<PAGE>   1
                United States Securities and Exchange Commission
                             Washington, D.C. 20549
                                   FORM 10-KSB

                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

For the Fiscal Year Ended                    Commission file number 000-21725
March 31, 1998

                           THE TRANSLATION GROUP, LTD.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)




Delaware                                              23-3382869
-------------------------------                       --------------------------
(State or other jurisdiction of                       (I.R.S. Employ.Ident. No.)
incorporation  or organization)

332C Haddon Avenue                                    08108
Westmont, NJ                                          ----------
----------------------------------------              (Zip Code)
(Address of principal executive offices)

Issuers telephone number: (609) 858-6614

Securities registered under Section 12(b) of the Exchange Act:

Securities registered under Section 12(g) of the Exchange Act:

                                               Common stock, $.001 par value
                                                     (Title of class)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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
____.

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. { }

Issuers revenues for its most recent fiscal year: $ 6.4 million

     Aggregate market value of the voting stock held by non-affiliates of
registrant (based on average of the bid and asked price on June 30, 1998) $13.7
million.
See Market of the Registrants Common Stock and Related Stockholder Matters.

     The number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date: 2,278,340 ( includes 100,000 to be
issued) shares of common stock, par value $ .001 per share, as of June 30, 1998

Transitional Small Business Disclosure Format: Yes    ; No  X


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ITEM 1. DESCRIPTION OF BUSINESS.

THE COMPANY

The Translation Group, Ltd. ("TTGL") was incorporated under the laws of Delaware
on July 6, 1995. On January 17, 1996, TTGL consummated its first acquisition
when the shareholders of Bureau of Translation Services, Inc., a Pennsylvania
corporation ("BTS") exchanged their shares of BTS, treated as a business
combination, for shares of TTGL so that BTS became a wholly owned subsidiary of
TTGL. Prior to the acquisition of BTS, TTGL's only activity was related to the
negotiations and other matters pertaining to the raising of funds under a
private placement. The corporate and administration office of the Company is
located at 332C Haddon Avenue, Westmont, NJ 08108, and its telephone number at
that location is (609) 858-6614. The operating facilities are located at 30
Washington Avenue, Haddonfield, NJ 08033, and its telephone number at that
location is (609) 795-8669.

The Company translates conventional documents and software written in one
language into other languages, and specializes as a provider of high tech
translation and localization services in the Information Technology ("IT")
sector of the translation market. Localization is the art of converting from one
language to another giving careful consideration to the customs of the local
area.

On June 30, 1997, and in accordance with subsequent amendments, TTGL acquired
all the issued and outstanding common stock of the companies that comprise the
Word House Group (Word House) in exchange for 185,000 of its common shares and
200,000 additional common shares contingent on future earnings levels; of which
100,000 shares were issuable as of March 31, 1998. Word House has been in
operation since 1984, and currently has offices in The Netherlands, France,
England and China. TTGL, BTS and Word House are referred to herein collectively
as the "Company."

This transaction is more fully described below under the heading of Recent
Agreement and Acquisition.

BUSINESS OF THE COMPANY

The Company  specializes  in  managing  and  producing  high  volume,  technical
translations  for  the  information   technology  (IT),   software,   financial,
environmental,   chemical,  medical,   pharmaceutical,   and  telecommunications
industries.  The Company  provides a full range of translation and  localization
services to  international  customers  as well as  customers  aspiring to become
international.  The Company  translates  product  materials and helps  customers
localize products and services for the global marketplace.

The Company considers the products and services offered as value-added, and
that they enhance the value of the globalized product. Based upon its sixteen
years of experience, the Company provides several products and services that are
customized to the customers requirements. The services the Company provides are
divided into five main product lines:

   ------Multilingual Localization and Translation
   ------Systems Development and Consulting
   ------Technical and Localization Training and Support
   ------Translation Tool Sales, Support and Development
   ------Localization Management and Consulting

MULTILINGUAL LOCALIZATION AND TRANSLATION

The process of Multilingual  Localization  for the  information  technology (IT)
market is highly  labor  intensive,  with much of the  hands-on-work  being done
principally by independent  translators and editors retained by the Company,  as
well as Company  employees.  Various  translation  tools  (also  referred  to as
computer assisted translation tools "CAT") are employed, thus reducing costs and
enhancing consistency.

The Company utilizes CAT software  applications for extracting and storing data,
for  preserving   formatting   during  the  translation   process,   for  online
dictionaries,  for  presentation  of text (e.g.,  pre-press) and use of previous
translation.In this regard,

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the Companys translation memory (TM)capabilities depend upon the storage of and
access to previously translated material in machine usable form. Thus, the
ability to take advantage of this type of TM depends on the stability of
customers, types of products, material to be translated and customers
requirements. If variables upset this storage-access-use of previously
translated material, such as occurs with first-time customers when translating
materials in new topics, the Company will be unable to exploit this advantage.
For this reason, the Company is pursuing the production of its own phased in
system of document translation which would not be limited to the same materials
being previously translated. See Tools and Software Development.

The Company considers its highly detailed project management, tracking and
costing procedures to be at the heart of its specialized services. The Company
places a strong emphasis on efficient processes, and believes that centralized
project management is essential to efficiency. To better implement this policy,
a project manager is assigned to each project. Thus, even when a project may
have team members in many different locations, most work is coordinated
centrally in the Companys United States and European headquarters via electronic
communication. Certain core functions such as editing, proofreading, desktop
publishing and client coordination are part of central project management. In
preparing work for translation into multiple languages a project editor may
identify problems or issues which are relevant across the entire project.
Similarly, in a multiple-language project, problems may be picked up by the
translators in one or two languages that are relevant to others. The Company
believes that central control of the process is the only way certain situations
can be adequately handled, such as identification of software bugs.

All of the Companys translators are native speaking professionals in the target
language, and are required to know the subject matter of the area in which they
translate. In addition, a project must have technically knowledgeable staff in
the source language, preferably a specialist in that area.

The Company provides an extensive range of communications facilities by
utilizing its own internal systems integration group which maintains the
Companys Internet/Extranet/Intranet and E-mail Systems. Files are prepared for
translation by the Companys technical staff and are distributed electronically
to translators either locally or in the applicable country. Translated versions
are returned to the Companys central project management for checking and
proofing (and also compilation, if software is involved) and the target language
versions are distributed to appropriate client locations, which may be multiple
locations or a central site.

In terms of process,  the Company  considers itself an extension of the clients
documentation and software development  departments.  All project activities are
closely  tracked  using  custom  and  commercial   project   management/tracking
applications  where the data is fully available to the client.  Thus, the client
always knows the status of the project. See Tools and Software Development for
project tracking solutions.

SYSTEMS DEVELOPMENT AND CONSULTING

Systems development and consulting for services provided by the Company includes
product planning and redesign for local markets. The Company understands the
changes in technology and that taking a product to a global market can be a
difficult proposition. The Company views Asia (in particular China) and Eastern
Europe as emerging markets for the IT industry. In order to offset the technical
difficulties for its customers, the Company has taken an active role in the
development and modifications of products to support local specifications and
character encoding for these and other regions of the world.

TECHNICAL AND LOCALIZATION TRAINING AND SUPPORT

Recent articles  published by OVUM,  Inc., a market research  company,  and LISA
(Localization  Industrial Standards Association) report that the translation and
localization market currently approximates $ 20 billion annually and is expected
to grow between 10 to 15 percent annually.

To respond to this growth, the Company is taking aggressive steps. Recently, the
Company 

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entered into an agreement with New Jersey Department of Labor and Felician
College to develop a network of qualified translators and localizers, through
the implementation of a certificate training program. Under this partnership,
the State of New Jersey will provide funding for the Felician College Office of
Continuing Education to implement the certificate program comprised of three
core courses and one elective. The Company is providing the core curriculum and
is training Felician staff. All program graduates who participate in the program
may enroll in paid internships at the Company.

The Company has positioned resources to continue the efforts to create
additional training programs for the software and documentation localization
industry, as well as software and documentation developers.

TRANSLATION TOOL SALES, SUPPORT AND DEVELOPMENT

As the Company increasingly uses advanced technological translation tools (i.e.,
software that makes the translation process more accurate and effective), the
most notable impact has been a change in the structure of the project team.
Under the old, pre-tools model, a typical project might consist of a project
manager with 50 translators and editors working in various languages.
Translation tools have created a entirely new type of team particularly where
translation memory databases are used to leverage previously translated material
for re-use in new or updated programs and documentation. The same project team
includes a project manager, two technical analysts, and 15 translators/editors.

The Company believes it was one of the first extensive outside commercial users
of workbench environment for software and documentation translation. It has
selected as its corporate standard the integrated Transit/Termstar Translation
Management System. The product was designed for use in translation and editing
of software, help and documentation. The project manager controls the flow of
materials, import and export of source materials, as well as dictionary
creation, and translators use limited workstation versions of the software for
translation and editing. Transit is thought to be the most versatile product of
its kind commercially available on the market; it runs in Windows environment,
and may be used for Asian as well as European languages. In 1995, the Companys
U.S. subsidiary, BTS, was selected as the distributor in North America for
Transit and Termstar translation software products. These CAT tools assist in
the translation process by increasing efficiency through re-use of prior
translations. The Companys target markets are large industrial companies and
translation agencies. BTS is an industry leader in the use of software tools and
is expanding efforts to increase its distribution.

In response to customers specific requirements, the Company has also developed
expertise in other CAT tools such as Trados Translators Workbench. In fact, the
Companys European headquarters, at Word House, has adopted Trados Workbench as
its primary translation tool. The Company believes that by being expert in the
use of more than one translation tool, it enables the Company to provide
complete customer satisfaction.

