<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 0-18217
TRANSCEND SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0378756
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
3353 PEACHTREE ROAD, N.E., SUITE 1000, ATLANTA, GEORGIA 30326
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (404) 364-8000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
-----
Indicate the number of shares outstanding of the Registrant's common stock
as of the latest practicable date.
Class Outstanding at May 11, 1998
----- ---------------------------
Common Stock, $.01 par value 20,567,739
================================================================================
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997.................... 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1998 and 1997.............. 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997.............. 5
Notes to Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 12
Item 6. Exhibits and Reports on Form 8-K ....................... 13
SIGNATURES ..................................................... 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSCEND SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents............................ $ 2,481,000 $ 5,541,000
Accounts receivable, net of allowance for doubtful
accounts of $163,000 at March 31, 1998 and
December 31, 1997 4,985,000 4,965,000
Prepaid expenses and other current assets............ 1,524,000 979,000
------------ ------------
Total current assets.................................... 8,990,000 11,485,000
------------ ------------
Property and equipment:.................................
Property and equipment............................... 6,867,000 6,699,000
Accumulated depreciation............................. (2,980,000) (3,277,000)
------------ ------------
Property and equipment, net.......................... 3,887,000 3,422,000
Deposits and other assets............................... 820,000 510,000
Investment (Note 3).................................... 1,259,000 --
Goodwill and other intangible assets, net............... 1,643,000 2,587,000
Net assets from discontinued operations................. 2,649,000 2,646,000
------------ ------------
Total assets............................................ $ 19,248,000 $ 20,650,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long term debt................. $ 116,000 $ 108,000
Accounts payable..................................... 348,000 843,000
Accrued compensation and benefits.................... 1,846,000 2,399,000
Other accrued liabilities............................ 1,461,000 1,751,000
Deferred income taxes................................ 113,000 113,000
------------ ------------
Total current liabilities............................... 3,884,000 5,214,000
------------ ------------
Long term debt, net of current maturities............... 4,753,000 4,983,000
Deferred income taxes................................... 540,000 540,000
Convertible debentures.................................. 2,000,000 2,000,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 21,000,000 shares
authorized Series A convertible preferred stock,
212,800 shares issued at March 31, 1998 and
December 31, 1997.................................. 2,000 2,000
Common stock, $.01 par value, 30,000,000 shares
authorized, 20,568,000 shares and 20,500,000
shares issued at March 31, 1998 and
December 31, 1997, respectively................... 206,000 205,000
Additional paid-in capital........................... 26,191,000 26,208,000
Retained deficit..................................... (18,328,000) (18,502,000)
------------ ------------
Total stockholders' equity............................. 8,071,000 7,913,000
------------ ------------
Total liabilities and stockholders' equity............. $ 19,248,000 $ 20,650,000
============ ============
</TABLE>
_________________
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
TRANSCEND SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
--------------
1998 1997
---- ----
<S> <C> <C>
Net revenues......................................... $12,374,000 $10,745,000
Direct costs......................................... 10,305,000 9,026,000
----------- -----------
Gross profit...................................... 2,069,000 1,719,000
Marketing and sales expenses......................... 479,000 416,000
General and administrative expenses.................. 1,107,000 1,133,000
Amortization expenses................................ 72,000 119,000
----------- -----------
Income from operations............................ 411,000 51,000
Interest expense, net................................ (104,000) ( 89,000)
----------- -----------
Income (loss) before taxes and
discontinued operations......................... 307,000 (38,000)
Income taxes......................................... -- --
----------- -----------
Income (loss) before discontinued operations......... 307,000 (38,000)
Loss from discontinued operations.................... (15,000) (34,000)
----------- -----------
Net income (loss).................................... $ 292,000 $ (72,000)
=========== ===========
Dividends on preferred stock......................... (119,000) --
Net income (loss) to common stockholders............. $ 173,000 $ (72,000)
=========== ===========
Basic income (loss) per share:
From continuing operations...................... $ 0.01 $ (0.00)
From discontinued operations.................... $ ( 0.00) $ (0.00)
----------- -----------
Net income (loss).................................... $ 0.01 $ (0.00)
=========== ===========
Weighted Average Common Shares Outstanding........... 20,568,000 20,103,000
=========== ===========
Diluted income (loss) per share:
From continuing operations...................... $ 0.01 $ (0.00)
From discontinued operations.................... $ (0.00) $ (0.00)
----------- -----------
Net income (loss).................................... $ 0.01 $ (0.00)
=========== ===========
Weighted Average Common Shares Outstanding........... 20,778,000 20,103,000
=========== ===========
</TABLE>
____________
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
TRANSCEND SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................................... $ 173,000 $ (72,000)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization...................................................... 398,000 390,000
Loss related to discontinued operations............................................ 15,000 34,000
Changes in assets and liabilities:
Accounts receivable, net........................................................... (332,000) (185,000)
Prepaid expenses and other current assets.......................................... (554,000) (14,000)
Deposits and other assets.......................................................... (311,000) 10,000
Accounts payable................................................................... (531,000) (791,000)
Accrued liabilities................................................................ (833,000) (250,000)
----------- -----------
Total adjustments..................................................................... (2,148,000) (806,000)
----------- -----------
Net cash used in continuing operations................................................ (1,975,000) (878,000)
Net cash used in discontinued operations.............................................. (19,000) (40,000)
----------- -----------
Net cash used in operating activities................................................. (1,994,000) (918,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures............................................................... (845,000) (158,000)
----------- -----------
Net cash used in investing activities................................................. (845,000) (158,000)
----------- -----------
Cash flows from financing activities:
Borrowings under line of credit agreements......................................... -- 110,000
Repayments on line of credit agreements............................................ (193,000) (83,000)
Principal payments long-term debt.................................................. (28,000) --
Proceeds from stock options and other issuances................................... -- 7,000
----------- -----------
Net cash provided by (used in) financing activities.................................. (221,000) 34,000
----------- -----------
Net change in cash and cash equivalents............................................... (3,060,000) (1,042,000)
Cash and cash equivalents, at beginning of period..................................... 5,541,000 1,663,000
----------- -----------
Cash and cash equivalents, at end of period........................................... $ 2,481,000 $ 621,000
=========== ===========
Supplemental cash flow information:
Cash paid for interest expense........................................................ $ 170,000 $ 155,000
</TABLE>
_________________
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
TRANSCEND SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(UNAUDITED)
(1) The accompanying consolidated financial statements are unaudited and have
been prepared by management of Transcend Services, Inc. ("the Company") in
accordance with the rules and regulations of the Securities and Exchange
Commission. The unaudited financial information furnished herein in the opinion
of management reflects all adjustments which are necessary to fairly state the
Company's financial position, the results of its operations and its cash flows.
