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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
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Commission File Number 0-15512
ALPNET, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0356708
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 273-6600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
--------------------------
(Title of Class)
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 12 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __X__
Based on the average bid and ask price of $8.63 at March 10, 2000, the
aggregate market value of the voting stock held by non-affiliates of the
registrant was $174,700,186.
The number of shares outstanding of the registrant's Common Stock as of March
10, 2000 was 27,944,340.
DOCUMENTS INCORPORATED BY REFERENCE
Listed below are documents from which information is incorporated by
reference herein, and the Parts of this Form 10-K into which such
incorporation by reference is made:
Definitive Proxy Statement dated April 10, 2000 - Part III of this Form 10-K.
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TABLE OF CONTENTS
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FORM 10-K
ITEM NO. NAME OF ITEM PAGE
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PART I
Item 1. Business.................................................................. 3
Item 2. Properties................................................................ 7
Item 3. Legal Proceedings......................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders....................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................... 8
Item 6. Selected Financial Data.................................................. 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 10
Item 7a. Quantitative and Qualitative Disclosures About Market Risk................ 14
Item 8. Financial Statements and Supplementary Data............................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 38
PART III
Item 10. Directors and Executive Officers of the Registrant........................ 38
Item 11. Executive Compensation.................................................... 38
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 38
Item 13. Certain Relationships and Related Transactions............................ 38
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 39
SIGNATURES....................................................................................... 40
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PART I
FORWARD LOOKING STATEMENTS
The statements in this Annual Report on Form 10-K 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.
Forward looking statements 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, a
change in the Company's business model, adequate funding to execute the new
business plan, fluctuating foreign currency exchange rates, 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), and 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.
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
ALPNET, Inc. ("ALPNET" or the "Company") is a United States multinational
corporation which was incorporated in the State of Utah in 1980. The Company
provides services and solutions in the multilingual information management
services sector to businesses engaged in international trade. ALPNET is one
of the largest dedicated suppliers of such services and solutions in the
world.
The Company was originally established to develop and market foreign language
translation software and is regarded as a pioneer in the field of
multilingual software development. The acquisition of several leading
translation service providers in 1987 and 1988 established the Company's
international presence. The Company further expanded into foreign markets in
1994 through the formation of additional foreign subsidiaries and branches.
As of December 31, 1999, the Company has wholly-owned foreign subsidiaries or
branches in the following countries: Canada, Brazil, United Kingdom, the
Republic of Ireland, Germany, France, Spain, the Netherlands, Sweden,
Singapore, Korea, China, Japan and Thailand.
During 1999, the Company embarked on a strategic repositioning to evolve its
current service offering into an Internet-based Application Service Provider
("ASP") which will rent multilingual information management software
applications via the Internet. The Company will also utilize this new ASP
business model to more effectively deliver its value-add information
consultancy and language technology integration services. Two strategic
acquisitions were completed during 1999 that form an integral part of this
strategic repositioning.
On June 30, 1999, the Company acquired EP Electronic Publishing Partners GmbH
("EP"), a German corporation which designs and develops custom built computer
software systems for document, information, knowledge and translation
management. The technology and expertise obtained through this acquisition
provides the Company with a network-centric multilingual information
management system.
On July 30, 1999, the Company acquired Technical Publishing Services B.V.
("TPS"), a Dutch corporation providing information management consulting,
systems integration services and high-end SGML (Standard Generalized Markup
Language) and XML (eXtensible Markup Language) publishing solutions to
international clients.
Further financial information about the acquisitions is provided in note 3 to
the Consolidated Financial Statements.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENT
The Company operates in one business segment: multilingual information
management services.
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(c) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The Company's existing service offering provides a full range of language
services and solutions specifically tailored to clients engaged in
international business. Among the services the Company offers are
localization, documentation, translation, information consultancy and
language technology integration.
Localization is primarily offered to clients in the information technology
(IT) market and encompasses a complete linguistic, technical and cultural
adaptation of products for foreign language markets. Localization services
include glossary development, translation, content creation and adaption,
desktop publishing, electronic and web publishing, graphics, multimedia,
creative tasks, and a complete range of engineering and software testing
activities.
Documentation services are offered to a wide range of industrial clients in
the automotive, consumer electronics, telecommunication, financial services,
manufacturing, and other industries. The Company provides a complete service
for companies that produce printed and electronic documentation and training
materials. Documentation services include translation, glossary development,
electronic publishing, graphics and web publishing.
Translation services are offered to diverse clients from all industries. Such
services may include the translation of text in a brochure, memorandum, sales
presentation, letter, magazine or any other text. ALPNET performs translation
services through its entire network in 15 countries.
Information consultancy services include information development and content
creation. Such services include information analysis and development of
information strategies. Clients can significantly increase efficiency and
reduce costs by applying controlled language authoring tools, creating
information using SGML or XML, implementing document management systems, and
by following established industry standards.
Language technology integration services include benchmarking and evaluation
of language tools, workflow definition and customization, process
optimization, controlled language definition, training, terminology
management, tools integration, database development and other language
services such as the utilization of translation memories, machine
translation, and the definition of production and quality assurance
procedures.
CHANGE IN BUSINESS MODEL
The Company's position as a leading supplier of multilingual information
management services for almost 20 years has provided it with substantial
experience in managing linguistic resources spanning people, linguistic data
and technology. The Company currently offers its services on a project by
project basis according to the specific needs of the client. This
project-based approach makes client demand and resource planning difficult to
predict which can lead to fluctuating revenue and operating results. However,
the globalization of business and rapid growth of the Internet has
intensified the need for clients to implement effective multilingual
information strategies to support their Internet and eCommerce business
models. Product life cycles and time-to-market are shortening in many
industries and businesses need to manage information in Internet time while
substantially reducing localization costs. A project-based approach is too
slow and costly in this new business environment.
The Company has recognized that a key business problem faced by its clients
is the absence of a cost-effective information management platform that
exploits the systematic use and reuse of information. Information reuse is
essential in translating and managing content in multiple languages. Poor
reuse compromises information quality and value and increases the cost of
doing business globally. The Company proposes to solve this business problem
for its existing and future clients by repositioning itself as an
Internet-based ASP. Through an Internet-based system called ALPNETXchange,
the Company will host integrated Web-based software applications that will
enable clients to create, localize, manage, warehouse, reuse and distribute
information tailored for global and local needs. The Company will host
dedicated client data servers allowing clients to integrate multilingual
information management capabilities directly into their own business
processes. The Company's new ASP business model is expected to transform
multilingual business information into a globally reusable asset.
ALPNETXCHANGE
ALPNETXchange is a natural extension of the enterprise information system
that the Company started designing and developing during 1999. Originally
conceived for internal use, and previously called ALPNET Planet, the
enterprise information system automates all workflow processes throughout the
Company's operations. ALPNETXchange also includes an extranet portal through
which clients can transact business with ALPNET and access their multilingual
information stored and managed on ALPNET servers. The most valuable part of
the ALPNETXchange system is a knowledge management component which
centralizes and leverages all translation memories, terminology databases and
localization know-how. This component provides the critical function of
information reuse.
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The acquisition of EP accelerated the development of the knowledge management
component. EP has developed a network-centric multilingual information
software system for the translation division of the Commission of the
European Community. The system currently supports 600 users working with 18
million linguistic segments and a throughput of approximately one million
pages per year in multiple languages. The EP system is a substantial
foundation for the knowledge management component of the ALPNETXchange
system. It is being further developed and enhanced under a joint technology
development agreement with Sun Microsystems.
The acquisition of TPS enhances the Company's expertise in key areas of
information management. The new ASP business model requires a rapid
proliferation and training of consulting skills throughout the Company.
Skills ranging from SGML / XML implementation, integration of workflow,
content creation, content management and multilingual information systems are
the core competency of TPS. XML is critical to information reuse and is the
optimum platform for the delivery of eCommerce content.
Both of these strategic acquisitions provide the Company with additional key
skills and technology which complement the Company's existing core linguistic
competencies. With this base, the Company is positioned to transition to the
new ASP business model. The Company's plan provides for a controlled
transition which will retain existing clients and revenue while building its
ASP capability. Many of the Company's existing clients are expected to
migrate to the new ASP business model.
MARKET
The market for multilingual information management services has been growing
in recent years in line with the growth of global business. Political,
economic and technological changes have created and expanded opportunities
for significant increases in international trade. A single world market is
emerging where it is possible for companies to reach their clients around the
world in just seconds, regardless of distances, borders and barriers.
As borders disappear, the need to localize domestic products for foreign
markets is increasing rapidly. Globalization is opening up an era of
multilingual information management. Traditionally, products and
documentation are first completed for the home market and then companies face
the painful hurdle of localization before shipping the products to their
foreign customers. Increased competition is forcing companies to reduce
time-to-market and cut costs. As a result, information must be enabled for
global markets so that the localization process is easier to manage. The keys
to reduced time to market and lower costs are standardization and
integration. If information is standardized in a universal format such as
SGML or XML, it can be stored in a central repository and it is then possible
to integrate the processes of information development, translation,
distribution and consumption as information is needed.
Outsourcing of non-core business activities such as translation, localization
and related services is a general trend as many companies critically question
the rationale for maintaining in-house information management capabilities.
Estimates of the current size of the outsourced localization and translation
market worldwide vary, but are consistently projected as several billion
dollars. The Company's target markets are characterized as being global and
information intensive. The current client base spans several vertical
industry sectors including automotive, information technology,
telecommunications, business-to-business services, Internet, healthcare,
pharmaceutical, financial services, and consumer electronics. New horizontal
market sectors will also be targeted for the Company's services including
human resource management, help desk, corporate administration, marketing and
corporate communications. Each of these sectors has the potential for
significant volumes of globally reusable information assets.
The growth of the Internet and the rapid emergence of eCommerce is having a
dramatic effect on the size of the market. As the Web grows, the demand for
multilingual information management services is expected to increase
significantly and may exceed supply. There has been a significant increase in
the non-English speaking Web user population across the world. These users
have a natural preference for localized content in both language and culture.
Business users on the Web are significantly more likely to purchase when
addressed in their own language and the majority of users who encounter a
non-native language site either leave or look for a translated version. It is
predicted that a majority of Web users will soon be non-English speakers
which will be reflected in the increasing volume of multilingual Web content.
This market growth is the catalyst for the Company's strategic repositioning
which will offer clients the accessibility and convenience of an ASP model.
