================================================================================
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 4, 2000
REGISTRATION NO. 333 -_________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------------------------
THE TRANSLATION GROUP, LTD.
--------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
Delaware 7389 22-3382869
-------- ---- ----------
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
The Translation Group, Ltd.
30 Washington Avenue
Haddonfield, New Jersey 08033
(856) 795-8669
--------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive office and principal place of business)
Mr. Randy G. Morris
President and Chief Executive Officer
The Translation Group, Ltd.
30 Washington Avenue
Haddonfield, New Jersey 08033
phone: (856) 795-8669
facsimile: (856) 795-8737
--------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
with a copy to:
Joseph P. Galda, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
phone: (215) 665-3879
facsimile: (215) 665-8760
----------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE
FOLLOWING EFFECTIVENESS OF THIS REGISTRATION STATEMENT.
================================================================================
<PAGE>
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement in the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class Amount to be Maximum Offering Maximum Aggregate Amount of
of Securities to be Registered Registered (1) Price Per Share (2) Offering Price(2) Registration Fee (2)
------------------------------ -------------- --------- ----------------- --------------------
<S> <C> <C> <C> <C>
common stock,
$.001 par value per share 2,313,768 (3) $1.1719 $2,711,504.70 $716.00
</TABLE>
(1) Represents shares of common stock which may be offered by certain
selling security holders.
(2) Estimated pursuant to Rule 457(c) for the purpose of calculating the
registration fee. Based on the average of the bid and asked prices per
share of the common stock as reported on the OTC Electronic Bulletin
Board on November 28, 2000.
(3) Pursuant to Rule 416 of the Securities Act of 1933, as amended, this
registration statement also includes additional shares of common stock
issuable upon stock splits, stock dividends or similar transactions.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
2
<PAGE>
The information in this prospectus is not complete and may be changed. The
selling security holders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 4, 2000
PRELIMINARY PROSPECTUS
THE TRANSLATION GROUP, LTD.
2,313,768 shares of common stock
The selling security holders identified on pages 47 and 48 of this
prospectus may offer and sell, from time to time, up to 2,313,768 shares of our
common stock. These outstanding shares and the warrants exercisable for these
shares were issued by us in private placement transactions. The selling security
holders may sell all or a portion of their shares through public or private
transactions at prevailing market prices or at privately negotiated prices. We
will not receive any part of the proceeds from sales of these shares by the
selling security holders although we may receive the exercise price of warrants
which are exercisable for common stock offered by this prospectus. We have not
received any commitments for the exercise of warrants.
Our common stock is traded on the OTC Electonic Bulletin Board under
the symbol "THEO." The last reported sale price of our common stock on December
1, 2000 on the OTC Electonic Bulletin Board was $1.00 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is __________, 2000
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY.............................................................2
THE OFFERING...................................................................4
USE OF PROCEEDS...............................................................10
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS...................11
CAPITALIZATION................................................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.........................................................14
DESCRIPTION OF BUSINESS.......................................................21
MANAGEMENT....................................................................38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................44
DESCRIPTION OF SECURITIES.....................................................45
SELLING SECURITY HOLDERS......................................................46
PLAN OF DISTRIBUTION..........................................................49
LEGAL MATTERS.................................................................50
EXPERTS.......................................................................50
WHERE YOU CAN GET MORE INFORMATION............................................50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.....................................I
FINANCIAL STATEMENTS.........................................................F-1
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement we filed with the
United States Securities and Exchange Commission. You should rely only on the
information provided in this prospectus. We have not authorized anyone to
provide you with information different from that contained in this prospectus.
The selling security holders are offering to sell, and seeking offers to buy,
shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. Applicable SEC rules may require us
to update this prospectus in the future. This preliminary prospectus is subject
to completion prior to this offering.
1
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS
PROSPECTUS AND MAY NOT CONTAIN THE INFORMATION THAT IS IMPORTANT TO YOU. TO
UNDERSTAND OUR BUSINESS, YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY,
INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES BEGINNING
ON PAGE F-1.
OUR BUSINESS
We translate and localize documents, software and Web site content
written in one language into other languages. Localization is the art of
converting text from one language to another while giving careful consideration
to the customs of the local area.
On May 28, 1999, we acquired Planet Access Networks, Inc., a Web site
developer capable of designing today's most complicated e-commerce Web sites. As
a result of this acquisition, we have begun transitioning ourselves from being
strictly a provider of translation and localization services to becoming a
multilingual Web-based communications company. We believe that the key to this
transition will be the successful integration of our language support
technologies with our Web development capabilities. Our goal is to be able to
deliver multilingual Web technologies and services to owners of complex and
dynamically updated Web sites.
While developing our multilingual Web technologies, we will continue to
supply our traditional translation services to the software, telecommunications
and other technical publication industries. Our customers for these services
include, among others:
Microsoft(R) SAP
Oracle INSO
Minitab Hewlett-Packard
Automatic Data Processing Project Software &
Development
We are also developing unique computer-based language translation
systems and language tools. Our efforts in this area are aided by strategic
technology relationships with Gedanken, Inc. and ESTeam AB. These new systems
are specifically designed to substantially equal the ability of human
translators, while providing speed and cost advantages over human translation.
We believe these new systems are unique because of their high accuracy rate. We
expect to begin commercializing the first of these systems in the fourth quarter
of the current fiscal year.
INDUSTRY AND MARKET INFORMATION
Due to the increasing demand for Internet content, the
commercialization of our multilingual Web technologies and services is our
highest priority. Within the Internet market segment, business-to-business
clients and financial market content providers are looking for multilingual
content solutions for delivery, development, management and translation
services.
2
<PAGE>
Information and products are now instantly available on a global basis
because of the Internet. It is now easier than ever to distribute software and
other products throughout the world. We believe that this Internet-driven global
marketplace creates the need for companies to have their products, product
information and Web site content translated into local languages.
We believe that there is a strong market for our translation and
localization services. According to published industry information, it is
estimated that actual translations account for only 10% of all potentially
translatable material. According to Allied Business Intelligence, 1999, the
market for these services was approximately $7.6 billion in 1999 and is expected
to grow to $9.3 billion by 2004. We believe that the demand for new, rapid,
low-cost solutions will increase significantly as this market expands with the
Internet.
Our marketing efforts will target specific vertical markets. Initially,
we will target financial, information technology and telecommunications
industries. We believe we can provide unique and highly effective solutions to
these markets, and have begun to assemble a marketing team and approach to
launch these new services.
OUR MISSION
Our mission is to become the leading global supplier of multilingual
products and solutions. We have two primary objectives:
o Complete integration of our existing services; and
o Expanding the globalization capabilities of our targeted market
segments
Since our inception, we believe that we have taken significant strides
towards meeting those objectives, including, among other things:
o Acquiring two translation companies, Bureau of Translation
Services, Inc. and Word House;
o Acquiring a Web site development company, Planet Access Networks,
Inc.;
o Licensing, exclusively, two unique and advanced translation
systems from Gedanken Corporation and ESTeam AB; and
o Creating new products, services and combination product/service
offerings that we believe will be effective and profitable.
Of course, we may not be successful in achieving our objectives.
3
<PAGE>
ABOUT OUR COMPANY
Our executive offices are currently located at 30 Washington Avenue,
Haddonfield, New Jersey 08033, and our telephone number is (856) 795-8669. We
were incorporated in Delaware on July 6, 1995.
THE OFFERING
Common stock offered by the selling
security holders: 2,313,768 Shares
Common stock currently outstanding: 4,659,265 Shares(1)
Common stock to be outstanding after
the offering: 5,639,265 Shares(1)(2)
Use of proceeds: We will not receive any of the proceeds
from the sale of shares by the selling
security holders, although we may
receive the exercise price of warrants
which are exercisable for common stock
offered by this prospectus. We have not
received any commitments for the
exercise of warrants. Any proceeds from
the exercise of warrants will be used
for general working capital purposes.
Trading symbol (OTC Electronic
Bulletin Board): "THEO"
--------------------------
(1) The number of outstanding shares does not include:
2,918,810 shares issuable upon exercise of outstanding warrants to
purchase our common stock;
250,000 shares issuable upon conversion of certain outstanding shares
of preferred stock into shares of our common stock; and
2,457,000 shares issuable upon the exercise of outstanding options to
purchase shares of our common stock.
(2) Includes 980,000 shares being offered hereunder which are issuable upon
the exercise of outstanding warrants and options.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary financial data. This table
does not present all of our financial information. You should read this
information together with our financial statements and the notes to those
statements included in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 SIX MONTHS ENDED
SEPTEMBER 30
(in thousands, except per share data)
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues $13,347 $ 5,987 $ 3,616 $ 5,873
Gross profits 4,632 1,155 45 1,881
Loss before income taxes (20) (2,545) (2,617) (249)
Net income (loss) (188) (2,149) (2,528) (340)
Basic and diluted loss per share (0.06) (0.94) (0.55) (0.13)
(1)
Basic and Diluted Weighted average 2,966 2,278 4,557 2,649
number of shares outstanding
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
AS OF SEPTEMBER 30, 2000
(In Thousands)
Working capital 921
Total assets 12,026
Total liabilities 1,782
Redeemable preferred stock 460
Stockholders equity 9,785
--------------------
(1) Basic income (loss) per common share is based upon the weighted average
number of common shares outstanding for each period presented. Diluted income
(loss) per common share is based upon the weighted average number of common
shares plus the dilutive effect of the existing convertible securities
outstanding for each period presented. Convertible securities have not been
included as their effect would be anti-dilutive.
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER
INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN THE SHARES OF OUR
COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES
WE FACE. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN ADDITION, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF THE
MONEY YOU PAID TO BUY OUR COMMON STOCK.
OUR FUTURE PROFITABILITY AND THE VALUE OF YOUR INVESTMENT WILL DEPEND UPON THE
SUCCESS OF OUR GROWTH STRATEGY
We have reflected only modest net income from operations during fiscal
1997, and net losses during fiscal 1998, 1999 and 2000. As a result, the
successful implementation of our business strategy will likely determine:
Our future profitability
Our ability to effectively compete in the translation and
localization industry; and
The ultimate value of your investment
Our business plan relies primarily on the development and
implementation of computer-aided translation and localization products and the
integration of our existing translation and Web development services.
BECAUSE WE HAVE NOT BEEN ABLE TO FUND OUR BUSINESS OPERATIONS FROM REVENUES IN
THE PAST TWO YEARS, WE MAY NEED ADDITIONAL FUNDING TO FINANCE OPERATIONS.
We have had insufficient revenues in the past to fund operations,
and we may need to raise additional funds to finance future operations. At March
31, 2000 we had cash reserves of $1,070,080 and at September 30, 2000 our cash
reserves were $884,088. However, if our available cash and existing sources of
revenue are insufficient and we need additional financing, we may not be able to
secure the funding. If we do secure the funding, it may be on terms that are not
acceptable.
WE HAVE COMMITTED A SIGNIFICANT PORTION OF OUR WORKING CAPITAL TO RESEARCH AND
DEVELOPMENT, AND THE FAILURE TO COMMERCIALIZE OUR COMPUTER AIDED TRANSLATION AND
LOCALIZATION PRODUCTS AND SERVICES WILL HAVE A MATERIAL ADVERSE IMPACT ON OUR
FINANCIAL CONDITION
Over the past two years we have invested approximately $2 million on
the development of the Gedanken system and ESTeam's BTR system. We anticipate
providing additional funding during fiscal 2001 and beyond to complete
production models and commence commercialization of the systems. Our inability
to commercialize either one or both of these projects may well affect our
competitive position in the industry and impact our profitability.
6
<PAGE>
FAILURE TO SUCCESSFULLY INTEGRATE PLANET ACCESS INTO OUR EXISTING OPERATIONS
WILL MAKE IT UNLIKELY THAT WE CAN SUCCESSFULLY IMPLEMENT OUR STRATEGIC PLAN
Our business strategy depends on our ability to use the services
provided by Planet Access to transport text in digital form into the translation
system software and then subsequently transport the translated text back to the
client. Failure to integrate our language support technologies with Planet
Access' Web technologies may have a material adverse effect upon our business.
IF WE EXPERIENCE RAPID GROWTH AND DO NOT MANAGE IT EFFECTIVELY OUR BUSINESS AND
FINANCIAL RESULTS WILL SUFFER.
If our technologies and products achieve wide acceptance we may
experience growth. We may have to hire more employees including additional
management, improve our financial control systems, and expand and manage our
technical, sales and support service operations. We would need increased
revenues and/or additional funding to operate these increased activities. If we
do not manage our growth effectively our business and financial results will
suffer.
A LIMITED MARKET FOR OUR COMMON STOCK INCREASES THE POSSIBLE VOLATILITY OF OUR
STOCK PRICE AND THE VALUE OF ANY INVESTMENT IN OUR EQUITY MAY BE REDUCED
The public trading market for shares of our common stock is limited on
the OTC Electronic Bulletin Board. There can be no assurances that a regular
trading market for our common stock will be sustained. By its very nature,
trading on the OTC Electronic Bulletin Board provides only limited market
liquidity. In addition, the stock markets generally have experienced, and
continue to experience, extreme price and volume fluctuations which have
affected the market price of many small-cap companies and which have often been
unrelated to the operating performance of these companies. These broad market
fluctuations, as well as general economic and political conditions, may
adversely affect the market price of our common stock.
IF WE USE OUR COMMON STOCK TO CARRY OUT ADDITIONAL ACQUISITIONS OR ISSUE MORE OF
OUR COMMON STOCK IN A PUBLIC OR PRIVATE OFFERING, ADDITIONAL DILUTION TO YOUR
INVESTMENT WILL OCCUR
We may grow our business through acquisitions. We could accomplish this
through the issuance of additional shares of our common stock. This would have
the effect of increasing the number of shares of common stock outstanding. In
addition, in order to accomplish our business strategy on a longer-term basis,
we are likely to require additional financing, which may entail the issuance of
additional shares of common stock, preferred stock or common stock equivalents,
which would have the further effect of increasing the number of shares
outstanding. This may be done in order to, among other things:
o Facilitate a business combination
o Acquire assets or stock of another business
7
<PAGE>
o Compensate employees or consultants; and
o For other valid business reasons in the discretion of our
Board of Directors.
WE OPERATE IN HIGHLY COMPETITIVE MARKETS, WHICH COULD RESULT IN LOSS OF MARKET
SHARE OR REDUCED MARGINS
We face intense competition from multinational, regional and local
companies in every market in which we operate. The principal competitive factors
within the translation and localization industry include:
o Price;
o Technological capability;
o Accuracy;
o Extent of geographic coverage; and
o Ability to deliver services in a timely manner.
Many of our competitors have well established reputations and
significantly greater financial, marketing, personnel and other resources than
we do. Our principal competitors are:
Berlitz Lernout & Hauspie, N.V.
Bowne Translation Division Logos
Alpnet Systran
Lionbridge LMI
Some of these competitors are multinational, highly-visible and
well-regarded enterprises. There can be no assurance that we will be able to
compete effectively against these or any other competitors.
SENIOR MANAGEMENT BENEFICIALLY OWNS A SIGNIFICANT PERCENTAGE OF OUR COMMON STOCK
AND THEREFORE HAS SIGNIFICANT INFLUENCE OVER THE ELECTION OF DIRECTORS
Our officers, directors and principal stockholders own approximately
52.3% of our common stock on a fully diluted basis. Consequently, upon exercise
of their vested options and warrants and by virtue of Delaware law, these
stockholders could be in a position to influence the election of all of our
directors and possibly control the outcome of other corporate matters without
the approval of our other stockholders. In addition, applicable statutory
provisions and the ability of the Board of Directors to issue one or more series
of preferred stock without stockholder approval could deter or delay unsolicited
changes in our control by discouraging open market purchases of our stock or a
non-negotiated tender or exchange offer for our stock, which may be
disadvantageous to our stockholders who may otherwise desire to participate in
such a transaction and receive a premium for their shares.
8
<PAGE>
THE SUCCESSFUL IMPLEMENTATION OF OUR BUSINESS STRATEGY IS DEPENDENT UPON
MANAGEMENT PERSONNEL AND EXECUTIVE OFFICERS
Our operations are dependent upon the continued services of senior
management and upon our ability to hire and retain qualified management and
technical personnel. The loss of services of any of those executive officers or
other management or personnel, whether as a result of death, disability or
otherwise, may have a material adverse effect upon our business.
A SIGNIFICANT PORTION OF OUR REVENUES ARE DERIVED FROM OUR INTERNATIONAL
OPERATIONS, AND A DOWNTURN IN INTERNATIONAL COMMERCE COULD SEVERELY IMPACT OUR
RESULTS OF OPERATIONS
A significant portion of our business is conducted outside the United
States. International trade is influenced by many factors, including economic
and political conditions, employment issues, currency fluctuations and laws
relating to tariffs, trade restrictions, foreign investments and taxation. As a
result, our operations are subject to various risks such as:
o Loss of revenue due to the instability of foreign economies;
o Currency fluctuations and devaluations;
o Adverse tax policies; and
o Governmental activities that may limit or disrupt markets,
restrict payments or the movement of funds or result in the
deprivation of contract rights.
We are subject to taxation in a number of jurisdictions, and the final
determination of our tax liabilities involves the interpretation of the statutes
and requirements of various domestic and foreign taxing authorities. Moreover,
many of the countries where we operate and plan to operate have legal systems
that differ from the United States legal system and may provide substantially
less protection for foreign investors. A reduction in the level of international
trade, material restrictions on trade or a downturn in the economies of
countries in which we currently operate could have a material adverse effect on
our results of operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve risks and uncertainties. These statements relate to
future events or our future financial performance. In many cases, you can
identify forward-looking statements by terminology such as "may", "will",
"should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or the negative of such terms and other
comparable terminology. These statements are only predictions. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of many factors, including the risks faced by us as
described in "Risk Factors" and elsewhere in this prospectus.
9
<PAGE>
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The risk factors described
above, as well as any cautionary language in this prospectus, provide examples
of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in shares of our common stock, you should be aware that the
occurrence of the events described in these risk factors and elsewhere in this
prospectus could have a material adverse effect on our business, operating
results and financial condition.
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
selling security holders, although we may receive the exercise price of warrants
which are exercisable for common stock offered by this prospectus. We have not
received any commitments for the exercise of warrants. Any proceeds from the
exercise of warrants will be used for general working capital purposes.
10
<PAGE>
MARKET FOR OUR COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
We completed our initial public offering on December 6, 1996. Since
that date our common stock has been reported on the OTC Electronic Bulletin
Board under the symbol THEO. The following table sets forth the range of the
high and low bid prices for the common stock as reported by the National
Quotation Bureau for the periods indicated and represents prices between
broker-dealers, which do not include retail mark-ups and mark-downs, or any
commission to the broker-dealer. The bid prices do not reflect prices of actual
transactions.
1998 HIGH LOW
Quarter ended March 31, 1998 $ 4.75 $ 3.75
Quarter ended June 30, 1998 6.50 4.00
Quarter ended September 30, 1998 7.5625 5.25
Quarter ended December 31, 1998 6.25 4.50
1999
Quarter ended March 31, 1999 5.00 3.00
Quarter ended June 30, 1999 6.125 3.00
Quarter ended September 30, 1999 3.75 2.00
Quarter ended December 31, 1999 5.3125 1.5625
2000
Quarter ended March 31, 2000 10.50 3.25
Quarter ended June 30, 2000 6.875 3.00
Quarter ended September 30, 2000 5.5625 2.875
On December 1, 2000 the last sale price for our common stock was $1.00.
HOLDERS
As of November 27, 2000, we had approximately 90 stockholders of
record, although based on past requests of broker/dealers and securities
depositaries for proxy materials and annual reports we believe that there are
additional beneficial owners of our common stock who own their shares in "street
name."
