business and technology
environments. Each Continuous Service is highly focused on enhancing the
client's ability to reduce and/or contain the cost of IT, reduce risk,
assess vendor business practices and strategies, evaluate products and
technologies, negotiate with vendors, develop financial strategies and
formulate IT architectures and strategic plans.

META Group differentiates its services from those offered by most other IT
research firms by delivering IT industry coverage through more comprehensive
and integrated service segments, a higher level of personal service and a
greater emphasis on client/analyst interaction. To provide this level of
service, the Company maintains a client/analyst ratio no higher than 50-to-1
in each of its service segments.

The Company's research is designed to alert clients to the sometimes subtle
and unforeseen opportunities and risks inherent in complex IT business
decisions. Although META Group research contains concrete conclusions and
recommendations, a client seeking to understand the complex IT issues
addressed in written research often requires further explanation and
analysis in the context of the client's unique business environment and IT
requirements. Accordingly, all META Group clients have direct access to the
Company's analysts, who adapt the Company's published conclusions and
recommendations to the client's specific IT environment. META Group analysts
are available to clients through direct telephone consultations, customized
on-site and regional executive briefings and in-depth quarterly and annual
conferences, as well as teleconferences addressing significant current IT
developments.

META Group believes its proactive involvement in clients' specific IT
problem solving situations enables it to provide actionable advice. META
Group analysts have real-time access to a broad base of current user
experience spanning vertical industries and related technologies. This
first-hand practical knowledge is disseminated throughout the Company at
weekly meetings of META Group's entire research staff. As a result of this
interaction and broad knowledge base, META Group analysts deliver more
informed conclusions and recommendations. META Group believes that its
interactive approach provides significant value to senior management and IT
decision-makers by enhancing their ability to make sound, practical and
cost-effective decisions.

META Group's objective is to leverage its reputation, comprehensive
research model, knowledge base, customer relationships and domestic and
international sales network to expand the range of clients it serves,
further penetrate its existing client base, extend its product line and
broaden the scope of its services.

Products and Services

META Group's services and products are designed to complement each other
and provide flexible access to the industry's foremost market assessment and
analytical expertise in the following categories:

. CONTINUOUS SERVICES
. CONSULTING AND BENCHMARKING SERVICES
. PUBLICATIONS

Continuous Services

META Group believes its Continuous Services provide comprehensive coverage
of virtually all relevant IT and business related issues faced by its
clients. META Group applies a consistent approach to all Continuous Services
by offering a high level of personal service with an emphasis on
client/analyst interaction. All META Group clients have direct access to the
Company's analysts as consultants to adapt the Company's published
conclusions and recommendations to the client's specific IT requirements.
Proactively contacting clients on a regular basis, META Group analysts apply
their knowledge base of product information and user experience to respond
to the unique IT situation of each client with customized, action-oriented
advice and recommendations.

The list prices for the Company's Continuous Services range from $20,000
to $25,000, and are subject to discounts based on a number of factors,
including the number of Continuous Services subscribed to by a client. The
Company's average selling price for a Continuous Service was $16,600,
$15,400, and $14,200 for the years ended December 31, 1997, 1996, and 1995,
respectively.

The following deliverables, which involve the direct participation of
META Group research analysts, typically are provided to subscribers to META
Group's Continuous Services as an integral part of such services:

. Telephone Consultations afford each subscriber the unlimited
opportunity to discuss specific issues with META Group analysts.

. Half-day Briefings are held at META Group headquarters or at client
sites and address client-specific issues.

. Strategic Plan Reviews provide META Group analysis and evaluation
of clients' strategic plans.

. Regional Executive Briefings are conducted by each service. These
half-day user roundtables focus on key issues and are held in major
cities throughout the year.

. META Trend Teleconferences are held quarterly by each service to
provide an in-depth analysis of between two and four of that
service's annual "META Trends" (that is, long-term projections of
major industry issues and directions that META Group believes will
impact users, vendors and the IT market).

. Key Event Teleconferences enable clients to participate in
discussions with META Group analysts and are generally held
following key industry events, such as major announcements or trade
shows.

. META Group Conferences address a broad range of tactical and
strategic issues relevant to each service. At least one conference
per service is conducted annually. A conference covering
industry-wide issues is also held annually.

. Written Research: Each subscriber to a META Group Continuous Service
receives one or more of the following written materials:

. META Deltas consist of three to four analytical briefs, published
monthly, that deliver analysis of major events, issues, vendor
products and strategies, technology and other pertinent matters.

. META Faxes are concise faxed summaries of META Group's weekly
research meeting, at which industry events are reviewed and
analyzed.

. META Trends is an annual publication featuring three to five year
projections of significant issues and developments that will
affect IT users and vendors.

. META Flash is a faxed bulletin containing analysis of key
industry events or announcements which META Group deems to be of
extraordinary importance.

META Group research is available in print, as well as in the media below.
A rolling three years of research can be searched by service, topic, or
keyword.

. Extranet or Intranet

. Internet

. Lotus Notes

. CD-ROM

The following is a description of META Group's Continuous Services:

Application Delivery Strategies (ADS) assists organizations in aligning IT
resources with business initiatives through the use of advanced software
technologies. Primary areas of focus include client/server application
packages, enterprise and departmental application infrastructures, systems

integrators, data warehousing, DSS/OLAP, development tools, and process
improvement strategies. Practical examples include integrating customer
management processes across the enterprise, revitalizing core business
practices, integrating legacy applications with data warehousing and
Internet topologies, and supporting market-driven applications within
cost-effective IT frameworks.

Advanced Information Management Strategies (AIMS) provides early
identification of high-impact technologies that support business
transformation strategies. It encompasses a wide range of both IT and
business issues. Service offerings are focused on electronic commerce,
objects (emphasizing business-process risk and object oriented
infrastructure), collaborative technologies, workflow products and "new"
media, including documents, images and multimedia. Analysts also assist in
creating cross-functional, customer-focused organizations; guiding
organizations through required business transformations; and assessing
external resources such as management consultants, systems integrators and
providers of change-management services.

Enterprise Architecture Strategies (EAS) focuses on the needs of senior
level IT professionals and the fundamentals of planning, designing and
implementing an IT architecture that supports the company's growth strategy
while allowing for a quick response to industry changes and advancements.
By identifying the core issues that link business function to IT strategy,
EAS helps clients to build an adaptive IT foundation that sustains a
company's competitive advantage.

Enterprise Data Center Strategies (EDCS) delivers guidance critical for
integrating heterogeneous vendors, platforms and applications into a
cohesive, cost-effective enterprise data center. Clients benefit from
in-depth analysis and insight into the management, organization, operational
and technical factors behind evolving enterprise architectures, logical data
centers, high-volume transaction processing and database systems, hardware
and software asset management. Particular areas of focus include migration
and implementation strategies, parallel sysplex, Year 2000 compliance,
vendor analysis and business practices, and negotiation strategies.

Global Networking Strategies (GNS) addresses the management and technical
issues raised by changes in corporate network architectures. Analysts
provide insight into emerging trends in technology, regulation and
network-based applications. Primary areas of concentration include corporate
network architectures and services, bandwidth management, connectivity
beyond the enterprise, integrated network and systems management, voice
switching and processing, worldwide regulatory environments, wireless
communications, and network security. Client benefits include enhanced
strategic planning, improved network performance, better network outsourcing
decisions and more effective vendor evaluation.

META Executive Council (MEC) provides a forum for senior IT and business
executives to discuss operational and organizational challenges and
experiences on IT related topics. Membership-directed research topics are
discussed at regional and national meetings and published in monthly research
papers. Customized on-site briefings and one-day planning sessions are also
provided to focus on client and industry issues.

Open Computing & Server Strategies (OCSS) represents a valuable resource
for organizations seeking to support business-critical applications with

scaleable, high-performance open servers. Research provides interactive,
ongoing assistance with the entire spectrum of issues associated with
establishing and maintaining open system - architecture planning,
rightsizing, data warehousing, relational database management systems,
storage subsystems, and identification and evaluation of key vendor partners.

Services & Systems Management Strategies (SSMS) delivers research and
analysis focused on the management of shared computing infrastructures and
applications. Primary areas of coverage include networked systems management,
customer-support operations and outsourcing (including feasibility studies,
vendor negotiation, implementation schedules and management of service
providers). In all cases, analysts pay particular attention to the
organizational, financial, and management implications of IT's increasing
role as an internal vendor of services.

Workgroup Computing Strategies (WCS) provides research and analysis to
assist organizations in deploying client/server and intranet-related
technologies and applications. Areas of focus include network computing and
Web-based applications, groupware and collaborative computing, mobile and
telecommunting, and total cost of ownership. Additional coverage includes
PC hardware and system software (client, network and server), Web
development and management, and IT organizational issues. Emphasis is given
to the impact of end-user and departmental requirements on systems developed
and deployed by IT.

Continuous Services for Vertical Industries:

. Insurance Information Strategies (IIS) delivers guidance critical for
managing IT and information in the insurance industry, with particular
emphasis on the challenges faced by insurance companies as they
transition from traditional underwriters analyzing risk management into
full financial services providers requiring IT systems to handle
increased customer expectations and competition.

. IT Performance Engineering & Measurement Strategies (PEMS) offers
detailed benchmarking in combination with ongoing software analysis
required to quantify the value of client IT investment and capitalize
on specific opportunities for improvement.

. Healthcare Information Strategies (HIS) delivers targeted research and
insight to help IT healthcare professionals successfully implement
long-term IT strategies in a changing regulatory environment. Specific
areas of research include: legacy system transition, decision support,
communications services and other supporting technologies.

. Energy Information Strategies (EIS) focuses on the IT requirements of
energy industry participants preparing to compete in a de-regulated
environment of customer choice where the efficient purchase, production,
transmission and management of energy requires the use and understanding
of complex technology systems.

Consulting and Benchmarking Services

In addition to its Continuous Services, META Group provides traditional IT
consulting in selected areas, as well as custom consulting services tailored

to meet individual client requirements, priced on a per-project basis. META
Group also provides benchmarking and best practices analyses of technology
operations environments.

Consulting. As organizations continue to evaluate core competencies and
look for cost savings through the selective use of outsourcing, IT
organizations are increasingly being positioned as internal service entities
satisfying line-of-business ("LOB") "clients." As a result, today's IT
executive is under pressure to plan a flexible and cost-effective IT
architecture addressing tomorrow's business environment, while remaining
responsive to changing LOB requirements. META Group Consulting ("MGC")
combines technological expertise and extensive research resources to assist
companies in developing and implementing strategic IT architectures. MGC
leverages META Group's research and client relationships to understand user
issues and technology trends, drawing on the expertise of META Group analysts
in all Continuous Services areas. Services include planning foundation
analysis, business and technology requirements analysis, strategy
development, outsourcing strategies, Year 2000 compliance migration planning
and procurement strategies.

MGC has recently added a Customer Management Strategies practice to offer
helpdesk and callcenter consulting and benchmarking services to its clients.
The acquisition by the Company of certain assets of The Verity Group, Inc. in
late 1997 has enabled the Company to offer these services. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."

The Company also recently formed a joint venture with SRI International
designed to deliver thought-leading research, methods and tools to senior
management of global 2000 companies planning for the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."

Benchmarking. META Metrix provides benchmarking and best practices
analyses of technology operating environments by using comparative metrics
to assess effectiveness of IT operations. Its services are provided through
both individual consulting engagements and client-sponsored action groups
to research IT management issues. Taking comprehensive measurements of a
client's technology operations, META Metrix then compares them with those of
other companies and provides detailed analyses to support these comparisons,
explaining what differentiates one client's IT infrastructure, data center,
wide-area network, local-area network, client/server from that of others.
META Metrix then delivers summary recommendations on how to improve the
client's specific technology operating environment.