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MARKETING
In marketing the Company's existing services and solutions, the Company
believes it has some very strong selling points:
GLOBAL REACH AND SIZE OF OPERATIONS. The Company is one of the largest
providers in its industry sector with operations in all the economically
significant markets.
COMMAND OF TECHNOLOGY. The Company utilizes state-of-the-art technology in
all areas of its activity, from authoring tools to document management,
translation technology and information management. The Company's in-house
technical specialists are experts in customizing and deploying tools for
specific applications.
PROCESS SPECIALIZATION. ALPNET is very process oriented. The implementation
of Total Quality Management and standard processes throughout the Company
facilitate performance measurement and improvement of services.
MANAGEMENT DEPTH AND EXPERIENCE. ALPNET was an early consolidator in the
industry and has much more management experience than many of its newer
competitors. The management team has the right mix of language industry
experience and international business skills.
INNOVATIVE STRENGTH. The Company has been an innovator in the industry for
many years. It was the first company to develop translation memory technology
and the first to establish a global translation network. ALPNET is one of the
first global providers to focus on new solutions like language technology
integration and information consultancy services.
During 1999, the Company has enhanced its existing market position by
expanding and strengthening its corporate marketing function. A dedicated
eCommerce marketing group has been created to target Fortune 1000 clients in
the critical market segments. Several new marketing initiatives have been
launched during the year. Partnerships and alliances are being forged with
eBusinesses, Web architects, online business-to-business service providers,
content management and information solution companies. These alliances will
allow the Company to offer its multilingual services in partnership with
those service providers who are driving the growth of the Web. Promotional
activity has been increased with the appointment of an international public
relations firm which will raise the Company's profile in key industries. A
new advertising company has been engaged to implement a worldwide corporate
branding program. Marketing activity is expected to intensify throughout the
coming year in support of the launch of ALPNETXchange and the Company's new
ASP business model.
MAJOR CLIENT
Sales to a single client in the computer industry accounted for 4%, 5% and
11% of total revenues in 1999, 1998 and 1997, respectively. Relations with
this client are satisfactory and management believes a significant portion of
2000 revenues will also be attributable to this client. No other client
accounted for more than 10% of revenues in any year.
COMPETITION
The Company has traditionally competed with companies focused mainly on the
information translation needs at the end of the information creation and
management process. Competition in this area is widely diverse. At one end of
the spectrum are small, single-site agencies with a generalist approach that
offer services normally limited to translation. At the other end of the
spectrum are a few large, multi-site companies that offer turnkey services
(more than translation only) and that often focus on providing "solutions"
for specific industries. Between these extremes, are all kinds of mixed forms.
The industry has been highly fragmented and often referred to as a "cottage
industry." In the last five years, however, there has been significant
consolidation with many mid-sized translation companies being acquired by
large companies in various industries. A number of new companies, perceiving
the huge market opportunity, have also entered the market. In addition to the
Company, a top-tier of industry players has emerged including LionBridge,
Berlitz, Bowne, Lernout & Hauspie, and Xerox. Despite these recent trends,
all of the major companies within the industry have a relatively small market
share with no one dominant provider. The Company differentiates itself from
its competition through its proprietary technology, established global
presence and existing client base.
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PROPRIETARY TECHNOLOGY. The Company has developed proprietary technology and
has been a recognized technology innovator in the industry since
incorporation. The basis of the Company's current and future service offering
is its proprietary technology which represents hundreds of man-years of
development and contains unique functional capabilities. This technology
forms a substantial barrier to entry that could only be overcome by a
comparable investment. Key technology owned by the Company includes existing
translation and multilingual information management software in addition to
the ALPNETXchange workflow and Internet portal currently under development.
ESTABLISHED GLOBAL PRESENCE. The Company was the first to create a global
translation network in key countries throughout the world. This global
presence is organized into regionally-focused sales and operations divisions
allowing the Company to leverage direct access to native-speaker localization
expertise. Centrally focused competitors often rely on non-native resources.
Creating a global presence requires significant investment and the successful
integration of previously disparate operations is difficult and time
consuming.
ESTABLISHED CLIENT BASE. Revenue generating relationships with thousands of
clients have been established by the Company over many years. The Company has
built strong relationships with numerous Fortune 500 clients and industry
leaders. These relationships represent a significant penetration of key
market segments. This base represents a significant barrier to entry,
especially for new entrants to the industry.
DEVELOPMENT AND CLIENT SUPPORT
During 1999, the Company capitalized approximately $1.5 million on the
development of ALPNETXchange as discussed in note 5 to the Consolidated
Financial Statements. The acquisition of EP has provided the Company with
additional functional technology. Where appropriate, the Company plans to
develop technology in cooperation with strategic partners. An agreement has
been signed with Sun Microsystems for the joint development of language
translation management computing infrastructure technology. The Company has
also initiated a Community Source Program to accelerate the development of
multilingual information management technology. During 1999, 1998 and 1997,
the Company expensed approximately $99,000, $730,000, and $391,000,
respectively, on technology development and support activities.
EMPLOYEES
As of December 31, 1999, the Company employed 643 persons. The Company
requires sales, project management, language services production, technical
support, and consultancy services personnel in order to obtain, manage and
produce major multilingual information projects. The Company is dependent
upon an adequate supply of skilled professionals in each of these primary
disciplines to meet the requirements of its clients and prospective clients.
The Company has already successfully hired additional employees with the
leading edge skills and experience required to implement the new ASP business
model. Further recruitment is planned throughout the transitional period and
the ability to attract and retain the best professional staff is a key
corporate goal. A dedicated human resources function, organized on a regional
basis, maintains global employee policies and supports recruitment, training
and career management. Employees of TPS in the Netherlands are represented by
a labor union and there is a works council in Germany. The Company believes
relationships with its employees to be good.
Due to the nature of its business, the Company also retains, on an as-needed
basis, a supply chain consisting of a large number of translators and other
service professionals who are independent contractors.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Financial information concerning the Company's foreign and domestic
operations is presented in note 2 to the Consolidated Financial Statements
included in Item 8 of this Form 10-K and is incorporated herein by reference.
ITEM 2: PROPERTIES
ALPNET's corporate headquarters are located in Salt Lake City, Utah. Customer
service and production facilities used by the Company as of December 31,
1999, all of which are leased, are listed below.
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Location
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Americas USA, Canada, Brazil
Europe United Kingdom (2), Germany (6), Republic of
Ireland, France, Spain, the Netherlands, Sweden
Asia Singapore, Korea, China, Japan, Thailand
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ITEM 3: 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. The Company was one of 18 named defendants. On
December 7, 1999, ALPNET was dismissed from the action, with prejudice.
CHRISTA WENNEMANN, 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 C 967G. The Company was one of 19 named defendants. On December
7, 1999, ALPNET was dismissed from the action, with prejudice.
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-CV589. The Company was one of 19 named defendants. On December 7,
1999, ALPNET was dismissed from the action, with prejudice.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1999.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ALPNET's Common Stock trades on The Nasdaq Stock Market under the symbol AILP.
The following table shows the range of high and low trading prices as reported
by The Nasdaq Stock Market for the years 1998 and 1999:
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1998 HIGH LOW
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Quarter ended March 31, 1998 $2.94 $2.00
Quarter ended June 30, 1998 4.87 2.69
Quarter ended September 30, 1998 5.03 2.31
Quarter ended December 31, 1998 2.03 1.25
1999 HIGH LOW
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Quarter ended March 31, 1999 $2.56 $1.50
Quarter ended June 30, 1999 2.47 1.59
Quarter ended September 30, 1999 2.78 1.69
Quarter ended December 31, 1999 4.75 1.66
</TABLE>
As of March 10, 2000, there were 397 shareholders of record; however, the
Company estimates the actual number of beneficial owners approximates 14,000.
No dividends have been declared on the Company's Common Stock. The Company is
currently prohibited from paying dividends under Utah corporate law.
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ITEM 6: SELECTED FINANCIAL DATA
The following selected financial data are derived from the Consolidated
Financial Statements of the Company. The data should be read in conjunction
with the Consolidated Financial Statements, related notes and other financial
information included therein.
FINANCIAL SUMMARY
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THOUSANDS OF DOLLARS, EXCEPT INCOME (LOSS) PER SHARE
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YEAR ENDED DECEMBER 31 1999 1998 1997 1996 1995
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Sales of services $ 51,452 $ 48,545 $ 40,795 $ 32,338 $ 26,919
Net income (loss) 716 (818)(1) 1,588 596 621
Income (loss) per share - basic .03 (.03) .09 .04 .04
Income (loss) per share - assuming dilution .03 (.03) .06 .02 .03
Total assets 33,662 22,423 21,040 17,267 14,449
Long-term debt, less current portion 2,523 454 489 262 220
</TABLE>
A majority of the Company's operations are located in foreign countries.
Accordingly, the Company is affected by foreign currency exchange rate
fluctuations as described in detail in Item 7A, "Foreign Exchange Risk".
(1) Includes restructuring expense of $1,291,000.
SELECTED QUARTERLY FINANCIAL DATA
The following table shows selected quarterly financial data for 1998 and 1999 as
previously reported in the quarterly reports on Form 10-Q.
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS, EXCEPT INCOME (LOSS) PER SHARE
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Sales of Operating Net Income (loss) Per Share
Services Income (loss) Income (loss) Basic Diluted
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1998
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Quarter ended March 31, 1998 $12,321 $ 1,126 $ 810 $ .035 $ .031
Quarter ended June 30, 1998 13,226 1,121 726 .031 .027
Quarter ended September 30, 1998 11,413 (417) (547) (.023) (.023)
Quarter ended December 31, 1998 11,585 (1,815)(1) (1,807)(1) (.075) (.075)
1999
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Quarter ended March 31, 1999 $12,462 $ 263 $ 104 $ .004 $ .004
Quarter ended June 30, 1999 12,516 602 357 .015 .014
Quarter ended September 30, 1999 14,142 826 513 .019 .019
Quarter ended December 31, 1999 12,332 23 (258) (.009) (.009)
</TABLE>
(1) Includes restructuring expense of $1,291,000
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ITEM 7: 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 Consolidated Financial Statements and notes thereto.
RESULTS OF OPERATIONS
The following paragraphs discuss 1999 results as compared with 1998, and 1998
results as compared with 1997. The Company reported net income of $716,000 in
1999 compared to a net loss of $818,000 in 1998 and net income of $1,588,000
in 1997. Included in the net loss for 1998 is $1,291,000 of restructuring
expense, as discussed more fully in note 4 to the Consolidated Financial
Statements.