DIVIDENDS
We have not paid any cash dividends to date, and we have no intention
of paying any cash dividends on our common stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of the board
of directors and to certain limitations imposed under the General Corporation
Law of the State of Delaware. The timing, amount and form of dividends, if any,
will depend, among other things, on our results of operations, financial
condition, cash requirements and other factors deemed relevant by our board of
directors.
11
<PAGE>
SHARES ELIGIBLE FOR PUBLIC SALE AND REGISTRATION RIGHTS
Future sales of substantial amounts of our common stock, including our
common stock issued upon exercise of outstanding options and warrants and
conversion of outstanding shares of preferred stock, in the public market could
adversely affect market prices prevailing from time to time and could impair our
ability to raise capital through the sale of equity securities.
As of November 27, 2000, there were 4,659,265 shares of our common
stock issued and outstanding. Approximately 2,709,159 of the shares are subject
to restrictions upon resale as "restricted shares" as defined in Rule 144 under
the Securities Act of 1933. Approximately 1,950,106 of the shares are free
trading.
The public resale of our "restricted shares" is governed by Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who owns shares that were purchased from us (or any
affiliate) at least one year previously, including a person who may be deemed
our affiliate, is entitled to sell within any three-month period, a number of
shares that does not exceed 1% of the then outstanding shares of our common
stock. If our common stock is subsequently included for trading in an automated
inter-dealer quotation system or listed on a national securities exchange, then
the volume limitation will become the greater of:
o 1% of the then outstanding shares of our common stock; or
o the average weekly trading volume of our common stock during
the four calendar weeks preceding the date on which notice
of the sale is filed with the Securities and Exchange
commission.
Sales under Rule 144 are also subject to manner of sale provisions,
notice requirements and the availability of current public information about us.
Any person (or persons whose shares are aggregated) who is not deemed to have
been our affiliate at any time during the 90 days preceding a sale, and who owns
shares within the definition of "restricted securities" under Rule 144 under the
Securities Act that were purchased from us (or any affiliate) at least two years
previously, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
requirements or notice requirements.
Based upon the respective dates of issuance, 1,193,837 of our
"restricted shares" are presently eligible for resale under Rule 144. The
remainder of our "restricted shares" will all become eligible for resale under
Rule 144 at various times throughout 2001.
In addition to the outstanding shares of our common stock described
above, as of the date of this prospectus, we have 2,457,000 shares of common
stock reserved for issuance upon the exercise of outstanding options, 2,918,810
shares of common stock reserved for issuance upon the exercise of common stock
purchase warrants and 250,000 shares of common stock reserved for issuance upon
conversion of outstanding shares of preferred stock. Of these shares, 1,826,810
12
<PAGE>
shares are reserved for issuance upon the exercise of common stock purchase
warrants and are eligible for public trading and 3,799,000 securities and the
shares of common stock underlying those securities are restricted securities.
The transfer of the restricted securities is subject to the requirements of Rule
144, as discussed above.
As we discussed under the Risk Factors section of this prospectus,
future sales of restricted common stock under Rule 144 or otherwise, or of the
shares that are covered by this prospectus, may create downward pressure on the
trading price of our common stock. This pressure could, in turn, negatively
effect the market price of our common stock. We are unable to estimate the
number of shares that may be sold in the future by our existing stockholders, or
the effect, if any that sales of shares by such stockholders could have on the
market price of our common stock prevailing from-to-time.
We have agreed to register the public resale of 2,313,768 of the shares
identified above; 2,313,768 of which are being registered for public resale
hereunder.
SHARES ISSUABLE UPON EXERCISE OR CONVERSION OF OUTSTANDING OPTIONS AND WARRANTS
We have issued options to purchase an aggregate of 2,457,000 shares of
common stock of which 403,750 are currently exercisable. The remaining options
vest over a four (4) year period. We have also issued warrants to purchase an
aggregate of 1,092,000 shares of common stock all of which are currently
exercisable. In connection with our initial public offering, we sold warrants to
purchase shares of common stock, of which warrants to purchase 1,826,810 shares
of common stock remain outstanding. These warrants will expire on December 31,
2000.
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
2000. This table should be read in conjunction with the Company's Consolidated
Financial Statements and notes thereto beginning on page F-1.
ACTUAL
------
Convertible Preferred Stock $459,747
--------
Common stock 4,744
Additional paid in capital 14,058,581
Accumulated deficit (4,223,825)
Common stock in treasury (68,032)
Accumulated and other comprehensive income 13,425
------
Total stockholders' equity (deficiency) 9,784,893
---------
Total capitalization $10,244,640
===========
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ TOGETHER WITH THE FINANCIAL STATEMENTS AND THE RELATED
NOTES INCLUDED IN ANOTHER PART OF THIS PROSPECTUS AND WHICH ARE DEEMED TO BE
INCORPORATED IN THIS SECTION. THIS DISCUSSION CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THOSE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING BUT NOT LIMITED TO, THOSE SET FORTH UNDER
AND INCLUDED IN OTHER PORTIONS OF THIS PROSPECTUS.
OVERVIEW
We translate and localize technical documents, software and Web site
content written in one language into other languages. We also offer Web site
design, development and hosting services through our subsidiary, Planet Access
Networks, Inc, which we acquired in April 1999.
By integrating our sophisticated Web site expertise and language
technology, we believe that we will emerge as a leading supplier of global
communications products and services. The initial products and services
resulting from our integration program include:
o Designing Web sites for rapid, cost effective translation; and
o Offering rapid, cost effective translation through proprietary
extranets for the software, information technology and financial
markets.
We have ongoing development programs directed toward the completion of
computer-based automated translation systems. We believe these new powerful
information tools will provide the basis for the creation of unique translation
products for special niche markets. We have established strategic licensing
relationships with Gedanken Corporation and ESTeam AB. Through these strategic
alliances we are developing specialized automated translation products for the
financial information technology and telecommunication fields.
14
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenue represented by
certain items
YEARS ENDED MARCH 31, 2000, 1999 & 1998
<TABLE>
<CAPTION>
OPERATIONS 2000* % 1999** % CHANGE 1998 % CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales......................... $13,347 100.0 $ 5,987 100.0 $ 7,360 $ 6,421 100.0 ($434)
Operating Costs &
EXPENSES
Cost of Sales................. 8,715 65.3 4,833 80.7 3,882 4,189 65.3 644
Selling & Admin............... 2,724 20.4 1,865 31.2 859 1,309 20.3 556
Research & Develop............ 147 2.4 (147) 244 3.8 ( 97)
Special & Other............... 979 16.4 (979) -- 979
Corporate Admin............... 1,244 9.3 736 12.3 508 774 12.0 ( 38)
Amort. of excess.............. 340 2.6 97 1.6 243 73 1.1 24
-------- --------- --------- ---------- --------- --------- --------- ---------
Total......................... 13,023 97.6 8,657 144.6 4,366 6,589 102.5 2,068
Operating profit (loss)
before other income........... 324 2.4 (2,670) (44.6) 2,994 (168) (2.5) (2,502)
Other income (expense), net...
(344) (2.6) 125 2.1 (469) 178 2.7 ( 53)
--------- --------- --------- ---------- --------- --------- --------- ---------
(Loss) income before taxes....
(20) (.2) (2,545) (42.5) 2,525 10 .2 (2,555)
Income taxes (benefit)........ 168 1.2 (396) 6.6 564 24 .4 420
-------- --------- --------- ---------- --------- --------- --------- ---------
Net Income (Loss)............. $ (188) (1.4) $(2,149) (35.9) $1,961 $ (14) (.2) $(2,135)
========= ========= ========= ========== ========= ========== ========= =========
Average shares outstanding....
2,966 2,278 2,124
Primary earnings (loss)
per share.....................
(.06) $ (.94) $ (.01)
</TABLE>
* Includes sales and costs of acquired subsidiary for the eleven months ended
March 31, 1999
** Includes sales and costs of acquired subsidiary for the nine months ended
March 1, 1998
Reflects reclassifications for consistency of comparisons.
3/31/00 3/31/99
FINANCIAL CONDITION (IN 000'S) CHANGE
Cash and short term investments.......... 1,700 $ 1,896 (196)
Other current assets..................... 3,072 1,697 1,375
------------ ------------- -----------
Total Current Assets..................... 4,772 3,593 1,179
Total Current Liabilities................ 1,672 1,452 220
------------ ------------- -----------
Working Capital.......................... 3,100 2,141 959
------------ ------------- -----------
Current Ratio............................ 2.9:1 2.5:1
Total Assets............................. 11,933 6,161 5,772
Total Liabilities........................ 1,672 1,639 33
Redeemable Preferred Stock............... 494 - 494
------------ ------------- -----------
Stockholders' equity..................... 9,767 4,522 5,245
------------ ------------- -----------
Book value per share.....................
$ 3.29 $ 2.00 $ 1.29
============ ============= ===========
15
<PAGE>
YEARS ENDED MARCH 31, 2000 (THE "CURRENT YEAR") COMPARED TO MARCH 31, 1999 (THE
"COMPARABLE YEAR")
GENERAL
During the Current Year, we purchased all of the outstanding shares of
Planet Access Networks, Inc., a New-Jersey based web-site design and hosting
company. We also continued development of computer-based translation tools
licensed from Gedanken and ESTeam AB, although launch of services based on these
tools is not anticipated until later in fiscal year 2001. During the Current
Year, we continued the historic operations of the Bureau of Translation Services
and the WordHouse group of companies.
SALES
During the Current Year, consolidated sales increased by $7,360,000
from the Comparable Year to $13,347,000, an increase of 123%. Of this increase,
the acquisition of Planet Access accounted for $9,006,000, or 67% of total
sales. Sales at the Bureau of Translation Services and WordHouse were lower than
during the Comparable Year. The Bureau of Translation Services and WordHouse
continue to be affected by intense competition in the market for translation and
localization services. As a result, we are repositioning ourself as a technology
company that will use the tools licensed from Gedanken and ESTeam to offer
quicker services at lower cost and greater margins.
During the Current Year, brandwise LLC accounted for 74% of Planet
Access' revenues. During the fourth quarter of the Current Year, brandwise
encountered financial difficulties and reduced operations. As a result, Planet
Access and brandwise terminated their relationship. Furthermore, during the
fiscal year ending March 31, 2001, Planet Access will not have brandwise as a
client. Accordingly, it can be expected that unless and until Planet Access can
replace the revenues generated by brandwise, Planet Access' revenues will
decline.
COST OF SALES AND GROSS MARGIN
During the Current Year, cost of sales increased by 80% over the
Comparable Year to $8,715,000.00, principally as a result of higher sales. As a
percentage of sales, cost of sales decreased from 80.6% to 65.3%. This decrease
is attributable to the inclusion of Planet Access, with its higher gross margins
when compared to the Bureau of Translation Services and WordHouse. Due to the
competitive pressures in the translation and localization market, the Bureau of
Translation Services and WordHouse continue to suffer from low margins.
Management believes that the commercialization of products based on the Gedanken
and ESTeam technologies will allow the Company to offer satisfactory margins
notwithstanding competitive pressures in the industry.
GENERAL AND ADMINISTRATIVE
Our general and administrative expenses increased from the Comparable
Year by $859,000 or 46% to $2,724,000 in the Current Year, principally as the
result of the acquisition of Planet Access and increased administrative salaries
associated with the expected launch of translation services based on the
technologies licensed from Gedanken and ESTeam. As a percentage of sales,
general administrative expenses decreased from 31.1% to 20.4%.
16
<PAGE>
NET INCOME
Net loss decreased from the Comparable Year by $1,961,000 to $188,000,
or 91% in the Current Year, principally as a result of the acquisition of Planet
Access, which added approximately $9,006,000 to revenues, $1,602,000 to
operating profit and $1,541,000 to net income. The reduction in net loss is also
attributable to the fact that Planet Access had higher gross margins when
compared to the Bureau of Translation Services and WordHouse. Additionally,
losses at WordHouse were 25% lower than the Comparable Year due to increased
sales in the first and fourth quarters of the Current Year, resulting in
break-even in the third quarter and a profit in the fourth quarter.
We increased the number of outstanding shares from 2,270,000 shares in
the Comparable Year to 3,788,000 shares in the Current Year. The increased
number of outstanding shares along with a decrease in net loss caused net loss
per share to decrease from $.94 per share in the Comparable Year to $.06 per
share in the Current Year.
YEARS ENDED MARCH 31, 1999 AND MARCH 31, 1998
GENERAL
We lost $2,149,000 for the year ended March 31, 1999 in comparison to a
loss of $14,000 for the prior fiscal year. The primary reasons for the increased
loss were:
o 6.7% decrease in sales from $6,421,000 in 1998 to $5,987,000 in
1999
o 15.3% increase of cost of sales from $4,189,000 to $4,832,000
during the same period
o Expenses for special projects and other costs not directly
related to the current production-sales cycle of $979,000
o Increase in selling and administration of $556,000, which was
only partially offset by other decreases of $55,000 and an income
tax recovery change of $402,000
GROSS MARGIN
The reduction in gross margin of $1,075,000 was the result of a
decrease in sales of $434,000 and an increase of cost of sales of $644,000. The
increased costs were primarily the result of our capacity expansion. We moved to
larger quarters and increased our engineering, production and support personnel.
During fiscal 1999, our results from operations were negatively affected by the
economic downturn in Asia. At the same time, we were in the beginning of a
transition from a translation service bureau utilizing tools and memory
translation to a more technologically-based products enterprise, developing our
own computer translation system. The special projects and other costs included:
17
<PAGE>
o New product development and strategic alliance discussions: $261,000
o Settlement of salary contracts of president of subsidiary: $316,000
o Loss in establishing and closing of Canadian operations: $122,000
o Amortization of value of options relating to service and $180,000
agreement:
o Overlaps in the settlement of certain professional fees: $100,000
consulting --------
Total: $979,000
========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses increased by $556,000, from 20.3% to 31.1% of sales. A
significant portion of this increase was due to:
o Increased costs of sales personnel $85,000
o Marketing campaign $170,000
o Accounting system charges and increased accounting $ 80,000
personnel
o Salary increase to senior management of subsidiaries $ 70,000
o Severance costs $ 90,000
--------
Total: $495,000
========
We believe that most of the causes of this loss have been eliminated or
their effects reduced. We taken the following steps to mitigate further losses
and to return to profitability:
o International operations in Europe and Canada lost approximately $500,000
in the most recent fiscal year. The Canadian entity was closed in March,
1999.
o Personnel costs have been reduced. Such changes will reduce costs by
approximately $350,000.
o The general advertising campaign has been terminated and marketing costs
reduced by approximately $200,000.
o We have achieved "technological feasibility" relative to our research and
development efforts to design a computer translation system. We have also
acquired a license that gives us exclusive rights to computer based
translations for certain of our products.
18
<PAGE>
o We acquired a Web site and internet management services company which is
expected to increase our earnings.
SIX MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
REVENUES
Revenues for the quarter ended September 30, 2000 (the "Current
Quarter") decreased $2,358,000, to $1,639,000 from $3,997,000 for the quarter
ended September 30, 1999 (the "Comparable Quarter"). Revenue for the six months
ended September 30, 2000 (the "Current Period") decreased $2,257,000, to
$3,616,000 from $5,873,000 for the six months ended September 30, 1999 (the
"Comparable Period"). Much of the decrease in sales is related to our decision
to terminate its contract with brandwise. To address these issues, we have hired
additional sales personnel for all elements of our business. However, due to the
competitive conditions markets, increased quotes do not necessarily result in
immediate increases in sales.
GROSS PROFIT
Gross profit decreased $1,380,000 in the Current Quarter, from
$1,302,000, or 32% of sales, in the Comparable Quarter. Gross profit decreased
$1,836,000 in the Current Period, from $1,881,000, or 30% of sales, in the
Comparable Period. The decrease in gross profit was due to the changes at Planet
Access and management's decision to turn away the brandwise business while
maintaining the current capacity. Gross margin should increase as Planet Access
increases sales as a result of increased marketing efforts. In the longer term,
we are also seeking to improve gross profits by investing in better automated
translation systems, which should reduce costs, and by developing specialized
automated translation products for the financial information technology and
telecommunication fields, which should provide greater gross revenues.
SELLING, GENERAL AND ADMINISTRATION
SG&A expenses increased by 27% to $830,000 during the Current Quarter,
from $655,000 in the Comparable Quarter. SG&A expenses increased for the Current
Period by 31% to $1,621,000 as compared to $1,233,000 in the Comparable Period.
This increase in SG&A expenses reflects increased marketing expenditures and
increased sales and corporate staff. Management made a conscious decision to
increase these expenditures while maintaining existing production capacity in
order to build technology and increase capacity in the later fiscal quarters.
19
<PAGE>
NET INCOME (LOSS)
The Company had a net loss of $1,407,119 during the Current Quarter as
compared to net income of $127,956 for the Comparable Quarter. The Company
incurred a net loss of $2,528,391 during the Current Period, as compared to a
net loss of $340,270 during the Comparable Period. The loss was due to the
launch of the new brand and trade name as well as the changes at Planet Access,
specifically the decision to turn away the brandwise.com business and the
development of enhanced technology and integration efforts.
LIQUIDITY AND CAPITAL RESOURCES
We funded our operations with the proceeds of our initial public
offering in 1995, cash flow from operations, and subsequent equity financing.
The acquisitions of the Word House Group and Planet Access were largely financed
by the issuance of our common stock as the major component of the consideration.
As of March 31, 2000, we had a cash balance of $1,700,000 down from
$1,896,000 at March 31, 1999. Also, as of March 31, 2000, we had working capital
of $3,100,000, up from $2,141,000 at March 31, 1999.
The increase in working capital was as a result of cash raised through
several private placements of securities during the Current Year. During the
Current Year, we completed a common stock and warrant offering through
Pennsylvania Merchant Group, which raised $1.0 million. In addition we completed
a $1.0 million offering of Series A Convertible Preferred Stock. Finally, during
the Current Year we received $1,478,112 in proceeds from the exercise of
outstanding common stock purchase warrants. These proceeds were used to pay the
deferred purchase price associated with the acquisition of Planet Access.
Subsequent to year-end, we raised additional proceeds $2,500,000 in a
private placement of common stock with a venture capital fund.
During the Current Period, $1,952,254 was used in operations. We
invested $1,550,246 in property, equipment and software. This consisted of
approximately $600,000 for the Gedanken and ESTeam projects and approximately
$800,000 related to the multi-lingual web site project.
The change in our strategic direction towards accelerated development
of advanced automated translation systems and facilitation of a web-based
strategy has substantially increased the Company's working capital requirements.
Because of the current operating loses, together with currently available
resources, cash flow will be insufficient to meet these obligations, however we
are exploring a range of financing options, including the public or private
issuance of debt or equity securities. In addition, we are seeking strategic
partners for one or more of our businesses. Although we are actively pursing
each of these alternatives, and believe that we will be able to obtain the
required financing, there can be no assurance that it will be successful in
completing the financing required by our business plan on commercially
acceptable terms, if at all. If we are unable to obtain financing for our
business plan, we would be required to reduce the number of projects in
development and/or sell or discontinue existing operations.
20
<PAGE>
DESCRIPTION OF BUSINESS
OUR DEVELOPMENT
These are the key moments in our development:
o We were incorporated in Delaware on July 6, 1995.
o On January 17, 1996, we acquired Bureau of Translation Services, Inc.
The Bureau of Translation Services is one of our wholly-owned
subsidiaries.
o On June 30, 1997, we acquired the companies that comprise the Word
House group. Word House has been in operation since 1984, and has
offices in The Netherlands, France and China. Word House is one of our
wholly-owned subsidiaries.
o On May 28, 1999, we acquired Planet Access Networks, Inc., a Web site
development and management company. Plant Access is one of our
wholly-owned subsidiaries.
OUR BUSINESS
Our business is translating conventional documents, software and Web
site content written in one language into other languages. Localization is the
art of converting text from one language to another giving careful consideration
to the customs of the local area.
