<PAGE>
 
                                 UNITED STATES
                       SECURITES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the Quarterly period ended March 31, 1999

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the transition period from __________ to __________ .

Commission file number 0-15512.


                                 ALPNET, INC.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


              Utah                                            87-0356708
-------------------------------------                 --------------------------
  (State or other jurisdiction of                           (I.R.S. Employer
  Incorporation or Organization)                           Identification No.)


4460 South Highland Drive, Suite #100   
        Salt Lake City, Utah                                  84124-3543
------------------------------------                   ------------------------
(Address of principal executive offices)                      (Zip Code)


                                (801) 273-6600
--------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)

 
                                Not applicable
--------------------------------------------------------------------------------
             (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant (1) has filled all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filling
requirements for the past 90 days.
                                            Yes     X        No ___________
                                                -----------    

The number of shares outstanding of the registrant's no par value Common Stock
as of May 3, 1999 was 24,335,372.
<PAGE>
 
ALPNET, INC. AND SUBSIDIARIES

                                     INDEX


<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
------------------------------
<S>                                                                                                <C>
Item 1.  Consolidated Financial Statements (Unaudited):

         Consolidated Statements of Income--Three months ended March 31, 1999
           and 1998............................................................................     3

         Consolidated Balance Sheets--March 31, 1999 and December
           31, 1998............................................................................     4

         Consolidated Statements of Cash Flows--Three months
           ended March 31, 1999 and 1998.......................................................     6

         Notes to Consolidated Financial Statements--March 31,
           1999................................................................................     7

Item 2.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations...............................................................    11


PART II.   OTHER INFORMATION
----------------------------

Item 1.  Legal Proceedings.....................................................................    20

Item 6.  Exhibits and Reports on Form 8-K......................................................    20


SIGNATURES.....................................................................................    21
----------
</TABLE>

                                       2
<PAGE>
 
ITEM 1:  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
 
ALPNET, INC. AND SUBSIDIARIES
 
Consolidated Statements of Income (Unaudited)

<TABLE> 
<CAPTION> 
                                                    Three Months Ended March 31
Thousands of dollars except per share data              1999           1998
--------------------------------------------------------------------------------
<S>                                                 <C>             <C> 
SALES OF SERVICES                                    $12,462        $12,321
 
OPERATING EXPENSES:
  Cost of services sold                                9,957          9,242
  Selling, general and administrative
    expenses                                           2,097          1,732
  Development costs                                       48            124
  Amortization of goodwill                                97             97
                                                    -------------------------
 
Total operating expenses                              12,199         11,195
                                                    -------------------------
 
OPERATING INCOME                                         263          1,126
 
Interest expense, net                                     95             76
                                                    -------------------------
 
Income before income taxes                               168          1,050
 
Income taxes                                              64            240
                                                    -------------------------
 
NET INCOME                                            $  104         $  810
                                                    =========================
 
Income per share - basic                              $ .004         $ .035
                                                    =========================
 
Income per share - assuming dilution                  $ .004         $ .031
                                                    =========================
</TABLE> 

See accompanying notes.

                                       3
<PAGE>
 
ALPNET, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

<TABLE> 
<CAPTION> 
                                                        March 31    December 31
Thousands of dollars                                      1999         1998
--------------------------------------------------------------------------------
<S>                                                  <C>           <C> 
ASSETS
 
CURRENT ASSETS:
 Cash and cash equivalents                             $ 1,281      $ 1,499
 Trade accounts receivables, less allowance of
   $443 in 1999 and $424 in 1998                         8,860       10,124
 Work-in-process                                         2,335        1,675
 Prepaid expenses and other                                953          636
                                                     ------------------------
 
Total current assets                                    13,429       13,934
 
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
   Office facilities and leasehold improvements            245          258
   Equipment                                             7,091        6,634
                                                     ------------------------

                                                         7,336        6,892
 
   Less accumulated depreciation and amortization        4,179        4,133
                                                     ------------------------
 
Net property, equipment and leasehold improvements       3,157        2,759
 
 
OTHER ASSETS:
   Goodwill, less accumulated amortization of
     $3,938 in 1999 and $4,025 in 1998                   5,090        5,428
   Other                                                   294          302
                                                     ------------------------
 
Total other assets                                       5,384        5,730
                                                     ------------------------
 
TOTAL ASSETS                                           $21,970      $22,423
                                                     ========================  
</TABLE> 

See accompanying notes.

