<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998 Commission File Number 0-8254
------------------------- ---------------------------------
WESTF0RD GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-0854431
----------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 East Broad Street, Columbus, Ohio 43215
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (614) 228-2800
----------------
None
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period 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
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Outstanding at September 30, 1998
- ------------------------------- -----------------------------------
Common stock, without par value 1,351,206
<PAGE> 2
WESTFORD GROUP, INC.
AND SUBSIDIARY
INDEX
-----
Page
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets as of September
30, 1998 (unaudited) and December 31, 1997 3
Consolidated Statements of Operations for the three months
and nine months ended September 30, 1998 and 1997 (unaudited) 5
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk Not Applicable
PART II - OTHER INFORMATION AND SIGNATURES:
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Default upon Senior Securities Not Applicable
Item 4. Submission of Matter to a Vote
of Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
--------------------
WESTFORD GROUP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1998 1997
- ------ ------------- --------
(Unaudited)
<S> <C> <C>
Current:
Cash $ 301,417 $ 195,371
Accounts receivable - trade 349,603 212,715
Costs and estimated earnings in excess of billings
on uncompleted codification contracts 137,523 135,335
Costs of uncompleted code supplements 6,723 26,579
Deferred taxes - 4,777
Other assets 7,036 1,957
------------ ------------
Total current assets 802,302 576,734
Deferred taxes - 24,414
Property and equipment, net 49,375 57,197
Intangible asset, net of accumulated amortization of
$44,519 in 1998 and $41,413 in 1997 121,135 124,241
------------ ------------
Total assets $ 972,812 $ 782,586
============ ============
</TABLE>
(Continued)
3
<PAGE> 4
WESTFORD GROUP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
September 30, December 31,
Liabilities and Shareholders' Equity 1998 1997
- ------------------------------------ ------------- ------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 91,402 $ 75,411
Note payable - bank - 3,575
Accrued salaries, commissions and payroll taxes
payable 60,965 70,002
Accrued legal and professional 7,700 24,000
Billings in excess of costs and estimated earnings on
uncompleted codification contracts (note 2) 40,957 24,878
Current portion of capital lease obligations 3,462 5,639
Deferred taxes 26,401 -
Deferred revenue 1,490 10,555
------------ ------------
Total current liabilities 232,377 214,060
Capital lease obligations, less current portion - 2,002
Debenture payable 50,000 50,000
------------ ------------
Total liabilities 282,377 266,062
------------ ------------
Commitments
Series two serial redeemable preference stock, 500
shares authorized - -
------------ ------------
Shareholders' equity:
Serial preference stock, without par value:
Series one serial preference, authorized 100 shares;
none issued - -
Class A preferred shares, par value $2,285; authorized
500 shares; none issued - -
Class B preferred shares, par value $500; authorized
4,000 shares; none issued - -
Common stock, without par value; authorized 2,000,000
shares; 1,434,202 shares issued 871,286 871,286
Additional paid-in capital 782,499 785,619
Accumulated deficit (941,940) (1,115,102)
------------ ------------
711,845 541,803
Less: Treasury stock, at cost (82,996 common shares
at September 30, 1998 and 97,996 at December
31, 1997) (21,410) (25,279)
------------ ------------
Total shareholders' equity 690,435 516,524
------------ ------------
Total liabilities and shareholders' equity $ 972,812 $ 782,586
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
WESTFORD GROUP, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, September 30,
1998 1997 1998 1997
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Sales $ 445,440 $ 341,477 $1,335,680 $1,103,760
Cost of sales 183,539 189,165 613,368 583,590
--------- --------- --------- ---------
261,901 152,312 722,312 520,170
--------- --------- --------- ---------
Selling, general and administrative expenses:
Salaries and related costs 71,115 83,453 215,888 262,376
Professional fees 42,817 13,566 102,416 43,797
Other 44,235 59,838 170,937 172,872
--------- --------- --------- ---------
158,167 156,857 489,241 479,045
--------- --------- --------- ---------
Non-operating expense:
Interest expense 1,354 1,558 4,317 4,751
--------- --------- --------- ---------
Income (loss) before federal income
taxes 102,380 (6,103) 228,754 36,374
Federal income tax (benefit) expense 24,852 (1,915) 55,592 9,700
--------- --------- --------- ---------
Net income (loss) $ 77,528 $ (4,188) $ 173,162 $ 26,674
========= ========= ========= =========
Net income per common share $ .06 $ .00 $ .13 $ .02
========= ========= ========= =========
Net income per common share, assuming
dilution $ .04 $ .00 $ .10 $ .02
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
WESTFORD GROUP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
---------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 173,162 $ 26,674
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 21,301 24,631
Deferred federal income tax expense 55,592 9,700
Increase in accounts receivable - trade (136,888) (18,606)
Increase in costs and estimated earnings
in excess of billings on uncompleted codification
contracts (2,188) (26,951)
Decrease in costs of uncompleted code
supplements 19,856 9,033
Increase in other assets (5,079) (164)
Increase in accounts payable 15,991 18,306
Decrease in accrued salaries,
commissions, and payroll taxes payable (9,037) (15,075)
Decrease in accrued legal and professional (16,300) -
Increase (decrease) in billings in excess of costs
and estimated earnings on uncompleted codification
contracts 16,079 (1,311)
Decrease in deferred revenue (9,065) -
--------- ----------
Net cash provided by operating activities 123,424 26,237
--------- ----------
Cash flows used in investing activities:
Purchase of property and equipment (10,374) (25,031)
--------- ----------
Net cash used in investing activities (10,374) (25,031)
--------- ----------
Cash flows used in financing activities:
Repayment of note payable to bank (3,575) -
Principal payments under capital lease obligations (4,179) (3,812)
Issuance of treasury stock 750 750
--------- ----------
Net cash used in financing activities (7,004) (3,062)
--------- ----------
Net increase (decrease) in cash 106,046 (1,856)
Cash at December 31 195,371 138,711
--------- ----------
Cash at September 30 $ 301,417 $ 136,855
========= ==========
Supplemental cash flow disclosure:
Interest paid $ 4,317 $ 4,751
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
WESTFORD GROUP, INC.
