<PAGE>
UNITED STATES
SECURITES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly period ended September 30, 1999
[_] 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 0-15512.
ALPNET, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Utah 87-0356708
- ---------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4460 South Highland Drive, Suite #100
Salt Lake City, Utah 84124-3543
- ---------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
(801) 273-6600
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filled all reports
required to be filed by Section 13
or
15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
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
----- -----
The number of shares outstanding of the registrant's no par value Common Stock
as of November 1, 1999, was 27,647,320.
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Consolidated Financial Statements (Unaudited):
<TABLE>
<S> <C> <C>
Consolidated Statements of Income - Three months ended September 30, 1999
and 1998 and Nine months ended September 30, 1999 and 1998........................ 3
Consolidated Balance Sheets - September 30, 1999 and December 31, 1998............ 4
Consolidated Statements of Cash Flows - Nine months ended September 30, 1999
and 1998.......................................................................... 6
Notes to Consolidated Financial Statements - September 30, 1999................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................... 13
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings................................................................. 24
Item 6. Exhibits and Reports on Form 8-K.................................................. 24
SIGNATURES................................................................................. 25
- ----------
</TABLE>
2
<PAGE>
Item 1: Consolidated Financial Statements (Unaudited)
- -----------------------------------------------------
ALPNET, INC. AND SUBSIDIAIRES
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Thousands of dollars September 30 September 30
(exept per share data) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales of services $14,142 $11,413 $39,120 $36,960
Operating expenses:
Cost of services sold 10,660 9,438 30,052 28,524
Selling, general and administrative
expenses 2,452 2,060 6,904 5,794
Development costs 17 225 95 519
Amortization of goodwill 187 107 378 293
-------------------------------------------------------------
Total operating expenses 13,316 11,830 37,429 35,130
-------------------------------------------------------------
Operating income (loss) 826 (417) 1,691 1,830
Interest expense, net 96 65 284 216
-------------------------------------------------------------
Income (loss) before income taxes 730 (482) 1,407 1,614
Income taxes 217 65 433 625
-------------------------------------------------------------
Net income (loss) $ 513 $ (547) $ 974 $ 989
=============================================================
Income (loss) per share -- basic $ 0.019 $(0.023) $ 0.039 $ 0.042
=============================================================
Income (loss) per share -- assuming dilution $ 0.019 $(0.023) $ 0.037 $ 0.037
=============================================================
</TABLE>
See accompanying notes.
3
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
Thousands of dollars 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,920 $ 1,499
Trade accounts receivable, less allowances of
$476 in 1999 and $424 in 1998 10,662 10,124
Work-in-process 4,211 1,675
Prepaid expenses and other 711 636
--------------------------------------
Total current assets 17,504 13,934
Property, equipment and leasehold improvements:
Office facilities and leasehold improvements 260 258
Equipment 8,653 6,634
--------------------------------------
8,913 6,892
Less accumulated depreciation and amortization (4,353) (4,133)
--------------------------------------
Net property, equipment and leasehold improvements 4,560 2,759
Other assets:
Goodwill, less accumulated amortization of
$4,276 in 1999 and $4,025 in 1998 11,567 5,428
Other 372 302
--------------------------------------
Total other assets 11,939 5,730
--------------------------------------
Total assets $34,003 $22,423
======================================
</TABLE>
See accompanying notes.
4
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)--continued
<TABLE>
<CAPTION>
September 30 December 31
Thousands of dollars 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Shareholder's Equity
Current liabilities:
Notes payable to banks $ 3,504 $ 3,631
Accounts payable 4,275 2,671
Accrued payroll and related benefits 1,284 1,222
Other accrued expenses 1,802 2,110
Deferred revenue 55 189
Income taxes payable 1,001 724
Current portion of affiliate debt 967 -
Current portion of long-term debt 951 400
----------------------------------------
Total current liabilities 13,839 10,947
Long-term debt to affiliates, less current portion 630 -
Long-term debt, less current portion 1,291 454
Commitments and contingencies - -
Shareholders' equity:
Convertible Preferred Stock, no par value;
authorized 2,000 shares; issued and
outstanding 87 shares in 1999 and 1998 242 242
Common Stock, no par value; authorized
40,000 shares; issued and outstanding
27,643 shares in 1999 and 24,200
shares in 1998 49,005 42,546
Accumulated deficit (28,989) (29,963)
Accumulated other comprehensive income (2,015) (1,803)
----------------------------------------
Total shareholders' equity 18,243 11,022
----------------------------------------
Total liabilities and shareholders' equity $ 34,003 $ 22,423
========================================
</TABLE>
See accompanying notes.
5
<PAGE>
ALPNET, INC. AND SUBSIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
Thousands of dollars 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 974 $ 989
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of property,
equipment and leasehold improvements 791 629
Amortization of goodwill 378 293
Other 241 (249)
Changes in operating assets and liabilities:
(net of effect of acquisition)
Trade accounts receivable (703) 338
Work-in-process (1,681) (577)
Other operating assets and liabilities (30) (161)
Accounts payable and accrued expenses 730 310
Income tax payable 266 355
Deferred revenue (178) (546)
----------------------------------------
Net cash provided by operating activities 788 1,381
Investing activities:
Purchase of property, equipment and leasehold
improvements (2,002) (1,366)
Net cash paid for acquisitions (80) -
----------------------------------------
Net cash used in investing activities (2,082) (1,366)
Financing activities:
Proceeds from notes payable to banks 553 128
Principal payments on notes payable to banks (923) (814)
Proceeds from long-term notes to affiliates 731 -
Principal payment on long-term notes to affiliates (16) -
Proceeds from long-term debt 1,378 394
Principal payments on long-term debt (271) (297)
Proceeds from exercise of stock options 211 422
----------------------------------------
Net cash provided by financing activities 1,663 (167)
Effect of exchange rate changes on cash 52 55
----------------------------------------
Net increase (decrease) in cash and cash equivalents 421 (97)
Cash and cash equivalents at beginning of period 1,499 1,711
----------------------------------------
Cash and cash equivalents at end of period $ 1,920 $ 1,614
========================================
Cash paid during the period for:
Interest $ 286 $ 218
Income taxes 169 270
See accompanying notes.