                                       4
<PAGE>
 
ALPNET, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)--continued

<TABLE> 
<CAPTION> 
                                                  March 31    December 31
Thousands of dollars and shares                     1999          1998
--------------------------------------------------------------------------------
<S>                                           <C>             <C>  
LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES:
  Notes payable to banks                        $  3,181      $  3,631
  Accounts payable                                 3,438         2,671
  Accrued payroll and related benefits             1,169         1,222
  Other accrued expenses                           1,400         2,110
  Deferred revenue                                    74           189
  Income taxes payable                               779           724
  Current portion of long-term debt                  531           400
                                              ---------------------------

Total current liabilities                         10,572        10,947
 
Long-term debt, less current portion                 800           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
    24,333 shares in 1999 and 24,287
    shares in 1998                                42,573        42,546
 Accumulated deficit                             (29,859)      (29,963)
 Accumulated other comprehensive income           (2,358)       (1,803)
                                              ----------------------------
 
Total shareholders' equity                        10,598        11,022
                                              ----------------------------
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      $ 21,970      $ 22,423
                                              ============================
</TABLE> 
 
See accompanying notes.

                                       5
<PAGE>
 
ALPNET, INC. AND SUBSIDIARIES
 
Consolidated Statements of Cash Flows (Unaudited)

<TABLE> 
<CAPTION> 
                                                    Three Months Ended March 31
Thousands of dollars                                    1999           1998
--------------------------------------------------------------------------------
<S>                                                 <C>            <C> 
OPERATING ACTIVITIES:
 Net income                                           $  104        $   810
 Adjustments to reconcile net income to
   net cash provided by operating activities;
     Depreciation and amortization of property,
      equipment and leasehold improvements               277            180
     Amortization of goodwill                             97             97
     Other                                                21            (61)
     Changes in operating assets and liabilities;
      Trade accounts receivable                          958            465
      Accounts payable and accrued expenses              216            575
      Work-in-process                                   (704)          (169)
      Income tax payable                                  42            167
      Deferred revenue                                  (113)          (265)
      Other                                             (341)          (160)
                                                      ----------------------
Net cash provided by operating activities                557          1,639
 
INVESTING ACTIVITIES:   
  Purchase of property, equipment and leasehold
    improvements                                        (842)          (312)
                                                      ----------------------
 
Net cash used in investing activities                   (842)          (312)
 
FINANCING ACTIVITIES:
   Proceeds from notes payable to banks                   59            173
   Principal payments on notes payable to banks         (459)        (1,055)
   Proceeds from long-term debt                          613             82
   Principal payments on long-term debt                 (119)           (75)
   Proceeds from exercise of stock options                27             53
                                                      ----------------------
Net cash provided by (used in) financing activities      121           (822)
 
Effect of exchange rate changes on cash                  (54)             7
                                                      ----------------------
 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS    (218)           512
 
Cash and cash equivalents at beginning of period       1,499          1,711
                                                      ----------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD            $1,281        $ 2,223
                                                      ======================
CASH PAID DURING THE PERIOD FOR:
  Interest                                            $   98        $    78
  Income taxes                                            19             73
</TABLE> 

See accompanying notes.

                                       6
<PAGE>
 
ALPNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 1999

1. BASIS OF PRESENTATION

   ALPNET, Inc. (the "Company") is a United States publicly-owned multinational
   corporation which was incorporated in the state of Utah in 1980. The Company
   provides services and solutions in the global information services sector to
   businesses engaged in international trade. These services include
   translation, software localization, information development and content
   creation. ALPNET also provides a range of information consultancy services
   which include information analysis, development of information strategies,
   advice on information standards and benchmarking and evaluation of available
   language products including information and documentation management systems,
   authoring and translation tools and publishing software and browsers. The
   principal markets for the Company's services are North America, Europe and
   Asia.

   The accompanying unaudited consolidated financial statements have been
   prepared in accordance with the rules and regulations of the U.S. Securities
   and Exchange Commission. Accordingly, they do not include all of the
   information and footnote disclosures required by generally accepted
   accounting principles for complete financial statements. In the opinion of
   management, all adjustments (consisting of normal recurring adjustments)
   considered necessary for a fair presentation have been included. Operating
   results for the periods presented are not necessarily indicative of the
   results that may be expected for the respective complete years. For further
   information, refer to the Consolidated Financial Statements and notes thereto
   included in the Company's Annual Report on Form 10-K for the year ended
   December 31, 1998.

   The preparation of financial statements in conformity with generally accepted
   accounting principles requires management to make estimates and assumptions
   that affect the reported amounts of assets and liabilities and disclosure of
   contingent liabilities at the date of the financial statements, and the
   reported amounts of revenues and expenses during the reporting periods.
   Actual results could differ from those estimates.

2. COMPREHENSIVE INCOME

   As of January 1, 1998, the Company adopted Statement of Financial Accounting
   Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130
   establishes new rules for the reporting and display of comprehensive income
   and its components; however, the adoption of this Statement had no impact on
   the Company's net income or shareholders' equity. FAS 130 requires the
   Company's foreign currency translation adjustments, which prior to adoption
   were reported separately in shareholders' equity, to be included in other
   comprehensive income. Accumulated other comprehensive income is entirely
   accumulated foreign currency translation adjustments.