Sales of services were $51.5 million for 1999 compared to $48.5 million for
1998 and $40.8 million for 1997. The $3.0 million increase in sales for 1999
follows the $7.7 million increase in sales for 1998.
1999 has been a year of transition and investment for the Company. In late
1998, the Company implemented a fundamental reorganization of the Company's
structure and operations. The reorganization was successfully completed in
early 1999 and stabilized the operations of the Company in anticipation of
the strategic acquisitions of EP and TPS at the end of June and July 1999,
respectively. For the first three quarters of 1999, the Company reported
profitable operations. In the fourth quarter, the Company incurred additional
operating costs in connection with the commencement of the implementation of
its new Internet-based ASP business model and the integration of the 1999
acquisitions into existing operations. These additional costs, together with
a revenue shortfall arising out of delays in some business opportunities due
to year 2000 concerns on the part of some clients and the impact of weak
European currencies, contributed to a net loss in the fourth quarter.
In 1998 compared with 1997, sales growth occurred in the first half of the
year and the Company reported net income for both the first and second
quarters. In the second half of 1998, losses were incurred as the entire
industry experienced adverse operating conditions resulting from volatile
global trading economic conditions and market changes. These adverse
conditions led to management's reorganization of the Company.
IMPACT OF THE NEW BUSINESS MODEL
The transition to the new Internet-based ASP business model will have a
significant impact on the operating results of the Company. The necessary
investment in the technical infrastructure, human resources, branding and
marketing support required to build the ASP capability will involve
significant operating expenditures that will run in excess of revenue. As a
result, the Company expects to report operating losses throughout the year
2000. Historical trends in revenue and expense will become less comparable as
the Company establishes a new revenue base and cost structure. The
investments which are planned for the year 2000 are expected to position the
Company for accelerated growth and profitability in future years.
SALES OF SERVICES BY GEOGRAPHIC SEGMENT
Sales in 1999 increased by $3.0 million compared with 1998. The general
downturn in revenue experienced in the second half of 1998 continued into
1999. The Company has also eliminated a substantial amount of low-margin
translation revenue, mainly in the UK, which is reflected in year-to-year
revenue comparisons. Acquisitions during the year accounted for approximately
$3.3 million of incremental revenue.
The value of revenues and costs reported in US dollars have been impacted
significantly in 1999 by the effects of fluctuations in foreign currencies
against the US dollar. However, the impact on net income has not been
significant. This is described in more detail in Item 7A "Quantitative and
Qualitative Disclosures About Market Risk."
North America sales increased by 11% and 30% in 1999 and 1998, respectively.
During 1999, the operations in the United States and Canada have been brought
under common management which maximizes the region's sales opportunities and
production efficiency. In the United States, sales grew by 25% in 1999 and by
17% in 1998. The United States represents one of the largest potential
markets for the Company's services and management expects sales growth to be
sustainable. In Canada, demand in the automotive and financial sectors
remained strong. Sales were at approximately the same level as 1998 following
exceptional growth of 45% in the prior year. Canada has also increased its
capacity for the management and production of intercompany revenue.
10
<PAGE>
Sales in Europe represent approximately 60% of the Company's total sales in
both 1999 and 1998. Sales increased $1.1 million, or 4%, in 1999 compared
with 1998. Foreign currency fluctuations had a negative impact on reported
sales of approximately $1.1 million during 1999, particularly in the fourth
quarter. The acquisitions of TPS and EP accounted for $2.8 million and $0.5
million of revenue in 1999, respectively. In the Netherlands, the Company now
operates from a single location having successfully integrated the existing
ALPNET operation into TPS. Sales in Germany, net of EP, grew by 4% in 1999
following exceptional growth in 1998 of 40%. These increases in 1999 sales
were offset by reductions in sales in the UK of $1.2 million. The UK
operation has eliminated low margin translation revenue and outsourced
production enabling it to reduce from eight operating locations to two. Other
European operations remained at relatively constant levels. In the second
quarter of 1999, European operations were unified under a new management
structure which has aggressively addressed the region's trading difficulties.
In 1998, sales in Europe grew by 3.2 million or 12% compared with 1997,
mainly as a result of strong sales growth in Germany and the Netherlands.
Asia's reported sales for 1999 were approximately at the same level as 1998,
having grown by 38% from 1997. The Company's presence in Asia has been
significantly expanded in recent years and reported double digit growth in
each of the last four years prior to 1999. Management expects growth in Asia
to continue but the rates of growth seen in recent years may not be
sustainable. Demand for services for the Asian markets from clients in the
United States and Europe remains high.
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.
Moreover, sales and profitability are increasingly affected by the number and
size of larger, 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 within its current revenue base. Nevertheless,
through its new ASP business model, the Company expects to be able to obtain
a larger share of a rapidly expanding global market for multilingual
information management services for information created for the Internet
marketplace.
COST OF SERVICES SOLD
The implementation of the new ASP business model will have a fundamental
impact on the nature and level of costs incurred by the Company.
Consequently, management has performed a thorough review of the
classification of costs reported in the financial statements and has reported
1999 costs on the basis of the Company's future cost structure. Management
believes the new classification is more meaningful and also is more
consistent with the Company's closest competitors. The main effect of the
reclassification is that certain indirect costs historically reported as cost
of services are now reported as either selling or general and administration
costs. Prior year amounts have been reclassified for comparison purposes.
Cost of services as a percentage of revenue fluctuate primarily as a result
of competition in the marketplace and the volume and nature of direct
production costs, especially on large projects. Gross margins in 1999 were at
approximately the same level as 1998. Competitive pricing pressures
intensified in the second half of 1998 and continued into 1999. The
elimination of excess production capacity as part of the Company's
reorganization prevented further erosion of margins. Management expects these
competitive pricing pressures to continue in the Company's existing service
lines. The new business model both lessens the Company's dependence on
short-term individual projects, which are highly price sensitive, and offers
long-term solutions based around higher value services. Margins are
anticipated to increase and become more predictable as the new model is
implemented.
OTHER COSTS AND EXPENSES
Sales and marketing expenses have increased by $183,000 in 1999, or 5%,
compared with an increase of $599,000 in 1998, or 19%. These increases were
due to several factors including the overall growth of sales and increases in
sales and marketing efforts in substantially all of the Company's markets. A
substantial increase in sales and marketing expense is anticipated in 2000
following the establishment in 1999 of a new marketing and eCommerce group to
support the launch of the Company's new business model.
General and administrative expenses have increased by $623,000 in 1999, or
7%, compared with an increase of $1.7 million in 1998, or 24%. The
restructuring of operations has brought local and corporate overhead expenses
into line with sales growth in the respective years. Part of the increase in
1999 relates to costs associated with the integration of the acquisitions and
the recruitment of additional personnel to implement the transition to the
new business model. Costs associated with the technical and managerial
infrastructure required are expected to increase significantly in 2000.
During 1999, the Company capitalized approximately $1.5 million of development
cost related to ALPNETXchange, as discussed in note 5 to the Consolidated
Financial Statements. Development costs were $99,000 in 1999 compared to
$730,000 in 1998 and $391,000 in 1997. The Company's development facility,
located in Provo, Utah, was closed in early 1999 resulting in a significant
reduction in development costs. During 1998, a significant upgrade of the
Company's proprietary language translation software was completed in response
to client demand. Also included in 1998 are costs associated with a new
language technology integration group.
11
<PAGE>
Amortization of goodwill was $617,000 in 1999 compared with $391,000 in 1998
and $393,000 in 1997. The increase in 1999 is attributable to the
acquisitions of EP and TPS. Annualized goodwill amortization resulting from
the 1999 acquisitions approximates $560,000. Other minor changes in
amortization are attributable to the effects of foreign currency fluctuations.
Net interest expense was $378,000 compared with $287,000 in 1998 and $263,000
in 1997. The increase in the year is attributable to notes issued in
connection with the acquisitions, higher net borrowings on operating lines of
credit to fund working capital, capital leases incurred in relation to
equipment purchases and the issuance of convertible notes during the third
and fourth quarters of 1999. Approximately $125,000 of interest incurred in
connection with the developed ALPNETXchange software has been capitalized.
The US parent company and each of its subsidiaries are separate legal and
taxable entities subject to the 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 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.
Income tax expense was $620,000 in 1999, $546,000 in 1998, and $435,000 in
1997. 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.
Note 8 to the Consolidated Financial Statements, Income Taxes, contains
additional information pertaining to the computation of income taxes as well
as the Company's net operating loss carryforwards as of December 31, 1999.
LIQUIDITY AND SOURCES OF CAPITAL
In 1999, the Company had a positive cash flow from operations of
approximately $764,000 compared with positive cash flows from operations of
$410,000 and $753,000 in 1998 and 1997, respectively. Investing activities
during 1999 comprised approximately $1.5 million associated with the
developed ALPNETXchange software, $85,000 for acquisitions and $1.0 million
for equipment purchases. In 1998 and 1997, investing activities consisted
primarily of equipment purchases.
Financing activities for all years included fluctuations in the amounts
utilized under bank lines of credit used to finance the Company's working
capital needs. During 1999, the Company issued long-term, unsecured
convertible notes totaling approximately $1.8 million of which $490,000 was
issued to related parties. Repayments on these notes commence in 2002. The
consideration for the acquisitions of EP and TPS included the issuance of
common stock, issuance of debt and assumption of liabilities, as described
in notes 3 and 6 to the Consolidated Financial Statements. Of the debt
issued, approximatley $300,000 is due during the second quarter and $800,000
during the third quarter of 2000.
During 1997, the Company obtained a long term loan for approximately $330,000
which was repaid in 1999. In July 1997, the Company obtained a mortgage with
a bank in Spain for approximately $150,000 which was repaid in November 1997.
Also in 1997, the Company's non-cash financing activities included the
conversion by certain shareholders of all outstanding shares of the Company's
series B and series C Convertible Preferred Stock to Common Stock, as
described in more detail in note 7 to the Consolidated Financial Statements.
At December 31, 1999, the Company's cash and cash equivalents were
approximately $1.3 million, which represented a decrease of approximately
$200,000 during 1999. At December 31, 1999, the Company had working capital
of approximately $2.8 million, compared to working capital of approximately
$3.0 million at December 31, 1998. The Company's primary working capital
requirements relate to the funding of accounts receivable. The Company funds
some of its working capital needs with credit facilities with financial
institutions in the US, Canada, the UK, Germany, the Netherlands and Spain.
