<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 September 30, 1997

                                       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 November 10, 1997 was 18,540,296.
<PAGE>
 
ALPNET, INC. AND SUBSIDIARIES

                                     INDEX


PART I.  FINANCIAL INFORMATION
------------------------------

Item 1. Consolidated Financial Statements (Unaudited):
 
        Consolidated Statements of Operations--Three months ended September 30,
         1997 and 1996, and Nine months ended September 30, 1997
         and 1996............................................................  3
 
        Consolidated Balance Sheets--September 30, 1997 and
         December 31, 1996...................................................  4
 
        Consolidated Statements of Cash Flows--Nine months ended
         September 30, 1997 and 1996.........................................  6
 
        Notes to Consolidated Financial Statements--September 30,
         1997................................................................  7
 
Item 2. Management's Discussion and Analysis of Financial Condition and
         Results of Operations...............................................  9
 

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

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



SIGNATURES................................................................... 18
----------                                                      

                                       2
<PAGE>
 
ITEM 1:  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
-------  ---------------------------------------------
<TABLE>
<CAPTION>
ALPNET, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

                                        Three Months Ended  Nine Months Ended
                                           September 30       September 30
Thousands of dollars and shares            1997      1996      1997      1996
--------------------------------------------------------------------------------
<S>                                     <C>        <C>      <C>       <C>    
SALES OF SERVICES                       $10,231    $7,545   $29,445   $23,058
 
OPERATING EXPENSES:
 Cost of services sold                    7,434     6,099    22,752    17,990
 Selling, general and administrative
  expenses                                1,664     1,204     4,872     3,664
 Development costs                           94        60       297       142
 Amortization of goodwill                    96        90       293       269
                                        --------------------------------------- 
Total operating expenses                  9,288     7,453    28,214    22,065
                                        --------------------------------------- 
OPERATING INCOME                            943        92     1,231       993
 
Interest expense, net                        61        40       201       101
                                        --------------------------------------- 
Income before income taxes                  882        52     1,030       892
 
Income taxes                                140        30       245       178
                                        --------------------------------------- 

NET INCOME                              $   742    $   22   $   785   $   714
                                        =======================================


NET INCOME PER SHARE                    $  .029    $ .001   $  .034   $  .028
                                        =======================================


Weighted average shares of Common
  Stock and Common Stock equivalents
  outstanding                            25,630    26,344    22,980    25,856
                                        =======================================

See accompanying notes.
</TABLE> 

                                       3
<PAGE>

<TABLE>
<CAPTION>
 
ALPNET, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)


                                                September 30   December 31
Thousands of dollars                                 1997          1996
--------------------------------------------------------------------------------

ASSETS
<S>                                               <C>           <C>      
CURRENT ASSETS:
 Cash and cash equivalents                        $ 1,610       $ 1,034
 Trade accounts receivable, less allowance of
  $302 in 1997 and $219 in 1996                     8,344         6,529
 Work-in-process                                      864           487
 Prepaid expenses and other                           744           949
                                               -------------------------
Total current assets                               11,562         8,999
 
PROPERTY, EQUIPMENT AND LEASEHOLD
 IMPROVEMENTS:
  Office facilities and leasehold
    improvements                                      299           318
  Equipment                                         5,235         4,789
                                               -------------------------
                                                    5,534         5,107
  Less accumulated depreciation and
    amortization                                    3,645         3,236
                                               ------------------------
Net property, equipment and leasehold
 improvements                                       1,889         1,871
OTHER ASSETS:
 Goodwill, less accumulated amortization
   of $3,400 in 1997 and $3,380 in 1996             5,742         6,087
 Other                                                270           310
                                               -------------------------
Total other assets                                  6,012         6,397
                                               ------------------------- 
TOTAL ASSETS                                      $19,463       $17,267
                                               =========================


See accompanying notes.
</TABLE>

                                       4
<PAGE>

<TABLE>
ALPNET, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)--continued
<CAPTION>

