<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 March 31, 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 March 31, 1998
- ------------------------------- -----------------------------
Common stock, without par value 1,351,206
<PAGE> 2
WESTFORD GROUP, INC.
AND SUBSIDIARY
INDEX
-----
Page No.
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1998 (unaudited) and December
31, 1997 3
Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1997
(unaudited) 5
Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1997
(unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk Not Applicable
PART II - OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings 11
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 11
Signatures 12
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
--------------------
<TABLE>
WESTFORD GROUP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
<CAPTION>
March 31, December 31,
Assets 1998 1997
- ------ ----------- ------------
(Unaudited)
<S> <C> <C>
Cash $203,191 $195,371
Accounts receivable - trade 243,858 212,715
Estimated earnings in excess of billings on
uncompleted codification contracts 136,506 135,335
Costs of uncompleted code supplements 18,608 26,579
Deferred taxes 5,760 4,777
Other assets 3,036 1,957
-------- --------
Total current assets 610,959 576,734
Deferred taxes 8,455 24,414
Property and equipment, net 52,080 57,197
Intangible asset, net of accumulated amortization of
$42,449 in 1998 and $41,413 in 1997 123,206 124,241
-------- --------
Total assets $794,700 $782,586
======== ========
</TABLE>
(Continued)
3
<PAGE> 4
<TABLE>
WESTFORD GROUP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets, Continued
<CAPTION>
March 31, December 31,
Liabilities and Shareholders' Equity 1998 1997
- ------------------------------------ ----------- ------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Note payable - bank $ 3,575 $ 3,575
Accounts payable 80,860 75,411
Accrued salaries, commissions and payroll taxes
payable 59,807 70,002
Accrued legal and professional -- 24,000
Billings in excess of estimated earnings on
uncompleted codification contracts (note 2) 30,226 24,878
Current portion of capital lease obligations 5,774 5,639
Deferred revenue -- 10,555
----------- -----------
Total current liabilities 180,242 214,060
Capital lease obligations, less current portion 507 2,002
Debenture payable 50,000 50,000
----------- -----------
Total liabilities 230,749 266,062
----------- -----------
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 (1,068,424) (1,115,102)
----------- -----------
585,361 541,803
Less: Treasury stock, at cost (82,996 common
shares at March 31, 1998 and 97,996
at December 31, 1997) (21,410) (25,279)
----------- -----------
Total shareholders' equity 563,951 516,524
----------- -----------
Total liabilities and shareholders'
equity $ 794,700 $ 782,586
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
<TABLE>
WESTFORD GROUP, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Sales $417,962 $378,267
Cost of sales 204,383 187,632
-------- --------
213,579 190,635
-------- --------
Selling, general and administrative expenses:
Salaries and related costs 72,030 95,712
Professional fees 31,290 15,609
Other 47,110 66,505
-------- --------
150,430 177,826
-------- --------
Non-operating expense:
Interest expense (1,497) (1,603)
-------- --------
(1,497) (1,603)
-------- --------
Income before federal income tax expense 61,652 11,206
Federal income tax expense 14,974 2,689
-------- --------
Net income $ 46,678 $ 8,517
======== ========
Net income per common share $ .03 $ .01
======== ========
Net income per common share, assuming dilution $ .03 $ .01
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
<TABLE>
WESTFORD GROUP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 46,678 $ 8,517
Adjustments to reconcile net income
to cash provided by (used in) operating
activities:
Depreciation and amortization 6,875 10,525
Deferred federal income tax expense 14,976 2,689
Increase in accounts receivable - trade (31,143) (14,740)
Increase in estimated earnings in excess of
billings on uncompleted codification contracts (1,171) (32,098)
(Increase) decrease in costs of uncompleted code
supplements 7,971 (1,547)
Increase in other assets (1,079) (1,004)
Increase in accounts payable 5,449 2,478
Decrease in accrued salaries, commissions, and payroll
taxes payable (10,195) (3,393)
Decrease in accrued legal and professional (24,000) --
Increase in billings in excess of estimated earnings
on uncompleted codification contracts 5,348 5,919
Decrease in deferred revenue (10,555) --
-------- --------
Net cash provided by (used in)
operating activities 9,154 (34,492)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (724) (18,595)
-------- --------
Net cash used in investing activities (724) (18,595)
-------- --------
</TABLE>
(Continued)
6
<PAGE> 7
<TABLE>
WESTFORD GROUP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Principal payments under capital lease obligations $ (1,360) $ (1,238)
Issuance of treasury stock 750 750
-------- --------
Net cash used in financing activities (610) (488)
-------- --------
Net increase (decrease) in cash 7,820 (53,575)
-------- --------
Cash at December 31 195,371 138,711
-------- --------
Cash at March 31 $203,191 $ 85,136
======== ========
Supplemental cash flow disclosure:
Interest paid $ 1,497 $ 1,603
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
WESTFORD GROUP, INC.
