United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period of Three Months Ended September 30, 1998.
[ ] 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 000-21725
The Translation Group, Ltd.
(Exact name of registrant as specified in its charter)
Delaware State 23-3382869
(I.R.S. Employer Identification No.)
332C Haddon Avenue
Westmont, NJ 08108
(Address of principal executive offices) (Zip Code)
Indicated by check mark whether the registrant (I) has filed all
reports required to be filed by Section 13 of 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods 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 _
Applicable Only to Issuers Involved in Bankruptcy
Proceeding During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. YES _ NO _
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock, .001 Par Value-Issued 2,278,340 shares as of September 30, 1998.
<PAGE>
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - September 30, 1998
and March 31, 1998
Condensed consolidated statements of income - Three months
ended September 30, 1998 and 1997; six months ended September
30, 1998 and 1997
Condensed consolidated statements of cash flows - Six months
ended September 30, 1998 and 1997
Notes to condensed consolidated financial statements -
September 30, 1998
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceeding
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports of Form 8-K
Signatures
<PAGE>
The Translation Group, Ltd.
and Subsidiaries
Consolidated Balance Sheets
September 30, 1998 (unaudited) and March 31, 1998 (unaudited)
<TABLE>
September 30, March 31,
1998 1998
---- ----
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 942,884 $ 1,297,039
Investment in US Government obligations, at cost 2,000,229 2,000,573
Accounts receivable, net of allowance for doubtful accounts of
$74,166 and $80,000, respectively 1,243,807 1,184,040
Work in process 352,327 737,697
Other current assets 293,423 144,375
-------- -------
Total current assets 4,832,670 5,363,724
Property and equipment, net of accumulated depreciation and amortization of
$631,630 and $514,998, respectively 932,009 861,748
-------- -------
Excess of purchase price over fair value of net assets acquired, net of
accumulated amortization of $121,105 and $72,663, respectively 1,332,157 1,380,599
Certificate of deposit, pledged 106,540 100,000
Loans and receivables from officers 137,500 205,532
Other assets 300,473 171,685
Deferred income taxes 97,700 97,700
----------- -----------
TOTAL ASSETS $ 7,739,049 $ 8,180,988
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 421,356 $ 342,803
Notes payable 104,277
Current maturities of long-term debt 75,000 75,000
Current portion of settlement agreement 154,435 -
Accrued liabilities 571,730 751,718
Deferred income 21,795 67,948
Accrued income taxes - 31,954
Deferred income taxes 315,872 315,872
---------- ---------
Total current liabilities 1,664,465 1,585,295
Long-term debt, less current maturities 31,250 75,000
Settlement agreement, less current portion 180,174 -
---------- ---------
TOTAL LIABILITIES 1,875,889 1,660,295
---------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 1,000,000 authorized, no shares issued
and outstanding - -
Common stock, $.001 par value, 15,000,000 shares authorized, 2,278,340
shares outstanding and to be issued 2,278 2,278
Additional paid-in capital 6,051,985 6,051,985
Unearned portion of compensatory warrants (135,000) (225,000)
Retained earnings 6,972 681,661
Common stock in treasury, 8,000 shares (68,032) -
Foreign currency translation adjustment 18,901 9,769
---------- ---------
Total stockholders' equity 5,863,160 6,520,693
---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 7,739,049 $ 8,180,988
============= ===========
</TABLE>
<PAGE>
The Translation Group, Ltd.
and Subsidiaries
Consolidated Statements of Income
For the three months ended September 30, 1998 and 1997 (unaudited)
and the six months ended September 30, 1998 and 1997 (unaudited)
<TABLE>
3 months 3 months 6 months 6 months
September September September September
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenue $ 1,416,330 $ 1,413,654 $ 3,383,728 $ 2,279,774
Cost of revenue 1,273,544 897,604 2,442,388 1,442,218
Gross profit 142,786 516,050 941,340 837,556
Cost and expenses:
Selling, general and administrative 659,732 409,262 1,002,283 543,383
Corporate overhead 526,899 145,930 763,372 294,457
Amortization of excess of purchase price over fair
value of net assets acquired 24,221 - 48,442 -
Total 1,210,852 555,192 1,814,097 837,840
(Loss) before other income (expense) (1,068,066) (39,142) (872,757) (284)
Other income (expense):
Interest income 50,575 48,890 102,537 98,634
Interest expense (16,324) (4,522) (29,499) (4,706)
Foreign currency gains / (losses) (12,607) - (14,194) -
21,644 44,368 58,844 93,928
(Loss) income before provision for income taxes (1,046,422) 5,226 (813,913) 93,644
Provision for income taxes (125,280) 2,720 (125,280) 37,220
Net (loss) income $ (921,142) $ 2,506 $ (688,633) $ 56,424
Net (loss) income per common share outstanding (basic and diluted) $ (0.40) $ 0.001 $ (0.30) $ 0.03
Weighted average shares outstanding 2,278,340 2,278,340 2,278,340 2,112,875
</TABLE>
<PAGE>
The Translation Group, Ltd.