                                                        September 30    December 31
Thousands of dollars and shares                              1997           1996
-----------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES:
<S>                                                     <C>             <C>       
 Notes payable to banks                                 $  2,643        $ 1,959  
 Accounts payable                                          2,712          2,225  
 Accrued payroll and related benefits                        844            922  
 Other accrued expenses                                    1,091            897  
 Deferred revenue                                            486            391  
 Income taxes payable                                        299             53  
 Current portion of long-term debt                           354            203  
                                                     ----------------  -----------
Total current liabilities                                  8,429          6,650  
                                                                                 
Long-term debt, less current portion                         638            262  
                                                                                 
Commitments and contingencies (note 6)                                           
                                                                                 
SHAREHOLDERS' EQUITY:                                                            
Convertible Preferred Stock, no par value;                                       
  authorized 2,000 shares; issued and                                            
  outstanding 615 shares in 1997 and 719                                         
  shares in 1996                                           1,808          2,095  
Common Stock, no par value; authorized                                           
  40,000 shares; issued and outstanding                                          
  18,537 shares in 1997 and 17,883 shares                                        
  in 1996                                                 40,509         40,228  
Accumulated deficit                                      (29,948)       (30,733) 
Equity adjustment from foreign currency translation       (1,973)        (1,235) 
                                                     ----------------  -----------
Total shareholders' equity                                10,396         10,355  
                                                     ----------------  -----------
TOTAL LIABILITIES AND SHAREHOLDERS'                                              
 EQUITY                                                  $19,463        $17,267 
                                                     =============================

See accompanying notes.
</TABLE> 

                                       5
<PAGE>
 
<TABLE>
ALPNET, INC. AND SUBSIDIARIES
<CAPTION>

Consolidated Statements of Cash Flows (Unaudited)
                                                        Nine Months Ended September 30
Thousands of dollars                                           1997          1996
-------------------------------------------------------------------------------------- 
 
OPERATING ACTIVITIES:
<S>                                                          <C>           <C>
 Net income                                                  $  785        $  714
 Adjustments to reconcile net income to
  net cash provided by operating activities:
   Depreciation and amortization of property,
    equipment and leasehold improvements                        499           302
   Amortization of goodwill                                     293           269
   Other                                                         33           (42)
   Changes in operating assets and liabilities, net of effect
     of acquisition:
    Trade accounts receivable                                (1,976)          (29)
    Accounts payable and accrued expenses                       819           392
    Other                                                       110          (413)
                                                              -----------------------
Net cash provided by operating activities                       563         1,193

INVESTING ACTIVITIES:
 Purchase of property, equipment and
  leasehold improvements                                       (590)         (832)
 Payment for acquisition, net of cash acquired                 (508)            -
                                                              ----------------------- 
Net cash used in investing activities                        (1,098)         (832)
 
FINANCING ACTIVITIES:
 Proceeds from notes payable to banks                           893           376
 Principal payments on notes payable to banks                  (126)         (228)
 Proceeds from long-term debt                                   624           164
 Principal payments on long-term debt                          (211)          (75)
 Proceeds from exercise of stock options                          1            22
                                                         ---------------------------- 
Net cash provided by financing activities                     1,181           259
                                                                    
Effect of exchange rate changes on cash                         (70)           (8)
                                                         ---------------------------- 
NET INCREASE IN CASH AND CASH EQUIVALENTS                       576           612
                                                                    
Cash and cash equivalents at beginning of period              1,034         1,033
                                                         ---------------------------- 
                                                                    
CASH AND CASH EQUIVALENTS AT END OF PERIOD                   $1,610        $1,645
                                                         ============================
                                                                    
CASH PAID DURING THE PERIOD FOR:
 Interest                                                    $  194        $  106
 Income taxes                                                    16           162

See accompanying notes.
</TABLE> 

                                       6
<PAGE>
 
ALPNET, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

September 30, 1997

1. BASIS OF PRESENTATION

   ALPNET, Inc. (the "Company") is a United States publicly-owned corporation
   with multinational operations. The Company provides language translation,
   product localization, and multilingual publishing services 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, 1996.

