<PAGE>
 
                                 UNITED STATES
                      SECURITIES 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, 1998

                                       or

[_]  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 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 
                                                    -----        -----     

The number of shares outstanding of the registrant's no par value Common Stock
as of May 4, 1998 was 23,348,615.
<PAGE>
 
ALPNET, INC. AND SUBSIDIARIES

                                     INDEX

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

          Consolidated Statements of Operations--Three months ended March 31, 1998
           and 1997.......................................................................  3
 
          Consolidated Balance Sheets--March 31, 1998 and December 31, 1997...............  4
 
          Consolidated Statements of Cash Flows--Three months ended March 31, 1998
           and 1997.......................................................................  6
 
          Notes to Consolidated Financial Statements--March 31, 1998......................  7
 
Item 2.   Management's Discussion and Analysis of Financial Condition and
           Results of Operations.......................................................... 10
 


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

Item 1.   Legal Proceedings............................................................... 17

Item 6.   Exhibits and Reports on Form 8-K................................................ 17



SIGNATURES................................................................................ 18
----------                                                      
</TABLE>

                                       2
<PAGE>
 
ITEM 1:  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
-------  ---------------------------------------------

ALPNET, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)
 

                                                       Three Months Ended
                                                             March 31
Thousands of dollars and shares                       1998             1997
--------------------------------------------------------------------------------
 
SALES OF SERVICES                                  $12,321           $8,767
 
OPERATING EXPENSES:
 Cost of services sold                               9,242            7,421
 Selling, general and administrative
   expenses                                          1,732            1,614
 Development costs                                     124              108   
 Amortization of goodwill                               97               98
                                                ------------------------------
Total operating expenses                            11,195            9,241
                                                ------------------------------
OPERATING INCOME (LOSS)                              1,126             (474)

Interest expense, net                                   76               57
                                                ------------------------------
Income (loss) before income taxes                    1,050             (531)

Income taxes                                           240               45
                                                ------------------------------
NET INCOME (LOSS)                                  $   810           $ (576)
                                                ==============================
 

Income (loss) per share - basic                    $  .035           $(.032)
                                                ==============================
Income (loss) per share - assuming dilution        $  .031           $(.032)
                                                ==============================

See accompanying notes.

                                       3
<PAGE>
 
ALPNET, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)


                                                    March 31        December 31
Thousands of dollars                                  1998             1997
--------------------------------------------------------------------------------
ASSETS
 
CURRENT ASSETS:
 Cash and cash equivalents                         $ 2,223          $ 1,711  
 Trade accounts receivable, less allowance of
  $348 in 1998 and $338 in 1997                      9,273            9,772
 Work-in-process                                     1,207            1,040
 Prepaid expenses and other                            908              747
                                                ------------------------------
Total current assets                                13,611           13,270
 
PROPERTY, EQUIPMENT AND LEASEHOLD
 IMPROVEMENTS:
  Office facilities and leasehold
    improvements                                       228              226
  Equipment                                          5,280            5,003
                                                ------------------------------
                                                     5,508            5,229
  Less accumulated depreciation and
    amortization                                     3,551            3,402
                                                ------------------------------
Net property, equipment and leasehold
 improvements                                        1,957            1,827

OTHER ASSETS:
 Goodwill, less accumulated amortization
   of $3,626 in 1998 and $3,544 in 1997              5,581            5,698
 Other                                                 293              245
                                                ------------------------------
Total other assets                                   5,874            5,943
                                                ------------------------------
 
TOTAL ASSETS                                       $21,442          $21,040
                                                ==============================

See accompanying notes.

