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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 September 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 State 23-3382869
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(State or Other Jurisdiction of (I.R.S. Employer
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 _ 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 4,744,265 shares as of September 30, 2000.
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<PAGE>
Index
Part I. Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets - September 30, 2000
(Unaudited) and March 31, 2000
Condensed consolidated statements of operations - Three months ended
September 30, 2000 and 1999 (Unaudited); six months ended September 30,
2000 and 1999 (Unaudited)
Condensed consolidated statements of comprehensive operations - Three
months ended September 30, 2000 and 1999 (Unaudited); six months ended
September 30, 2000 and 1999 (Unaudited)
Condensed consolidated statements of cash flows - Six months ended
September 30, 2000 and 1999 (Unaudited)
Notes to condensed consolidated financial statements - September 30,
2000 (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Part II. Other Information
Item 1. Legal Proceeding
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports of Form 8-K
Signatures
<PAGE>
THE TRANSLATION GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 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
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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
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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
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Total stockholders' equity 9,784,893 9,767,036
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,026,457 $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 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.
<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.
<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
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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
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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) -
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Net cash provided by (used in) financing activities 2,727,138 (104,254)
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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.
<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.
<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 Company's goal is to
integrate the existing services of each business unit to provide for clients a
capability to operate over the internet in multiple languages in targeted market
segments in real-time on a cost-effective basis. 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, from whom the Company has
licensed exclusive and worldwide distribution rights. These automated language
systems wich rely upon a statistical comparision of the untranslated text to
previously translated material 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, which rely upon application of complicated language rules which
lead to greater ambiguities in machine translation.
As outlined in detail in the Company's Form 10-QSB for the quarter ending June
30, 2000, management made a number of bold decisions regarding investing in the
future of the Company. Those investments in marketing, sales, engineering, and
product development continued into the quarter ending September 30, 2000.
Management believes the company is now in a strong position to market and sell
these new, multilingual web services to existing and new clients. Specifically,
the company accomplished the following:
<PAGE>
The results of these efforts has been the product launch at Internet World of a
multilingual web solution and the commencement of a new marketing iniative aimed
at both existing and new clients. Sales leads throughout the Company have
improved both in terms of number and value. In addition to increased sales leads
backlog has increased as of the date of this report to approximately $1 million,
much of which is attributable to developement of multilingual websites.
Additionally, beginning in the month of September, management implemented a cost
reduction program. That program will reduce annual fixed payroll and benefit
expenses by over $1,100,000 by eliminating technical personel who were needed
during the developement of the Company's multilingual website solutions but are
not needed for implementation. As such, the significant, necessary investments
in product development that occurred during the first two quarters of the fiscal
year have essentially come to a conclusion. Management also implemented cost
reduction programs for legal, accounting, and marketing for an additional annual
reduction in expenses of approximately $500,000. With regards to marketing, for
the six months ended September 2000, the Company expended approximately
$314,000. During the final six months of the fiscal year, the Company will be
required to expend less than $100,000 of additional marketing funds in order to
maintain the momentum gained to date.
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 second quarter, the Gedanken system was granted a patent
from the United States Patent Office. On going efforts, in which the Company
continues to invest, involve the integration of all the individual modules and
the engineering required to bring the modules to a commercially viable level of
functionality.
RESULTS OF OPERATIONS
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 the Company's
decision to terminate its contract with brandwise. To address these issues, the
Company has hired additional sales personnel for all elements of the Company's
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
<PAGE>
maintaining the current capacity. Gross margin should increase as Planet Access
increases sales as a result of increased marketing efforts during the third
quarter. In the longer term, the Company also is seeking to improve gross
profits by investing in better automated translation systems, which should
reduce costs in its translation and localization business 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 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.
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
The Company had funded its operations with the proceeds of its 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 the Company's common stock as the major component of the
consideration.
During the Current Period, $1,952,254 was used in operations. The Company
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. Other changes in cash
are detailed in the accompanying consolidated statement of cash flows.
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.
Because of the current operating loses, together with currently available
resources, cash flow will be insufficient to meet these obligations, however,
the Company is 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.
<PAGE>
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. The Company has not and
does not plan to enter into any derivative financial instruments for hedging or
speculative purposes. As of September 30, 2000, the Company had no other
significant material exposure to market risk.
<PAGE>
Part II - Other Information
Item I. Legal Proceeding -
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.
Item 2. Changes In Securities - none
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 November 14, 2000 /s/ Randy G. Morris
----------------- ---------------------------
Randy G. Morris
President & CEO
Dated November 14, 2000 /s/ Kenneth A. Mack
----------------- ---------------------------
Kenneth A. Mack
Chief Financial Officer
