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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period of Three Months Ended June 30, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition
Period From to
Commission file number 000-21725
The Translation Group, Ltd.
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(Exact name of registrant as specified in its charter)
Delaware 23-3382869
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
30 Washington Avenue
Haddonfield, NJ 08033
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(Address of principal executive offices) (Zip Code)
Indicated by check mark whether the registrant (I) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Applicable Only to Issuers Involved in Bankruptcy
Proceeding During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. YES X NO
--- ---
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, .001 Par Value-Issued 4,740,149 shares as of June 30, 2000.
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<PAGE>
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets - June 30, 2000 (Unaudited) and
March 31, 2000
Condensed consolidated statements of operations - Three months
ended June 30, 2000 and 1999 (Unaudited)
Condensed consolidated statements of comprehensive income - Three
months ended June 30, 2000 and 1999 (Unaudited)
Condensed consolidated statements of cash flows - Three months ended
June 30, 2000 and 1999 (Unaudited)
Notes to condensed consolidated financial statements - June 30, 2000
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceeding
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports of Form 8-K
Signatures
<PAGE>
The Translation Group, Ltd.
and Subsidiaries
Consolidated Balance Sheets
June 30, 2000 and March 31, 2000
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,505,949 $ 1,700,080
Accounts receivable, net of allowance for doubtful accounts
of $27,000 883,670 2,429,155
Work in process 334,522 319,823
Investments 427,555
Loans and receivables from officers 56,740 87,740
Other current assets 373,155 235,622
------------ ------------
Total current assets 4,581,591 4,772,420
Property and equipment, net of accumulated depreciation and
amortization of $1,515,006 and $1,359,497, respectively 4,313,730 2,666,185
Excess of purchase price over fair value of net assets acquired, net of
accumulated amortization of $610,209 and $509,964, respectively 3,769,489 3,937,586
Loans and receivables from officers 501,073 414,980
Other assets 137,982 141,452
------------ ------------
TOTAL ASSETS $ 13,303,865 $ 11,932,623
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 489,378 $ 626,750
Notes payable 144,265 4,268
Current maturities of long-term obligations 58,551 80,748
Obligations under capital leases 997 4,200
Accrued liabilities 474,928 274,803
Deferred income 399,352 492,196
Deferred income taxes 189,000 189,000
------------ ------------
TOTAL LIABILITIES 1,756,471 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 959,747 493,622
Stockholders' equity:
Common stock, $.001 par value, 15,000,000 shares authorized, 4,732,149 and
3,787,902 shares outstanding, respectively, and 4,740,149 and
3,795,902 shares issued and to be issued, respectively 4,740 3,796
Additional paid-in capital 14,040,666 11,473,011
Retained earnings (deficit) (2,796,707) (1,655,434)
Common stock in treasury, 8,000 shares (68,032) (68,032)
Subscription receivable (500,000)
Accumulated other comprehensive income (93,020) 13,695
------------- ----------
Total stockholders' equity 10,587,647 9,767,036
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,303,865 $ 11,932,623
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
The Translation Group, Ltd.
and Subsidiaries
Consolidated Statements of Operations
For the three months ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
Revenue $ 1,977,405 $ 1,876,295
Cost of revenue 1,854,264 1,297,705
------------ ------------
Gross profit 123,141 578,590
Cost and expenses:
Selling, general and administration 790,871 578,079
Research and development 39,980
Corporate administration 369,527 340,209
Amortization of excess of purchase price over fair value of
net assets acquired 100,245 69,454
------------ ------------
Total 1,260,643 1,027,722
------------ ------------
(Loss) income before other income (expense) (1,137,502) (449,132)
Other income (expense):
Interest income 14,069 25,948
Interest expense (17,293) (27,476)
Foreign currency gains (losses) (985) 1,588
------------ ------------
(4,209) 60
------------ ------------
(Loss) income before provision for income taxes (1,141,711) (449,072)
Provision for income taxes (20,438) -
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Net (loss) income (1,121,273) (449,072)
============= =============
Net (loss) income per common share outstanding (basic and diluted) $ (0.27) $ (0.18)
======== ========
Weighted average shares outstanding 4,208,884 2,524,810
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
The Translation Group, Ltd.
and Subsidiaries
Consolidated Statements of Comprehensive Income
For the three months ended June 30, 2000 and 1999
June 30, June 30,
2000 1999
---- ----
Net (loss) income $ (1,121,273) $ (449,072)
Other comprehensive income (loss)
Currency translation adjustment (93,020) (40,163)
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Comprehensive income (loss) $ (1,214,293) $ (489,235)
============= ===========
See accompanying notes to consolidated financial statements.
