Transcend Reports Fourth Quarter Profit on 11% Revenue Increase.

Health/Medical Writers

ATLANTA--(BUSINESS WIRE)--Jan. 22, 2003

TRANSCEND SERVICES, INC. (Nasdaq SmallCap: TRCR) today announced its results for the three months and year ended December 31, 2002.

For the three months ended December 31, 2002, Transcend reported revenue

of $3.3 million, which represents an 11% increase over the comparable prior year quarter and a 12% increase over the third quarter of 2002. Net income attributable to common stockholders was $162,000, or $0.04 per share, after reducing income from continuing operations for preferred stock dividends of $118,000, or $0.03 per share.

For the comparable three-month period last year, the Company reported revenue of $3.0 million and a loss from continuing operations (before a gain on sale of assets) of $224,000, or $0.05 per share, after reducing said loss from continuing operations for preferred stock dividends of $119,000, or $0.03 per share. Including the gain on sale of assets resulting from earn-out income of $353,000, or $0.08 per share, related to the sale of certain operations in 1999, the Company reported net income attributable to common stockholders of $3,000, or $0.00 per share, for the three months ended December 31, 2001. In addition, these prior year results have been restated to give effect to the sale of select assets and the operations of Cascade Health Information Software, Inc. ("Cascade"), a wholly owned subsidiary of the Company, on May 31, 2002 (the "Cascade Sale"), which are presented as discontinued operations. The loss from discontinued operations attributable to Cascade was $126,000, or $0.03 per share, for the three months ended December 31, 2001.

Cash totaled $782,000 as of December 31, 2002, which represents increases of $157,000 during the fourth quarter of 2002 and $478,000 during 2002. The weighted average number of days revenue in trade accounts receivable totaled 15 days as of December 31, 2002. Transcend has no debt and an unused $1.5 million line of credit.

Larry Gerdes, president and chief executive officer, commented on the results for the fourth quarter of 2002 and the Company's financial condition as of December 31, 2002: "New account sales are primarily responsible for our significantly improved operating results. We installed seven new accounts during the fourth quarter of 2002 and have signed contracts to install up to nine more new accounts during the first quarter of 2003. In addition, we are gratified that our Internet-based transcription platform enabled us to improve our gross profit as a percentage of revenue from 25% in the fourth quarter of 2001 to 32% in the fourth quarter of 2002. The Company has the infrastructure to handle both the projected and additional new business with relatively little incremental fixed cost. Our recurring revenue business model was designed to yield both increasing profits and cash flow from new and add-on sales. Since we have sales momentum, we are expanding our sales force and increasing our marketing efforts to capitalize upon the market opportunity and to more fully utilize our productive capacity. Improved operating results, continued excellent accounts receivable management and the Cascade Sale are responsible for our improved, debt-free financial condition. We believe that we are well positioned for continued growth."

For the year ended December 31, 2002, the Company reported revenue of $12.2 million, which represents a 3% increase over 2001. Net income attributable to common stockholders was $412,000, or $0.09 per share, after reducing income from continuing operations for preferred stock dividends of $478,000, or $0.11 per share, and including the gain on the Cascade Sale of $957,000, or $0.21 per share. The loss from discontinued operations attributable to Cascade prior to the Cascade Sale was $109,000, or $0.02 per share, for the five months ended May 31, 2002.

For the year ended December 31, 2001, the Company reported revenue of $11.8 million and a net loss attributable to common stockholders of $1.1 million, or $0.24 per share, after increasing the loss from continuing operations for preferred stock dividends of $479,000, or $0.11 per share, and including earn-out income of $553,000, or $0.13 per share, related to the sale of certain operations in 1999 and an off-setting loss on a legal settlement of $576,000, or $0.13 per share. The loss from discontinued operations attributable to Cascade was $449,000, or $0.10 per share, for the year ended December 31, 2001.

Tom Binion, chief operating officer, concluded by stating that: "These are exciting times for Transcend. We have not only sales momentum, but also the highest level of customer satisfaction in our recorded history. Our customers praise our transcription quality and fast, guaranteed turnaround times. We continue to enhance our cost-effective, Internet-based transcription platform by adding features, such as web console editing by customers, and exploring new technologies, such as voice recognition. Our near and long-term goal is to rapidly increase our highly satisfied customer base utilizing the full capacity of our scalable, state-of-the-art transcription platform."

About Transcend Services, Inc.

Transcend believes that accurate, reliable and timely transcription creates the foundation for the patient medical record. To this end, the Company has created Internet-based voice-to-text systems that allow its skilled medical language specialists to securely and quickly produce the highest quality medical documents. The Company's wide range of transcription services encompass everything needed to securely receive, type, format and distribute electronic copies of physician-dictated medical documents, from overflow projects to complete transcription outsourcing and custom data-center creation packages.

For more information, visit http://www.transcendservices.com.