Publications

To address specific technical, business and management needs for detailed
information, META Group offers a growing variety of topic-specific
publications designed to serve both as complements to our core services and
as stand-alone deliverables that meet specific assessment requirements such
as:

. Annual Salary Survey Report

. Intranet ROI - a guide to optimizing investment decisions

. Datamining - trend, technology and implementation imperatives

. Security in Enterprise Computing - a practical guide to achievable
security

. Software Tools Bulletins - in depth product reviews and comparisons

. Computer Finance - monthly newsletter dealing with total cost of
ownership issues

In February 1996, the Company entered into an exclusive distribution
agreement with Computerwire (formerly known as APT Data Group, plc), a London
based publisher of magazines, newsletters, and product review bulletins for
users and suppliers of information technology. Under the agreement, the
Company has the exclusive right to market and distribute four of
Computerwire's Software Tools Bulletins in the United States, Canada, and
Latin America. These bulletins provide monthly product and category reviews
in the areas of client/server development, data warehousing, distributed
systems management, and object oriented development. In addition, the
Company markets Computerwire's Computer Finance, a monthly analysis of cost
issues faced by large corporate IT users.

The successful assimilation, marketing and sale of new products are
subject to certain risks and uncertainties. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Certain Factors
That May Affect Future Results - Risks Associated With New Product
Development."

Research and Analysis

The Company employs a consistent, disciplined research and analysis
methodology across the Company's Continuous Services. Each Continuous Service
has a Service Director who is responsible for implementing the Company's
research and analysis methodology in that service. The development
methodology consists of an iterative process of research, analysis,
hypothesis and testing. Analysts conduct extensive primary research, working
with the Company's user client base, surveying vendors and contacting other
sources. These activities are supplemented with searches of numerous trade,
financial and other third-party source materials compiled in the Company's
resource center. A meeting of the entire META Group research staff is held
weekly, at which findings are presented and scrutinized. From this research,
analysts identify significant patterns and trends, develop assumptions, test
hypotheses and arrive at concrete recommendations and conclusions to provide
to clients. META Group analyst compensation is based in part on meeting
monthly publishing deadlines, as well as proactive client contact.

The knowledge and experience of the Company's analysts is critical to the
quality of the Company's products and services. To ensure consistency of
positions and analysis across service disciplines, all META Group research
is reviewed by the Company's Research Director. While varying opinions and
philosophical contention among services and research disciplines are
encouraged, final positions and conclusions are consistent. This practice
ensures that the analytical structure and recommendations presented in the

Company's research better enable the various elements of client
organizations to formulate integrated strategies based on coherent
information and analysis.

Sales and Marketing

META Group uses a direct sales force domestically and a network of local
independent sales representative organizations internationally to market and
sell its Continuous Services. The Company's domestic direct sales force is
comprised of 48 field sales personnel located throughout the United States.
The Company's publication products are sold domestically by a separate
in-house direct marketing organization totaling 20 tele-sales professionals.
Internationally, the Company currently utilizes independent sales
representative organizations selling both Continuous Services and
publication products in Canada, Europe, Far East, Middle East, South America
and South Africa. Under the terms of the Company's international sales
representative agreements, sales representative organizations are assigned
exclusive territories and annual quotas. These international sales
representative organizations also perform selected client service functions,
and bill and collect revenues attributable to international clients. The
Company realizes revenues from the international sales representative
organizations at rates of 40% to 60% of amounts billed to those clients. See
"Management Discussion and Analysis of Financial Condition and Results of
Operations - Certain Factors That May Affect Future Results - Risk Associated
With International Operations" and Note 1 of Notes to Financial Statements.

As of December 31, 1997, the Company had over 3,400 subscribers in
approximately 1,400 client organizations worldwide, and no single client
accounted for more than 2% of the Company's revenues for the year ended
December 31, 1997. The Company does not believe it is the exclusive provider
of IT research and advisory services to its clients.

In March 1995, META Group entered into an exclusive strategic alliance
agreement with First Albany Corporation ("First Albany"), a financial
services firm. The agreement provides for the distribution of the Company's
written research and analysis, in its original form or as customized and
expanded by First Albany, to First Albany's financial services customers,
which include many institutional investors. The agreement restricts the
Company from marketing its services to any broker dealer or sell-side firm
offering services similar to those offered by First Albany. The Company is
permitted to market and sell Continuous Services to First Albany buy-side
customers. The initial term of this agreement is four years, annually
renewable by First Albany thereafter, subject to attainment of specified
minimum revenue targets. The Company recognized $616,500, $425,000, and
$275,000 in revenues from this arrangement in the years ended December 31,
1997, 1996, and 1995, respectively. George C. McNamee, a director of the
Company, is also Chairman and Co-Chief Executive Officer of First Albany.
See Note 12 of Notes to Financial Statements.

Client Support

META Group is committed to providing a high level of client service as
defined by response time, clarity of advice and quality of communication.
META Group analysts respond to clients' inquiries and concerns as they arise,
and analyst compensation is based in part on client inquiry response times.
Analysts' regular contact with clients through telephone consultations,
briefings and conferences also provides the Company with feedback which is

used in the enhancement of its services. In addition, the META Group research
library frequently performs supporting client-specific topical searches on
particular IT issues. The Company maintains a key issues database that
identifies areas of particular concern to clients and regularly uses customer
satisfaction surveys to refine and enhance the quality of the services it
provides.

The Company sells Continuous Services pursuant to renewable one-year
subscription agreements, which are generally paid in full at the start of
the subscription period. During each of 1997, 1996 and 1995, approximately
75% of the Company's client organizations renewed one or more subscriptions.
However, there can be no assurance that the Company will be able to sustain
its client retention rates at historical levels. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Competition

The Company experiences competition in the market for IT research and
analysis products and services from other independent providers of similar
services, as well as the internal planning and marketing staffs of the
Company's current and prospective clients. The Company's principal
direct competitor, Gartner Group, Inc., has a substantially longer operating
history, is significantly larger and has considerably greater financial
resources and market share than the Company. The Company also competes
indirectly against other information providers, including electronic and
print media companies and consulting firms. The Company's indirect
competitors could choose to compete directly against the Company in the
future. Many of the Company's direct and indirect competitors have
substantially greater financial, information gathering and marketing
resources than the Company. In addition, although the Company believes that
it has established a significant market presence, there are few barriers to
entry into the Company's market, and new competitors could readily seek to
compete against the Company in one or more market segments addressed by the
Company's Continuous Services. Increased competition could adversely affect
the Company's operating results through pricing pressure and loss of market
share. There can be no assurance that the Company will be able to continue
to compete successfully against existing or new competitors.

The Company believes that the principal competitive factors in its
industry are quality of research and analysis applied in context of client
IT environments, timely delivery of relevant information, client support and
responsiveness, the ability to offer products that meet changing market needs
for information and analysis, and price. The Company believes it competes
favorably with respect to each of these factors.

Employees

As of December 31, 1997, the Company employed 310 persons, including 158
research analysis and fulfillment personnel (including 107 analysts and
consultants), 81 sales and marketing personnel and 71 administrative
personnel. Of these employees, 164 are located at the Company's headquarters
in Stamford, Connecticut, 130 are located at other domestic facilities
and 16 are located overseas. None of the Company's employees is represented
by a collective bargaining arrangement, and the Company has experienced no
work stoppages. The Company considers its relations with its employees to be
good. All employees are granted stock options upon hiring.

The Company's future success depends in large part on the ability to
continue to motivate and retain highly qualified employees, including
management personnel, and to attract and retain a significant number of
additional qualified personnel, including research analysts, sales personnel
and product development and operations staff. Competition for qualified
personnel in the Company's industry is intense, and many of the companies
with which META Group competes for qualified personnel, including Gartner
Group, have substantially greater financial and other resources than the
Company. Furthermore, competition for qualified personnel can be expected
to become more intense as competition in the Company's industry increases.
There can be no assurance that the Company will be able to recruit, retain
and motivate a sufficient number of qualified personnel to compete
successfully. The loss of any of the Company's senior management personnel,
particularly Dale Kutnick, president, chief executive officer and research
director of the Company, or any material failure to recruit, retain and
motivate a sufficient number of qualified personnel would have a material
adverse effect on the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Certain Factors That May
Affect Future Results - Dependence on Ability to Attract and Retain Qualified
Personnel" and"- Dependence on Key Personnel."

ITEM 2. PROPERTIES

The Company's headquarters are located in approximately 63,000 square feet
of office space in Stamford, Connecticut. This facility accommodates
research, marketing, sales, customer support and corporate administration.
The lease on this facility expires in 2001. The Company also leases office
space in nine other locations to support its research, sales and other
administrative functions including Reston, VA, Burlingame, CA, and
Waltham, MA. The Company believes that its existing facilities are adequate
for its current needs and that additional facilities are available for lease
to meet future needs.

ITEM 3. LEGAL PROCEEDINGS

In November 1995, a complaint was filed in the Bridgeport Judicial
District of the Superior Court of Connecticut by a former consultant to the
Company naming the Company and its Chief Executive Officer as defendants.
The complaint relates to a marketing agreement with the consultant providing
for the marketing and distribution by the consultant, on behalf of the
Company, of a CD-ROM product containing META Group research and analysis
which is at least one year old. The complaint alleges that the agreement
covers distribution of research and analysis through on-line services and
asserts a breach of the agreement and related oral agreements by the Company,
as well as related tort claims. The complaint seeks both injunctive relief
and unspecified damages, which could be substantial. The Company believes
the claim to be without merit and intends to vigorously defend the suit,
however there can be no assurance that these claims will not be upheld. As
discovery is ongoing, the Company is still considering filing counterclaims.

The Company is a party to certain other legal proceedings. However, the
Company believes that none of these proceedings is likely to have a material
adverse effect on the Company's business, results of operations or financial
condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of 1997.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "METG" since its initial public offering (the "Offering")
at $18.00 per share on December 1, 1995. Prior to the Offering, there was no
established public trading market for the Company's shares.

On March 20, 1998, the closing price of the Company's Common Stock was
$30.625, as reported by the Nasdaq National Market. On that date, there were
approximately 88 holders of record of the Company's Common Stock and at least
900 beneficial holders, based on information obtained from the Company's
transfer agent.

The Company has never paid cash dividends on its Common Stock. Any future
declaration and payment of dividends will be subject to the discretion of
the Company's Board of Directors, will be subject to applicable law and will
depend upon the Company's results of operations, earnings, financial
condition, contractual limitations, cash requirements, future prospects and
other factors deemed relevant by the Company's Board of Directors.

The following table reflects the range of high and low bid quotations, as
reported on the Nasdaq National Market, for META Group Common Stock for each
quarter of 1997 and 1996:

High Low
---- ---

1997:
- ----
Fourth Quarter $29.25 $19.25
Third Quarter $25.13 $17.75
Second Quarter $24.25 $15.50
First Quarter $27.00 $16.25

1996:
- ----
Fourth Quarter $34.50 $25.50
Third Quarter $28.25 $20.50
Second Quarter $32.75 $22.50
First Quarter $33.25 $22.00

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data presented below are derived from the financial
statements of the Company, and should be read in connection with those
statements, which are included herein.

