<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 June 30, 1998 Commission File Number 0-8254
--------------------------- -------------------------------
WESTFORD 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 June 30, 1998
- ------------------------------- ------------------------------
Common stock, without par value 1,351,206
<PAGE> 2
WESTFORD GROUP, INC.
AND SUBSIDIARY
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1998 (unaudited) and December 31, 1997 3
Consolidated Statements of Operations for the three months
and six months ended June 30, 1998 and 1997 (unaudited) 5
Consolidated Statements of Cash Flows for the
six months ended June 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 Disclosure About
Market Risk Not Applicable
PART II - OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 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
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
--------------------
WESTFORD GROUP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
June 30, December 31,
Assets 1998 1997
- ------ ----------- -----------
(Unaudited)
<S> <C> <C>
Cash $288,369 $195,371
Accounts receivable - trade 261,182 212,715
Estimated earnings in excess of billings on
uncompleted codification contracts 135,570 135,335
Costs of uncompleted code supplements 6,711 26,579
Deferred taxes -- 4,777
Other assets 2,743 1,957
-------- --------
Total current assets 694,575 576,734
Deferred taxes -- 24,414
Property and equipment, net 46,979 57,197
Intangible asset, net of accumulated amortization of
$43,484 in 1998 and $41,413 in 1997 122,170 124,241
-------- --------
Total assets $863,724 $782,586
======== ========
</TABLE>
(Continued)
3
<PAGE> 4
WESTFORD GROUP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
June 30, December 31,
Liabilities and Shareholders' Equity 1998 1997
- ------------------------------------ ----------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Note payable - bank $ 3,574 $ 3,575
Accounts payable 82,052 75,411
Accrued salaries, commissions and payroll taxes
payable 85,318 70,002
Accrued legal and professional -- 24,000
Billings in excess of costs and estimated earnings on
uncompleted codification contracts (note 2) 23,434 24,878
Current portion of capital lease obligations 4,888 5,639
Deferred taxes 1,551 --
Deferred revenue -- 10,555
----------- -----------
Total current liabilities 200,817 214,060
Capital lease obligations, less current portion -- 2,002
Debenture payable 50,000 50,000
----------- -----------
Total liabilities 250,817 266,062
----------- -----------
Commitments
Series two serial redeemable preference stock, 500 shares
authorized; none issued -- --
----------- -----------
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 (1,019,468) (1,115,102)
----------- -----------
634,317 541,803
Less: Treasury stock, at cost (82,996 common shares at
June 30, 1998 and 97,996 at December 31,
1997) (21,410) (25,279)
----------- -----------
Total shareholders' equity 612,907 516,524
----------- -----------
Total liabilities and shareholders' equity $ 863,724 $ 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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $472,278 $384,016 $890,240 $762,283
Cost of sales 225,446 206,793 429,829 394,425
-------- -------- -------- --------
246,832 177,223 460,411 367,858
-------- -------- -------- --------
Selling, general and administrative expenses:
Salaries and related costs 72,743 83,211 144,773 178,923
Professional fees 28,309 14,622 59,599 30,231
Other 79,592 46,529 126,702 113,034
-------- -------- -------- --------
180,644 144,362 331,074 322,188
-------- -------- -------- --------
Non-operating expense:
Interest expense 1,466 1,590 2,963 3,193
-------- -------- -------- --------
Income before federal income tax
expense 64,722 31,271 126,374 42,477
Federal income tax expense 15,766 8,926 30,740 11,615
-------- -------- -------- --------
Net income $ 48,956 $ 22,345 $ 95,634 $ 30,862
======== ======== ======== ========
Net income per common share $ .04 $ .01 $ .07 $ .02
======== ======== ======== ========
Net income per common share, assuming
dilution $ .03 $ .01 $ .06 $ .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>
Six Months Ended
June 30,
1998 1997
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 95,634 $ 30,862
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 13,836 17,505
Deferred federal income tax expense 30,742 11,615
Increase in accounts receivable - trade (48,467) (14,265)
Increase in costs and estimated earnings
in excess of billings on uncompleted codification
contracts (235) (19,267)
(Increase) decrease in costs of uncompleted code
supplements 19,868 (3,640)
Increase in other assets (786) (367)
Increase (decrease) in accounts payable 6,641 (3,955)
Increase in accrued salaries,
commissions, and payroll taxes payable 15,316 9,114
Decrease in accrued legal and professional (10,555) --
Decrease in billings in excess of costs and estimated
earnings on uncompleted codification contracts (1,444) (2,614)
Decrease in deferred revenue (24,000) --
-------- --------
Net cash provided by operating activities 96,550 24,988
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (1,549) (25,031)
-------- --------
Net cash used in investing activities (1,549) (25,031)
-------- --------
Cash flows from financing activities:
Principal payments under capital lease obligations (2,753) (2,504)
Issuance of treasury stock 750 750
-------- --------
Net cash used in financing activities (2,003) (1,754)
-------- --------
Net increase (decrease) in cash 92,998 (1,797)
Cash at December 31 195,371 138,711
-------- --------
Cash at June 30 $288,369 $136,914
======== ========
Supplemental cash flow disclosure:
Interest paid $ 2,963 $ 3,193
======== ========
</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 Sheet as of June 30, 1998, the Consolidated
Statements of Income for the three and six months ended June 30, 1998 and 1997,
and the Consolidated Statements of Cash Flows for the six 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 June 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 June 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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 48,956 $ 22,345 $ 95,634 $ 30,862
---------- ---------- ---------- ----------
Income available to common
stockholders, assuming
dilution $ 48,956 $ 22,345 $ 95,634 $ 30,862
---------- ---------- ---------- ----------
Weighted average common
shares outstanding 1,351,206 1,336,206 1,350,875 1,336,123
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 1,695,875 1,681,123
========== ========== ========== ==========
Net income per common share $ .04 $ .01 $ .07 $ .02
Net income per common share,
assuming dilution $ .03 $ .01 $ .06 $ .02
</TABLE>
7
<PAGE> 8
WESTFORD GROUP, INC.
AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Summary
- -------
The following table sets forth changes in certain items reflected in the
financial data as compared to the indicated prior period.
Period to Period Increase
-------------------------
Six Months Ended June 30,
-------------------------
1997-98
---------
Sales $127,957
Cost of sales 35,404
Selling, general and administrative expenses 8,886
Results of Operations
- ---------------------
The Company's business is principally carried on through its wholly-owned
subsidiary, ALP Corporation. ALP Corporation's sales increased 16.8% during the
first six months of 1998 as compared to the first six months of 1997 and
increased 23% during the three months ended June 30, 1998 as compared to the
three months ended June 30, 1997. Codification revenue of $203,107 decreased
17.2% during the first six months of 1998 as compared to $245,352 during the
first six months of 1997. Codification revenue decreased from $114,798 for the
three months ended June 30, 1997 as compared to $94,175 for the three months
ended June 30, 1998, principally due to a leveling of sales in the Company's key
growth areas. Subscription services on existing codes of ordinance increased
32.9% for the six months ended June 30, 1998 versus the six months ended June
30, 1997 due to increased subscription sales of search and retrieval software
and subscription sales of a significant customer handbook. Subscriptions
services on existing codes of ordinances increased 40.4% during the three months
ended June 30, 1998 as compared to the three months ended June 30, 1997. Gross
margin increased 7.0% during the first six months of 1998 as compared to the
first six months of 1997 and increased 13.4% in the three months ended June 30,
1998 as compared to the three months ended June 30, 1997 as sales increased at a
higher percentage rate than the percentage rate increase in cost of sales. Cost
of sales increased 9.0% during the first six months of 1998 as compared to the
first six months of 1997 due to increases in production salaries, insurance and
postage. Cost of sales increased 39.3% principally due to increases in
production salaries and related costs and supplies during the three months ended
June 30, 1998 when compared to the same period ended June 30, 1997. Selling,
general and administrative expenses increased 2.8% during the first six months
of 1998 as compared to the first six months of 1997 due to professional fees,
accounting, licensing and filing fees, and advertising. Selling, general and
administrative expenses increased 25.1% for the three months ended June 30, 1998
as compared to the three months ended June 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
June 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 June 30,
1998). Management does not know of any trends, events or uncertainties that will
have or that are reasonable likely to have material effect on the Registrant's
liquidity, capital resources or results of operations.
8
<PAGE> 9
WESTFORD GROUP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
Deferred Taxes
- --------------
The Company has substantial tax loss carryforwards and temporary differences at
June 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 Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary liability to process transactions or engage in normal
business activities.
The Company has utilized external resources to reprogram, or replace, and test
the software for Year 2000 modifications. The Company has completed the Year
2000 project and has incurred and expensed approximately $935 related to efforts
in connection with its Year 2000 project.
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.
Safeharbor Statement Under the Private Securities Litigation Reform Act of 1995
- -------------------------------------------------------------------------------
Except for the historical information contained herein, the matters discussed in
this Form 10-Q includes forward-looking statements that involve risks and
uncertainties, including, but not limited to, quarterly fluctuations in results,
the management of growth, and other risks detailed from time to time in the
Company's Securities and Exchange Commission filings. Actual results may differ
materially from management's expectations.
9
<PAGE> 10
WESTFORD GROUP, INC.
AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is routinely a party to litigation incidental to its business, as
well as to other nonmaterial litigation. Management believes that no individual
item of litigation, or group of similar items of litigation, is likely to result
in judgments that will have a material adverse effect on the financial condition
or results of operations of the Company.
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 June 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: August 3, 1998 By: Si Sokol
----------------------------- -----------------------
Si Sokol
President,
Chairman of Board of Directors,
and Chief Executive Officer
(Principal Executive Officer)
Date: August 3, 1998 By: Sally Cress
------------------------------ -----------------------
Sally Cress
Treasurer, Secretary,
Chief Financial Officer
and Chief Accounting Officer
(Principal Financial and
Accounting Officer)
11
<PAGE> 1
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] JUN-30-1998
[CASH] 288,369
[SECURITIES] 0
[RECEIVABLES] 268,940
[ALLOWANCES] 7,758
[INVENTORY] 0
[CURRENT-ASSETS] 694,575
[PP&E] 197,797
[DEPRECIATION] 150,818
[TOTAL-ASSETS] 863,724
[CURRENT-LIABILITIES] 200,817
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 871,286
[OTHER-SE] (258,379)
[TOTAL-LIABILITY-AND-EQUITY] 863,724
[SALES] 890,240
[TOTAL-REVENUES] 890,240
[CGS] 460,411
[TOTAL-COSTS] 791,485
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 2,963
[INCOME-PRETAX] 126,374
[INCOME-TAX] 30,740
[INCOME-CONTINUING] 95,634
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 95,634
[EPS-PRIMARY] .07
[EPS-DILUTED] .06
</TABLE>