As a result of our acquisition of Planet Access, we are transitioning
from strictly being a translation and localization service provider to becoming
a multilingual Web-based communications company. We believe that by integrating
our language support services with Planet Access' Web development capabilities,
we will be able to meet the demands of businesses wishing to expand globally or
become multilingual.
We recently launched research programs directed toward the development
of computer-based automated translation systems. We believe that these new
powerful information tools will provide the basis for our change from being a
translation and localization service provider that relies on human resources and
industry-available technology and software tools, to a company with its own
uniquely developed translation and localization technologies. We believe that
this transition from a labor-intensive process to a technology-driven process is
essential in today's market. To facilitate this change, we have begun developing
our own software systems through strategic technology relationships with
Gedanken Corporation and ESTeam AB. We believe that these alliances will help us
produce specialized automated translation products for the financial,
medical/pharmaceutical, environmental, information technology and
telecommunication fields. We expect to commercialize our first ESTeam system
application by March, 2000, and we expect to complete the development of our
first Gedanken system application by June 30, 2001.
During the quarter ended June 30, 2000, we launched a new brand and
trade name, InSage. InSage incorporates aspects of all three operating divisions
(Planet Access Networks, Bureau of Translation Services, Inc. and Word House).
21
<PAGE>
InSage will focus on developing an Internet-based, multi-lingual solutions for
new and existing customers.
OUR PRODUCTS AND SERVICES
TRANSLATION AND LOCALIZATION
We offer our clients a comprehensive solutions-based menu of
value-added products and services, from development to localization to
in-country service and support. We specialize in managing and producing high
volume, technical translations and localization for our clients. All of our
products and services can be customized to the client's specific requirements.
Our primary translation products and services include:
o Multilingual localization and translation services that include:
o All levels of product management;
o Terminology development;
o Re-use of previously translated materials using latest technology tools;
o Translation and technical editing of text;
o Software engineering, including resizing and compiling;
o On-line help compiling and formatting;
o Linguistic, functionality and Q&A testing;
o Desktop publishing, graphic layout, editing and proofreading;
o Coordination of in-country review;
o Production of publishable materials and electronic media, including CD ROM;
o Multimedia localization and production; and
o Web site and on-line publishing, localization and production.
o Internationalization and development consulting
o Technical writing of documentation, including editing and evaluation
o In-country training, support and service centers
o Facilities management and resource on-site placement services
Historically, the process of multilingual localization for the
information technology market has been highly labor intensive, with much of the
hands-on-work being done principally by independent translators and editors
retained by us, as well as our employees. We utilize various automated
translation tools to reduce the high cost associated with human translators,
decrease the completion time and to enhance consistency.
We utilize several translation software tools for extracting and
storing data, for preserving formatting during the translation process, for
online dictionaries, for presentation of text and use of previous translations.
22
<PAGE>
We consider our highly detailed project management, tracking and
costing procedures to be at the heart of our specialized services. We place a
strong emphasis on efficient processes, and believe that centralized project
management is essential to efficiency. To better implement this policy, a
project manager is assigned to each project. Thus, even when a project may have
team members in many different locations, most work is coordinated centrally in
our United States and European headquarters via electronic communication.
Certain core functions such as editing, proofreading, desktop
publishing and client coordination are part of central project management. In
preparing work for translation into multiple languages a project editor may
identify problems or issues which are relevant across the entire project.
Similarly, in a multiple-language project, problems may be picked up by the
translators in one or two languages that are relevant to others. We believe that
central control of the process is the only way certain problems can be
adequately handled, such as identification of software bugs.
All of the independent translators utilized by us are native speaking
professionals in the target language, and are required to know the subject
matter of the area in which they translate. In addition, a project must have
technically knowledgeable staff in the source language, preferably a specialist
in that area. We provide an extensive range of communications facilities by
utilizing our own internal systems integration group which maintains our
Internet, extranet, intranet and e-mail systems. Files are prepared for
translation by our technical staff and are distributed electronically to
translators either locally or in the applicable country. Translated versions are
returned to our central project management for checking and proofing and the
target language versions are distributed to appropriate client locations, which
may be multiple locations or a central site.
In terms of process, we consider ourselves an extension of the clients'
documentation and software development departments. All project activities are
closely tracked using custom and commercial project management/tracking
applications where the data is fully available to the client. Thus, the client
always knows the status of the project.
We realize that many of our customers do not possess all of the
expertise needed to manage the localization process. Therefore, we expanded our
service offerings to include management consulting and on-site management.
Systems development and consulting services also include product planning and
redesign for local markets. We understand the changes in technology, and that
taking a product to a global market can be a difficult proposition. In order to
offset the technical difficulties for our customers, we have taken an active
role in the development and modifications of our customers' products to support
local specifications and character encoding for different regions of the world.
These services allow us to manage the localization and the customer to manage
the product. Therefore, costs are reduced while quality is maintained.
23
<PAGE>
WEB DEVELOPMENT
Through our subsidiary, Planet Access, we offer our customers a
comprehensive solutions-based menu of value-added products and services, from
basic billboard Web development to highly complicated transactional e-commerce
sites. All of Planet Access' products and services can be customized to the
customer's specific requirements. The primary products and services currently
provide by Planet Access include:
o Web design and development
o All levels of product management;
o Design and layout;
o Graphics design and creation;
o Interactive scripting and application design and development;
o Database design and development;
o Backend application design and development; and
o On-line publishing and production.
o Solution consulting
o Technical writing of documentation, including editing and evaluation
o Network design and implementation
o Off-site/On-site systems administration and hosting
Planet Access employs senior, experienced professionals in each key
discipline of Web design and implementation, including graphics design, HTML
coding, master program architecture, Web analysis, testing, equipment platform
specification, installation and hosting.
By integrating Planet Access' Web site development capabilities with our
translation and localization services, we hope to create an "end to end" service
to Web customers.
INTERNET-BASED, MULTI-LINGUAL SOLUTIONS
Through our new brand, InSage, we will develop Internet-based,
multi-lingual solutions for new and existing customers. We have recently engaged
Temel, Inc., a marketing firm, to guide the InSage marketing effort. During the
quarter ended June 30, 2000, we designed and implemented the "InSage - Language
of the Internet" brand and developed the InSage Web site WWW.INSAGE.COM. We
expect to commence a more aggressive marketing program in the near future and
publicly launched our multi-lingual Website solution at the Internet World
Tradeshow in New York City, in October, 2000.
24
<PAGE>
In connection with the development of the InSage multi-lingual web
solution, we have:
o Repositioned many of our employees and consultants from all
three operating divisions (Planet Access Networks, Bureau of Translation
Services, Inc. and Word House) to design the InSage multi-lingual web solution;
o Repositioned some Planet Access Netorks employees and
consultants to evaluate various new components and technologies which are
required in multi-lingual web site solutions. These components include:
o Content management systems;
o Workflow systems;
o Database management systems capable of multi-lingual operation;
o Multi-lingual development environments and techniques;
o XML; and
o Various data extraction tools; and
o Repositioned Planet Access Networks consultants to research and
understand the resources required to consult with our new customers concerning
the cross culture localization of business rules, the impact or web user
interfaces across cultures and localizing marketing messages.
25
<PAGE>
OUR CUSTOMERS
TRANSLATION AND LOCALIZATION
We provide translation and localization services to a diverse range of
industries and industry sectors. We focus primarily on serving information
technology companies such as:
o Software publishers;
o Computer hardware manufacturers; and
o Computer and peripherals vendors.
Our target markets include nearly all professional and technical
industries such as financial, medical, legal, trade publications, automotive,
software, technical abstracts, equipment and instrumental manuals, environmental
and government.
We believe that the key geographic markets for our services include
Japan, Europe and the Americas, which use the dialects of Canadian French, Latin
American Spanish and Brazilian Portuguese. Growth markets are primarily in Asia
and Eastern Europe. Japanese and Dutch represent our largest languages by
volume. We believe that Chinese will also become more significant in the future.
Our business in Japan is primarily translation for suppliers of software
applications.
We also have a large number of information technology-based clients.
Our strong relationships with these clients have generated a volume of more
conventional translation work. For example, we are currently translating and
localizing software messages, software dialog boxes, software help and related
documentation for several of our clients. These products are localized for:
o Okidata Peripherals, a division of OKI America, Inc.;
o Bentley Systems Inc.'s CAD/CAM software;
o Matrox Electronic Systems Ltd.'s video and networks products
o Microsoft(R) Corporation's software products
o Project Software & Development, Inc.'s management system
Other customers include Hewlett-Packard Company, Creative Labs Inc.,
Bay Networks, INSO Corporation, Automatic Data Processing, Inc., Fisher-Rosemont
Systems, Minitab Inc., Caterpillar Inc., Oracle Corporation and Xerox
Corporation.
26
<PAGE>
WEB DEVELOPMENT
Planet Access provides Web development services to a broad range of
industries and sectors. Planet Access is currently focusing its marketing
efforts on the following industries:
o Internet start-ups
o Pharmaceuticals
o Travel
In 1998 and 1999, approximately 75% and 100% of Planet Access' revenue,
respectively, came from providing Web development, information technology
network infrastructure and hosting services to those industries. Planet Access'
clients include:
o Cendent Corporation o Days Inn
o Avis o Century 21
o Coldwell-Banker o Novartis
o Ramada o Knoll Pharmaceuticals
o ABN-AMRO Bank o Lockheed Martin
o Howard Johnson o Reckitt Colman
INDUSTRY AND MARKET BACKGROUND
TRANSLATION AND LOCALIZATION MARKET SIZE
According to OVUM, Inc., a market research company and the Localization
Industrial Standards Association, the translation and localization market
currently approximates $20 billion annually and is expected to grow between
10-15% percent annually. In addition, OVUM forecasts a higher growth rate over
the next five years as the demand for translation and localization in the
information technology-related market increases.
We believe that OVUM's estimate of $20 billion includes a substantial
amount of casual translation which is unlikely to be subject to an automated
solution. In addition, this estimate includes an unknown percentage of language
translation performed by the in-house translation staffs of certain medium and
large sized multinational companies with product offerings in various languages,
including Caterpillar, Boeing, IBM, Bloomberg and XEROX.
By adding total estimated revenues of translation firms to estimates of
in-house translation activities of medium to large multi-national companies, we
estimate a current market for our translation and localization solutions of
approximately $5 billion.
27
<PAGE>
TRANSLATION AND LOCALIZATION MARKET OVERVIEW
The translation and localization industry is highly volatile.
Traditionally, translation has been a production afterthought. In general,
products and documentation are first completed for the home market, then
companies face the painful hurdle of localization before shipping the products
to their customers. As a result, translation requirements arise somewhat
unpredictably and with much urgency.
The translation and localization market breaks down into two broad
categories, namely "retail" and "professional/technical." We plan to compete
almost exclusively in the high volume professional/technical market.
o RETAIL. The retail translation segment includes a variety of
applications such as general business correspondence, consumer
product marketing, newspapers, magazines, literary works, chat
room conversations, TV shows, news programs, personal letters and
the like.
o PROFESSIONAL/TECHNICAL. The professional/technical translation
market consists primarily of high volume translation items, and
includes all types of business products and services as well as
government publications requiring translation. Virtually all
businesses which export products or services require that their
products be tailored to the local target market or country. The
types of businesses included in the professional/technical segment
include automotive, aerospace, telecommunications, pharmaceutical,
medical device, software, transportation equipment, chemicals,
industrial tools, accounting standards, investment data and
research reports, patents, government regulations, financial data,
computers, educational materials, foods, scientific instruments
and many others.
The level of precision required of translators in the
professional/technical market is significantly greater than that of the retail
translation market. Not only is native fluency in both the source and target
languages required, but also fluency in the topic which is the subject of the
translation. Examples of professional/technical translations requiring a high
degree of precision include automotive, aircraft engine repair manuals and
pharmaceutical labeling.
28
<PAGE>
KEY MARKET DRIVERS
Today's business environment, including the supply, manufacturing,
distribution and marketing functions, is becoming increasingly global. Many
corporations are generating more than half of their revenues from what were only
a short time ago considered "foreign" markets. Moving in tandem with the
increase in globalization has been a consequent increase in the level of
competition, forcing companies to speed up the time it takes to bring their
products to market in order to stay competitive.
Under the old business model, business managers divided the market into
home and abroad. They first performed design and development work for the
domestic market, introduced the product at home, and then targeted foreign
markets and penetrated them one at a time, viewing product translation and
localization efforts as annoying, albeit necessary, headaches. This is no longer
a viable marketing methodology in a data-driven, global marketplace where events
unfold with lightning rapidity.
The intensity of competition in today's marketplace virtually mandates
that a company must utilize simultaneous market release opportunities in order
to gain, or even maintain, market share. This means that information must be
enabled for global markets so that the localization process is easier to manage.
Consequently, the need to localize products for foreign markets is increasing
rapidly. A lack of internal resources has forced many companies to outsource
their translation/localization needs, and the movement toward outsourcing is, in
turn, revolutionizing the translation/localization industry .
Translation services are evolving into global information services. We
believe that the following represent the key market drivers of the global
information services industry:
o TELECOMMERCE. We believe that the information technology industry
is leading the way to new distribution channels for intellectual
property. Users can download software and information from the
Internet. Catalog companies have offered their products online via
multimedia Web sites. Service companies have started to offer
their services online. Electronic banking, teletraining, helpdesk
and even teletranslation services are expected to be generally
accepted services within only a few years. Secure Internet payment
procedures and e-cash will complete the transactions. Telecommerce
will take the "middleman" out of the loop and bring products
straight from the publisher or manufacturer to the end-user. This
shift in the distribution model will affect many different
industries, and we believe it will lead to an increase in the need
for multilingual documentation and product support.
29
<PAGE>
o CROSS-BORDER SELLING. There was a time when "multinationals" were
viewed as a group of huge Fortune 500 companies. Today, many small
and medium sized companies successfully sell their products in
international markets. The U.S.-based information technology
companies have seen their international markets grow significantly
over the last ten years and today many of them generate a
substantial portion of their revenues from non-U.S. markets. Other
industries are also following this trend. New distribution methods
and outsourcing allow small and medium sized companies to reach
non-U.S. markets without heavy up-front investments. Today, the
prevailing strategy is to look to non-U.S. markets as separate and
additional sources of revenue, which require the sequential phase
of product localization in the production and distribution
process. The tendency towards similar releases of products for
home and foreign markets leads to a view of the world as one
market. We believe that the ultimate requirement the global
information services industry is facing is to supply a full range
of language services and technology solutions to businesses that
compete in this worldwide market.
o CHANGING BUSINESS MODELS. We believe that no one single company
can manage the technological innovations of its products and
services, the access to global markets and at the same time keep
up with the speed of today's business developments and
translations without partnerships and alliances. Multinational
companies have been required to develop outsourcing strategies,
allowing them to focus on their core business, and utilize high
quality services from truly global suppliers. Such suppliers must
provide high-level project management, multiple language document
management solutions, language technology integration and testing
services. Independent suppliers are sometimes formed into "virtual
companies" as partnerships and alliances are created to serve
certain customers or certain market segments faster and more
effectively. The partners or allies combine their core
competencies to produce a better product for one market.
COMPETITION
TRANSLATION AND LOCALIZATION COMPETITION
The translation and localization industry is characterized by
volatility and is highly competitive. Traditionally, translation companies have
competed primarily on a mixture of price and completion time, often at the
expense of quality. Competition in the translation market is characterized by
widely differing elements, reflecting the diverse needs of clients. At one end
of the spectrum, there are small agencies with a generalist approach that offer
services generally limited to translation. At the other end of the spectrum,
there are a few large companies that offer machine translation software and/or
turnkey services, focusing on providing industry-specific solutions.
As translation and localization contracts become larger, we believe
that large corporate information technology customers will continue to migrate
to the solution-based models offered by large capacity service providers. While
our competitors can currently be divided into two main subcategories,
traditional translation companies and companies offering large capacity machine
translation products and/or solution-based models, we believe that within a
relatively short period of time, we will be competing primarily with companies
in the second subcategory.
30
<PAGE>
Companies that perform translation as a business tend to be small firms
with revenues of $300,000 to $700,000. According to Allied Business
Intelligence, 1999, 95% of the over 3000 U.S.-based translation agencies have
revenues of less than $1.5 million. The same fragmented market structure of
thousands of small firms prevails overseas, where there are many more companies
performing translations than in the United States. We believe that the key
competitive factors in the market for translation services are price, delivery
time and quality. Worldwide, fewer than 10 translation and localization
companies have annual translation revenues of over $50 million according to
Allied Business Intelligence, 1999. They include:
o Alpnet (NL) $55 million
o Lernout & Hauspie (BE) $60 million
o Bowne Trans. Div. (US) $65 million
o Lionbridge (US) $85 million
o Berlitz (US) $85 million
WEB DEVELOPMENT COMPETITION
Web developments firms come in a wide variety of sizes. Small firms
typically tend to develop and host small static sites where content remains
constant and the main purpose for the site is visibility. Medium to large size
firms with a staff that has expertise to handle the complexity of the primary
components of a dynamic Web site produce most of today's e-commerce enabled
sites such as CDNow, amazon.com and priceline.com. The principal independent Web
development companies that exist today are the consulting arms of the largest
accounting firms and global information technology integration firms such as
IBM's e-commerce division. Despite all the development talent available to the
firms, we believe that no company has created a single solution for the
integration of Web and automated translation technologies.
TRANSLATION TECHNOLOGY
MANUAL TRANSLATIONS
Historically, the translation process has been nearly a 100% human
exercise. For precise translations to occur, the translator and editor need to
not only be fluent in both the source and target languages, but, especially in
the case of highly technical materials, also "fluent" in the topic which is the
subject of the translation. In addition, manual translation is generally very
time-intensive and costly with pricing running between $.25 and $1.00 per word.
As such, manual translations have, and continue to be, characterized
by:
o High costs
o Long completion times
o A high quality "first pass" accuracy rate that is very slow and
expensive to attain
31
<PAGE>
TRADITIONAL LINGUISTIC RULE-BASED AUTOMATED TRANSLATION SYSTEMS
In a manual translation, the cost of the human translator accounts for
35%-80% of the total job cost. In an effort to reduce the high "human component"
cost of translation, several automated translation systems have been developed
over the past several decades. Unfortunately, these systems have proven largely
ineffective, providing at best only a 45-65% correct "first pass" translation.
This kind of "first pass" translation provides a reader with, at best, the gist
of a topic, and requires that the remaining 35%-55% of the source document be
translated manually, which is both time consuming and expensive, especially when
large volumes of material are involved.
In short, the use of these systems have yielded little or no
productivity improvements for the industry. Their implementation has had no
impact on either the input or actual translation time, although they have
somewhat shortened printing times.
Traditional automated translation applications utilize three sets of
data: the input text, the translation program and permanent knowledge sources.
Permanent knowledge sources contain a dictionary of words and phrases in the
source language along with information about the concepts evoked by the
dictionary and rules for sentence development. The methodology employed is in
the form of linguistic rules for syntax and grammar, and some are algorithms
governing verb conjugation, syntax adjustment, gender and number agreement and
word re-ordering.
Once the user has selected the source text and initiated the machine
translation process, the program begins to match words from the input text with
those stored in its dictionary. Upon finding a match, the application brings up
a complete record that includes information on possible meanings of the word and
its contextual relationship to other words that occur in the same sentence. The
time required for the translation depends on the length of the text and the
system running the software.
MATHEMATICAL AND STATISTICALLY-BASED TRANSLATION SYSTEMS AND TOOLS
We believe that the common structural flaw of traditional translation
systems has been their reliance upon software programs driven by linguistic
rules. These rules have been generally developed by academic linguists to
address grammar, syntax, lexical usage, context, sentence structure and the
like. The primary impediment to the success of the traditional linguistic
rule-based systems has been that it is virtually impossible for the system
designers to include the myriad of exceptions to all the various linguistic
rules in the systems, ultimately leading to consistently faulty translations.