</TABLE>
6
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1999
1. BASIS OF PRESENTATION
ALPNET, Inc. (the "Company") is a United States publicly-owned multinational
corporation which was incorporated in the state of Utah in 1980. The Company
provides services and solutions in the multilingual information services
sector to businesses engaged in international trade. These services include
translation, software localization, information management consulting, and
systems integration. ALPNET has added capabilities to provide services
comprising information analysis, development of information strategies,
advice on information standards, and benchmarking and evaluation of available
language products including information and documentation management systems,
authoring and translation tools, and publishing software and browsers. The
principal markets for the Company's services are North America, Europe and
Asia.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the U.S. Securities
and Exchange Commission. Accordingly, they do not include all of the
information and footnote disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the periods presented are not necessarily indicative of the
results that may be expected for the respective complete years. For further
information, refer to the Consolidated Financial Statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
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 liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
2. ACQUISITION
On June 30, 1999, the Company acquired the entire outstanding share capital
of EP Electronic Publishing Partners GmbH ("EP"), a German corporation based
in Nuremberg, Germany. EP designs and develops custom built computer software
systems for document, information, knowledge and translation management. The
acquisition cost of approximately $937,000 was paid as follows:
Cash $ 98,000
8% unsecured note due in one year 320,000
8% unsecured notes due in three equal installments in 36,
48, and 60 months, convertible to common shares 133,000
49,518 shares of ALPNET, Inc. common stock 112,000
Assumption of net liabilities and acquisition costs 274,000
--------
Total $937,000
========
7
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
2. ACQUISITION (continued)
The acquisition is accounted for using the purchase method and the purchase
price was allocated to software ($630,000) and goodwill ($307,000). The
software and goodwill are being amortized on the straight-line method over 6
and 12 years, respectively.
On July 30, 1999 the Company acquired the entire outstanding share capital of
Technical Publishing Services B.V. ("TPS"), formerly Stork TPS, a Dutch
corporation based in Hengelo, the Netherlands. TPS is active in industrial
information consulting and translation services and in providing high end
SGML publishing solutions to international corporations. The acquisition cost
of approximately $6,392,000 was paid as follows:
3,000,000 shares of ALPNET, Inc. common stock $6,136,000
Acquisition costs 256,000
----------
Total $6,392,000
==========
The acquisition is accounted for using the purchase method and the purchase
price was allocated entirely to goodwill which is being amortized on the
straight-line method over 12 years. The stock purchase agreement also
provides that additional shares of ALPNET common stock (up to a maximum of
1,800,000 shares) will be issued if the Company's share price is less than
$2.50 on July 30, 2000 on the basis of 12,000 additional shares per $0.01
shortfall below $2.50.
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130
establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this Statement had no impact on
the Company's net income or shareholders' equity. FAS 130 requires the
Company's foreign currency translation adjustments, which prior to adoption
were reported separately in shareholders' equity, to be included in other
comprehensive income. Accumulated other comprehensive income is entirely
accumulated foreign currency translation adjustments.
4. INCOME PER SHARE
Basic income per share is computed by dividing net income by the weighted
average number of common shares outstanding during the accounting period
excluding any dilutive effects of options and convertible securities. Diluted
income per share includes the potential dilution as a result of stock options
and convertible securities.
8
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
4. INCOME PER SHARE (continued)
The following table sets forth the computation of basic and diluted income per
share.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
Thousands of dollars and shares 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings
per share -- net income (loss) $ 513 $ (547) $ 974 $ 989
Effect of dilutive securities:
Convertible notes 27 - 27 -
-----------------------------------------------------------------
Numerator for diluted earnings
per share $ 540 $ (547) $ 1,001 $ 989
=================================================================
Denominator:
Denominator for basic income per
share -- weighted-average shares 26,579 24,108 25,108 23,703
Effect of dilutive securities:
Convertible Preferred Stock 786 - 786 786
Employee stock options 545 - 762 2,133
Convertible notes 633 - 211 -
Contingent shares 239 - 80 -
-----------------------------------------------------------------
Dilutive potential common share 2,203 - 1,839 2,919
-----------------------------------------------------------------
Denominator for diluted income per
share -- adjusted weighted-average
share and assumed conversions 28,782 24,108 26,947 26,622
=================================================================
</TABLE>
5. INCOME TAXES
The Company files a consolidated U.S. Federal income tax return, which
includes all domestic operations. Tax returns for states within the U.S. and
for foreign subsidiaries are filed in accordance with applicable laws.
Fluctuations in the amount of income taxes arise primarily from the varying
combinations of income and losses of the Company's subsidiaries in the
various domestic and foreign tax jurisdictions, including the utilization of
net operating loss carryforwards in many of these jurisdictions.
9
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
6. COMMITMENTS AND CONTINGENCIES
In 1997, the Company's French subsidiary terminated certain of its employees,
some of whom initiated immediate legal actions in the French legal system
which handles employment-related matters. Subsequently, other former
employees also initiated similar actions. In 1997 and 1996, $270,000 was
expensed related to statutorily-required costs of termination and the legal
actions taken by specific employees. Approximately $16,000 remains accrued at
September 30, 1999.
The Company believes it has complied with all aspects of applicable French
labor regulations in terminating the employees and is defending its actions
vigorously. A preliminary judgement ruled in favor of the Company but an
appeal is pending. While the ultimate outcome of this matter cannot be
determined, management, based on the opinion of its French legal counsel,
does not expect that the outcome of the legal actions will have a material
adverse effect on the Company's results of operations or financial position.
