ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction

          Revenues from court reporting services are primarily derived from services provided for recording sworn testimony at depositions and typically are based on the number of pages transcribed, with a significant portion of revenues being derived from the production of additional certified copies. Substantially all of the Company's court reporting services are performed by independent contractors. Under arrangements with independent court reporters, the Company retains a portion of the total court-reporting fee and the independent court reporter receives the balance. The different types of court reporting services provided by the Company yield varying profit margins, with accelerated delivery transcripts, transcript copies and compressed transcripts providing higher margins. In addition, profit margins vary among the different geographic markets in which the Company operates. The Company also derives revenues from its DepoNet^(R) network, which consists, in part, of approximately 400 affiliated firms in locations not directly served by the Company. Under contractual arrangements with DepoNet^(R) members, the Company refers court reporting and certain other assignments to network participants for which it receives an annual fee.

          The Company recruits and places legal professionals on a temporary or contract basis. The Company charges its clients an hourly fee for the number of hours worked by attorneys and paralegals placed with clients on a temporary or contract basis. Recruiters are paid commissions based upon revenues from hourly fee income less the direct cost of the attorneys or paralegals placed. The Company's permanent placement recruiters are compensated on a commission basis. Fees for successful placement of professionals typically are based upon a percentage, approximately 25% to 30% of such professional's total compensation earned during the year following the placement, of which 40% to 60% is customarily paid to the individual permanent placement recruiter. This fee is subject to a partial refund if the new employment arrangement is terminated prior to the expiration of a negotiated period, usually three months.

Significant Adverse Operating and Financial Developments

           The Company, largely since its inception, has experienced a deficiency in working capital and recurring operating losses.

          The Company was and continues to be unable to repay principal in the amount of $82.8 million due January 3, 2000 under its Senior Debt Agreement ("Senior Debt") and suspended interest payments due thereunder effective November 1999. The senior debt increased to $83 million at June 30, 2000. Interest accrued and remaining unpaid on the Senior Debt for the period of November 1999 through June 30, 2000 totaled $5.3 million.

          During the first quarter of 2000 the lenders under the Senior Debt Agreement ("Senior Lenders") agreed to (i) forbear from exercising their remedies under the Senior Debt loan documents, (ii) suspend the payment of interest for the period commencing November, 1999 and ending April 14, 2000, and (iii) extend the maturity date of the Senior Debt to April 14, 2000. However, the Senior Lenders did not continue the forbearance period or otherwise agree to restructure the terms of the underlying loan beyond April 14, 2000.

          Effective June 8, 2000 the Senior Lenders exercised their rights to require the Company to cease payments due to holders of Subordinated Promissory Notes ("Subordinated Note Holders"). Such Subordinated Notes were given by the Company as partial consideration in connection with prior business acquisitions. The aggregate principal amount, net of unamortized loan discount, and accrued interest associated with the subordinated Notes outstanding as of June 30, 2000, was $8.0 million and $.4 million respectively.

          Additionally, the Company does not anticipate being able to repay a Subordinated Note, due a preferred stockholder October, 1999 ("Preferred Note Holder") and subsequently extended until October 16, 2000 in the principal amount of $1.5 million together with accrued interest of $.3 million, as of June 30, 2000.

          The Company, presently and for the foreseeable future, is unable to pay interest or principal amounts outstanding under the Senior Debt Agreement. The Senior Debt and accrued interest thereunder is currently due and payable and the Senior Debt lenders presently have the right to exercise their remedies under the Senior Debt loan documents, including the foreclosure of their security interest in the Company's assets.

          Payments to Preferred and Subordinated Note Holders is uncertain. Non-payment to Subordinated Note Holders gives rise to potential remedies that could have a significant adverse effect on the operations and cash flow of the Company.

          Additionally, the Company may not be able to fund operations or repay certain other obligations as they become due without increased credit facilities and/or rescheduling payments. The Company's ability to acquire increased credit facilities and/or reschedule payment terms is uncertain and cannot be assured.

          One of the potential outcomes of the events described above could result in the ultimate liquidation of the Company.

Results of Operations(In Thousands)

Comparison of years ended June 30, 2000 and 1999

          Revenue. Revenue decreased by approximately $2,479, or 6.4%, to $36,397 from $38,876 and $1,701, or 2.3% to $71,992 from $73,693 for the three and six months ended June 30, 2000 and 1999, respectively. The decrease is primarily due to a downturn in deposition business in the Western and Northeastern regions.

          Operating Expenses. Operating expenses decreased by approximately $1,391, or 6.0%, to $21,956 from $23,347 and $594, or 1.4% to $43,333 from $43,927 for the three and six months ended June 30, 2000 and 1999, respectively. The decrease is principally the result of lower reporter fees, proportionate to the decrease in revenues.