Recognizing the limitations inherent in linguistic rule-based
translation systems, we acquired the license rights to both ESTeam's BTR systems
and the Gedanken system, two automated translation systems that utilize a
fundamentally different and simpler approach to the problem. This approach
relies upon mathematical and statistical evaluations of dual language texts in
particular topics. By statistically analyzing substantial amounts of
pre-translated text in two languages, patterns of word matches, as well as
phrase and sentence matches become apparent and remembered in such a way as to
32
<PAGE>
allow the translation of newly inputted text with close to manual "first pass"
translation accuracy. We believe that this is by far the most impressive
productivity gain in the translation business during the past 40 years.
Also, these new systems "learn" from post-edit corrections, which means
that the next translation of each new version should be better than the last. By
utilizing statistical matching and pattern recognition, so-called language rules
become apparent in the translated text.
The BTR and Gedanken systems are still being developed. We expect to
commercialize the first BTR system application in the last quarter of the
current fiscal year, and we believe that the first Gedanken application will be
fully developed by the first quarter of the fiscal year 2001.
THE BTR SYSTEM
The BTR system is owned by ESTeam, a development company unaffiliated
with us. The BTR system is a reference-based translation system comprising large
amounts of pre-translated text arranged and coded at the sentence and
sub-sentence level and then broken down into a topical sub-section. This system
is particularly effective for the automated translation of content in a
well-defined topic.
In April 1999, we entered into a development and license agreement with
ESTeam, a Swedish corporation specializing in the development of a
computer-automated language system known as the BTR system, for the
customization of this system for specific market applications. The BTR system is
used to perform machine translations of specific text documents in a particular
domain, and is designed to accept and analyze very large amounts of data, such
as words, word phrases, sentence segments and whole sentences in both source and
target languages.
We entered into an exclusive worldwide license for specific BTR system
applications, chosen by us, for a period of fifteen years. The agreement
provides that we:
o Pay royalties on sales of the use of the application
o Pay ESTteam's development costs for perfecting each of the named
applications
o Provide additional development funding under certain conditions
As with other machine translation systems, the BTR system is comprised
of sub-routines, or modules, which perform specific tasks. These modules
interrelate via a master control program. Sub-routines include such functions as
topic delineator, bilingual dictionary matches, large capacity data bases,
target language verification and statistical word matches. One of the key
differentiating features of the BTR system is its ability to analyze and find
language matches at the sub-sentence level, namely, sentence segments and word
phrase levels. This feature was positively reflected in an independent
side-by-side test conducted by the European Union Commission in which BTR
outperformed the world's largest selling translation memory system by a 5 to 1
margin.
33
<PAGE>
The BTR system excels in automated translation within a defined market
or topic. Examples of these include financial, chemical and environmental, for
which we are developing products or applications using the BTR system. With our
financial support, ESTeam is the development group that will complete these
products.
THE GEDANKEN SYSTEM
The Gedanken system is owned by Gedanken Corporation, a development
company unaffiliated with us. We have an exclusive worldwide license to use the
system once it is developed and ready for deployment in exchange for future
royalties and development funding. We have agreed to pay to Gedanken $750,000
for the development of the improved translation and localization system. The
system includes a specific topic builder, general topic dictionary, quality
control and alignment tools.
Over the past two years, we have invested more than $500,000 to
complete the Gedanken system and we anticipate providing additional funding
during 2000. The Gedanken system addresses the added complexities of translating
information from free-flowing texts of any kind. The Gedanken system is rooted
in statistical analysis of large amounts of language data and is constructed of
modules which perform different functions. These modules are designed to make
the system a single comprehensive automated translation system.
There are several important differentiating features of the Gedanken
system, one of which is the precision english module. The system also includes a
sophisticated tool which dissects sentences and bilingual dictionaries. By
eliminating the bulk of the ambiguous words and phrases and substituting more
accurate words, the precision english module raises the level of correct
translation.
The Gedanken System received a patent from the United States Patent
Office during the quarter ended June 30, 2000. We are obligated to pay royalties
on all revenues generated that use in whole or in part the patent rights and
know-how. System completion is scheduled for end of the first quarter of the
fiscal year 2001.
PRODUCTS AND SERVICES BASED ON THE BTR AND GEDANKEN SYSTEMS
Faced with a very wide range of potential translation products, we have
set some criteria to narrow the possibilities. Computer translation systems
perform best on texts which include high repetition of known terms. These
systems do not perform as well in texts with intentional ambiguity, slang,
idioms and emotive terms such as those found in poetry, novels and general
readership magazines.
Possible target markets include nearly all professional, technical and
industrial applications such as financial, medical, legal, trade publications,
software, patents, technical abstracts, equipment and instrument manuals,
environmental regulations and various other governmental regulations, aerospace,
telecommunications, automotive and many others. Both systems give us the
possibility to move effectively into varying market segments and meet specific
language requirements within a given industry.
34
<PAGE>
The BTR systems will be focused on use within industries that require
accurate translations but not as accurate as human translation. These are
industries where it has been proven that existing machine translation systems do
not meet the necessary requirements, and the text is primarily used for
reference or as qualifying information. Currently, we are targeting financial
content and will be continually expanding into additional topic areas.
The Gedanken systems offer a broader range of usefulness for critical
or technical text where the translated text needs to be clear and concise. The
Gedanken systems also have marketable usage during the authoring stage of the
text where extreme costs are incurred for editing and reviewing the final
version of the source material.
INTERNET TECHNOLOGY
INTERNET APPLICATION DEVELOPMENT
We acquired Planet Access, a Web development company, in May, 1999. The
"fit" with our existing business is that almost every new translation
application we are developing requires that the source text be in digital form
for input into the translation software, processing and subsequent
transportation. Depending on the particular market application, the customer may
access the system remotely via private subscriber Intranet, public Internet or
dedicated service lines. Virtually all of our future products including
information technology, financial translations, medical device labels, etc.,
will offer remote-user electronic interfaces to further speed translation time,
giving us an additional advantage over our competitors.
In addition to providing us with an electronic interface option for
both our existing and developmental products, our acquisition of Planet Access
provides us with new opportunities in the exciting and high-margin technology
field of Internet service, including Web site development and management
services.
NETWORKING TECHNOLOGIES
We can now provide custom network solutions, hosting and engineering
services such as Internet design and security, dedicated high speed corporate
Internet access and many other custom applications. Clients for these services
include AVIS, Novartis, Lucent Technologies, Lockheed-Martin, ABN-AMRO Bank,
Knoll Pharmaceutical and about 90 others.
35
<PAGE>
INTERNET AND E-BUSINESS TECHNOLOGIES
Planet Access makes us fully capable of the most sophisticated and
comprehensive Internet engineering, including, among other services:
o Site design
o Security
o Security pass access
o Secured credit card transactions
o Secure private access
o Hosting
MULTILINGUAL WEB AND INTERNET TECHNOLOGIES
We believe that the linkage of language with the Web creates a synergy
of two technologies that is an absolute necessity today with the growing
popularity of the Internet and Internet-based applications.
We are currently developing automated translation management systems
that interface directly with the server and the translation process. We believe
that these systems will provide client cost reduction as well as solve "time to
market" problems due to the labor intensive site maintenance required in order
to keep a multilingual site "live."
EMPLOYEES
We presently employ approximately 147 full-time people, comprised of 11
in management positions, 10 in administration, 7 in sales and marketing and 119
in production and engineering. We also use the services of freelance and/or
independent translators and editors on an as-needed basis from a roster of
approximately 450 worldwide.
All of our translators are native-speaking professionals in the target
language, and are required to know the subject matter of the area in which they
translate. In addition, a project must have technically knowledgeable staff in
the source language, preferably a specialist in that area.
Even with machine translation, there is a need for qualified
individuals as in-house quality-control personnel and as translators of subject
areas that have not been mechanized. We expect that the available pool of
qualified translators will not grow as rapidly as the growth in the translation
and localization market as a whole.
36
<PAGE>
FACILITIES
We have operating facilities throughout the world. Our principal
operating facilities include:
o Haddonfield, New Jersey. Size: 6,000 square feet. Monthly rent:
$8,300. Expiration: February, 2003.
o Amsterdam, The Netherlands. Size: 5,500 square feet. Monthly rent:
$7,500. Expiration: May, 2002.
o Lyon, France. Size: 3,000 square feet. Annual rent: $43,000. This
facility is a condominium floor owned by a French subsidiary.
o Beijing, China. Size: 800 square feet. Annual rent: $21,000.
In January 1999, we closed our London office and our administration
facility in Westmont, New Jersey. In March 1999, we closed our Canadian office.
Planet Access leases approximately 2,500 square feet of office and
production space in Stanhope, New Jersey. The annual rent is $32,400. The lease
expired on June 30, 1998. Since the expiration, Planet Access has been on a
month-to-month extension. Planet Access also leases 8,500 square feet of office
and production space in Flanders, New Jersey. The annual rent is $127,500, and
the lease expires in July, 2004.
We believe that all of our facilities are adequate, and we believe that
adequate facilities could be located if we need to replace or expand our current
facilities.
LEGAL PROCEEDINGS
We have been sued by a stockholder who is seeking monetary damages,
specific performance, equitable relief and costs in the amount of $3,000,000. We
believe, along with our special counsel, that this suit is completely without
merit. We will vigorously defend the lawsuit. The details of the lawsuit are as
follows:
o On September 15, 1997 we were served with a summons which was
subsequently filed in the New York State Supreme Court, Kings
County.
o The summons alleged various acts of fraud associated with our
reverse stock split which occurred on November 21, 1996.
o The plaintiff is Lee Dan Ltd., one of our shareholders.
Based on a review of the file and discussions with us, our counsel
believes that there is a substantial likelihood that we will prevail in this
matter. We are not a party to any other material legal proceedings.
37
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following sets forth certain information regarding each of our
directors and executive officers.
Name Age Position
---- --- --------
Randy G. Morris 42 President, Chief Executive
Officer/Director
Charles D. Cascio 63 Director
John Toedtman 55 Director
Fred LaParo 45 Director/Chief Executive Officer of
Planet Access Networks, Inc.
Gary M. Schlosser 49 Director
Theodora Landgren 55 Director
Richard J. L. Herson 81 Director
Kenneth A. Mack 56 Chief Financial Officer
RANDY G. MORRIS, President, Chief Executive Officer and a Director. Mr.
Morris joined the Company as Chief Executive Officer in December 1999. Prior to
the Company, Mr. Morris served as a Senior Product Manager for Lernout &
Hauspie, S.V. from April 1998 until November 1999. From 1994 to 1998, Mr. Morris
was a Director of Engineering in the Advanced Technology Division of Novell,
Inc. during 1993 and 1994 Mr. Morris served as an Adjunct Professor of Computer
Science for Weber State University and operated as an independent consultant
where he wrote and taught courses on OOA, OOD and Software Engineering
Management. Mr. Morris was a Software Engineer from 1985 to 1993 working first
for Unisys Corporation and finishing with Libra Corporation. From 1982 to 1985
Mr. Morris served as a Programmer for two Salt Lake City based corporations. Mr.
Morris received his Bachelor of Science in Business Management from Brigham
Young University in 1982.
CHARLES D. CASCIO became a Director of the Company in May of 1996. He
had previously been engaged by the Company, from its inception, as a financial
consultant. From late 1992 until July 1996 he was Chairman and President of
Electro-Kinetic Systems, Inc., a publicly held company. From 1990 to late 1992,
Mr. Cascio was employed as a full time marketing and financial consultant to
John B. Canuso, Inc., a large privately held development, building and
entertainment company located in New Jersey. From 1987 to 1990, he was a full
time financial and marketing consultant to Drug Screening Systems, Inc., a
publicly held manufacturer of drug screening systems to detect the presence of
"drugs of abuse." From 1984 to 1987, Mr. Cascio managed a wholly and family
owned sporting, entertainment and recreational facility, known as the Coliseum,
located in Voorhees, NJ. Mr. Cascio holds a Bachelors Degree in Economics from
Iona College.
FRED LAPARO is a Director and Chief Executive Officer of Planet Access
Network, Inc. Mr. LaParo was one of the original founders of Planet Access
Networks, Inc. For approximately 10 years prior to founding Planet Access
Networks, Inc., Mr. LaParo was a senior officer of ATI which provided technical
38
<PAGE>
training to Fortune 500 companies in data handling. Mr. LaParo received his
Bachelor of Fine Arts from New York University in 1980 with post-graduate
studies in interactive telecommunications.
JOHN TOEDTMAN was employed by the Company from October 1998 until
September 29, 2000 and was appointed as a Director in February 1999. From 1996
to 1998 Mr. Toedtman was employed as Managing Director of Blue Stone Capital
Partners, L.P., an investment banking firm. From 1990 to 1996 Mr. Toedtman was
President and Director of Gen/Rx, Inc., a pharmaceutical firm; from 1980 to 1986
he was President and Director of Personal Diagnostics, Inc., a medical device
company; and from 1976 to 1980 he was President and Director of Princeton
Chemical Research, Inc., a process technology company; and from 1970 to 1976 he
was Group Vice President of Englehard Industries, a large precious metals
company. Mr. Toedtman has a B.A. in economics from Georgetown University. Mr.
Toedman is currently employed by Albert Inc.
KENNETH A. MACK became Chief Financial Officer in December 29, 1999.
Prior to joining the Company, Mr. Mack was the managing partner in the firm of
Metsky, Mack & Associates, CPA's. Mr. Mack currently serves on the Board of
Directors of Project Acorn as well as the Special Council Commission on Revenue
and Expenditure for the township of West Orange, New Jersey. He holds a Bachelor
of Science Degree in Business Administration with an Accounting Major from
Bryant College. He has also authored numerous articles on accounting.
GARY M. SCHLOSSER was elected a Director in August 1996. From August 1,
1994 until May 2000, Mr. Schlosser was the President and a director of Jefferson
Bank of New Jersey. In May 2000 Mr. Schlosser became Senior Vice President at
Commerce Bank, N.A. From October 1989 through July 1994 he was Executive Vice
President of Glendale National Bank of New Jersey and prior thereto, from July
1988, he was President of Glendale Mortgage Services Corporation, a subsidiary
of Atlantic Bancorporation. Mr. Schlosser received a Bachelor of Arts degree in
history and business from the University of Colorado at Denver. Mr. Schlosser is
a member of the Camden County Bankers Association and the South Jersey Security
Bankers Association.
THEODORA LANDGREN currently is a Director and resides in London,
England. She was the Chairperson of the Board of Directors and Chief Operating
Officer of the Company from January 1996, to April 1998 and she was the Chairman
and President of the Bureau of Translation Services since founding the firm in
1984 until September 2, 1997. Prior to starting the Bureau of Translation
Services she studied linguistics and computer programming at several
universities including Universities of Denver and Innsbruck (Austria) and USC
College of Continuing Education, as well as teaching English to non-English
speaking students at the University of Stockholm, Sweden. Ms. Landgren is active
in the American Translator's Association (ATA) and the Society of Technical
Communication (STC).
RICHARD J. L. HERSON is a Director and former employee of The
Translation Group. Mr. Herson served as the Chief Financial Officer from July 6,
1995, until August 31, 1997. From 1945 to 1974 Mr. Herson was a general partner
in the firm of Hertz, Herson and Company, CPA's with offices in New York, and
Charlotte. He is currently Secretary of the Bruner Foundation, where he directs
its investment portfolio. He is also secretary/treasury of Electro-Kinetic
39
<PAGE>
Systems, Inc., a publicly held company. He holds a Bachelor's Degree from the
City College of New York and a M.S. in Accounting from Columbia University. He
has also authored numerous articles and a book on accounting. Mr. Herson retired
as an employee in July 1999.
BOARD OF DIRECTORS
All directors hold office until the next annual meeting of stockholders
an the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended March 31, 2000, there were six (6) regular
meetings of the Board of Directors. No current director was absent from more
than 25% of the meetings. In addition, a number of actions were approved by
unanimous written consent resolutions of the directors.
The Audit Committee, consisting of Mr. Herson, held three (3) meetings
during fiscal 2000, met with the Company's management and its independent
auditors to review the results of the Company's 1999 audit, and recommended the
selection of the Company's independent auditors for fiscal 2000.
DIRECTORS COMPENSATION
Beginning April 1, 1999, outside directors of the Company are
compensated for their services at the rate of $1,000 per meeting and receive
options to acquire 5,000 shares of common stock each quarter at the average
market value of the last ten days of the quarter.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to or accrued by the Company's Chief Executive Officer, and
all other executive officers who earned more than $100,000 (salary and bonus)
(the "Named Executive Officers") for all services rendered in all capacities to
the Company (and its predecessors) during the fiscal years ended March 31, 1998,
1999 and 2000.
40
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
==================== =========== ================= ============ ============== =====================================================
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
-------------------- ----------- ---------------------------------------- ---------------------------- -----------------------------
Other Restricted
Name and Principal Annual Stock Stock LTIP All Other
Position Salary Bonus Compen- Award(s) Options/ Payouts Compen-sation($)
Year(s) ($) ($) Sation($) ($) SARS(#) ($)
----------- ----------- ----------- ------------- ----------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Randy G. Morris - 2000(ii) $ 44,387 -0- -0- 200,000
President and CEO 1999 N/A N/A N/A
1998 N/A N/A N/A
-------------------- ------------- ------------- -------------
Charles D. Cascio 2000 $110,877 -0- $27,955(i) 100,000
President and 1999 $108,058 -0- $24,955
CEO 1998 $106,775 -0- $19,188
-------------------- ----------- ------------- ------------ ------------- -------------- -------------- ------------ -------------
John R. Toedtman
Chief Operating 2000 $103,861 -0- $13,146(iv) 100,000
Officer 1999(iii) $ 46,154 -0- $ 4,216
1998 N/A N/A N/A
-------------------- ----------- ------------- ------------ ------------- -------------- -------------- ------------ -------------
Fred LaParo 2000 $144,231 -0- 15,130(ix) 244,000
CEO of Planet
Access Networks
-------------------- ----------- ------------- ------------ ------------- -------------- -------------- ------------ -------------
Jeffrey Cartwright 2000 $144,231 -0- 17,267(x) 244,000
Vice President of
Planet Access
Networks
-------------------- ----------- ------------- ------------ ------------- -------------- -------------- ------------ -------------
Kenneth A. Mack 2000(v) $ 32,700 -0- $2,500(vi) 157,500
Chief 1999 N/A N/A N/A
Financial 1998 N/A N/A N/A
Officer
Theodora 2000 $133,843(vii) -0- $3,655(viii) 100,000
Landgren 1999 $126,748(vii) -0- $5,309
Chief 1998 $106,775 -0- $9,000
Operating Officer
==================== =========== ============= ============ ============= ============== ============== ============ =============
</TABLE>
(i) Consists of car allowance and related expenses totaling $10,608,
medical reimbursement of $4,303, health insurance premiums of
$5,522 and life insurance premiums of $6,655.
(ii) For the period from December 20, 1999 to March 31, 2000.
(iii) For the period October 1, 1998 to March 31, 1999.
(iv) Consists of car allowance and related expenses totaling $5,824,
health Insurance premiums of $5,522 and life insurance premiums of
$1,800.
(v) For the period from August 29, 1999 to March 31, 2000.
(vi) Consists of car allowance of $2,500.
(vii) Consists of settlement agreement payments in lieu of salary.
(viii) Consists of health insurance premiums of $2,655 and life insurance
premiums of $1,000.
(ix) Consists of car allowance and related expenses of $5,326, health
insurance premiums of $6,125 and life insurance premium of $3,679.
(x) Consists of car allowance of $7,463, health insurance premiums of
$6,125 and life insurance premiums of $3,679.
EMPLOYMENT ARRANGEMENTS
The Company entered into one-year employment agreement as of December
20, 1999 with its President and Chief Executive Officer, Randy G. Morris.