Most of the credit facilities are secured by accounts receivable and other
assets of the Company or its subsidiaries. As of December 31, 1999, the
Company had unused amounts under these credit facilities of approximately
$928,000. 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 as the Company's sales increase. 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.
12
<PAGE>
The Company will be required to obtain additional financing in order to
continue the implementation of its new Internet-based ASP business model and
the related expenditures for technical infrastructure, human resources,
branding and marketing support. The Company is actively seeking sufficient
funding through the private or public placement of debt or equity securities
as well as other possible sources. Management believes that it has available
alternative sources of such funding that can be obtained in amounts and on
terms acceptable to the Company and sufficient to enable the Company to be
able to fund its working capital needs, meet its scheduled debt repayments
and satisfy its planned investment requirements for the new ASP business
model.
If management's efforts to obtain sufficient funding are unsuccessful, the
Company has various options available to it including the cancellation or
postponement of expenditures related to the implementation of the new ASP
business model, reduction of operating expenditures, renegotiation and
rescheduling of debt repayments and utilization of equipment lease financing
as an alternative to purchasing. Management believes that these measures will
enable the Company to continue operations, albeit at a reduced level. 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.
The Company's only significant commitments for capital expenditures are
approximately $1.4 million for computer equipment and related software which
will be acquired under capital leases during 2000. The total level of capital
additions in 1999 increased significantly from 1998 due to the development of
ALPNETXchange software, and 1998 compared to 1997 due to the expansion of
existing offices and the opening of new offices. 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 reorganization of the Company's structure and operations, as
discussed above under Results of Operations. This reorganization had a
negative effect on cash flow of approximately $840,000 and $327,000 in 1999
and 1998, respectively. Additional negative cash flows related to this
reorganization in the amount of approximately $124,000 will occur in 2000.
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 December 31, 1999
and 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.
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 have resulted 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 implemented a plan to assess the impact of
any potential Year 2000 issues and to take any appropriate corrective action.
This plan primarily involved internal resources to reprogram, replace, test
and implement the software and operating equipment for required Year 2000
modification. This assessment indicated that the operations administration
system of one foreign subsidiary required significant modification and
replacement. The Company spent approximately $200,000 during 1998 and 1999 of
which approximately $110,000 was for capitalized replacement equipment and
$90,000 was expensed.
During the acquisitions of EP and TPS, the Company performed Year 2000 due
diligence to identify any potential problems in the operating systems or the
developed technology of the target companies. The Company's existing
proprietary translation technology had been compliant since its original
development.
The Company experienced no material disruptions as a result of Year 2000
related issues, although certain clients delayed the commencement of some
projects in the fourth quarter due to general Year 2000 concerns, which
negatively impacted the Company's fourth quarter results.
13
<PAGE>
THE EURO
On January 1, 1999, a new currency was launched, the Euro, which is a
significant step towards a full European Monetary Union (EMU) whereby the
national currencies of certain European sovereign states will be replaced by
a single, supra-national currency in July 2002.
Currently the Euro co-exists at fixed exchange rates with existing national
currencies of the eleven participating European countries. It is planned that
the Euro will stimulate the economies of the EMU countries by introducing
transparent pricing between countries, lower transaction costs and greater
certainty of investment and trade within Europe.
Approximately 40% of the Company's revenue is located within countries
adopting the Euro (the Republic of Ireland, Germany, France, Spain and the
Netherlands). The Euro's introduction and continued implementation has not
had, and is not expected to have, a significant impact on the revenue and net
income of the Company.
NEW ACCOUNTING STANDARDS
Information concerning new accounting standards is presented in note 1 to the
Consolidated Financial Statements, included in Item 8 of this Form 10K and is
incorporated herein by reference.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE RISK
The Company serves its customers from more than 21 wholly-owned offices in 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. The Singapore dollar is
closely tied to the US dollar and therefore has low exchange risk.
Fluctuations against the US 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 1999, 1998 and 1997, along with
the effect of foreign currency exchange rate fluctuations on sales between
years.
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS
- ------------------------------------------ ---------- ------------ ------------- --------- ---------- ----------- ------------
Increase (Decrease) Increase (Decrease)
in Sales of Services Total in Sales of Services Total
due to 1999/1998 due to 1998/1997
Sales Currency Increase Sales Currency Increase
1999 1998 Volume Differences (Decrease) 1997 Volume Differences (Decrease)
- ---------------- ---------- ---------- ----------- ------------ ------------- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America $18,582 $16,705 $ 1,830 $ 47 $ 1,877 $12,860 $ 4,491 $ (646) $ 3,845
Europe 30,413 29,355 2,198 (1,140) 1,058 26,133 3,317 (95) 3,222
Asia 2,457 2,485 (101) 73 (28) 1,802 899 (216) 683
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL SALES $51,452 $48,545 $ 3,927 $(1,020) $ 2,907 $40,795 $ 8,707 $ (957) $ 7,750
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The revenue mix of the Company's operations and the effect of foreign
currency exchange rate fluctuations on costs and expenses 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 dollar generates an offsetting increase
in the dollar value of profits arising from revenues sold and produced within
that country. This natural currency effect reduces the net foreign exchange
risk to the Company.
The Company has not historically experienced significant differences in net
income as a result of fluctuations in foreign currencies. 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.
14
<PAGE>
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. The 1999
foreign currency adjustment to shareholders' equity was negative $733,000
compared to a positive $283,000 in 1998. As of December 31, 1999, the
cumulative net effect to the Company of the equity adjustment from movements
in foreign currency exchange rates was a reduction of $2.5 million in
shareholders' equity. A substantial portion of the cumulative foreign
currency adjustment relates to changes in the carrying value of goodwill, of
which a significant amount is denominated in foreign currencies.
INTEREST RATE RISK
The Company obtains part of its working capital requirements from credit
facilities with various banks which provide for interest at variable rates
linked to base interest rates. If base interest rates increase, the Company
is potentially exposed to higher interest expense. This would be partially
offset by higher interest income on cash balances.
The majority of the Company's credit facilities are denominated in foreign
currencies and any increases in the respective interest rates will normally
be compensated through correspondingly weakened exchange rates translating
the increased interest expense reported into fewer US dollars. If US base
rates increase, the increase in US interest expense will again normally be
reduced by the consequent strengthening of the dollar reducing the reported
interest expense on the foreign denominated debt. Thus, any unilateral
changes in the interest rates in any of the countries where the Company has a
significant amount of debt will be compensated through natural exchange rate
adjustments such that there is no material impact on the level of net
interest expense reported. If all or a majority of the interest rates
increase in the countries in which the Company has significant amounts of
debt, there would be a risk of increase in the amount of interest expense
reported. In the opinion of management, such a general increase is unlikely.
15
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALPNET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
THOUSANDS OF DOLLARS 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,338 $ 1,499
Trade accounts receivable, less allowance of
$489 in 1999 and $424 in 1998 11,398 10,124
Work-in-process 3,051 1,675
Prepaid expenses and other 538 636
------- -------
Total current assets 16,325 13,934
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Office facilities and leasehold improvements 370 258
Equipment 5,909 6,634
Software 2,812
------- -------
9,091 6,892
Less accumulated depreciation and amortization 3,376 4,133
------- -------
Net property, equipment and leasehold improvements 5,715 2,759
OTHER ASSETS:
Goodwill, less accumulated amortization of
$4,384 in 1999 and $4,025 in 1998 11,250 5,428
Other 372 302
------- -------
Total other assets 11,622 5,730
------- -------
TOTAL ASSETS $33,662 $22,423
======= =======
</TABLE>
16
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
December 31
THOUSANDS OF DOLLARS AND SHARES 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Credit facilities with banks $ 3,932 $ 3,631
Accounts payable 3,759 2,671
Accrued payroll and related benefits 1,211 1,222
Other accrued expenses 1,951 2,110
Deferred revenue 70 189
Income taxes payable 962 724
Current portion of related party debt 793
Current portion of long-term debt 827 400
-------- --------
Total current liabilities 13,505 10,947
Related party debt, less current portion 623
Long-term debt, less current portion 1,900 454
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
27,763 shares in 1999 and 24,287
shares in 1998 49,175 42,546
Accumulated deficit (29,247) (29,963)
Accumulated other comprehensive income (2,536) (1,803)
-------- --------
Total shareholders' equity 17,634 11,022
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 33,662 $ 22,423
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
17
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31
THOUSANDS OF DOLLARS, EXCEPT INCOME (LOSS) PER SHARE 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES OF SERVICES $51,452 $ 48,545 $ 40,795
Cost of services sold 35,633 33,535 27,479
-------- -------- --------
GROSS PROFIT 15,819 15,010 13,316
OPERATING EXPENSES:
Sales and marketing expenses 3,885 3,702 3,103
General and administrative 9,504 8,881 7,143
Development costs 99 730 391
Amortization of goodwill 617 391 393
Restructuring expenses 1,291
-------- -------- --------
Total operating expenses 14,105 14,995 11,030
-------- -------- --------
OPERATING INCOME 1,714 15 2,286
Interest expense, net 378 287 263
-------- -------- --------
Income (loss) before income taxes 1,336 (272) 2,023
Income taxes 620 546 435
-------- -------- --------
NET INCOME (LOSS) $ 716 $ (818) $ 1,588
======== ======== ========
Income (loss) per share - basic $ .03 $ (.03) $ .09
======== ======== ========
Income (loss) per share - assuming dilution $ .03 $ (.03) $ .06
======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
18
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Accumulated
Other Comprehensive
Preferred Stock Common Stock Accumulated Comprehensive Income
THOUSANDS OF DOLLARS AND SHARES Shares Amount Shares Amount Deficit Income (loss) Total (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1997 719 $ 2,095 17,883 $ 40,228 $(30,733) $ (1,235) $ 10,355
Conversion of Preferred Stock to
Common Stock (632) (1,853) 5,401 1,845 (8)
Exercise of stock options 9 7 7
Net income 1,588 1,588 $ 1,588
Foreign currency
translation adjustment (851) (851) (851)
---------------------------------------------------------------------------------------------
Total comprehensive income $ 737
========
BALANCES AT DECEMBER 31, 1997 87 242 23,293 42,080 (29,145) (2,086) 11,091
Exercise of stock options 994 466 466
Net loss (818) (818) $ (818)
Foreign currency
translation adjustment 283 283 283
---------------------------------------------------------------------------------------------
Total comprehensive loss $ (535)
========
BALANCES AT DECEMBER 31, 1998 87 242 24,287 42,546 (29,963) (1,803) 11,022
Stock issued for acquisitions 3,050 6,248 6,248
Exercise of stock options, net 426 381 381
Net income 716 716 $ 716
Foreign currency
translation adjustment (733) (733) (733)
---------------------------------------------------------------------------------------------
Total comprehensive loss $ (17)
========
BALANCES AT DECEMBER 31, 1999 87 $ 242 27,763 $ 49,175 $(29,247) $ (2,536) $ 17,634
===============================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
THOUSANDS OF DOLLARS 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 716 $ (818) $ 1,588
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of property,
equipment and leasehold improvements 1,014 897 669
Amortization of goodwill 617 391 393
Net (gain) loss on disposal of property and equipment 113 16 (78)
Other 18 (43) 8
Changes in operating assets and liabilities:
Trade accounts receivable (1,694) (257) (3,541)
Accounts payable and accrued expenses 388 1,018 1,375
Work-in-process (604) (636) (558)
Income tax payable 219 273 393
Deferred revenue (164) (547) 362
Prepaid expense and other 141 116 142
-------------------------------------------
Net cash provided by operating activities 764 410 753
INVESTING ACTIVITIES:
Purchase of property, equipment and
leasehold improvements (1,040) (1,497) (336)
Payment for acquisition, net of cash acquired (85) (508)
Proceeds from sale of property 84 213
Capitalized development costs (1,499)
-------------------------------------------
Net cash used in investing activities (2,540) (1,497) (631)
FINANCING ACTIVITIES:
Proceeds from credit facilities with banks, net 118 614 777
Proceeds from notes to related parties 724
Principal payments on notes to related parties (150)
Proceeds from long-term debt 1,363 172 284
Principal payments on long-term debt (764) (430) (433)
Proceeds from exercise of stock options 381 466 7
-------------------------------------------
Net cash provided by financing activities 1,672 822 635
Effect of exchange rate changes on cash (57) 53 (80)
-------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (161) (212) 677
Cash and cash equivalents at beginning of year 1,499 1,711 1,034
-------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,338 $ 1,499 $ 1,711
===========================================
</TABLE>
20
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Supplemental Disclosure of Cash Flow Information:
<TABLE>
<CAPTION>
Year Ended December 31
THOUSANDS OF DOLLARS 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 436 $ 281 $ 261
Income taxes 414 275 46
Supplemental schedule of non-cash investing and financing activities:
Equipment purchased under capital lease obligations $ 980 $ 269 $ 527
</TABLE>
The Company purchased all of the capital stock of EP and TPS (as described in
note 3). In conjunction with the acquisitions, liabilities were assumed as
follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 8,632
Cash paid (85)
Paid in stock (6,248)
---------
Liabilities assumed $ 2,299
=========
</TABLE>
SEE ACCOMPANYING NOTES.