<PAGE>
The Translation Group, Ltd.
and Subsidiaries
Consolidated Statements of Cash Flow
For the three months ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net (loss) income $ (1,121,273) $ (449,072)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 163,009 96,640
Amortization of excess purchase price over fair value of net assets acquired 100,245 69,454
Amortization of discount on acquisition note payable 11,690
Amortization of compensatory warrants 45,000
Foreign currency translation adjustment (106,715) (40,163)
Changes in operating assets and liabilities:
Accounts receivable 503,136 333,411
Work in process (14,699) 195,208
Other current assets (137,533) (59,142)
Other assets (4,030) 11,317
Accounts payable (137,372) (115,653)
Notes payable 139,997 (220,098)
Accrued liabilities and deferred income 107,281 (186,732)
-------- ---------
Net cash provided by (used in) operating activities (507,954) (308,140)
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchase of property and equipment (692,853) (243,422)
Acquisition costs, net of cash purchased of $67,922 (4,328)
Investment in certificate of deposit (5,778)
Loans and advances to officers (55,093) (61,000)
-------- --------
Net cash provided by (used for) investing activities (747,946) (314,528)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 2,107,169 75,000
Payments on long-term obligations (25,400) (23,553)
Preferred dividends declared (20,000)
-------- --------
Net cash provided by (used in) financing activities 2,061,769 51,447
Net increase (decrease) in cash and cash equivalents 805,869 (571,221)
Cash and cash equivalents, beginning of period 1,700,080 1,895,970
---------- ---------
Cash and cash equivalents, end of period $ 2,505,949 $ 1,324,749
=========== ===========
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 $ 17,293 $ 27,476
========= =========
Income taxes $ - $ 500
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
The Translation Group, Ltd.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 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 month periods ended June 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 three month period
ended June 30, 1999 includes the operations of Planet for the period from May 1,
1999 to June 30, 1999. Had the Company acquired Planet as of April 1, 1998, the
net loss and earnings per share would have been $(326,255) and $(.13),
respectively, for the three months ended June 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 June 30, 2000 and 1999 was 4,208,884 and 2,524,810
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. with a fair market value of at least $1,700,000, on the date
thereof. The Company liquidated the said shares in open market transactions.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Except for historical information, the material contained in Management's
Discussion and Analysis of Financial Condition and Results of Operations is
forward-looking. For the purpose of the safe harbor provisions for
forward-looking statements of the Private Securities Litigation Reform Act of
1995, readers are urged to review the Company's Annual Report on Form 10-KSB for
the year ended March 31, 2000 for a list of certain important factors that may
cause actual results to materially differ from those described below.
OVERVIEW AND STRATEGY
The Company is positioning itself to become a leading supplier of multi-lingual
products and solutions via the Internet. Since inception, the Company has
acquired two translation companies, an Internet solutions provider, and has
licensed two unique, advanced translation systems. The goal is to completely
integrate the existing services of each business unit while expanding the
globalization capabilities in targeted market segments. To this end, the Company
successfully launched a new brand and trade name, InSage, during the first
quarter. InSage blends all three operating units and focuses its efforts on
developing Internet-based, multi-lingual solutions for new and existing
customers.
The Company is developing unique computer-based language translation systems and
language tools with Gedanken, Inc. and ESTeam AB, with whom the Company has
exclusive and worldwide distribution rights. These automated language systems
are specifically designed to provide significant advantages in terms of time to
market, quality and cost. Management believes that its systems are capable of
performing language translations with very high "first-pass" accuracy within
specified domains of texts, unlike the majority of its competitors.
The Internet has significantly improved the distribution of software and other
products, and information and products are now instantly available globally.
This capability for many different industries has created the need to have
products and product information translated into local languages. To satisfy
this growing need for multilingual web solution, the Company has accelerated its
integration efforts and development of enhanced technology to enable timely and
effective solutions, thus giving the Company the opportunity to be first and
best in an emerging market. In order to achieve these goals, the Company made
strategic decisions to terminate significant customer relationships which were
consuming resources and to redirect those resources to technology developement,
which led to substantial losses in the first quarter ended June 30, 2000. In
spite of these losses, the Company's net worth increased, due to the successful
completion of equity financing in the period ended June 30, 2000.