Pursuant to the employment agreement, Mr. Morris receives a base salary of
$150,000 per year. In addition, Mr. Morris received five-year options to
purchase 200,000 shares of common stock exercisable at $2.00 per share which was
fair market value on the date of grant, and a life insurance policy in the
amount of $500,000 payable to the beneficiary of his choice. Finally, the
Company agreed to reimburse Mr. Morris for the expense of relocating and agreed
to make a $100,000 loan for a down payment on a house. The loan is due and
payable upon the sale of his New Jersey home or employment termination,
whichever occurs earlier.
41
<PAGE>
In April 2000 the Company and Charles Cascio terminated his prior
employment agreement and entered into a new three-year employment agreement as a
consultant to the Company's chief executive officer. The agreement, which
provides for base compensation of $125,000 per year, will be extended upon the
Company achieving cumulative gross financing of $4,000,000. In addition, Mr.
Cascio will receive incentive compensation equal to 50% of his base compensation
upon the Company meeting its operating goals, and a five-year options and
warrants to purchase 200,000 shares, of which 100,000 will vest upon the Company
achieving cumulative gross financing of $4,000,000, which occurred in May, 2000.
The Company had a three-year written employment contract dated as of
October 1, 1998 with John Toedtman, for an annual base salary of $100,000 during
each of the three years thereof, plus annual cost of living adjustments. Mr.
Toedtman was also granted options to purchase 100,000 shares of the Company's
common stock. On September 29, 2000 we terminated our agreement with Mr.
Toedtman, who continues to serve as a director.
The Company has four-year written employment contracts dated as of May
1, 1999 with Fred LaParo and Jeffrey Cartwright, the President and Vice
President of Planet Access Networks, Inc., respectively. Pursuant to the
employment agreements, Messrs. LaParo and Cartwright receive a base salary of
$150,000 plus annual cost of living adjustments.
OUTSTANDING OPTIONS; STOCK INCENTIVE PLAN
In October of 1996, the Board of Directors and stockholders of the
Company adopted a Stock Option Plan (the "Option Plan") as an incentive for, and
to encourage share ownership by, the Company's officers, directors and other key
employees and/or consultants and potential management of possible future
acquired companies. The Option Plan provides that options to purchase a maximum
of 2,500,000 shares of common stock, subject to adjustment in certain
circumstances may be granted under the Option Plan. Both incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and non-qualified options are provided for under the Plan.
The Option Plan also allows for the granting of stock appreciation rights
("SARs") in tandem with, or independently of, stock options. Any SARs granted
will not be counted against the 2,500,000 share limit.
The purpose of the Option Plan is to make options and SARS available to
certain of our officers, directors and other key employees and/or consultants in
order to give such individuals a greater personal interest in our success and,
in the case of employees, an added incentive to continue and advance in their
employment.
The Plan is currently administered by the majority vote of a committee
(the "Committee") appointed by the Board of Directors and comprised of at least
two members of the Board who, in the case of the Option Plan, are not eligible
to receive options, other than pursuant to a formula, it being intended that
such plan shall qualify under Rule 16b-3 as promulgated pursuant to the
Securities Exchange Act of 1934, as amended. The Committee designates those
persons to receive grants under the Plan and determines the number of options to
be granted and the price payable for the shares of Common stock thereunder. The
price payable for the shares of common stock under each option is fixed by the
Committee at the time of the grant, but, for incentive stock options, must be
not less than 100% (110% if the person granted such option owns more than 10% of
42
<PAGE>
the outstanding shares of Common stock) of the fair market value of Common stock
at the time the option is granted, and 85% of such price for non-qualified stock
options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have an exclusive license agreement with Gedanken, a company
controlled by Dr. Julius Cherny, for the worldwide rights to an automated
machine translation system. Dr. Cherny owns a United States Patent that
describes apparatus and methods for translating languages using advanced
telecommunications and computer technologies. We are obligated under the
agreement to pay royalties on all revenues generated that use, in whole or in
part, the patent rights and know-how.
On June 29, 1998, we entered into a five-year consulting agreement with
a former officer of a foreign subsidiary which provides for an annual retainer
of $20,000 plus the ability to borrow up to $50,000 a year from us which will be
secured by common stock of the Company currently owned by the former officer. In
exchange for the above mentioned remuneration, the consultant will provide his
services to us for a minimum of one day per week throughout the term of the
agreement.
Michael Cascio, Esquire, the son of Charles Cascio, one of our
directors, provided legal services to us for the fiscal years ended March 31,
2000 and 1999 valued at $44,100 and $49,000, respectively.
Theodora Landgren entered into a settlement agreement with us dated
September 18, 1998, which allows her to engage in limited consulting activities
in the translation industry. Ms. Landgren is entitled to receive compensation
for the license agreement entered into between the Company and ESTeam.
Furthermore, under the terms of an agreement between Ms. Landgren and the
Company, Ms. Landgren will be entitled to receive a finder's fee constituting
1.5% of the value of any agreement entered into between the Company and
Microsoft.
John Toedtman has purchased $100,000 of our common stock at $3.25 per
share, subject to adjustment in the event there is a lower offering price during
the twelve months from the date of investment.
43
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 27, 2000 information
with respect to the securities holdings of all persons which the Company,
pursuant to filings with the Securities and Exchange Commission, has reason to
believe may be deemed the beneficial owners of more than 5% of the Company
outstanding common stock. Also set forth in the table is the beneficial
ownership of all shares of the Company's outstanding stock, as of such date, of
all officers and directors, individually and as a group.
COMMON STOCK PERCENTAGE
NAME AND ADDRESS OWNED BENEFICIALLY(1) OF CLASS
---------------- ------------------ ----------
Charles D. Cascio (2) (3) 565,000 11.2%
30 Washington Avenue
Haddonfield, NJ 08033
Theodora Landgren (4) 477,000 9.8%
1901 Walnut Street, Apt. 20E
Philadelphia, PA 19103
Richard J.L. Herson (5) 133,500 1.4%
270 Rocky Run Road
Glen Gardner, NJ 08826
Gary M. Schlosser (6) 100,000 1.0%
6 Ridgeview Court
Voorhees, NJ 08043
John R. Toedtman (7) 150,000 1.6%
3 Gold Mine Road
Flanders, NJ 07836
Frederick LaParo (8) 581,667 11.8%
3 Gold Mine Road
Flanders, NJ 07836
Jeff Cartwright (8) 581,667 1l.8%
3 Gold Mine Road
Flanders, NJ 07836
Randy G. Morris (9) 50,000 1.1%
3 Gold Mine Road
Flanders, NJ 07836
Kenneth A. Mack (10) 157,500 3.3%
3 Gold Mine Road
Flanders, NJ 07836
Julius Cherny (11) 300,000 6.0%
4 Carter Lane
Monsey, NY 10952
Edouard Prisse (12) 262,100 5.5%
Rijksstraatweg 121B
1396 J J Baambruggle Netherlands
All Executive Officers and Directors
As a Group (13) 3,358,434 52.3%
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in
44
<PAGE>
the rules and regulations promulgated under the Exchange Act, and
accordingly, may include securities owned by and for, among others, the
spouse and/or minor children of an individual and any other relative
who has the same home as such individual, as well as other securities
as to which the individual has or shares voting or investment power or
which such person has the right to acquire within 60 days after the
date of this prospectus pursuant to the exercise of options, or
otherwise. Beneficial ownership may be disclaimed as to certain of the
securities. This table has been prepared based on 4,659,265 shares of
common stock outstanding as of November 27, 2000.
(2) Includes 200,000 currently exercisable warrants and 200,000 currently
vested Stock options.
(3) Does not include an aggregate of 144,000 shares owned by his adult
independent Children. Mr. Cascio disclaims beneficial ownership of such
shares.
(4) Includes 100,000 currently exercisable warrants and 100,000 currently
vested Stock options.
(5) Includes 100,000 currently vested stock options.
(6) Includes 100,000 currently vested stock options.
(7) Includes 100,000 currently vested stock options.
(8) Includes 46,000 currently exercisable warrants and 244,000 currently
vested Stock options.
(9) Includes 50,000 currently vested stock options.
(10) Includes 157,500 currently vested stock options.
(11) Includes 300,000 currently vested stock options.
(12) Includes 60,000 currently vested stock options.
(13) Includes 1,600,934 shares, 346,000 currently exercisable warrants, and
1,411,500 currently vested stock options owned by all executive
officers and directors.
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 15,000,000 shares of common stock, $.001 par
value per share, of which 4,659,265 are outstanding as of the date of this
prospectus.
Holders of common stock have equal rights to receive dividends when, as
and if declared by the Board of Directors, out of funds legally available
therefor. Holders of common stock have one vote for each share held of record
and do not have cumulative voting rights.
Holders of common stock are entitled, upon liquidation of the Company,
to share ratably in the net assets available for distribution, subject to the
rights, if any, of holders of any preferred stock then outstanding. Shares of
common stock are not redeemable and have no preemptive or similar rights. All
outstanding shares of common stock are fully paid and nonassessable.
PREFERRED STOCK
Within the limits and restrictions provided in the Certificate of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 1,000,000 shares of preferred stock, $.001
par value per share, in one or more series, and to fix, as to any such series,
any dividend rate, redemption price, preference on liquidation or dissolution,
sinking fund terms, conversion rights, voting rights, and any other preference
or special rights and qualifications.
We issued 250,000 shares of convertible preferred stock at March 31,
2000. Holders of the preferred shares are entitled to receive cumulative cash
dividends at the annual rate of 8% payable quarterly. The shares are convertible
at any time during the five year period ending March 31, 2005, in whole or in
45
<PAGE>
part at a price of $4.00 per share. The preferred stock can be redeemed by the
holder at face value, at the end of five years.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. The Board of
Directors does not anticipate paying cash dividends in the foreseeable future as
it intends to retain future earnings, if any, to finance the growth of the
business. The payment of future cash dividends will depend on such factors as
earnings levels, anticipated capital requirements, our operating and financial
condition and other factors deemed relevant by the Board of Directors.
ANTI-TAKEOVER PROVISIONS OF COMPANY'S CERTIFICATE OF INCORPORATION
As described above, our Board of Directors is authorized without
further stockholder action, to designate any number of series of Preferred Stock
with such rights, preferences and designations as determined by the Board.
Shares of Preferred Stock issued by the Board of Directors could be utilized,
under certain circumstances, to make an attempt to gain control of the Company
more difficult or time consuming. For example, shares of Preferred Stock could
be issued with certain rights that might have the effect of diluting the
percentage of common stock owned by a significant stockholder or issued to
purchasers who might side with management in opposing a takeover bid that the
Board of Directors determines is not in the best interest of the Company and its
stockholders. The existence of the Preferred Stock may, therefore, be viewed as
having possible anti-takeover effects. A takeover transaction frequently affords
stockholders the opportunity to sell their shares at a premium over current
market prices.
TRANSFER AGENT
The transfer agent for our securities is American Stock Transfer &
Trust Company, 40 Wall Street, New York, New York 10005.
SELLING SECURITY HOLDERS
The selling security holders identified in the following table are
offering for sale 2,313,768 shares of our common stock. These shares include:
o 1,333,768 shares of common stock.
o 350,000 shares of common stock which may be issued upon the
exercise of outstanding warrants.
o 630,000 shares of common stock which may be issued upon the
exercise of outstanding options.
We previously issued these shares of common stock and common stock
purchase warrants in private placement transactions. 1,425,434 of these shares
are being offered by directors, officers or principal stockholders of the
Company.
The selling security holders may offer their shares of common stock for
sale from time to time at market prices prevailing at the time of sale or at
46
<PAGE>
negotiated prices, and without payment of any underwriting discounts or
commissions except for usual and customary selling commissions paid to brokers
or dealers.
The following table sets forth as of November 27, 2000 the number of
shares being held of record or beneficially by the selling security holders and
provides by footnote reference any material relationship between the Company and
the selling security holder, all of which is based upon information currently
available to us.
<TABLE>
<CAPTION>
Beneficial Ownership of
selling security holder Beneficial Ownership of
Prior to Offering (1) Number of Shares Shares After Offering (2)
Name of selling security holder ------------------------- Offered Hereby (2) ---------------------------
------------------------------- Number Percent ------------------ Number Percent
-------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Frederick LaParo(3) 581,667 11.8% 581,667 0 0
--------------- ------------
Jeff Cartwright(4) 581,667 11.8% 581,667 0 0
Binh P. Nguyen(5) 82,084 1.7% 82,084 0 0
Peter Grabowsky(6) 59,250 1.3% 59,250 0 0
Edouard Prisse 262,100 5.5% 262,100 0 0
Frank A. Abruzzese 7,500 * 7,500 0 0
Eric I. Blanchno 18,750 * 18,750 0 0
Donaldson, Lufkin & Jenrette 93,750 2.0% 93,750 0 0
Securities Corp. Custodian FBO
Frank J. Campbell, III
IRA
Deed of Trust of 33,750 * 33,760 0 0
FJ Campbell Settlor
Dtd 12/30/96, C.Crochiere, K.Lynam
& J.Meyers Co-TTEES
Frank J. Campbell III and Richard 33,750 * 33,750 0 0
A. Hansen TTEES Trust U/W Jane D.
Campbell
Scott & Stringfellow, Inc. 18,750 * 18,750 0 0
FBO Victor M. Dandridge, III IRA
Victor M. Dandridge, III 18,750 * 18,750 0 0
Amir L. Ecker 30,000 * 30,000 0 0
Ecker Family Limited Partnership 30,000 * 30,000 0 0
Donaldson Lufkin Jenrette 22,500 * 22,500 0 0
Securities Corp. Custodian FBO
Amir L. Ecker IRA
Penelope S. Hansen 28,500 * 28,500 0 0
John E. Heppe, Jr. 15,000 * 15,000 0 0
Donaldson Lufkin Jenrette 15,000 * 15,000 0 0
Securities Corp. Custodian FBO
John E. Heppe, Jr. IRA
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Pennsylvania Merchant Group 401(K) 3,750 * 3,750 0 0
Plan FBO
Phyllis D. Kalista
Losty Capital Management 75,000 1.6% 75,000 0 0
Estate of James Losty 37,500 * 37,500 0 0
Pennsylvania Merchant Group 12,000 * 12,000 0 0
401(k) Plan
FBO David Parke
Leonide Prince 18,750 * 18,750 0 0
Peter S. Rawlings 37,500 * 37,500 0 0
Pennsylvania Merchant Group 9,000 * 9,000 0 0
401(k) Plan
FBO Charles Robins
Donaldson Lufkin Jenrette 15,000 * 15,000 0 0
Securities Corp.
Custodian FBO Leonid L.
Roytman IRA
R. Scudder Smith and Helen Smith 45,000 * 45,000 0 0
JTTEN
Donaldson Lufkin Jenrette 18,750 * 18,750 0 0
Securities Corp. Custodian
FBO R. Scott Williams IRA
A. Morris Williams, Jr. 90,000 1.9% 90,000 0 0
Carolyn Wittenbraker 12,500 * 12,500 0 0
Kathryn Wittenbraker 3,125 * 3,125 0 0
Richard E. Wittenbraker 3,125 * 3,125 0 0
TOTAL: 2,313,768
</TABLE>
------------------------
* Represents less than 1% of the outstanding shares of common stock
(1) Applicable percentage of ownership is based on 4,659,265 shares of
common stock outstanding as of November 27, 2000, plus any common stock
equivalents held by such holder.
(2) Assumes that all shares are sold pursuant to this offering and that no
other shares of common stock are acquired or disposed of by the selling
security holders prior to the termination of this offering. Because the
selling security holders may sell all, some or none of their shares or
may acquire or dispose of other shares of common stock, we cannot
estimate the aggregate number of shares which will be sold in this
offering or the number or percentage of shares of common stock that
each selling security holder will own upon completion of this offering.
(3) Mr. LaParo is a Director and Chief Executive Officer of Planet Access
Network, Inc.
(4) Mr. Cartwright is the Vice President of Planet Access Network, Inc.
(5) Mr. Nguyen is currently our Chief Technology Officer.
(6) Mr. Grabowsky is currently our Web Director.
Under agreements with the selling security holders, we will pay all
offering expenses except the fees and expenses of any counsel and other advisors
that the selling security holders may employ to represent them in connection
with the offering and all brokerage or underwriting discounts or commissions
paid to broker-dealers in connection with the sale of the shares.
48
<PAGE>
PLAN OF DISTRIBUTION
The selling security holders have not advised us of any specific plan
for distribution of the shares offered hereby, but it is anticipated that the
shares will be sold from time to time by the selling security holders or by
pledgees, donees, transferees or other successors in interest. Such sales may be
made on the OTC Electronic Bulletin Board, any exchange upon which our shares
may trade in the future, over-the-counter, or otherwise, at prices and at terms
then prevailing or at prices related to the then current market price, or in
negotiated transactions. The shares may be sold by one or more of the following:
o a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
o purchases by a broker or dealer for its account pursuant to this
prospectus;
o ordinary brokerage transactions and transactions in which the
broker solicits purchases;
o through options, swaps or derivatives;
o in privately negotiated transactions;
o in transactions to cover short sales;
o through a combination of any such methods of sale; or
o in accordance with Rule 144 under the Securities Act, rather than
pursuant to this prospectus.
The selling security holders may sell their shares directly to
purchasers or may use brokers, dealers, underwriters or agents to sell their
shares. Brokers or dealers engaged by the selling security holders may arrange
for other brokers or dealers to participate. Brokers or dealers may receive
commissions, discounts or concessions from the selling security holders, or, if
any such broker-dealer acts as agent for the purchaser of shares, from the
purchaser in amounts to be negotiated immediately prior to the sale. The
compensation received by brokers or dealers may, but is not expected to, exceed
that which is customary for the types of transactions involved. Broker-dealers
may agree with a selling security holder to sell a specified number of shares at
a stipulated price per share, and, to the extent the broker-dealer is unable to
do so acting as agent for a selling security holder, to purchase as principal
any unsold shares at the price required to fulfill the broker-dealer commitment
to the selling security holder. Broker-dealers who acquire shares as principal
may thereafter resell the shares from time to time in transactions, which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above, in the over-the counter
market or otherwise at prices and on terms then prevailing at the time of sale,
at prices then related to the then-current market price or in negotiated
transactions. In connection with resales of the shares, broker-dealers may pay
to or receive from the purchasers of shares commissions as described above.
49
<PAGE>
The selling security holders and any broker-dealers or agents that
participate with the selling security holders in the sale of the shares may be
deemed to be "underwriters" within the meaning of the Securities Act. In that
event, any commissions received by broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
From time to time the selling security holders may engage in short
sales, short sales against the box, puts and calls and other hedging
transactions in our securities, and may sell and deliver the shares in
connection with such transactions or in settlement of securities loans. These
transactions may be entered into with broker-dealers or other financial
institutions. In addition, from time to time, a selling security holder may
pledge its shares pursuant to the margin provisions of its customer agreements
with its broker-dealer. Upon delivery of the shares or a default by a selling
security holder, the broker-dealer or financial institution may offer and sell
the pledged shares from time to time.
We will not receive any proceeds from the sale of the shares. We will
pay the expenses of preparing this prospectus and the related registration
statement. The selling security holders have been advised that they are subject
to the applicable provisions of the Exchange Act, including without limitation,
Rules 10b-5 and Regulation M there under.
LEGAL MATTERS
Certain legal matters, including the validity of the shares of common
stock being sold, will be passed upon for us by Buchanan Ingersoll Professional
Corporation, Eleven Penn Center, 1835 Market Street, 14th Floor, Philadelphia,
PA 19103.
EXPERTS
The consolidated financial statements of The Translation Group, Ltd. as
of March 31, 2000 and for the year then ended and as of March 31, 1999 and for
the year then ended, included in this prospectus, have been audited by Wiss &
Company, LLP independent auditors, as stated in their report appearing herein
(which report expresses an unqualified opinion). The financial statements have
been included in this prospectus in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
WHERE YOU CAN GET MORE INFORMATION
We have filed a Registration Statement on Form SB-2 with the SEC. This
prospectus, which forms a part of that Registration Statement, does not contain
all of the information included in the Registration Statement and the exhibits
and schedules thereto as permitted by the rules and regulations of the SEC. For
further information with respect to the Company and the shares of common stock
50
<PAGE>
offered hereby, reference is made to the Registration Statement, including the
exhibits and schedules thereto.