 

                                       7
<PAGE>
 
   3. INCOME PER SHARE

   The Company presents basic and diluted income per share on the face of the
   consolidated statements of income. Basic income per share is computed by
   dividing net income by the weighted average number of common shares
   outstanding during the accounting period excluding any dilutive effects of
   options and convertible securities. Diluted income per share includes the
   potential dilution as a result of stock options and convertible securities.

   The following table sets forth the computation of basic and diluted income
   per share. 

 
   <TABLE> 
   <CAPTION> 
                                                            Three Months Ended March 31
   Thousands of dollars and shares except per share data        1999          1998
   ---------------------------------------------------------------------------------------------------------
   <S>                                                      <C>              <C>  
   Numerator for basic and diluted
     income per share - net income                           $   104       $   810                     
                                                           =======================
   Denominator:                                                                    
     Denominator for basic income per                                              
      share-weighted-average shares                           24,310        23,321 
     Effect of dilutive securities:                                                
        Convertible Preferred Stock                              786           786 
        Employee stock options                                   955         2,084 
                                                           -----------------------
                                                                                  
     Dilutive potential common shares                          1,741         2,870 
                                                           -----------------------
   Denominator for diluted income per                                              
     share-adjusted weighted-average                                               
     shares and assumed conversions                           26,051        26,191 
                                                           =======================
                                                                                  
   Income per share - basic                                  $  .004       $  .035 
                                                           =======================
                                                                                  
   Income per share - assuming dilution                      $  .004       $  .031 
                                                           =======================
   </TABLE>

   4. INCOME TAXES

   The Company files a consolidated U.S. Federal income tax return which
   includes all domestic operations. Tax returns for states within the U.S. and
   for foreign subsidiaries are filed in accordance with applicable laws.
   Fluctuations in the amount of income taxes arise primarily from the varying
   combinations of income and losses of the Company's subsidiaries in the
   various domestic and foreign tax jurisdictions, including the utilization of
   net operating loss carryforwards in many of these jurisdictions.

   5. COMMITMENTS AND CONTINGENCIES

   In 1997, the Company's French subsidiary terminated certain of its employees,
   some of whom initiated immediate legal actions in the French legal system
   which handles employment-related matters. Subsequently, other former
   employees also initiated similar actions. In 1997 and 1996, $270,000 was
   expensed related to statutorily-required costs of termination and the legal
   actions taken by specific employees. Approximately $18,500 remains accrued at
   March 31, 1999.

                                       8
<PAGE>
 
   The Company believes it complied with all aspects of applicable French labor
   regulations in terminating the employees and intends to defend its actions
   vigorously. A preliminary judgement ruled in favor of the Company but an
   appeal is pending. While the ultimate outcome of this matter cannot be
   determined, management, based on the opinion of its French legal counsel,
   does not expect that the outcome of the legal actions will have a material
   adverse effect on the Company's results of operations or financial position.

   On February 23, 1998, the Company was named as one of several defendants in
   three civil actions. In these actions, each of the named plaintiffs, all of
   whom are German nationals, seek to recover monetary damages, in amounts to be
   proven at trial, including punitive damages, interest, and costs allegedly
   sustained as a result of securities transactions the plaintiffs entered into
   with several of the other named defendants. The Company intends to vigorously
   defend the lawsuits. No expense has been accrued in the financial statements
   for these actions, however, legal costs have been expensed as incurred.

   The Company has committed to purchase approximately $1.1 million of software
   and related computer equipment during the year for a new enterprise and
   knowledge management system, which it is developing, of which $577,000 was
   acquired under a capital lease in the three-month period ended March 31,
   1999.

6. GEOGRAPHICAL AND SEGMENT DATA

   The Company operates in one segment, global information services. Within this
   segment, the Company also evaluates its performance internally by significant
   geographic regions.

   The following selected financial data summarizes the Company's domestic and
   foreign operations for financial reporting purposes. Allocations of corporate
   and country overheads to domestic and foreign operations are based upon the
   Company's policies for financial reporting consistently applied during the
   periods. Intercompany sales are normally billed on a margin-sharing basis.
   All intercompany sales are eliminated in determining the totals. Since the
   Company's last annual report, financial data for the United States and Canada
   have been combined under North America as these two countries' operations are
   now under common management and are measured internally as a single region.