For further information refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the year ended
December 31, 1997. Footnote disclosure which would substantially duplicate the
disclosure contained in those documents has been omitted.
(2) In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income that includes all changes in equity during a
period from transactions and events from nonowner sources. The Company has no
components of comprehensive income other than net income for the three month
periods ended March 31, 1998 and 1997.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" which
establishes accounting standards for reporting information about operating
segments in annual financial statements. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997 and has not yet been adopted by the
Company.
(3) In March 1998, the Company completed the sale of the net assets of its
wholly owned subsidiary, Transcend Case Management, Inc. ("TCM") to CORE, Inc
("CORE"). Transcend will receive CORE stock with the value based on the future
annual revenues from CORE's operation of TCM as of a date to be determined at
the Company's discretion between April 1, 1999 and February 28, 2001. The
carrying amount of the Company's future interest in CORE is recorded on the
balance sheet based on the net book value of TCM on March 16, 1998.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information included in this Quarterly Report on Form 10-Q
contains, and other reports or materials filed or to be filed by the Company
with the Securities and Exchange Commission (as well as information included in
oral statements or other written statements made or to be made by the Company or
its management) contain or will contain, "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
Section 27A of the Securities Act of 1933, as amended and pursuant to the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements may relate to financial results and plans for future business
activities, and are thus prospective. Such forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to, general economic conditions, competition and other uncertainties
detailed in this report and detailed from time to time in other filings by the
Company with the Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or to be made by
the Company or its management). Any forward-looking statements are made pursuant
to the Private Securities Litigation Reform Act of 1995 and, as such speak only
as of the date made.
OVERVIEW
- --------
Transcend Services, Inc. ("Transcend" or the "Company") provides healthcare
information management (''HIM'') solutions to hospitals and other associated
healthcare providers. The Company's range of HIM services includes (i) contract
management, or "Co-Sourcing", of medical records and other HIM functions; (ii)
transcription of physicians' dictated medical notes; and (iii) consulting
relating to medical records and reimbursement coding. The Company currently
operates the medical records and certain other HIM functions of 22 general acute
care hospitals located in 11 states and the District of Columbia. The Company,
through its wholly-owned subsidiary Transcend Case Management, Inc. ("TCM"),
also provided case management and disability management services to insurance
carriers, third party administrators and self-insured employers; however, the
net assets of TCM were sold in March 1998.
On April 29, 1998 the Company signed a definitive agreement to acquire
Health Care Information Systems, Inc. ("HCIS") of Beaverton, Oregon. HCIS
provides information management software and related services to approximately
65 hospitals concentrated in the eight western states. HCIS has recently
released a new set of Windows based products, a state of the art set of tools
for the management and reporting of health care information. Transcend plans to
implement these tools in each of its 22 hospitals over the next two years and
will utilize them in its Information Delivery Center ("IDC") operations. The IDC
provides for the offsite medical coding from electronic records over Transcend's
private network.
7
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
(IN THOUSANDS)
----------------------------------------------------------------------------------------------
1998 % 1997 % % CHANGE
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET REVENUES
----------------------------------------------------------------------------------------------
Co-Sourcing $ 6,965 56.3% $ 5,717 53.2% 21.8%
----------------------------------------------------------------------------------------------
Transcription 4,981 40.3% 4,326 40.3% 15.2%
----------------------------------------------------------------------------------------------
Case Management 346 2.8% 554 5.2% (37.5%)
----------------------------------------------------------------------------------------------
Other 82 0.7% 148 1.4% (44.6%)
----------------------------------------------------------------------------------------------
TOTAL $12,374 100.0% $10,745 100.0% 15.2%
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
GROSS MARGIN
----------------------------------------------------------------------------------------------
Co-Sourcing $ 1,208 17.3% $ 968 16.9% 24.8%
----------------------------------------------------------------------------------------------
Transcription 891 17.9% 719 16.6% 23.9%
----------------------------------------------------------------------------------------------
Case Management 83 24.0% 49 8.8% 69.4%
----------------------------------------------------------------------------------------------
Other (113) (137.8%) (17) (11.5%) (564.7%)
----------------------------------------------------------------------------------------------
TOTAL $ 2,069 16.7% $ 1,719 16.0% 20.4%
----------------------------------------------------------------------------------------------
</TABLE>
Net revenues for the Company increased to $12,374,000 for the three months
ended March 31, 1998 from $10,745,000 for the three months ended March 31, 1997,
an increase of 15.2%. Co-Sourcing revenues were the largest single service class
revenue source for the Company in each of these three month periods,
representing 56.3% of total revenues in the 1998 period and 53.2% in the 1997
period. Co-Sourcing revenues increased to $6,965,000 for the three months ended
March 31, 1998 from $5,717,000 in the comparable 1997 period, an increase of
21.8% as a result of new contracts signed in 1997 and 1998. Medical
transcription revenues, represented 40.3% of the total revenues for the Company
for the three months ended March 31, 1998 and 1997. Medical transcription
revenues increased to $4,981,000 from $4,326,000 for the three months ended
March 31, 1998 and 1997, an increase of 15.2% resulting from new customers and
volume increases from existing customers. Other revenues represented 0.7% of the
Company's net revenues for the three months ended ended March 31, 1998 and 1.4%
of the Company's net revenues for the three months ending March 31, 1997. Other
revenues decreased $66,000 or 44.6% to $82,000 for the three months ended March
31, 1998 from $148,000 for the three months ended March 31, 1997. TCM revenues
decreased to $346,000 for the three months ended March 31, 1998 from $554,000
for the three months ended March 31, 1997 a decrease of 37.5% due to the loss of
several key customer accounts at TCM.
8
<PAGE>
Excluding TCM, net revenues for the Company increased from $10,191,000 for
the three months ended March 31, 1997 to $12,028,000 for the three months ended
March 31, 1998, an increase of 18.0%.
Gross profit increased 20.4% to $2,069,000 for the three months ended March
31, 1998 from $1,719,000 in the same prior year period. Gross profit margins (as
a percentage of net revenues) expanded to 16.7% for the three months ended March
31, 1998 from 16.0% for the three months ended March 31, 1997 period. The
increase in gross profit margin was primarily attributable to margin expansion
in TCM as a result of restructuring the business in December 1997.