Year Ended December 31,
-------------------------------------------------
(In thousands, except per share amounts)

1997 1996 1995 1994 1993
---- ----- ---- ---- ----

Statement of Operations Data:
Revenues:
Continuous services $41,805 $30,769 $22,334 $16,160 $10,266
Other, principally consulting and
publications 9,390 6,197 3,001 1,255 716
------- ------- ------- ------ -------
Total revenues 51,195 36,966 25,335 17,415 10,982
------- ------- ------- ------- -------
Operating expenses:
Cost of services and fulfillment 24,602 18,908 14,515 11,073 7,488
Selling and marketing 12,477 8,797 6,329 6,680 2,838
General and administrative 5,006 3,728 2,180 1,949 1,612
Depreciation and amortization 1,501 1,086 676 441 233
------- ------- ------- ------- ------
Total operating expenses 43,586 32,519 23,700 20,143 12,171
------- ------- ------- ------- -------
Operating income (loss) 7,609 4,447 1,635 (2,728) (1,189)
------- ------- ------- ------- ------

Other income (expense):
Gain on sale of investment 250
Interest income 2,138 1,909 217 16 18
Interest expense (19) (66) (57)
------- ------- ------- ------- ------
Total other income (expense) 2,138 1,909 448 (50) (39)
------- ------- ------- ------- ------

Income (loss) before provision
(benefit) for income tax 9,747 6,356 2,083 (2,778) (1,228)
Provision (benefit) for income tax 3,980 2,730 (1,547)
Net income (loss) $ 5,767 $ 3,626 $ 3,630 $ (2,778) $(1,228)
======= ======= ======= ======== =======
Net income (loss) per diluted
common share $ .72 $ .47 $ .67 $ (1.31) $ (.69)
======= ======= ======= ======== =======
Weighted average number of diluted
common shares outstanding 7,958 7,668 5,414 2,118 1,770
======= ======= ======= ======== =======
Net income (loss) per basic
common share $ .80 $ .61 $ 1.13 $ (1.31) $ (.69)
======= ======= ======= ======== =======
Weighted average number of basic
common shares outstanding 7,214 5,950 3,210 2,118 1,770
======= ======= ======= ======== =======

December 31,
-------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)

Balance Sheet Data:
Cash and cash equivalents $12,910 $19,335 $35,525 $ 301 $ 737
Marketable securities 27,746 15,684
Working capital (deficit) 32,826 28,843 27,676 (7,102) (4,518)
Total assets 89,453 70,171 52,356 11,385 7,997
Deferred revenues 29,136 22,885 16,557 13,484 9,901
Total debt 250 784
Redeemable convertible preferred stock 1,500
Total stockholders' equity (deficiency) 55,400 42,728 31,868 (7,226) (4,503)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

META Group is an independent market assessment company providing research
and analysis of developments, trends and organizational issues relating to
the computer hardware, software, communications, and related information
technology industries to IT users and vendors. IT user organizations utilize
META Group's research, analysis and recommendations to develop and employ
cost-effective strategies for selecting and implementing timely IT solutions
and for aligning these solutions with business priorities. IT vendors use
META Group's services for help in product positioning, marketing and market
planning, as well as for internal IT decision making.

Continuous Services subscriptions, which are annually renewable contracts
and generally payable by clients in advance, comprised approximately 82% and
83% of the Company's total revenues for the years ended December 31, 1997 and
1996, respectively. Billings attributable to the Company's Continuous
Services are initially recorded as deferred revenues and then recognized pro
rata over the contract term. During each of 1997, 1996, and 1995,
approximately 75% of the Company's clients renewed one or more subscriptions;
however, this client retention rate is not necessarily indicative of the rate
of retention of the Company's revenue base. The Company's other revenues are
derived from project consulting, benchmarking, conferences, speaker
engagement fees and publications. The Company's consulting clients typically
consist of Continuous Services clients seeking additional advice tailored to
their individual IT requirements.

One measure of the volume of the Company's business is its annualized
"Contract Value," which the Company calculates as the aggregate annualized
subscription revenue recognized from all Continuous Services contracts in
effect at a given point in time, without regard to the remaining duration of
such contracts. While Contract Value is not necessarily indicative of future
revenues, Contract Value has grown every quarter since the Company's
inception and increased 37% to $48.3 million at December 31, 1997 from
$35.3 million at December 31, 1996. At December 31, 1997, the Company had
over 3,400 Continuous Services subscribers in approximately 1,400 client
organizations worldwide.

Continuous Services revenues attributable to international clients are
billed and collected by the Company's international sales representative
organizations. The Company realizes revenues from the international sales
representative organizations at rates of 40% to 60% of amounts billed to
those clients.

The Company's operating expenses consist of cost of services and
fulfillment, selling and marketing expenses and general and administrative
expenses. Cost of services and fulfillment represents the costs associated
with production and delivery of the Company's products and services and
includes the costs of research, development and preparation of periodic
reports, analyst telephone consultations, executive briefings and
conferences, publications, consulting services, new product development and
all associated editorial and support services. Selling and marketing
expenses include the costs of salaries, commissions and related benefits for
such personnel, travel and promotion. General and administrative expenses

include the costs of the finance and accounting departments, legal, human
resources, corporate IT and other administrative functions of the Company.

Results of Operations

The following table sets forth certain financial data as a percentage of
total revenues for the periods indicated:

1997 1996 1995
---- ---- ----

Revenues:
Continuous services 82% 83% 88%
--- --- ---
Other revenues, principally consulting and publications 18 17 12%
--- --- ---
Total revenues 100 100 100
--- --- ---
Operating expenses:
Cost of services and fulfillment 48 51 57
Selling and marketing 24 24 25
General and administrative 10 10 9
Depreciation and amortization 3 3 3
--- --- ---
Total operating expenses 85 88 94
--- --- ---
Operating income 15 12 6
--- --- ---
Other income (expense):
Gain on sale of investment 1
Interest income 4 5 1
--- --- ---
Total other income (expense) 4 5 2
--- --- ---
Income before provision (benefit) for income tax 19 17 8
--- --- ---
Provision (benefit) for income tax 8 7 (6)
--- --- ---
Net income 11% 10% 14%

Years Ended December 31, 1997 and December 31, 1996

Total Revenues. Total revenues increased 38% to $51.2 million in the year
ended December 31, 1997 from $37.0 million in the year ended December 31,
1996. Revenues from Continuous Services increased 36% to $41.8 million in the
year ended December 31, 1997 from $30.8 million in the year ended
December 31, 1996. The increases in total revenues and revenues from
Continuous Services were primarily due to continued expansion of the
Company's domestic sales force, increases in average selling prices,
recognition of new revenue from launch of new Continuous Services, as well
as growing worldwide market acceptance of the Company's products. The
Company increased average selling prices 8% to $16,600 in 1997 from $15,400
in 1996 by continuing to broaden research coverage within its existing
Continuous Services. The Company grew its subscriber client base 22% to
3,410 Continuous Service clients at December 31, 1997 from 2,800 subscribers
at December 31, 1996.

Other revenues, consisting principally of revenues from consulting and
publications, increased 52% to $9.4 million in the year ended December 31,
1997 from $6.2 million in the year ended December 31, 1996, and increased
as a percentage of total revenues to 18% from 17%. The increase in other
revenues was primarily attributable to the growth of META Group Consulting
and, to a lesser extent, the growth of the Company's publications.

Revenues attributable to international clients increased 75% in the year
ended December 31, 1997 from the year ended December 31, 1996, and increased
as a percentage of total Continuous Services revenues to 13% from 10%. The
increase was primarily due to the increased presence of the Company's
services in existing international markets. The Company currently has
independent sales representation in 29 countries. The Company expects that
international revenues will continue to account for a significant portion of
its total revenues.

Cost of Services and Fulfillment. Cost of services and fulfillment
increased 30% to $24.6 million in the year ended December 31, 1997 from
$18.9 million in the year ended December 31, 1996, principally due to
increased analyst, consultant and fulfillment staffing and related
compensation expense required to support the Company's growth both
domestically and internationally and, to a lesser extent, due to the
development and launch of three new Continuous Services. Costs of services
and fulfillment decreased as a percentage of total revenues to 48% from
51%. This decrease primarily reflects the improved average selling prices
discussed above.

Selling and Marketing Expenses. Selling and marketing expenses increased
42% to $12.5 million in the year ended December 31, 1997 from $8.8 million
in the year ended December 31, 1996 and remained constant as a percentage of
total revenues at 24%. The increase in expenses was principally due to
increased sales-related compensation expense associated with increased
revenues, the expansion of a direct marketing publications channel, and
higher marketing and promotion expenditures related to the launch of new
services and publications. The Company anticipates continuing increases in
the amount of selling and marketing expenses as it continues to grow by
expanding the scope of its product offerings, and it expects that such
expenses as a percentage of total revenues will remain approximately the
same.

General and Administrative Expenses. General and administrative expenses
increased 34% to $5.0 million in the year ended December 31, 1997 from
$3.7 million in the year ended December 31, 1996 and remained constant as a
percentage of total revenues at 10%. The increase in expenses was principally
due to increased finance, accounting, and corporate IT staffing necessary to
support business growth. In addition, higher facilities costs were incurred
in connection with the Company's expansion into larger offices in
Reston, VA and Waltham, MA. The Company anticipates continuing increases in
the amount of general and administrative expenses and expects such expenses
to decrease slightly as a percentage of total revenues.

Depreciation and Amortization. Depreciation and amortization expense
increased 38% to $1.5 million in the year ended December 31, 1997 from
$1.1 million in the year ended December 31, 1996. The increase in
depreciation and amortization expense was principally due to office
furnishings and equipment purchases required to support business growth and
the expansion to larger offices in Reston, VA and Waltham, MA during
late 1996.

Interest Income. Interest income increased to $2.1 million in the year
ended December 31, 1997 from $1.9 million in the year ended December 31, 1996
due to an increase in the Company's balances of cash and marketable
securities, resulting from positive cash flows from operations.

Provision for Income Taxes. The Company recorded a provision for income
taxes of $4.0 million and $2.7 million, reflecting an effective tax rate of

41% and 43%, during the years ended Dcember 31, 1997 and 1996, respectively.
The Company's effective tax rate has declined due to the continued
expansion of business in states with lower income tax rates. The Company
was not required to pay federal income tax due to the utilization of net
operating loss carryforwards.

Years Ended December 31, 1996 and December 31, 1995

Total Revenues. Total revenues increased 46% to $37.0 million in the year
ended December 31, 1996 from $25.3 million in the year ended December 31,
1995. Revenues from Continuous Services increased 38% to $30.8 million in
the year ended December 31, 1996 from $22.3 million in the year ended
December 31, 1995. The increases in total revenues and revenues from
Continuous Services were primarily due to continued expansion of the
Company's domestic sales force, increases in average selling prices, as
well as growing worldwide market acceptance of the Company's products.
The Company increased average selling prices 8.5% to $15,400 in 1996 from
$14,200 in 1995 by continuing to broaden research coverage within its
existing Continuous Services. The Company grew its subscriber client base
33% to 2,800 Continuous Service clients at December 31, 1996 from 2,100
clients at December 31, 1995.

Other revenues, consisting principally of revenues from consulting and
conferences, increased 106% to $6.2 million in the year ended December 31,
1996 from $3.0 million in the year ended December 31, 1995, and increased
as a percentage of total revenues to 17% from 12%. The increase in other
revenues was primarily attributable to the expansion of META Group
Consulting activities and, to a lesser extent, the introduction of several
new publications and the increase in paid attendance at the Company's major
conferences.

Revenues attributable to international clients increased 100% in the
year ended December 31, 1996 from the year ended December 31, 1995, and
increased as a percentage of total Continuous Services revenues to 10% from
7%. The increase was primarily due to the increased presence of the Company's
services in existing international markets.

Cost of Services and Fulfillment. Cost of services and fulfillment
increased 30% to $18.9 million in the year ended December 31, 1996 from
$14.5 million in the year ended December 31, 1995. The increase was
principally due to increased analyst staffing and related compensation
expense required to support the Company's growth both domestically and
internationally and, to a lesser extent, to the development of three new
Continuous Services. Costs of services and fulfillment decreased as a
percentage of total revenues to 51% from 57%. This decrease was primarily
due to improvement in the Company's analyst productivity, as indicated by
an increase in the Company's average client/analyst ratio to 48-to-1 in its
seven core services during the year ended December 31, 1996 from 42-to-1
during the year ended December 31, 1995. This decreased percentage also
reflected improved average selling prices discussed above.