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

2. ACQUISITION

   In January 1997, the Company acquired all of the outstanding stock of
   CompuType Ltd., a U.K.-based provider of specialty desktop publishing and
   pre-press services, in a transaction accounted for as a purchase. The
   acquisition cost of approximately $550,000 was paid in cash, and exceeded the
   fair values of the net assets acquired by approximately $400,000, which
   excess was recorded as goodwill and is being amortized on the straight-line
   method over 12 years. The acquisition was financed primarily by (1) a
   (Pounds)200,000 (approximately $330,000) term loan with the Company's U.K.
   bank, repayable over 5 years, bearing interest at approximately 9%; and (2)
   an increase of (Pounds)100,000 (approximately $170,000) in the Company's
   credit facility with this bank. CompuType's results of operations have been
   included with the Company's consolidated financial results from February 1997
   forward. CompuType's 1997 sales, included in consolidated sales of services
   for the period ended September 30, 1997, were approximately $1,030,000.

                                       7
<PAGE>
 
3.  BORROWINGS

    In addition to the loans described in note 2, the following changes in
    borrowings have occurred since December 31, 1996.

    The Company obtained a line of credit with a U.S. financial institution in
    January 1997 which has a maximum limit of $500,000, bears interest at
    approximately 9% and is collateralized by U.S.-based accounts receivable. At
    September 30, 1997, approximately $380,000 was borrowed under this credit
    facility. In May 1997, the Company's secured credit facility with a German
    bank was increased from a maximum limit of DM 600,000 (approximately
    $340,000) to a maximum limit of DM 750,000 (approximately $430,000). In July
    1997, the Company obtained a mortgage with a bank in Spain, secured by the
    Company's office facility in Barcelona. The mortgage is for approximately
    $150,000, is repayable over ten years and bears interest at approximately
    8%.

4.  EQUITY TRANSACTIONS

    In March 1997, the Company issued 652,035 shares of Common Stock upon
    conversion of 47,647 shares of series B Convertible Preferred Stock and
    56,566 shares of series C Convertible Preferred Stock. Each share of
    Preferred Stock was convertible at the option of the holder into three
    shares of the Company's Common Stock for series B and nine shares of the
    Company's Common Stock for series C.

5.  INCOME TAXES

    The Company files a consolidated U.S. Federal income tax return which
    includes all domestic operations. Tax returns for states within the U.S. and
    for foreign subsidiaries are filed in accordance with applicable local 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.

6.  CONTINGENT LIABILITY

    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 1996, approximately
    $50,000 of statutorily-required costs related to the 1997 terminations were
    expensed. In 1997, an additional $75,000 was expensed related to the legal
    actions taken by specific employees.

    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.

                                       8
<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 Consolidated Financial Statements and notes thereto.

FOREIGN OPERATIONS

The Company serves its customers from 33 wholly-owned offices in 13 countries.
The operations of the Company are predominantly located outside the U.S. and 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 resultant cumulative foreign currency adjustments to the
assets and liabilities are recorded as a separate component of shareholders'
equity.  The foreign currency equity adjustment for the first nine months of
1997 was negative $738,000 compared to a negative adjustment of $154,000 for the
first nine months of 1996.  Generally, when the major foreign currencies
affecting the Company weaken as compared to the U.S. dollar, 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 1997
and 1996.  As of September 30, 1997, the cumulative net effect to the Company of
the equity adjustment from movements in foreign currency exchange rates was a
reduction of approximately $2.0 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 nine months of 1997, the Company recorded a net benefit of $169,000
for gains on foreign exchange transactions.   A majority of this benefit was
recorded in the U.K., and a majority of the U.K. gain resulted from a weakening
of the UK(Pounds) from December 31, 1996 to September 30, 1997.  Because the
Company's U.K. subsidiary had a large amount of US$ denominated receivables
outstanding as of December 31, 1996, the Company recorded an unrealized loss on
these receivables in 1996.  The strengthening of the US$ against the UK(Pounds)
in 1997 has meant that most of that loss was not realized.  In the first nine
months of 1996, exchange gains and losses resulting from foreign currency
transactions included in the determination of net income were not material.

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.  The Company has
relatively few long-term monetary assets and liabilities denominated in
currencies other than the U.S. dollar, and therefore 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- and nine-
month periods ended September 30, 1997 as compared with the three- and nine-
month periods ended September 30, 1996, including the significant effects of
fluctuating foreign currency exchange rates.