On February 23, 1998, the Company was named as one of several defendants in
three civil actions. In these actions, each of the named plaintiffs, all of
whom are German nationals, seek to recover monetary damages, in amounts to be
proven at trial, including punitive damages, interest, and costs allegedly
sustained as a result of securities transactions the plaintiffs entered into
with several of the other named defendants. The Company has reached an
agreement with the plaintiffs to dismiss the lawsuits against the Company for
lack of causation and with no liability to the Company. The dismissals are
currently being documented and are subject to approval by the court.
The Company has committed to purchase approximately $1.1 million of software
and related computer equipment during 1999 for a new enterprise and knowledge
management system, which it is developing, of which $800,000 was acquired
under capital leases in the nine-month period ended September 30, 1999.
7. GEOGRAPHICAL AND SEGMENT DATA
The Company operates in one segment, multilingual information services.
Within this segment, the Company also evaluates its performance internally by
significant geographic regions.
The following selected financial data summarizes the Company's domestic and
foreign operations for financial reporting purposes. Allocations of corporate
and country overheads to domestic and foreign operations are based upon the
Company's policies for financial reporting consistently applied during the
periods. Intercompany sales are normally billed on a margin-sharing basis.
All intercompany sales are eliminated in determining the totals. Since the
Company's last annual report, financial data for the United States and Canada
have been combined under North America as these two countries' operations are
now under common management and are measured internally as a single region.
10
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
7. GEOGRAPHICAL AND SEGMENT DATA (continued)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
Thousands of dollars 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net external sales:
North America $ 4,917 $ 3,712 $ 14,735 $ 12,305
Europe 8,524 6,954 22,405 22,618
Asia 701 747 1,980 2,037
------------------------------------------------------------------
$ 14,142 $ 11,413 $ 39,120 $ 36,960
==================================================================
Intercompany sales:
North America $ 894 $ 358 $ 1,710 $ 1,056
Europe 2,710 5,192 7,297 5,557
Asia 1,181 2,391 3,013 3,778
------------------------------------------------------------------
$ 4,785 $ 7,941 $ 12,020 $ 10,391
==================================================================
Income (loss) before income taxes:
North America (a) $ (288) $ (85) $ (870) $ (176)
Europe 813 (225) 1,520 1,667
Asia 205 (172) 757 123
------------------------------------------------------------------
$ 730 $ (482) $ 1,407 $ 1,614
==================================================================
(a) Includes corporate, general, and administrative expenses.
</TABLE>
8. CONVERTIBLE NOTES
During 1999, the Company issued $1,290,000 of convertible notes to private
investors, $490,000 of which were issued to affiliates. These notes have a
variable interest rate of U.S. prime plus 2%, and are repayable in three
equal installments due 36, 48, and 60 months from the date of issuance. The
outstanding principal is convertible, at the option of the lender, into
restricted shares of the Company's common stock at any time after issuance.
The conversion price is the average market value of the Company's stock for
the five trading days prior to issuance of the note. The conversion price of
the notes ranges from $1.72 to $2.40. The Company has the right to prepay the
notes at any time prior to maturity. The outstanding principal of the notes
is included in long-term debt ($800,000) and long-term debt to affiliates
($490,000) as of September 30, 1999.
11
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
8. CONVERTIBLE NOTES (continued)
In conjunction with the Company's acquisition of EP, the Company issued
$133,000 (DM 256,000) of convertible notes to former owners of EP. These
notes bear an interest rate of 8 percent and are repayable in three equal
installments due 36, 48, and 60 months from the date of the notes, June 30,
1999. The outstanding principal may be converted, at the option of the
lender, into restricted shares of the Company's common stock at any time
after June 30, 2000. The beginning conversion price is $2.25 (based on the
average market value of the Company's stock for the five trading days prior
to the note date, June 30, 1999) and increases by 10 percent per year
beginning June 30, 2001. The Company has the right to repay the outstanding
principal of the notes at any time without penalty. The outstanding principal
of the notes is included in long-term debt to affiliates as of September 30,
1999.
9. NEW ACCOUNTING STANDARD
During 1998, Financial Accounting Standards No 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"), was issued which
requires the Company to record all derivative instruments as assets or
liabilities, measured at fair value. The Company adopted FAS 133 in the third
quarter of 1999. The adoption of this statement did not have a material
affect on the financial statements of the Company.
12
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The following Management's Discussion and Analysis should be read in conjunction
with the accompanying unaudited Consolidated Financial Statements and Notes
thereto.
Results of Operations
The following paragraphs discuss the results of operations for the three month
periods ended September 30, 1999 and 1998 ("third quarter 1999 and 1998"
respectively) and the nine month periods ended September 30, 1999 and 1998.
Sales of services for the third quarter were $14.1 million for 1999 compared to
$11.4 million for 1998 and the Company reported net income of $513,000 in 1999
compared to net loss of $547,000 in 1998. Sales of services for the nine months
ended September 30, 1999, were $39.1 million compared with $37.0 million in
1998, and the Company reported net income of $974,000 in 1999 compared with
$989,000 in 1998.
Sales of services for the third quarter 1999 are the highest ever recorded by
the Company and approximately 24% higher than the third quarter 1998. Sales of
services for the nine months ended September 30, 1999, are approximately 6%
higher than 1998. Margins have been restored following the fall in the second
half of 1998 as a result of extremely competitive trading conditions. The
restoration of margins to previous levels is a positive development. While
margins can fluctuate with the mix of the Company's revenues, management has
aggressively sought to improve margins by eliminating ineffective production and
excess capacity as part of the Company's restructuring which commenced in
November 1998. This is explained more fully below.