AND SUBSIDIARY
Notes To Consolidated Financial Statements (Unaudited)
1. The Consolidated Balance Sheets as of September 30, 1998, the Consolidated
Statements of Income for the three and nine months ended September 30, 1998 and
1997, and the Consolidated Statements of Cash Flows for the nine months then
ended have been prepared by Westford Group, Inc. (the "Company") without an
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations, and cash flow at September 30, 1998 and for all periods
presented have been made.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these unaudited Consolidated Financial
Statements be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1997. The results of operations for the period ended September 30, 1998 are not
necessarily indicative of the results of operations for the full year.
The preparation of 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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Supplemental Disclosure For Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ 77,528 $ (4,188) $ 173,162 $ 26,674
---------- ---------- ----------- ----------
Income available to common
stockholders, assuming
dilution $ 77,528 $ (4,188) $ 173,162 $ 26,674
---------- ---------- ----------- ----------
Weighted average common
shares outstanding 1,351,206 1,336,206 1,351,206 1,336,206
Adjustments for dilutive
securities:
Dilutive effect of
outstanding options 345,000 345,000 345,000 345,000
---------- ---------- ----------- ----------
Diluted common shares 1,696,206 1,681,206 1,696,206 1,681,206
========== ========== =========== ==========
Net income per common share $ .06 $ .00 $ .13 $ .02
Net income per common share,
assuming dilution $ .04 $ .00 $ .10 $ .02
</TABLE>
7
<PAGE> 8
WESTFORD GROUP, INC.
AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto and the
other financial information included elsewhere in this Quarterly Report on Form
10-Q, as well as the factors set forth under the caption "Forward-Looking
Information" below.
Summary
- -------
The following table sets forth changes in certain items reflected in the
financial data as compared to the indicated prior period.
<TABLE>
<CAPTION>
Period to Period Increase
-------------------------
Nine Months Ended September 30,
-------------------------------
1997-98
-------
<S> <C>
Sales $ 231,920
Cost of sales $ 29,778
Selling, general and administrative expenses $ 10,196
</TABLE>
Results of Operations
- ---------------------
The Company's business is principally carried on through its wholly-owned
subsidiary, ALP Corporation. ALP Corporation's sales increased 21.0% during the
first nine months of 1998 as compared to the first nine months of 1997 and
increased 30.4% during the three months ended September 30, 1998 as compared to
the three months ended September 30, 1997. Codification revenue of $291,333
decreased 13.5% during the first nine months of 1998 as compared to $336,748
during the first nine months of 1997. Codification revenue decreased 3.5% from
$91,396 for the three months ended September 30, 1997 as compared to $88,226 for
the three months ended September 30, 1998, principally due to a leveling of
sales in the Company's key growth areas coming into 1998. Subscription services
on existing codes of ordinance increased 36.2% for the nine months ended
September 30, 1998 versus the nine months ended September 30, 1997 due to
increased subscription sales of search and retrieval software including
subscription sales of several significant customers manuals. Subscriptions
services on existing codes of ordinances increased 42.8% during the three months
ended September 30, 1998 as compared to the three months ended September 30,
1997. Gross margin increased 14.2% during the first nine months of 1998 as
compared to the first nine months of 1997 and increased 7.0% in the three months
ended September 30, 1998 as compared to the three months ended September 30,
1997 as sales increased at a higher percentage rate than the percentage rate
increase in cost of sales. Cost of sales increased 5.1% during the first nine
months of 1998 as compared to the first nine months of 1997 due to increases in
production salaries, supplies, printing and postage. Cost of sales decreased
3.0% principally due to a decrease in allocated workers compensation expense
during the three months ended September 30, 1998 when compared to the same
period ended September 30, 1997. Selling, general and administrative expenses
increased 2.1% during the first nine months of 1998 as compared to the first
nine months of 1997 due to professional fees, accounting, licensing and filing
fees. Selling, general and administrative expenses increased 0.8% for the three
months ended September 30, 1998 as compared to the three months ended September
30, 1997.