                                       9
<PAGE>
 
The Company reported net income of $742,000 for the three months ended September
30, 1997, compared to net income of $22,000 for the three months ended September
30, 1996.  If foreign currency exchange rates for 1997 had remained unchanged
from 1996, the Company would have reported net income of approximately $812,000
instead of $742,000.

The Company reported net income of $785,000 for the nine months ended September
30, 1997 compared to $714,000 for the nine months ended September 30, 1996.  If
foreign currency exchange rates for 1997 had remained unchanged from 1996, the
Company would have reported net income of approximately $777,000 instead of net
income of $785,000.

Sales of services were $10.2 million for the three months ended September 30,
1997, compared to $7.5 million for the three months ended September 30, 1996.
The $2.7 million increase in reported sales for 1997 consisted of an increase in
sales volume of $3.2 million and a decrease of $500,000 due to fluctuating
currency exchange rates.

Sales of services were $29.4 million for the nine months ended September 30,
1997 compared to $23.1 million for the nine months ended September 30, 1996.
The $6.3 million increase in reported sales from the first nine months of 1996
to the first nine months of 1997 consisted of an increase in sales volume of
$7.1 million and a decrease of $800,000 due to fluctuating currency exchange
rates.  The increases in sales volume in 1997 over 1996 are due to increases in
sales in nearly all markets in which the Company has a presence, but most
particularly in the Company's North American, U.K., German and Amsterdam
offices. The U.K. sales increase is primarily attributable to the sales of
CompuType, a U.K. company acquired in January 1997.

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.  An example of this is the software industry which has significant and
increasing needs for product localization services such as those provided by the
Company.

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 intense price competition which the Company
encountered in prior years continues to limit the prices the Company can charge
in the marketplace.  The industry pricing situation has not changed materially
in 1997 compared to 1996.

                                       10
<PAGE>

The following table shows a comparison of sales of services in each of the
Company's significant geographic areas for the nine months ended September 30,
1997 and 1996, along with the effect of foreign currency exchange rate
fluctuations on sales between the two periods.  Intercompany sales are normally
billed on a margin-sharing basis.  All intercompany sales are eliminated in
determining the totals.
<TABLE>
<CAPTION>
 
Thousands of dollars
                                                  Increase (Decrease) in
                            Nine Months          Sales of Services due to       Total
                         Ended September 30        Sales       Currency        Increase
                           1997        1996       Volume     Fluctuations     (Decrease)
                        ----------------------------------------------------------------- 
<S>                     <C>         <C>          <C>           <C>             <C>
 
United States           $ 5,373     $ 3,455      $ 1,918       $     -         $ 1,918
Canada                    4,800       3,248        1,592           (40)          1,552
Europe                   22,731      18,891        4,919        (1,079)          3,840
Asia                      3,037       2,092        1,099          (154)            945
Eliminations             (6,496)     (4,628)      (2,353)          485          (1,868)
                        ----------------------------------------------------------------- 
Total Sales             $29,445     $23,058      $ 7,175       $  (788)        $ 6,387 
                        ================================================================= 
</TABLE>

As shown in the above table, every major geographical region reported increased
sales in the first nine months of 1997 over the first nine months in 1996.
Significant changes in sales levels in the major geographic regions are
discussed in the following paragraphs.


SALES OF SERVICES BY GEOGRAPHIC AREA

U.S. sales increased $1.9 million or 56% in 1997 over 1996.  Historically, U.S.
sales from period to period have fluctuated more widely than in other
geographical areas due to industry conditions which have often been less
predictable than those found in some of the Company's foreign markets.  Such
conditions have been characterized by the relative inexperience of many U.S.
companies in translation and localization of language, as it relates to
international business, and clients which were not sophisticated in the nuances
of marketing to foreign countries and thus unaware of the importance of related
language issues.  These factors, along with the unpredictable timing and the
nonrecurring nature of many large translation projects for U.S. companies, have
resulted in an order stream which has varied from period to period, but which
has improved dramatically during the past two years.