The Company has followed the progress of machine translation (MT) over the
years. After much careful review and consideration, the Company concluded that
to the best of its knowledge no one system exists that meets its standards of
accuracy, efficiency and efficacy. In response to this, the Company is
developing its own set of tools to respond to common problems in the
localization process. Currently under development are a fully automatic and
language aware Alignment Tool and a controlled English System. Both of these
tools utilize unique technology and design created by the Companys Development
Group. The Company believes that the combination of these tools will enhance the
performance of the translation memory and machine translation systems currently
available and in use.

LOCALIZATION MANAGEMENT AND CONSULTING

The Company realizes that its customers do not possess all the expertise needed
to manage the localization process. The Company, therefore, has created expanded
services including management consulting and on-site management. These services
provide on-site project management, software and help testing, and consultation.
These services allow the Company to manage the localization and the customer to
manage their product. Therefore, costs are reduced while quality is maintained.

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COMPETITIVE POSITION

The Company believes it has a good position in the localization industry, in
part because, through BTS, it entered this market early. Initially, the Company
provided translation of technical material in various industries heavily
weighted toward engineering and analytical instrumentation. However, by the
mid-1980's, the Company recognized the opportunity in the computer industry.
Thus, the Company made the transition from a "generic" translation bureau, to
one whose business emphasizes translation services for IT customers.

The Company has leveraged ten years of localization experience into a set of
processes which, in conjunction with its translation tools, it considers its
principal competitive advantage. Every operational process, from bidding through
delivery of the completed project, is tracked and accounted for, making job
costing accurate and predictable, while at the same time offering savings to its
customers. The Company seeks to build long-term relationships with clients who
will continue to work with the Company over several years and many projects.

At present, key markets for the Company's services are customers located in
Japan, Europe (including Scandinavia) and in "the Americas", the dialects of
Canadian French, Latin American Spanish and Brazilian Portuguese. Growth markets
are primarily in Asia and Eastern Europe. Japanese and Dutch represent the
Company's largest languages, by volume, and the Company believes that Chinese
will also become significant in the near future. The Company's business in Japan
is primarily in translation for manufacturers of applications software,
including a substantial volume of Unix-based systems and customized
implementations. The principal applications are financial and manufacturing,
with systems encompassing everything from order entry to distribution. The
Company believes these are strong growth application areas in Asia.

SERVICES AND CLIENTS

The Company provides translation and localization services (i.e., translating so
that the result is reader friendly, using local dialect so that it is easily
readable and not stilted) to a range of industries and sectors, with an emphasis
on IT companies. During fiscal 1996 and 1997, approximately 80% of the Company's
revenues came from localization work for software publishers, computer hardware
manufacturers and computer and peripherals vendors.

The Company has a large number of IT-based clients. The strong relationships the
Company has developed with its IT clients have also generated a volume of more
conventional translation work. As an example of these services, the Company is
translating and localizing software messages, software dialog boxes, software
help, and related documentation. These products are localized for Okidata
peripherals, Bentley Systems CAD/CAM software, Matrox Electronics video and
networks products, Microsoft Software products, and PSDIs management system.
These customers market large and small products that require translation and
localization into one or many languages. The Company provides localization
services to many customers with a variety of products and materials.

TOOLS AND SOFTWARE DEVELOPMENT

The goal for the design of machine tools, or systems, is to enhance the
production process. Moreover, there can be included in the software engineering
design, sets of tools and other production enhancing factors such as quality
control and alignment. Alignment allows the reuse of previously translated
material.

The design tools and systems are intended to address some of the problems
involved in the translation/localization of a text from a source language to a
target language by dealing with the basic problems of ambiguities:

i)Lexical   ambiguity-   multiple   meanings   (polysemy)  of  the  same  words.
ii)Structural  ambiguity-language  that is vague,  unclear and or  uncertain  in
meaning. 
iii)Contextual  ambiguity-  words can  acquire  idiosyncratic  meaning
within  specific  context;  these meanings do not relate to the normal senses of
the words as normally used.


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In mid 1995, the Company entered into a five-year agreement with debis
Systemhaus KSP-Kommerzielle Systeme und Projekte GmbH (debis), a wholly owned
subsidiary of Daimler Benz, whereby the Company acquired license rights to a
software product known as KEYTERM. KEYTERM is a concept-oriented fully
relational proprietary database running under UNIX and Windows for developing
and maintaining glossaries. It has a customizable structure for entering
terminology and lexicographical information. The product has been in use in
Germany for several years and is being further developed, marketed and supported
by the Company. The Company has no obligations to assume previous debis
obligations, will receive fees for all current and future services and will have
the exclusive right to market KEYTERM throughout North America, and elsewhere
nonexclusively. Finally, under the debis Agreement, the Company is allowed to
use the indication Bureau of Translation Services in partnership with debis
Systemhaus. The Company has continued to develop this system since its
acquisition. In 1995, the Company acquired from a Swiss company, the exclusive
right to use and to market Transit/Termstar system that provides
translation-specific support services and interfaces. BTS is sales
representative for Transit in North America. The Company is obligated to pay
commissions on all such tool sales generated.

During the past fiscal year, the Company has also continued to expand its
tailored processes and disciplines used in the translation field. The Company is
committed to invest significant amounts on machine translation (MT) with
specific emphasis on acquiring a proprietary real-time completely automated
machine translation system. In February 1997, the Company obtained an exclusive
worldwide license and rights for the life of the patent to use and sell
know-how, apparatus, and methods pertaining to tools and systems developments
based on a patent application owned by the Gedanken Corporation (Gedanken). By
assignment from Dr. Julius Cherny, Gedanken is the owner of a United States
Patent Application that describes apparatus and methods for translating words,
phrases, and sentences from a source language to other target languages using
advanced telecommunications and computer technologies. Dr. Cherny is president
of BTS and CFO and a director of the Company.

The Company has agreed to pay Gedanken $750,000 for an improved
translation/localization system (that includes a specific topic builder, general
topic dictionary, quality control and alignment tools) at the rate of $20,000 a
month through December 15, 1998, and at the rate of $40,000 a month thereafter.
The Company is obligated to pay royalties on all revenues generated that use in
whole or part the patent rights and know-how. The Company has the right to stop
funding at specified times or accomplishment periods. As of March 31, 1998, the
Company has incurred research and development costs of $244,169.

The Company under an agreement modification, has also acquired from Gedanken the
rights to the development of a Real Time Voice Translation System based on
providing the necessary funding estimated at $4,000,000. If the initial
milestones are successful, even if the instantaneous voice translation machine
is ultimately never completed, the Company believes it will still benefit from
using the specific and general context dictionary generators and other
components of the machine translation system.

Competition

The Company believes that several other companies offer similar services and
currently compete with the Company. Some of these competitors have substantially
greater financial resources, more extensive experience, and better established
research and development, marketing and servicing capabilities than the Company.
The Company must compete not only on the basis of price, but also delivery time
and quality.

Supplies and Materials

The materials and supplies used to produce the Company's products are obtainable
from a wide variety of suppliers. There is not currently, nor has there been in
the recent past, a shortage of any of these materials. The Company believes that
its current sources of supply are adequate to meet its future needs.


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EMPLOYEES

The Company presently employs sixty-four (64) full-time people, comprised of ten
(10)in Management positions, seven (7) in Administration, four (4) in Sales and
Marketing, twenty (20) in Production, and twenty-three (23) in Engineering. In
addition, the Company also uses the services of freelance and/or independent
translators and editors on an as needed basis from a roster of approximately 900
worldwide. The Company has never had a problem with access to qualified
personnel.

RECENT AGREEMENT AND ACQUISITION

Effective June 30, 1997, the Company entered into an agreement which was later
revised, to acquire the various privately owned corporations that comprise the
Word House Group (Word House), for 385,000 shares of its common stock. Word
House has been in business since 1984 and has offices in The Netherlands,
France, Great Britain and China. Word House translates and localizes documents
and software, concentrating on European languages. Based on subsequent
modifications to the agreement, 200,000 common shares are contingently issuable
based on earnings levels, of which shares 100,000 were issuable as of March 31,
1998.

The Company entered into an agreement with New Jersey Department of Labor and
Felician College as previously described under Technical and Localization
Training and Support. This program provides for the training of upwards of 5,000
people with an overall cost of $4,000 per student. Initially, the courses will
be delivered in the face-to-face mode and, at the appropriate time, will
incorporate long distance learning delivery components. Faculty for the pilot
program will be members of the Felician College adjunct faculty who meet the
criteria the Company has developed.

ITEM 2. DESCRIPTION OF PROPERTY.

The Company's principal operating facilities are located in Haddonfield, New
Jersey, Amsterdam, The Netherlands, and Lyon, France. The New Jersey production
facility occupies approximately 6,000 square feet at a monthly rate of $8,300
pursuant to a lease that extends until February 28, 2003. In May 1997 Word House
moved its principal location to Amsterdam. Its lease is for approximately 5,500
square feet, and is for a period of five years at a rent of $7,500 per month.
The Company also has an administration facility in Westmont, New Jersey, where
it occupies 1,100 square feet at a monthly rate of $1,600 pursuant to a lease
that extends until June 30, 1999, then $1,800 for one year thereafter. Under
these leases, the Company is responsible for certain expenses, approximating
$5,000 per year. A French subsidiary owns a condominium floor in Lyon, with
approximately 3,000 square feet of space. Estimated annual costs approximate
$3,600. In April 1997, the Company closed its German facility. In June 1997, the
Company opened a London office at an annual rental of approximately $9,000. The
Company also has an office in Beijing, China with an annual rent of $27,000. The
Company believes that all of its facilities are currently adequate and further
believes that, if necessary, adequate facilities could be located in the event
the Company needs to replace or expand its current facilities.