Liquidity and Capital Commitments
- ---------------------------------
Although it is impossible to estimate accurately the future cash flow from the
operations of the Registrant's codification business, management believes the
Registrant's effective capital costs may increase. Management is actively
exploring further avenues for preserving capital and improving liquidity. As of
September 30, 1998, the Company had a revolving credit agreement with a bank to
provide a $250,000 note. The credit facility has a maturity date of June 30,
1999, and bears interest at the banks prime rate (8.5% per annum at September
30, 1998). The Company anticipates
8
<PAGE> 9
such agreement will be renewed. Management does not know of any trends, events
or uncertainties that will have or that are reasonably likely to have material
effect on the Registrant's liquidity, capital resources or results of
operations.
Deferred Taxes
- --------------
The Company has substantial tax loss carryforwards and temporary differences at
September 30, 1998. Based on an analysis of the likelihood of realizing the
Company's gross deferred tax asset, the Company has determined that the
recognition criteria set forth in SFAS No. 109, "Accounting for Income Taxes",
are not met for the entire gross deferred tax asset and, accordingly, the gross
deferred tax asset is reduced by a valuation allowance.
Inflation
- ---------
Management does not consider the impact of changing prices to be material in the
analysis of the Company's overall operation.
Impact of the Year 2000 Issue
- -----------------------------
The Company utilizes management information systems and software technology that
may be affected by Year 2000 issues throughout its business. During fiscal 1997,
the Company began to implement plans at both of its locations to ensure those
systems continue to meet its internal and external requirements. During fiscal
1997, the Company's Corporate office completed the installation and testing of
its internal financial systems and is Year 2000 compliant. The Corporate office
utilizes the latest version of Year 2000 compliant Platinum SQL software for its
internal financial system. All of ALP Corporation's Folio products are Year 2000
compliant. Before the end of fiscal 1998, ALP Corporation plans to purchase the
network enhancement pack which contains Year 2000 compliance patches. The
municipal code database software is not Year 2000 compliant. The Company is in
the data gathering phase with regard to database software. If the Company is
unable to achieve Year 2000 compliance for its database system, the Year 2000
could have a material impact on the operations of the Company. The Company is
developing a contingency plan for its database software. Those plans include
adapting and expanding the Company's existing database system to be Year 2000
compliant. The cost of making these adaptations are not expected to be material
and will be expensed in the period incurred.
Trends
- ------
The Company's results of operations have varied from quarter to quarter
principally because of fluctuations in production results. The Company's
experience indicates that sales increase during the second and third quarters as
a result of sales to basic code subscribers. The Company expects that such
quarterly fluctuations may lessen as the percentage of the Company's new sales
are made to clients with fiscal years other than December 31, although there can
be no assurance that this will occur.
Forward-Looking Information
- ---------------------------
Statements in the following discussion that indicate the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. Additional information concerning factors
that could cause actual results to differ materially from those suggested in the
forward-looking statements is contained under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Company's Annual Report on From 10-K for the year ended December 31, 1997 filed
with the Securities and Exchange Commission, as the same may be amended from
time to time.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and shareholder
values of the Company may differ materially from those expressed in these
forward-looking statements. Many factors that will determine these results and
values are beyond the Company's ability to control or predict. Shareholders are
cautioned not to put undue reliance
9
<PAGE> 10
on forward-looking statements. In addition, the Company does not have an
intention or obligation to update forward-looking statements after the date
hereof, even if new information, future events, or other circumstances have made
them incorrect or misleading. For those statements, the Company claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Item 27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Registrant during the
quarter ended September 30, 1998.
10
<PAGE> 11
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.
WESTFORD GROUP, INC.
-----------------------------------
(Registrant)
Date: November 6, 1998 By: Si Sokol
--------------------------- -----------------------------------
Si Sokol
President and
Chairman of Board of Directors
(Principal Executive Officer)
Date: November 6, 1998 By: Sally Cress
--------------------------- -----------------------------------
Sally Cress
Treasurer and Secretary
(Principal Financial and Accounting
Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 301,417
<SECURITIES> 0
<RECEIVABLES> 357,360
<ALLOWANCES> 7,757
<INVENTORY> 0
<CURRENT-ASSETS> 802,302
<PP&E> 206,623
<DEPRECIATION> 157,248
<TOTAL-ASSETS> 972,812
<CURRENT-LIABILITIES> 232,377
<BONDS> 0
0
0
<COMMON> 871,286
<OTHER-SE> (180,851)
<TOTAL-LIABILITY-AND-EQUITY> 972,812
<SALES> 1,335,680
<TOTAL-REVENUES> 1,335,680
<CGS> 613,368
<TOTAL-COSTS> 1,102,609
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,317
<INCOME-PRETAX> 228,754
<INCOME-TAX> 55,592
<INCOME-CONTINUING> 173,162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173,162
<EPS-PRIMARY> .13
<EPS-DILUTED> .10
</TABLE>