U.S. sales rose from 1996 to 1997, due largely to an increase in the number and
size of projects for 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 initiated by the Company in late 1995 and early 1996
and, more recently, a strategy of targeting sales efforts at specific 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 predictability and timing of actual orders from
clients is unpredictable.

Canada's reported sales for 1997 represent an increase over 1996 of 48%, which
is related to actual increases in sales volume with little effect from
fluctuating foreign currency exchange rates.  The increase in sales in Canada is
due primarily to ongoing aggressive marketing and sales efforts and the
procurement of new large

                                       11
<PAGE>
 
long-term contracts. These increases in sales have occurred despite continuing
economic and political challenges in Canada. Nevertheless, due primarily to
several new large multi-year contracts, which were negotiated in 1996, but which
did not begin until 1997, management believes it is likely that 1997 revenues in
Canada will continue to exceed 1996 levels.

In 1997, sales in Europe of $22.7 million represent approximately 63% of the
Company's consolidated sales and grew by $3.8 million over 1996 sales levels, or
by 20% year over year (26% absent the effects of fluctuating foreign currency
exchange rates).  Most of the increase in European sales is the result of an 18%
growth rate in Germany (36% absent the effects of foreign currency exchange rate
fluctuations) and higher sales in the Netherlands, which experienced a tripling
of sales in 1997 over 1996.  The U.K. and Germany accounted for 80% of Europe's
total sales in 1997, compared to 84% in 1996.

U.K. sales increased 11% (4% absent the effects of foreign currency exchange
rate fluctuations) in 1997 compared to 1996, due primarily to the 1997 sales
attributable to CompuType (see note 2 to the Consolidated Financial Statements).
Sales in this country are highly dependent upon the number and size of orders
from large clients.

In Germany, a high rate of growth was achieved in 1997 compared to the first
nine months of 1996.  The Company's sales in Germany were unusually low in early
1996 due largely to a sluggish economy, evidenced by the unemployment rate which
increased to a 50-year high.  Despite the ongoing effects of the economic
slowdown, sales have been strong in 1997 as a result of focused and intensive
sales and marketing efforts. Sales of higher-margin localization services have
increased as have sales of certain lower-margin services which has resulted in
more effective utilization of capacity.  Management is expecting revenue growth
to continue in 1997, as a result of ongoing marketing programs and recent
reports that economic conditions in Germany could be improving.

The Company opened offices in the Netherlands and in Ireland in late 1995 and in
Belgium in late 1996.  The Switzerland office was closed in late 1996.  The
Belgium office is a high volume, high quality production facility servicing the
needs of other ALPNET offices.  The new European offices, along with the
investments made in human and equipment resources in existing offices in recent
years, are expected to help the Company increase its revenues in Europe as
demand for language services in this region continues to expand.

Sales in Asia of $3.0 million in 1997 grew by 45% over 1996 levels (53% absent
the effects of foreign currency exchange rate fluctuations).  The Company
significantly expanded its Asian presence in late 1995 by adding an office in
The People's Republic of China, and by opening an office in Tokyo in early 1996.
Also, the Company's offices in Singapore and Korea were expanded significantly
during the latter half of 1996.  Since its opening, the China office has
functioned only as a production facility for sales made in other offices of the
Company, but China is expected to begin to sell to local companies in the future
and contribute to the growth of sales in Asia in coming years.  The Company's
Tokyo office has also served primarily as a production facility for sales made
elsewhere in the Company, thus allowing other offices to sell to new and
existing clients that have needs for Japanese language services. This office
started to sell to local Japanese clients in early 1997, which is expected to
help further accelerate sales growth in Asia in 1997 and beyond.

In general, the Asian capacity developed in 1996 was underutilized in the first
quarter of 1997 and contributed to the operating loss sustained in that quarter.
Underutilization also occurred in the second and third quarters of 1997, but was
less pronounced than earlier in the year.  Management does not expect this

                                       12
<PAGE>
 
underutilization situation to continue in the long term, 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 continuing losses
and declining strategic importance.  Sales of this office were not material in
either 1997 or in 1996, but a provision of approximately $50,000 was recorded in
the first quarter of 1997 to recognize the costs of closing the office.  Other
Asian offices are now producing most of the Chinese work historically done by
the Hong Kong office.