Statements contained in this prospectus as to the contents of any
contract or other document referred to herein are not necessarily complete and,
where such contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions of
such exhibit, to which reference is hereby made. You may review a copy of the
Registration Statement at the SEC's public reference room in Washington, D.C.,
and at the SEC's regional offices in Chicago, Illinois and New York, New York.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. The Registration Statement can also be reviewed
by accessing the SEC's Internet site at http://www.sec.gov. As a result of this
offering, we will become subject to the information and reporting requirements
of the Securities Exchange Act and, in accordance therewith, will file periodic
reports, proxy statements and other information with the SEC.
51
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements for the Years Ended March 31, 2000 and 1999
Report of Wiss & Company, Independent Auditors..............................................................F-1
Consolidated balance sheet as of March 31, 2000.............................................................F-2
Consolidated statements of operations for the years ended March 31, 2000 and 1999...........................F-3
Consolidated statements of stockholders' equity for the years ended March31, 2000 and 1999..................F-4
Consolidated statements of comprehensive operations for the years ended March 31, 2000 and 1999.............F-5
Consolidated statements of cash flows for the years ended March 31, 2000 and 1999...........................F-6
Notes to consolidated financial statements..................................................................F-7 to F-19
UNAUDITED INTERIM FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 2000
Consolidated balance sheet as of September 30, 2000.........................................................F-20
Consolidated statements of operations for the three months ended September 30,
2000 and 1999 and the six months ended September 30, 2000 and 1999..........................................F-21
Consolidated statements of comprehensive operations for the three months ended September
30, 2000 and 1999 and the six months ended September 30, 2000 and 1999......................................F-22
Consolidated statements of cash flows for the six months ended September 30, 2000 and 1999..................F-23
Notes to consolidated financial statements..................................................................F-24
</TABLE>
I
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The Translation Group, Ltd.
We have audited the accompanying consolidated balance sheet of The Translation
Group, Ltd. and subsidiaries as of March 31, 2000, and the related consolidated
statements of operations, comprehensive operations, stockholders' equity and
cash flows for each of the years in the period ended March 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all materials respects, the consolidated financial position of The Translation
Group, Ltd. and subsidiaries as of March 31, 2000, and the consolidated results
of their operations and their consolidated cash flows for the two years ended
March 31, 2000, in conformity with generally accepted accounting principles.
WISS & COMPANY, LLP
Livingston, New Jersey
June 26, 2000
F-1
<PAGE>
THE TRANSLATION GROUP, LTD.
and Subsidiaries
Consolidated Balance Sheet
March 31, 2000
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,700,080
Accounts receivable, net of allowance for doubtful accounts of $27,000 2,429,155
Work in process 319,823
Loans and receivables from officers 87,740
Other current assets 235,622
-------------
Total current assets 4,772,420
Property and equipment, net of accumulated depreciation and
amortization of $1,359,497 2,666,185
Excess of purchase price over fair value of net assets acquired, net of
accumulated amortization of $509,964 3,937,586
Loans and receivables from officers 414,980
Other assets 141,452
-------------
TOTAL ASSETS $ 11,932,623
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 626,750
Notes payable 4,268
Current maturities of long-term obligations 80,748
Obligations under capital leases 4,200
Accrued liabilities 274,803
Deferred income 492,196
Deferred income taxes 189,000
-------------
TOTAL LIABILITIES 1,671,965
Commitments and contingencies
Preferred stock redeemable at the option of purchasers, $.001 par value,
1,000,000 authorized, 250,000 shares issued and outstanding, less
subscriptions receivable of $500,000 493,622
Stockholders' equity:
Common stock, $.001 par value, 15,000,000 shares authorized, 3,787,902
shares outstanding, and 3,795,902 shares issued and to be issued 3,796
Additional paid-in capital 11,473,011
Retained earnings (deficit) (1,655,434)
Common stock in treasury, 8,000 shares (68,032)
Accumulated other comprehensive income 13,695
--------------
Total stockholders' equity 9,767,036
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,932,623
=============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
THE TRANSLATION GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
---- ----
<S> <C> <C>
Revenue $ 13,346,774 $ 5,987,002
Cost of revenue 8,714,821 4,832,359
-------------- --------------
Gross profit 4,631,953 1,154,643
Cost and expenses:
Selling, general and administration 2,724,005 1,864,721
Research and development 147,320
Special projects and other costs 979,357
Corporate administration 1,243,594 736,184
Amortization of excess of purchase price over
fair value of net assets acquired 340,417 96,884
------- ------
Total 4,308,016 3,824,466
--------- ---------
Income (loss) before other income (expense) 323,937 (2,669,823)
Other income (expense):
Interest income 47,111 185,212
Interest expense (75,907) (45,461)
Amortization of compensatory warrants and finance charges (1)(2) (315,987)
Foreign currency gains (losses) 815 (14,774)
--- --------
(343,968) 124,977
(Loss) income before provision for income taxes (20,031) (2,544,846)
Provision (benefit) for income taxes 168,378 (396,160)
------- ---------
Net (loss) income $ (188,409) $ (2,148,686)
=========== =============
Net (loss) income per common share outstanding (basic and diluted) $ (0.06) $ (0.94)
======== ========
Weighted average shares outstanding 2,965,805 2,278,340
========= =========
</TABLE>
[FN]
(1) Includes $266,136 of amortization of deferred stock based interest expense
(2) Includes $49,851 of amortization of deferred stock based public relations
expense
</FN>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
THE TRANSLATION GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
UNEARNED ACCUMILATED
ADDITIONAL PORTION OF OTHER TOTAL
COMMON COMMON PAID-IN COMPENSATORY RETAINED TREASURY COMPREHENSIVESTOCKHOLDERS'
SHARES STOCK CAPITAL WARRANTS EARNINGS STOCK INCOME EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1998 2,278,340 $2,278 $6,051,985 $(225,000) $ 681,661 $ - $ 9,769 $6,520,693
Amortization of unearned compensation 180,000 180,000
Purchase of treasury stock, 8,000 shares (68,032) (68,032)
Foreign currency translation adjustment 12,157 12,157
Net loss - - - - (2,148,686) - - (2,148,686)
-- -- -- -- ----------- -- -- -----------
BALANCE AT MARCH 31, 1999 2,278,340 2,278 6,051,985 (45,000) (1,467,025)(68,032) 21,926 4,496,132
Warrants issued in connection with financing
arrangements and consulting agreement 264,000 (264,000)
Amortization of unearned compensation 309,000 309,000
Shares issued in satisfaction of debt 25,000 25 74,975 75,000
Adjustment of shares for acquisition of
Word House (35,000) (35) (209,965) (210,000)
Shares issued in connection with private
placements 550,000 550 1,000,753 1,001,303
Shares issued and issuable and warrants
issued in connection with the acquisition
of Planet Access Networks, Inc. 634,668 635 2,813,494 2,814,129
Shares issued with the exercise of warrants 342,894 343 1,477,769 1,478,112
Foreign currency translation adjustment (8,231) (8,231)
Net loss - - - - (188,409) - - (188,409)
-- -- -- -- --------- -- -- ---------
BALANCE AT MARCH 31, 2000 3,795,902 $ 3,796 $11,473,011 $ - ($1,655,434) $(68,032) $ 13,695 $ 9,767,036
========= ======= =========== ==== ============ ========= ========= ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
THE TRANSLATION GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
MARCH 31, MARCH 31,
2000 1999
---- ----
Net loss $ (188,409) $ (2,148,686)
Other comprehensive income (loss):
Currency translation adjustment (8,231) 12,157
----------- ------------
Comprehensive loss $ (196,640) $ (2,136,529)
=========== =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
THE TRANSLATION GROUP, LTD.
and Subsidiaries
Consolidated Statements of Cash Flow
For the years ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss $ (188,409) $ (2,148,686)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 451,169 325,382
Amortization of excess purchase price over fair value of net assets acquired 340,417 130,882
Amortization of compensatory warrants 309,657 180,000
Foreign currency translation adjustment (8,231) 12,157
Deferred income taxes 78,700 (218,172)
Settlement agreement, net of payments 270,251
Changes in operating assets and liabilities:
Accounts receivable (824,315) 326,779
Work in process 70,957 346,917
Other current assets 116,715 (205,962)
Other assets (44,143) (22,261)
Accounts payable 72,119 108,828
Accrued liabilities and deferred income (93,365) (3,034)
Accrued income taxes - (31,954)
------------------ --------------------
Net cash provided by (used in) operating activities 281,271 (928,873)
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchase of subsidiary, net of cash acquired (895,567)
Purchase of property and equipment (1,725,049) (404,851)
Investment in certificate of deposit 106,540 (6,540)
Loans and advances to officers (522,148) (12,000)
Investment in US Government obligations - 2,000,000
------------------ --------------------
Net cash provided by (used for) investing activities (3,036,224) 1,576,609
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 1,001,303
Net proceeds from exercise of common stock warrants 1,478,112
Net proceeds from notes payable 475,000 46,672
Financing costs (6,378)
Payments on long-term obligations (388,974) (95,477)
--------- --------
Net cash provided by (used in) financing activities 2,559,063 (48,805)
Net change in cash and cash equivalents (195,890) 598,931
Cash and cash equivalents, beginning of year 1,895,970 1,297,039
------------------ --------------------
Cash and cash equivalents, end of year $ 1,700,080 $ 1,895,970
================== ====================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: Acquisition of
subsidiary on May 1, 1999:
Fair value of assets acquired (other than cash) $ 4,469,510
Liabilities assumed 759,814
-------
3,709,696
Less: common stock issued in connection with the acquisition (2,814,129)
-----------
Net cash paid for acquisition $ 895,567
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for:
Interest $ 75,907 $ 45,461
================== ====================
Income taxes $ 500 $ 359
================== ====================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
THE TRANSLATION GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY
The Translation Group, Ltd. and Subsidiaries (TTGL or the Company) translates
and localizes documents and software into various languages. Services are
provided to many industries with a concentration in information technology
companies. The Company has launched a research program directed toward the
development of computer-based translation systems. The basic business model is
to accelerate technical developments together with product marketing and sales.
TTGL was incorporated in the State of Delaware on July 6, 1995, and under the
terms of an agreement and plan of reorganization, acquired 100% of the issued
and outstanding shares of the Bureau of Translation Services, Inc. (BTS) on
January 17, 1996. BTS was incorporated in 1984 in the State of Pennsylvania. On
December 2, 1996, the Company completed its initial public offering (IPO) and
sold 705,000 shares of its common stock at a price of $6.00 per share and
1,840,000 warrants at a price of $.20 per warrant. The net proceeds amounted to
approximately $3.5 million.
In February 1997, the Company obtained an exclusive worldwide license and rights
to use and sell know-how, apparatus, and methods pertaining to tools and systems
developments based on a patent application by the Gedanken Corporation
("Gedanken"). Gedanken has been granted a United States Patent that describes
apparatus and methods for translating words, phrases, and sentences from a
source language to other target languages using advanced telecommunications and
computer technologies. The original agreement has been modified as described in
Note 4.
Effective June 30, 1997, and as later amended, TTGL acquired all the issued and
outstanding common stock of the companies that comprise the Word House Group
(Word House) in exchange for 185,000 of its common shares, later adjusted to
150,000 common shares, and 200,000 additional common shares contingent on future
earnings levels, of which 100,000 shares were issuable as of March 31, 2000.
On April 15, 1999, the Company entered into a development and license agreement
with ESTEAM AB (EST), a corporation organized under the laws of Sweden. EST is a
software-development company specializing in the development of a
computer-automated language translation system, known as the "BTR System," that
tailors such system to specific applications. The BTR System, when applied to
appropriate hardware, automatically performs language translations without any
human intervention. TTGL has received an exclusive worldwide license for four
identified applications and for four additional applications for a period of
fifteen years. For royalties, development costs, and other information, see Note
11.
As of May 1, 1999, the Company acquired all the issued and outstanding shares of
Planet Access Networks, Inc. (Planet) for 416,668 shares of its common stock and
cash in the amount of $900,000. In order to complete the transaction, the
Company issued warrants to purchase 100,000 shares of its common stock on
December 15, 1999, and 218,000 shares of its common stock on March 8, 2000.
Planet is a digital communications solutions provider. Planet provides an
integrated service offering consisting of strategic consulting, design of
information architectures and user-interfaces and creation and customization of
software necessary to implement digital communications solutions. Planet
primarily uses Internet-based technologies to create digital communications
solutions for the World Wide Web.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEARS
The Company's reporting year ends March 31. For purposes of reporting, fiscal
year ended March 31, 2000 will also be referred to as the 2000 fiscal year;
fiscal year ended March 31, 1999 will also be referred to as the 1999 fiscal
year; and any reference to fiscal year ended March 31, 1998 will also be
referred to as the 1998 fiscal year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of TTGL, BTS, Word
House, and Planet. Planet's accounts are included from the date of its
acquisition on May 1, 1999. All significant inter-company accounts and
transactions have been eliminated. Accordingly, the consolidated financial
statements for the year ended March 31, 2000 and 1999 reflect the results of
activities of all of these companies.
F-7
<PAGE>
The Company has accounted for its acquisition of the Word House Companies under
the purchase method of accounting, wherein the purchase price is allocated to
the assets and liabilities as of the acquisition date based on estimated
respective fair values. The excess of purchase price over fair values of net
assets acquired is being amortized over fifteen years. Stockholders' equity as
of March 31, 2000 includes issuable shares (see Note 11).
The Company has accounted for its acquisition of Planet Access Networks under
the purchase method of accounting, where in the purchase price is allocated to
the assets and liabilities as of the acquisition date based on estimated
respective fair values. The excess of purchase price over fair value of net
assets acquire is being amortized over ten years.
REVENUE RECOGNITION
Revenue is accounted for under the percentage of completion method of
accounting, whereby sales and costs are recognized as work on contracts
progresses. Changes in estimates for revenue, costs and profits are recognized
in the period in which they are determinable. Work in progress represents the
excess of revenue recognized for financial reporting purposes over amounts
contractually permitted to be billed to customers. Deferred revenue represents
excess of amounts billed over revenue recognized for financial reporting
purposes. Invoices are rendered based upon terms of the contract.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Systems acquisitions
and specialized tools, together with related software, are expensed while in
development until technological feasibility has been established.
CAPITALIZED COMPUTER SOFTWARE COSTS
AcSEC SOP98-1 requires companies to capitalize and amortize certain costs
associated with developing software for internal use. There are three stages:
the preliminary project stage; the application development stage; and the
post-implementation/operation stage. After the preliminary project stage is
completed and management has committed to funding a probable successful software
project, such costs should be capitalized. Once the software is placed into
service, the capitalized cost should be amortized over the period of expected
benefit in a systematic and rational manner.
SFAS No. 2, together with FASB No. 86, accounting for research and development
(R&D) costs, require that companies expense R & D until the research and
development project has reached technological feasibility. The Company believes
that these releases apply to its development of machine-translation computer
systems and that such technological feasibility was achieved as at August 1,
1998. Accordingly, all expenditures to that point have been expensed as research
and development and capitalized after that date (see Note 4). In this regard,
the Company expensed $149,000 in fiscal 1999 and capitalized $1,199,027 and
$180,000 for the years ended March 31, 2000 and 1999, respectively.
FOREIGN CURRENCY TRANSLATION
Statement of operations amounts have been translated using the average exchange
rates in effect for each period. Gains and losses from foreign exchange
transactions have been included in the Statements of Operations. Balance sheet
amounts have been translated using exchange rates in effect at the balance sheet
dates and the translation adjustment has been included in the foreign currency
translation adjustment, as accumulated other comprehensive income.
EARNINGS PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share" (EPS) which requires dual presentation of basic and
diluted EPS for all entities with complex capital structures on a retroactive
basis. Basic (loss) per share is computed based upon the weighted average number
of common shares outstanding during each year, shares contingently issuable
under the Word House acquisition as described in Note 1, have been included.
Diluted EPS gives effect to outstanding warrants and options using the treasury
stock method. For fiscal 2000 and fiscal 1999, options and warrants were
considered anti-dilutive and were excluded from the calculation of diluted EPS.
F-8
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers highly liquid debt instruments when purchased with a
maturity of three months or less to be cash equivalents.
FINANCIAL INSTRUMENTS
Financial instruments include cash and equivalents, accounts receivable, other
assets, loan receivable, notes and accounts payable, accrued expenses, deferred
income, and long-term debt. The amounts reported for financial instruments are
considered to be reasonable approximations of their fair values, based on market
information available to management. The use of different market assumptions
and/or estimation methodologies could have a material effect on the estimated
fair value amounts.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of cash and unsecured trade receivables. The
Company maintains its cash balances in financial institutions some of which are
insured by the Federal Deposit Insurance Corporation up to $100,000. Uninsured
balances at March 31, 2000 totaled approximately $1,396,000.
The Company grants unsecured credit to virtually all of its customers, with one
individual customer comprising a concentrated risk (see Note 3 and 12).
Management believes that credit risk associated with accounts receivable is
limited due to the Company's long standing relationships with the majority of
its customers.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost net of depreciation and amortization.
Depreciation and amortization are computed using straight-line and accelerated
methods over the estimated useful lives of the assets in place. Amortization of
leasehold improvements is provided over the shorter of the lease term or the
estimated useful life of the asset. Capitalized software included in property
and equipment will be amortized when placed in service.
STOCK OPTIONS
The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," which requires pro-forma disclosure of net income
as if the SFAS No. 123 fair-value method had been applied. The Company measures
and recognizes compensation costs under the provisions of Accounting Princples
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (by SFAS No.
123) which permits that when the exercised price of the Company's employee stock
option equals or is more than the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
MARKETING AND ADVERTISING
Marketing and advertising costs are expensed as incurred. Such expenses
approximated $54,600 and $223,000 for the years ended March 31, 2000 and 1999,
respectively.
INCOME TAXES
The Company accounts for its income taxes using the liability method which
measures deferred income taxes by applying enacted statutory rates in effect at
the balance sheet date to differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements. The asset
arising from the net operating loss carry forwards was fully reserved since the
realization of the benefits is uncertain.
USE OF ESTIMATES
The preparation of the consolidated 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 dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Certain of the Company's subsidiaries were previously a part
of a consolidated group in the Netherlands. Such subsidiaries may be jointly and
severally liable for any tax assessments resulting from the group. Management
estimates that no provision for such contingency is necessary. Actual results
could differ from these estimates.
F-9
<PAGE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company has implemented: SFAS No. 130 "Reporting Comprehensive Income" which
establishes standards for reporting and displaying comprehensive income and its
components in financial statements; and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information" which establishes standards
for the way public business enterprises report information about operating
segments in annual and interim financial statements. The Company considers that
it operates in two industry segments and is reporting segment data in accordance
with markets.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Annual Report to Stockholders contains forward-looking statements. To date,
the Company has not completed the commercialization of products or services
based on its technological approaches, and there can be no assurance that the
approaches will enable the Company to commercially exploit such technology. In
addition, the Company faces competition from other companies, many of which are
larger and better financed.
Other factors may affect the Company's future operations, including the ability
to attract and retain qualified management, to exploit current marketing
efforts, and to compete successfully in the market.
NOTE 3-SIGNIFICANT CUSTOMERS
For the year ended March 31, 2000, one customer accounted for 50% of revenues,
in comparison to two customers that represented 20% and 11% of revenues for the
year ended March 31, 1999.
The Company has experienced concentration of credit risk with regard to its
accounts receivable as of March 31, 2000. One customer represented approximately
69% of the total accounts receivable (see Note 12).
