United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
(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 December 31, 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.)
30 Washington Avenue
Haddonfield, NJ 08033
(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 December 31, 1998.
<PAGE>
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - December 31, 1998
and March 31, 1998
Condensed consolidated statements of income - Three months
ended December 31, 1998 and 1997; nine months ended December
31, 1998 and 1997
Condensed consolidated statements of comprehensive income -
Three months ended December 31, 1998 and 1997; nine months
ended December 31, 1998 and 1997
Condensed consolidated statements of cash flows - Nine months
ended December 31, 1998 and 1997
Notes to condensed consolidated financial statements -
December 31, 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
December 31, 1998 (unaudited) and March 31, 1998 (unaudited)
<TABLE>
<S> <C> <C>
December 31, March 31,
1998 1998
---- ----
ASSETS:
Current assets:
Cash and cash equivalents $ 403,612 $ 1,297,039
Investment in US Government obligations, at cost 2,000,057 2,000,573
Accounts receivable, net of allowance for doubtful accounts of
$74,166 and $80,000, respectively 680,642 1,184,040
Work in process 596,148 737,697
Other current assets 386,669 144,375
----------- -----------
Total current assets 4,067,128 5,363,724
Property and equipment, net of accumulated depreciation and amortization of
$692,606 and $514,998, respectively 1,008,886 861,748
Excess of purchase price over fair value of net assets acquired, net of
accumulated amortization of $121,105 and $72,663, respectively 1,307,936 1,380,599
Certificate of deposit, pledged 106,540 100,000
Loans and receivables from officers 137,500 205,532
Other assets 172,886 171,685
Deferred income taxes -- 97,700
----------- -----------
TOTAL ASSETS $ 6,800,876 $ 8,180,988
===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 429,814 $ 342,803
Notes payable 3,130
Current maturities of long-term debt 75,000 75,000
Current portion of settlement agreement 82,365
Accrued liabilities 838,990 751,718
Deferred income 20,552 67,948
Accrued income taxes 31,954
Deferred income taxes 13,896 315,872
-----------
Total current liabilities 1,463,747 1,585,295
Long-term debt, less current maturities 18,750 75,000
Settlement agreement, less current portion 216,208 --
-----------
TOTAL LIABILITIES 1,698,705 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 (90,000) (225,000)
Retained earnings (818,836) 681,661
Common stock in treasury, 8,000 shares (68,032)
Foreign currency translation adjustment 24,776 9,769
-----------
Total stockholders' equity 5,102,171 6,520,693
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,800,876 $ 8,180,988
=========== ===========
</TABLE>
<PAGE>
The Translation Group, Ltd.
and Subsidiaries
Consolidated Statements of Income
For the three months ended December 31, 1998 and 1997 (unaudited)
and the nine months ended December 31, 1998 and 1997 (unaudited)
<TABLE>
<S> <C> <C> <C> <C>
3 months 3 months 9 months 9 months
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
Revenue $ 1,295,637 $ 1,871,311 $ 4,679,365 $ 4,162,126
Cost of revenue 1,164,140 1,170,148 3,607,254 2,726,237
Gross profit 131,497 701,163 1,072,111 1,435,889
Cost and expenses:
Selling, general and administrative 773,745 440,363 1,775,934 922,731
Research and development 60,000 80,000 180,000
Corporate overhead 406,444 222,835 1,089,816 517,293
Amortization of excess of purchase price over fair
value of net assets acquired 24,221 24,221 72,663 48,442
Total 1,204,410 747,419 3,018,413 1,668,466
(Loss) income before other income (expense) (1,072,913) (46,256) (1,946,302) (232,577)
Other income (expense):
Interest income 41,915 55,455 138,273 149,001
Interest expense (11,742) (1,384) (35,062) (1,002)
Foreign currency gains (losses) (4,083) - (17,774) -
26,090 54,071 85,437 147,999
(Loss) income before provision for income taxes (1,046,823) 7,815 (1,860,865) (84,578)
Provision for income taxes (201,168) 12,320 (360,368) (14,120)
Net (loss) income $ (845,655) $(4,505) $(1,500,497) $ (70,458)
Net (loss) income per common share outstanding
(basic and diluted) $ (0.37) (0.002) $ (0.66) $ (0.03)
Weighted average shares outstanding 2,278,340 2,278,340 2,278,340 2,168,225
</TABLE>
The Translation Group, Ltd.