Excluding TCM, gross profits were $1,986,000 for the quarter ended March
31, 1998, an increase of 18.9% over the same prior year period in 1997. Gross
margins, excluding TCM, were 16.5% for the three months ended March 31, 1998
compared to 16.4% for the same prior year period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- ----------------------------------------------------------------------------------------
MARCH 31,1998 MARCH 31, 1997 DIFFERENCE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% --
- ----------------------------------------------------------------------------------------
Direct costs 83.3% 84.0% (0.7%)
- ----------------------------------------------------------------------------------------
Gross profit 16.7% 16.0% 0.7%
- ----------------------------------------------------------------------------------------
Marketing and sales expenses 3.9% 3.9% 0.0%
- ----------------------------------------------------------------------------------------
General and administrative expenses 8.9% 10.5% (1.6%)
- ----------------------------------------------------------------------------------------
Amortization expense .6% 1.1% (0.5%)
- ----------------------------------------------------------------------------------------
Income from operations 3.3% 0.5% 2.8%
- ----------------------------------------------------------------------------------------
Interest expense, net 0.8% 0.8% 0.0%
- ----------------------------------------------------------------------------------------
Income (loss) before discontinued 2.5% (0.4%) 2.9%
operations
- ----------------------------------------------------------------------------------------
Loss from discontinued operations (0.1%) (0.3%) 0.2%
- ----------------------------------------------------------------------------------------
Net income (loss) 2.4% (0.7%) 3.1%
- ----------------------------------------------------------------------------------------
</TABLE>
Marketing and sales expenses increased 15.1% to $479,000 for the three
months ended March 31, 1998 from $416,000 in the same prior period but remained
constant as a percentage of net revenues at 3.9%.
General and administrative expenses decreased 2.3% to $1,107,000 for
the three months ended March 31, 1998, from the $1,133,000 incurred in the same
prior year period. Corporate general and administrative expenses decreased as a
percentage of net revenues to 8.9% for the three months ended March 31, 1998
from 10.5% for the prior year quarter.
Amortization expenses decreased to $72,000 or .6% of net revenues for
the three months ended March 31, 1998 from $119,000 or 1.1% of net revenues for
the three months ended March 31, 1997, reflecting the impact of the 1993
acquisition of dataLogix, Inc. being fully amortized and the write down of
intangible assets related to TCM in December 1997.
The Company's income from operations increased to $411,000 for the three
months ended March 31, 1998 from $51,000 for the same prior year quarter due to
increased gross profits from revenue growth.
9
<PAGE>
Interest expense, net increased to $104,000 for the three months ended
March 31, 1998 as compared to $89,000 for the same prior year period, primarily
due to the impact of interest expense incurred in connection with the Company's
increased borrowings, loan fees, and higher interest rates associated with the
credit facility. Interest expense, net was .8% of net revenues for the three
months ended March 31, 1998 and 1997.
The Company's income before discontinued operations increased to $307,000
for the three months ended March 31, 1998 from a loss of $38,000 for the three
months ended March 31, 1997. Excluding TCM for 1998 and 1997, the Company's
income before discontinued operations was $292,000 in 1998 and $235,000 in 1997,
an improvement of 24.3%.
The Company's loss from discontinued operations decreased to $15,000 from
$34,000 for the three months ended March 31, 1998 and March 31, 1997,
respectively, representing legal expenses incurred in connection with the
Lawsuit (hereinafter defined). See Part II, Item 1. Legal Proceedings.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1998, continuing operations used
$1,975,000 of cash. Cash has been used to fund the investment in capital assets
and to fund changes in the Company's assets and liabilities. See also Part I,
Item 1. Financial Statements. Consolidated Statements of Cash Flows.
The Company had net working capital of $5,106,000 at March 31, 1998,
compared to $6,271,000 at December 31, 1997. The decrease in working capital of
$1,165,000 is attributable to the investment in capital assets and the reduction
of a line of credit facility.
For the three months ended March 31, 1998, the Company's principal use of
cash of $845,000 for investing purposes was for capital expenditures in
association with the implementation of electronic document management systems in
new customer sites.
For the three months ended March 31, 1998, financing activities used cash
of $221,000 due to reductions of the Company's line of credit facility.
On April 3, 1997, the Company entered into a $5.0 million credit agreement
with Coast Business Credit ("Coast"), an asset based lender (and a division of
Southern Pacific Thrift and Loan Association). The agreement provides the
Company with a $4.7 million working capital facility and a $300,000 capital
expenditure facility secured by substantially all of the Company's assets. The
Coast facilities do not contain any financial covenants but contain restrictions
from paying dividends and entering into financing arrangements without consent.
As of March 31, 1998 the capacity of the credit line based on the funding
formula was $5.0 million.
10
<PAGE>
These facilities are priced at prime plus 2.25% declining to prime plus
1.75% upon two consecutive quarters of achievement and ongoing maintenance of a
debt service coverage ratio of not less than 1.5 measured on an earnings before
interest, taxes, and amortization ("EBITA") basis. EBITA is used by Coast as an
indicator of a company's ability to incur and service debt. EBITA should not be
considered an alternative to operating income, net income, cashflows, or any
other measure of performance as determined in accordance with generally accepted
accounting principles, as an indicator of operating performance, or as a measure
of liquidity. These facilities are secured by a first security interest on all
Company assets.
On February 19, 1998, the Company signed a master lease agreement providing
up to $5.0 million in lease financing with Information Leasing Corporation, a
subsidiary of Provident Bank, Cincinnati, Ohio at interest rates equal to
Provident Bank prime rate plus two percent. Subject to a review of the
underlying customer contract, the master lease agreement calls for equal monthly
payments over the term of the lease, typically the life of the underlying
contract, not to exceed five years. The facility is intended to provide
financing for new electronic document management systems and transcription
systems required for new contracts.
On April 13, 1998 the Company signed a new $10.0 million equipment loan
facility with DVI Financial Services Inc. This facility, provides additional
financing for electronic document management systems and transcription systems
required for new contracts. The master loan agreement calls for monthly payments
which fully amortize the cost of the equipment over the life of the customer
contract, not to exceed 60 months, at a current interest rate of 10.2%.
The Company anticipates that cash on hand, together with internally
generated funds and cash available under its credit facilities, will be
sufficient to finance continuing operations, make capital investments in the
normal and ordinary course of its business, and fund the out-of-pocket expenses
and certain legal fees of its civil litigation action against certain insurance
carriers for the remainder of fiscal 1998.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to certain claims in the ordinary course of business
which are not material.