                                       4
<PAGE>
 
ALPNET, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)--continued

                                                    March 31        December 31
Thousands of dollars and shares                       1998             1997
--------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES:
 Notes payable to banks                           $  2,159         $  3,037
 Accounts payable                                    2,986            2,338
 Accrued payroll and related benefits                1,005            1,187
 Other accrued expenses                              1,437            1,354
 Deferred revenue                                      469              732
 Income taxes payable                                  640              462
 Current portion of long-term debt                     363              350
                                                ------------------------------
Total current liabilities                            9,059            9,460
 
Long-term debt, less current portion                   482              489
 
Commitments and contingencies (note 5)
 
SHAREHOLDERS' EQUITY:
 Convertible Preferred Stock, no par value;
  authorized 2,000 shares; issued and
  outstanding 87 shares in 1998 and
  1997                                                 242              242
 Common Stock, no par value; authorized
  40,000 shares; issued and outstanding
  23,348 shares in 1998 and 23,293 shares
  in 1997                                           42,133           42,080
 Accumulated deficit                               (28,335)         (29,145)
 Equity adjustment from foreign currency 
  translation                                       (2,139)          (2,086)
                                                ------------------------------
Total shareholders' equity                          11,901           11,091
                                                ------------------------------
 
TOTAL LIABILITIES AND SHAREHOLDERS'
 EQUITY                                           $ 21,442         $ 21,040
                                                ==============================

See accompanying notes.

                                       5
<PAGE>
 
ALPNET, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)
                                                   Three Months Ended March 31
Thousands of dollars                                  1998             1997
--------------------------------------------------------------------------------
 
OPERATING ACTIVITIES:
 Net income (loss)                                 $   810           $ (576)
 Adjustments to reconcile net income to
  net cash provided by operating activities:
   Depreciation and amortization of property,
    equipment and leasehold improvements               180              166
   Amortization of goodwill                             97               98
   Other                                               (61)              56
   Changes in operating assets and liabilities, 
       net of effect of acquisition:
    Trade accounts receivable                          465             (416)
    Accounts payable and accrued expenses              575              221
    Other                                             (427)              46
                                                ------------------------------
Net cash provided by (used in) operating 
 activities                                          1,639             (405)

INVESTING ACTIVITIES:
 Purchase of property, equipment and
  leasehold improvements                              (312)            (183)
 Payment for acquisition, net of cash acquired           0             (508)
                                                ------------------------------
Net cash used in investing activities                 (312)            (691)
 
FINANCING ACTIVITIES:
 Proceeds from notes payable to banks                  173              749
 Principal payments on notes payable to banks       (1,055)             (13)
 Proceeds from long-term debt                           82              395
 Principal payments on long-term debt                  (75)            (115)
 Proceeds from exercise of stock options                53                0
                                                ------------------------------
Net cash provided by (used in) financing 
 activities                                           (822)           1,016
 
Effect of exchange rate changes on cash                  7              (35)
                                                ------------------------------
 NET INCREASE IN CASH AND CASH EQUIVALENTS             512             (115)
 
Cash and cash equivalents at beginning of 
 period                                              1,711            1,034
                                                ------------------------------
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD         $ 2,223           $  919
                                                ==============================

CASH PAID DURING THE PERIOD FOR:
 Interest                                          $    78           $   57
 Income taxes                                           73                8

See accompanying notes.

                                       6
<PAGE>
 
ALPNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 1998

1.   BASIS OF PRESENTATION

     ALPNET, Inc. (the "Company") is a United States publicly-owned
     multinational corporation. The Company provides language translation,
     product localization, and multilingual publishing solutions to businesses
     engaged in international trade. The principal markets for the Company's
     services are North America, Western Europe and Asia.

     The accompanying unaudited consolidated financial statements have been
     prepared in accordance with the rules and regulations of the 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, 1997.

     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.

     Certain amounts for the three-month period ended March 31, 1997 have been
     reclassified to conform to the 1998 presentation.

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.

     For the first quarter of 1998 and 1997, total comprehensive income (loss)
     amounted to $757,000 and $(1,012,000), respectively.

                                       7
<PAGE>
 
3.  INCOME PER SHARE

    In 1997, the Financial Accounting Standards Board issued Statement No. 128,
    "Earnings per Share" ("FAS 128"). FAS 128 replaced the calculation of
    primary and fully diluted income per share with basic and diluted income per
    share. Unlike primary income per share, basic income per share excludes any
    dilutive effects of options and convertible securities. Diluted income per
    share is similar to the previously reported fully diluted income per share.
    All income per share amounts for all periods have been presented, and where
    appropriate, restated to conform to the FAS 128 requirements.