and Subsidiaries
Consolidated Statements of Comprehensive Income
For the three months ended December 31, 1998 and 1997 (unaudited) and the nine
months ended December 31, 1998 and 1997 (unaudited)
3 months 3 months 9 months 9 months
December 31, December 31, December 31, December 31,
Net (loss) income $(845,655) $(4,505) $(1,500,497) $(70,458)
Other comprehensive income
(loss)
Currency translation adjustment 5,875 -- 15,007 --
Comprehensive (loss) income $(839,780) $ (4,505)$ (1,485,490) $(70,458)
<PAGE>
The Translation Group, Ltd.
and Subsidiaries
Consolidated Statements of Cash Flow
For the nine months ended December 31, 1998 and 1997 (unaudited)
<TABLE>
<S> <C> <C>
9 months 9 months
December 31, December 31,
1998 1997
----------- -----------
Cash flows provided by (used for) operating activities:
Net (loss) income $(1,500,497) $ 87,784
Adjustments to reconcile net (loss) income to net cash
provided by (used for) operating activities:
Depreciation and amortization 423,825 99,111
Other assets (39,239)
Settlement agreement, net of payments 298,573
Changes in operating assets and liabilities:
Accounts receivable 503,398 18,584
Work in process 141,549 (359,918)
Other current assets (242,294) 112,076
Accounts payable 87,011 104,919
Notes payable 3,130 (133,538)
Accrued liabilities and deferred income 39,876 300,679
Accrued income taxes (31,954) 70,690
Deferred income taxes (204,276) --
----------- -----------
Net cash provided by (used for) operating activities (520,898) 300,387
Cash flows provided by (used for) investing activities:
Purchase of property and equipment (324,746) (321,456)
Investment in certificate of deposit (6,540) --
----------- -----------
Net cash provided by (used for) investing activities (331,286) (321,456)
Cash flows provided by (used for) financing activities:
Net proceeds from issuance of common stock 143,022
Payments on long-term debt (56,250) (150,000)
Net cash flows provided by (used for) financing activities (56,250) (6,978)
Foreign currency translation adjustment 15,007 37,421
----------- -----------
Net decrease in cash and cash equivalents (893,427) (331,948)
Cash and cash equivalents, beginning of period 1,297,039 3,659,307
----------- -----------
Cash and cash equivalents, end of period $ 403,612 $ 3,327,359
=========== ===========
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements December 31, 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 nine month periods ended
December 31, 1998 are not necessarily indicative of the results that may be
expected for the year ended March 31, 1999.
The consolidated statements of income for the three and nine month periods ended
December 31, 1997 (unaudited) are restated to reflect the acquisition of the
Word House Companies on a pooling of interests basis on June 30, 1997.
Accordingly, three months operations for the period April 1, 1997 to June 30,
1997 have been excluded, and amortization of the excess purchase price over fair
value of net assets acquired has been retroactively computed for the periods. In
addition, fourth quarter adjustments related to research and development have
been restated for the appropriate periods of three months ($60,000) and nine
months ($180,000) before applicable income tax adjustments of approximately 30%.
It should be noted that research & development expenses for the nine month
period ended December 31, 1998 was reduced to $80,000. The Company established
technical feasibility for its developments as of August 1, 1998, and continued
costs have been capitalized. 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-KSB.