AND SUBSIDIARY
Notes To Consolidated Financial Statements (Unaudited)
1. The Consolidated Balance Sheet as of March 31, 1998, the Consolidated
Statements of Income for the three months ended March 31, 1998 and 1997, and the
Consolidated Statements of Cash Flows for the three 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 March 31, 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 March 31, 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
Three Months Ended
March 31,
1998 1997
---------- ----------
Net income $ 46,678 $ 8,517
---------- ----------
Income available to common stockholders,
assuming dilution $ 46,678 $ 8,517
---------- ----------
Weighted average common shares outstanding 1,350,539 1,336,039
Adjustments for dilutive securities:
Dilutive effect of outstanding options 345,000 345,000
---------- ----------
Diluted common shares 1,695,539 1,681,039
========== ==========
Net income per common share $ .03 $ .01
Net income per common share, assuming dilution $ .03 $ .01
8
<PAGE> 9
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 (Decrease)
Quarter Ended March 31,
1998-97
--------
Sales $ 39,695
Cost of sales 16,751
Selling, general and administrative expenses (27,396)
Results of Operations
- ---------------------
The Company's business is principally carried on through its wholly-owned
subsidiary, ALP Corporation. ALP Corporation's sales increased 10.5% during the
first quarter of 1998 as compared to the first quarter of 1997, primarily due to
production efficiencies resulting from enhanced electronic technologies.
Codification revenue decreased 16.6% during the first quarter of 1998 compared
with the first quarter of 1997 principally due to a leveling of sales in the
Company's key growth areas. Subscription services on existing codes of ordinance
increased 24.8% due to increased subscription sales of search and retrieval
software and subscription sales of a significant customer handbook. Gross margin
increased in 1998 as compared to the first quarter of 1997 as sales increased at
a higher percentage rate than the percentage rate increase in cost of sales.
Cost of sales increased due to increases in production salaries, copier supplies
and postage. Selling, general and administrative expenses decreased 15.4% in the
first quarter of 1998 as compared to the first quarter of 1997 due to decreases
in administrative salaries and related costs, licensing and filing fees, and
sales related expenses.
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
March 31, 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 April 30,
1998, and bears interest at the banks prime rate (8.5% per annum at March 31,
1998). The Company anticipates 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 a 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
March 31, 1998, which give rise to deferred tax assets. 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 deferred tax asset
and, accordingly, the net 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.
9
<PAGE> 10
WESTFORD GROUP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
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 include 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.
10
<PAGE> 11
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 March 31, 1998.
11
<PAGE> 12
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: May 1, 1998 By: Si Sokol
------------- -----------------------------------------
Si Sokol
President,
Chairman of Board of Directors,
and Chief Executive Officer
(Principal Executive Officer)
Date: May 1, 1998 By: Sally Cress
------------- -----------------------------------------
Sally Cress
Treasurer, Secretary,
Chief Financial Officer,
and Chief Accounting Officer
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 203,191
<SECURITIES> 0
<RECEIVABLES> 243,858
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 610,959
<PP&E> 196,973
<DEPRECIATION> 144,893
<TOTAL-ASSETS> 794,700
<CURRENT-LIABILITIES> 180,242
<BONDS> 0
0
871,286
<COMMON> 0
<OTHER-SE> (307,335)
<TOTAL-LIABILITY-AND-EQUITY> 794,700
<SALES> 417,962
<TOTAL-REVENUES> 417,962
<CGS> 204,383
<TOTAL-COSTS> 150,430
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,497
<INCOME-PRETAX> 61,652
<INCOME-TAX> 14,974
<INCOME-CONTINUING> 46,678
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,678
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