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

       Thousands of dollars and shares                1998             1997
--------------------------------------------------------------------------------
 
       Numerator for basic and diluted
         income per share - net income (loss)      $   810          $  (576)
                                                ============================= 
       Denominator:
         Denominator for basic income per
           share - weighted-average shares          23,321           18,029
         Effect of dilutive securities:
           Convertible Preferred Stock                 786                0
           Employee stock options                    2,084                0
                                                ----------------------------- 
         Dilutive potential common shares            2,870                0
                                                ----------------------------- 
 
       Denominator for diluted income per
         share - adjusted weighted-average
         shares and assumed conversions             26,191           18,029
                                                ============================= 

       Income (loss) per share - basic             $  .035          $ (.032)
                                                ============================= 
       Income (loss) per share - assuming
         dilution                                  $  .031          $ (.032)
                                                ============================= 


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, $220,000 was
     expensed related to the legal actions taken by specific employees.
     Approximately $130,000 remains accrued at March 31, 1998.

                                       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. 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
     two 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(s) 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.

6.   NEW ACCOUNTING STANDARD

     In June 1997, Statement of Financial Accounting Standards No. 131,
     "Disclosures about Segments of an Enterprise and Related Information" ("FAS
     131") was issued. FAS 131 requires public companies to report financial and
     descriptive information about its reportable operating segments on the
     basis that is used internally for evaluating segment performance. The
     Company will adopt FAS 131 at the end of 1998. It is not anticipated that
     the adoption of this statement will have a material effect on the financial
     statements of the Company.

                                       9
<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.

FOREIGN OPERATIONS

The Company serves its customers from more than 30 wholly-owned offices in 14
countries.  The operations of the Company are predominantly located outside the
U.S.  Accordingly, the Company is subject to the effects of foreign currency
exchange rate fluctuations.  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 period-end exchange rates, and
operating statement items are translated at weighted-average exchange rates
prevailing during the periods presented.  The resulting cumulative foreign
currency translation adjustments to the assets and liabilities are recorded as a
separate component of shareholders' equity.  The foreign currency equity
adjustment for the first three months of 1998 was negative $53,000 compared to a
negative adjustment of $436,000 for the first three months of 1997.  Generally,
when the U.S dollar strengthens against the major foreign currencies affecting
the Company, the shareholders' equity adjustment is negative since the net
assets denominated in foreign currencies are translated into fewer U.S. dollars.
This occurred in both 1998 and 1997.  As of March 31, 1998, the cumulative net
effect to the Company of the equity adjustment from movements in foreign
currency exchange rates was a reduction of $2.1 million in shareholders' equity.
A significant portion of the cumulative foreign currency adjustment relates to
changes in the recorded amount of goodwill.

In the first quarter of 1998, the Company recorded a net benefit of $16,000 for
gains on foreign exchange transactions.  In the first quarter of 1997, the
Company recorded a net benefit of $88,000 for gains on foreign exchange
transactions.  Substantially all of the 1997 benefit was recorded in the U.K.
and a majority of that U.K. gain resulted from a weakening of the UK(Pounds)
from December 31, 1996 to March 31, 1997.

Because most of the Company's operations are located outside the U.S. and its
foreign operations' financial results must be translated into U.S. dollars, the
Company's actual and reported financial results and financial condition are
susceptible to movements in foreign currency exchange rates.  Since the Company
has relatively few long-term monetary assets and liabilities denominated in
currencies other than the U.S. dollar, it does not have any ongoing hedging
programs in place to manage currency risk.

RESULTS OF OPERATIONS

The following paragraphs discuss results of operations for the three months
ended March 31, 1998 as compared with the three months ended March 31, 1997,
including the significant effects of fluctuating foreign currency exchange
rates.