and Subsidiaries
Consolidated Statements of Comprehensive Income
For the three months ended September 30, 1998 and 1997 (unaudited)
and the six months ended September 30, 1998 and 1997 (unaudited)
<TABLE>
3 months 3 months 6 months 6 months
September September September September
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net (loss) income $ (921,142) $ 2,506 $ (688,633) $ 56,424
Other comprehensive income (loss)
Currency translation adjustment 6,229 - 9,132 -
----- -----
Comprehensive (loss) income $ (914,913) $ 2,506 $ (679,501) $ 56,424
============ ======= ========== ========
</TABLE>
<PAGE>
The Translation Group, Ltd.
and Subsidiaries
Consolidated Statements of Cash Flow
For the six months ended September 30, 1998 and 1997 (unaudited)
<TABLE>
6 months 6 months
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows provided by (used for) operating activities:
Net income $ (688,633) $ 53,939
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization 285,169 14,064
Other assets (158,539) -
Settlement agreement 334,609 -
Changes in operating assets and liabilities:
Accounts receivable (59,767) (91,940)
Work in process 385,370 (27,216)
Other current assets (149,048) (5,282)
Accounts payable 78,553 68,654
Notes payable 104,277 (54,722)
Accrued liabilities and deferred income (226,141) 44,242
Accrued income taxes (31,954) 49,340
-------- ------
Net cash provided by (used for) operating activities (126,104) 51,079
Cash flows provided by (used for) investing activities:
Purchase of property and equipment (186,893) (107,307)
Investment in certificate of deposit (6,540) -
Net cash provided by (used for) investing activities (193,433) (107,307)
Cash flows provided by (used for) financing activities:
Net proceeds from issuance of common stock 79,440
Payments on long-term debt (43,750) (150,000)
Net cash flows provided by (used for) financing activities (43,750) (70,560)
Foreign currency translation adjustment 9,132 -
------
Net increase (decrease) in cash and cash equivalents (354,155) (126,788)
Cash and cash equivalents, beginning of period 1,297,039 658,196
-------
Cash and cash equivalents, end of period $ 942,884 $ 531,408
========== =========
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements September 30, 1998
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ended March 31, 1999. The consolidated statement of income
for the six months ended September 30, 1998 (unaudited) is restated to reflect
the acquisition of the Word House Companies on June 30, 1997. Reference is made
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report for the year ended March 31, 1998, Form 10-K.
Note B - Earning Per Share
As of September 30, 1998, there were 2,278,340 shares of common stock
outstanding. For the purpose of computing earnings per share, average shares
outstanding during the three months ended September 30, 1998 and 1997 was
2,278,340. Average shares outstanding during the six months ended September 30,
1998 was 2,278,340 in comparison to 2,112,875 for the six months ended
September 30, 1997. In addition, there are outstanding common stock options of
1,197,000 shares at a price of $5.50 per share and 2,186,660 warrants to
purchase common stock of the Company at an average price of approximately $6.00
per share. The computations of earnings per share reflecting the exercise of
these options and warrants are antidilutive.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Results of Operations - (stated in thousands)
For the three months ended September 30, 1998, consolidated net sales increased
$3 in comparison to the corresponding period in 1997, from $1,414 to $1,416. Net
loss for the three months ended September 30, 1998 was $(921) as compared to net
income of $3 in the corresponding prior period, a decrease of $924. Net (loss)
income per share for the period was $(.40) compared to net income per share of
$.001 for the same period in the prior year. Gross profit decreased from $516 to
$143, decreasing from 37% of sales to 10% of sales. Selling, general and
administrative expenses increased from $409 to $660, increasing from 29% to 47%
of sales, respectively. Interest income net of interest expense amounted to $22
for the current quarter in comparison to $44 for the prior quarter.
Consolidated net sales for the six months ended September 30, 1998 increased
$1,104 in comparison to the corresponding period in 1997, from $2,280 to $3,384.
Net loss for the six months ended September 30, 1998 was $(689) as compared to
net income of $56 for the corresponding prior period. Net (loss) income per
share for the period was $(.30) compared to net income per share of $.03 for the
same period in the prior year. Gross profit increased by $103, from $838 to
$941, decreasing from 37% of sales to 28% of sales. Selling, general and
administrative expenses increased from $543 to $1,002, and increased from 24% to
30% of sales. Interest income net of interest expense was $59 for the current
six months in comparison to $94 for the same period in the prior year.
The statements presented for the comparative periods are reclassified to agree
with the classifications of the current statements.