21
<PAGE>
ALPNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
ALPNET, Inc. (the "Company") is a United States multinational corporation.
The Company provides services and solutions in the multilingual information
management services sector to businesses engaged in international trade.
These services include localization, documentation, translation, information
consultancy, and language technology integration. The principal markets for
the Company's services are North America, Europe, and Asia. The Company has
commenced a strategic repositioning to evolve its current service offering
into an Internet-based Application Service Provider ("ASP") which will host
multilingual information management services via the Internet.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ALPNET, Inc.
and its wholly-owned subsidiaries or branches located in the United States,
Canada, Brazil, United Kingdom, Republic of Ireland, Germany, France, Spain,
the Netherlands, Sweden, Singapore, Korea, China, Japan and Thailand.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
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 average exchange rates prevailing during the year. The
resultant cumulative translation adjustments to the assets and liabilities
are recorded as a separate component of shareholders' equity. Exchange
adjustments resulting from foreign currency transactions are included in the
determination of net income.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's foreign subsidiaries
are calculated based upon the local currencies. As a result, amounts related
to assets and liabilities reported on the statements of cash flows will not
necessarily agree with changes in the corresponding balances on the balance
sheets.
ESTIMATES
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, the 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.
CASH AND CASH EQUIVALENTS
The Company considers cash equivalents to be all highly liquid investments
with a maturity of three months or less when purchased. Cash equivalents are
stated at cost, which approximates fair value.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost.
Depreciation and amortization are calculated using the straight-line method
over estimated useful lives of 3 to 5 years for equipment, 5 to 25 years for
office facilities and leasehold improvements.
GOODWILL
Goodwill consists of the excess of the purchase price over the fair value of
net assets of purchased subsidiaries and is amortized on the straight-line
method over 12 to 25 years. Annually and upon significant changes, the
Company reviews goodwill for impairment. In determining whether an impairment
should be recognized, the Company compares undiscounted projected income over
the remaining amortization period to the unamortized balance of goodwill for
each acquired subsidiary. No impairments have been recorded for any of the
years presented.
22
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE
Purchased software is recorded at cost. The Company capitalized certain of
the costs of developed software for internal use in accordance with Statement
of Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." Costs incurred during the application development
stage are capitalized and amortized over the estimated useful life of the
software. Amortization of software is provided on a straight line basis over
useful lives ranging from two to six years.
REVENUE RECOGNITION
Revenue from sales of services is recognized as work is performed on either
the completed-contract or percentage-of-completion method, depending on the
terms of the purchase order or contract. The completed-contract method is
applied to purchase orders for short-term projects (generally one or two
months). The percentage-of-completion method is used for longer-term
contracts (generally three or more months) with defined specifications and
deliverables. Revenue is recognized according to management's assessment of
the progress of completion. Anticipated losses, if any, are recognized in the
period in which determined. Work-in-process represents costs on uncomplete
projects as well as revenues earned in excess of amounts billed.
STOCK OPTIONS
The Company accounts for stock options using the intrinsic value method and
provides pro forma footnote disclosure of the impact of using the fair value
method.
INCOME (LOSS) PER SHARE
The Company presents basic and diluted income (loss) per share on the face of
the consolidated statements of income. Basic income (loss) per share is
computed by dividing net income (loss) 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 exercising stock options and
convertible securities.
COMPREHENSIVE INCOME
The Company presents comprehensive income in the shareholders' equity section
of the consolidated balance sheet. Accumulated other comprehensive income is
entirely accumulated foreign currency translation adjustments.
SEGMENT DATA
The Company operates in one business segment: multilingual information
management services. Within this segment, the Company also evaluates its
performance by significant geographic regions: North America, Europe and Asia.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In the third quarter of 1999, the Company adopted FAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This requires the Company
to record all derivative instruments as assets or liabilities, measured at
fair value. The adoption of this statement had no material affect on the
financial statements of the Company.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
("SAB 101"). The bulletin summarizes the views of the staff on applying
generally accepted accounting principles to revenue recognition. SAB 101
expresses the opinion that revenue is earned when four criteria are met;
persuasive evidence of an arrangement exists; delivery has occurred or
services have been rendered; the sales price to the buyer is fixed or
determinable; and collectibility is reasonably assured. The Company believes
that its existing revenue recognition policies are in conformity with SAB 101.
23
<PAGE>
2. GEOGRAPHICAL AND SEGMENT DATA
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.
<TABLE>
<CAPTION>
Year Ended December 31
THOUSANDS OF DOLLARS 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net external sales:
North America $ 18,582 $ 16,705 $ 12,860
Europe 30,413 29,355 26,133
Asia 2,457 2,485 1,802
----------------------------------------------
$ 51,452 $ 48,545 $ 40,795
==============================================
Intercompany sales:
North America $ 3,019 $ 1,295 $ 1,151
Europe 8,915 7,450 5,276
Asia 5,590 5,086 3,922
----------------------------------------------
$ 17,524 $ 13,831 $ 10,349
==============================================
Income (loss) before income taxes:
North America $ 585 $ (100) $ 692
Europe 289 (375) 1,250
Asia 462 203 81
----------------------------------------------
$ 1,336 $ (272) $ 2,023
==============================================
Identifiable assets:
North America $ 15,789 $ 6,047 $ 5,671
Europe 14,394 13,290 13,209
Asia 3,479 3,086 2,160
----------------------------------------------
$ 33,662 $ 22,423 $ 21,040
==============================================
Depreciation and amortization:
North America $ 605 $ 338 $ 245
Europe 821 794 686
Asia 205 156 131
----------------------------------------------
$ 1,631 $ 1,288 $ 1,062
==============================================
Interest expense (income):
North America $ 161 $ 109 $ 78
Europe 219 180 185
Asia (2) (2)
----------------------------------------------
$ 378 $ 287 $ 263
==============================================
</TABLE>
Net external sales and total identifiable assets in the UK, Germany, Canada, and
the US are as follows:
<TABLE>
<S> <C> <C> <C>
Net external sales:
UK $ 9,519 $ 10,684 $ 12,972
Germany 13,814 12,782 9,119
Canada 8,562 8,668 6,015
US 10,020 8,037 6,845
Identifiable assets:
UK $ 5,423 $ 5,786 $ 6,894
Germany 4,506 3,871 3,304
Canada 3,976 4,252 2,682
US 11,813 1,795 2,989
</TABLE>
Sales to a single client in the computer industry accounted for 4%, 5%, and
11% of total revenues in 1999, 1998 and 1997, respectively. No other client
accounted for more than 10% of revenues in any year.
24
<PAGE>
3. ACQUISITIONS
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. The acquisition cost of approximately $1,007,000 was
paid as follows:
<TABLE>
<S> <C>
Cash $ 98,000
8% unsecured note due June 30, 2000 320,000
8% unsecured notes due in three equal installments in 36,
48, and 60 months from the acquisition date,
convertible to common shares 133,000
49,518 shares of ALPNET, Inc. common stock 112,000
Assumption of net liabilities and acquisition costs 344,000
-------------
Total $ 1,007,000
=============
</TABLE>
The acquisition is accounted for using the purchase method. The purchase price
was allocated to software ($630,000) and goodwill ($377,000) which 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. The acquisition cost of
approximately $6,392,000 was paid as follows:
<TABLE>
<S> <C>
3,000,000 shares of ALPNET, Inc. common stock $ 6,136,000
Acquisition costs 256,000
-------------
Total $ 6,392,000
=============
</TABLE>
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.
The results of operations at EP and TPS have been included in the
consolidated results of operations since July 1 and August 1, 1999,
respectively.