During the quarter, the Company has integrated two recent acquisitions. These
two acquisitions are a key component of ALPNET's strategic repositioning as a
solution provider of technology driven, enterprise-wide multilingual information
systems.
EP, now operating as ALPNET Technology, is playing a key role in a joint
development project between ALPNET and Sun Microsystems to enhance ALPNET's core
multilingual information management software. This technology is already in use
at the European Commission and is now being offered to selected clients on an
annual support fee basis. It can be fully integrated into enterprise
applications such as workflow and document management systems to maximize the
re-use of translated content. Translation costs can be reduced by well over 50%
compared to the range of 20% achieved by existing tools on the market which are
confined to individual or departmental use. EP has been included in the
consolidated results of the Company since July 1, 1999, has contributed
approximately $280,000 of revenue, and was profitable.
TPS, now operating as ALPNET Netherlands, provides information management
consulting and systems integration services which, coupled with ALPNET's
mainstream language business, expand the Company's service offering to clients.
Optimal implementation and continuous improvement of the information cycle
reduces costs and improves time-to-market in increasingly competitive global
markets. ALPNET's existing Dutch operation has been fully integrated with TPS
and now operates from a single site in Hengelo. TPS has been included in the
consolidated results of the Company since August 1, 1999, has contributed
approximately $1.7 million of revenue, and was profitable.
The Company has now increased revenues in 1999 over 1998 and re-established
profitable operations with three consecutive quarters of net income. Management
is committed to further improve sales and increase profitability during the rest
of the year.
13
<PAGE>
Sales of Services by Geographic Segment
The value of revenues, costs and net income reported in US dollars have been
impacted somewhat by the effects of fluctuations in foreign currencies against
the US dollar. This is described in more detail in the section "Foreign Exchange
Risk."
North America total sales were $4.9 million for the third quarter 1999 compared
with $3.7 million in 1998 and were $14.7 million for the nine months ended
September 30, 1999, compared with $12.3 million in 1998. Sales in Canada
increased 25% where demand, especially in automotive and financial sectors,
remains strong. In the United States, sales increased 17% with virtually all the
increase occurring in the third quarter. Management expects this general
restoration of growth to continue in the United States but the amount and timing
of actual orders is variable. Since the Company's reorganization, North American
operations are under common management which maximizes the region's sales
opportunities and production efficiency.
Total sales in Europe were $8.5 million in the third quarter 1999 compared with
$7 million in 1998. For the nine months ended September 30, 1999, sales of
services in Europe were $22.4 million (57% of total Company sales) compared with
$22.6 million (61%) in 1998. The increased sales in the third quarter are
attributable to the sales generated by TPS and EP. Still, sales in the U.K.
continue to suffer due to difficult trading conditions in the region, especially
in traditional translation services. European operations were unified under a
new management structure during the second quarter of 1999 which has
aggressively addressed the region's trading difficulties. Other European
operations are trading at approximately the same levels as 1998.
Asia's reported sales of services for the nine months ended September 30, 1999,
were approximately $2 million, and were at approximately the same level as 1998.
The Company's presence in Asia has been significantly expanded in recent years
by opening offices in new countries and expanding the capacities of existing
offices. Demand for translation and localization for Asian markets from the
business communities in the United States and Europe is currently at a
relatively high level.
The Company's business can be impacted dramatically by changes in the strength
of the economies of the countries in which it has a presence, and results of
operations are highly influenced by general economic trends. In addition, sales
and profitability are increasingly affected by the number and size of more
complex multi-language projects. The Company experiences fluctuations in
quarterly sales and profitability levels largely as a result of the increase or
decrease in the number of such projects. Management expects this trend to
continue. Nevertheless, the Company expects to be able to capture increased
sales in an expanding market that is expected to result in overall long-term
sales growth.
Cost of Services Sold
Cost of services sold for the nine months ended September 30, 1999 were $30.0
million, 77% of sales, compared with $28.5 million, 77% of sales in 1998. Cost
of services sold as a percentage of sales of services may vary with the volume
and nature of direct costs associated with large projects in each period. In
common with the entire industry, margins were negatively affected by downward
pressure from clients and competitors which started in late 1998. Although
management expects this downward pressure to continue, margins have stabilized
as a result of the restructuring and cost control measures implemented by
management. Other actions taken to mitigate the effect of decreased margins
include the development and implementation of a new enterprise and knowledge
management system, more effective utilization of technology on a broader range
of projects to improve the productivity of translators, and the development of
stronger partnerships with clients to enable the Company to provide higher-
margin, higher-value, information management consultancy, and systems
integration services to clients.
14
<PAGE>
Other Costs and Expenses
Selling, general, and administrative expenses were $6.9 million for the nine
months ended September 30, 1999, an increase of $1.1 million over 1998.
Management has extended its sales and marketing efforts and capabilities in
substantially all of the Company's markets and has added capabilities,
resources, and support services to enable it to expand its range of services in
the higher value line of information management consultancy and systems
integration services. Management believes that it can leverage its translation
and localization capabilities and major client relationships by expanding into
the broader field of multilingual information services. There has also been an
increase in 1999 expenses compared with 1998 as the Company has organized a new
operations group charged with directing the operations function of the Company.
Development costs were $95,000 for the nine months ended September 30, 1999,
compared to $519,000 in 1998, a decrease of $424,000. The acquisition of EP
gives the Company access to new technology that will substantially enhance and
compliment the Company's existing tools. In 1999, ongoing development costs have
been reduced and the Company expects to fund major future development jointly
with clients and partners.
Goodwill amortization was $378,000 compared to $293,000, an increase of $85,000.
The additional amortization relates to the acquisitions of EP and TPS.