The Company reported net income of $810,000 for the three months ended March 31,
1998, compared to a net loss of $576,000 for the three months ended March 31,
1997.  If foreign currency exchange rates for 1998 had remained unchanged from
1997, the Company would have recorded net income of $918,000 instead of $810,000
and, therefore, currency exchange rate fluctuations had a negative effect on
reported first quarter 1998 results.

                                       10
<PAGE>
 
Sales of services were $12.3 million for the three months ended March 31, 1998
compared to $8.8 million for the three months ended March 31, 1997.  The $3.5
million increase in reported sales for 1998 consisted of an increase in sales
volume of $4.1 million and a $.6 million decrease due to currency exchange rate
variances.  The increase in sales volume in the first quarter of 1998 over the
first quarter of 1997 is due to increases in sales in all of the  primary
markets in which the Company has a presence, but most particularly in the
Company's North American, German and Netherlands offices.

The increase in sales volume is a result of generally expanding needs for
language related services in an increasingly global marketplace where more and
more businesses are entering foreign markets and becoming involved in worldwide
trade.  Examples of this are the software and automotive industries which have
significant and increasing needs for product localization services such as those
provided by the Company. Also having a beneficial effect on sales levels is the
Company's increasing emphasis on turnkey multilingual publishing solutions and
the Company's global account strategy, which focuses on the development of long-
term partnering relationships with major clients that have ongoing translation
and localization needs.

The Company competes on the basis of capability, quality, service and
geographical proximity to clients and potential clients.  The Company has opened
several new offices and expanded existing offices in recent years in order to
increase its market share, in what management believes has been and will
continue to be a growth industry.

The following table shows a comparison of sales of services in each of the
Company's significant geographic areas for the three months ended March 31, 1998
and 1997, along with the effect of foreign currency exchange rate fluctuations
on sales between periods.  Intercompany sales are normally billed on a margin-
sharing basis.  All intercompany sales are eliminated in determining the
reported totals.
<TABLE>
<CAPTION>
 
Thousands of dollars
                                             Increase (Decrease) in
                       Three Months         Sales of Services due to      Total
                      Ended March 31          Sales      Currency        Increase
                      1998       1997         Volume   Fluctuations     (Decrease)
                   -------------------------------------------------------------- 
<S>               <C>         <C>            <C>           <C>           <C>
United States      $ 2,491    $ 1,874        $   617       $   -         $    617
Canada               2,023      1,287            831         (95)             736
Europe               9,268      6,287          3,536        (555)           2,981
Asia                 1,150        874            463        (187)             276
Eliminations        (2,611)    (1,555)        (1,301)        245           (1,056)
                   -------------------------------------------------------------- 
Total Sales        $12,321    $ 8,767        $ 4,146       $(592)        $  3,554
                   ============================================================== 
</TABLE>

As shown in the above table, every major geographical region reported increased
sales in 1998 over 1997.

SALES OF SERVICES BY GEOGRAPHIC AREA

U.S. sales increased 33% in 1998 over 1997.  This increase was due to a rise in
the number and size of projects for both existing and new clients, especially
software localization services for companies in the computer hardware, software
development and computer-based training industries.  Much of this increase is
due to aggressive sales and marketing efforts, including a strategy of targeting
sales efforts at specific 

                                       11
<PAGE>
 
major global companies. Management expectations for the U.S. are for a general
continuation of growth in sales, especially to the computer and computer-based
training industries, but the amount and timing of actual orders from clients is
unpredictable.

Canada's reported sales for 1998 represent an increase over 1997 of 57%.  This
represents primarily increases in sales volumes, with a much smaller effect from
fluctuating foreign currency exchange rates.  The increase in sales in Canada
was due primarily to ongoing aggressive marketing and sales efforts, the
procurement of new large long-term contracts, and revenues from a large
interpretation project in March 1998 for which there were no comparable revenues
in the first quarter of 1997.  These increases in sales have occurred despite
continuing economic and political challenges in Canada.  Due in part to several
new large multi-year contracts, some of which were negotiated in 1996, but which
did not begin until 1997,  management believes it is likely that 1998 revenues
in Canada will exceed 1997 levels.