On September 17, 1993, the Company and its former subsidiaries, First
Western Health Corporation and Veritas Healthcare Management, and the physician-
owned medical groups, FWHC Medical Group, Inc. and Veritas Medical Group, Inc.,
which had contracts with the healthcare subsidiaries, initiated a lawsuit in the
Superior Court of the State of California, County of Los Angeles, against 22 of
the largest California workers' compensation insurance carriers (the "Lawsuit".)
The Lawsuit was subsequently amended to name 13 defendant insurance groups
including State Compensation Insurance Fund, Continental Casualty Company,
California Compensation Insurance Company, Zenith National Insurance Corporation
and Pacific Rim Assurance Company. The action seeks $115 million in compensatory
damages plus punitive damages. The plaintiffs claim abuse of process,
intentional interference with contractual and prospective business relations,
negligent interference and unlawful or unfair business practices which led to
the discontinuation in April 1993 of the former business of the Company's
subsidiaries and their contracting associated medical groups. Nine defendants
in the Lawsuit have filed cross complaints against the plaintiffs seeking
restitution, accounting from the plaintiffs for monies previously paid by the
defendants, disgorgement of profits, injunctive relief, attorneys' fees and
punitive damages, based upon allegations of illegal corporate practice of
medicine, illegal referral arrangements, specific statutory violations and
related improper conduct. The Company and its counsel do not believe that it is
likely that the Company will be held liable on any of the cross complaints;
however, there can be no assurance that the Company will be successful in the
defense of the cross complaints. In addition, there can be no assurance as to
the recovery by the Company of the damages sought in its complaint against the
defendants.
On March 21, 1997, the Los Angeles County Superior Court sustained the
defendant insurance companies' demurrer to the Third Amended and Supplemental
Complaint of the Company and certain of its subsidiaries, without leave to
further amend the complaint. The Court determined in such ruling that exclusive
jurisdiction with respect to the claims contained in the Lawsuit resides with
the California Workers' Compensation Appeals Board and that the Superior Court
of the State of California is an improper forum. The Company has been advised
by counsel that there is no remedy for the damages claimed in the Lawsuit from
the California Workers' Compensation Appeals Board. A final order dismissing
the Lawsuit was issued by the Court on June 18, 1997. The Company appealed the
ruling in the California Court of Appeals on June 25, 1997. There can be no
assurance that the Company will be successful appealing such dismissal. By
stipulation, the carriers' cross-complaints against the plaintiffs were stayed
pending resolution of the plaintiffs' appeal. The Company believes that the
trial court's ruling, if upheld by the appellate court, also would result in
dismissal of the cross-complaints. There can be no assurance, however, that
such cross complaints would be dismissed. The cross complaints expose the
Company to risk of liability which, if the Company is unsuccessful in the
defense of such cross complaints, could have a materially adverse impact on the
Company's results of operations for a particular period.
For the three months ended March 31, 1998, the Company expensed
approximately $15,000 of legal expenses connected with the Lawsuit. Under the
original agreement with the Company's counsel of
12
<PAGE>
record in the Lawsuit, there was a cap on legal expenses and after December
1996, with respect to expenses incurred at the trial court level, the Company
would only be responsible for out-of-pocket expenses and the payment to counsel
of a percentage of any recovery of damages by the Company. However, in May 1997,
the Company was notified that the partner principally responsible for the case
was leaving the firm with which the Company contracted to handle the case. The
Company has moved the representation to new counsel, which resulted in
negotiation of a new fee arrangement requiring the Company to pay additional
legal expenses incurred in connection with the appeal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following exhibits are filed herewith:
10.14.1 DVI Financial Services Inc. Loan & Security
Agreement
11 Computation of Per Share Earnings
27.1 Financial Data Schedule 1998 (for SEC use only)
27.2 Financial Data Schedule 1997 (for SEC use only)
(b) Reports on Form 8-K: there were no filings on Form 8-K
during the quarter ended March 31, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRANSCEND SERVICES, INC.
May 14, 1998 By: /s/ Larry G. Gerdes
-----------------------------------------
Larry G. Gerdes,
President and Chief Executive Officer
(Principal Executive Officer)
May 14, 1998 By: /s/ Doug Shamon
-----------------------------------------
Doug Shamon
Executive Vice President,
Chief Financial Officer (Principal
Financial and Accounting Officer)
14
<PAGE>
EXHIBIT 10.14.
LOAN AND SECURITY AGREEMENT
LOAN #1692
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is made as of the date set forth
below between:
Secured Party: DVI Financial Services, Inc.; and
Debtor: Transcend Services, Inc.
1. Certain Definition: The following terms shall have the following respective
meanings:
(a) Advances. Advances of funds to the Debtor pursuant to Section 2 hereof
--------
and Schedules which may be executed between Secured Party and Debtor
from time to time.
(b) Collateral: "Collateral" shall have the meaning set forth in Section
----------
2.2 hereof.
(c) Event of Default: Those events set forth in Section 9 hereof.
-----------------
(d) Monthly Loan Repayment. The amount set forth in any Schedule executed
----------------------
in connection with any Advance under this Agreement.
(e) Schedule(s): Any and all or each (as the context shall require) of the
------------
Loan and Collateral Schedules of the Debtor, to be executed by the
parties under this Agreement.
(f) Secured Obligations. The payment of the principal and interest as set
-------------------
forth in each and all of the Schedules, and the payment of all
additional amounts and other sums at any time due and owing under the
Schedules for this Agreement, and the performance and observance of
all covenants and conditions contained herein and therein.
(g) Supplier: The entity from whom the Debtor purchased the collateral
---------
including manufacturers, dealers, sellers and vendors.
2. Purpose of Financing and Description of Loans; Grant of Security Interest;
--------------------------------------------------------------------------
Collateral
----------
(a) Secured Party agrees, subject to the terms and conditions of this
Agreement, to make Advances to the Debtor in an aggregate amount to be
determined by Secured Party in its sole and absolute discretion.
<PAGE>
(b) Debtor agrees that the proceeds of any Advance will be used solely to
acquire the Collateral as described in the Schedule executed in
connection with said advance.
(c) The amount of any Advances to Debtor shall be set forth on the
Schedule executed in connection with said Advance.
(d) The term of repayment of any Advance made under this Agreement (the
"Term") shall commence on the date set forth in the Schedule executed
in connection with said Advance and shall continue for the period set
forth in said Schedule, and for all extensions and renewal of such
period.