ITEM 3. LEGAL PROCEEDINGS.

The Company has been sued by a stockholder who is seeking monetary damages,
specific performance, equitable relief and costs in the amount of $3,000,000.
The Company and its counsel believe that this suit is completely without merit
and will vigorously defend it.

The Company has been threatened with a lawsuit by its former chairperson and
chief operating officer, Ms. Theodora Landgren, who alleges breaches of various
agreements; the Company has threatened a lawsuit against Ms. Landgren for
various wrongs committed by her. In the opinion of counsel, the amount at issue
appears to be $300,000, which includes the balance of her employment contract,
and the settlement of the $70,807 due from Ms. Landgren (see Note 6 to the Notes
to Consolidated Financial Statements included herein) by performing services
under a consulting agreement. The Company is currently negotiating with Ms.
Landgren to resolve this matter.

The Company is not a party to, or involved in, any other material legal
proceedings.


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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         Not applicable.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company completed its initial public offering on December 6, 1996. Its
common stock is reported on the NASDAQ OTC Bulletin Board over-the-counter
market under the symbol THEO for the common stock, and THEOW for the Warrants.
The following table sets forth the range of prices for the common stock as
reported for the periods indicated and represents prices between broker-dealers,
which do not include retail mark-ups and mark-downs, or any commission to the
broker-dealer. The bid prices do not reflect prices of actual transactions.

   Common stock
   ------------
                            Average Monthly
                            ---------------
                            Bid                      Ask
                            ---                      ---
            October 1997   $5.875                    $5.156
            November 1997   5.937                     5.094                     
            December 1997   5.50                      4.387                
            January 1998    4.578                     4.125                 
            Febuary 1998    4.875                     4.109
            March 1998      4.675                     3.975
            April 1998      5.172                     4.531
            May 1998        5.563                     5.078
            June 1998       6.281                     5.887


The approximate number of record holders of common stock as of June 30, 1998 was
650.

DIVIDEND POLICY

The Company has not declared or paid any dividends nor does it expect to pay
dividends on its common stock in the foreseeable future intending to retain
earnings to finance the growth of its operations.

TRANSFER AGENT

The Company uses American Stock Transfer & Trust  Company,  40 Wall Street,  New
York, New York 10005, to act as Transfer Agent for the Companys common stock.

ITEM 6.  MANAGEMENTS  DISCUSSION  AND  ANALYSIS  OF RESULTS OF  OPERATIONS  AND
FINANCIAL CONDITION.

The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto contained in this annual
report.

                  (A)      GENERAL

The Company has been in business since 1984. Generally, sales have been
increasing annually. Net sales for its fiscal year ended March 31, 1998, doubled
the net sales for its fiscal year ended March 31, 1997. These in turn were 23%
higher than for the year ended March 31, 1996. Sales for the year ended March
31, 1998 included nine months sales of the acquired Word House Group of
approximately $2.6 million which accounted for approximately 80% of the
increase. Accordingly, detailed analysis and comparisons between years would be
misleading.

                  (B)      RESULTS OF OPERATIONS



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Fiscal Year Ended March 31, 1998 as Compared to Fiscal Year Ended March 31,
1997.

The increase in sales of $3,228,000 for the current year as compared to the same
period for the prior year consists of an increase in sales of the domestic
subsidiary in the amount of $638,000 and of the acquired foreign subsidiaries in
the amount of $2,590,000.

Discussion

The net (loss) income for the year ended March 31, 1998 was impacted by the
following factors:

(i) The significant efforts to develop computer systems and tools with
consequent research and development expenses of approximately $244,000.

(ii) The Company considered and rejected certain joint ventures and acquisitions
with consequent legal, travel and other related costs; moreover, as a publicly
traded entity, the Company incurred direct expenditures for legal, financial,
accounting and other fees. It is estimated that expenditures for these costs
approximated $200,000.

(iii) As more fully described under Business, the Company expanded its range of
services. As a result, there have been additions to management and technical
staff, support services and space to facilitate certain special projects that
the Company has and expects to enter into, such as the Felician College/State of
New Jersey/Bureau of Translation Services public/private partnership. The
objective of this program is to provide a pipeline of trained certified
translators/desktop publishers ready for employment in a high-tech, rapidly
expanding industry.

(iv) Other increases in costs were the result of increases in the number of
operating personnel, purchases of hardware and software and the related staff
training and moving to larger quarters.

(v) Costs were incurred in connection with the operations of Word House and the
newly opened London office.

The statements presented for the comparative periods are reclassified to agree
with the classifications of the current statements.

                  (C)      LIQUIDITY AND FINANCIAL RESOURCES

As of March 31, 1998, working capital decreased to $3.778 million, or by
approximately $482,000 equivalents almost doubled, from $658,000 at March 31,
1997 to $1,297,000 at March 31, 1998, not including liquid bonds of $2,000,000
at March 31, 1998, in accordance with the accompanying Consolidated Statement of
Cash Flows. The Company believes that it has adequate cash, marketable
securities and other components of working capital for its planned operations
and that available cash and marketable securities are sufficient to cover at
least 12 months of operations.

Inflation has not been a significant factor in the Company's operations.

                  (D)      FOREIGN CURRENCY FLUCTUATIONS

The Company bills its customers in US Dollars and in foreign currencies at
agreed upon amounts of exchange. The Companys operations impacted by exchange
rate fluctuations have been immaterial.

                  (E)       YEAR 2000

The Company believes that its financial and operations applications are year
2000 compliant. The Company expects no material impact on its internal
information systems from the year 2000 issue. The Company will continue to
monitor and evaluate the impact of the year 2000 on its operations.

ITEM 7. FINANCIAL STATEMENTS.


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The information called for by Item 7 is included in the Financial Statements
contained in this Annual Report on Form 10-KSB.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

     Not applicable.

Part III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

Incorporated by reference to the Companys proxy statement which the Company
intends to file with the Securities and Exchange Commission within 120 days
after the close of its fiscal year, except for the following:

As at March 31, 1998, the directors and/or executive officers of the Company are
as follows:
<TABLE>
<CAPTION>


NAME                           AGE      POSITION
<S>                           <C>      <C>
Charles D. Cascio              61       President, Chief Executive Officer/Director
Julius Cherny, Ph.D.           61       President of BTS, Chief Financial Officer/Director
Luis M. Garcia-Barrio, Ph.D.   53       Vice President/Special Projects
Carol Ann Marshall             48       Vice President/Administration
Edouard Prisse                 59       President and Chief Executive Officer-Word House
Gary M. Schlosser              47       Director
Theodora Landgren              53       Director
Robert J. Wussler              61       Director
James W. Grau                  58       Director
Richard J.L. Herson            79       Director/Employee

</TABLE>


CHARLES D. CASCIO became a Director, President and Chief Executive Officer of
the Company in May of 1996. He had previously been engaged by the Company, from
inception, as a full time financial consultant. From late 1992 until July 1996
he was Chairman and President of Electro-Kinetic Systems, Inc., a publicly held
provider of laboratory testing products. From 1990 to late 1992, Mr. Cascio was
employed as a full time marketing and financial consultant to John B. Canuso,
Inc., a large privately held development, building and entertainment company
located in Southern New Jersey. From 1987 to 1990, he was a full time financial
and marketing consultant to Drug Screening Systems, Inc., a publicly held
manufacturer of drug screening systems to detect the presence of "drugs of
abuse". From 1984 to 1987, Mr. Cascio managed a wholly and family owned
sporting, entertainment and recreational facility, known as the Coliseum,
located in Voorhees, NJ. Mr. Cascio holds a Bachelors Degree in Economics from
Iona College.

JULIUS CHERNY, Ph.D. has been a Director since May 10, 1996 and on September 2,
1997 assumed the presidency of Bureau of Translation Services, Inc. Dr. Cherny
is a founder and partner of Mottola, Cherny and Associates, a consulting firm
specializing in providing financial, organizational and systems consulting
services. Dr. Cherny holds a Ph.D. in accounting and is currently on staff at
the NYU Graduate School of Business and previously at the Hagen School of
Business at Iona College. Dr. Cherny has held positions as Director, Senior Vice
President, and Chief Financial Officer with firms in the securities industry.
Dr. Cherny has published numerous papers and books dealing with Finance,
Accounting and Advanced Mathematical Theory.

LUIS M. GARCIA-BARRIO, Ph.D. has been the Vice President/Special Projects of the
Company since April 1996. Prior thereto, since January 1991, he held the
position of International Production Manager. Dr. Garcia-Barrio also is the head
of Research and Development. Dr. Garcia-Barrio holds degrees in Linguistics,
Education, and the Humanities, including a Masters Degree and Ph.D. from the
University of Pennsylvania. He is a certified State and Federal Court
interpreter and has served on the faculty as Chairman, Associate Professor


                                       10


<PAGE>   11


and Curriculum  Development  Administrator of several major universities in both
the US and abroad.  In addition,  he has published  over two (2) dozen papers on
literature and linguistics.

Carol Ann Marshall has been Vice President-Administration of the Company since
March 1998. Among her various responsibilities, Ms. Marshall oversees human and
other asset management, as well as the bookkeeping/accounting function. In
February 1998, she was elected Assistant Secretary of both BTS and TTGL. She
joined BTS in August 1995, and served as Executive Assistant to the President.
Ms. Marshall brings a wealth of experience both from her prior employment
background and her work in the community. Prior to joining BTS, she was Office
Manager and Executive Assistant to the President of a leading NJ service
company. Her leadership role was the stepping stone for her ability to handle
increasingly responsible positions within BTS and TTGL.