Note B - Earning Per Share
For the purpose of computing earnings per share, average shares
outstanding during the three months ended December 31, 1998 and 1997 was
2,278,340. Average shares outstanding during the nine months ended December 31,
1998 was 2,278,340 in comparison to 2,168,225 for the nine months ended December
31, 1997. In addition, there are outstanding common stock options of 1,197,000
shares at an average price of approximately $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>
Note C - Segment Information and Significant Customers
Segment Information -
The sales of BTS (domestic subsidiary) originate in the United States to
domestic and foreign customers. Translation/localization is in Japanese,
Chinese, and other languages of the Asian rim, as well as European languages and
Canadian French. The sales of Word House (foreign subsidiary) originate in
Europe and are almost entirely in Dutch, French, and other European languages.
Segment reporting of net loss before income taxes, interest, and amortization of
excess of purchase price (stated in thousands):
Word Inter
BTS House Company Total
Revenue $ 2,587 $ 2,240 $ (148) $ 4,679
Cost of revenue 2,054 1,701 (148) 3,607
------- ------- ------- -------
Gross profit 533 539 -0- 1,072
Selling, general and
administrative 1,465 715 (405) 1,775
------- ------- ------- -------
Profit before corporate
overhead (932) (176) 405 (703)
Corporate overhead -0- -0- 1,170 1,170
------- ------- ------- -------
Net loss before income
taxes, interest, and
amortization of excess
of purchase price $ (932) $ (176) $ (765) $(1,873)
------- ------- ------- -------
Significant Customers -
For the nine months ended December 31, 1998, three customers represented 47% of
revenues. The Company has experienced some concentration of credit risk with
regard to its accounts receivable. Two customers represent approximately 35% of
the total.
Note D - Year 2000
The Company believes that its financial and operations applications are
year 2000 compliant. The Company expects no material impact on its internal
information systems from the year 2000 issue. The Company will continue to
monitor and evaluate the impact of the year 2000 on its operations.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations -
For the three months ended December 31, 1998, consolidated net sales decreased
$575,000 in comparison to the corresponding period in 1997, from $1,871,000 to
$1,296,000, or 31%. Net loss increased in comparison to the prior period, from
$(5,000) to $(846,000). Net loss per share rose to $(.37) from $(.002) per
share. Gross profit decreased from $701,000 to $131,000, decreasing from 37% of
sales to 10% of sales. Selling, general and administrative expenses increased in
the amount of $334,000, from $440,000 to $774,000, increasing from 24% to 60% of
sales, respectively. Interest income net of interest expense amounted to $30,000
for the current quarter in comparison to $54,000 for the prior quarter.
Consolidated net sales for the nine months ended December 31, 1998
increased $517,000 in comparison to the corresponding period in 1997, from
$4,162,000 to $4,679,000, or 12%. Since the acquisition of the Word House
Companies took place on June 30, 1997, consolidated net sales for the nine
months ended December 31, 1997 does not include net sales for the Word House
Companies for the three month period from April 1, 1997 to June 30, 1997. Net
loss increased to $(1,500,000) from $(70,000) in comparison to the prior period.
Net loss per share increased to $(.66) from $(.03) per share. Gross profit
decreased by $364,000, from $1,436,000 to $1,072,000, or 25% (from 35% of sales
to 23% of sales). Selling, general and administrative expenses increased from
$923,000 to $1,776,000, and increased from 22% to 38% of sales. This increase is
due to: (i) additional audit fee for the prior fiscal year and estimated audit
fee for the current fiscal year of $135,000; (ii) settlement of officer's
employment agreement for $275,000; (iii) marketing and advertising expenses of
approximately $150,000; and (iv) amortization of $135,000 related to the
valuation of warrants that were issued in exchange for financial consulting
services. Additionally, the Company began its transition from a translation
service bureau to a technology products oriented company. Interest income net of
interest expense was $103,000 for the current nine months in comparison to
$148,000 for the same period in the prior year.
Liquidity and Sources of Capital
During the nine months ended December 31, 1998, working capital decreased
approximately $ 1,175,000 to $2,600,000.
The Company used cash from operations in the amount of $521,000, invested
$325,000 in equipment and related software, and incurred other changes in cash
as detailed in the accompanying consolidated statement of cash flows.