(e) Debtor shall pay to Secured Party the Monthly Loan Repayment for each
Advance in amounts and on the dates set forth in the Schedule executed
in connection with said Advance, whether or not Secured Party has
rendered an invoice to Debtor. Debtor agrees to pay the Monthly Loan
Repayment to Secured Party at the office of the Secured Party set
forth below, or to such entity and/or at such other place as Secured
Party may from time to time designate by notice to Debtor. Any other
amounts required to be paid to Secured Party under this Agreement are
due upon Debtor's receipt of Secured Party's invoice and will be
payable as directed in the invoice. Payments under this Agreement may
be applied to the Debtor's then accrued Secured Obligations in such
order as Secured Party may choose.
(f) The Advances shall not be subject to prepayment or redemption in whole
or in part prior to the expiration of the Term set forth in the
Schedule executed in connection with said Advance.
2.1 Grant of Security Interest. In consideration of the Advances to be made by
---------------------------
Secured Party to Debtor under this Agreement, and to secure the payment and
performance of the Secured Obligations, Debtor hereby grants and assigns to
Secured Party, its successors and assigns, a security interest in the
Collateral described in section 2.2 below.
2.2 Collateral. To the extent covered in any Schedules executed pursuant to
-----------
this Agreement, Collateral includes:
(a) all personal property consisting of "equipment" and "proceeds" as
defined in the Pennsylvania Commercial Code and all furniture,
fixtures, machinery or other property, and
(b) accounts receivable, contract rights, instruments, documents, chattel
paper and all other forms of obligations owing to Debtor arising out
of the rendition of services by Debtor in connection with the medical
equipment financed under this Agreement, whether or not earned by
performance, and any and all credit insurance, guaranties, and other
security therefor, as well as any books and records relating to the
foregoing, whether now owned or hereafter acquired, and all
substitutions, renewals or replacements of and alternations, additions
or
<PAGE>
improvements, if any, to such Collateral, together with, in each and
every case, all proceeds thereof. Each item of Collateral shall secure
not only the specific Advances made by Secured Party to Debtor as set
forth in any Schedule, but also all other present and future
indebtedness or obligations of Debtor to Secured Party of every kind
and nature whatsoever. Debtor warrants and agrees that the Collateral
will be used primarily for business or commercial purposes and that
regardless of the manner of affixation, the Collateral shall remain
personal property and shall not become part of the real estate. Debtor
agrees to keep the Collateral at the locations set forth in the
Schedule(s) covering said Collateral and will not make any change in
the location of the Collateral within such state, and will not remove
the Collateral from such state without the prior written consent of
Secured Party.
3. Time is of the Essence; Late Charges. Time is of the essence in this
-------------------------------------
Agreement and if any Monthly Loan Repayment is not paid within the ten (10)
days after the due date thereof, Secured Party shall have the right to add
and collect, and Debtor agrees to pay:
(a) A late charge on and in addition to, such Monthly Loan Repayment equal
to five percent (5%) of such Monthly Loan Repayment or a lesser amount
if established by any State or Federal statute applicable thereto; and
(b) Interest on such Monthly Loan Repayment from thirty (30) days after
the due date until paid at the rate of eighteen (18%) per annum.
4. No Warranties. This Agreement is solely a financing agreement. Debtor
-------------
acknowledges that: The Collateral has or will have been selected and
acquired solely by Debtor for Debtor's purposes; Secured Party is not the
manufacturer, dealer, vendor or supplier of the collateral; the collateral
is of a size, design, capacity, description and manufacture selected by
Debtor; Debtor is satisfied that the collateral is suitable and fit for its
purposes;; and SECURED PARTY HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OR
------------------------------------------------------------
REPRESENTATION WHATSOEVER, EITHER EXPRESS OF IMPLIED, AS TO THE FITNESS,
------------------------------------------------------------------------
CONDITION, MERCHANTABILITY, DESIGN OR OPERATION OF THE COLLATERAL, ITS
----------------------------------------------------------------------
FITNESS FOR ANY PARTICULAR PURPOSE, THE VALUE OF THE COLLATERAL, THE
--------------------------------------------------------------------
QUALITY OR CAPACITY OF THE MATERIALS IN THE COLLATERAL OR WORKMANSHIP IN
------------------------------------------------------------------------
THE COLLATERAL, NOR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER.
--------------------------------------------------------------------
4.1 No Agency. Debtor acknowledges and agrees that none of the manufacturer,
----------
vendor, dealer or supplier, nor any salesman, representative, or other
agent of the manufacturer, dealer, vendor or supplier, is an agent of
Secured Party. No salesman, representative or agent of the manufacturer,
dealer vendor or supplier is authorized to waive or alter any term or
condition of this Agreement, and no representation as to the Collateral or
any other matter by any manufacturer, dealer, vendor or supplier shall in
any way affect Debtor's duty to pay the Monthly Loan Repayment and perform
his other obligations as
<PAGE>
set forth in this Agreement.
5. Acceptance. Execution by Debtor and Secured Party of the Schedule covering
----------
the collateral will conclusively establish that such Collateral has been
included under and will be subject to all of the terms and conditions of
this Agreement. If Debtor has not furnished Secured Party with an executed
Schedule by the earlier of fourteen (14) days after receipt thereof or
expiration of the commitment set forth in any applicable Equipment
Financing Commitment, Secured Party may terminate its obligation to make
any Advances with respect to any applicable Collateral.
6. Insurance and Risk of Loss. All risk of loss of, damage to, or destruction
---------------------------
of the Collateral shall at all times be borne by Debtor. Debtor will
procure forthwith and maintain property and general liability insurance
with extended or combined additional coverage on the collateral for the
full insurance value thereof for the life of this Agreement any Schedule(s)
plus such other insurance as Secured Party may specify, and promptly
deliver each policy to Secured Party with a standard long form endorsement
attached showing Secured Party or assigns as additional insured and loss
payees. Each insurer shall agree by endorsement upon such policy issued by
it or by independent instrument furnished to Secured Party and Debtor that
it will give Secured Party and Debtor thirty (30) days written notice
before the policy in question shall be material altered or canceled.
Secured Party's acceptance of policies in lesser amounts or risks shall not
be a waiver of Debtor's foregoing obligation.
7. Debtor's Representations and Warranties. Debtor represents and warrants to
----------------------------------------
Secured Party as follows:
(a) Debtor is duly organized and existing under the laws of the State of
its formation without limit s to the duration of its existence, and is
authorized and in good standing to do business in said State; Debtor
has corporate powers and adequate authority, rights and franchises to
own its own property and to carry on its business as now conducted;
and is duly qualified and in good standing in each state in which the
character of the properties owned by it therein or the conduct of its
business makes such qualifications necessary; and Debtor has the
corporate power and adequate authority to make and carry out this
Agreement.