EDOUARD PRISSE is President and CEO of the WORD HOUSE group of companies which
was acquired by TTGL in 1997. A Belgian national, he founded WORD HOUSE in 1984
and owned 95% of its stock since then. From 1977 to 1984, he was Managing
Director of foreign subsidiaries of a pharmaceutical company and of an
international translating operation with headquarters in Brussels. From 1969 to
1977 he held various posts with UCB, a Belgian Chemical and Pharmaceutical
group, the last post being Group Manager for Commercial Development. Mr. Prisse
has an MA law from Utrecht University and received an MBA at INSEAD in
Fontainebleau, France.

GARY M. SCHLOSSER was elected a Director in August 1996. Since August 1, 1994,
Mr. Schlosser has been the President and a director of Jefferson Bank of New
Jersey. From October 1989 through July 1994 he was Executive Vice President of
Glendale National Bank of New Jersey and prior thereto, from July 1988, he was
President of Glendale Mortgage Services Corporation, a subsidiary of Atlantic
Bancorporation. Mr. Schlosser is a member of the Camden County Bankers
Association and the South Jersey Security Bankers Association.

THEODORA LANDGREN currently is a Director and resides in London, England. She
had been the Chairperson of the Board of Directors and Chief Operating Officer
of the Company since January 17, 1996, and she had been Chairman and President
of BTS since founding the firm in 1984 until September 2, 1997. Prior to
starting BTS she studied linguistics and computer programming at several
universities including Universities of Denver and Innsbruck (Austria) and USC
College of Continuing Education, as well as teaching English to non-English
speaking students at the University of Stockholm, Sweden. Ms. Landgren is active
in the American Translator's Association (ATA), Society of Technical
Communication (STC) where she annually speaks on translation processes, and
serves as an elected executive committee member on the board of the Localization
Industry Standards Association (LISA). LISA is the leading association and is
head-quartered in Geneva, Switzerland, dedicated to promoting standards for the
computer industries. She also serves as the newly elected president of the Logos
User's Group in the United States. Logos, Inc. is the developer of a machine
translation system. She is a respected authority on product globalization and
has published articles in major magazines on the subject. Ms. Landgren lived
many years in Europe prior to opening BTS thereby gaining hands-on expertise in
multi-lingual product adaptation.

ROBERT WUSSLER was elected a Director in September 1997. Mr. Wussler is
currently President & CEO of The Wussler Group and Affiliate Enterprises, a
company owned by ABC Television Network. He is the former President of CBS
Television and CBS Sports and was an original founder of CNN (Cable News
Network). In addition, he has been an innovator in both commercial and cable
television. His long history of awards and memberships includes Chairman of the
National Academy of Arts and Sciences and member of the Board of Governors of
both the National Cable Television Association and the National Academy of Cable
Programming.

JAMES W. GRAU was elected a Director in April of 1997. Mr.Grau is President and
Founder of Charisma Communications, Ltd. which specializes in producing
programs, industrials, live events and concerts for the networks, cable and
industry. During its 19 year history Charisma has created programs earning the
highest industry awards and accolades and has eleven productions in The Museum
of Television and Radio.


                                       11


<PAGE>   12


RICHARD J.L. HERSON is a Director and consultant/employee of TTGL, having been
an officer until August 31, 1997, at which time he took an approved leave of
absence. He has since rejoined the company. Mr. Herson was previously a General
Partner in the firm of Hertz, Herson and Company, CPAs with offices in New
York, and Charlotte. He is currently Secretary of the Bruner Foundation, where
he is responsible for its investments and accounting operations. He holds a
Bachelors Degree from the City College of New York and a M.S. in Accounting
from Columbia University. He has also authored numerous articles and a book on
accounting.

ITEM 10. EXECUTIVE COMPENSATION.

Incorporated by reference to the Companys proxy statement which the Company
intends to file with the Securities and Exchange Commission within 120 days
after the close of its fiscal year.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Incorporated by reference to the Companys proxy statement which the Company
intends to file with the Securities and Exchange Commission within 120 days
after the close of its fiscal year.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Incorporated by reference to the Companys proxy statement which the Company
intends to file with the Securities and Exchange Commission within 120 days
after the close of its fiscal year.

ITEM-13. EXHIBITS AND REPORTS ON FORM 8-K.

           (a)    Exhibits

The following exhibits were filed as part of SB-2 Registration Statement dated
July 25, 1996 (Registration No. 333-8857):

3.1  Restated Certificate of Incorporation
3.2      By-Laws
4.6   Form of Subscription Agreement between the Company and investors pursuant
      to December 7, 1995 Private Placement Memorandum 
10.1  Lease Agreement between BTS andJ.C.G Partnership dated January 18, 1995.
10.5  The Translation Group, Ltd. 1995 Stock Option Plan.

The following exhibits were filed as part of Amendment No. 1 to the SB-2
Registration Statement dated September 19, 1996:

10.Employment     Agreement between the Company and Theodora Landgren dated as
                  of December 7, 1995, as amended. (1) Includes $7,000 as a car
                  allowance and the balance as an IRA contributions and
                  insurance premiums.

10.2    Employment Agreement between the Company and Charles Cascio dated as of
        December 7, 1995, as amended.

10.3    Agreement between the Bureau of Translation Services, Inc. and debis
        Systemhaus KSP-Kommerzielle Systeme und Projekt GmbH dated May 24, 1995

10.4    Voting Trust Agreement between Ms. Theodora Landgren and various 
        stockholders dated as of September 11, 1995.

The following exhibits were filed as part of Amendment No, 2 to the SB-2
Registration Statement dated October 17, 1996:

4.1     Specimen Common Stock Certificate
4.2     Specimen Warrant Certificate



                                       12


<PAGE>   13



The following exhibits were filed as part of Amendment No. 3 to the SB-2
Registration Statement dated November 14, 1996

1.1.2 Revised Underwriting Agreement
4.3.1 Revised Form of Warrant Agreement
4.4.1 Form of Revised Representatives Warrant Agreement
4.5.1 Form of Revised Representatives Warrant 
10.6  Consulting Agreement between the Representative and the Company

The following exhibit was filed with Form 10K for the year ended March 31, 1997:

10.7 License Agreement between the Company and Gedanken Corporation dated as of
     November 1, 1996.

The following exhibit is filed herewith:

10.8 Agreement between the Company and Felician College dated April 6, 1998.

    (b) Reports on Form 8-K:

During the last quarter of its fiscal year ended March 31, 1997, the Company
filed one Current Report on Form 8-K dated as of March 31, 1997, to report
entering into a letter of intent to acquire the Word House Companies.

During the fiscal year ended March 31, 1998, the Company filed one Current
Report of Form 8-K dated as of March 31, 1997, to report Financial Statements,
Pro Forma Financial Information and Exhibits related to the acquisition of the
Word House Companies.

During the last quarter of its fiscal year ended March 31, 1998, the Company
filed one Current Report on Form 8-K dated as of March 17, 1998, to report
changes in Registrants Certifying Accountant.

                                       13

<PAGE>   14








                                   SIGNATURES

In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                           THE TRANSLATION GROUP, LTD.


                                       By: /s/CHARLES D. CASCIO
                                       ------------------------            
                                              Charles D. Cascio
                                                  President

                                           Dated: July 24, 1998


In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S>                             <C>                                 <C>

Signature                       Title                                Date
---------                       -----                                ----
/s/ CHARLES D. CASCIO           President, Chief Executive
---------------------           Officer and Director              ----------
    CHARLES D. CASCIO           


/s/ JULIUS CHERNY               Chief Financial Officer and       
-----------------               Director                          ----------
    JULIUS CHERNY                  

/s/ THEODORA LANDGREN           
---------------------
    THEODORA LANDGREN           Director                          ----------


/S/ RICHARD J.L. HERSON         
-----------------------
    RICHARD J.L. HERSON         Director and Employee             ----------


/s/ GARY M. SCHLOSSER          
---------------------
    GARY M. SCHLOSSER           Director                          ----------


/s/ JAMES W. GRAU               
-----------------
    JAMES W. GRAU               Director                          ----------


/s/ ROBERT WUSSLER              
------------------
    ROBERT WUSSLER              Director                          ----------

</TABLE>


                                                       

<PAGE>   15


INDEPENDENT AUDITORS REPORT

Board of Directors and Stockholders
The Translation Group, Ltd.


We have audited the accompanying consolidated balance sheet of The Translation
Group, Ltd. and subsidiaries as of March 31, 1998, and the related consolidated
statements of operations, stockholders equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements enumerated above present fairly, in all
materials respects, the consolidated financial position of The Translation
Group, Ltd. And subsidiaries as of March 31, 1998, and the consolidated results
of their operations and their consolidated cash flows for the year then ended,
in conformity with generally accepted accounting principles.



/s/ Richard A. Eisner & Company, LLP
------------------------------------
    Richard A. Eisner & Company, LLP

    New York, New York
    June 30, 1998

                                      F-1



                                                               

<PAGE>   16


INDEPENDENT AUDITORS REPORT


To the Stockholders of
The Translation Group, Ltd.


We have audited the accompanying balance sheet of The Translation Group, Ltd.
and its consolidated subsidiary at March 31, 1997, and the related statement of
operations, stockholders equity and cash flows for the year ended March 31,
1997. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the aforementioned consolidated financial statements present
fairly, in all materials respects, the financial position of The Translation
Group, Ltd. and its subsidiary as of March 31, 1997, and the results of their
operations, stockholders equity and their cash flows for the year ended March
31, 1997, in conformity with generally accepted accounting principles.