PRO FORMA FINANCIAL INFORMATION
The following table shows the effect of acquisitions on the consolidated
financial statements of the Company on a pro forma basis, as if the
acquisitions had taken place on January 1, 1998.
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
---------------------------------
<S> <C> <C>
Sales of services $ 56,344 $ 56,914
Operating income 1,843 331
Net income (loss) 584 (998)
Income (loss) per share - basic 0.02 (0.04)
Income (loss) per share - diluted 0.02 (0.04)
</TABLE>
25
<PAGE>
4. RESTRUCTURING
In response to volatile global market conditions, the Company implemented a
reorganization of the Company's structure and operations in November 1998.
The reorganization plan included the centralization of production operations,
elimination of production capacity including personnel, facilities and other
support costs and reorganization of the sales function.
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 operations 42 $ 212 $ 158 $ 370
Belgium production facility 16 106 50 156
Executive personnel reductions 3 340 340
Europe operations 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 related goodwill. The European restructuring
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 there is no impairment of
goodwill.
The restructuring costs summarized above represent costs paid during 1998 and
1999, and accrued at December 31, 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 December 31, 1998 60 (327) (327)
-------------------------------------------------------------------
22 566 398 964
Paid in 1999 22 (566) (274) (840)
-------------------------------------------------------------------
Outstanding as of December 31, 1999 - $ - $124 $ 124
===================================================================
</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.
5. SOFTWARE
The Company has capitalized certain costs in connection with developed
software for internal use. No amortization has been recorded as the software
is not ready for use as of December 31, 1999. The software is expected to be
ready for use in the third quarter of 2000.
<TABLE>
<CAPTION>
1999
-------------
<S> <C>
Software acquired from EP $ 630,000
Internal development costs 1,374,000
Purchased software 683,000
Capitalized interest 125,000
-------------
Total $2,812,000
=============
</TABLE>
26
<PAGE>
6. BORROWINGS
CREDIT FACILITIES WITH BANKS
Credit facilities with banks consisted of the following at December 31:
<TABLE>
<CAPTION>
Interest
Rate
THOUSANDS OF DOLLARS 1999 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Credit facility with a US financial institution 9.4% $ 998 $ 638
Credit facility with a Canadian bank 7.5% 1,171 1,189
Credit facilities with a UK bank 7.5% 1,183 1,472
Credit facility with a German bank 10.0% 526 197
Unsecured credit facility with another German bank 9.25%
Credit facility with a Spanish bank 7.0% 54 59
Credit facility with a Netherlands bank 76
------------------------------
$ 3,932 $ 3,631
==============================
</TABLE>
All of the Company's credit facilities have variable interest rates. The
interest percentages shown are the actual rates at December 31, 1999. The
weighted average interest rate on notes payable to banks was 7.95% at
December 31, 1999 and 8.4% at December 31, 1998. 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 currently exist. Occasionally,
amounts borrowed under credit facilities are allowed to exceed maximum limits
for short periods of time. Due to the short-term nature of these notes, their
carrying values at December 31, 1999 approximate their fair values.
The credit facility with the US financial institution is collateralized by
US-based accounts receivable, has a maximum limit of $1,000,000 at December
31, 1999, and is limited to 80% of US accounts receivable. Subsequent to
year-end this facility was replaced by a line of credit with another US bank.
The new credit line has a maximum limit of $2,000,000, and is limited to 80%
of US accounts receivable. A leasing facility of $2,000,000 is also available
under this banking relationship.
The credit facility with the Canadian bank is collateralized by the accounts
receivable of the Canadian subsidiary and is guaranteed by the Company. There
is a maximum limit of Canadian $2,500,000 (approximately $1,730,000) at
December 31, 1999, and intercompany debts have been subordinated to the bank.
The credit facilities with the UK bank as of December 31, 1999 are provided
under an invoice factoring agreement, replacing the credit facility in 1998.
There is a maximum limit of 80% of UK receivables (approximately $1,376,000)
at December 31, 1999.
The secured credit facility with a German bank is collateralized by the
accounts receivable of the German subsidiaries and DM 400,000 (approximately
$200,000) is guaranteed by the Company. There is a maximum limit of DM 1.2
million (approximately $620,000) at December 31, 1999. Intercompany debts
have been subordinated to the bank. The unsecured credit facility with
another German bank has a maximum limit of DM 200,000 (approximately
$100,000) at December 31, 1999.
The credit facility with the Spanish bank is guaranteed by the UK subsidiary
and has a maximum limit of PTS 9.2 million (approximately $56,000) at
December 31, 1999.
The credit facility with a Netherlands Bank had a maximum limit of Guilders
75,000 (approximately $40,000) including office lease guarantees, as of
December 31, 1998. It was paid off in full during the year.
As of December 31, 1999, the Company had unused amounts under these credit
facilities of approximately $928,000.
27
<PAGE>
6. BORROWINGS (CONTINUED)
RELATED PARTY DEBT
Related party debt consists of the following at December 31, 1999 (thousands
of dollars):
<TABLE>
<S> <C>
Convertible notes to former shareholders of EP $ 133
Note to former shareholder of TPS 793
Convertible notes to related parties 490
-----------
1,416
Less current portion 793
-----------
Long-term debt to related parties $ 623
===========
</TABLE>
The convertible notes to former shareholders of EP were issued on completion
of the acquisition (as described in note 3). 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 $1.78 (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 note to the former shareholder of TPS was issued on completion of the
acquisition (as described in note 3), has a principal of Dutch Guilders DFL
1.7 million (approximately $790,000), and is repayable on July 30, 2000
together with interest at 5%.
During 1999, the Company issued approximately $1.8 million of convertible
notes to private investors, $490,000 of which were issued to related parties.
These notes have a variable interest rate of US prime plus 2% (10.25% as of
December 31, 1999), 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 $2.73. The Company has the right to prepay the notes at any time
prior to maturity, upon 30 days' notice.
The aggregate maturities of long-term related party debt as of December 31,
1999 were as follows:
<TABLE>
<CAPTION>
Related
Party
THOUSANDS OF DOLLARS Debt
------------------------------------------------------------------------
<S> <C>
Year ending December 31
2000 $ 793
2001 -
2002 208
2003 208
2004 207
--------
$ 1,416
========
</TABLE>
28
<PAGE>
6. BORROWINGS (CONTINUED)
LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Term loan with a bank in the UK, payable in monthly installments,
interest at 10%, repaid in 1999 $ 210
Term loans with a bank in Canada, payable in monthly installments,
interest at 8% $ 180 160
Capital lease obligations to financial institutions due at various
dates through 2002, secured by certain equipment,
interest at 4% to 14% 927 466
Unsecured note payable to the former owner of the Company's German
subsidiary, payable in monthly installments, interest at 8% 18
Convertible notes 1,300
Unsecured note issued on acquisition of EP, interest at 8% 320
---------------------------
2,727 854
Less current portion 827 400
---------------------------
$1,900 $ 454
===========================
</TABLE>
The convertible notes were issued on identical terms to the notes issued to
related parties, as described above. The Company has issued an additional
$300,000 of convertible notes subsequent to December 31, 1999 with conversion
prices between $4.56 and $5.30.
The aggregate maturities of long-term debt as of December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
Capital
Lease Long-Term
THOUSANDS OF DOLLARS Obligations Debt
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Year ending December 31
2000 $ 510 $ 406
2001 460 74
2002 81 454
2003 1 433
2004 0 433
------------- -------------
1,052 $ 1,800
=============
Less amount representing imputed interest 125
-------------
Present value of net minimum capital lease payments 927
Less current portion of capital lease obligations 421
-------------
Capital lease obligations, less current portion $ 506
=============
</TABLE>
Based on a discounted cash flow analysis, the carrying values of long-term
debt at December 31, 1999 approximate fair values.
At December 31, 1999 and 1998, the gross amount of equipment recorded under
capital leases was $724,000 and $897,000, respectively. Accumulated
amortization on these assets at December 31, 1999 and 1998 was $445,000 and
$335,000, respectively.
29
<PAGE>
7. CAPITAL STOCK
EQUITY TRANSACTIONS
In 1995, the Company issued 87,339 shares of series D Convertible Preferred
Stock to a shareholder and director, in exchange for the cancellation of a
300,000 Swiss franc (approximately $243,000) note payable. The series D
Preferred Stock is convertible at the option of the holder into nine shares
of the Company's Common Stock, has voting rights as if the shares were
already converted, and features a 10% non-cumulative dividend subject to the
discretion of the Board of Directors.
In March 1997, the Company issued 652,035 shares of Common Stock upon
conversion of 47,647 shares of series B Convertible Preferred Stock and
56,566 shares of series C Convertible Preferred Stock. In December 1997, the
Company issued 4,749,219 shares of Common Stock upon conversion of 527,691
shares of series C Convertible Preferred Stock. As of December 31, 1999, only
shares of series D Convertible Preferred Stock remain outstanding.
In 1994, the Company entered into a "financial monitoring agreement" with its
largest shareholder which required the Company, among other things, to obtain
prior approval for major financing transactions, significant asset purchases
or sale of a major portion of the Company's assets. Subsequent to December
31, 1999, the conditions attached to this agreement were met and the Company
has been released from the obligations under this agreement.
During 1999, the Company issued 3,049,518 shares of common stock in
connection with acquisitions. The Company is currently prohibited from paying
dividends under Utah corporate law.
INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted income
(loss) per share.
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS AND SHARES, EXCEPT INCOME (LOSS) PER SHARE 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Numerator for income (loss) per share - basic $ 716 $ (818) $ 1,588
Convertible notes 65
-------------------------------------------------
Numerator for income (loss) per share - assuming dilution $ 781 $ (818) $ 1,588
=================================================
Denominator:
Denominator for income (loss)
per share - basic - weighted-average shares 25,761 23,838 18,449
Effect of dilutive securities:
Convertible Preferred Stock 786 5,623
Employee stock options 891 1,604
Convertible notes 345
-------------------------------------------------
Dilutive potential common shares 2,022 7,227
-------------------------------------------------
Denominator for income per share - assuming
dilution - adjusted weighted-average
shares and assumed conversions 27,783 23,838 25,676
=================================================
Income (loss) per share - basic $ .03 $ (.03) $ .09
=================================================
Income (loss) per share - assuming dilution $ .03 $ (.03) $ .06
=================================================
</TABLE>
30
<PAGE>
7. CAPITAL STOCK (CONTINUED)
STOCK OPTIONS
As of December 31, 1999, the Company had two stock option plans: a
non-statutory stock option plan and an executive stock option plan. At
December 31, 1999, a total of 5,102,323 shares of the Company's authorized
Common Stock were reserved for ultimate issuance under the two plans (the
"Option Plans"), of which 1,662,897 shares have been issued. The Company has
granted non-qualified stock options to employees, officers and independent
members of the Board of Directors under the Option Plans.