Net interest expense was $96,000 in the third quarter 1999, an increase of
$31,000 compared to 1998, and for the nine months ended September 30, 1999, was
$284,000 an increase of $68,000 compared to 1998. The increase is due to higher
average balances outstanding under bank lines of credit, increases in long-term
debt used to finance certain equipment and software purchases, the issuance of
convertible notes, and the assumption of debt relating to the acquisitions.
The US parent company and each of its subsidiaries are separate legal and
taxable entities and are subject to domestic or foreign taxes pertaining to
operations in their respective jurisdictions. For tax purposes, the US parent
company, and certain of its subsidiaries, have unused net operating losses from
prior years which can be utilized to reduce future years' taxable income of the
respective entities. The availability of these net operating losses is governed
by applicable domestic and foreign tax rules and regulations, some of which
limit the utilization of such losses due to minimum tax requirements and other
provisions. Income tax expense, as presented in the Consolidated Financial
Statements, represents the combined income tax expense and income tax credits of
all of the entities of the Company.
After the utilization of net operating loss carryforwards, income tax expense
was $217,000 in the third quarter 1999, compared with $65,000 in 1998, and for
the nine months ended September 30, 1999, was $433,000, compared with $625,000
in 1998. Fluctuations in the amount of income taxes arise primarily from the
varying combinations of income and losses of the Company's subsidiaries in the
various domestic and foreign tax jurisdictions, including the utilization of net
operating loss carryforwards in many of these jurisdictions. The US parent
company has a net operating loss carryforward for US Federal tax purposes but
has no net operating loss carryforwards for state income tax purposes.
Restructuring
In response to volatile global market conditions, the Company implemented a
reorganization of the Company's structure and operations in November 1998. The
plan included centralization of production operations, elimination of production
capacity including personnel, facilities and other support costs, and the re-
organization of the sales function.
15
<PAGE>
Restructuring (continued)
The total restructuring costs of $1,291,000, charged against income in 1998,
comprised planned employee termination costs and lease cancellation costs in
four principal areas:
<TABLE>
<CAPTION>
Thousands of dollars No. of Employee Lease
(except employee no.'s) Employees Termination Cancellation Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USA restructure 42 $212 $158 $ 370
Belguim production facility 16 106 50 156
Executive terminations 3 340 - 340
Europe restructure 21 235 190 425
--------------------------------------------------------------------------
Total 82 $893 $398 $ 1,291
==========================================================================
</TABLE>
The operations in the USA and Belgium relate to offices established by the
Company and consequently have no attributable goodwill. The European restructure
relates primarily to operations in the U.K. and Spain. These operations were
acquired by the Company in 1988 as part of the purchase of Interlingua Group
Ltd, a group of translation companies that also included operations in Asia. The
future prospects of both of the restructured businesses have been enhanced by
these actions. Management has reviewed the future projected revenue from these
businesses and concluded that no impairment of goodwill has occurred.
The restructuring costs summarized above represent costs paid during 1998, 1999
and accrued at September 30, 1999.
<TABLE>
<CAPTION>
Thousands of dollars No. of Employee Lease
(except employee no.'s) Employees Termination Cancellation Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total 82 $893 $398 $1,291
Paid Prior to June 30, 1999 81 (788) (200) (988)
1 105 198 303
Paid in the third quarter 1999 - (53) (56) (109)
Outstanding as of September 30, 1999 1 $ 52 $142 $ 194
=========================================================================
</TABLE>
Employee termination costs are payable according to the relevant local law which
often provides for payments to be made over a number of months. Lease
cancellation costs represent the full cost of terminating leases according to
the terms of the lease contracts less expected sub-lease income, if any.
16
<PAGE>
Enterprise and Knowledge Management System
Based upon concepts developed in 1998, management of the Company has continued
in the design, development, and preparation for installation of an enterprise
and knowledge management system. This system will be installed throughout the
Company's operations and will provide for flexible and informed analysis of
operations, provide wide and timely dissemination of information, facilitate
rapid decision making, and allow all managers to be focused on common goals for
improved performance and profitability. This enterprise system is known as
ALPNET Planet.
ALPNET Planet will encompass all front and back office functions as well as
strategic management needs. It will also monitor and validate processes by
measuring how work is being performed against established policies and
procedures. Management expects the implementation of this system, upon its
completion, to have a significant, positive effect on the operating performance
of the Company.
The most valuable component of ALPNET Planet will be its knowledge management
package which will capture and manage the Company's information, knowledge, and
expertise. It will centralize and leverage all translation memories, terminology
databases, and localization know-how in one highly organized data warehouse.
ALPNET Planet will be developed, tested, and prepared for installation
throughout 1999. Implementation of certain modules is expected to commence in
the first quarter of 2000 and continue through the second quarter of 2000 as
modules are completed. The Company will lease the major hardware and software
components of the system which will then be adapted by the Company according to
design specifications.
In conformity with the FASB Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use", the Company
is capitalizing the costs to develop ALPNET Planet. Total costs of the computer
software, computer hardware and other costs of the Planet system are expected to
be approximately $2.35 million, approximately $1.1 million of which represents
purchased or leased software and equipment while the remaining $1.25 million
represents costs of customization and development. The system costs will be
amortized over a 48-month period commencing in the year 2000 as each module of
the system becomes fully functional and ready for its intended use. Total ALPNET
Planet system costs of approximately $620,000 have been capitalized during the
third quarter 1999, and $1.56 million during the nine months ended September 30,
1999.
Liquidity and Sources of Capital
For the nine months ended September 30, 1999, the Company had a positive cash
flow from operations of approximately $788,000 compared with positive cash flows
from operations in 1998 of $1.4 million. In 1998, the Company's investing
activities consisted primarily of the acquisition of equipment needed to
maintain or upgrade production capability. In 1999, equipment acquisitions of $2
million included approximately $800,000 of software and related equipment for
ALPNET Planet and another approximate $760,000 of capitalized costs related to
ALPNET Planet. The cash component of the acquisition of EP was $98,000. There
was no cash component of the acquisition of TPS. The acquisitions are described
more fully in note 2 to the financial statements.