/s/ VOTTA & COMPANY
-------------------
    Votta & Company
    (A Professional Corporation)


    Haddonfield, New Jersey
    June 26, 1997
                                      F-2


<PAGE>   17




                           The Translation Group, Ltd.
                                and Subsidiaries
                           Consolidated Balance Sheets
                          As of March 31, 1998 and 1997
<TABLE>
<CAPTION>

                                                                                 March 31,     March 31, 
                                                                                   1998          1997
                                                                                 --------      --------
<S>                                                                             <C>            <C> 
ASSETS                                                                         
 Current assets:
   Cash and cash equivalents                                                  $ 1,297,039     $ 658,014
   Investment in US Government obligations, at cost                             2,000,573     3,001,293
   Accounts receivable, net of allowance for doubtful accounts of $80,000 and
    $25,000, respectively                                                       1,184,040       946,107
   Work in process                                                                737,697             -
   Other current assets                                                           144,375       175,627
                                                                                  --------      -------

 Total current assets                                                           5,363,724     4,781,041

 Property and equipment, net of accumulated depreciation and amortization of
   $514,998 and $171,235, respectively                                            861,748       358,550

 Excess of purchase price over fair value of net assets acquired, net of
  accumulated amortization of $72,663                                           1,380,599             -
 Certificate of deposit, pledged                                                  100,000             -
 Loans and receivables from officers                                              205,532        52,332
 Other assets                                                                     171,685        73,872
 Deferred income taxes                                                             97,700             -
                                                                                  -------             -

 TOTAL ASSETS                                                                 $ 8,180,988   $ 5,265,795
                                                                               ==========   ===========

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
   Accounts payable                                                           $   342,803     $ 111,799
   Current maturities of long-term debt                                            75,000             -
   Accrued liabilities                                                            751,718       130,514
   Deferred income                                                                 67,948             -
   Accrued income taxes - foreign                                                  31,954             -
   Deferred income taxes                                                          315,872       278,792
                                                                                 --------       -------

 Total current liabilities                                                      1,585,295       521,105

 Long-term debt, less current maturities                                           75,000             -
                                                                                ----------            -

 TOTAL LIABILITIES                                                              1,660,295       521,105
                                                                                ----------      -------

 Commitments and contingencies

 Stockholders' equity:
   Preferred stock, $.001 par value, 1,000,000 authorized, no shares issued
    and outstanding                                                                     -             -
   Common stock, $.001 par value, 15,000,000 shares authorized, 2,278,340
    shares outstanding and to be issued and 1,943,000 outstanding, respectively     2,278         1,943
   Additional paid-in capital                                                   6,051,985     4,046,772
   Unearned portion of compensatory warrants                                     (225,000)            -
   Retained earnings                                                              681,661       695,975
   Foreign currency translation adjustment                                          9,769             -
                                                                                    ------            -

 Total stockholders' equity                                                     6,520,693     4,744,690
                                                                                ----------    ---------

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $ 8,180,988   $ 5,265,795
                                                                              ============  ===========
</TABLE>

 See accompanying notes to consolidated financial statements.



                                      F-3

<PAGE>   18


                           The Translation Group, Ltd.
                                and Subsidiaries
                      Consolidated Statements of Operations
                   For the years ended March 31, 1998 and 1997

<TABLE>
<CAPTION>

                                                                              March 31,         March 31, 
                                                                                1998               1997
                                                                      -----------------  ----------------
 <S>                                                                         <C>               <C>        
Revenue                                                                     $ 6,420,833       $ 3,193,068
 Cost of revenue                                                              4,189,366         2,201,464
                                                                      -----------------  ----------------

 Gross profit                                                                 2,231,467           991,604
                                                                      -----------------  ----------------

 Cost and expenses:
   Selling, general and administration                                        2,083,246           811,626
   Research and development                                                     244,169                 -
   Amortization of excess of purchase price over
    fair value of net assets acquired                                            72,663                -
                                                                      -----------------  ----------------
 Total                                                                        2,400,078           811,626
                                                                      -----------------  ----------------

 (Loss) income before other income (expense)                                   (168,611)          179,978
                                                                      -----------------  ----------------

 Other income (expense):
   Interest income                                                              197,488            76,343
   Interest expense                                                             (18,754)                -
                                                                      -----------------  ----------------
                                                                                178,734            76,343
                                                                      -----------------  ----------------

 Income before provision for income taxes                                        10,123           256,321

 Provision for income taxes                                                      24,437           102,300
                                                                      -----------------  ----------------

 Net (loss) income                                                      $       (14,314)        $ 154,021
                                                                      =================  ================



 Net (loss) income per common share outstanding - basic                         $ (0.01)           $ 0.11
                                                                      =================  ================
                                                - dilluted                      $ (0.01)           $ 0.09
                                                                      =================  ================


 Weighted-average shares - basic                                              2,124,000         1,465,000
 Dilutive effect of potential common shares                                          -            288,000
                                                                      -----------------  ----------------
 Weighted-average shares - diluted                                            2,124,000         1,753,000
                                                                      =================  ================
</TABLE>


See accompanying notes to consolidated financial statements.



                                      F-4

<PAGE>   19

                           The Translation Group, Ltd.
                                and Subsidiaries
                 Consolidated Statements of Stockholders' Equity
                   For the years ended March 31, 1998 and 1997

<TABLE>
<CAPTION>

                                                                                                                 Unearned   
                                                                                                  Additional    Portion of  
                                                                             Common     Common       Paid-In   Compensatory 
                                                                             Shares      Stock       Capital     Warrants   
                                                                          ----------   --------   -----------  ------------ 

<S>                                                                       <C>          <C>         <C>          <C>         
 BALANCE AT MARCH 31, 1996                                                1,891,000    $ 1,891     $ 464,759    $       -   

   Shares contributed in connection with the initial public offering       (665,000)      (665)                             

   Shares issued in connection with initial public offering                 705,000        705     3,534,025                

   Shares issued in satisfaction of debt                                     12,000         12        47,988                

   Net income                                                                     -          -             -            -   
                                                                           ----------   --------   -----------  ------------
                                                                        
 BALANCE AT MARCH 31, 1997                                                1,943,000      1,943     4,046,772                

   Shares issued with the exercise of warrants                               13,340         13        80,027                

   Shares issued in connection with consulting agreement                     25,000         25       149,975                

   Adjustment of shares in connection with private placement                 10,000         10           (10)               

   Costs in connection with initial public offering                                                  (11,492)               

   Shares issued in connection with exercise of employee stock
     options                                                                  2,000          2        11,998                

   Shares issued and issuable in connection with the acquisition
     of the Word House Companies                                            185,000        185     1,109,815                

   Shares issuable in connection with the contingent purchase
    price of the Word House Companies                                       100,000        100       399,900                

   Warrants issued in connection with public relations agreement                                      40,000                

   Option granted for warrants to a consultant                                                       225,000     (225,000)  

   Foreign currency translation adjustment                                                                                  

   Net (loss)                                                                     -          -             -            -   
                                                                         ----------   --------   -----------  ------------  

 BALANCE AT MARCH 31, 1998                                                2,278,340    $ 2,278    $6,051,985   $ (225,000)  
                                                                         ==========   ========   ===========  ============  
</TABLE>

<TABLE>
<CAPTION>
                                                                          
                                                                                            Foreign                         
                                                                                           Currency        Total       
                                                                              Retained    Translation   Stockholders'  
                                                                              Earnings     Adjustment      Equity      
                                                                             ---------- --------------  -------------  
                                                                                                                       
<S>                                                                         <C>        <C>              <C>           
BALANCE AT MARCH 31, 1996                                                    $ 541,954  $        -       $ 1,008,604   
                                                                                                                       
  Shares contributed in connection with the initial public offering                                             (665)  
                                                                                                                       
  Shares issued in connection with initial public offering                                                 3,534,730   
                                                                                                                       
  Shares issued in satisfaction of debt                                                                       48,000   
                                                                                                                       
  Net income                                                                   154,021           -           154,021   
                                                                              ---------- --------------  ------------- 
                                                                                                                       
BALANCE AT MARCH 31, 1997                                                      695,975           -         4,744,690   
                                                                                                                       
  Shares issued with the exercise of warrants                                                                 80,040   
                                                                                                                       
  Shares issued in connection with consulting agreement                                                      150,000   
                                                                                                                       
  Adjustment of shares in connection with private placement                                                        -   
                                                                                                                       
  Costs in connection with initial public offering                                                           (11,492)  
                                                                                                                       
  Shares issued in connection with exercise of employee stock                                                          
    options                                                                                                   12,000   
                                                                                                                       
  Shares issued and issuable in connection with the acquisition                                                        
    of the Word House Companies                                                                            1,110,000   
                                                                                                                       
  Shares issuable in connection with the contingent purchase                                                           
   price of the Word House Companies                                                                         400,000   
                                                                                                                       
  Warrants issued in connection with public relations agreement                                               40,000   
                                                                                                                       
  Option granted for warrants to a consultant                                                                      -   
                                                                                                                       
  Foreign currency translation adjustment                                                    9,769             9,769   
                                                                                                                       
  Net (loss)                                                                   (14,314)          -           (14,314)  
                                                                            ---------- --------------  -------------   
                                                                                                                       
BALANCE AT MARCH 31, 1998                                                    $ 681,661     $ 9,769       $ 6,520,693   
                                                                            ========== ==============  =============   
</TABLE>
                                                                           
See accompanying notes to consolidated financial statements.