NOTE 4-RESEARCH AND DEVELOPMENT
The Company expensed approximately $147,000 for the development of a
machine-translation system during the year ended March 31, 1999. The goal for
the design of machine tools, or systems, is to enhance the
translation/localization (production) process. The Company considers that
technological feasibility was achieved as at August 1, 1998, and subsequent
payments to the Gedanken Corporation, in the amount of $324,591 and $180,000
were capitalized for the years ended March 31, 2000 and 1999, respectively.
In February 1997, the Company obtained an exclusive worldwide license and rights
to use and sell know-how, apparatus, and methods pertaining to tools and systems
developments based on a patent application by Gedanken. By assignment from Dr.
Julius Cherny, Gedanken applied for a United States Patent that describes
apparatus and methods for translating words, phrases, and sentences from a
source language to other target languages using advanced telecommunications and
computer technologies. The Company is obligated to pay royalties on all revenues
generated that use in whole or part the patent rights and know-how. The Company
has the right to stop funding at specified times or accomplishment periods. The
Company has agreed to pay Gedanken $750,000 for a translation/ localization
system (that includes a specific topic builder, general topic dictionary,
quality control, and alignment tools) at the rate of $20,000 a month through
December 15, 1998, and at the rate of $40,000 a month thereafter; the original
arrangement of $20,000 per month has been verbally extended through September
30, 2000.
Under the 1997 license agreement, the Company also has the option from Gedanken
for the rights to the development of a Real Time Voice Translation System based
on providing the necessary funding estimated at $4,000,000.
Dr. Cherny resigned his positions as the president of BTS and a director of the
Company in November, 1998. Since that time, he has devoted full time to research
and development on behalf of the Company. Dr. Cherny remains president and
principal shareholder of Gedanken.
F-10
<PAGE>
On April 15, 1999, the Company entered into a development and license agreement
with ESTEAM AB (EST), a corporation organized under the laws of Sweden. EST is a
software-development company specializing in the development of a
computer-automated language translation system, known as the "BTR System," that
tailors such system to specific applications. The BTR System, its modifications,
improvements, and adaptations, are used to perform translations of specific text
documents in a particular domain. The BTR System, when applied to appropriate
hardware, automatically performs language translations without any human
intervention. The computer software utilized in the BTR System may be
"off-the-shelf" or proprietary, that is, created for a specific purpose and not
commercially available. TTGL has received an exclusive worldwide license for
four identified applications and for four additional applications for a period
of fifteen years, with an option, under certain conditions and considerations,
to extend the agreement for an additional three years.
In consideration of the worldwide license, TTGL has agreed: to pay royalties on
sales of any application; to pay EST a minimum of $50,000 per month towards
EST's operating expenses for two years; and will provide certain development
funding in addition to the $50,000 minimum. During the year ended March 31,
2000, payments in the amount of $874,436 were capitalized by the Company.
In addition, TTGL will grant stock options to four employees of EST, aggregating
102,000 shares of its common stock at a price of $3.50 per share, when certain
levels of sales are reached. Such options are subject to the provisions of
TTGL's 1995 Stock Option Plan and will vest with the grantees based upon the
achievement of revenues by TTGL from the development work of EST.
NOTE 5-PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
MARCH 31, 2000 AVERAGE USEFUL
LIFE(Years)
Equipment (includes $520,000 pledged as
collateral for bank notes payable) $1,582,306 5
Software 481,130 5
Equipment and software under license 1,540,701 5
Office condominium 245,182 20
Furniture & fixtures 111,986 5
Vehicles 23,269 3
Leasehold improvements 41,108 5
----------
Total 4,025,682
Less: accumulated depreciation and amortization 1,359,497
---------
Net property and equipment $2,666,185
==========
For the years ended March 31, 2000 and 1999, depreciation and amortization
expenses were $420,461 and $258,880, respectively.
NOTE 6-RELATED PARTY TRANSACTIONS
Due from the Company's chief executive officer (CEO) is a loan of $31,000. This
represents the first installment of a $100,000 interest free loan in connection
with his relocation. The loan is due and payable upon the sale of his New Jersey
home or employment termination, whichever occurs earlier.
Due from the Company's former chief executive officer (CEO) is a loan of
$170,220 (which includes accrued interest at the rate of 6% per annum) that is
collateralized by 20,000 of such individual's shares of the Company's common
stock.
Due from the chief executive officer (CEO) of Planet is a loan of $150,000 dated
March 31, 2000 at an interest rate of 6% per annum.
Due from a vice president of Planet is a loan of $150,000 dated March 31, 2000
at an interest rate of 6% per annum.
F-11
<PAGE>
In April, 1998, the Company settled the outstanding employment contract and loan
account with its former chairperson and chief operating officer for
approximately $360,000 (which includes legal fees) and the return of 8,000
shares of its common stock. It was deemed that $275,000 of the settlement was a
period expense and the balance a deferred consulting fee.
The Company has retained a former officer and son of the Company's CEO as
outside legal counsel; fees were $44,100 in fiscal 2000 and $49,000 in fiscal
1999. A former officer and a current director received $26,851 in fiscal 1999.
Gedanken, a company controlled by Dr. Julius Cherny, was paid $240,000 by the
Company during both fiscal 2000 and fiscal 1999 for the computer translation
system that Gedanken is developing (see Note 4 relative to the accounting for
such payments).
NOTE 7-DEBT
Word House has a bank net overdraft facility of up to $150,000, which is
collateralized by cash, accounts receivable, and equipment. The bank has also
issued a letter of credit for the account of Word House in the amount of $50,000
as a security deposit.
NOTE 8-INCOME TAXES
As of March 31, 2000 and 1999 other current assets include approximately $22,000
and $112,000 respectively of claims for income taxes paid in prior periods as a
result of carry back of operating losses.
The provision (benefits) for taxes on earnings for the years ended March 31,
consist of:
2000 1999
---- ----
Current
Federal $ - $(112,000)
State - -
Foreign - -
------- --------
- (112,000)
======= =========
Deferred
Federal 36,000 (224,000)
State 133,000 -
Foreign - (60,000)
-------- --------
$169,000 $(396,000)
The provision for income taxes is different from that which would be obtained by
applying the statutory Federal income tax rate to income (loss) before income
taxes. The items causing this difference are as follows:
2000 1999
---- ----
Tax expense (benefit) at U.S. statutory rate $(100,000) $(865,000)
Non-deductible expenses:
Amortization of goodwill 116,000 33,000
Amortization of stock based expenses 107,000
Other 10,000 29,000
State income taxes net of federal benefit 88,000
Change in valuation allowance for:
Use of prior year net operating loss (233,000)
Unavailibility of foreign loss for carryback 181,000 75,000
Unavailibility of U.S. net operating loss
for carryback - 332,000
--------- ---------
$ 169,000 $(396,000)
F-12
<PAGE>
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, are as
follows:
2000 1999
---- ----
Deferred tax assets:
Net operating tax loss carry forward $(388,000) $(366,000)
Less: valuation allowance - 100,000
Deferred tax liability:
Difference in basis of assets due to use of the
cash method for income tax purposes 463,000 266,000
State deferred tax net of federal benefit 114,000 -
--------- --------
$ 189,000 $ -
========== ========
Net operating loss carry-forwards:
The Company has US Federal and State operating loss carry forwards and deferred
tax assets of approximately $900,000 that expire over the ensuing period of
twenty years.
The Company has foreign net operating loss carry-forwards of approximately
$473,000 that expire as follows:
Year Ending
MARCH 31, AMOUNT
--------- ------
2001 $ 10,000
2003 67,000
2004 226,000
-------
303,000
Net operating losses that do not expire 170,000
-------
Total $473,000
========
The deferred tax asset of approximately $600,000 has been offset by a 100%
valuation allowance because of the uncertainty of its realization.
NOTE 9-PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock and has
issued 250,000 shares of convertible preferred stock at March 31, 2000. Holders
of the preferred shares are entitled to receive cumulative cash dividends at the
annual rate of 8% payable quarterly. The shares are convertible at any time
during the five year period ending March 31, 2005, in whole or in part at a
price of $4.00 per share. The preferred stock can be redeemed by the holder at
face value, at the end of five years.
NOTE 10-STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
In October 1996, the Company adopted a Stock Option Plan (the "Plan") that
provides for a maximum of 2,500,000 shares of common stock to be issued in
connection with such plan. The Plan was amended at the annual meeting of
stockholders on September 28, 1999. The price payable for the shares of common
stock under incentive stock options must be not less that 100% of the fair
market value at the time the option is granted (and 110% if the person granted
such option owns more than 10% of the outstanding shares of the common stock).
Additionally, under the Plan, participants may be granted stock appreciation
rights (SAR). SARs consist of rights to receive either cash or shares of common
stock equal to the amount by which the value of such shares of common stock on
the date the SAR is exercised exceeds the per share option price. No SARs have
been granted. Options granted under this Plan expire ten years from date of
grant, for non-affiliated persons and five years for a 10% owner.
F-13
<PAGE>
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations in accounting
for its employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options equals or is more than the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The alternative fair value accounting is disclosed only for pro forma purposes
as provided for under SFAS No. 123, "Accounting for Stock-Based Compensation",
which requires the use of option valuation models. Options granted to
non-employees are valued at their fair value at the date of grant.
The following is a schedule of the status of options granted under the Company's
stock option plan:
Weighted Average
Exercise Price
OPTIONS PER SHARE
Outstanding at March 31,1996 -0-
Granted 700,000 $6.17
--------- -----
Outstanding at March 31, 1997 700,000 6.17
Granted 599,000 4.75
Exercised (2,000) 6.00
Cancelled (100,000) 6.00
---------- ----
Outstanding at March 31, 1998 1,197,000 $5.47
---------- -----
Granted 495,000 4.99
Cancelled (263,000) 5.75
--------- ----
Outstanding at March 31, 1999 1,429,000 $5.25
--------- -----
Granted 1,627,500 3.15
Cancelled (599,500) 4.69
-------- ----
Outstanding at March 31, 2000 2,457,000 $4.00
========= =====
Exercisable at March 31, 2000 403,750 $5.41
======= =====
Exercisable at March 31, 1999 852,300 $5.37
======= =====
Exercisable at March 31, 1998 409,200 $5.12
======= =====
As of March 31, 2000, the Company has 41,000 options available to grant under
the Plan.
As of March 31, 2000 for each of the following classes of options as determined
by the range of exercise price, the following information regarding
weighted-average exercise prices and weighted-average remaining contractual
lives of each class is as follows:
<TABLE>
<CAPTION>
Weighted Average Number of Weighted Average
Number Weighted Average Remaining Contract Life Options Exercise Price of
Of Exercise Price Of of Outstanding Options Currently Options Currently
OPTIONS Options (YEARS) Exercisable Exercisable
-------- ----------------- ----------------------- ------------ -----------------
<S> <C> <C> <C> <C>
125,000 $2.22 9.67
15,000 2.25 9.44
397,500 2.31 8.45
5,000 2.54 9.71
10,000 2.75 9.53
607,500 3.00 9.52
10,000 4.00 8.75 2,500 $4.00
100,000 4.06 4.25
420,000 4.50 7.95 155,000 4.50
335,000 5.00 9.32 62,500 5.00
222,000 6.00 3.21 81,250 6.00
210,000 6.60 6.78 102,500 6.60
------- ------ ---- ------- ----
2,457,000 $4.00 8.03 403,750 $5.41
========= ===== ==== ======= =====
</TABLE>
F-14
<PAGE>
The pro forma information regarding net (loss) and (loss) per share as required
by SFAS No. 123, has been determined as if the Company had been accounting for
its employee stock options under the fair value method of that statement. The
fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions:
MARCH 31,
2000 --------- 1999
---- ----
Range of risk free interest rates 6.10% - 6.30% 6.10% - 6.30%
Dividend yield 0% 0%
Volatility factor 158% 64%
Expected life of options (in years) 8 8
The weighted average fair value of options granted was $2.57 for the year ended
March 31, 2000 and $4.91 for the year ended March 31, 1999. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In
addition, for traded shares, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. For
purposes of pro forma disclosures, the estimated fair value of the options
granted in fiscals 2000 and 1999 is amortized to expense over the options'
average vesting period. The Company's pro forma information follows:
YEAR ENDED MARCH 31
2000 1999
---- ----
Pro forma loss $(2,649,411) $(3,063,591)
============ ============
Pro forma loss per share $ (.89) $ (1.35)
======== =========
The pro forma disclosures presented above for fiscals 2000 and 1999,
respectively, reflect compensation expense only for options granted in fiscals
2000 and 1999. These amounts may not necessarily be indicative of the pro forma
effect of SFAS No. 123 for future periods in which options may be granted.
WARRANTS
Pursuant to its Initial Public Offering ("IPO") in December 1996, the Company
sold 1,840,000 warrants. There were also 300,000 warrants outstanding to
shareholders given in consideration of their give-back of common shares to the
Company in connection with the IPO. Each warrant entitled the registered
shareholder to purchase one share of common stock at an exercise price of $6.20
per share for a period of three years beginning December 1996. There is a
current registration statement in effect covering the exercise of these
warrants.
The Company also granted the underwriters, of its IPO, rights to purchase 60,000
shares of the Company's common stock at an exercise price of $7.80 per share and
160,000 warrants at an exercise price of $.26 per warrant and in turn, an
exercise price for the stock of $7.80 per share, the former of which expires on
December 2, 2001, and the later of which expired on December 2, 1999. In
connection with the Company's earlier private placement, additional stock
warrants were issued to purchase 40,000 shares of the Company's common stock at
a price of $1.50 per share that expires on January 17, 2001.
During the year ended March 31, 2000, the Company issued 598,250 warrants, with
exercise prices ranging from $2.00 to $6.00 that expire over the next 5 years
valued at $315,987 for financing arrangements and a consulting agreement. The
Company also issued 100,000 warrants at an exercise price of $2.39 on December
15, 1999 in connection with the purchase of Planet Access Networks, Inc.
F-15
<PAGE>
During the year ended March 31,1998, the Company issued 20,000 warrants valued
at $40,000 for consulting fees and also gave an option to a consultant for three
years and an additional three years by mutual consent for 100,000 warrants at
the then market price of $.80 per warrant and a price of $4.50 per common share.
The term of the warrant overlays the option period. The Company valued the
warrants at $225,000 and services are to be provided from April 1, 1998 to June
30, 1999; the costs are being amortized over the period of fifteen months during
which the services were to be performed.
Effective December 2, 1999, the Company extended the warrants until July 2,
2000, with a concomitant reduction in the exercise price to $5.12 and again
extended the warrants, effective July 2, 2000 to December 31, 2000. The current
exercise price is $4.35 per warrant.
Outstanding warrants consist of the following:
Issued in connection with the Initial
Public Offering 2,140,000
---------
Balance at March 31, 1997 2,140,000
Granted 20,000
Exercised (13,340)
---------
Balance at March 31, 1998 2,146,660
---------
Balance at March 31, 1999 2,146,660
---------
Granted
Exercised (292,600)
----------
Balance at March 31, 2000 1,854,060
=========
The above outstanding warrants do not include the warrants described above
relating to the Company's underwriters' options to acquire 260,000 warrants and
for the option to acquire 100,000 warrants issued to the consultant.
NOTE 11-COMMITMENTS AND CONTINGENCIES
(A) Employment Contracts
The Company has employment contracts with its chief executive officer, former
chief executive officer, its chief operating officer, and the president and vice
president of one of its subsidiaries that expire December 2000, April 2003,
September 2001and April 2003. Aggregate remaining compensation and benefits
under such contracts approximate $1,508,000.
(B) Rent
The Company has operating leases for its production facilities and office space.
Aggregate minimum future annual rental payments are as follows:
Year Ending
MARCH 31, TOTAL
-------- -----
2001 $ 452,000
2002 388,674
2003 291,915
2004 195,564
2005 65,188
----------
Total $1,393,341
==========
Rent expenses from fiscal years 2000 and 1999 were $324,908 and $196,707
respectively.
F-16
<PAGE>
(C) Other matters and Litigation
The Company has been sued by a stockholder who is seeking monetary damages,
specific performance, equitable relief and costs in the amount of $3,000,000.
The Company and its counsel believe that there is a substantial likeliness that
the defendants will prevail in this matter.
NOTE 12-ACQUISITIONS AND RECENT AGREEMENTS
ACQUISITION OF PLANET ACCESS NETWORKS, INC.
As of May 1, 1999, the Company acquired all the issued and outstanding shares of
Planet for 634,668 shares of its common stock and cash in the amount of
$900,000. The transaction has been accounted for as a purchase. The excess of
the estimated fair value of common shares, over the underlying fair values of
the net assets acquired, together with the costs of the transaction have been
recorded as excess of purchase price over fair value of net assets acquired
(Excess), and is being amortized over a 10 year period.
The purchase price was recorded as follows:
Current assets $ 817,501
Property and equipment (net) 353,878
Excess of cost over fair value of assets acquired 3,366,053
---------
Total assets 4,537,432
Liabilities (759,814)
-----------
Total cost of acquisition $3,777,618
==========
Stock issued - 634,668 shares $3,689,829
Acquisition costs 87,789
-------
Purchase price $3,777,618
==========
The condensed unaudited pro forma information of the Company for the years ended
March 31, 2000 and 1999 are presented as if the acquisition had occurred on
April 1, 1998 and 1999. The pro forma information is not necessarily indicative
of the results that would be recorded had the acquisition occurred on these
dates, nor is it indicative of the Company's future results:
PRO FORMA
YEAR ENDED MARCH 31,
2000 1999
Revenue $13,874,289 $8,986,203
Net loss (190,363) (1,903,957)
Loss per share (.06) (.65)
Weighted average shares 2,965,805 2,913,008
BRANDWISE, LLC AGREEMENT
On June 29, 2000, Planet Access Networks, Inc. and Brandwise, LLC (Brandwise)
executed an agreement to satisfy the outstanding accounts receivable balance due
Planet from Brandwise in the amount of $1,042,349 as of March 31, 2000. The
agreement called for a cash payment of $32,000 which was received on June 29,
2000. Additionally, the agreement called for the title transfer of equipment and
software from Brandwise to Planet. The equipment and software was valued in
excess of the receivable and was owned by Brandwise, but was already in the
possession of Planet.
SEASIDE PARTNERS, L.P. AGREEMENT
On May 29, 2000, the Company sold 909,091 shares of its common stock for $2.75
per share for a total of $2,500,000 through a private placement with Seaside
Partners, L.P. The $2,500,000 consideration given to the Company by Seaside
Partners, L.P was $300,000 in cash, a $500,000 promissory note due in 90 days
with interest at the rate of 8% per annum and 433,783 shares of common stock of
Sedona Corp. with a fair market value of at least $1,700,000 on the date
thereof. The agreement provides for an adjustment to the fair market value of
F-17
<PAGE>
the Sedona Corp. common stock should it not equal the $1,700,000. The Company
would liquidate the said shares in open market transactions in a commercially
reasonable fashion. To the extent that the proceeds from the sale exceed
$1,700,000, the Company will promptly remit the excess proceeds to Seaside
Partners, L.P. To the extent that the proceeds are less than $1,700,000, the
investor will promptly remit the difference to the Company.
NOTE 13-SEGMENT OPERATIONS
The following summarizes information about the Company's business segments.
Translation/localization is in Japanese, Chinese, and other languages of the
Asian rim, as well as European languages and Canadian French. The sales of BTS
originate in the United States to domestic and foreign customers. The sales of
Word House originate in Europe and are almost entirely in Dutch, French and
other European languages.