Management expects the increased demand for Asian language services to continue.
Many Asian countries are experiencing very high economic growth rates and
interest in Asia from the business communities in the U.S., Europe and elsewhere
remains high.

The Company's business can be impacted dramatically by changes in the strength
of the economies of the countries in which it has a presence, and results of
operations are highly influenced by general economic trends.  Moreover, sales
and profitability are increasingly affected by the number and size of larger and
more complex multi-language projects.  During 1996 and thus far in 1997, the
Company experienced significant fluctuations in quarterly sales and
profitability levels largely as a result of the increasing number of such
projects.  Management expects this trend to continue.  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 as a percentage of sales of services has fluctuated
primarily as a result of 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 the first nine months of
1997 (especially in the first quarter) 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 possible result of several recent mergers of small
and mid-sized translation companies.  The Company is continuing its efforts to
contain 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 solution-based services to clients.


OTHER COSTS AND EXPENSES

Selling, general and administrative expenses increased 33% for the first nine
months of 1997 over the first nine months of 1996, and 38% for the three months
ended September 30, 1997 over the three months ended September 30, 1996.  These
increases are due to several factors, including the overall growth of existing
offices and the opening of new offices;  increased marketing and sales efforts
in substantially all of the Company's markets;  certain costs recorded in the
first quarter of 1997 related to reorganizing and closing some of the Company's
underperforming offices;  and to a lesser extent, the effect of increased
corporate overhead costs related to the Company's growth.

Development costs were $297,000 for the first nine months of 1997 compared to
$142,000 for the first nine months of 1996.  Development costs are related to
the upgrading and expansion of the Company's proprietary

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<PAGE>
 
language translation software developed in the early years of the Company's
existence, as well as efforts related to the development and expansion of the
Company's online language service product offering. The Company has enhanced
certain features of its software and made it compatible with more of the ever-
increasing types and versions of software being developed by the software
industry which are being used by clients and potential clients. The Company
expects development costs for the remainder of 1997 to continue higher than 1996
levels, primarily because of the ongoing need to ensure the Company's technology
is compatible with the software commonly used by businesses.

Fluctuations in the amount of goodwill amortization resulted from foreign
currency exchange rate fluctuations from year to year and from the Company's
acquisition of CompuType in January 1997, which increased goodwill amortization
by about $3,000 per month.

Net interest expense of $201,000 for the first nine months of 1997 was 99%
higher than for the same period in 1996.  There was also a large increase for
the third quarter of 1997 compared to the third quarter of 1996. These increases
are due primarily to higher average balances outstanding under revolving lines
of credit, caused by growth in sales and related accounts receivable; increases
in long-term debt used to finance certain equipment purchases; and a term loan
obtained in January 1997 to finance a portion of the CompuType acquisition.
Interest expense for the remainder of 1997 is expected to continue to outpace
1996 levels as the Company expects borrowings under revolving lines of credit to
increase as sales grow, and the Company plans to continue to use long-term debt
to finance certain equipment purchases.  Also, any investments beyond modest
requirements related to sales growth could require additional debt or equity
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 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 consideration of the effect of the utilization of net operating loss
carryforwards, income tax expense was $245,000 for the first nine months of 1997
($140,000 for the third quarter), compared to $178,000 for the first nine months
of 1996 ($30,000 for the third quarter).  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 those
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 nine months of 1997, the Company had a positive cash flow from
operations of approximately $560,000 compared with a positive cash flow from
operations in the first nine months of 1996 of approximately $1.2 million.  In
1997, the Company's investing activities consisted of the acquisition of
CompuType (see note 2 to the Consolidated Financial Statements) as well as the
acquisition of equipment

                                       14
<PAGE>
 
needed to maintain or upgrade production capability. In 1996, investing
activities consisted of the acquisition of equipment.

Financing activities for both 1997 and 1996 included fluctuations in the amounts
utilized under bank lines of credit used 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 for
approximately $330,000 which was used to finance a portion of the CompuType
acquisition.  In 1997, the Company's non-cash financing activities include the
conversion by a shareholder of certain of the Company's Preferred Stock to
Common Stock, as described in more detail in note 4 to the Consolidated
Financial Statements.