                                      F-5
<PAGE>   20


                           The Translation Group, Ltd.
                                and Subsidiaries
                      Consolidated Statements of Cash Flows
                   For the years ended March 31, 1998 and 1997
<TABLE>
<CAPTION>

                                                                                   March 31,       March 31, 
                                                                                     1998            1997
                                                                                -----------     ----------- 
<S>                                                                             <C>             <C>
Cash flows provided by (used for) operating activities:
   Net (loss) income                                                              $ (14,314)      $ 154,021
   Adjustments to reconcile net (loss) income to net cash provided by (used for)
    operating activities:
     Depreciation and amortization                                                  250,508          75,202
     Warrants issued for services                                                    40,000
     Loss on abandonment of property and equipment                                    6,258
     Deferred income taxes                                                          (60,620)         45,398
   Changes in operating assets and liabilities:
     Accounts receivable                                                            112,917        (303,626)
     Work in process                                                               (575,908)
     Other current assets                                                           236,945        (175,627)
     Other assets                                                                    (2,813)        (67,445)
     Accounts payable                                                                80,470          55,965
     Accrued liabilities and deferred income                                        (73,340)        104,514
     Accrued income taxes                                                            31,954        (115,000)
                                                                                -----------     ----------- 

 Net cash provided by (used for) operating activities                                32,057        (226,598)
                                                                                -----------     ----------- 

 Cash flows provided by (used for) investing activities:
   Investments in US Government obligations                                       1,000,720      (3,001,293)
   Purchase of property and equipment                                               311,329)       (261,040)
   Acquisition costs of $83,978, net of cash acquired of $14,438                    (69,540)              -
   Investment in certificate of deposit                                            (100,000)
   Loans and advances to officers                                                  (153,200)              -
                                                                                 -----------     ----------- 

 Net cash provided by (used for) investing activities                               366,651      (3,262,333)
                                                                                 -----------     ----------- 

 Cash flows provided by financing activities:
   Net proceeds from issuance of common stock                                        80,548       3,616,605
   Proceeds from long-term debt                                                     150,000               -
                                                                                -----------     ----------- 

 Net cash provided by financing activities                                          230,548       3,616,605
                                                                                -----------     ----------- 

 Foreign currency translation adjustment                                              9,769               -
                                                                                -----------     ----------- 

 Net increase in cash and cash equivalents                                          639,025         127,674

 Cash and cash equivalents, beginning of year                                       658,014         530,340
                                                                                -----------     ----------- 

 Cash and cash equivalents, end of year                                         $ 1,297,039       $ 658,014
                                                                                ===========     =========== 

 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   On June 30, 1997, the Company acquired the stock of Word House as
    described in Note 11.
   During the year ended March 31, 1998, the Company issued 25,000 shares of its
    stock for a consulting agreement valued at $150,000.

 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: 
   Cash paid during the year for:
      Interest                                                                     $ 14,633           $ 258
                                                                                ===========     ===========
      Income taxes                                                                    $ 602       $ 233,100
                                                                                ===========     ===========
</TABLE>

 See accompanying notes to consolidated financial statements.


                                      F-6

<PAGE>   21





                                                              
                  THE TRANSLATION GROUP, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1-THE COMPANY

The Translation Group, Ltd. and Subsidiaries (TTGL or the Company) translates
and localizes documents and software into various languages. Services are
provided to many industries with a concentration in information technology
companies. TTGL was incorporated in the State of Delaware on July 6, 1995, and
under the terms of an agreement and plan of reorganization, acquired 100% of the
issued and outstanding shares of the Bureau of Translation Services, Inc. (BTS)
on January 17, 1996. BTS was incorporated in 1984 in the State of Pennsylvania.
Concurrent with the merger, TTGL issued 241,000 shares pursuant to a private
placement offer at a price of $2.50 a share and costs of issuance of $157,670.

On December 2, 1996, the Company completed its initial public offering (IPO) and
sold 705,000 shares of its common stock at a price of $6.00 per share and
1,840,000 warrants at a price of $.20 per warrant. The net proceeds amounted to
approximately $3.5 million. The Company also issued 12,000 shares of its common
stock at the same time, in payment of indebtedness of $48,000.

Effective June 30,1997, and as later amended, TTGL acquired all the issued and
outstanding common stock of the companies that comprise the Word House Group
(Word House) in exchange for 185,000 of its common shares and 200,000 additional
common shares contingent on future earnings levels, of which 100,000 shares were
issuable as of March 31, 1998.

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of TTGL, BTS and Word
House, from the date of Word House acquisition on June 30, 1997 to March 31,
1998. All significant inter-company accounts and transactions have been
eliminated. The acquisition of BTS by TTGL was accounted for as a
recapitalization of BTS as of January 17, 1996. Accordingly, the consolidated
financial statements for the year ended March 31, 1997 reflect the results of
activities of both these companies.

The Company has accounted for its acquisition of the Word House Companies under
the purchase method of accounting, wherein the purchase price is allocated to
the assets and liabilities as of the acquisition date based on estimated
respective fair values. The excess of purchase price over fair values of net
assets acquired is being amortized over fifteen years. Stockholders' equity as
of March 31, 1998 includes issuable shares (see Note 11).

(B) REVENUE RECOGNITION

Translation service contracts are accounted for under the percentage of
completion method of accounting, whereby sales and costs are recognized as work
on contracts progresses. Changes in estimates for revenue, costs and profits are
recognized in the period in which they are determinable. Work in progress
represents the excess of revenue recognized for financial reporting purposes
over amounts contractually permitted to be billed to customers. Deferred revenue
represents excess of amounts billed over revenue recognized for financial
reporting purposes. Invoices are rendered based upon terms of the contract.
Prior to March 31, 1997, revenue was recognized upon completion of project
milestones defined at the beginning of the project. The change in the method of
accounting for revenue recognition had an immaterial cumulative effect at
adoption.


                                      F-7

<PAGE>   22


(C) FOREIGN CURRENCY TRANSLATION

Generally, balance sheet amounts have been translated using exchange rates in
effect at the balance sheet dates and the translation adjustment has been
included in the foreign currency translation adjustment, as a separate component
of stockholders  equity. Statement of operations amounts have been translated
using the average exchange rates in effect for each period. Gains and losses
from foreign exchange transactions have been included in the Statements of
Operations.

(D) EARNINGS PER COMMON SHARE

The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share" (EPS) which requires dual presentation of basic and
diluted EPS for all entities with complex capital structures on a retroactive
basis. Basic income (loss) per share is computed based upon the weighted average
number of common shares outstanding during each year, shares contingent issuable
under the Word House acquisition as described in Note 11 below, have been
excluded from the calculation. Diluted EPS gives effect to outstanding warrants
and options using the treasury stock method. For the year ended March 31,
1998,options and warrants were considered anti-dilutive and were excluded from
the calculation of dilutive EPS.

(E) CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt instruments when purchased with a
maturity of three months or less to be cash equivalents.

(F) INVESTMENTS IN US GOVERNMENT OBLIGATIONS

Investments in United States Government bonds which are to be held to maturity
are valued at amortized costs.

(G) PROPERTY AND EQUIPMENT

Property and equipment are stated at cost net of depreciation and amortization.
Depreciation and amortization are computed using straight-line method over the
estimated useful lives of the assets in place. Amortization of leasehold
improvements is provided over the shorter of the lease term or the estimated
useful life of the asset.

(H) RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred. Systems acquisitions
and specialized tools, together with related software, are expensed while in
development until technological feasibility has been established.

(I) MARKETING AND ADVERTISING

Marketing and advertising costs are expensed as incurred.  Such expenses 
approximated $98,000 and $61,000 for the years ended March 31, 1998 and 1997, 
respectively.

(J) INCOME TAXES

The Company accounts for its income taxes using the liability method which
measures deferred income taxes by applying enacted statutory rates in effect at
the balance sheet date to differences, between the tax bases of assets and
liabilities and their reported amounts in the financial statements. The asset
from the foreign net operating loss carry forwards was fully reserved since the
realization of the benefits is uncertain.


                                      F-8



<PAGE>   23


(K) Use of Estimates

The preparation of the consolidated 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 assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Certain of the Company's subsidiaries were previously apart
of a consolidated group in the Netherlands. Such subsidiaries may be jointly and
severally liable for any tax assessments resulting from the group. Management
estimates that no provision for such contingency is necessary. Actual results
could differ from these estimates.

(L) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130 "Reporting Comprehensive Income" which establishes standards for reporting
and displaying comprehensive income and its components in financial statements
and is effective for fiscal years beginning after December 15, 1997. The Company
is in the process of determining its preferred format.

In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" that establishes standards for the way
public business enterprises report information about operating segments in
annual and interim financial statements. It establishes standards for related
disclosures about products and services, geographic areas, and major customers
and is effective for financial statements for fiscal years beginning after
December 15, 1997. The Company is in the process of evaluating the disclosure
requirements. The adoption of SFAS Nos. 130 and 131 will have no impact on the
Company's consolidated results of operations, financial position or cash flows.

NOTE 3-SIGNIFICANT CUSTOMERS

For the year ended March 31, 1998, two customers represented 10% and 14% of
revenues, respectively, in comparison to two other customers accounting for 17%
and 14% of revenues for the prior year.

The Company has experienced some concentration of credit risk with regard to its
accounts receivable. Two customers represent approximately 20% of the total
accounts receivable as of March 31, 1998 and three customers represented
approximately 40% as of March 31, 1997.

NOTE 4-RESEARCH AND DEVELOPMENT

The Company incurred costs of $244,000 for the development of a translation
system during the year ended March 31, 1998. The goal for the design of machine
tools, or systems, is to enhance the translation/localization (production)
process.