Selling and Marketing Expenses. Selling and marketing expenses increased
39% to $8.8 million in the year ended December 31, 1996 from $6.3 million in
the year ended December 31, 1995 but decreased as a percentage of total
revenues to 24% from 25%. The increase in expenses was principally due to
increased sales-related compensation expense associated with increased
revenues, the establishment of a direct marketing distribution channel, and
higher market and promotion expenditures related to the launch of new
services and publications.

General and Administrative Expenses. General and administrative expenses
increased 71% to $3.7 million in the year ended December 31, 1996 from
$2.2 million in the year ended December 31, 1995 and increased as a
percentage of total revenues to 10% from 9%. The increase in expenses was
principally due to growth of corporate staffing and increases in insurance
premiums, investor relations and professional fees, which grew as a result
of the additional requirements related to the Company becoming publicly
traded at the end of 1995. In addition, higher facilities costs were
incurred in connection with the Company's expansion into larger offices
in Reston, VA and Waltham, MA.

Depreciation and Amortization. Depreciation and amortization expense
increased 61% to $1.1 million in the year ended December 31, 1996 from
$676,000 in the year ended December 31, 1995. The increase in depreciation
and amortization expense was principally due to office furnishings and
equipment purchases required to support business growth and the expansion
to larger offices in Reston, VA and Waltham, MA during 1996.

Gain on Sale of Investment. The Company recognized a $250,000 gain on
the sale of an investment in the year ended December 31, 1995. This
investment was in common stock of a former client that was received as
consideration for consulting services provided in 1991.

Interest Income. Interest income increased to $1.9 million in the year
ended December 31, 1996 from $217,000 in the year ended December 31, 1995
due to an increase in the Company's balances of cash and marketable
securities, resulting from the sale of securities in connection with the
Company's initial public offering and from positive cash flows from
operations.

Provision for Income Taxes. The Company recorded a provision for income
taxes of $2.7 million and $918,000, reflecting an effective tax rate of 43%
and 44%, during the years ended December 31, 1996 and 1995, respectively.
During the year ended December 31, 1995, the Company recorded a $2.5 million
benefit associated with the reduction of a substantial portion of the
Company's deferred tax asset valuation allowance. The Company's
profitability during 1995 and expected future taxable income made the
Company believe that it is more likely than not that its deferred tax assets
would be realized.

Liquidity and Capital Resources

The Company has funded its operations to date primarily through its
initial public offering, cash generated from operations, the private sale of
$3.6 million of preferred stock in 1994 and 1995, and proceeds from the
exercise of common stock options. In December 1995, the Company received net
proceeds (after deducting underwriting commissions and discounts and
applicable offering expenses) of $30.2 million relating to its initial
public offering of 1,860,000 shares of Common Stock. The Company generated
$8.2 million, $5.5 million, and $3.7 million of cash from operations during
the years ended December 31, 1997, 1996, and 1995, respectively.

The Company used $1.9 million, $1.7 million and $1.1 million of cash in
the years ended December 31, 1997, 1996 and 1995, respectively for the
purchase of furniture, equipment, computers and related software for use by
the Company's employees. The Company expects that additional purchases of

equipment will be made as the Company's employee base grows. As of
December 31, 1997, the Company had no material commitments for capital
expenditures.

During the years ended December 31, 1997 and 1996, the Company made
equity investments and advances to several companies in parallel or
synergistic industries. The balance of the Company's investments and
advances at December 31, 1997 and 1996 was $6.4 million and $5.2 million,
respectively. These investments and advancements are summarized below, and
in footnote 5 to the notes to the financial statements. See "Certain Factors
That May Affect Future Results - Risk Associated With New Product Development"
and "- Potential Acquisitions."

In December 1997, the Company acquired certain assets and all the
intellectual property of The Verity Group, Inc. for contingent consideration
of $1.1 million in cash over four years, if certain operating targets are
achieved. Verity Group provides helpdesk and callcenter consulting and
benchmarking services, and will form the Company's new Customer Management
Strategies practice within META Group Consulting. See "Business - Products
and Services - Consulting and Benchmarking Services."

In November 1997, the Company invested $1.3 million in cash in a joint
venture (in which the Company owns a 33% interest) with SRI Consulting,
designed to deliver thought-leading research, methods, metrics, and tools to
senior management of global 2000 companies scenario planning for the future.
SRI Consulting is a wholly owned subsidiary of SRI International, a Silicon
Valley based think-tank working with companies worldwide to identify market
opportunities and develop strategies for competing in technology-driven
markets. See "Business - Products and Services - Consulting and Benchmarking
Services."

In December 1996, the Company made a minority equity investment of $1.7
million in cash in Computerwire (formerly known as APT Data Group, plc), an
independent publisher of magazines, newsletters, and product review
bulletins for users and suppliers of IT. Under an exclusive distribution
agreement entered into earlier in 1996, the Company markets five of
Computerwire's publications in the United States, Canada and Latin America.
See "Business - Publications."

In December 1996, the Company also made a minority equity investment of
$2.6 million in cash in Spikes Cavell & Co. Spikes Cavell tracks the United
Kingdom and European IT and telecommunications markets, supplying market
intelligence to technology vendors.

In November 1996, the Company acquired all of the intellectual property
of DeBoever Architectures, Inc., a consulting firm that provided IT
architecture planning and implementation advisory services, for
consideration of $90,000, plus ISOs granted to Mr. DeBoever upon
commencement of his employment with the Company. The existing practice
was merged into the Company's portfolio of Continuous Services to become
the Enterprise Architecture Strategies Service. See "Business - Products
and Services - Continuous Services."

The Company regularly invests excess funds in high quality short-term
investments, such as repurchase agreements, short-term commercial paper and
money market funds. As these investments generally have terms of less than
three months, they are included under the caption "Cash and cash equivalents"
in the balance sheet.

In addition, the Company invests in other short-term (less than one-year
maturities), high quality marketable debt securities. Generally, these
securities are purchased in denominations of $1 million to $5 million and
held to maturity. No losses have been experienced on such investments.

As of December 31, 1997, the Company had cash and cash equivalents of
$12.9 million, marketable securities valued at $27.7 million, and working
capital of $32.8 million. The Company believes that the existing cash
balances and anticipated cash flows from operations will be sufficient to
meet its working capital, investment, and capital expenditure requirements
for the foreseeable future.

Certain Factors That May Affect Future Results

The Company does not provide forecasts of the future financial performance
of the Company. However, from time to time, information provided by the
Company or statements made by its employees may contain "forward looking"
information that involve risks and uncertainties. In particular, statements
contained in this Form 10-K which are not historical facts (including, but
not limited to statements concerning international revenues, anticipated
operating expense levels and such expense levels relative to the Company's
total revenues) constitute forward looking statements and are made under the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The Company's actual results of operations and financial condition
have varied and may in the future vary significantly from those stated in
any forward-looking statements. Factors that may cause such differences
include, without limitation, the risks, uncertainties and other information
discussed within this Form 10-K, as well as the accuracy of the Company's
internal estimates of revenue and operating expense levels.

The following discussion of the Company's risk factors should be read in
conjunction with the financial statements and related notes thereto. The
following factors, among others, could cause actual results to differ
materially from those contained in forward looking statements contained or
incorporated by reference in this report and presented by management from
time to time. Such factors, among others, may have a material adverse effect
upon the Company's business, results of operations and financial condition.

Dependence on Renewals of Subscription-Based Services

Approximately 82% and 83% of the Company's total revenues in 1997 and
1996, respectively, were derived from subscriptions to the Company's
Continuous Services. 75% of the Company's Continuous Service clients
renewed for one or more subscriptions in 1997 and 1996. There can be no
assurance that the Company will be able to sustain such subscription renewal
rates. The Company's ability to secure subscription renewals is dependent
upon, among other things, its ability to deliver, through its Continuous
Services, consistent, high quality and timely analysis and advice with
respect to issues, developments and trends that clients view as important.
In order to deliver valuable analysis and advice on a sustained basis, the
Company must, among other things, recruit and retain a large and growing
number of highly talented professionals in a very competitive job market,
understand and anticipate market trends so as to keep its analysis focused
on the changing needs of its clients, and deliver products and services of
sufficiently high quality and timeliness to withstand competition. There

can be no assurance that the Company will be able to sustain the necessary
level of performance to maintain its subscription renewal rates at their
historical levels. Any material decline in subscription renewal rates from
their historical levels would have a material adverse effect on the Company's
operating results.

Potential Fluctuations in Operating Results

The Company's operating results have fluctuated in the past and may
fluctuate significantly in the future due to various factors. Since a
disproportionately large portion of the Company's Continuous Services
contracts expire in the fourth quarter of each year, the Company incurs
operating expenses in the fourth quarter at a higher level than would
otherwise be required by its sequential growth, and such increased expenses
are not normally offset immediately by higher revenues. In addition, the
Company's operating results may fluctuate as a result of a variety of other
factors, including the level and timing of renewals of subscriptions to
Continuous Services, the timing and amount of new business generated by the
Company, the mix of domestic versus international business, the timing of
the development, introduction and marketing of new products and services,
the timing of the hiring of research analysts, changes in the spending
patterns of the Company's target clients, the Company's accounts receivable
collection experience, changes in market demand for IT research and analysis
and competitive conditions in the industry. Due to these factors, the
Company believes period-to-period comparisons of results of operations are
not necessarily meaningful and should not be relied upon as an indication
of future results of operations. The potential fluctuations in the Company's
operating results make it likely that, in some future quarter, the Company's
operating results will be below the expectations of securities analysts and
investors, which would have a material adverse effect on the price of the
Company's Common Stock.

Risks Associated with International Operations

Net revenues attributable to international clients represented
approximately 13% and 10% of the Company's total Continuous Services
revenues for the years ended December 31, 1997 and 1996, respectively. The
Company's products are sold internationally through a network of 22
independent sales representative organizations. Conducting international
sales through independent sales representative organizations entails a
significantly greater risk than domestic sales through a direct employee
sales force for a number of reasons, including a greater accounts
receivable collection risk because payment for services is made by the
Company's international sales representative organizations, rather than by
the client. As such, outstanding collections are at risk if an international
distributor is experiencing financial hardship. In addition, the Company's
international operations are subject to numerous inherent challenges and
risks, including developing and managing relationships with international
sales representative organizations, reliance by the Company on sales
entities which it does not control, greater difficulty in maintaining direct
client contact, fluctuations in exchange rates, political and economic
conditions in various jurisdictions, tariffs and other trade barriers,
longer accounts receivable collection cycles and potentially adverse tax
consequences.

The Company expects that international operations will continue to
account for a significant portion of its revenues and intends to continue to
expand its international operations. Expansion into new geographic
territories can be expected to require considerable management and financial
resources and may negatively impact the Company's near-term results of
operations.

There can be no assurance that factors such as those discussed above will
not have a material adverse effect on the Company.

Risks of Failing to Anticipate Changing Market Needs

The Company's success will depend in part upon its ability to anticipate
rapidly changing technologies and market trends and to adapt its Continuous
Services to meet the changing information and analysis needs of IT users.
The IT industry which META Group seeks to analyze is characterized by
frequent and often dramatic changes, including the introduction of new
products and obsolescence of others, shifting strategies and market positions
of major industry participants, paradigm shifts with respect to system
architectures and other fundamental issues and changing objectives and
expectations of IT users and vendors. This environment of rapid and
continuous change presents significant challenges to the Company's ability
to provide its clients with current and timely analysis and advice on issues
of importance to them. Meeting these challenges requires the commitment of
substantial resources, and any failure to continue to provide, through the
Company's Continuous Services, insightful and timely analysis of
developments and assessment of technologies and trends in a manner that
meets changing market needs could materially and adversely affect the
Company's future operating results.