In 1998, sales in Europe of $9.3 million represent approximately 62% of the
Company's consolidated sales (prior to elimination of intercompany sales) and
grew by $3.0 million over 1997 sales levels, or by 47% quarter over quarter (56%
absent the effects of fluctuating foreign currency exchange rates).  Sales
increased in most European countries in which the Company has offices, but the
majority of the increase in 1998 was the result of growth in Germany (62% growth
rate, which would have been 78% absent the effects of foreign currency exchange
rate variances) and in the Netherlands (where 1998 sales were about five times
the 1997 level).  The U.K. and Germany, which represent the Company's two
largest markets, accounted for 73% of Europe's total sales in 1998, compared to
86% in 1997.

U.K. sales decreased 1% (2% decrease absent the effects of foreign currency
exchange rate fluctuations) in 1998 compared to 1997.  The decrease was due
primarily to lower sales to the Company's largest client, a portion of which
were recorded as sales in other countries in 1998.  In Germany, a very high rate
of growth was achieved in 1998 over 1997.  The three primary reasons for this
increase are focused and intensive sales and marketing efforts, a large project
completed largely in the first quarter of 1998 and, to a lesser extent,
gradually improving general economic conditions.  The Netherlands office has
been open for only two years. The high growth rate experienced from 1997 to 1998
is largely due to its small size in 1997 as compared to most of the  Company's
other offices.  The rapid expansion of services for clients in the enterprise
resource planning (ERP) software industry has also been a significant
contributing factor to the growth in sales in the Netherlands.

Asia's reported sales for the first quarter of 1998 represent an increase over
1997 of 32% (53% absent the effects of foreign currency exchange rate
fluctuations).  The Company has significantly expanded its Asian presence in
recent years by opening offices in new countries and expanding the capacities of
existing offices. The recently opened Thailand office also contributed to
increased revenues for Asia in 1998.

In general, the Company's Asian capacity was underutilized in the first quarter
of 1997 and contributed to the operating loss sustained in that quarter.  The
Company is now in a normal utilization situation, due to increases in customer
orders for work to be produced into the major Asian languages.  The Company
closed its Hong Kong office in May 1997 as a result of operating losses and
declining strategic importance.  Sales of this office were not material in 1997,
and expenses of approximately $50,000 were recorded in the first quarter of 1997
to recognize the costs of closing the office.  Other Asian offices are now
producing the Chinese work historically done by the Hong Kong office.

                                       12
<PAGE>
 
Management expects the increased demand for Asian language services to continue.
The Company started operations in Thailand in late 1997 to meet increasing
client orders for into-Thai projects.  Many Asian countries are experiencing
very high economic growth rates and, despite the recent economic events in Asia,
demand for translation and localization for Asian markets from businesses in the
U.S. 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 increasing
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 resulting in overall long-term sales growth.

COST OF SERVICES SOLD

Cost of services sold as a percentage of sales of services has fluctuated
primarily as a result of capacity utilization, competition in the marketplace,
and the volume and nature of direct production costs of project sales in each
period, especially large projects covering several accounting periods.  In early
1997, margins were negatively affected by underutilization of capacity,
especially in Asia, and to a lesser extent by a higher proportion of low margin
work in certain geographic areas.  Management expects competitive pricing
pressures to continue in the foreseeable future, and perhaps even intensify as a
result of several recent mergers and acquisitions of small and mid-sized
translation companies.  The Company is continuing its efforts to control costs
to offset the effects of these pricing pressures.  These efforts include more
effective utilization of the Company's proprietary software on medium- to small-
sized 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, solution-based services to clients.