In February 1997, the Company obtained an exclusive worldwide license and rights
to use and sell know-how, apparatus, and methods pertaining to tools and systems
developments based on a patent application. Such application was made by the
Gedanken Corporation ("Gedanken"). By assignment from Dr. Julius Cherny,
Gedanken applied for a United States Patent that describes apparatus and methods
for translating words, phrases, and sentences from a source language to other
target languages using advanced telecommunications and computer technologies.
Dr. Cherny is the president of BTS and a director and the Chief Financial
Officer of the Company as well as principal shareholder and president of
Gedanken.

The Company under an agreement modification has agreed to pay Gedanken $750,000
for a translation/localization system (that includes a specific topic builder,
general topic 


                                      F-9

<PAGE>   24





dictionary, quality control, and alignment tools) at the rate of $20,000 a month
through December 15, 1998, and at the rate of $40,000 a month thereafter. The
Company is obligated to pay royalties on all revenues generated that use in
whole or part the patent rights and know-how. The Company has the right to stop
funding at specified times or accomplishment periods.

The Company has also acquired an option from Gedanken for the rights to the
development of a Real Time Voice Translation System based on providing the
necessary funding estimated at $4,000,000.

NOTE 5-PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                            March 31, 1998    March 31, 1997    Average Useful Life
                                            --------------    --------------    -------------------
                                                                                     (Years)

<S>                                           <C>               <C>                    <C>
Equipment(includes                            $665,151          $245,020               5
$150,000 pledged as collateral
for bank notes payable)
Software                                       212,679           117,723               5
Equipment and software                         154,564           143,128               5
(under licenses)
Office condominium unit                        245,182                                20
Furniture & fixtures                            45,802            16,459               5
Vehicles                                        42,047                                 3
                                                                                Shorter of lease term or
Leasehold improvements                          11,321             7,455         estimated useful life
                                              --------          --------

Total                                        1,376,746           529,785
Less: accumulated
depreciation and amortization                  514,998           171,235
                                            ----------          --------
Net property and equipment                    $861,748          $358,550
                                             =========          ========
</TABLE>


In mid 1995, the Company entered into a five-year agreement with a wholly owned
subsidiary of Daimler Benz. Pursuant to it, the Company acquired license rights
to a software product known as KEYTERM, a proprietary database running under
UNIX and Windows for developing and maintaining glossaries. The Company has the
exclusive right to use and to market KEYTERM throughout North America, and
elsewhere nonexclusively. In addition, the Company acquired from a Swiss
company, the exclusive right to use and to market the Transit/Termstar system
which provides translation-specific support services and interfaces throughout
North America. BTS is a sales representative for Transit in North America. The
Company is obligated to pay commissions on all such tool sales generated.

For the years ended March 31, 1998 and 1997, depreciation and amortization
expense was $183,651 and $75,202, respectively.

NOTE 6-RELATED PARTY TRANSACTIONS

Loans and receivables from officers includes $70,807 as of March 31, 1998, and
$52,332 as of March 31, 1997 due from the Company's former chairperson and chief
operating officer and $141,250 as of March 31, 1998 due from the Company's chief
executive officer; the later loan is collateralized by 20,000 of such
individual's shares of the Company's common stock. Interest is charged on such
advances at the rate of 6% per annum.

The Company has retained a former officer and son of the Company's president as
outside legal counsel. Such legal counsel received $47,040 in fees in fiscal
1998 and $46,923 as fees and salary for fiscal 1997. For consulting services for
year ended March 31, 1998, a director received 20,000 warrants valued at
$40,000, and a corporation under his control, 

                                      F-10


<PAGE>   25


received $24,013. A former officer and a current director and employee, received
$17,912 in fiscal 1998 and $5,769 in fiscal 1997.

Gedanken, an affiliated company was paid $240,000 by the Company during fiscal
1998 for the computer translation system that Gedanken is developing(See Note
4).

NOTE 7-DEBT

The Company has a two year loan with a bank for financing of equipment. The
amount of the loan is $150,000 at an interest rate of 9.50%, payable monthly in
the principal amount of $6,250 beginning April 1998 plus interest. The loan is
collateralized by the equipment, accounts receivable, work in process and a
$100,000 certificate of deposit.

Word House has a bank net overdraft facility of up to $150,000, which is
collateralized by cash, accounts receivable, and equipment. The president of
Word House has given his personal guarantee up to $250,000 of this facility. The
bank has also issued a letter of credit for the account of Word House in the
amount of $50,000 as a security deposit.

NOTE 8-INCOME TAXES

(A)    Provision for Income Taxes:

The provisions for current and deferred income tax expense (benefit) consist of
the following:

<TABLE>
<CAPTION>
                                               Year Ended March 31,
                                              ---------------------
                                              1998             1997
                                            -------           ------
<S>                                        <C>               <C>  
Current taxes:
         US
                  Federal                   $14,730          $23,715
                  State                       8,307           10,390
                                            -------           ------
                                             23,037           34,105

         Foreign                             62,020         
                                            -------           ------
                                             85,057           34,105
                                            -------           ------

Deferred (US):
                  Federal                   (46,910)          54,685
                  State                     (13,710)          13,510
                                            -------           ------
                                            (60,620)          68,195
                                            -------           ------

         Total                              $24,437         $102,300
                                            =======         ========
</TABLE>


Prepaid expenses as of March 31, 1998 and 1997 includes approximately $31,000
and $88,000, respectively of refundable income taxes.


                                      F-11


<PAGE>   26



(B) Deferred Taxes:

Deferred income taxes consists of the following:

<TABLE>
<CAPTION>

                                                                            Year ended March 31,

                                                                            1998            1997
           <S>                                                          <C>               <C>   
            Asset:
                 Current
                  Foreign net operating loss carry-forwards              $ 85,000
                  Less: valuation allowance                               (85,000)
                                                                         ---------
                  Total                                                     $-0-
                                                                             ===

                 Long-term
                  Capitalized research and development expenditures      $ 97,700


               Liability-current:
                  Cash basis reporting for US income tax purposes        $315,872       $278,792
                                                                         ========       ========
</TABLE>

(C)Reconciliation of statutory federal income taxes rates:

The differences between the amount of taxes provided and the amount of taxes at
the statutory federal tax rate are as follows:


<TABLE>
<CAPTION>
                                                        Year ended March 31,

                                                      1998                1997

<S>                                                  <C>               <C>    
         At statutory federal tax rate               $3,442            $87,149

         State taxes, net of
           federal income tax benefit                 5,083             15,151

         Permanent differences                       26,510

         Research and development
           credit                                    (8,500)

         Non-utilization of current
           year's losses of foreign
           subsidiaries                               7,126

         Other                                       (9,224)

                  Total                             $24,437           $102,300
                                                   ========           ========
</TABLE>

(D)Net operating loss carry-forwards:

The Company has foreign net operating losscarryforwards of approximately
$249,000 which expire as follows:

                           Year                                          Amount

                           1999                                        $ 38,000
                           2001                                          10,000
                           2002                                          66,000
                                                                       --------
                                                                        114,000
                           Net operating losses that

                                      F-12

<PAGE>   27



                           do not expire                                135,000
                           Total                                       $249,000

NOTE 9-STOCK OPTIONS AND WARRANTS

Stock Options

In October 1996, the Company adopted a Stock Option Plan (the "Plan") that
provides for a maximum of 2,500,000 shares of common stock to be issued in
connection with such plan. The price payable for the shares of common stock
under incentive stock options must be not less that 100% of the fair market
value at the time the option is granted (and 110% if the person granted such
option owns more than 10% of the outstanding shares of the common stock).
Additionally, under the Plan, participants may be granted stock appreciation
rights (SAR). SARs consist of rights to receive either cash or shares of common
stock equal to the amount by which the value of such shares of common stock on
the date the SAR is exercised exceeds the per share option price. Options
granted under this Plan expire ten years from date of grant, for non-affiliated
persons and five years for a 10% owner.

The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations in accounting
for its employee stock options. The alternative fair value accounting is
disclosed only for pro forma purposes as provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation", which requires the use of option
valuation models. Under APB 25, when the exercise price of the Company's
employee stock options equals or is more than the market price of the underlying
stock on the date of grant, no compensation expense is recognized.

The following is a schedule of the status of options granted under the Company's
stock option plan:

<TABLE>
<CAPTION>
                                                                Weighted Average
                                                                 Exercise Price
                                                  Options          Per Share

     <S>                                     <C>                       <C>
      Outstanding at March 31,1996                  -0-
          Granted                               700,000                $6.17
                                              ---------                -----

      Outstanding at March 31, 1997             700,000                 6.17
          Granted                               599,000                 4.75
          Exercised                              (2,000)                6.00
          Forfeited                            (100,000)                6.00
                                              ----------                ----

      Outstanding at March 31, 1998           1,197,000                $5.47
                                              ==========               =====

      Exercisable at March 31, 1998             409,200                $5.12
                                              =========                =====
      Exercisable at March 31, 1997             100,000                $6.00
                                              =========                =====
</TABLE>

As of March 31, 1998, the Company has 1,301,000 options available to grant under
the Plan.