Dependence on Ability to Attract and Retain Qualified Personnel

In order to execute its strategy successfully, the Company will be
required to attract and retain a significant number of additional qualified
personnel, including research analysts, sales personnel and product
development and operations staff. Competition for qualified personnel in
the Company's industry is intense, and many of the companies with which META
Group competes for qualified personnel, including Gartner Group, have
substantially greater financial and other resources than the Company.
Furthermore, competition for qualified personnel can be expected to become
more intense as competition in the Company's industry increases. There can
be no assurance that the Company will be able to recruit, retain and
motivate a sufficient number of qualified personnel to compete successfully.
Any material failure to recruit, retain and motivate a sufficient number of
qualified personnel would have a material adverse effect on the Company.

Competition

The Company competes in the market for information products and services
directly with other independent providers of similar services and indirectly
with the internal planning and marketing staffs of current and prospective
client organizations. The Company's principal direct competitor, Gartner
Group, has a substantially longer operating history, is significantly larger
and has considerably greater financial resources and market share than the
Company. The Company also competes indirectly with other information
providers, including electronic and print media companies and consulting
firms. The Company's indirect competitors, many of which have substantially
greater financial, information gathering and marketing resources than the
Company, could choose to compete directly against the Company in the future.
In addition, there are few barriers to entry into the Company's market, and
new competitors could readily seek to compete against the Company in one or
more market segments addressed by the Company's Continuous Services.
Increased competition could adversely affect the Company's operating

results through pricing pressure and loss of market share. There can be no
assurance that the Company will be able to continue to compete successfully
against existing or new competitors.

Risks Associated With New Product Development

The Company's future success will depend in part on its ability to
develop or acquire new products and services that address specific industry
and business organization sectors, changes in client requirements and
technological changes in the IT industry. The process of internally
researching, developing, launching and gaining client acceptance of a new
product or service, or assimilating and marketing an acquired product or
service, is inherently risky and costly. The Company has had limited
experience introducing new products and services and there can be no
assurance that its efforts to introduce new, or assimilate acquired,
products or services, will be successful. During 1997 and 1996, the Company
invested $1.3 million and $5.2 million, respectively, in acquiring minority
interests in or advancing funds to several companies whose products,
services and/or distribution channels are synergistic. The Company has
had limited experience in managing investments of this type and there can
be no assurance a return will be realized.

Dependence on Key Personnel

The Company's future success depends in large part on the continued
service of its key management, research, sales, product development and
operations personnel and on its ability to continue to motivate and retain
highly qualified employees. In particular, the loss of Dale Kutnick,
president, chief executive officer and research director, or any of the
Company's other senior management personnel, could have a material adverse
effect on the Company.

Risk of Product Pricing Limiting Potential Market

The Company's pricing strategy may limit the potential market for the
Company's Continuous Services to substantial commercial and governmental
users of IT, as well as IT vendors. As a result, the Company may be required
to reduce prices for its Continuous Services or to introduce new products
with lower prices in order to expand its market share. These actions could
have a material adverse effect on the Company's business and results of
operations.

Impact of the Year 2000 Issue

The Company has commenced efforts to ensure that the computer systems and
applications upon which it relies for internal operations and external
communications with clients and others will function properly beyond 1999.
The Company presently believes that the computer systems and programs upon
which it relies for its internal operations and external communications are
Year 2000 compliant. There can be no assurance, however, that further
assessment of the Company's internal systems and applications will not
indicate that additional efforts to assure Year 2000 compliance are
necessary, and such efforts may be costly and may divert the Company's
resources from product development or infrastructure improvement programs.
Further, there can be no assurance that the systems operated by other
companies upon which the Company relies will be Year 2000 complaint on
a timely basis. The Company's business, financial condition or results of

operations could be materially adversely affected by the failure of the
Company's internal systems and applications to properly operate or manage
data beyond 1999.

Management of Growth

Since inception, the Company has experienced substantial changes in its
operations, as a result of the expansion and growth of the Company's
business, which have placed significant demands on the Company's management,
administrative, operational and financial resources. The Company's ability
to manage growth, should it continue to occur, will require the Company to
continue to implement and improve its operational, financial and management
information systems and to motivate and effectively manage an evolving
workforce. If the Company's management is unable to effectively manage a
changing and growing business, the quality of the Company's products, its
ability to retain key personnel and its results of operations could be
materially adversely affected.

Potential Acquisitions

In the normal course of its business, the Company evaluates potential
acquisitions of businesses, products and services that could complement or
expand the Company's business. In the event the Company were to identify an
appropriate acquisition candidate, there is no assurance that the Company
would be able to successfully negotiate the terms of any such acquisition,
finance such acquisition and integrate such acquired business, products or
service into the Company's existing business and operations. Furthermore,
the integration of an acquired business could cause a diversion of management
time and resources. In addition, there can be no assurance that any
acquisition of new technology, information, products or services, will lead
to the successful development of new products, or that any such new products,
if developed, will achieve market acceptance or prove to be profitable.
There can be no assurance that a given acquisition, when consummated, would
not material adversely affect the Company's business, financial condition
or results of operations.

New Accounting Policies

Adoption of Statement of Financial Accounting Standards No. 128

During 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." SFAS 128 replaces the presentation
of primary earnings per share with a presentation of basic earnings per
share. It also requires dual presentation of basic and diluted earnings per
share on the face of the income statement. Diluted earnings per share is
computed by dividing net income by the weighted average number of common
shares outstanding and dilutive common equivalent shares (common stock
options) outstanding. Common shares outstanding includes issued shares less
shares held in treasury for the respective period. Previously reported
earnings per share information has been restated to conform to SFAS 128.

Recently Issued Financial Accounting Standards

In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income",
which requires a statement of comprehensive income to be included in the
financial statements for fiscal years beginning after December 15, 1997.

The Company is presently designing such statement and, accordingly, will
include such statement beginning with the first quarter of 1998.

In addition, in June 1997, the FASB issued SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS 131 requires
disclosure of certain information about operating segments and about
products and services, geographic areas in which a company operates, and
their major customers. The Company is presently in the process of evaluating
the effect this new standard will have on disclosures in the Company's
financial statements and the required information will be reflected in the
year ended December 31, 1998 financial statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements listed in the following Index to Financial
Statements are filed as a part of this Annual Report on Form 10-K under
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K.

INDEX TO FINANCIAL STATEMENTS
META GROUP, INC.

Page
----

Independent Auditors' Report F-1

Balance Sheets at December 31, 1997 and 1996 F-2

Statements of Income for the years ended December 31, 1997,
1996 and 1995 F-3

Statements of Changes in Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995 F-4

Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995 F-5

Notes to Financial Statements F-6

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item may be found under the sections
captioned "Election of Directors," "Occupations of Directors and Executive
Officers" and "Section 16 (a) Beneficial Ownership Reporting Compliance"
in the Company's Proxy Statement (the "1998 Proxy Statement") for the
Company's Annual Meeting of Stockholders to be held on May 27, 1998, and
is incorporated herein by reference. The 1998 Proxy Statement will be filed
with the Securities and Exchange Commission no later than 120 days after the
close of the Company's fiscal year ended December 31, 1997.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item may be found under the section
captioned "Compensation And Other Information Concerning Directors And
Officers" in the 1998 Proxy Statement, and is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The information required by this item may be found under the section
captioned "Management And Principal Holders Of Voting Securities" in the 1998
Proxy Statement, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item may be found under the section
captioned "Certain Relationships and Related Transactions" in the 1998
Proxy Statement, and is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS
ON FORM 8-K

(a)(1) Financial Statements.

The following financial statements are included in Item 8 of this
report:

Page
----

Independent Auditors' Report F-1

Balance Sheets at December 31, 1997 and 1996 F-2

Statements of Income for the years ended December 31, 1997,
1996 and 1995 F-3

Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995 F-4

Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995 F-5

Notes to Financial Statements F-6

(a)(2) Financial Statement Schedule.

The following financial statement schedule for the Company
is filed as part of this report:

Schedule II - Valuation and Qualifying Accounts S-1

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
accompanying Financial Statements or notes thereto.

(a)(3) List of Exhibits.

The following exhibits are filed as part of, and incorporated by
reference into this Annual Report on Form 10-K:

Exhibit
Number Description
------ -----------
3.1(1) Amended and Restated Certificate of Incorporation of the
Company
3.2(1) Amended and Restated By-Laws of the Company
4.1(1) Specimen certificate representing the Common Stock
10.1(1)* 1995 Stock Plan
10.2(2)* Form of Incentive Stock Option Agreement under the 1995
Stock Plan
10.3(2)* Form of Non-Qualified Stock Option Agreement under the
1995 Stock Plan
10.4(1)* 1995 Employee Stock Purchase Plan
10.5(3)* 1995 Employee Stock Purchase Plan Enrollment Authorization
Form
10.6(1)* 1995 Non-Employee Director Stock Option Plan
10.7(2)* Form of Non-Qualified Stock Option Agreement under the 1995
Non-Employee Director Stock Option Plan of the Registrant
10.8(1)(4)* Agreement between First Albany Corporation and the Company
dated March 30, 1995
10.9(1)* Restated and Amended 1989 Stock Option Plan, as amended
10.10(1)* Form of Incentive Stock Option Agreement under 1989 Stock
Option Incentive Plan
10.11(1)* Form of Certificate and Agreement under Restated and
Amended 1989 Stock Option Plan
10.12(1)* 1993 Stock Option and Incentive Plan, as amended
10.13(1)* Form of Certificate and Agreement under 1993 Stock Option
and Incentive Plan
10.14(1)* Form of Warrant under the Restated and Amended 1989 Stock
Option Plan and 1993 Stock Option and Incentive Plan
10.15(1) Form of International Sales Representative Agreement
10.16(1) Office Lease between International Business Machines
Corporation and the Company dated August 1, 1994
11.1** Statement re computation of per share earnings
23.1** Consent of Deloitte & Touche LLP
24.1** Power of Attorney (see page 31)
27.1** Financial Data Schedule
------------

(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-97848).
(2) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-8 (File No. 333-1854).
(3) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on form S-8 (File No. 33-80539).
(4) Confidential treatment obtained as to certain portions.
* Indicates a management contract or any compensatory plan, contract
or arrangement.
** Filed herewith.

(b) Reports On Form 8-K

There were no reports on Form 8-K filed by the Company for the quarter
ended December 31, 1997.

(c) Exhibits.

The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) set forth above.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

META Group, Inc.

Date: March 31, 1998 By: /s/ Dale Kutnick
-------------------------------------
Dale Kutnick
President and Chief Executive Officer

POWER OF ATTORNEY AND SIGNATURES

We, the undersigned officers and directors of META Group, Inc., hereby
severally constitute and appoint Dale Kutnick and Bernard F. Denoyer, and
each of them singly, our true and lawful attorneys, with the power to them
and each of them singly, to sign for us and in our names in the capacities
indicated below, any amendments to this Report on Form 10-K, and generally
to do all things in our names and on our behalf in such capacities to enable
META Group, Inc. to comply with the provisions of the Securities Exchange Act
of 1934, as amended, and all the requirements of the Securities and Exchange
Commission.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, in the capacities indicated, on the 31st day of March 1998.