                                       9
<PAGE>

<TABLE> 
<CAPTION> 
                              Three Months Ended 31 March
   Thousands of dollars           1999           1998
----------------------------------------------------------
<S>                           <C>            <C>  
   Net external sales:
   North America              $  4,231       $  4,219  
   Europe                        7,638          7,530  
   Asia                            593            572  
                              ------------------------ 
                              $ 12,462       $ 12,321  
                              ------------------------ 
                                                      
   Intercompany sales:                                   
   North America              $    308       $    295  
   Europe                        1,581          1,738  
   Asia                            566            578  
                              ------------------------ 
                              $  2,455       $  2,611  
                              ------------------------ 
                                                      
   Income before income taxes:                           
   North America              $   (318)      $     42  
   Europe                          293            849  
   Asia                            193            159  
                              ------------------------ 
                              $    168       $  1,050  
                              ------------------------ 
</TABLE> 

   7. NEW ACCOUNTING STANDARD

   During 1998, Financial Accounting Standards No 133, "Accounting for
   Derivative Instruments and Hedging Activities" ("FAS 133") was issued which
   requires the Company to record all derivative instruments as assets or
   liabilities, measured at fair value. The Company will adopt FAS 133 in the
   third quarter of 1999. It is not anticipated that the adoption of this
   statement will have a material affect on the financial statements of the
   Company.

   8. SUBSEQUENT EVENTS

   On April 7, 1999, the Company announced that it had signed a Letter of Intent
   with EP Electronic Publishing Partners GmbH ("EP") in Nuremburg, Germany,
   which is expected to result in the acquisition of all the shares of EP before
   the end of May 1999. Completion of this acquisition is subject to due
   diligence, board approval and the execution of a definitive acquisition
   agreement. EP designs and develops custom-built systems for document,
   information and translation management. The transaction is valued at
   approximately $1 million paid principally in cash with a portion of the
   purchase price paid with approximately 60,000 shares of ALPNET common stock.

   On May 5, 1999, the Company announced that it had signed a Letter of Intent
   with Stork N.V. in The Netherlands which is expected to lead to the
   acquisition of Stork's TPS business unit which historically has generated
   approximately $7 million in annual revenues, before the end of May 1999.
   Completion of this acquisition is subject to due diligence, board approval
   and the execution of a definitive acquisition agreement. Stork TPS is
   involved in industrial information consulting and translation services. It
   also provides high-end publishing solutions to international corporations.
   The purchase price will be paid entirely in shares of ALPNET common stock.

                                       10
<PAGE>
 
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------- ----------------------------------------------------------------  
        RESULTS OF OPERATIONS
        ---------------------


The following Management's Discussion and Analysis should be read in conjunction
with the accompanying unaudited Consolidated Financial Statements and Notes
thereto.

RESULTS OF OPERATIONS

The following paragraphs discuss the results of operations for the three months
ended March 31, 1999, (1999) as compared with the three months ended March 31,
1998, (1998). Sales of services were $12.5 million for 1999 compared to $12.3
million for 1998 and the Company reported net income of $104,000 in 1999
compared to net income of $810,000 in 1998. Sales of services in 1999 are the
highest first quarter sales total reported by the Company, somewhat above the
1998 level. In 1999, however, margins decreased 5% compared with 1998. Also in
1999, the Company has added capabilities to enable it to expand into the broader
field of global information services. This includes the addition of management,
technical and support services in the area of information consulting services.
Management believes that this action will position the Company for a changing
business environment where there is a significant opportunity to leverage the
Company's translation and localization capabilities and client relationships
through providing additional higher value services.

In the second half of the year for 1998, the entire translation industry
experienced adverse trading conditions resulting from volatile global economic
conditions. This resulted in reduced revenues and losses being incurred.
Management responded to these market changes and the resulting losses by
implementing an aggressive and fundamental reorganization of the Company's
structure and operations.

Actions taken under the detailed restructuring plan included the elimination of
ineffective production capacity including personnel, facilities and support
costs; the elimination of non-strategic offices and redundant operations; the
reorganization of sales and operations from a geographic focus to a more
directed, business sector focus; and the standardization of processes and
operations for increased efficiency, quality and margin improvement. Management
has also addressed production capacity issues and taken action to shift
internal, fixed costs to a model of outsourcing more of its production tasks.
Production operations have now, to a large extent, been centralized in larger,
strategic offices resulting in the elimination of redundant personnel and
duplication of efforts.

While these actions have increased sales above the level of the first quarter
1998, management is committed to further improve sales and increase
profitability.

SALES OF SERVICES BY GEOGRAPHIC SEGMENT

The value of revenues, costs and net income reported in US dollars have been
impacted somewhat by the effects of fluctuations in foreign currencies against
the US dollar. This is described in more detail in the section "Foreign Exchange
Risk."

North America sales of services of $4.2 million in 1999 remained at
approximately the same level as 1998. In the United States, total sales fell 12%
as a result of a lower level of orders and client delays of major projects
especially in the information technology sector. This was offset by a 17%
increase in sales of services in Canada where demand in the automotive and
financial sectors remains strong. Following the

                                       11
<PAGE>
 
reorganization of the Company's structure, the operations in the United States
and Canada are now under common management in a new North America region with
the United States concentrating on sales and high level customer service.
Management expectations for the United States are for a general restoration of
growth in sales during 1999. However, the amount and timing of actual orders is
variable.