OTHER COSTS AND EXPENSES

Selling, general and administrative expenses were $1.7 million for the first
three months of 1998, an increase over 1997 levels of 7% (an increase of 11%
absent the effect of currency exchange rate fluctuations).  This increase was
due to several factors, primarily the general growth of existing offices;
increased marketing and sales efforts in substantially all of the Company's
markets;   and the effect of increased corporate overhead costs related to the
Company's growth.  Costs of approximately $150,000 related to reorganizing and
closing some of the Company's underperforming offices were recognized in the
first quarter of 1997.  There were similar costs recognized in the first quarter
of 1998 of only $75,000.

Development costs were $124,000 in the first three months of 1998 compared to
$108,000 in the first three months of 1997.  Development costs are related to
the upgrading and expansion of the Company's proprietary language translation
software developed in the early years of the Company's existence, including
enhancements to its software to make it compatible with more of the ever-
increasing types and versions of software being developed by the software
industry.  The Company expects development costs to continue to increase in 1998
over 1997 levels, primarily because of the ongoing need to ensure the Company's
technology is compatible with software commonly used by clients.  Also, the
Company has announced it will begin to market its suite of translation tools in
1998, which will increase development-related costs.

                                       13
<PAGE>
 
Fluctuations in the amount of goodwill amortization result primarily from
foreign currency exchange rate fluctuations from year to year.  Net interest
expense was $76,000 in the first quarter of 1998, representing an increase of
$19,000 over 1997.  The increase in interest expense in 1998 was due primarily
to higher average balances outstanding under revolving lines of credit, caused
by growth in sales and related accounts receivable, and increases in long-term
debt used to finance certain equipment purchases.

Interest expense in future periods could increase over recent levels if the
Company increases borrowings under revolving lines of credit as sales grow.
Also, the Company plans to continue to use long-term debt to finance certain
equipment purchases.  Any investments beyond modest requirements related to
sales growth could require additional debt financing which would impact future
levels of interest expense.

The U.S. 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 U.S. parent
company, and most of its subsidiaries, have unused net operating losses from
prior years which can be utilized to reduce their respective future years'
taxable income.  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 $240,000 in 1998 compared to $45,000 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 various domestic and foreign tax jurisdictions,
including the utilization of net operating loss carryforwards in many of these
jurisdictions.  The U.S. parent company has a net operating loss carryforward
for U.S. federal tax purposes but has no net operating loss carryforwards for
state income tax purposes.

LIQUIDITY AND SOURCES OF CAPITAL

In the first three months of 1998, the Company had a positive cash flow from
operations of approximately $1.6 million, compared with a negative cash flow
from operations in 1997 of $.4 million.  In each of these periods, the Company's
investing activities included the acquisition of equipment needed to maintain or
upgrade production capability. In 1997, the Company's investing activities also
included the acquisition of CompuType for approximately $.5 million (see note 3
to the Consolidated Financial Statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).

Financing activities for both periods 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.
Additionally, in 1997, the Company obtained a long-term loan of approximately
$330,000 to finance a portion of the CompuType acquisition.  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, all as described in more detail in
note 5 to the Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.

At March 31, 1998, the Company's cash and cash equivalents were approximately
$2.2 million, which represents an increase of $.5 million during the first
quarter of 1998.  At March 31, 1998, the Company had 

                                       14
<PAGE>
 
working capital of approximately $4.6 million, compared to working capital of
approximately $3.8 million at December 31, 1997. This increase is largely
attributable to the net income earned in the period.

The Company's primary working capital requirements relate to the funding of
accounts receivable.  The Company funds some of its working capital needs with
lines of credit from financial institutions in the U.S., Canada, the U.K.,
Germany and Spain.  Most of the lines of credit are secured by accounts
receivable and other assets of the Company or its subsidiaries.  As of March 31,
1998, the Company had unused amounts under these lines of credit of
approximately $1.7 million.

Provided the Company remains profitable, the Company believes the unused 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 current levels, without seeking significant new sources of capital.  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.
In addition, the Company expects to be able to increase the maximum amounts
which can be borrowed under credit facilities if the Company's sales increase
and the Company remains profitable over the long term.  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 their 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 presently has no significant commitments for capital expenditures,
which generally consist of computer equipment and related peripheral hardware
and software.   Levels of capital expenditures in future periods are expected to
vary according to the overall growth of the Company.  The Company plans to
acquire equipment in the future as orders are received from clients.  The
Company expects to finance a certain portion of future equipment costs under
financing arrangements with terms similar to those entered into in recent years.