As of March 31, 1998,for each of the following classes of options as determined
by the range of exercise price, the following information regarding
weighted-average exercise prices and weighted-average remaining contractual
lives of each class is as follows:


                                      F-13

<PAGE>   28



<TABLE>
<CAPTION>

                                     Weighted Average    Weighted Average           Number of
                    Number           Exercise Price of   Remaining Contract Life    Options         Weighted Average Exercise
                    Of               Options             of Outstanding Options     Currently       Price of Options Currently
Option Class        Options                              (Years)                    Exercisable     Exercisable

<S>                   <C>            <C>                 <C>                        <C>             <C>  
$4.50                 500,000        $4.50               9.90                       240,000         $4.50
$6.00                 497,000         6.00               4.39                       169,200          6.00
$6.60                 200,000         6.60               8.67                       _______         _____
                    ---------        -----               ----                                       -----
                    1,197,000        $5.47               7.41                       409,200         $5.12
                    =========        =====               ====                       =======         =====
</TABLE>


The pro forma information regarding net (loss) and (loss) per share as required
by SFAS No. 123, has been determined as if the Company had been accounting for
its employee stock options under the fair value method of that statement. The
fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions:

                                                       March 31,
                                            1998                     1997


Range of risk free interest rates       6.10% - 6.30%             5.60% - 5.86%
Dividend yield                             0%                        0%
Volatility factor                         70%                       70%
Expected life of options (in years)        8                         7

The weighted average fair value of options granted was $3.29 for the year ended
March 31, 1998 and $ 4.05 for the year ended March 31, 1997.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, for traded shares, option valuation models require
the input of highly subjective assumptions including the expected stock price
volatility.

For purposes of pro forma disclosures, the estimated fair value of the options
granted in fiscals 1998 and 1997 is amortized to expense over the options'
average vesting period. The Company's pro forma information follows:

                                                     Year Ended March 31,
                                                    1998             1997

          Pro forma loss                        $(1,269,956)      $(168,937)
                                                ============      ==========

          Pro forma loss per share              $  (.58)          $  (.12)
                                                ============      ==========


The pro forma disclosures presented above for fiscals 1998 and 1997,
respectively, reflect compensation expense only for options granted in fiscals
1998 and 1997. These amounts may not necessarily be indicative of the pro forma
effect of SFAS No. 123 for future periods in which options may be granted.

WARRANTS

Pursuant to the IPO, the Company sold 1,840,000 warrants. There were also
300,000 warrants outstanding to shareholders given in consideration of their
give-back of shares to the Company in connection with the IPO. Each warrant
entitles the registered shareholder to purchase one share of common stock at
$6.00 per share for a period of three years beginning December 1996. The Company
granted the underwriter of its IPO rights to purchase 60,000 shares of the
Company's common stock at an exercise price of 


                                      F-14


<PAGE>   29



$7.80 per share and 160,000 warrants at an exercise price of $.26 per warrant
and in turn, an exercise price for the stock of $7.80 per share that expires on
December 2, 2001. In connection with the Company's private placement, additional
stock warrants were issued to purchase 40,000 shares of the Company's common
stock at a price of $1.50 per share that expires on January 17, 2001. During the
year ended March 31,1998, the Company issued 20,000 warrants valued at $40,000
for consulting fees and also gave an option to a consultant for three years and
an additional three years by mutual consent for 100,000 warrants at the then
market price of $.80 per warrant and a price of $4.50 per common share. The term
of the warrant overlays the option period. The Company valued the warrants at
$225,000 and services are to be provided from April 1, 1998 to June 30, 1999.

Outstanding warrants consist of the following:

                          Warrants Outstanding
            Outstanding at April 1, 1996                           40,000
                 Granted                                        2,140,000
                                                                ---------
            Balance at March 31, 1997                           2,180,000
                 Granted                                           20,000
                 Exercised                                        (13,340)
                                                                  -------
            Balance at March 31, 1998                           2,186,660
                                                                =========


The above outstanding warrants do not include the warrants described above
related to the Company's underwriter option and for the option to acquire
100,000 warrants issued to a consultant.

NOTE 10-COMMITMENTS AND CONTINGENCIES

(A)Employment Contracts

The Company has a five year employment agreement dated July 1, 1996 with its
chief executive officer in the base amount of $104,000 per year, together with
cost of living adjustments and insurance. The Company also has similar
agreements with the president of its foreign subsidiary, and also with its
former chairperson and chief operating officer, which is in the process of being
challenged (see Note 6). The Company also has an oral agreement with the
president of its American subsidiary for a salary in the base amount of $104,000
per year.

(B)Operating Leases

The Company has operating leases for its production facilities and office space.
Aggregate minimum future annual rental payments are as follows:

                    Year Ending
                     March 31,                       Total
                     --------                        -----
                         1999                       $195,854
                         2000                        192,104
                         2001                        123,004
                         2002                        105,110
                         2003                         96,351
                                                    --------
                         Total                      $712,423
                                                    ========

Rent expenses for the years ended March 31, 1998 and 1997 were $96,250 and
$77,000 respectively.

(C)Other matters and Litigation

The Company has been threatened with a lawsuit by its former chairperson and
chief operating officer, who alleges breaches of various agreements; the Company
has threatened 


                                      F-15


<PAGE>   30

a lawsuit against such individual. In the opinion of counsel the amount at issue
appears to be $300,000, which includes the balance of an employment contract and
the settlement of $70,807 due from the individual (see Note 6), by performing
services under a consulting agreement. The Company is attempting to negotiate
the resolution of this matter.

The Company has been sued by a stockholder who is seeking monetary damages,
specific performance, equitable relief and costs in the amount of $3,000,000.
The Company and its counsel believe that this suit is completely without merit
and will vigorously defend it.

NOTE 11-ACQUISITION AND RECENT AGREEMENT

As at June 30, 1997, the Company entered into an agreement to acquire the
various privately owned corporations that comprise the Word House Group (Word
House), for 385,000 shares of its Common Stock. Word House has been in business
since 1984 and has offices in The Netherlands, France, Great Britain and China.
Word House translates and localizes documents and software, concentrating on
European languages.

Based on a subsequent modification to the agreement, 200,000 of the common
shares are to be contingently issuable based on achieving certain levels of
earnings. Accordingly, the transaction has been accounted for as a purchase. The
excess of the estimated fair value of common shares, over the underlying fair
values of the net assets acquired, together with the costs of the transaction
have been recorded as excess of purchase price over fair value of net assets
acquired (Excess), and is being amortized over a 15 year period. The
consolidated financial statements include 100,000 shares to be issued based upon
required earnings level having been met as of March 31, 1998. The Company has
recorded the estimated fair value of these shares as additional excess for such
contingent shares.

The purchase price was recorded as follows:


        Current assets                                            $ 677,770
        Property and equipment (net)                                375,972
        Excess of cost over fair value of assets acquired         1,453,262
                                                                 ----------
             Total assets                                         2,507,004
        Liabilities                                                (913,026)
             Total cost of acquisition                           $1,593,978

        Stock issued - 285,000 shares                            $1,510,000
        Acquisition costs                                            83,978
                                                                 ----------
        Purchase price                                           $1,593,978
                                                                 ==========

The condensed unaudited pro forma information of the Company for the years ended
March 31, 1998 and 1997 are presented as if the acquisition had occurred on
April 1, 1997 and 1996. The pro forma information for the year ended March 31,
1997 included Word House for the year ended December 31, 1996. The pro forma
information is not necessarily indicative of the results that would be recorded
had the acquisition occurred on these dates, nor is it indicative of the
Company's future results:

                                                      Pro Forma
                                                 Year Ended March 31,
                                              1998                1997
                                              ----                ----
     Revenues                              $7,051,843          $6,519,843
     Net (loss) income                        (35,429)            351,057
     (Loss) uncome per share-basic               (.02)                .20
     (Loss)Income per share-diluted              (.02)                .17
     Weighted average shares-basic          2,270,250           1,750,000
     Weighted average shares-diluted        2,270,250           2,038,000


                                      F-16

<PAGE>   31



On April 6, 1998, the Company entered into an agreement with the New Jersey
Department of Labor and Felician College to develop a network of qualified
translators and localizers. The implementation of a certificate training program
will contribute to a strategically important agenda in the State's economic
plan; i.e.: the fulfillment of high tech, high paying jobs for New Jersey
residents in the rapidly growing translation/localization/desk top publishing
industry. Under this partnership, the State of New Jersey will provide funding
for the Felician College Office of Continuing Education to implement the
certificate program comprised of three core courses and one elective. The
Company is providing the core curriculum and is training Felician staff. All
program graduates who participate in the program may enroll in paid internships
at the Company.

On June 29, 1998, the Company formed The Translation Group (Canada) as a wholly
owned subsidiary of the Company to operate in Canada.

NOTE 12-SEGMENT OPERATIONS

The sales of BTS originate in the United States to domestic and foreign
customers. Translation/localization is in Japanese, Chinese, and other languages
of the Asian rim, as well as European languages and Canadian French. The sales
of Word House originate in Europe and are almost entirely in Dutch, French and
other European languages.

Financial information that can be classified by the principal locations of the
Company is as follows:

<TABLE>
<CAPTION>

                                              United
                                              States               Foreign               Eliminations                  Total
<S>                                           <C>                  <C>                   <C>                        <C>       
Revenues                                      $3,831,542           $2,722,789            $(133,498)                 $6,420,833
                                              ==========           ==========            ==========                 ==========
Net income (loss)before
     provisions for income                     $(144,179)            $154,302                                          $10,123
                                               ==========            ========                                          =======
     taxes
Identifiable assets as at
     March 31, 1998                           $7,257,766           $1,147,378            $(224,156)                 $8,180,988
                                              ==========           ==========            ==========                 ==========
</TABLE>

NOTE 13-FOURTH QUARTER ADJUSTMENTS


Research and development costs were capitalized through December 31, 1997 and
         were expensed during the quarter ended March 31, 1998. The effect on
         income before that for the nine months ended was $180,000 and $108,000
         net of taxes.

The      Word House acquisition was previously treated as a pooling of
         interests, for accounting purposes and revised in the fourth quarter to
         reflect purchase based upon a modification to the agreement.
         Accordingly, approximately $25,000 of additional expenses should have
         been recognized through December 31, 1997.



                                      F-17