In 1999, sales of services in Europe of $7.6 million represented approximately
61% of the Company's consolidated sales and increased by $108,000 over 1998
sales levels. In 1999, there was a significant increase in sales in Ireland and
in The Netherlands. There was also a decrease in the UK and Germany, which
represent the Company's two largest markets and accounted for 76% of Europe's
total sales. In the UK, sales decreased as a result of continued difficult
trading conditions, especially in traditional translation services. The UK
operation is being reduced from six to three offices, which will decrease the
fixed cost base and provide for more focused management and sales activity. In
Germany, a large one-time project was completed in 1998, which distorts the
comparison to 1999. Underlying revenue in 1999 remains strong.

Asia's reported sales of services for 1999 of $600,000 are at approximately the
same levels as 1998. The Company has significantly expanded its Asian presence
in recent years by opening offices in new countries and expanding the capacities
of existing countries. Management expects increased demand for Asian language
services to continue. Despite the economic events in Asia in recent periods,
demand for translation and localization for Asian markets from the business
communities in the US and Europe remains at a relatively high level.

The Company's business can be impacted dramatically by changes in the strength
of the economies of the countries in which it has a presence, and results of
operations are highly influenced by general economic trends. Moreover, sales and
profitability are increasingly affected by the number and size of larger and
more complex multi-language projects. The Company experiences fluctuations in
quarterly sales and profitability levels largely as a result of the increase or
decrease in the number of such projects. Management expects this trend to
continue. Nevertheless, the Company expects to be able to capture increased
sales in an expanding market which is expected to result in overall long-term
sales growth.

COST OF SERVICES SOLD

Cost of services sold were $9.9 million, 80% of sales, in 1999 compared with
$9.2 million, 75% of sales, in 1998. Cost of services sold as a percentage of
sales of services has increased primarily as a result of competition in the
marketplace and the volume and nature of direct production costs of large
projects in each period. In common with the entire industry, 1999 margins have
been negatively affected by downward price pressure from clients and
competitors. Management expects competitive pricing pressures to continue in the
foreseeable future. The Company is continuing its efforts to control costs to
offset the effects of these pricing pressures, however, production methods in
the Company are still not fully efficient. Management believes that margins will
improve as the impact of our restructuring and focus on improved processes and
technology are fully established. Actions being taken include the development
and implementation of a new enterprise and knowledge management system, more
effective utilization of technology on a broader range of projects to improve
the productivity of translators, and the development of stronger partnerships
with clients to enable the Company to provide higher-margin, higher-value,
information consultancy services to clients.

                                       12
<PAGE>
 
OTHER COSTS AND EXPENSES

Selling, general and administrative expenses were $2.1 million in 1999, an
increase of $365,000 over 1998. Management has extended its sales and marketing
efforts and capabilities in substantially all of the Company's markets and has
added capabilities, resources and support services to enable it to expand its
range of services in the higher value line of information consultancy services.
The Company believes that it can leverage its translation and localization
capabilities and major client relationships by expanding into the broader field
of global information services. There has also been an increase in 1999 expenses
compared with 1998 as the Company has organized its new operations group, at the
Corporate level, charged with directing the operations function of the Company.

Development costs were $48,000 in 1999 compared to $124,000 in 1998, a decrease
of $76,000. In 1999, ongoing development costs have been reduced and the Company
expects to fund major future development jointly with clients and partners.

Any fluctuations in the amount of goodwill amortization result primarily from
foreign currency exchange rate fluctuations from period to period, but this was
not a significant factor in 1999.

Net interest expense was $95,000 in 1999, an increase of $19,000 compared to
1998. The increase was due to higher average balances outstanding under bank-
lines of credit, and increases in long-term debt used to finance certain
equipment and software purchases.

The US parent company and each of its subsidiaries are separate legal and
taxable entities subject to domestic or foreign taxes pertaining to operations
in their respective jurisdictions. For tax purposes, the US parent company, and
certain of its subsidiaries, have unused net operating losses from prior years
which can be utilized to reduce future years' taxable income of the respective
entities. The availability of these net operating losses is governed by
applicable domestic and foreign tax rules and regulations, some of which limit
the utilization of such losses due to minimum tax requirements and other
provisions. Income tax expense, as presented in the Consolidated Financial
Statements, represents the combined income tax expense and income tax credits of
all of the entities of the Company.

After the utilization of net operating loss carryforwards, income tax expense
was $64,000 in 1999, compared with $240,000 in 1998. Fluctuations in the amount
of income taxes arise primarily from the varying combinations of income and
losses of the Company's subsidiaries in the various domestic and foreign tax
jurisdictions, including the utilization of net operating loss carryforwards in
many of these jurisdictions. The US parent company has a net operating loss
carryforward for US Federal tax purposes but has no net operating loss
carryforwards for state income tax purposes.