Signature Title(s)
--------- --------

/s/ Dale Kutnick President, Chief Executive Officer
- ----------------------------- (Principal Executive Officer) and Director
Dale Kutnick

/s/ Bernard F. Denoyer Senior Vice President-Finance, Chief
- ----------------------------- Financial Officer, Treasurer and
Bernard F. Denoyer Secretary (Principal Financial Officer
and Principal Accounting Officer)

/s/ Marc Butlein Director
- -----------------------------
Marc Butlien

/s/ Francis J. Saldutti Director
- -----------------------------
Francis J. Saldutti

/s/ Harry S. Gruner Director
- -----------------------------
Harry S. Gruner

/s/ Michael Simmons Director
- -----------------------------
Michael Simmons

/s/George C. McNamee Director
- -----------------------------
George C. McNamee

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
META Group, Inc.
Stamford, Connecticut

We have audited the accompanying balance sheets of META Group, Inc. as of
December 31, 1997 and 1996, and the related statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1997. Our audits also included the financial
statement schedule listed at Item 14(a) 2. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of META Group, Inc. as of December 31, 1997
and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles. Also in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

Stamford, Connecticut
February 6, 1998

META GROUP, INC.
BALANCE SHEETS
(In thousands, except share data)

December 31,
------------

1997 1996
ASSETS ---- ----
Current assets:
Cash and cash equivalents $12,910 $19,335
Marketable securities 23,700 15,684
Accounts receivable, less allowance for doubtful
accounts of $828 and $751 26,302 18,136
Deferred commissions 1,351 1,475
Deferred tax asset 1,490 1,175
Other current assets 1,126 481
------- -------
Total current assets 66,879 56,286
Marketable securities 4,046
Furniture and equipment, net 2,765 2,330
Deferred tax asset 7,759 5,532
Other assets 8,004 6,023
------- -------
Total assets $89,453 $70,171
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 974 $ 837
Accrued compensation and other expenses 3,943 3,721
Deferred revenues 29,136 22,885
------- -------
Total current liabilities 34,053 27,443
------- -------

Commitments and contingencies (See Note 7)

Stockholders' equity:
Preferred stock, $.01 par value, authorized
2,000,000 shares; none issued
Common stock, $.01 par value, authorized
45,000,000 shares; issued 7,849,921 and
6,764,160 shares 78 68
Paid-in capital 49,983 43,088
Retained earnings (deficit) 5,659 (108)
Treasury stock, at cost, 431,344 shares (320) (320)
------- -------
Total stockholders' equity 55,400 42,728
------- -------
Total liabilities and stockholders' equity $89,453 $70,171
======= =======

See notes to financial statements.

META GROUP, INC.
STATEMENTS OF INCOME
(In thousands, except per share data)

Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----

Revenues:
Continuous services $41,805 $30,769 $22,334
Other, principally consulting and publications 9,390 6,197 3,001
------- ------- ------
Total revenues 51,195 36,966 25,335
------- ------- -------
Operating expenses:
Cost of services and fulfillment 24,602 18,908 14,515
Selling and marketing 12,477 8,797 6,329
General and administrative 5,006 3,728 2,180
Depreciation and amortization 1,501 1,086 676
------- ------- -------
Total operating expenses 43,586 32,519 23,700
------- ------- -------

Operating income 7,609 4,447 1,635
------- ------- -------

Other income (expense):
Gain on sale of investment 250
Interest income 2,138 1,909 217
Interest expense (19)
------- ------- ------

Total other income (expense) 2,138 1,909 448
------- ------- ------

Income before provision (benefit) for income tax 9,747 6,356 2,083

Provision (benefit) for income tax 3,980 2,730 (1,547)
------- ------- ------

Net income $ 5,767 $ 3,626 $ 3,630
======= ======= =======

Net income per diluted common share $ .72 $ .47 $ .67
======= ======= =======

Weighted average number of diluted common
shares outstanding $ 7,958 7,668 5,414
======= ======= =======

Net income per basic common share $ .80 $ .61 $ 1.13
======= ======= =======

Weighted average number of basic common
shares outstanding 7,214 5,950 3,210
======= ======= =======

See notes to financial statements.

META GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)

Convertible Retained
Preferred Stock Common Stock Paid-in Earnings Treasury Stock
--------------- ------------ --------------
Total Shares Amount Shares Amount Capital (Deficit) Shares Amount
----- ------ ------ ------ ------ ------- --------- ------ ------

Balance, January 1, 1995 $(7,226) 2,625 $26 $ 290 $(7,364) (285) $(178)
Issuance of Series B Preferred
Stock 2,079 85 $2,079
Exercise of stock options 255 716 7 248
Repurchase of common stock (142) (146) (142)
Issuance of IPO shares 30,207 1,860 19 30,188
Conversion of Series B
Preferred Stock (85) (2,079) 339 3 2,076
Conversion of Series A
Preferred Stock 1,500 346 4 1,496
Exercise of Warrants 134 35 134
Income tax benefit from stock
options exercised 1,431 1,431
Net income 3,630 3,630
------- --- ------- ----- --- -------- ------- ----- ____
Balance, December 31, 1995 31,868 5,921 59 35,863 (3,734) (431) (320)
Exercise of stock options 621 827 8 613
Costs related to the IPO (33) (33)
Issuance of shares under
employee stock purchase plan 322 16 1 321
Income tax benefit from stock
options exercised 6,324 6,324
Net income 3,626 3,626
------- --- -------- ----- --- ------- ------ ---- ----
Balance, December 31, 1996 42,728 6,764 68 43,088 (108) (431) (320)
Exercise of stock options 364 1,072 10 354
Issuance of shares under
employee stock purchase plan 254 14 254
Income tax benefit from stock
options exercised 6,287 6,287
Net income 5,767 5,767
------- --- -------- ----- --- ------- ------ ---- -----
Balance, December 31, 1997 $55,400 7,850 $78 $49,983 $5,659 (431) $(320)
======= === ======== ===== === ======= ====== ===== =====

See notes to financial statements.

META GROUP, INC.
STATEMENTS OF CASH FLOWS
(In thousands)

Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----

Operating activities:
Net income $ 5,767 $ 3,626 $ 3,630
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,501 1,086 676
Provision for bad debts 77 318 142
Deferred income taxes 3,820 2,682 (1,547)
Gain on sale of investment (250)
Changes in assets and liabilities:
Accounts receivable (8,243) (7,907) (2,005)
Deferred commissions 124 (325) (148)
Other current assets (645) (155) (304)
Other assets (740) (705) (91)
Accounts payable 137 (8) 24
Accrued compensation and other expenses 144 548 530
Deferred revenues 6,251 6,328 3,073
------- ------- ------

Net cash provided by operating activities 8,193 5,488 3,730
------- ------- ------
Investing activities:
Capital expenditures (1,908) (1,748) (1,054)
Investment in marketable securities (12,062) (15,684)
Investments and advances (1,266) (5,156)
Proceeds from sale of investment 265
------- ------- ------

Net cash used in investing activities (15,236) (22,588) (789)
======= ======= ======

Financing activities:
Proceeds (costs) related to the IPO (33) 30,207
Proceeds from issuance of preferred stock 2,079
Payments of debt (250)
Proceeds from employee stock purchase plan 254 322
Proceeds from exercise of stock options 364 621 255
Proceeds from exercise of Warrants 134
Repurchase of common stock (142)
------ ------ -------

Net cash provided by financing activities 618 910 32,283
------- ------ -------

Net increase (decrease) in cash and cash
equivalents (6,425) (16,190) 35,224
Cash and cash equivalents at beginning of year 19,335 35,525 301
------- ------- -------

Cash and cash equivalents at end of year $12,910 $19,335 $35,525
======= ======= =======
Supplemental information:
Cash paid during the year for interest $ 23
=======
Cash paid during the year for income taxes $ 216 $ 48
======= =======

See notes to financial statements.

NOTES TO FINANCIAL STATEMENTS

1. Business Description

META Group, Inc. (the "Company") is an independent market assessment
company providing research and analysis of developments, trends and
organizational issues relating to the computer hardware, software,
communications and related information technology ("IT") industries to IT
users and vendors. IT user organizations utilize the Company's research,
analysis and recommendations to develop and employ cost-effective strategies
for selecting and implementing timely IT solutions and for aligning these
solutions with business priorities. IT vendors use the Company's services
for help in product positioning, marketing and market planning, as well as
for internal IT decision-making.

The Company's domestic revenues are generated by a direct sales force
calling on IT user and vendor clients. International marketing and sales are
performed by independent sales representative organizations. Under the terms
of the Company's international sales representative agreements, the Company
realizes revenues from the international sales representative organizations
at rates of 40% to 60% of amounts billed to those clients.

Revenues from international sales representative organizations,
primarily in Europe, accounted for approximately 13%, 10% and 7% of the
Company's total Continuous Services revenues for the years ended
December 31, 1997, 1996 and 1995, respectively.

2. Significant Accounting Policies

Revenue and Commission Expense Recognition Continuous Services
revenues are recognized on a straight-line basis over the subscription
contract period, generally one year. All subscription contracts are billable
at signing, absent special terms granted on a limited basis from time to
time. As such, the Company's policy is to record at the time of signing of a
Continuous Services subscription contract the fees receivable and related
deferred revenues for the full amount of the subscription contract. The
Company also records the related commission obligation upon the signing of
the subscription contract and amortizes the corresponding deferred
commission expense over the subscription period in which the related
Continuous Services revenues are earned and amortized to income. All
subscription contracts are cancelable only for non-performance, except for
government contracts which have a 30-day cancellation clause. Historically,
such cancellations have not been material. Other revenues, consisting
principally of consulting, conferences, and publications, are recognized at
the time the related service is rendered or product delivered.

Product Development All costs incurred in the development of new
products and services are expensed as incurred.

Furniture and Equipment Furniture and equipment is stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the respective assets which range from three to seven years.

Income Taxes Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the income tax basis
of the Company's assets and liabilities as measured by the enacted tax rates.

Cash Equivalents and Marketable Securities Cash and cash equivalents
include cash on hand and all investments in highly liquid instruments
purchased with original maturities of three months or less. Investments
with original maturaties of more than three months are classified as
Marketable Securities. Marketable securities are considered
"held-to-maturity" and valued at cost, which approximates market. The
Company intends to hold all marketable securities investments to maturity.

Adoption of Statement of Financial Accounting Standards No. 128
During 1997, the Company adopted Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), "Earnings Per Share." SFAS 128 replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share. It also requires dual presentation of basic and diluted
earnings per share on the face of the income statement. Diluted earnings per
share is computed by dividing net income by the weighted average number of
common shares outstanding and dilutive common equivalent shares (common
stock options) outstanding. Common shares outstanding includes issued shares
less shares held in treasury for the respective period. Previously reported
earnings per share information has been restated to conform to SFAS 128.

Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
(In thousands, except per share amount)

Net income available to
common shareholders $5,767 $3,626 $3,630
------ ------ ------

Basic shares outstanding 7,214 5,950 3,210
Effect of dilutive stock options 744 1,718 2,204
------ ------ ------
Diluted shares outstanding 7,958 7,668 5,414
------ ------ ------
Earnings per share:
Basic $ .80 $ .61 $ 1.13
Diluted $ .72 $ .47 $ .67

Concentration of Credit Risk Statement of Financial Accounting
Standards No. 105, "Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
Credit Risk," requires disclosure of any significant off-balance-sheet and
credit risk concentrations. The Company has no material off-balance-sheet
concentration of credit risk such as foreign exchange contracts, options
contracts or other foreign hedging arrangements. The Company invests the
majority of its cash balances in short-term, high quality marketable debt
securities, managed by three financial institutions. The Company's accounts
receivable balances are primarily domestic. No single client accounted for
greater than 2% of revenues or represents a significant credit risk to the
Company.