The exercise terms of the options granted under the non-statutory stock
option plan provide that the options expire six years after date of grant and
cannot be exercised during the first year. The options vest 20% per year over
a five year period. The exercise terms of the options granted under the
executive stock option plan generally provide for vesting over the period
from June 1998 through June 2000. All unexercised options under this plan
expire on September 1, 2000 or when the employee terminates employment with
the Company, if sooner.
The Company has elected to continue to apply Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and
related interpretations in accounting for its Option Plans. The alternative
fair value method of accounting prescribed by Financial Accounting Standard
No. 123, "Accounting for Stock- Based Compensation" ("FAS 123"), requires the
use of option valuation models that were not developed for use in valuing
employee stock options, as discussed below. Accordingly, under APB 25, no
compensation expense has been recognized for stock option grants because the
exercise price of stock options equals or exceeds the market price of the
Company's Common Stock on the date of grant.
If the Company had elected to account for options granted in 1999, 1998 and
1997 based on their fair value, as prescribed by FAS 123, net income and
income per share would have been adjusted to the pro forma amounts shown in
the table below. All income per share amounts have been restated as required
to comply with FAS 128.
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS, EXCEPT INCOME (LOSS) PER SHARE 1999 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss)
Reported $ 716 $ (818) $ 1,588
pro forma 241 (1,414) 1,342
Net income (loss) per share - basic
Reported .03 (.03) .09
pro forma .01 (.06) .07
Net income (loss) per share - assuming dilution
Reported .03 (.03) .06
pro forma .01 (.06) .05
</TABLE>
The fair value of each stock option grant was determined using the
Black-Scholes option pricing model and the following assumptions: expected
stock price volatility of .8 to 1.0, risk-free interest rate of 6%, weighted
average expected option lives ranging from three to four years, and no
dividends. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value, in
management's opinion the existing models do not necessarily provide a
reliable single measure of the fair value of stock options. The method of
accounting for stock options as defined by FAS 123 has not been applied to
options granted prior to January 1, 1996, and therefore the resulting pro
forma compensation cost may not be representative of that to be expected in
future years.
31
<PAGE>
7. CAPITAL STOCK (CONTINUED)
The following table is a summary of activity for the Company's Option Plans for
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ----------------------- ----------------------------
Weighted-Average Weighted-Average Weighted-Average
THOUSANDS OF SHARES Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,808 $ 1.44 3,547 $ .96 3,327 $ .83
Granted 827 1.98 511 3.06 1,175 1.35
Cancelled (819) 1.40 (233) 1.51 (946) 1.00
Exercised (448) .95 (1,017) .55 (9) .77
----------- ---------- ----------
Outstanding at end of year 2,368 $ 1.73 2,808 $ 1.44 3,547 $ .96
=========== ========== ==========
Exercisable at end of year 700 $ 1.20 236 $ 1.02 144 $ .99
=========== ========== ==========
Weighted average fair value
of options granted during the year $ 1.39 $ 2.15 $ .77
=========== ========== ==========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
THOUSANDS OF SHARES Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of As of Remaining Average As of Average
Exercise Prices December 31, 1999 Contractual Life in Exercise December 31, 1999 Exercise
Years Price Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .44 - $1.10 649 0.71 $0.86 425 $ .74
$1.13 - $1.67 664 2.47 $1.37 213 $1.37
$1.83 - $2.00 682 5.62 $1.97
$2.03 - $4.53 373 4.56 $3.47 62 $3.79
</TABLE>
8. INCOME TAXES
The Company files a consolidated US Federal income tax return which includes
all domestic operations. Tax returns for states within the US and for foreign
subsidiaries are filed in accordance with applicable laws. The following
summarizes for income tax purposes, the domestic and foreign components of
income (loss) before income taxes for the year ended December 31:
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS 1999 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 2,237 $ 1,396 $ 2,444
Foreign (901) (1,668) (421)
-----------------------------------------------
$ 1,336 $ (272) $ 2,023
===============================================
</TABLE>
Income tax expense, including the effect of net operating loss carryforwards,
consisted of the following for the year ended December 31:
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS 1999 1998 1997
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income tax expense
Domestic income taxes
Federal $ 40 $ 50
State 80 $ 2 100
Foreign income taxes 500 544 285
---------------------------------------------
Total income tax expense $620 $546 $435
=============================================
</TABLE>
32
<PAGE>
8. INCOME TAXES (CONTINUED)
Income tax expense varied from the expected statutory domestic federal income
tax amount as follows for the year ended December 31:
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS 1999 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense on consolidated
income computed at the
domestic statutory federal income
tax rate $ 468 $(95) $ 708
Effect of foreign losses on the
computation of tax expense
at domestic statutory rates 833 813 480
Utilization of US net operating
losses from prior year (743) (805)
Effect of stock option exercise
deduction (25) (346)
Utilization of foreign net operating
losses from prior years (185)
Domestic state income taxes 80 2 100
Other 7 172 137
-------------------------------------
Reported income tax expense $ 620 $546 $ 435
=====================================
</TABLE>
The approximate tax effect of the temporary differences that give rise to
significant portions of deferred tax assets and liabilities are as follows
for the year ended December 31:
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS 1999 1998 1997
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 7,000 $7,100 $ 6,600
Tax credit carryforwards 150 250 350
Other 100 100
---------- --------- ------------
Total deferred tax assets 7,150 7,450 7,050
Less valuation allowances (7,150) (7,350) (6,950)
---------- --------- ------------
Net deferred tax assets $ - $ 100 $ 100
========== ========= ============
Total deferred tax liabilities $ - $ 100 $ 100
========== ========= ============
</TABLE>
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. The US
parent company has no net operating loss carryforwards for state income tax
purposes. The Company has approximately $150,000 of general business tax
credit carryforwards available to offset future US federal income taxes which
expire in 2000 through 2001. The valuation allowance has been adjusted for
net operating losses generated and utilized in each of the three years.
The following table summarizes by geographic region the significant available
operating loss carryforwards and the related expiration dates.
<TABLE>
<CAPTION>
Operating
Loss Expiration
THOUSANDS OF DOLLARS Carryforwards Dates
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
North America $ 12,250 2000 through 2003
Europe 6,450 2000 through indefinite
Asia 2,000 2000 through 2004
</TABLE>
33
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
All of the Company's office space and various equipment is rented under
leases which are classified as operating leases. These leases have remaining
terms of up to 15 years. Certain of the leases for office space contain
renewal options and adjustment clauses based on consumer price indices. Total
rental expense for all operating leases was approximately $2.4 million in
1999, $2.4 million in 1998, and $2.2 million in 1997. Certain office space
was subleased pursuant to a contract expiring in 1999. Total sublease rental
income was approximately $54,000 in 1999, $79,000 in 1998, and $96,000 in
1997.
At December 31, 1999, future minimum payments under non-cancelable operating
leases with initial terms of one year or more, are as follows:
<TABLE>
<CAPTION>
Lease
THOUSANDS OF DOLLARS Payments
-----------------------------------------------------------------------------
<S> <C>
Year ending December 31
2000 $ 1,915
2001 1,645
2002 1,090
2003 718
2004 658
Thereafter 4,829
-------------
Total minimum lease payments $10,855
=============
</TABLE>
EMPLOYEE BENEFIT PLANS
ALPNET, Inc. has a contributory profit sharing plan ("Plan") which is
designed to meet the requirements for qualification under Section 401(k) of
the US Internal Revenue Code. Under this provision, contributions by US
employees are excluded from their taxable income. The Plan provides
retirement benefits for US employees meeting certain eligibility requirements.
Certain of the Company's subsidiaries have defined contribution plans which
cover substantially all of their employees. Contributions are based upon
percentages of participating employees' compensation.
The cost of all of these plans was approximately $277,000 in 1999, $180,000
in 1998, and $109,000 in 1997.
CONTINGENT LIABILITIES
The Company has committed to purchase approximately $1.4 million of equipment
and related software during 2000.
10. RELATED PARTY TRANSACTIONS
As of December 31, 1999, the Company has a $21,000 unsecured promissory note
receivable, bearing interest at prime plus 3%, from an officer and director
of the Company. The note balance was $34,000 at December 31, 1998 and $44,700
at December 31, 1997.
Sales of services include approximately $325,000 to companies controlled by
Stork N.V., former owner of TPS and significant shareholder of the Company.
The balance receivable from related companies amounted to approximately
$140,000 as of December 31, 1999. The Company also paid approximately $80,000
for a lease on facilities to a subsidiary of Stork N.V.
11. VALUATION AND QUALIFYING ACCOUNTS
The following table sets out the activity in the Company's allowance for
doubtful receivables:
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS 1999 1998 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 424 $ 338 $ 219
Additions 306 247 199
Deductions (241) (161) (80)
----------------------------------------------
Balance at end of year $ 489 $ 424 $ 338
==============================================
</TABLE>
Additions represent amounts charged to costs and expenses for doubtful
receivables. Deductions represent the write-off of specific accounts
receivable.
34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
ALPNET, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of ALPNET, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of ALPNET Canada
Inc., a subsidiary of ALPNET, Inc., which statements reflect total assets
constituting 12% as of December 31, 1999 and 19% as of December 31, 1998, and
total revenues constituting 17% in 1999, 18% in 1998 and 15% in 1997 of the
related consolidated totals. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates
to data included for ALPNET Canada Inc., is based solely on the report of the
other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States.. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of ALPNET, Inc. and
subsidiaries at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Salt Lake City, Utah
March 10, 2000
35
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
ALPNET Canada, Inc.
We have audited the balance sheets of ALPNET Canada, Inc. as at December 31,
1999 and 1998 and the statements of earnings, deficit and cash flows for each
of the years ended December 31, 1999 and 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1999 and
1998, and the results of its operations and its cash flows for each of the
years ended December 31, 1999 and 1998 in accordance with generally accepted
accounting principles.
\s\ RICHTER, USHER & VINEBERG
Chartered Accountants
Montreal, Quebec
March 3, 2000
36
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholder of
ALPNET Canada Inc.