Now that the first quarter is complete, management believes its strategy was the
right thing to do and feels fortunate that the right set of circumstances
presented itself such that the efforts detailed above were allowed to happen
sooner than initially anticipated. As reported in Annual Report on Form 10-KSB,
a large customer, brandwise.com, ceased being a customer at the end of the
fourth quarter at our request. At that time, brandwise.com represented more than
50% of our revenue and consumed a similar amount of resources. brandwise.com
requested an even larger share of our available resources in order to continue
doing business with them. Company management made a very difficult decision to
refuse a continuing relationship with brandwise.com so it could put into place
what management considers to be an even larger potential for future business and
<PAGE>
for the opportunity to lead in an emerging market which is multi-lingual web
development and multi-lingual, hosted web services.
As indicated, the Company expended significant resources during the first
quarter to build technology, design processes, develop marketing and PR
programs, and to build a sales organization, all focused on Internet-based,
multilingual solutions for customers. Specifically, the company accomplished the
following:
1) Engaged Temel, Inc., a marketing firm, to guide the InSage branding
effort,
2) Conceived, designed, and implemented the "InSage - Language of the
Internet" brand, including sales and marketing collateral,
3) Designed and implemented the new corporate InSage web site -
WWW.INSAGE.COM,
4) Engaged an outside firm to assist the Company's Public and Investor
Relations program,
5) Added experienced Sales personnel to the Company's US and European
operations; the Company also began the process of opening a Sales office
in Dublin, Ireland, which process will be completed in the second quarter,
6) Repositioned many of the Company's top billable people to design the
InSage multi-lingual web solution; these people came from all three
operating divisions (Planet Access Networks, BTS, and WordHouse) with the
majority coming from Planet Access Networks; the solution involves a major
change to all consulting, design, implementation, and maintenance
processes,
7) Repositioned other billable Planet Access Networks people to evaluate
various new components and technologies which are required in
multi-lingual web site solutions; these components include content
management systems, workflow systems, database management systems capable
of multi-lingual operation, multi-lingual development environments and
techniques, XML, various data extraction tools, and so forth,
8) 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 of web user
interfaces across cultures, localizing marketing messages, etc.,
9) The Company completed two private placements to provide resources for the
Company's business plan.
10) The Company has recently attracted new customers while expanding existing
customers such as Alta Vista and Oracle at WordHouse, Cendant and Coldwell
Bankers at Planet Access Networks and Reuters Health and Prudential
Enterprise Systems at BTS.
In summary, the Company designed a marketing and sales program that introduced
the new InSage brand and message at the end of the first quarter. The Company
will commence a much more aggressive marketing program in the middle of the
second quarter with a public launch at the Internet World tradeshow in New York
City in October. The Company's Web Services, Consulting Services, IT Services,
and Translation Services divisions were tasked with defining and developing an
initial multi-lingual web solution for release during the second quarter. Those
efforts are beginning to show results and the Company is confident that it has
built, and continues to build, important assets, both intellectual and
technological, that will make the Company the most qualified in the industry to
provide complete, robust, correct solutions to our customers who desire a
successful web presence that spans languages and cultures.
As mentioned earlier, the Company continued its investments in automated
translation technologies, namely, the Gedanken System and the BTR System from
ESTeam AB. During the first quarter, the Gedanken system was allowed a patent
from the United States Patent Office. All the theories and concepts required for
the eventual complete solution have been proven and exercised in computer code.
On going efforts, in which the Company continues to invest, involve the
integration of all the individual modules and the engineering required to bring
<PAGE>
the modules to a commercially viable level of functionality. The engineering
required is significant and progress is steady.
The Company is redoubling its efforts to commercialize a system for translating
financial reports (including management notes) among various languages using the
BTR System from ESTeam AB. To its credit, ESTeam delivered the required core
technology at the end of fourth quarter. Whereas the Company has not yet
completed its efforts to locate or create sufficient training material
(non-English financial reports in machine-readable format) required to complete
the system, these results only prove the need for such a system. Efforts to
locate the required data continue. Additionally the Company and ESTeam are
working on an improved solution, for which sufficient, high-quality data is
already secure, and for which a significant market exists. That solution will be
made public during the second quarter. Management is confident the effort and
expense will be rewarded as the remainder of the fiscal year unfolds.