Fair Value of Financial Instruments Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments for
which it is practicable to estimate that value. The carrying amount of all
of the Company's cash and cash equivalents, and marketable securities,
approximates fair value due to the short-term maturity of those investments.

Recently Issued Financial Accounting Standards In June 1997, the FASB
issued SFAS 130, "Reporting Comprehensive Income," which requires a
statement of comprehensive income to be included in the financial statements
for fiscal years beginning after December 15, 1997. The Company is presently
designing such statement and, accordingly, will include such statement
beginning with the first quarter of 1998.

In addition, in June 1997, the FASB issued SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS 131 requires
disclosure of certain information about operating segments and about products
and services, geographic areas in which a company operates, and their major
customers. The Company is presently in the process of evaluating the effect
this new standard will have on disclosures in the Company's financial
statements and the required information will be reflected in the year ended
December 31, 1998 financial statements.

Management Estimates The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.

3. Public Offering of Common Stock and Recapitalization

In December 1995, the Company completed an initial public offering of
1,860,000 shares of common stock at $18 per share (the "Offering"). Prior
to the Offering, there was no public market for the Company's common stock.
The net proceeds of the Offering, after deducting applicable issuance costs
and expenses, were $30,174,000.

In connection with the Offering, the Company (a) increased its
authorized common stock from 1,800,000 shares to 45,000,000 shares, (b)
declared a 4-for-1 split of its common stock in the form of a stock dividend
effective October 5, 1995, and (c) authorized 2,000,000 shares of new $.01
par value preferred stock.

4. Furniture and Equipment

Furniture and equipment consists of the following (in thousands):

December 31,
------------
1997 1996
---- ----

Leasehold improvements $ 208 $ 152
Computer equipment, software, and peripherals 4,809 3,727
Furniture and fixtures 703 573
------ ------
5,720 4,452
Less: accumulated depreciation (2,955) (2,122)
------ ------
$2,765 $2,330
====== ======

5. Other Assets

Other assets include the following (in thousands):

December 31, 1997 December 31, 1996
----------------- -----------------
Equity Investment Advances Equity Investment Advances
----------------- -------- ------------------ -------

Computerwire, plc. $1,700 $1,692
Computerwire, Inc. 166 $50 150 $200
Spikes Cavell & Co. 2,674 2,552
META CXP LLC 83 200 83 200
Market Perspectives Inc 294 279
FirstMatter(SRI) 23 1,232
----- ------ ------ ----
Total $4,940 $1,482 $4,756 $400
====== ====== ====== ====

In December 1997, the Company acquired certain assets and all the
intellectual capital of the Verity Group, Inc. for contingent consideration
of $1.1 million over four years, if certain operating targets are achieved.
Verity Group provides helpdesk and callcenter consulting and benchmarking
services, and will provide these services for the Company's new Customer
Management Strategies practice within META Group Consulting.

In November 1997, the Company invested $1.3 million in a joint venture
(in which the Company owns a 33% interest) with SRI Consulting, Inc.,
designed to deliver thought-leading research, methods, metrics, and tools
to senior management of global 2000 companies scenario planning for the
future. SRI Consulting, Inc. is a wholly owned subsidiary of SRI
International, a Silicon Valley based think-tank working with companies
worldwide to identify market opportunities and develop strategies for
competing in technology-driven markets.

In December 1996, the Company made an equity investment of $1.7 million
in Computerwire (formerly known as APT Data Group, plc), an independent
publisher of magazines, newsletters and product review bulletins for users
and suppliers of IT. Under an exclusive distribution agreement entered into
during 1996, the Company markets several of Computerwire's publications in
the United States, Canada, and Latin America.

In December 1996, the Company also made an equity investment of
$2.6 million in Spikes Cavell & Co. Spikes Cavell tracks the United Kingdom
and European IT and telecommunications markets, supplying market intelligence
to technology vendors.

All of the investments listed above are for less than a 20% stock
ownership interest in the investee. As the Company does not exert significant
influence in of any of the investees, all investments are accounted for on
the cost basis.

6. Other Income

During the year ended December 31, 1995, the Company recognized a
$250,000 gain (proceeds of $265,000) on the sale of an investment. This
investment was in common stock of a former client that was received as
consideration for consulting services provided in 1991.

7. Commitments and Contingencies

Lease Commitments:

The Company leases office facilities and equipment under noncancelable
operating leases. Future minimum lease payments relative to these agreements
are as follows (in thousands):

Year ending December 31,
------------------------

1998 $1,892
1999 1,844
2000 1,724
2001 1,547
2002 37
-----
Total $7,044
======

Total rent expense included in the statements of income was
$1.6 million, $1.3 million and $1.1 million for years ended December 31,
1997, 1996, and 1995, respectively.

Contingencies:

The Company is a party to certain legal proceedings other than as
described below. The Company believes that none of these proceedings is
likely to have a material adverse effect on the Company's business, results
of operations or financial condition. Accordingly, no provision for any
liability has been made in the accompanying financial statements.

In November 1995, a complaint was filed against the Company relating to
a marketing agreement with a third party. The complaint alleges a breach of
the agreement by the Company, as well as related tort claims. The complaint
seeks both injunctive relief and unspecified damages, which could be
substantial. The Company believes the claim to be without merit and intends
to vigorously defend the suit; however there can be no assurance that these
claims will not be upheld. The Company believes an unsuccessful outcome on
this matter to be remote and, accordingly, no provision for any liability
has been made in the accompanying financial statements.

The Company currently guarantees certain local bank borrowings of its
independent sales representative organizations in Europe by extending
irrevocable letters of credit to local banks, renewable annually. Should the
independent sales representative default on the terms of their repayment
obligations to their bank, the Company's guarantee would be called upon.
The total of these guarantees is less than $500,000 and none exceeds $200,000.

8. Income Taxes

The provision (benefit) for income taxes is as follows (in thousands):

Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----

Current - state $ 160 $ 48
------ ------
Deferred - federal 2,866 2,080 $(1,200)
- state 954 602 (347)
------ ------ -------
3,820 2,682 (1,547)
------ ----- -------
$3,980 $2,730 $(1,547)
====== ====== =======

A reconciliation of the income tax provision from the amount computed
using the federal statutory rate is as follows (in thousands):

Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----

Income tax at statutory rate $3,314 $2,161 $ 708
State taxes, net of federal benefit 659 429 149
Other 7 140 61
Impact of valuation allowance (2,465)
------ ------ -------
$3,980 $2,730 $(1,547)
====== ====== =======

The principal components of the Company's deferred tax assets and
(liabilities) areas follows (in thousands):

December 31,
--------------
1997 1996
---- ----

Depreciation $ 74 $ (21)
Accrued liabilities 1,157 876

Allowance for doubtful accounts 336 305
Capitalization of product
development costs 35 41
Net operating loss carryforwards 8,789 6,355
------ ------
Deferred tax asset 10,391 7,556
Valuation allowance (1,142) (849)
------ ------
Net deferred tax asset $9,249 $6,707
====== ======

The Company had a valuation allowance of $2,920,000 at December 31, 1994
against its deferred tax assets primarily as a result of a significant net
operating loss carryforward position. The Company believed that, due to the
expected future Federal taxable income, it was more likely than not that a
substantial portion of these deferred tax benefits would be realized, and
therefore, the valuation allowance was reduced to $455,000 effective
January 1, 1995. Accordingly, the Company included a benefit of $2,465,000
for this reduction in its tax provision for 1995. During the years ended
December 31, 1997 and 1996, the Company increased the valuation allowance by
$343,000 and $394,000, respectively, which represents the tax effect of the
state net operating loss carryforwards generated these years.

At December 31, 1997, the Company has net operating loss carryforwards
for federal income tax purposes of $21.2 million expiring in 2004 through
2010.

The exercise of non-qualified stock options and the disqualifying
dispositions of incentive stock options under the Company's stock option
plans gives rise to compensation which is includable in the taxable income
of the recipients and deductible by the Company for federal and state income
tax purposes. The tax benefit recognized from the utilization of such
deductions increased paid-in capital by $6.3 million, $6.3 million, and
$1.4 million during the years ended December 31, 1997, 1996, and 1995,
respectively. In accordance with Accounting Principles Board Opinion
No. 25, compensation resulting from increases in the fair market value of
the Company's common stock subsequent to the date of grant of the applicable
exercised stock options is not recognized as an expense for financial
accounting purposes. As of December 31, 1997, 103,400 shares were issuable
upon the exercise of outstanding non-qualified stock options held by
employees.

9. Preferred Stock

In connection with the Company's initial public offering in 1995, the
following preferred stock transactions occurred:

a) $1,500,000 of previously issued Series A Preferred Stock
automatically converted into 345,624 shares of common stock and
all accrued dividends were extinguished.

b) Series A Preferred Stock warrants were exercised for $134,000.
The shares of Series A Preferred Stock issued upon the exercise of
the warrants automatically converted into 35,456 shares of common
stock.

c) Investors purchased $2,078,629 (84,842 shares) of Series B
Convertible Preferred Stock. Of this amount, First Albany purchased
75,000 shares for $1,837,500 (see Note 12). The Series B Convertible
Preferred Stock automatically converted into 339,368 shares of
common stock.

The Company currently has authorized 2,000,000 shares of undesignated
Preferred Stock, $.01 par value. No shares have been issued.

10. Stock Options and Incentive Plans

The Company's 1995 Stock Plan, 1993 Stock Option and Incentive Plan,
and the 1989 Stock Option Plan (the "Plans") provided for grants to
employees, directors and consultants of incentive stock options ("ISOs") and
non-qualified stock options ("NQSOs"), for the purchase of up to 1,500,000,
1,600,000 and 3,600,000 shares of the Company's common stock, respectively.

ISOs were granted at an exercise price of not less than fair market value
while certain NQSOs were granted at an exercise price of less than fair
market value. Fair market value was determined by the Company's Board of
Directors. The shares issued upon exercise of options granted under the
Plans are subject to a right of first offer in favor of the Company whereby
the Company has the right, at its option, to purchase such shares on the
same terms and conditions of any bona fide offer by third party. Such right
of first offer terminated upon the effective date of the initial public
offering. The Board of Directors determined the date(s) at which options
vest and become exercisable. Upon adoption of the 1995 Stock Plan, the 1993
Stock Option and Incentive Plan and the 1989 Stock Option Plan were
terminated, except as to outstanding stock options. At December 31, 1997,
338,190 shares were issuable upon the exercise of outstanding NQSOs. All
other stock options outstanding were ISOs.

Options Option Price Range
------- ------------------

Outstanding January 1, 1995 3,126,336 $ .15 - $ 2.00
Granted 301,500 2.00 - 10.63
Exercised (714,864) .15 - 2.00
Canceled (135,540) .375 - 4.75
--------- ------- ------
Outstanding December 31, 1995 2,577,432 .15 - 10.63

Granted 443,370 20.625 - 33.25
Exercised (827,524) .15 - 24.75
Canceled (105,259) .95 - 26.50
--------- ------ ------
Outstanding December 31, 1996 2,088,019 .15 - 33.25

Granted 480,425 17.75 - 24.75
Exercised (1,072,025) .15 - 23.75
Canceled (99,278) .95 - 26.50
--------- ------ ------
Outstanding December 31, 1997 1,397,141 $ .15 - $33.25
=========

Exercisable:
December 31, 1997 667,676
=========
December 31, 1996 1,470,665
=========

In October 1995, the Company adopted the 1995 Stock Plan, 1995
Non-Employee Director Stock Option Plan, and 1995 Employee Stock Purchase
Plan. Details of the Plans are as follows:

1995 Stock Plan. The Company's 1995 Stock Plan (the "1995 Plan") was
adopted by the Board of Directors on October 2, 1995 and approved by the
Company's stockholders on October 4, 1995. The 1995 Plan provides for the
issuance of a maximum of 1,500,000 shares of common stock pursuant to the
grant to employees of ISOs and the grant of NQSOs, stock awards or
opportunities to make direct purchases of stock in the Company to employees,
consultants, directors and officers of the Company.