<PAGE>
Discussion
The Company's results of operations for the nine months ending December 31, 1998
include four categories of accounting charges that represent approximately 60%
of the loss reported for accounting purposes:
1. Future enhancing expenditures.
2. Non cash amortization charges.
3. Research and development.
4. Settlement of officer's employment agreement.
1. 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 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 and that
management was correct in its assessment that the translation/localization
industry could be best served by usage of a machine translation system and
software based tools. To deal with this situation management has undertaken a
series of actions that are geared to bring stability to its operations, to allow
it to grow, and to provide the Company with the ability to plan for the future,
none of which can be done without the utilization of technology, whereby the
human element of translation is greatly reduced.
The nine months results of operation include expenditures that were made in
furtherance of 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 nine months period. During the nine months, the Company spent a significant
amount on Future Enhancing Expenditures that have been terminated or put on
hold. Accordingly, they have been excluded from the following summary. Included
in the expenses that were written off and which are investments for the future
are the following:
a. The exploration of marketing arrangements and acquisition
candidates, specifically related to translation technology.
b. The establishment of a Canadian office.
c. The costs associated with development of a marketing program that
was implemented in the third quarter.
d. The implementation of an acquired accounting system, which
produces improved information for management.
e. The moving and relocation costs of the US subsidiary's operations
to larger facilities.
The approximate sum of these charges for the period is $320,000.
2. Non Cash Amortization Charges
Within this category there are two types of amortization of costs:
<PAGE>
a. Costs which flow from the valuation of warrants that were issued
in exchange for financial consulting services.
b. The amortization of the excess of purchase price over the value of
the assets acquired.
The approximate sum of these charges for the period is $240,000.
3. 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 feasibility 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.
4. 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 $915,000.
The Company expects to operate at a reduced loss for its fourth
quarter. It anticipates a return to profitability in the first quarter of its
next fiscal year and thereafter as a result of its Future Enhancing
Expenditures: new technology from its developments in machine translation and
introduction of new translation products for new markets. During its transition
period, the Company will continue to generate revenue from its traditional
business. It is anticipated that at least one of the two contemplated
acquisitions will be finalized by fiscal year end.
The statements presented for the comparative periods are reclassified to agree
with the classifications of the current statements.
Forward Looking Statement.
The Statements contained herein that are not historical facts may contain
forward looking statements that involve number of known and unknown risks and
uncertainties that could cause actual results to differ materially from those
discussed or anticipated by management. Potential risks and uncertainties
include, among other factors, general business conditions, competitive market
conditions, success of the Company's business strategy, delay of orders,
concentration of sales in markets and to certain customers, timing of
significant orders and other risks and uncertainties currently unknown to
management.
<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 -
(a) Exhibit
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
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.
The Translation Group, Ltd.
Dated February 12, 1999 /s/ Charles D. Cascio
----------------- -----------------------------
Charles D. Cascio
CEO and Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF THE TRANSLATION GROUP, LTD. FOR THE THREE MONTHS ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 403,612
<SECURITIES> 2,000,057
<RECEIVABLES> 754,808
<ALLOWANCES> 74,166
<INVENTORY> 0
<CURRENT-ASSETS> 4,067,128
<PP&E> 1,701,492
<DEPRECIATION> 692,606
<TOTAL-ASSETS> 6,800,876
<CURRENT-LIABILITIES> 1,463,747
<BONDS> 18,750
0
0
<COMMON> 2,278
<OTHER-SE> 5,099,893
<TOTAL-LIABILITY-AND-EQUITY> 6,800,876
<SALES> 4,679,365
<TOTAL-REVENUES> 4,679,365
<CGS> 3,607,254
<TOTAL-COSTS> 3,607,254
<OTHER-EXPENSES> 3,018,413
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,062
<INCOME-PRETAX> (1,860,865)
<INCOME-TAX> (360,368)
<INCOME-CONTINUING> (1,500,497)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,500,497)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> (.66)
</TABLE>