Financial information that can be classified by the segments of the Company is
as follows (stated in thousands):
2000 1999
---- ----
Translation/localization (United States):
Revenue $1,348 $3,115
Intercompany revenue - -
Interest income 1 6
Interest expense (3) (11)
Intercompany interest
Depreciation and amortization 144 132
Provision for income taxes 1 (339)
Total assets 589 1,195
Translation/localization (Europe):
Revenue $3,096 $3,029
Intercompany revenue (92) (158)
Interest income 20
Interest expense (51) (52)
Intercompany interest (31) (18)
Depreciation and amortization 93 117
Provision for income taxes (57)
Total assets 1,051 1,234
Internet and web-site development:
Revenue $9,006
Intercompany revenue (11)
Interest income 1
Interest expense (1)
Depreciation and amortization 193
Provision for income taxes 168
Total assets 3,440
Parent:
Revenue $1,283 $ 540
Intercompany revenue (1,283) (540)
Interest income 76 177
Intercompany interest 31 18
Interest expense (53)
Depreciation and amortization 316 93
Provision for income taxes
Total assets 6,853 3,707
F-18
<PAGE>
NOTE 13- NEW PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 133 "Accounting for Derivative
Instruments and hedging activities" (FAS 133). FAS 133 is effective for fiscal
quarters of fiscal years begining after June 15, 2000. FAS 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities and requires, among other things, that all derivatives be recognized
as either assets or liabilities in the statement of financial position and that
those instruments be measured at fair value. The Company does not expect the
implementation of this pronouncement to have a material effect on its
consolidated financial statements.
F-19
<PAGE>
THE TRANSLATION GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND MARCH 31, 2000
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 884,088 $ 1,700,080
Accounts receivable, net of allowance for doubtful accounts
of $27,000 956,230 2,429,155
Work in process 227,598 319,823
Loans and receivables from officers 56,740 87,740
Other current assets 577,743 235,622
------- -------
Total current assets 2,702,399 4,772,420
Property, equipment and software, net of accumulated depreciation and
amortization of $1,834,017 and $1,359,497, respectively 4,939,769 2,666,185
Excess of purchase price over fair value of net assets acquired, net of
accumulated amortization of $710,454 and $509,964, respectively 3,737,096 3,937,586
Loans and receivables from officers 486,610 414,980
Other assets 160,583 141,452
------- -------
TOTAL ASSETS $12,026,457 $11,932,623
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 535,052 $ 626,750
Notes payable 272,810 4,268
Current maturities of long-term obligations 30,900 80,748
Obligations under capital leases - 4,200
Accrued liabilities 454,511 274,803
Deferred income 299,544 492,196
Deferred income taxes 189,000 189,000
------- -------
TOTAL LIABILITIES 1,781,817 1,671,965
Commitments and contingencies
Preferred stock redeemable at the option of the purchasers, $.001 par value,
1,000,000 authorized, 250,000 shares issued and outstanding, less
subscriptions receivable of $500,000 at March 31, 2000 459,747 493,622
Stockholders' equity:
Common stock, $.001 par value, 15,000,000 shares authorized, 4,736,265 and
3,787,902 shares outstanding, respectively, and 4,744,265 and
3,795,902 shares issued and to be issued, respectively 4,744 3,796
Additional paid-in capital 14,058,581 11,473,011
Retained earnings (deficit) (4,223,825) (1,655,434)
Common stock in treasury, 8,000 shares (68,032) (68,032)
Accumulated other comprehensive income 13,425 13,695
------- ------
Total stockholders' equity 9,784,893 9,767,036
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,026,457 $11,932,623
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
THE TRANSLATION GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (unaudited)
AND THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (unaudited)
<TABLE>
<CAPTION>
3 months 3 months 6 months 6 months
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 1,639,085 $ 3,996,754 $ 3,616,490 $ 5,872,531
Cost of revenue 1,717,011 2,694,587 3,571,275 3,991,773
----------- ----------- ----------- -----------
Gross profit (77,926) 1,302,167 45,215 1,880,758
Cost and expenses:
Selling, general and administration 829,811 655,349 1,620,682 1,233,428
Research and development - 39,513 - 79,493
Corporate administration 501,181 299,363 870,708 639,572
Amortization of excess of purchase price over fair value of
net assets acquired 100,245 94,373 200,490 163,827
----------- ----------- ----------- -----------
Total 1,431,237 1,088,598 2,691,880 2,116,320
----------- ----------- ----------- -----------
(Loss) income before other income (expense) (1,509,163) 213,569 (2,646,665) (235,562)
Other income (expense):
Interest income 37,291 19,708 51,361 45,656
Interest expense (4,310) (30,738) (21,603) (58,214)
Foreign currency gains (losses) 985 (2,647) - (1,059)
----------- ----------- ----------- -----------
33,966 (13,677) 29,758 (13,617)
----------- ----------- ----------- -----------
(Loss) income before provision for income taxes (1,475,197) 199,892 (2,616,907) (249,179)
Provision for income taxes (68,078) 71,936 (88,516) 91,091
----------- ----------- ----------- -----------
Net (loss) income $(1,407,119) $ 127,956 $(2,528,391) $ (340,270)
============ =========== ============ ============
Net (loss) income per common share outstanding (basic and diluted) $ (0.30) $ 0.05 $ (0.55) $ (0.13)
============ =========== ============ ===========
Weighted average shares outstanding 4,742,060 2,772,660 4,556,600 2,649,412
========= ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
THE TRANSLATION GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (unaudited)
AND THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (unaudited)
<TABLE>
<CAPTION>
3 months 3 months 6months 6months
September September September September
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income $(1,407,119) $ 127,956 $(2,528,391) $ (340,270)
Other comprehensive income (loss)
Currency translation adjustment 92,750 26,288 (270) (13,875)
------------ ------------ ------------ -----------
Comprehensive income (loss) $(1,314,369) $ 154,244 $(2,528,661) $ (354,145)
============ ============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
THE TRANSLATION GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net (loss) income $(2,528,391) $ (340,270)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 319,010 206,660
Amortization of excess purchase price over fair value of net assets acquired 200,490 163,827
Amortization of discount on acquisition note payable 26,300
Amortization of compensatory warrants 45,000
Foreign currency translation adjustment (270) (13,875)
Changes in operating assets and liabilities:
Accounts receivable 430,576 (268,090)
Work in process 92,225 112,062
Other current assets (342,121) (86,357)
Other assets (19,131) (123,081)
Accounts payable (91,698) 458,236
Accrued liabilities and deferred income (12,944) (111,081)
Deferred income taxes (31,000)
Accrued income taxes - 58,155
------------ -----------
Net cash provided by (used in) operating activities (1,952,254) 96,486
Cash flows provided by (used in) investing activities:
Purchase of property, equipment and software (1,550,246) (689,178)
Acquisition costs, net of cash purchased of $67,922 47,607
Investment in certificate of deposit 106,540
Loans and advances to officers (40,630) 11,072
------------ -----------
Net cash provided by (used for) investing activities (1,590,876) (523,959)
Cash flows provided by (used in) financing activities:
Net proceeds from issuance of common stock 2,552,644 1,100,000
Net proceeds from notes payable 268,542
Payments on long-term obligations (54,048) (53,501)
Payment of acquisition note payable (900,000)
Net payments on notes payable (250,753)
Preferred dividends declared (40,000) -
------------ ------------
Net cash provided by (used in) financing activities 2,727,138 (104,254)
------------ ------------
Net increase (decrease) in cash and cash equivalents (815,992) (531,727)
Cash and cash equivalents, beginning of period 1,700,080 1,895,970
------------ -----------
Cash and cash equivalents, end of period $ 884,088 $ 1,364,243
============ ===========
Non-Cash Investing Activities:
Additions of property and equipment were acquired through the exchange of an
accounts receivable of $1,042,349.
Non-Cash Finance Activities:
The Company issued 337,293 shares of common stock at $2.75 per share in
exchange for a note receivable of $500,000 and securities investment of
$427,555.
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest $ 21,603 $ 58,214
=========== ===========
Income taxes $ 1,000 $ 500
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
THE TRANSLATION GROUP, LTD.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 (unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of The Translation Group, Ltd., Bureau of Translation Services,
Inc., Word House and Planet Access Networks, Inc. (from the date of acquisition
on May 1, 1999). These 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, 2000 are not necessarily indicative of the results that may be
expected for the year ended March 31, 2001.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with rules and regulations of the Securities and Exchange Commission.
The financial statements in this report should be read in conjunction with the
financial statements and notes thereto included in the Form 10-KSB of The
Translation Group, Ltd. (the "Company").
The condensed consolidated statements of operations for the six month period
ended September 30, 1999 includes the operations of Planet for the period from
May 1, 1999 to September 30, 1999. Had the Company acquired Planet as of April
1, 1999, the net loss and earnings per share would have been $(217,453) and
$(.08) for the six months ended September 30, 1999. Reference is made to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report for the year ended March 31, 2000, Form 10-KSB.
NOTE B - EARNINGS PER SHARE
For the purpose of computing earnings per share, average shares outstanding
during the three months ended September 30, 2000 and 1999 was 4,742,060 and
2,772,660 respectively. Average shares outstanding during the six months ended
September 30, 2000 and 1999 was 4,556,600 and 2,649,412, respectively. In
addition, there are outstanding common stock options of 2,457,000 shares at an
average price of approximately $4.00 per share and 2,652,310 warrants to
purchase common stock of the Company at an average price of approximately $4.35
per share. The computations of earnings per share reflecting the exercise of
these options and warrants are antidilutive.
NOTE C - CAPITAL RESOURCES
On May 8, 2000, the Company sold 909,091 shares of its common stock for $2.75
per share for a total of $2,500,000 through a private placement with Seaside
Partners, L.P. The $2,500,000 consideration given to the Company by Seaside
Partners, L.P. was $300,000 in cash, a $500,000 promissory note due in 90 days
with interest at the rate of 8% per annum and 433,783 shares of common stock of
Sedona Corp., which together with a payment from Seaside Partners,L.P.,were
liquidated to provide $1,700,000. The Company verbally extended the due date of
the promissory note for the short term.
NOTE D COMMITMENTS AND CONTINGENCIES
The Company has been sued by a stockholder who is seeking monetary damages,
specific performance, equitable relief and costs in the amount of $3,000,000.
The Company and its Counsel believe that there is a substantial likeliness that
the defendants will prevail in this matter. A settlement offer that is a
fraction of the original claim, has been received and the Company is reviewing
it.
F-24
<PAGE>
2,313,768 Shares
[LOGO]
THE TRANSLATION GROUP, LTD.
Common Stock
-------------------
P R O S P E C T U S
-------------------
__, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and Bylaws reflect the
adoption of the provisions of Section 102(b)(7) of the Delaware General
Corporation Law (the "GCL"), which eliminate or limit the personal liability of
a director to the Company or its stockholders for monetary damages for breach of
fiduciary duty under certain circumstances. If the GCL is amended to authorize
corporate action further eliminating or limiting personal liability of
directors, the Certificate of Incorporation provides that the liability of the
director of the Company shall be eliminated or limited to the fullest extent
permitted by the GCL. The Company's Certificate of Incorporation and Bylaws also
provide that the Company shall indemnify any person, who was or is a party to a
proceeding by reason of the fact that he is or was a director, officer, employer
or agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with such proceeding if he
acted in good faith and in a manner he reasonably believed to be or not opposed
to the best interests of the Company, in accordance with, and to the full extent
permitted by, the GCL. The determination of whether indemnification is proper
under the circumstances, unless made by the Court, shall be determined by the
Board of Directors.
Reference is made to Item 28 for the undertakings of the Registrant
with respect to indemnification of liabilities arising under the Securities Act
of 1933, as amended (the "Act").
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the preparation and filing of this Registration
Statement.
SEC Registration Fee.............................. $ 716.00
----------
Printing and Engraving............................ $ 1,000.00
----------
Accountants' Fees and Expenses.................... $ 5,000.00
Legal Fees and Expenses........................... $30,000.00
----------
Other Offering Expenses........................... $ 1,000.00
----------
Total............................................. $37,716.00
==========
RECENT SALES OF UNREGISTERED SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended March 31, 1998, the Company issued 25,000
shares of Common Stock at a purchase price of $150,000 pursuant to a consulting
agreement, warrants to purchase 40,000 shares of Common Stock at an exercise
price of $1.00 per share pursuant to a public relations agreement and options to
purchase 225,000 shares of Common Stock at an exercise price of $1.00 per share
pursuant to a consulting agreement. The securities were issued pursuant to an
exemption under Section 4(2) of the Securities Act of 1933, as amended.
II-1
<PAGE>
In May 1999, the Company issued 25,000 shares of Common Stock at a
purchase price of $3.00 per share pursuant to a consulting agreement. The
securities were issued pursuant to an exemption under Section 4(2) of the
Securities Act of 1933, as amended.
In connection with the purchase by the Company of Planet Access
Networks, Inc. as of May 26, 1999, the Company issued 416,668 shares of Common
Stock. Upon amendment of the purchase agreement, the Company issued an
additional 218,000 shares of Common Stock, warrants to purchase 100,000 shares
of Common Stock at an exercise price of $2.39 per share, options to purchase
370,000 shares of Common Stock at an exercise price of $3.00 per share and
options to purchase 200,000 shares of Common Stock at an exercise price of $5.00
per share. The securities were issued pursuant to an exemption under Section
4(2) of the Securities Act of 1933, as amended, and/or Regulation D.
In July 1999, the Company issued 50,000 shares of Common Stock at a
purchase price of $2.00 per share. The securities were issued pursuant to an
exemption under Section 4(2) of the Securities Act of 1933, as amended.
In October 1999, the Company issued warrants to purchase 25,000 shares
of Common Stock at an exercise price of $5.00 per share and warrants to purchase
25,000 shares of Common Stock at an exercise price of $3.00 per share pursuant
to a consulting agreement. The securities were issued pursuant to an exemption
under Section 4(2) of the Securities Act of 1933, as amended.
In November 1999, the Company completed the private placement of
$500,000 of notes and warrants to purchase 250,000 shares of Common Stock at an
exercise price of $3.00 per share. In connection with the private placement, the
Company also issued warrants to purchase 25,000 shares of Common Stock at $3.00
per share. The securities were issued pursuant to an exemption under Section
4(2) of the Securities Act of 1933, as amended, and/or Regulation D.
On May 8, 2000 the Company issued 900,091 shares of Common Stock at a
purchase price of $2.75 per share. The securities were issued pursuant to an
exemption under Section 4(2) of the Securities Act of 1933, as amended.
II-2
<PAGE>
EXHIBITS
THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
2.1 Stock Purchase Agreement between the Stockholders of Planet (4)
Access Networks, Inc., Planet Access Networks, Inc. and the
Company, as amended dated April 27, 1999 (the "PAN Stock
Purchase Agreement")
2.2 Amendment dated September 2, 1999 to the PAN Stock Purchase (5)
Agreement
2.3 Amendment dated March 8, 2000 to PAN Stock Purchase (5)
Agreement
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 By-laws of the Company (1)
3.3 Certificate of Designation for Series A Preferred Stock (5)
4.1 Specimen common stock Certificate (2)
4.2 Specimen Warrant Certificate (2)
4.4 Revised Form of Warrant Agreement (3)
10.1 Lease Agreement between Bureau of Translation Services, Inc. (1)
and J.C.G. Partnership dated January 18, 1995
10.2 Employment Agreement between the Company and Charles D. (5)
Cascio dated as of April 10, 2000
10.3 Employment Agreement between the Company and Randy G. Morris (5)
dated as of December 20, 1999
10.4 The Translation Group, Ltd. 1995 Stock Option Plan (4)
10.9 Employment Agreement between the Company and Jeffrey (4)
Cartwright dated May 18, 1999
II-3
<PAGE>
10.10 Employment Agreement between the Company and Frederick (4)
LaParo dated May 18, 1999
10.11 Employment Agreement between the Company and John Toedtman (4)
dated October 1, 1998
10.12 Stock Pledge Agreement between the Company and various (4)
former stockholders of Planet Access Network, Inc. dated
May 18, 1999
10.13 License Agreement between the Company and ESTeam AB dated (8)
April 15, 1999*
-------------------------
* Subject to confidential treatment request pursuant to Rule 24b-2 of the
Exchange Act of 1934.
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 dated July 25, 1996 (Registration No. 333-8857) (the "Form SB-2").
(2) Incorporated by reference to Amendment No. 2 to the Company's Form SB-2.
(3) Incorporated by reference to Amendment No. 3 to the Company's Form SB-2.
(4) Incorporated by reference to the Company's annual report on Form 10-KSB
for the year ended March 31, 1999 ("1999 10-KSB").
(5) Incorporated by reference to the Company's annual report on Form 10-KSB
for the year ended March 31, 2000.
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, as
amended; (ii) reflect in the prospectus any facts or events arising after the
effective date of the registration statement which, individually or together,
represent a fundamental change in the information in the registration statement;
and (iii) include any additional or changed material information on the plan of
distribution.
2. For the purpose of determining liability under the Securities Act of
1933, as amended, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To file a post-effective amendment to remove from registration any
of the securities being registered which remain unsold at the termination of the
offering.
4. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
II-4
<PAGE>
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in a successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized in the City of Haddonfield,
New Jersey on December 4, 2000.
THE TRANSLATION GROUP, LTD.
By: /s/ Randy G. Morris
---------------------------------
Randy G. Morris, President
By: /s/ Kenneth A. Mack
---------------------------------
Kennneth A. Mack, Acting Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Randy G. Morris President, Chief Executive December 4, 2000
-------------------------- Officer, and Director
Randy G. Morris
/s/ Charles D. Cascio Director December 4, 2000
--------------------------
Charles D. Cascio
/s/ Theodora Landgren Director December 4, 2000
--------------------------
Theodora Landgren
/s/ Richard J.L.Herson Director December 4, 2000
--------------------------
Richard J.L. Herson
/s/ Gary M. Schlosser Director December 4, 2000
--------------------------
Gary M. Schlosser
/s/ John Toedtman Director December 4, 2000
--------------------------
John Toedtman
/s/ Frederick LaParo Director December 4, 2000
--------------------------
Frederick LaParo
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
2.1 Stock Purchase Agreement between the Stockholders of Planet (4)
Access Networks, Inc., Planet Access Networks, Inc. and the
Company, as amended dated April 27, 1999 (the "PAN Stock
Purchase Agreement")
2.2 Amendment dated September 2, 1999 to the PAN Stock Purchase (5)
Agreement
2.3 Amendment dated March 8, 2000 to PAN Stock Purchase (5)
Agreement
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 By-laws of the Company (1)
3.3 Certificate of Designation for Series A Preferred Stock (5)
4.1 Specimen common stock Certificate (2)
4.2 Specimen Warrant Certificate (2)
4.4 Revised Form of Warrant Agreement (3)
10.1 Lease Agreement between Bureau of Translation Services, Inc. (1)
and J.C.G. Partnership dated January 18, 1995
10.2 Employment Agreement between the Company and Charles D. (5)
Cascio dated as of April 10, 2000
10.3 Employment Agreement between the Company and Randy G. Morris (5)
dated as of December 20, 1999
10.4 The Translation Group, Ltd. 1995 Stock Option Plan (4)
10.9 Employment Agreement between the Company and Jeffrey (4)
Cartwright dated May 18, 1999
10.10 Employment Agreement between the Company and Frederick (4)
LaParo dated May 18, 1999
<PAGE>
10.11 Employment Agreement between the Company and John Toedtman (4)
dated October 1, 1998
10.12 Stock Pledge Agreement between the Company and various (4)
former stockholders of Planet Access Network, Inc. dated May
18, 1999
10.13 License Agreement between the Company and ESTeam AB dated (8)
April 15, 1999*
-------------------------
* Subject to confidential treatment request pursuant to Rule 24b-2 of the
Exchange Act of 1934.
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 dated July 25, 1996 (Registration No. 333-8857) (the "Form SB-2").
(2) Incorporated by reference to Amendment No. 2 to the Company's Form SB-2.
(3) Incorporated by reference to Amendment No. 3 to the Company's Form SB-2.
(4) Incorporated by reference to the Company's annual report on Form 10-KSB
for the year ended March 31, 1999 ("1999 10-KSB").
(5) Incorporated by reference to the Company's annual report on Form 10-KSB
for the year ended March 31, 2000.