1995 Non-Employee Director Stock Option Plan. The 1995 Non-Employee
Director Stock Option Plan (the "Director Option Plan") was adopted by the
Board of Directors on October 2, 1995 and approved by the Company's
stockholders on October 4, 1995. The Director Option Plan provides for the
grant of NQSOs to purchase a maximum of 150,000 shares of common stock of
the Company to non-employee directors of the Company. All options granted
under the Director Option Plan will have an exercise price equal to the fair
market value of common stock on the date of grant. The term of each option
will be for a period of ten years from the date of grant.

1995 Employee Stock Purchase Plan. The 1995 Employee Stock Purchase
Plan (the "1995 Purchase Plan") was adopted by the Board of Directors and
approved by the Company's stockholders on October 2, 1995. The 1995 Purchase
Plan provides for the issuance of a maximum of 250,000 shares of common
stock pursuant to the exercise of non-transferable options granted to
participating employees. The exercise price for the option is 85% of the
lesser of the market price of the Company's common stock on the first or
last day of the semi-annual plan period. During the years ended December 31,
1997 and 1996, the Company issued 13,736 and 15,516 shares, respectively,
under the 1995 Purchase Plan.

The following table summarizes information about stock options
outstanding at December 31, 1997:

OPTIONS GRANTED OPTIONS EXERCISED
--------------- -----------------

WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AS OF 12/31/97 LIFE PRICE AS OF 12/31/97 PRICE

$ .15 - $ 1.25 302,286 3.96 $ .7888 302,286 $ .7888
2.00 - 10.63 298,311 5.71 3.0919 225,818 2.8453
17.75 - 17.75 262,510 9.25 17.7500 0 0.0000
18.50 - 22.50 284,074 8.65 21.2565 44,920 22.1802
22.75 - 33.25 249,960 8.66 24.6251 94,652 25.0776
--------- ---- -------- ------- --------
.15 - 33.25 1,397,141 7.12 $12.8935 667,676 $ 6.3668
========= ==== ======== ======= ========

The estimated fair value of options granted during 1997 and 1996 was
$9.78 per share and $13.08 per share, respectively. The Company applies

Accounting Principles Board Opinion No.25 and related interpretations in
accounting for its stock option and purchase plans. No compensation cost has
been recognized for the Company's fixed stock option plans and stock
purchase plan. Had compensation cost for the Company's stock option plans and
stock purchase plan been determined based on fair value at the option grant
dates for awards in accordance with the provisions of SFAS 123, the Company's
net income and earnings per share for the years ended December 31, 1997 and
1996, would have been reduced to the pro forma amounts indicated below:

Net income applicable to common shareholders: 1997 1996
---- ----
As reported $5,767 $3,626
Pro forma 3,867 2,396

Net income per diluted common share:

As reported $ .72 $ .47
Pro forma .49 .31

Net income per basic common share:

As reported $ .80 $ .61
Pro forma .54 .40

The fair value of options granted under the Company's fixed stock
option plans during 1997 and 1996 was estimated on the dates of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used: dividend yield of zero, expected volatility of
approximately 58%, risk free interest rate of approximately 6% and expected
lives of option grants of approximately 2.5 years. Pro forma compensation
cost related to shares purchased under the 1995 Employee Stock Purchase Plan
is measured based on the discount from market value. The effects of applying
SFAS 123 in this pro forma disclosure are not indicative of future pro forma
effects. SFAS 123 does not apply to awards prior to 1995, and additional
awards in future years are anticipated.

During the year ended December 31, 1995, the Company completed the
repurchase of 146,000 shares of its common stock for $142,000. The terms of
the repurchase agreement were established in 1992 and the transactions
completed prior to the Company's initial public offering.

11. Employee 401(k) Savings Plan

The Company has a tax-deferred employee 401(k) savings plan covering
substantially all employees. Contributions by the Company are made at the
Company's discretion. No contributions have been made by the Company under
this plan.

12. Related Party Transactions

In March 1995, the Company entered into an exclusive strategic alliance
agreement with First Albany Corporation ("First Albany"), a financial
services firm. The agreement provides for the distribution of the Company's
written research and analysis, in its original form or as customized and
expanded by First Albany, to First Albany's financial services customers,
which include many institutional investors who are large IT users. The

agreement restricts the Company from marketing its services to any broker
dealer or sell-side firm offering services similar to those offered by First
Albany. The Company is permitted to market and sell Continuous Services to
First Albany buy-side customers. The initial term of this agreement is four
years, annually renewable by First Albany thereafter, subject to attainment
of specified minimum revenue targets. The Company recognized $616,500,
$425,000 and $275,000 in revenues from this arrangement during the years
ended December 31, 1997, 1996, and 1995, respectively. First Albany was the
owner of 75,000 shares of the Series B Preferred Stock, which converted
automatically to 300,000 shares of common stock in connection with the
Company's initial public offering (see Note 9, Preferred Stock). George
C. McNamee, a director of the Company, is also Chairman and Co-Chief Executive
Officer of First Albany.

13. Selected Quarterly Financial Data (Unaudited)

The following table sets forth certain key interim financial
information for the years ended December 31, 1997 and 1996.

First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share amounts)

1997:
Revenues:
Continuous services $ 9,172 $ 9,846 $10,713 $12,074
Other, principally consulting
and publications 1,639 1,892 2,705 3,154
------- ------- ------- -------
Total revenues 10,811 11,738 13,418 15,228
------- ------- ------- -------
Operating expenses:
Cost of services and fulfillment 5,532 5,838 6,344 6,888
Selling and marketing 2,341 2,770 3,469 3,897
General and administrative 1,158 1,199 1,279 1,370
Depreciation and amortization 333 366 391 411
------- ------- ------- -------
Total operating expenses 9,364 10,173 11,483 12,566
------- ------- ------- -------
Operating income 1,447 1,565 1,935 2,662
------- ------- ------- -------
Net income $ 1,107 $ 1,198 $ 1,570 $ 1,892
======= ======= ======= =======
Net income per diluted common share $ .14 $ .15 $ .19 $ .24
======= ======= ======= =======
Net income per basic common share $ .17 $ .16 $ .21 $ .26
======= ======= ======= =======

1996:
Revenues:
Continuous services $ 6,707 $ 7,133 $ 8,093 $ 8,836
Other, principally consulting
and publications 1,431 1,500 1,550 1,716
------- ------- ------- -------
Total revenues 8,138 8,633 9,643 10,552
------- ------- ------- -------
Operating expenses:
Cost of services and fulfillment 4,541 4,579 4,788 5,000
Selling and marketing 1,792 2,075 2,383 2,547
General and administrative 802 877 1,000 1,049
Depreciation and amortization 225 251 284 326
------ ------ ------- -------
Total operating expenses 7,360 7,782 8,455 8,922
------ ------ ------- -------
Operating income 778 851 1,188 1,630
------ ------ ------- -------
Net income $ 719 $ 731 $ 966 $ 1,210
====== ====== ======= =======
Net income per diluted common share $ .09 $ .09 $ .13 $ .16
====== ====== ======= =======
Net income per basic common share $ .13 $ .13 $ .16 $ .19
====== ====== ======= =======

SCHEDULE II

META GROUP, INC.

VALUATION AND QUALIFYING ACCOUNTS
(In thousands)

Additons
----------------------------
Charged Charged
Balance at (Credited) to (Credited) to Balance
Beginning of Costs and Other at End
Period Expenses Accounts Deductions of Period
------------ ------------- ------------- ---------- ---------

Year ended December 31, 1997:
Allowance for doubtful accounts $ 751 $ 77 $ 828
------ ------- ------
Valuation allowance for deferred
tax asset $ 849 $ 343 $50 $1,142
------ ------- --- ------

Year ended December 31, 1996:
Allowance for doubtful accounts $ 433 $ 318 $ 751
------ ------- ------
Valuation allowance for deferred
tax asset $ 455 $ 394 $ 849
------ ------- ------

Year ended December 31, 1995:
Allowance for doubtful accounts $ 297 $ 142 $ 6 $ 433
------ ------- --- ------
Valuation allowance for deferred
tax asset $2,920 $(2,465) $ 455
------ ------- --- ------

META GROUP, INC.
INDEX TO EXHIBITS FILED WITH FORM 10-K
YEAR ENDED DECEMBER 31, 1997

Exhibit
Number Description
- ------ --------------------------------------------------------

3.1(1) Amended and Restated Certificate of Incorporation of the Company

3.2(1) Amended and Restated By-Laws of the Company

4.1(1) Specimen certificate representing the Common Stock

10.1(1)* 1995 Stock Plan

10.2(2)* Form of Incentive Stock Option Agreement under the 1995
Stock Plan

10.3(2)* Form of Non-Qualified Stock Option Agreement under the
1995 Stock Plan

10.4(1)* 1995 Employee Stock Purchase Plan

10.5(3)* 1995 Employee Stock Purchase Plan Enrollment Authorization Form

10.6(1)* 1995 Non-Employee Director Stock Option Plan

10.7(2)* Form of Non-Qualified Stock Option Agreement under the
1995 Non-Employee Director Stock Option Plan of the
Registrant

10.8(1)(4)* Agreement between First Albany Corporation and the Company
dated March 30, 1995

10.9(1)* Restated and Amended 1989 Stock Option Plan, as amended

10.10(1)* Form of Incentive Stock Option Agreement under 1989 Stock
Option Incentive Plan

10.11(1)* Form of Certificate and Agreement under Restated and
Amended 1989 Stock Option Plan

10.12(1)* 1993 Stock Option and Incentive Plan, as amended

10.13(1)* Form of Certificate and Agreement under 1993 Stock Option
and Incentive Plan

10.14(1)* Form of Warrant under the Restated and Amended 1989 Stock
Option Plan and 1993 Stock Option and Incentive Plan

10.15(1) Form of International Sales Representative Agreement

10.16(1) Office Lease between International Business Machines
Corporation and the Company dated August 1, 1994

11.1** Statement re computation of per share earnings

23.1** Consent of Deloitte & Touche LLP

24.1** Power of Attorney (see page 31)

27.1** Financial Data Schedule

__________________
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1(File No. 33-97848).
(2) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-8 (File No. 333-1854).
(3) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on form S-8 (File No. 33-80539).
(4) Confidential treatment obtained as to certain portions.

* Indicates a management contract or any compensatory plan, contract
or arrangement.
** Filed herewith.

EXHIBIT 11.1

META GROUP, INC.

EXHIBIT TO ANNUAL REPORT ON FORM 10-K

Computation of Net Income Per Common Share

Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------

Net income $5,767,000 $3,626,000 $3,630,000
========== ========== ==========
Weighted average number of
common and common equivalent
shares outstanding:

Average number of common shares
outstanding during the year 7,214,432 5,950,467 3,210,100

Add common share equivalents
-- options to purchase
common shares 743,159 1,717,278 2,204,224
---------- ---------- ----------

7,957,591 7,667,745 5,414,324
========== ========== ============
Net income per diluted common
share $ .72 $ .47 $ .67
========== ========== ==========

Net income per basic common share $ .80 $ .61 $ 1.13
========== ========== ==========

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT
_____________________________

We consent to the incorporation by reference in META Group, Inc.'s
Registration Statement Nos. 33-80539 and 333-1854 on Form S-8 of our report
dated February 6, 1998 and appearing on page F-1 of the Annual Report on
Form 10-K for the year ended December 31, 1997.

DELOITTE & TOUCHE LLP

Stamford, Connecticut
March 31, 1998