          General and Administrative Expenses. General and administrative expenses decreased by approximately $211, or 1.7%, to $11,961 from $12,172 and increased $335, or 1.4% to $24,174 from $23,839 for the three and six months ended June 30, 2000 and 1999, respectively. General and administrative expense, as a percentage of revenue, increased to 32.9% and 33.6% for the three and six months ended June 30, 2000 from 31.3% and 32.4% for the three and six months ended June 30, 1999. The increase was largely due to increased receivable write offs and occupancy costs.

          Depreciation and Amortization. Depreciation and amortization expenses increased by approximately $1,135, or 73.6%, to $2,677 from $1,542 and $791, or 26.4% to $3,783 from $2,992 for the three and six months ended June 30, 2000 and 1999, respectively. The increase in amortization expense is primarily due to the change in the estimated period of benefit from 40 to 15 years during the 4th quarter of 1999, partially offset by the write down of $25,700 of impaired goodwill recorded in the 4th quarter of 1999 and $28,042 in the 2nd quarter of 2000.

          Goodwill Impairment. During the fourth quarter of 1999 the Company recognized an asset write down and other charges of $27,000, including $25,700 due to the impairment of goodwill. The Company recognized an additional asset write down of $28,042 due to further impairment of goodwill as of June 30, 2000. Goodwill associated with under performing acquisitions has been written down to estimated recovery value (calculated as presently projected cash flows, discounted at a rate of 18% of disaggregated locations).

          Income from Operations. Income from operations decreased by approximately $30,054, or 1655.9%, to $(28,239) from $1,815 and $30,275, or 1031.5% to $(27,340) from $2,935 for the three and six months ended June 30, 2000 and 1999, respectively. Income from operations, as a percentage of revenues, decreased to (77.6)% and (38.0)% for the three and six months ended June 30, 2000 from 4.7% and 4.0% for the three and six months ended June 30, 1999.

          Interest Expense, Net. Interest expense increased by approximately $413, or 16.4%, to $2,927 from $2,514 and $1,248, or 27.3% to $5,822 from $4,574 for the three and six months ended June 30, 2000 and 1999, respectively. The increase is due to the incurrence of compounding interest from existing debt.

          Provision (Benefit) for Income Taxes. The Company has no recorded tax expense for the six months ended June 30, 2000 and 1999.

Liquidity and Capital Resources

          The Company, largely since its inception, has experienced a deficiency in working capital and recurring operating losses.

          The Company was and continues to be unable to repay principal in the amount of $82.8 million due January 3, 2000 under its Senior Debt Agreement ("Senior Debt") and suspended interest payments due thereunder effective November 1999. The Senior Debt increased to $83 million at June 30 2000. Interest accrued and remaining unpaid on the Senior Debt for the period of November 1999 through June 30, 2000 totaled $5.3 million.

          During the first quarter of 2000 the lenders under the Senior Debt Agreement ("Senior Lenders") agreed to (i) forbear from exercising their remedies under the Senior Debt loan documents, (ii) suspend the payment of interest for the period commencing November, 1999 and ending April 14, 2000, and (iii) extend the maturity date of the Senior Debt to April 14, 2000. However, the Senior Lenders did not continue the forbearance period or otherwise agree to restructure the terms of the underlying loan beyond April 14, 2000.

          Effective June 8, 2000 the Senior Lenders exercised their rights to require the Company to cease payments due to holders of Subordinated Promissory Notes ("Subordinated Note Holders"). Such Subordinated Notes were given by the Company as partial consideration in connection with prior business acquisitions. The aggregate principal amount, net of unamortized loan discount, and accrued interest associated with the subordinated Notes outstanding as of June 30, 2000, was $8.0 million and $.4 million respectively.

          Additionally, the Company does not anticipate being able to repay a Subordinated Note, due a preferred stockholder October, 1999 ("Preferred Note Holder") and subsequently extended until October 16, 2000 in the principal amount of $1.5 million together with accrued interest of $.3 million, as of June 30, 2000.

          The Company, presently and for the foreseeable future, is unable to pay interest or principal amounts outstanding under the Senior Debt Agreement. The Senior Debt and accrued interest thereunder is currently due and payable and the Senior Debt lenders presently have the right to exercise their remedies under the Senior Debt loan documents, including the foreclosure of their security interest in the Company's assets.

          Payments to Preferred and Subordinated Note Holders is uncertain. Non-payment to Subordinated Note Holders gives rise to potential remedies that could have a significant adverse effect on the operations and cash flow of the Company.

          Additionally, the Company may not be able to fund operations or repay certain other obligations as they become due without increased credit facilities and/or rescheduling payments. The Company's ability to acquire increased credit facilities and/or reschedule payment terms is uncertain and cannot be assured.

          One of the outcomes of the events described above could result in the ultimate liquidation of the Company.

Operating Activities

          Net cash provided by (used in) operating activities totaled $3,887 for the six months ended June 30, 2000 compared to $(881) used in operating activities for the six months ended June 30, 1999. The cash provided by operating activities is due primarily to an increase in accounts payable and accrued expenses and reduced accounts receivables, offset by an increase in net operating loss.