This press release contains forward-looking statements that involve a number of risks and uncertainties. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are competitive pressures, changes in pricing policies, delays in contract start dates, lower-than-expected demand for Transcend's solutions, business conditions in the integrated healthcare delivery network market, general economic conditions and the risk factors detailed from time to time in Transcend's periodic reports and registration statements filed with the Securities and Exchange Commission.

(Unaudited Financial Statements Follow)

                       TRANSCEND SERVICES, INC.
                CONSOLIDATED STATEMENTS OF OPERATIONS
                             (UNAUDITED)
            Amounts in Thousands, Except Per Share Amounts

                                Three Months Ended Twelve Months Ended
                                ------------------ -------------------
                                 12/31/02 12/31/01  12/31/02 12/31/01
                                ------------------ -------------------

Revenue                           $3,335   $3,007   $12,225   $11,817
Direct costs                       2,259    2,255     8,915     8,878
                                --------- -------- --------- ---------
 Gross profit                      1,076      752     3,310     2,939
                                --------- -------- --------- ---------

Operating expenses:
 Marketing and sales                 203      118       529       378
 Research and development             69       84       332       324
 General and administrative          525      644     2,407     2,451
                                --------- -------- --------- ---------
     Total operating expenses        797      846     3,268     3,153
                                --------- -------- --------- ---------

Operating income (loss)              279      (94)       42      (214)

Gains on sales of assets               1      353       957       553
Loss on legal settlement               -        -         -      (576)
Interest income (expense), net         -      (11)        -       (18)
                                --------- -------- --------- ---------

Income (loss) before taxes and
 discontinued operations             280      248       999      (255)
Income tax benefit                     -        -         -       116
                                --------- -------- --------- ---------
Income (loss) from continuing
 operations                          280      248       999      (139)

Loss from discontinued operations      -     (126)     (109)     (449)
                                --------- -------- --------- ---------

Net income (loss)                    280      122       890      (588)

Dividends on preferred stock        (118)    (119)     (478)     (479)
                                --------- -------- --------- ---------

Net income (loss) attributable
 to common stockholders             $162       $3      $412   ($1,067)
                                ========= ======== ========= =========

Basic income (loss) per share:
     From continuing operations
      before gains on sales of
      assets and loss on legal
      settlement                   $0.04   ($0.05)   ($0.10)   ($0.14)
     From gains on sales of
      assets and loss on legal
      settlement                    0.00     0.08      0.21     (0.01)
     From discontinued
      operations                    0.00    (0.03)    (0.02)    (0.10)
                                --------- -------- --------- ---------
          Net income (loss) per
           share attributable to
           common stockholders     $0.04    $0.00     $0.09    ($0.24)
                                ========= ======== ========= =========

Weighted average shares
 outstanding (for basic EPS)       4,512    4,416     4,513     4,404
                                ========= ======== ========= =========

Diluted income (loss) per share:
    From continuing operations
     before gains on sales of
     assets and loss on legal
     settlement                    $0.04   ($0.05)   ($0.10)   ($0.14)
    From gains on sales of
     assets and loss on legal
     settlement                     0.00     0.08      0.21     (0.01)
    From discontinued operations    0.00    (0.03)    (0.02)    (0.10)
                                --------- -------- --------- ---------
          Net income (loss) per
           share attributable to
           common stockholders     $0.04    $0.00     $0.09    ($0.24)
                                ========= ======== ========= =========

Weighted average shares
 outstanding (for diluted EPS)     4,529    4,428     4,547     4,404
                                ========= ======== ========= =========

       Select Statistics
Revenue growth rate in the
 current year                         11%     N/A         3%      N/A
Gross profit as a percent of
 revenue                              32%      25%       27%       25%
Operating income (loss) as a
 percent of revenue                    8%      -3%        0%       -2%
Income (loss) from continuing operations before
 gains on sales of assets, loss on legal
 settlement and income tax benefit:

                         In $000    $279    ($105)      $42     ($232)
             Per share (diluted)   $0.06   ($0.02)    $0.01    ($0.05)


                       TRANSCEND SERVICES, INC.
                CONSOLIDATED CONDENSED BALANCE SHEETS
                             (UNAUDITED)
                      DECEMBER 31, 2002 and 2001

                         Amounts in Thousands

                                                  As of December 31,
                                                ----------------------
                     ASSETS                           2002       2001
                                                ----------------------

Cash and cash equivalents                             $782       $304
Accounts receivable, net                               947      1,016
Other current assets                                   101        116
Property and equipment, net                          1,316      1,646
Other assets                                            69         46
                                                ----------------------
                                   Total assets     $3,215     $3,128
                                                ======================

       LIABILITIES & STOCKHOLDERS' EQUITY

Accounts payable and accrued expenses                 $794       $867
Net liabilities of discontinued operations               -        252
Stockholders' equity                                 2,421      2,009
                                                ----------------------
     Total liabilities and stockholders' equity     $3,215     $3,128
                                                ======================