Liquidity and Sources of Capital - (stated in thousands)
During the six months ended September 30, 1998, working capital decreased
approximately $610 to $3.2 million. The Company used cash from operations in the
amount of $126, invested $187 in equipment and related software, and incurred
other changes in cash as detailed in the accompanying consolidated statement of
cash flows.
<PAGE>
The Company's results of operations for the six months ending September 30, 1998
include four categories of accounting changes that represent approximately 90%
of the loss reported for accounting purposes:
1. Future enhancing expenditures
2. Non cash charges.
3. Research and development.
4. Settlement of officer's employment agreement.
FUTURE ENHANCING EXPENDITURES
The Company and the industry in general have been experiencing volatility in
sales, rising costs and customer demand for higher quality of the Company's
translation and localization services. These conditions seem to have been
increasing over the last year or so. Accordingly management undertook an
analysis of the Company's business for the purposes of understanding the factors
that have caused the swings in sales and revenues, the rise in costs and what
steps are required to implement a more stringent quality assurance program. The
conclusion of its analysis is that there are structural changes that have
occurred and are occurring in the translation/localization industry; more
particularly in the markets that the Company services. To deal with this problem
management has undertaken a series of actions that are geared to bringing
stability to its operatoins, allow it to grow and to provide the Company with
the ability to plan for the future.
The six months results of operation include expenditures that were made in
furtherance of the management's policy as discussed above. These expenditures
have been undertaken to enhance the Company's future; however, from an
accounting point of view, they have been written off and have impacted the
bottom line for the six months period. Included in the expenses that were
written off and which are investments in the future are the following:
a. The establishment of a Canadian office.
b. The exploration of marketing arrangements and acquisition
canditates.
c. Increase in marketing and technical personnel and their
associated training costs.
d. The development of a marketing program that is being implemented
in the last quarter of the calendar year.
e. The implementation of an acquired accounting system which
produces information for management.
f. The moving and relocation costs of the US subsidiary's operations
to larger facilities.
The approximate sum of these charges for the period is $170,000.
NON CASH CHARGES
Within this category there are two types of amortization of costs:
a. Costs which flow from the valuation of warrants that were issued in exchange
for financial consulting services.
b. The amortizatoin of the excess of purchase price over the value of the assets
acquired.
The approximate sum of these charges for the period is $170,000.
RESEARCH AND DEVELOPMENT
As previously stated the Company has been pursuing a research and development
program devoted to the development of computer systems that facilitate the
translation/localization process. It was determined that in accordance with
General Accepted Accounting Principles that a portion of the Company's research
and development achieved technical feasability as of August 1, 1998, which
allows for the research and development expenditures to be capitalized; however,
for the four months period prior to August 1, 1998, the Company expensed, as
required by General Accepted Accounting Principles, $80,000 of its research and
development expenditures.
<PAGE>
SETTLEMENT OF OFFICER'S EMPLOYMENT AGREEMENT
The Company settled an outstanding threatened lawsuit by its former chairperson
and chief operating officer. The total settlement amounted to approximately
$360,000 which included an amount for legal fees. For accounting purposes it was
deemed that $275,000 of the settlement was a period expense.
The sum of all of the above is $695,000.
<PAGE>
Part II - Other Information
Item I. Legal Proceeding - none
Item 2. Changes In Securities - none
Item 3. Defaults Upon Senior Securities - n.a.
Item 4. Submission Of Matters To A Vote Of Security Holders - none
Item 5. Other Information - none
Item 6. Exhibits And Reports Of Form 8-K - Forms 8-K filed April 17,1997
December 11, 1997 relative to the acquisition of the Word House
Companies
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated November 16, 1998 /s/ Charles D. Cascio
President & CEO
The Translation Group, LTD.
(Registrant)
(Name and Title)
Dated November 16, 1998 /s/ Charles D. Cascio
President & CEO
(Name and Title)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001019356
<NAME> The Translation Group, Ltd.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 942,884
<SECURITIES> 2,000,229
<RECEIVABLES> 1,317,973
<ALLOWANCES> 74,166
<INVENTORY> 0
<CURRENT-ASSETS> 4,832,670
<PP&E> 1,563,639
<DEPRECIATION> 631,630
<TOTAL-ASSETS> 7,852,059
<CURRENT-LIABILITIES> 1,664,465
<BONDS> 31,250
0
0
<COMMON> 2,278
<OTHER-SE> 5,973,892
<TOTAL-LIABILITY-AND-EQUITY> 7,852,059
<SALES> 3,383,728
<TOTAL-REVENUES> 3,383,728
<CGS> 2,442,388
<TOTAL-COSTS> 2,442,388
<OTHER-EXPENSES> 1,814,097
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,499
<INCOME-PRETAX> (813,913)
<INCOME-TAX> (238,290)
<INCOME-CONTINUING> (575,623)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (575,623)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