(b) The execution, delivery and performance of this Agreement are duly
authorized and do not, to the best of the Debtor's knowledge, require
the consent or approval of any government body or other regulatory
authority, ; are not in the contravention of or in conflict with any
law, regulation or any term or provision of its articles of formation
or bylaws, and this Agreement is a valid and binding obligation of
Debtor legal enforceable in accordance with it terms.
(c) The execution, delivery and performance of this Agreement will not
contravene or conflict with any agreement, indenture or undertaking to
which Debtor is a party or by which it or any of its property may be
bound by or affected, and will not
<PAGE>
cause any lien, charge or other encumbrance to be created or imposed
upon any such property by reason thereof.
(d) There is no material litigation or other proceeding pending or
threatened against or affecting Debtor, and it is not in default with
respect to any order, writ, injunction, decree or demand of any court
or other governmental or regulatory authority. The balance sheets of
Debtor and the related profit and loss statements and other financial
data as submitted in writing by Debtor to Secured Party in connection
with this Agreement, are true and correct, and said balance sheets and
profit and loss statements truly represent the financial condition of
Debtor as of the dates thereof.
(e) Debtor has good and valid title to the Collateral which is free from
and will be kept free from all liens, claims, security interest and
encumbrancers except for the security interest granted hereby.
(f) No financing statement covering the Collateral or any proceeds thereof
is on file in favor of anyone other than Secured Party, but if such
other financing statement is on file, it will be terminated or
subordinated.
(g) All necessary action, including the filing of UCC-1 Financing
Statements, has or will be made to give Secured Party a first priority
security interest in the Collateral. Debtor agrees to permit Secured
Party to pre-file any UCC-1` Financing statement pursuant to
California Commercial Code #9402.
8. Debtor's Agreements. Debtor agrees:
--------------------
(a) To defend at Debtor's own cost and expense any action, proceeding or
claim affecting the Collateral.
(b) To pay reasonable attorney's fees and other expenses incurred by
Secured Patty in enforcing its rights in the event of Debtor's default
under this Agreement.
(c) To pay promptly all taxes, assessments, license fees and other public
or private charges when levied or assessed against the Collateral or
this Agreement and this obligation shall survive the termination of
this Agreement.
(d) That if a certificate of title is required or permitted by law, Debtor
shall obtain such certificate with respect to the Collateral, showing
the security interests of Secured Patty thereon and in any event do
everything necessary or expedient to preserve or perfect the security
interest of Secured Party.
(e) That Debtor will not misuse, fail to keep in good repair, secrete, or
without the prior written consent of Secured Party, and
notwithstanding Secured Party's claim to proceeds, sell, rent, lend,
encumber or transfer any of the Collateral. The
<PAGE>
Collateral shall be maintained in accordance with the manufacturer's
specifications and shall at all times be eligible for the
manufacturer's maintenance program.
(f) That Secured Party may enter upon Debtor's premises or wherever the
collateral may be located at any reasonable time to inspect the
Collateral and Debtor's books and records pertaining to the
Collateral, and Debtor shall assist Secured Party in making such
inspection.
(g) That the security interest granted by Debtor to Secured Party shall
continue effective irrespective of the payment of the Secured
Obligations, so long as there are any obligations of any kind,
including obligations under guarantees or assignments, owed by Debtor
to Secured Party.
(h) To make and identify the Collateral with all information and in such
manner as Secured Party may request from time to time and replace
promptly any such marking or identifications which are removed,
defaced or destroyed.
(i) To indemnify and hold Secured Party harmless from and against all
claims, losses, liabilities (including negligence, tort and strict
liability), damages, judgements, suits and all legal proceedings, and
any and all costs and expenses in connection therewith (including
attorney's fees) arising out of or in any manner connected with the
manufacture, purchase, financing, ownership, delivery, rejection,
nondelivery, possession, use, transportation, storage, operation,
maintenance, repair, return or other disposition of the collateral or
with this Agreements, including, without limitation, claims for injury
to, or death of, persons and for damage to property, and give Secured
Party prompt notice of such claims or liability.
(j) That Debtor will not part with possession of or control or suffer or
allow to pass out its possession or control items of Collateral or
change the location of the collateral or any part thereof from the
address shown in the appropriate Schedule without the prior written
consent of Secured Party.
(k) That Debtor shall not ASSIGN OR IN ANY WAY DISPOSE OR ALL OR ANY PART
-----------------------------------------------
OF ITS RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT OR SELL, LEASE,
-----------------------------------------------------------------
TRANSFER, PLEDGE OR HYPOTHECATE ANY PART OF THE COLLATERAL, DEBTOR'S
--------------------------------------------------------------------
INTEREST IN THIS AGREEMENT AND THE COLLATERAL IS NOT ASSIGNABLE AND
-------------------------------------------------------------------
WILL NOT BE ASSIGNED OR TRANSFERRED BY OPERATION OF LAW, CONSENT TO
--------------------------------------------------------------------
ANY OF THE FOREGOING PROHIBITED ACTS APPLIES ONLY IN THE GIVEN
----------------------------------------------------------------
INSTANCE AND IS NOT CONSENT TO SUBSEQUENT LIKE ACT BY DEBTOR OR
---------------------------------------------------------------
ANOTHER ENTITY.
-------
9. Events of Default. Any of the following events or conditions shall
------------------
constitute and Event
<PAGE>
of Default hereunder:
(a) Debtor's failure to pay any Monthly Loan Repayment or any installment
of the principal or interest due under any Schedule when and after the
same shall become due and payable, whether at the due date thereof, or
ant the date fixed for prepayment or by acceleration or otherwise;
(b) Debtor failure to observe or perform any covenant or agreement to be
observed or performed by Debtor under this Agreement, any schedule or
any other instrument or agreement delivered by Debtor to Secured Party
in connection with this or any other transaction;
(c) Any representation or warranty made by Debtor herein or in any report,
certificate, financial or other statement furnished in connection with
this Agreement shall prove to be false or misleading in any material
respect; or
(d) Debtor is (i) adjudicated insolvent or a bankrupt, or ceases, becomes
unable, or admits in writing its inability, to pay its debts as they
mature, or makes a general assignment for the benefit of, or enters
into any composition or arrangement with, creditors; (ii) applies for
or consents to the appointment of a receiver, trustee or liquidator of
it or of a substantial part of its property, or authorizes such
application or consent, or proceedings seeking such appointment shall
be instituted against it without such authorization, consent or
application and continues undismissed for a period of 60 calendar
days; (iii) authorizes or files a voluntary petition in bankruptcy or
applies for or consents to the application of any bankruptcy,
reorganization in bankruptcy, arrangement, readjustments or debts,
insolvency, dissolution, moratorium or other similar laws of any
jurisdiction, or authorize such application or consent, or
proceedings to such end shall be instituted against it without such
authorization, application or consent and such proceeding instituted
against it shall continue undismissed for a period of 60 calendar
days; or
(e) Secured Party, in good faith, believes the prospect of payment or
performance is impaired or in good faith believes the Collateral is
insecure;
(f) Any agreement made by a guarantor, surety or endorser for Debtor's
default in any obligation or liability to secured Party or any
guaranty obtained in connection with this transaction is terminated or
breached.