We have audited the balance sheets of ALPNET Canada Inc. as at December 31,
1997 and 1996 and the statements of earnings, deficit and changes in
financial position for each of the years ended December 31, 1997, 1996 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance as to whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1997 and
1996 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended December 31,
1997 in accordance with generally accepted accounting principles.
\s\ FRIEDMAN & FRIEDMAN
Chartered Accountants
Montreal, Quebec
February 13, 1998
37
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors required by Item 10 of Form 10-K is
presented in the section titled "Information About Directors and Nominees for
Director" in the Company's definitive Proxy Statement dated April 10, 2000
and is incorporated herein by reference. The information with respect to
Executive Officers is presented in the section titled "Information About
Directors and Nominees for Director in the Company's definitive Proxy
Statement dated April 10, 2000 and is incorporated herein by reference. The
information with respect to other significant employees is presented in the
section titled "Certain Significant Employees" in the Company's definitive
Proxy Statement dated April 10, 2000 and is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
Information required by Item 11 of Form 10-K is presented in the sections
titled "Compensation of Directors," "Executive Compensation and Related
Information" and "Compensation Pursuant to Plans" in the Company's definitive
Proxy Statement dated April 10, 2000 and is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 12 of Form 10-K is presented in the sections
titled "Principal Shareholders" and "Information About Directors and Nominees
for Director" in the Company's definitive Proxy Statement dated April 10,
2000 and is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 of Form 10-K is presented in the section
titled "Certain Relationships and Related Transactions" in the Company's
definitive Proxy Statement dated April 10, 2000 and is incorporated herein by
reference.
38
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS:
The financial statements are included in Item 8, Financial Statements
and Supplementary Data, as listed in the following index:
<TABLE>
<S> <C>
Index to Consolidated Financial Statements: Page
----
Consolidated Financial Statements:
Balance Sheets as of December 31, 1999 and 1998......................................................16
Statements of Operations for the years ended December 31, 1999, 1998 and 1997........................18
Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997..............19
Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997........................20
Notes to Consolidated Financial Statements...........................................................22
Report of Independent Auditors.......................................................................35
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULES:
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions and therefore have been
omitted, or are not presented because the information required is
included in the financial statements or notes thereto.
(3) LISTING OF EXHIBITS:
<TABLE>
<CAPTION>
Exhibit Filing
No. Description Status
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Restated Articles of Incorporation, as Amended (i)
3.2 By-Laws (iii)
4.1 Specimen Series D Preferred Stock Certificate (i)
10.1 Specimen Executive Stock Option Agreement dated August 17, 1995 (ii)
10.2 Stock Purchase Agreement between ALPNET, Inc. and EP Electronic Publishing Partners (iv)
GmbH et al, dated June 30, 1999, with Exhibits
10.3 Stock Purchase Agreement between ALPNET, Inc., et al and Stock N.V., et al, dated (v)
July 30, 1999 with Exhibits
21 Subsidiaries of Registrant (vi)
23.1 Consent of Ernst & Young LLP, Independent Auditors (vi)
23.2 Consent of Richter, Usher & Vineberg, Independent Auditors for ALPNET Canada, Inc. (vi)
23.3 Consent of Friedman & Friedman, Independent Auditors for Alpnet Canada Inc. (vi)
27 Financial Data Schedule (vi)
(i) Previously filed on November 13, 1995 as an Exhibit to Form 10-Q for the quarter ended September 30, 1995,
and incorporated herein by reference.
(ii) Previously filed on March 28, 1996 as an Exhibit to Form 10-K for the year ended December 31, 1995,
and incorporated herein by reference.
(iii) Previously filed on August 13, 1996 as an Exhibit to Form 10-Q for the quarter ended June 30, 1996,
and incorporated herein by reference.
(iv) Previously filed on July 14, 1999 as an Exhibit to Form 8-K for the acquisition dated June 30, 1999,
and incorporated herein by reference.
(v) Previously filed on August 10, 1999 as an Exhibit to Form 8-K for the acquisition dated July 30, 1999,
and incorporated herein by reference.
(vi) Filed herewith.
</TABLE>
(b) EXHIBITS:
The response to this portion of Item 14 is submitted as a separate
section of this report. See Item 14(a)(3) above.
(c) FINANCIAL STATEMENT SCHEDULES:
The response to this portion of Item 14 is submitted as a separate
section of this report. See Item 14(a)(2) above.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:
--------------------------------------
Jaap van der Meer, President and CEO
Date:
--------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
29 March 2000
- --------------------------------------------- -------------
Michael F. Eichner
Chairman of the Board of Directors
29 March 2000
- --------------------------------------------- -------------
Jaap van der Meer
President, CEO and Director
29 March 2000
- --------------------------------------------- -------------
John W. Wittwer
Vice President Finance, Chief Financial
Officer and Director
29 March 2000
- --------------------------------------------- -------------
James R. Morgan
Vice President Legal, Chief Legal
Officer and Director
29 March 2000
- --------------------------------------------- -------------
Donald N. Reeves
Director
29 March 2000
- --------------------------------------------- -------------
Darnell L. Boehm
Director
29 March 2000
- --------------------------------------------- -------------
Gerard J. M. Dijkstra
Director
</TABLE>
40
<PAGE>
E X H I B I T 2 1
LIST OF SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Date of
Place of Incorporation
Name Incorporation Or Acquisition
- ---------------------------------------------------------------------- ------------------------ ----------------------------
<S> <C> <C>
Automated Language Processing Systems, Ltd. Canada November 17, 1986
a.l.p. Services, Inc. Utah, USA November 25, 1987
A.L.P. SERVICES SARL France November 30, 1987
INTERDOC SARL France November 30, 1987
Automated Language Processing Services, Ltd. England December 2, 1987
ALPNET GmbH Germany January 11, 1988
ALPNET Canada Inc. Canada January 15, 1988
ALPNET Deutschland GmbH Germany January 29, 1988
Interlingua Group Ltd. England March 31, 1988
ALPNET U.K. Ltd. England March 31, 1988
Interlingua S.L. Spain March 31, 1988
ALPNET Singapore Pte. Ltd. Singapore March 31, 1988
ALPNET Ireland Ltd. Ireland August 18, 1995
Bengbu ALPNET Technology Co. Ltd. China December 12, 1995
ALPNET Netherlands BV The Netherlands February 12, 1996
ALPNET Belgium NV Belgium September 16, 1996
Computype Limited England January 31, 1997
ALPNET do Brasil Ltda. Brazil August 28, 1998
NET TEXT CC AB Sweden September 1, 1998
ALPNET Technology GmbH Germany June 30, 1999
Technical Publishing Services BV The Netherlands July 30, 1999
</TABLE>
- --------------------------
Notes: (1) All subsidiaries are wholly-owned.
(2) The Company's Korean, Japanese and Thai operations are branches
of ALPNET, Inc.
<PAGE>
E X H I B I T 2 3.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-5404) pertaining to the 1983 Non-Statutory Stock Option Plan
and in the Registration Statement (Form S-8 No. 333-06091) pertaining to the
1996 Executive Stock Option Plan of ALPNET, Inc. and subsidiaries of our
report dated March 10, 2000, with respect to the consolidated financial
statements of ALPNET, Inc. and subsidiaries included in the Annual Report
(Form 10-K) for the year ended December 31, 1999.
\s\ ERNST & YOUNG LLP
Salt Lake City, Utah
March 27, 2000
<PAGE>
E X H I B I T 2 3.2
CONSENT OF RICHTER, USHER & VINEBERG, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-5404) pertaining to the 1983 Non-Statutory Stock Option Plan
of ALPNET, Inc. and subsidiaries, and the Registration Statement (Form S-8
No. 333-06091) pertaining to the ALPNET, Inc. 1996 Executive Stock Option
Plan, of our Auditors' Report dated March 3, 2000 with respect to the balance
sheets of ALPNET Canada Inc. as at December 31, 1999 and 1998 and the
statements of earnings, deficit and cash flows for each of the years ended
December 31, 1999 and 1998, which we have been advised is included in this
Annual Report (Form 10-K) of ALPNET, Inc. for the year ended December 31,
1999.
\s\ RICHTER, USHER & VINEBERG
Chartered Accountants
Montreal, Quebec
March 10, 2000
<PAGE>
E X H I B I T 2 3.3
CONSENT OF FRIEDMAN & FRIEDMAN, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-5404) pertaining to the 1983 Non-Statutory Stock Option Plan
of ALPNET, Inc. and subsidiaries, and in the Registration Statement (Form S-8
No. 333-06091) pertaining to the ALPNET, Inc. 1996 Executive Stock Option
Plan, of our Auditors' Report dated February 13, 1998 with respect to the
balance sheets of Alpnet Canada Inc. as at December 31, 1997 and 1996 and the
statements of earnings, deficit and changes in financial position for each of
the years ended December 31, 1998, 1997 and 1996, which we have been advised
is included in this Annual Report (Form 10-K) of ALPNET, Inc. for the year
ended December 31, 1999.
\s\ FRIEDMAN & FRIEDMAN
Chartered Accountants
Montreal, Quebec
March 10, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998,
AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 DEC-31-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 1,338 1,499 1,711
<SECURITIES> 0 0 0
<RECEIVABLES> 11,887 10,548 10,110
<ALLOWANCES> 489 424 338
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 16,325 13,934 13,270
<PP&E> 9,091 6,892 5,229
<DEPRECIATION> 3,376 4,133 3,402
<TOTAL-ASSETS> 33,662 22,423 21,040
<CURRENT-LIABILITIES> 13,505 10,947 9,460
<BONDS> 2,523 454 489
0 0 0
242 242 242
<COMMON> 49,175 42,546 42,080
<OTHER-SE> (31,783) (31,766) (31,231)
<TOTAL-LIABILITY-AND-EQUITY> 33,662 22,423 21,040
<SALES> 51,452 48,545 40,795
<TOTAL-REVENUES> 51,452 48,545 40,795
<CGS> 35,633 33,535 27,479
<TOTAL-COSTS> 35,633 33,535 27,479
<OTHER-EXPENSES> 716 1,121 784
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 378 287 263
<INCOME-PRETAX> 1,336 (272) 2,023
<INCOME-TAX> 620 546 435
<INCOME-CONTINUING> 716 (818) 1,588
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 716 (818) 1,588
<EPS-BASIC> 0.03 (0.03) 0.09
<EPS-DILUTED> 0.03 (0.03) 0.06
</TABLE>