ENTERPRISE AND KNOWLEDGE MANAGEMENT SYSTEM

Based upon concepts developed in 1998, in 1999 management of the Company has
commenced the design, development and preparation for installation of an
enterprise and knowledge management system which will be installed throughout
the Company's operations and will provide for flexible and informed analysis of
operations, provide wide and timely dissemination of information, facilitate
rapid decision making and will allow all managers to be focused on common goals
for improved performance and profitability. This enterprise system is known as
ALPNET Planet.

                                       13
<PAGE>
 
ALPNET Planet will encompass all front and back office functions as well as
strategic management needs. It will also monitor and validate processes by
measuring how work is being done against established policies and procedures.
Management expects the implementation of this system, upon its completion, to
have a significant, positive effect upon the operating performance of the
Company.

The most valuable component of ALPNET Planet will be its knowledge management
package which will capture and manage the Company's information, knowledge and
expertise. It will centralize and leverage all translation memories, terminology
databases and localization know-how in one highly organized data warehouse.

ALPNET Planet will be developed, tested and prepared for installation throughout
1999, with full implementation of all modules by the year 2000. The Company will
lease the major hardware and software components of the system which will then
be adapted by the Company according to its design specifications.

In conformity with the FASB Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use", the Company
will capitalize the costs to develop ALPNET Planet. Total costs of the computer
software, computer hardware and other costs of the Planet system are expected to
be approximately $2.35 million, approximately $1.1 million of which is purchased
software and equipment and $1.25 million is costs of customization and
development. The system costs will be amortized over a 48 month period
commencing in the year 2000 as each module of the system becomes fully
functional and ready for its intended use.

For the three-months ended March 31, 1999, total ALPNET Planet system costs of
$630,000 have been capitalized.

LIQUIDITY AND SOURCES OF CAPITAL

In 1999, the Company had a positive cash flow from operations of approximately
$557,000 compared with positive cash flows from operations in 1998 of
$1,639,000. In 1998, the Company's investing activities consisted primarily of
the acquisition of equipment needed to maintain or upgrade production
capability. In 1999, equipment acquisitions of $842,000 included $577,000 of
software and related equipment for ALPNET Planet.

Financing activities for both years included fluctuations in the amounts
utilized under bank lines of credit to finance the Company's working capital
needs and changes in outstanding debt used to finance equipment purchases.

At March 31, 1999, the Company's cash and cash equivalents were approximately
$1.3 million, which represented a decrease of $218,000 during 1999. At March 31,
1999, the Company had working capital of approximately $2.9 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, Spain and The Netherlands. Most of the credit facilities are secured by
accounts receivable and other assets of the Company or its subsidiaries. As of
March 31, 1999, the Company had unused amounts under these credit facilities of
approximately $1 million.

                                       14
<PAGE>
 
The Company's only significant commitments for capital expenditures are
approximately $1.1 million for ALPNET Planet software and related computer
equipment which will be acquired primarily under capital leases during 1999.
$577,000 of software was acquired in the three-month period ended March 31,
1999. Capital expenditures in future periods are expected to vary according to
the overall growth of the Company. The Company plans to acquire and place
additional translation services workstations and other related software and
computer equipment in its offices in connection with future orders from
customers, as such orders are received. The Company expects to finance a certain
portion of future equipment costs with terms similar to the financing
arrangements entered into in recent years.

In November 1998, the Company commenced implementation of an aggressive and
fundamental reorganization of the Company's structure and operations, as
discussed under Results of Operations. This reorganization had a negative effect
on cash flow of approximately $397,000 in the period ending March 31, 1999.
Additional negative cash flows related to this reorganization in the amount of
approximately $567,000 is estimated for the remainder of 1999.

The Company will be required to obtain additional financing in connection with
the two acquisitions which it has announced and to provide funds for the
acquisition, development and implementation of ALPNET Planet. Management is
currently determining the amount that will be required and is evaluating
possible sources of this financing.

Provided the Company operates profitably, management believes the available
amounts under lines of credit combined with current working capital are
sufficient to fund the Company's operations at current levels and enable the
Company to grow at a modest level, without the need to seek significant new
sources of capital other than for the acquisitions and ALPNET Planet. Most of
the Company's credit facilities are subject to annual renewals and the Company
expects them to be renewed on substantially the same terms as those which
currently exist. In addition, the Company expects to be able to increase the
maximum amounts which can be borrowed under credit facilities. Some of the
financial institutions, which have loaned funds to the Company's subsidiaries
under the credit facilities referred to above, have placed certain limits on the
flow of cash outside the respective countries. Such limitations have not been an
undue burden to the Company in the past, nor are they expected to be unduly
burdensome in the foreseeable future.

The Company believes it has the ability to issue additional equity securities if
necessary. In certain past years, the Company has relied on major shareholders
of the Company to fund some obligations, but the Company currently has no firm
commitments from, nor are there any obligations of, any such shareholders to
provide any debt or equity funds to the Company.