In January 1997, the Company acquired CompuType for cash of approximately
$550,000, most of which was financed.  While there are no current commitments or
plans, the Company may pursue other acquisitions worldwide or open additional
offices in strategic locations, as client demands dictate and opportunities
arise. The cost to open most offices has generally not been substantial and has
been primarily related to the procurement of computers and other translation-
related equipment, and office premises.  The costs of any additional offices
opened in the future will vary based on size and location and could require
certain amounts of cash beyond the amount that can be generated through
operations, depending on profitability.

In May 1997, the Company closed its Hong Kong office.  A reorganization of the
Company's offices in France occurred during 1997.  The Company has also decided
to close one of its small U.K. offices in 1998. No other significant office
closures or reorganizations are currently planned.

The Company believes it has the ability to issue additional equity securities if
necessary, but does not currently plan to do so.  In order for the Company to
fund investments beyond current levels of growth, such as for significantly new
or expanded services or product lines, additional debt or equity funds will
likely be required.

Management believes that current working capital, together with unused amounts
under lines of credit, will enable the Company to meet its financial obligations
during 1998.  It is more difficult to assess cash flows beyond 1998.  The
ability of the Company to meet its commitments without additional sources of
capital is 

                                       15
<PAGE>
 
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, as was done by
closing the Switzerland and Hong Kong offices in prior years and the small U.K.
office in 1998.

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
through increased prices.

Due to prior years' operating losses, the Company and many 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 significant income tax liabilities requiring
the expenditure of cash.  The Company expects this trend to continue for certain
long-established 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 newer offices opened in recent years.

Substantially all of the Company's deferred tax assets at March 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.

YEAR 2000 ISSUE

The year 2000 issue refers to some computer systems' inability to recognize "00"
in the date field as the year 2000.  As a result of these shortcomings, some
computers may be unable to process year-date data accurately beyond the year
1999.  The Company has preliminarily assessed the potential impact of this issue
on its business and operations as being minor.  With the exception of the
operations administration system for one of the Company's foreign subsidiaries,
the Company believes the year 2000 issue will not have a material effect on the
Company's internal accounting and information systems, most of which consist of
relatively inexpensive off-the-shelf software packages.  In addition, the
Company's proprietary translation software, TSS, has been year 2000 compliant
since its development in the mid-1980's.

The Company has not undertaken a comprehensive study as to whether its clients,
suppliers and service providers are year 2000 compliant.  The Company's primary
vendors consist of individual translators and other service professionals who
are not expected to be materially impacted by the year 2000 issue.  The Company
does have relationships with various financial institutions, which could be
materially impacted by this problem.

The Company has budgeted less than $100,000 to purchase a new operations
administration system for its foreign subsidiary referred to above.  The Company
does not expect the costs to become year 2000 compliant to have a material
effect on the Company's financial statements.

                                       16
<PAGE>
 
NEW ACCOUNTING STANDARD

In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("FAS 131") was issued.

The Company will adopt FAS 131 at the end of 1998.  It is not anticipated that
the adoption of this statement will have a material effect on the financial
statements of the Company.  Refer to note 6 to the Consolidated Financial
Statements for further information.

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 countries 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, changing levels of demand for the Company's services, the effect
of constantly changing general economic and political conditions in the
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.


                          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, 1997, filed
         on March 27, 1998.

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, 1998.

                                       17
<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: 8 May 1998                          /s/ Michael F. Eichner
      ----------                          -------------------------------
                                          Michael F. Eichner
                                          Chairman of the Board



Date: 8 May 1998                          /s/ D. Kerry Stubbs
      ----------                          -------------------------------
                                          D. Kerry Stubbs
                                          Chief Financial Officer

                                       18