RESULTS OF OPERATIONS
REVENUES. Revenues for the quarter ended June 30, 2000, (the "Current Quarter")
increased $101,110, to $1,977,405 from $1,876,295 for the quarter ended June 30,
1999 (the "Comparable Quarter"). The increases in revenues for the Current
Quarter were principally due to increases in translation and localization
services at both BTS and WordHouse due to the implementation of new marketing
materials and increased sales staff. Sales decreased at Planet Access as a
result of management's decision to turn away the brandwise business.
GROSS PROFIT. Gross profit decreased to $123,141 in the Current Quarter, or 6%
of sales, from $578,590 in the Comparable Quarter, or 30% of sales. The decrease
in gross profit for the Current Quarter 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, with its
higher gross margin, starts to turn the corner during the second quarter and
achieve profitability in the third quarter due to an increased sales and
marketing effort. In the longer term, the Company also is 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. Selling, general and administration
("SG&A") expenses increased by 36% to $790,871 during the Current Quarter from
$578,879 in the Comparable Quarter. This increase in SG&A expenses for the three
month period reflects increased marketing expenditures, increased sales staff
and substantial expenditures to develop the specialized automated translation
products referred to above. 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.
NET INCOME (LOSS). The Company had a net loss of $1,141,710, during the Current
Quarter as compared to a net loss of $449,072 for the Comparable Quarter. 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
business and the development of enhanced technology and integration efforts.
LIQUIDITY AND CAPITAL RESOURCES
The Company had funded its operations with the proceeds of its initial public
offering in 1995, cash flow from operations, and subsequent equity financing.
<PAGE>
The acquisitions of the Word House Group and Planet Access were largely financed
by the issuance of the Company's common stock as the major component of the
consideration.
The change in the Company's 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
to the point that cash flow from operations alone are insufficient to sustain
the Company at its current level of activity.
During the Current Quarter, $514,395 was provided by operations. The Company
invested $1,735,202 in property and equipment, and incurred other changes in
cash as detailed in the accompanying consolidated statement of cash flows.
Working capital increased $224,665 during the Current Quarter.
Cash flow from operations, together with currently available resources, should
be sufficient to meet these obligations, however, the Company will likely be
exploring a range of financing options, including the public or private issuance
of debt or equity securities. In addition, the Company is seeking strategic
partners for one or more of its businesses. Although the Company is actively
pursing each of these alternatives, and believes that it will be able to obtain
the required financing, there can be no assurance that it will be successful in
completing the financing required by its business plan on commercially
acceptable terms, if at all. If the Company were to be unable to obtain
financing for its business plan, it would be required to reduce the number of
projects in development and/or sell or discontinue existing operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk relates primarily to changes in interest
rates and the resulting impact on its invested cash. At June 30, 2000 the
Company had received shares of Sedona Corp., a publicly-traded company, in
connection with a private placement of its securities. However, the Company's
agreement with the investor fixes the value of such shares and the investor
bears all market risk with respect to such shares. The Company has not and does
not plan to enter into any derivative financial instruments for hedging or
speculative purposes. As of June 30, 2000, the Company had no other significant
material exposure to market risk.
<PAGE>
PART II - OTHER INFORMATION
Item I. Legal Proceeding - none
Item 2. Changes In Securities -
During the Current Quarter, the Company amended the terms of its
publicly held warrants to extend the expiration date to December 31,
2000.
On March 31, 2000 the Company issued shares of its Series A 8%
Convertible Preferred Stock to Benjamin Franklin/Progres Fund, L.P.,
Mentor Special Situation Fund, L.P., and two other accredited
investors, raising gross proceeds of $1 million. These issuances were
exempt from registration under the Securities Act by virtue of Section
4(2) thereof and/or Regulation D thereunder.
During the Current Quarter the Company issued shares of its common
stock to Seaside Partners, L.P. and another accredited investor,
raising gross proceeds of $2.4 million. These issuances were exempt
from registration under the Securities Act by virtue of Section 4(2)
thereof and/or Regulation D thereunder.
The Company paid a 4% brokerage commission in connection with the
above issuances.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission Of Matters To A Vote Of Security Holders - none
Item 5. Other Information - none
Item 6. Exhibits And Reports Of Form 8-K -
(a) Exhibit
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Translation Group, Ltd.
DATED AUGUST 14, 2000 /s/ Randy G. Morris
----------------------------
Randy G. Morris
President
DATED AUGUST 14, 2000 /s/ Kenneth A. Mack
----------------------------
Kenneth A. Mack
Principal Financial Officer