It is more difficult to assess cash flows beyond 1999, and the ability of the
Company to meet its commitments without additional sources of capital is
directly related to the Company's operations providing a positive cash flow.
Should the Company's operations fail to provide adequate funds to enable it to
meet its future financial obligations, management has the option, because of the
Company's organizational structure, to cut costs by selectively eliminating
operations which are not contributing to the Company financially.

Inflation has not been a significant factor in the Company's operations.
Competition, however, has been and is expected to remain a major factor. To the
extent permitted by competition, general economic and

                                       15
<PAGE>
 
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 March 31, 1999 and
December 31, 1998 were comprised of net operating loss carryforwards for which
the Company has provided allowances. The ability of the Company to utilize these
loss carryforwards in the future is dependent on profitable operations in the
various countries in which loss carryforwards exist, and the specific rules and
regulations governing the utilization of such losses, including the dates by
which the losses must be used.

FOREIGN EXCHANGE RISK

The Company serves its customers from more than 15 countries. The majority of
the Company's operations are located outside the US and, consequently, the
Company is exposed to fluctuations of the dollar against the foreign currencies
of those countries in which the Company has a substantial presence. For all of
the Company's foreign subsidiaries, the functional currency has been determined
to be the local currency. Accordingly, assets and liabilities are translated at
year-end exchange rates, and operating statement items are translated at
weighted-average exchange rates prevailing during the years presented. The
principal currencies to which the Company is exposed are the Canadian dollar,
the British Pound, the German Mark and the Dutch Guilder.

Fluctuations against the dollar can produce significant differences in the
reported value of revenues and expenses.

The following table shows a comparison of sales of services in each of the
Company's significant geographic segments for the three-months ended March 31,
1999 and 1998, along with the effect of foreign currency exchange rate
fluctuations on sales between years.

<TABLE> 
<CAPTION>  
                                            Increase   (Decrease) in
                           Three Months     Sales of Services due to
                          Ended March 31       Sales        Currency     Total
Thousands of dollars       1999     1998      Volume    Fluctuations  Increase
------------------------------------------------------------------------------
<S>                    <C>       <C>       <C>        <C>             <C>    
North America           $ 4,231  $ 4,219        $132           $(120)     $ 12
Europe                    7,638    7,530         (13)            121       108
Asia                        593      572          11              10        21
                        ------------------------------------------------------
 
Total Sales             $12,462  $12,321        $130           $  11      $141
                        ======================================================
</TABLE> 

The revenue mix of the Company's operations and the effect of foreign currency
exchange rate fluctuations on costs and expenses generally mitigate the
consolidated net income impact. For revenues in the US which are produced
outside of the US, any weakening of the US dollar against a particular country's

                                       16
<PAGE>
 
currency reduces the amount of net income reported in US dollars. Conversely,
the same weakening of the US dollar generates an offsetting increase in the
dollar value of profits arising from revenues within that country. This natural
currency effect reduces the net foreign exchange risk to the Company.

Total sales for 1999 of $12.5 million were positively affected by $11,000 as a
result of fluctuations in foreign currencies. Total operating expenses and
interest expense were negatively affected by $57,000 resulting in a net negative
impact on net income of $46,000 as a result of fluctuations in foreign currency
exchange rates. The Company does not currently use any financial instruments to
manage or hedge foreign exchange risk either for trading or other purposes. The
revenue mix and currency trends are monitored on an ongoing basis to identify
any changes that might significantly affect the Company's net results.

The translation of foreign denominated assets and liabilities at year-end
exchange rates results in an unrealized foreign currency translation adjustment
recorded as a separate component of shareholders' equity, reported as other
comprehensive income. The 1999 foreign currency adjustment to shareholders'
equity was a reduction of $555,000 compared to a reduction of $53,000 in 1998.
As of March 31, 1999, the cumulative net effect to the Company of the equity
adjustment from movements in foreign currency exchange rates was a reduction of
approximately $2.4 million in shareholders' equity. A significant portion of the
cumulative foreign currency adjustment relates to changes in the carrying value
of goodwill, which is denominated entirely in foreign currencies.

YEAR 2000 ISSUE

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company's computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.

Based upon recent assessments, the Company has determined that it will need to
modify or replace the operations administration system for one of the Company's
foreign subsidiaries. This system will be replaced in 1999 during the first
phase of the implementation of ALPNET Planet. As part of the implementation of
this new system, the entire accounting and information systems of the Company
will be replaced. The Company's proprietary translation software system, TSS,
has been Year 2000 compliant since its development in the mid-80's.

The Company's plan to resolve the Year 2000 Issue involves the following four
phases: assessment, remediation, testing and implementation. The Company has
completed its assessment of all of its systems that could be significantly
affected by the Year 2000. The Company is primarily in the business of providing
services but those services are supported by the use of computer hardware and
software systems in the production of a substantial portion of those services.
The Company's vendors consist primarily of individual translators and other
service professionals who are not expected to be materially impacted by the Year
2000 Issue. The Company is also dependent upon third party suppliers for utility
services and telecommunications capabilities. The Company has its primary
locations in geographically diverse locations in North America, Europe and Asia.
If one of the Company's locations should be unable to operate due to the Year
2000 Issue affecting one of its third party suppliers, the Company believes that
replacement services can be rendered from another of the Company's locations.