As of September 30, 1997, the Company's cash and cash equivalents were
approximately $1.6 million, representing an increase of approximately $580,000
during the first nine months of 1997.  At September 30, 1997, the Company had
working capital of approximately $3.1 million compared to $2.3 million at
December 31, 1996.

The Company's primary working capital requirements relate to the funding of
accounts receivable.  The Company funds some of its working capital needs with
various lines of credit with 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 September
30, 1997, the Company had unused amounts under these lines of credit of
approximately $500,000.  In July 1997, the Company obtained a mortgage with a
bank in Spain for approximately $150,000 (see note 3 to the Consolidated
Financial Statements).

Provided the Company remains profitable, the Company 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. 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 if the Company's sales increase and if the Company can remain
profitable over the long term.  Some of the banks 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 has no present significant commitments for capital expenditures,
which generally consist of computer equipment and related peripheral hardware
and software.  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 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 through
bank and/or leasing sources, similar to the financing arrangements entered into
in recent periods.

As described in more detail in note 2 to the Consolidated Financial Statements,
in January 1997 the Company acquired a U.K.-based business 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

                                       15
<PAGE>
 
additional offices in strategic locations,  as client demands dictate and
opportunities arise.  The costs to open most offices have generally not been
substantial and have been primarily related to the procurement of computers and
other translation-related equipment and, in certain instances, for office
premises.  The Tokyo office, opened in early 1996, was an exception to this
general situation, due both to the larger size of that office and the high cost
of doing business in Japan.  The costs of any additional offices to be opened in
the future can also be expected to 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 December 1996, the Company closed its Switzerland office and in May 1997
closed its Hong Kong office. In addition, a restructuring of the Paris office
began in early 1997.  These office closures and the restructuring have had or
will have a negative effect on cash flow of approximately $300,000.  No other
significant office closures or restructurings are currently planned.

The Company believes it has the ability to issue additional debt or equity
securities if necessary, but does not currently have any firm plans to do so.
In past years, the Company has relied on major shareholders of the Company to
fund certain 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.  In order for the Company to fund
investments beyond modest growth in operations, 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 available lines
of credit will enable the Company to meet its financial obligations during 1997
and early 1998.  It is more difficult to assess cash flows beyond this period
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, as was done by closing the Switzerland and Hong Kong offices.

Inflation has not been a significant factor in the Company's operations.
Competition, however, has been and is expected to remain a major factor.  To the
extent permitted by competition and general economic and market conditions, the
Company will pass on increased costs from inflation and operations to clients by
increasing prices.

Due to prior years' operating losses, the Company and 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 general trend to continue
through 1997 and for several years into the future for certain offices acquired
many years ago which sustained large losses in previous years. The levels of net
operating losses available to offset future taxable income are generally much
lower for the new offices opened in recent years.

Substantially all of the Company's deferred tax assets at September 30, 1997
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.

                                       16
<PAGE>
 
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 all of the
various countries in which the Company has operations, the impact of competitive
services and pricing, uncertainties caused by clients (including the timing of
projects and changes in the scope of services requested), and other risks and
uncertainties that may be disclosed from time to time in future public
statements or in documents filed with the Securities and Exchange Commission.
As a result, no assurance can be given as to future results.


                          PART II:  OTHER INFORMATION

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

(a)       The following exhibits are included herein:

          11  Statement Re: Computation of Per Share Earnings
          27  Financial Data Schedule

(b)       The Company has filed the following reports on Form 8-K during the
          three months ended September 30, 1997.

Date of
Report    Item Reported
-------   ----------------------------------------------------------------------

07/22/97  ALPNET Announces Strong 1997 Second Quarter Results

                                       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: 10 November 1997                    /s/ Michael F. Eichner
      ----------------                    ----------------------------    
                                          Michael F. Eichner
                                          Chairman of the Board



Date: 10 November 1997                    /s/ D. Kerry Stubbs
      ----------------                    ---------------------------- 
                                          D. Kerry Stubbs
                                          Chief Financial Officer

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