10. Secured Party's Remedies. Debtor agrees that when an Event of Default has
------------------------
occurred and is continuing, Secured Party shall have the rights, options,
duties and remedies of a Secured Party and Debtor shall have the rights and
duties of a Debtor under the Uniform Commerical Code in effect in each
jurisdiction where the Collateral or any part thereof is located and,
without limiting the foregoing, Secured Party may exercise one or more or
all, and in any order, of the remedies hereinafter set forth:
<PAGE>
(a) By notice in wiring to Debtor, declare the entire unpaid principal
balance due under any, each and all Schedule(s) to be immediately due
and payable; and thereupon all such unpaid balance(s), together with
all accrued and unpaid interest thereon, shall be immediately due and
payable;
(b) Personally, or by agents or attorneys, take immediate possession of
the Collateral or any portion thereof and for the purpose pursue the
same wherever it may be found and enter any of the premises of Debtor
with or without notice, demand, process of law or legal procedure, and
search for, take possession of, remove, keep and store the same, or
use, operate, or lease the same until sold and otherwise exercise any
and all of the rights and poers of Debtor in respect thereof;
(c) Either with or without taking possession and without instituting any
legal proceedings whatsoever (having first given notice of such sale
by mail to debtor once at least 10 calendar days prior to the date of
such sale, and any other notice of such sale which may be required by
law, if said notice is sufficient, sell and dispose of the collateral
or any part thereof at public auction(s) to the highest bidder, or at
a private sale(s) in one lot as an entirely or in several lots, and
either for cash or for credit and on such terms as Secured Party may
determine, and at any place (whether or not it is the location of the
Collateral or any part thereof, designated in the notice above
referred to. Any such sale or sales may be adjourned from time to time
by announcement of the time and place appointed for such sale or
sales, or fur such adjourned sales or sales without further notice,
and Secured Party may bid and become the purchaser at any such sale;
(d) Secured Party may proceed to protect and enforce this Agreement and
any Schedule(s) by suit or suits or proceedings in equity, at law or
in bankruptcy, and whether for the specific performance of any
covenant or agreement herein contained, or execution or aid of any
power herein granted, or for foreclosure hereunder, or for the
appointment of a receiver or receivers for the Collateral, or any
party thereof, or for the enforcement of any proper, legal or
equitable remedy available under appliable law.
(e) Secured Party may require Debtor to assemble the Collateral and return
it to Secured Party at a place to be designated by Secured Party which
is reasonably convenient to both parties.
(f) Debtor agrees to pay the Secured Party all expense or retaking,
holding, preparing for sale, or selling the Collateral in addition to
attorneys' fees as set forth above.
11. Acceleration Clause. In case of any sale of the Collateral, or any part
-------------------
thereof, pursuant to any judgment or decree of any court or otherwise in
connection with the enforcement of any of the terms of this Agreement, the
outstanding principal due under any schedule, if not previously due, the
interest accrued thereon and all other sums required to be paid by Debtor
pursuant to this Agreement shall at once become nd be immediately due and
<PAGE>
payable.
12. Exercise of Rights. No delay or omission of Secured Party in the exercise
-------------------
of any right or power arising from any default shall act as a waiver of or
impair any such right or power or prevent its exercise during the
continuance of such default. No waiver by Secured Party of any such
default, whether such waiver be full or partial, shall extend to or be
taken to affect any subsequent default, nor shall it impair the rights
resulting therefrom except as may be otherwise provided therein. The
giving, taking or enforcement of any other or additional security,
collateral, or guaranteed for the payment of the Secured Obligations shall
not operate to prejudice, waive, or affect the security of this Agreement
or any rights, powers, or remedies hereunder, and Secured Party shall not
be required to look first to enforce or exhaust such other additional
security, collateral, or guarantees. All rights, remedies and options of
Secured Party hereunder, or by law shall be cumulative.
13. Assignment by Secured Party. SECURED PARTY MAY ASSIGN OR TRANSFER THIS
-----------------------------------------------------------------------
AGREEMENT OR SECURED PARTY'S INTEREST IN THE COLLATERAL WITHOUT NOTICE TO
-------------------------------------------------------------------------
DEBTOR. Any assignee of Secured Party shall have all of the rights but non
-------
of the obligations, of Secured Party under this Agreement, and Debtor
agrees that it will not asset against any assignee of Secured Party any
defense, counterclaim or offset that Debtor may have against Secured Party.
14. Non-Terminable Agreement; Obligations Unconditional. This Agreement cannot
---------------------------------------------------
be canceled or terminated except as expressly provided herein. Debtor
hereby agrees that Debtor's obligation to pay all secured Obligations shall
be absolute and unconditional and Debtor will not be entitled to any
abatement of Monthly Loan Repayments or other payments due under this
Agreement or any reduction thereof under circumstances or for any reason
whatsoever. Debtor hereby waives any and all existing and future claims, as
offsets, against any Monthly Loan repayments and other payments due under
this Agreement as and when due regardless of any offset or claim which may
be asserted by Debtor or on its behalf. The obligations and liabilities of
Debtor hereunder will survive the termination of this Agreement.
15. Additional Documents. In connection with and in order to provide
---------------------
effective evidence of the security interest in the Collateral granted
Secured Party under this Agreement, Debtor will execute and deliver to
Secured Party such financing statements and similar documents as Secured
Party requests. Debtor authorizes Secured Party where permitted by law to
make filings of such financing statements without Debtor's signature.
Debtor further agrees to furnish Secured Party.