                                       17
<PAGE>
 
The Company has not yet completed a comprehensive study as to whether its third
party suppliers are Year 2000 compliant. It is in the process of gathering
information about the Year 2000 status of suppliers and will continue to assess
and monitor their compliance.

Status

Although the Company has not completed a full evaluation of all its systems, the
Company has begun the remediation phase and believes it is 85% complete with the
information already obtained in the evaluation process. The Company expects to
have all critical systems and hardware replaced before June 30, 1999. Following
these replacements, the Company plans to test all equipment and software. The
testing phase will be completed no later than September 30, 1999. During the
period of testing the critical systems, any system or piece of equipment that is
found to be non-compliant will be retired and replaced. The Company does not
expect the cost to replace such equipment to be material.

Third Parties

The Company has queried its significant suppliers and subcontractors that do not
share information systems with the Company (external agents), but has not
received answers to all of its queries. To date, the Company is not aware of any
external agents with a Year 2000 Issue that would materially impact the
Company's results of operations, liquidity, or capital resources. However, the
Company has no means of ensuring that external agents will be Year 2000 ready.
The inability of external agents to complete their Year 2000 resolution process
in a timely fashion is not expected to materially impact the Company. The
Company believes that it could partially compensate for the failure of external
agents to comply by utilizing its operations in other geographic locations to
meet client requirements or by using alternate suppliers.

Costs

The Company will utilize primarily internal resources to reprogram, replace,
test and implement the software and operating equipment for required Year 2000
modifications. The total costs of the Year 2000 project is estimated at $200,000
of which $100,000 ($30,000 expensed and $70,000 capitalized for new equipment)
was incurred in the year ended December 31, 1998. Of the total estimated
remaining project costs, scheduled to be paid in the second and third quarters
of 1999, approximately $40,000 is related to the replacement of the operations
administration system in the Company's UK subsidiary. The remaining $60,000
includes approximately $30,000 for replacement equipment which will be
capitalized and approximately $30,000 for testing and monitoring of remaining
systems.

Risks

Management of the Company believes it has an effective program in place to
address the Year 2000 Issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of its Year 2000 program. In the event
that the Company does not complete any additional phases, the Company's ability
to produce certain orders may be negatively impacted. More importantly,
disruptions resulting from Year 2000 Issues in the world economy in geographies
where the Company or its clients have significant operations could adversely
affect the Company. The Company may be unable to meet services commitments due
to computer systems failure. The amount of potential liability, lost revenue and
damages cannot be reasonably estimated at this time.

                                       18
<PAGE>
 
Contingency Plans

The Company currently has no contingency plans in place in the event it does not
complete all phases of the Year 2000 program. The Company plans to reevaluate
its status of completion in June 1999 and determine whether such a plan is
necessary.

CAUTIONARY STATEMENT

The statements in this Management's Discussion and Analysis that are not based
on historical data are forward looking, including for example, information about
future sales growth in various markets in future periods; expected changes in
the levels of various expenses, including income taxes; the Company's plans for
future investments in new offices, services, or products; and financing plans
and expectations.

Forward looking statements contained in this Management's Discussion and
Analysis involve numerous risks and uncertainties that could cause actual
results to be materially different from estimated or expected results. Such
risks and uncertainties include, among many others, fluctuating foreign currency
exchange rates, the Year 2000 Issue, changing levels of demand for the Company's
services, the effect of constantly changing general economic and political
conditions in all of the various countries in which the Company has operations,
the impact of competitive services and pricing, uncertainties caused by clients
(including the timing of projects and changes in the scope of services
requested), or other risks and uncertainties that may be disclosed from time to
time in future public statements or in documents filed with the Securities and
Exchange Commission. As a result, no assurance can be given as to future
results.

                                       19
<PAGE>
 
                          PART II:  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
-------  -----------------

         Reference is made to "Item 3: Legal Proceedings" in the Company's
         Annual Report on Form 10-K for the year ended December 31, 1998, filed
         on March 27, 1999.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
-------  --------------------------------

(a)      The following exhibits are included herein:

         27  Financial Data Schedule

(b)      No reports on Form 8-K were filed during the three months ended March
         31, 1999.

 

                                       20
<PAGE>
 
                                  SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                    ALPNET, Inc.
                                    ------------
                                    Registrant



Date: 13 May 1999                   /s/ Michael F. Eichner
      -----------                   -------------------------------
                                    Michael F. Eichner
                                    Chairman of the Board



Date: 13 May 1999                   /s/ John W. Wittwer
      -----------                   -------------------------------
                                    John W. Wittwer
                                    Vice President Finance

                                       21