Investing Activities

          Net cash used in investing activities totaled $380 and $3,763 for the six months ended June 30, 2000 and 1999, respectively. The decrease is primarily due to 1999 activity to fund payments for the acquisition of businesses and investments in capital equipment. There was no cash used to acquire businesses for the six months ended June 30, 2000 compared to $1,938 for the six months ended June 30, 1999. The Company continues to invest in capital equipment, principally to upgrade facilities, computer systems and photocopy equipment. Such investments totaled $380 and $1,825 for the six months ended June 30, 2000 and 1999, respectively.

Financing Activities

          The Company, largely since its inception, has experienced a deficiency in working capital and recurring operating losses.

          Net cash provided by financing activities for the six months ended June 30, 2000 and 1999 was $(3,778) and $5,017, respectively. The change is primarily due to the elimination of borrowings with our financial partners during 2000 and the reduction of bank overdraft balances maintained in the 4th quarter of 1999 and the 1st quarter of 2000.

          The Company currently has a Senior Debt Agreement with financial institutions, which, as amended, provides for borrowings up to $83.5 million based on operating cash flow as defined therein. Borrowings under the Senior Debt Agreement bear interest at the prime rate, plus specified margins. The payment of certain of the margins is deferred until the maturity of the Senior Debt Agreement. The Senior Debt Agreement, which is secured by substantially all the assets of the Company, restricts future indebtedness, investments, distributions, acquisitions or sale of assets and capital expenditures and requires maintenance of certain financial covenants. At June 30, 2000, the effective interest rate was 11.2% and aggregate borrowings under the Senior Debt Agreement were $83 million.

          The Company was and continues to be unable to repay principal in the amount of $82.8 million due January 3, 2000 under its Senior Debt Agreement ("Senior Debt") and suspended interest payments due thereunder effective November 1999. The senior debt increased to $83 million million at June 30, 2000. Interest accrued and remaining unpaid on the Senior Debt for the period of November 1999 through June 30, 2000 totaled $5.3 million.

          During the first quarter of 2000 the lenders under the Senior Debt Agreement ("Senior Lenders") agreed to (i) forbear from exercising their remedies under the Senior Debt loan documents, (ii) suspend the payment of interest for the period commencing November 1999 and ending April 14, 2000, and (iii) extend the maturity date of the Senior Debt to April 14, 2000. However, the Senior Lenders did not continue the forbearance period or otherwise agree to restructure the terms of the underlying loan beyond April 14, 2000.

          Effective June 8, 2000 the Senior Lenders exercised their rights to require the Company to cease payments due to holders of Subordinated Promissory Notes ("Subordinated Note Holders"). Such Subordinated Notes were given by the Company as partial consideration in connection with prior business acquisitions. The aggregate principal amount, net of unamortized loan discount, and accrued interest associated with the subordinated Notes outstanding as of June 30, 2000, was $8.0 million and $.4 million respectively.

          Additionally, the Company does not anticipate being able to repay a Subordinated Note, due a preferred stockholder October, 1999 ("Preferred Note Holder") and subsequently extended until October 16, 2000 in the principal amount of $1.5 million together with accrued interest of $.3 million, as of June 30, 2000.

          The Company, presently and for the foreseeable future, is unable to pay interest or principal amounts outstanding under the Senior Debt Agreement. The Senior Debt and accrued interest thereunder is currently due and payable and the Senior Debt lenders presently have the right to exercise their remedies under the Senior Debt loan documents, including the foreclosure of their security interest in the Company's assets.

          Payments to Preferred and Subordinated Note Holders is uncertain. Non-payment to Subordinated Note Holders gives rise to potential remedies that could have a significant adverse effect on the operations and cash flow of the Company.

          Additionally, the Company may not be able to fund operations or repay certain other obligations as they become due without increased credit facilities and/or rescheduling payments. The Company's ability to acquire increased credit facilities and/or reschedule payment terms is uncertain and cannot be assured.

          One of the potential outcomes of the events described above could result in the ultimate liquidation of the Company.

Inflation

          Certain of the Company's expenses, such as wages and benefits, occupancy costs and equipment repair and replacement, are subject to normal inflationary effects. Supplies, such as paper and related products, can be subject to significant price fluctuations. Although the Company to date has been able to substantially offset any such cost increases through increased operating efficiencies, there can be no assurance that the Company will be able to offset any future cost increases through similar efficiencies or increased charges for its products and services.

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

          The Company is exposed to changes in interest rates as a result of its Senior Debt Agreement, which is based on the Prime Rate.

          Based on the indebtedness outstanding under the Company's Senior Debt Agreement at June 30, 2000, a sensitivity analysis was performed using a hypothetical 10% increase in the stated prime rate of 10%, plus applicable margins. The analysis indicated that the Company's interest expense and net loss for the three and six months ended June 30, 2000 would have increased by approximately $207,500 and $415,000, respectively. This amount does not include the effects of other events that could affect interest rates, such as a downturn in overall economic activity, or action management could take to lessen the risk. This also does not take into account any changes in the Company's financial structure that may result from higher interest rates.