(a) On a timely basis, Debtor's future financial statements including
Debtor's most recent annual report, balance sheet and income
statement, prepared in accordance with generally accepted accounting
principles, which reports, Debtor warrants, shall fully and fairly
represent the true financial condition of Debtor;
<PAGE>
(b) Any other financial information normally provided by Debtor to the
public; and
(c) Such other financial data or information relative to this Agreement
and the collateral, including, without limitation, copies of
Suppliers' proposals and purchase orders and agreements, listings of
serial numbers or other identification data and confirmations of such
information, as Secured Party may from time to time reasonably
request. Debtor will procure and/or execute, have executed, have
acknowledge, and/or deliver to Secured Party, record and file such
other documents and notices as Secured Party deems necessary or
desirable to protect its interest in and rights under this Agreement
and Collateral. Debtor will pay for all filings, searches, title
reports, legal and other fees incurred by Secured Party in connection
with any documents to be provide by Debtor pursuant to this Agreement
and any other similar documents Secured Party may procure.
16. Miscellaneous.
--------------
(a) Successors and Assigns. Whenever any of the parties hereto is referred
----------------------
to, such reference shall be deemed to include the successors and
assigns of such parties, and all the covenants, promises, and
agreement sin this Agreement contained by or on behalf of Debtor or
Secured Party shall bind and inure to the benefit of the respective
successors and assigns of each party whether so expresses or not.
(b) Partial Invalidity. The enforceability or invalidity of any
------------------
provision(s) of this Agreement shall not render any other provision(s)
herein contained unenforceable or invalid.
(c) Communication. All communication provide for herein shall be in
-------------
writing and shall be deemed to have been give (unless otherwise
required by the specific provisions in respect of any matter) (i) when
addressed and delivered personally or (ii) three (3) calendar days
following deposit in the United States mail, registered or certified,
postage prepaid, and addressed to the address set forth beneath the
respective parties' signature lines below, or as to Debtor of Secured
Party at such other address as they may designate by notice duly given
in accordance with this Section to the other party.
(d) Counterpart: Governing Law. This Agreement may be executed,
--------------------------
acknowledge, and delivered in any number of counterparts, each of such
counterparts constituting an original but all together only one
Agreement., This Agreement and any Schedule shall be construed and
enforced in accordance with and governed by the laws of the
Commonwealth of Pennsylvania. Debtor agrees to submit to the
jurisdiction of the Sate and/or Federal Courts in Pennsylvania.
(e) Entire Agreement. This Agreement constitutes the entire understanding
----------------
or agreement between Secured Party and Debtor and there is not
understanding or agreement, oral or written, which is not set forth
herein. This Agreement may not
<PAGE>
be amended except by a writing signed by Secured Party and Debtor and
shall be binding upon and inure to the benefit of the parties thereto,
their permitted successors and assigns.
DATED: April 9, 1998
DEBTOR: SECURED PARTY:
TRANSCEND SERVICES, INC. DVI FINANCIAL SERVICES, INC.
By: /s/ Doug Shamon By:
Its: Executive Vice President/CFO Its:
Address: 3353 Peachtree Road Address: 500 Hyde Park
Suite 1000 Doylestown, PA 18901
Atlanta, GA 30326
No security interest in an Equipment Schedule may be created through the
transfer or possession of any counterpart of the original Equipment Schedule
other than that Equipment Schedule marked "Secured Party's Original" and a
certified copy of the Master Agreement.
<PAGE>
Exhibit 11
TRANSCEND SERVICES, INC.
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1998 1997
---- ----
<S> <C> <C>
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS $ 307,000 $ (38,000)
LOSS FROM DISCONTINUED OPERATIONS (15,000) (34,000)
---------- ----------
NET INCOME (LOSS) $ 292,000 $ (72,000)
========== ==========
DIVIDENDS ON PREFERRED STOCK (119,000) --
NET INCOME (LOSS) TO COMMON STOCKHOLDERS $ 173,000 $ (72,000)
========== ===========
BASIC INCOME (LOSS) PER SHARE:
FROM CONTINUING OPERATIONS $ 0.01 $ (0.00)
FROM DISCONTINUED OPERATIONS $ (0.00) $ (0.00)
---------- ------------
NET INCOME (LOSS) PER SHARE: $ 0.01 $ (0.00)
========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 20,568,000 20,103,000
========== ==========
DILUTED INCOME (LOSS) PER SHARE:
FROM CONTINUING OPERATIONS 0.01 $ (0.00)
FROM DISCONTINUED OPERATIONS (0.00) $ (0.00)
---------- ----------
NET INCOME (LOSS) $ 0.01 $ (0.00)
========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 20,778,000 20,103,000
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRANSCEND SERVICES, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,481
<SECURITIES> 0
<RECEIVABLES> 5,148
<ALLOWANCES> (163)
<INVENTORY> 0
<CURRENT-ASSETS> 8,990
<PP&E> 6,867
<DEPRECIATION> (2,980)
<TOTAL-ASSETS> 19,248
<CURRENT-LIABILITIES> 3,884
<BONDS> 0
0
2
<COMMON> 206
<OTHER-SE> 7,863
<TOTAL-LIABILITY-AND-EQUITY> 19,248
<SALES> 0
<TOTAL-REVENUES> 12,374
<CGS> 10,305
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> 307
<INCOME-TAX> 0
<INCOME-CONTINUING> 307
<DISCONTINUED> (15)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 292
<EPS-PRIMARY> $0.01<F1>
<EPS-DILUTED> $0.01
<FN>
<F1>EPS-PRIMARY REFLECTS EPS-BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRANSCEND SERVICES, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 621
<SECURITIES> 0
<RECEIVABLES> 4,079
<ALLOWANCES> (90)
<INVENTORY> 0
<CURRENT-ASSETS> 5,172
<PP&E> 4,899
<DEPRECIATION> (2,398)
<TOTAL-ASSETS> 15,478
<CURRENT-LIABILITIES> 6,565
<BONDS> 0
0
0
<COMMON> 201
<OTHER-SE> 5,694
<TOTAL-LIABILITY-AND-EQUITY> 15,478
<SALES> 0
<TOTAL-REVENUES> 10,745
<CGS> 9,026
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,668
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89
<INCOME-PRETAX> (38)
<INCOME-TAX> 0
<INCOME-CONTINUING> (38)
<DISCONTINUED> (34)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (72)
<EPS-PRIMARY> $(0.00)<F1>
<EPS-DILUTED> $(0.00)
<FN>
<F1>EPS-PRIMARY REFLECTS EPS-BASIC.
</FN>
</TABLE>