17
<PAGE>
Liquidity and Sources of Capital (continued)
Financing activities for the nine months ended September 30, 1999 and 1998
included fluctuations in the amounts utilized under bank lines of credit to
finance the Company's working capital needs and changes in outstanding debt used
to finance equipment purchases. During the nine months ended September 30, 1999,
the Company issued a series of convertible notes to private investors
approximating $1.4 million, which is discussed in more detail in note 8 to the
financial statements. The Company has the right to repay the notes prior to
maturity. The proceeds of the notes will be used to provide working capital for
the Company and its newly acquired subsidiaries and provide funding for the
development of ALPNET Planet.
At September 30, 1999, the Company's cash and cash equivalents were
approximately $1.9 million, which represented an increase of $400,000 during
1999. At September 30, 1999, the Company had working capital of approximately
$3.7 million, compared to working capital of approximately $3 million at
December 31, 1998.
The Company's primary working capital requirements relate to the funding of
accounts receivable and work-in-process on large projects. The Company funds
some of its working capital needs with credit facilities with financial
institutions in the US, Canada, the UK, Germany, Spain and the Netherlands. Most
of the credit facilities are secured by accounts receivable and other assets of
the Company or its subsidiaries. As of September 30, 1999, the Company had
unused amounts under these credit facilities of approximately $800,000.
The Company's only significant commitments for capital expenditures during 1999
approximate $1.1 million for ALPNET Planet software and related computer
equipment which will be acquired primarily under capital leases during 1999.
Approximately $800,000 of software was acquired during the nine month period
ended September 30, 1999. Capital expenditures in future periods are expected to
vary according to the overall growth of the Company. The Company plans to
acquire and place additional translation services workstations and other related
software and computer equipment in its offices in connection with future orders
from customers, as such orders are received. The Company expects to finance a
certain portion of future equipment costs with terms similar to the financing
arrangements entered into in recent years.
In November 1998, the Company commenced implementation of an aggressive and
fundamental restructuring of the Company's organization and operations, as
discussed more fully in Management's Discussion and Analysis of Financial
Condition and Results of Operations. This restructuring had a negative effect on
cash flow of approximately $770,000 for the nine months ended September 30,
1999. Additional negative cash flows related to this reorganization in the
amount of approximately $194,000 are estimated for the remainder of 1999.
Most of the Company's credit facilities are subject to annual renewals and the
Company expects them to be renewed on substantially the same terms as those
which currently exist. In addition, the Company expects to be able to increase
the maximum amounts which can be borrowed under credit facilities. Some of the
financial institutions, which have loaned funds to the Company's subsidiaries
under the credit facilities referred to above, have placed certain limits on the
flow of cash outside the respective countries. Such limitations have not been an
undue burden to the Company in the past, nor are they expected to be unduly
burdensome in the foreseeable future.
The Company believes it has the ability to issue additional equity securities or
obtain funding through the issuance of additional notes if necessary. In certain
past years, the Company has relied on major shareholders of the Company to fund
some obligations, but the Company currently has no firm commitments from, nor
are there any obligations of, any such shareholders to provide any debt or
equity funds to the Company.
18
<PAGE>
Liquidity and Sources of Capital (continued)
It is more difficult to assess cash flows beyond 1999, and the ability of the
Company to meet its commitments without additional sources of funding is
directly related to the Company's operations providing a positive cash flow.
Should the Company's operations fail to provide adequate funds to enable it to
meet its future financial obligations, management has the option, because of the
Company's organizational structure, to cut costs by selectively eliminating
operations which are not contributing to the Company financially.
Inflation has not been a significant factor in the Company's operations.
Competition, however, has been and is expected to remain a major factor. To the
extent permitted by competition and general economic and market conditions, the
Company will pass on increased costs from inflation and operations to clients by
increasing prices.
Due to prior years' operating losses, the Company and certain of its
subsidiaries have net operating loss carryforwards available to offset future
taxable income in the various countries in which the Company operates. As a
result, the Company historically has not had income tax liabilities requiring
the significant expenditure of cash. The Company expects this general trend to
continue into the future for certain offices which sustained large losses in
previous years. The levels of net operating losses available to offset future
taxable income are generally much lower for the new offices opened in recent
years.
Substantially all of the Company's deferred tax assets at September 30, 1999 and
December 31, 1998 were comprised of net operating loss carryforwards for which
the Company has provided allowances. The ability of the Company to utilize these
loss carryforwards in the future is dependent on profitable operations in the
various countries in which loss carryforwards exist, and the specific rules and
regulations governing the utilization of such losses, including the dates by
which the losses must be used.
Foreign Exchange Risk
The Company serves its customers from more than 15 countries. The majority of
the Company's operations are located outside the US and, consequently, the
Company is exposed to fluctuations of the dollar against the foreign currencies
of those countries in which the Company has a substantial presence. For all of
the Company's foreign subsidiaries, the functional currency has been determined
to be the local currency. Accordingly, assets and liabilities are translated at
year-end exchange rates, and operating statement items are translated at
weighted-average exchange rates prevailing during the years presented. The
principal currencies to which the Company is exposed are the Canadian dollar,
the British Pound, the German Mark and the Dutch Guilder. Fluctuations against
the dollar can produce significant differences in the reported value of revenues
and expenses.
The following table shows a comparison of sales of services in each of the
Company's significant geographic segments for the nine months ended September
30, 1999 and 1998, along with the effect of foreign currency exchange rate
fluctuations on sales between periods.
19
<PAGE>
Foreign Exchange Risk (continued)
<TABLE>
<CAPTION>
Increase (Decrease)
Nine Months Sales of Services due to Total
Ended September 30 Sales Currency Increase
Thousands of dollars 1999 1998 Volume Fluctuations (Decrease)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North America $ 14,735 $ 12,305 $ 2,523 $ (93) $ 2,430
Europe 22,405 22,618 318 (531) (213)
Asia 1,980 2,037 (118) 61 (57)
---------------------------------------------------------------------------------------
Total Sales $ 39,120 $ 36,960 $ 2,723 $ (563) $ 2,160
=======================================================================================
</TABLE>
The revenue mix of the Company's operations and the effect of foreign currency
exchange rate fluctuations on costs and expenses generally mitigate the
consolidated net income impact. For revenues in the US which are produced
outside of the US, any weakening of the US dollar against a particular country's
currency reduces the amount of net income reported in US dollars. Conversely,
the same weakening of the US dollar generates an offsetting increase in the
dollar value of profits arising from revenues within that country. This natural
currency effect reduces the net foreign exchange risk to the Company.
Total sales for the nine months ended September 30, 1999, of $39.1 million were
$563,000 lower as a result of fluctuations in foreign currencies. These
fluctuations caused total operating expenses and interest expense to be $485,000
lower resulting in a reduction to net income of $78,000. The Company does not
currently use any financial instruments to manage or hedge foreign exchange risk
either for trading or other purposes. The revenue mix and currency trends are
monitored on an ongoing basis to identify any changes that might significantly
affect the Company's net results.
The translation of foreign denominated assets and liabilities at year-end
exchange rates results in an unrealized foreign currency translation adjustment
recorded as a separate component of shareholders' equity and reported as other
comprehensive income. The foreign currency adjustment to shareholders' equity
for the nine months ended September 30, 1999, was an increase of $212,000
compared to a reduction of $412,000 in 1998. As of September 30, 1999, the
cumulative net effect to the Company of the equity adjustment from movements in
foreign currency exchange rates was a reduction of approximately $2 million in
shareholders' equity. A significant portion of the cumulative foreign currency
adjustment relates to changes in the carrying value of goodwill, which is
denominated entirely in foreign currencies.
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. The Company's computer
programs or hardware that have date-sensitive software or embedded chips 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 inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company has determined that it will need to modify or replace the operations
administration system for one of the Company's foreign subsidiaries. This system
will be replaced during the fourth quarter of 1999 in connection with the
implementation of ALPNET Planet. As part of the implementation of this new
system, the entire accounting and information systems of the Company will be
replaced. The Company's proprietary translation software system, TSS, has been
Year 2000 compliant since its development in the mid-80's.
20
<PAGE>
Year 2000 Issue (continued)
The Company's plan to resolve the Year 2000 issue involves the following four
phases: assessment, remediation, testing and implementation. The Company has
completed its assessment of all of its systems that could be significantly
affected by the Year 2000. The Company is primarily in the business of providing
services but those services are supported by the use of computer hardware and
software systems in the production of a substantial portion of those services.
The Company's vendors consist primarily of individual translators and other
service professionals who are not expected to be materially impacted by the Year
2000 issue. The Company is also dependent upon third party suppliers for utility
services and telecommunications capabilities. The Company has its primary
locations in geographically diverse locations in North America, Europe and Asia.
If one of the Company's locations should be unable to operate due to the Year
2000 issue affecting one of its third party suppliers, the Company believes that
replacement services can be rendered from another of the Company's locations.
Status
The Company has completed a full evaluation of all its systems and has completed
the remediation phase of its Year 2000 plan. The Company has replaced all
critical systems and hardware that are not Year 2000 compliant with the
exception of the systems that ALPNET Planet will replace. ALPNET Planet, which
is fully Year 2000 compliant, is expected to replace all remaining non-compliant
systems.
The Company has completed testing of equipment and software, with the exception
of ALPNET Planet, which is being tested as it is developed and implemented.
Third Parties
The Company has queried its significant suppliers and subcontractors that do not
share information systems with the Company (external agents), but has not
received answers to all of its queries. To date, the Company is not aware of any
external agents with a Year 2000 issue that would materially impact the
Company's results of operations, liquidity, or capital resources. However, the
Company has no means of ensuring that external agents will be Year 2000 ready.
The inability of external agents to complete their Year 2000 resolution process
in a timely fashion is not expected to materially impact the Company. The
Company believes that it could partially compensate for the failure of external
agents to comply by utilizing its operations in other geographic locations to
meet client requirements or by using alternate suppliers.
The Company has contracted with Equant NV to provide a secure, Year 2000
compliant Wide Area Network to facilitate the exchange of electronic information
between all ALPNET offices. The majority of the network is currently operational
and the entire network will be operational by December 1, 1999.
21
<PAGE>
Year 2000 Issue (continued)
Costs
The Company is utilizing primarily internal resources to reprogram, replace,
test and implement the software and operating equipment for required Year 2000
modifications. The total costs of the Year 2000 project is estimated at $200,000
of which $100,000 ($30,000 expensed and $70,000 capitalized for new equipment)
was incurred in the year ended December 31, 1998. Of the total estimated
remaining project costs, approximately $30,000 was paid in the second quarter
for replacement equipment. Approximately $30,000 was paid in the third quarter
for testing and monitoring of the new systems. The remaining $40,000 is related
to the replacement of the operations administration system in the Company's UK
subsidiary and will be paid in the fourth quarter.
Risks
Management of the Company believes it has an effective program in place to
address the Year 2000 issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of its Year 2000 program. In the event
that the Company does not complete any additional phases, the Company's ability
to produce certain orders may be negatively impacted. More importantly,
disruptions resulting from Year 2000 issues in the world economy in geographies
where the Company or its clients have significant operations could adversely
affect the Company. The Company may be unable to meet services commitments due
to computer systems failure. The amount of potential liability, lost revenue and
damages cannot be reasonably estimated at this time.
Contingency Plans
While the Company has not yet identified Year 2000 issues that pose a
significant risk to its ability to conduct normal business activities, the
Company continues in its process of determining what contingency plans, if any,
will be necessary to mitigate the impact of the Year 2000 issue.
Recent Acquisitions
The ALPNET Planet system will be implemented at EP on the same schedule as the
Company's other offices. The Company has evaluated the Year 2000 status of the
systems that ALPNET Planet will not replace. No significant Year 2000 issues
have been discovered. Year 2000 remediation and testing will be completed by
November 30, 1999.
The Company's evaluation of Year 2000 readiness at TPS has been completed. No
significant year 2000 issues have been discovered. ALPNET Planet will be
implemented at TPS on the same schedule as the Company's other offices.
Cautionary Statement
The statements in this Management's Discussion and Analysis that are not based
on historical data are forward looking, including for example, information about
future sales growth in various markets in future periods; expected changes in
the levels of various expenses, including income taxes; the Company's plans for
future investments in new offices, services, or products; and financing plans
and expectations.
22
<PAGE>
Cautionary Statement (continued)
Forward looking statements contained in this Management's Discussion and
Analysis involve numerous risks and uncertainties that could cause actual
results to be materially different from estimated or expected results. Such
risks and uncertainties include, among many others, fluctuating foreign currency
exchange rates, the Year 2000 issue, changing levels of demand for the Company's
services, the effect of constantly changing general economic and political
conditions in all of the various countries in which the Company has operations,
the impact of competitive services and pricing, uncertainties caused by clients
(including the timing of projects and changes in the scope of services
requested), or other risks and uncertainties that may be disclosed from time to
time in future public statements or in documents filed with the Securities and
Exchange Commission. As a result, no assurance can be given as to future
results.
23
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
Axel Hofstadt, et al., vs. Wellshire Securities, Inc., et al., pending
--------------------------------------------------------------
in the United States District Court for the District of Utah, Central
Division, as case No. 2:96 CV 0327B. This action has been pending since
April 9, 1996. By means of a Third Amended Complaint, dated February
23, 1998, the Company was added as a named defendant. This action is
brought by 74 plaintiffs, all of whom are German nationals. The Company
is one of 18 named defendants.
Christa Wenneman, et al., vs. Douglas E. Brown, et al., pending in the
-------------------------------------------------------
United States District Court for the District of Utah, Northern
Division, as case No. 94 CV 967G. This action has been pending since
October 6, 1994. By means of a Fourth Amended Complaint, dated February
23, 1998, the Company was added as a named defendant. This action is
brought by 128 plaintiffs, all of whom are German nationals. The
Company is one of 19 named defendants.
Fuchs, et al., vs. Wellshire Securities, Inc., et al., pending in the
------------------------------------------------------
United States District Court for the District of Utah, Northern
Division, as case No. 96-CV 589. This action has been pending since
October 6, 1994. By means of a Fourth Amended Complaint, dated February
23, 1998, the Company was added as a named defendant. This action is
brought by 9 plaintiffs, all of whom are German nationals. The Company
is one of 19 named defendants.
In these actions, each of the named plaintiffs seek to recover monetary
damages, in amounts to be proven at trial, including punitive damages,
interest, and costs, allegedly sustained as a result of securities
transaction(s) the plaintiffs entered into with several of the other
named defendants. During 1993, the Company entered into a stock
purchase agreement whereby the Company sold 3,000,000 shares of its
Common Stock to Benitex, A.G., a Liechtenstein company, one of the
named defendants. Some of the shares of the Company's Common Stock were
sold by Benitex and/or by entities related to or under common control
with Benitex, to some of the plaintiffs.
The Company has reached an agreement with the plaintiffs to dismiss the
lawsuits against the Company for lack of causation and with no
liability to the Company. The dismissals are currently being documented
and are subject to approval by the court.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) The following exhibits are included herein:
27 Financial Data Schedule
(b) On July 14, 1999, the Company filed a Form 8-K in respect of the
acquisition of EP Electronic Publishing Partners GmbH ("EP"). The
Company subsequently filed an amended 8-K on September 10, 1999, which
includes historical EP financial statements and pro forma financial
information.
On August 11, 1999, the Company filed a Form 8-K in respect of the
acquisition of Technical Publications Services B.V. "TPS", formerly
Stork TPS. The Company subsequently filed an amended Form 8-K on
October 14, 1999, which includes historical TPS financial statements
and pro forma financial information.
24
<PAGE>
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.
ALPNET, Inc.
------------
Registrant
Date: 15 November 1999 /s/ Michael F. Eichner
---------------- ------------------------------------
Michael F. Eichner
Chairman of the Board
Date: 15 November 1999 /s/ John W. Wittwer
---------------- -------------------------------------
John W. Wittwer
Vice President Finance
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,920
<SECURITIES> 0
<RECEIVABLES> 11,138
<ALLOWANCES> 476
<INVENTORY> 0
<CURRENT-ASSETS> 17,504
<PP&E> 8,913
<DEPRECIATION> 4,353
<TOTAL-ASSETS> 34,003
<CURRENT-LIABILITIES> 13,839
<BONDS> 1,921
49,005
0
<COMMON> 242
<OTHER-SE> 31,004
<TOTAL-LIABILITY-AND-EQUITY> 34,003
<SALES> 39,120
<TOTAL-REVENUES> 39,120
<CGS> 30,052
<TOTAL-COSTS> 30,052
<OTHER-EXPENSES> 473
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 284
<INCOME-PRETAX> 1,407
<INCOME-TAX> 433
<INCOME-CONTINUING> 974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 974
<EPS-BASIC> 0.039
<EPS-DILUTED> 0.037
</TABLE>
