<PAGE>

================================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q



[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934


               For the quarterly period ended September 30, 1999

                                      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 November 10, 1999
          -----                                 --------------------------------
Common Stock, $.01 par value                               22,093,153

================================================================================
<PAGE>

                                     INDEX


                                                                          PAGE
                                                                          ----
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets as of
         September 30, 1999 and December 31, 1998........................   3

         Consolidated Statements of Operations for the
         Three Months Ended and the Nine Months Ended
         September 30, 1999 and 1998.....................................   4

         Consolidated Statements of Cash Flows for the
         Nine Months Ended September 30, 1999 and 1998...................   5

         Notes to Consolidated Financial Statements......................   6

Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations...................   8

Item 3.  Quantitative and Qualitative Disclosures about Market Risk......  13

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings ..............................................  14

Item 5.  Other Information...............................................  15

Item 6.  Exhibits and Reports on Form 8-K................................  15

SIGNATURES...............................................................  16
<PAGE>

PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements

                           TRANSCEND SERVICES, INC.
                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                         September 30, 1999        December 31, 1998
                                                                                         ------------------        -----------------
<S>                                                                                      <C>                       <C>
                                    ASSETS
Current assets:
Cash and cash equivalents                                                                   $      67,000            $    450,000
Accounts receivable, net of allowance for doubtful accounts
  of $872,000 in 1999 and $389,000 in 1998                                                      7,220,000               8,231,000
Prepaid expenses and other current assets                                                         781,000                 915,000
                                                                                            -------------            ------------
Total current assets                                                                            8,068,000               9,596,000
                                                                                            -------------            ------------

Property and equipment:
  Computer equipment                                                                            9,964,000               9,527,000
  Software development                                                                          2,517,000               1,862,000
  Furniture and fixtures                                                                          265,000                 217,000
                                                                                            -------------            ------------
  Property and equipment                                                                       12,746,000              11,606,000
  Accumulated depreciation                                                                     (5,740,000)             (4,304,000)
                                                                                            -------------            ------------
Property and equipment, net                                                                     7,006,000               7,302,000
Deposits and other assets                                                                         519,000                 482,000
Goodwill and other intangible assets:
  Goodwill and other intangible assets                                                          4,596,000               4,596,000
  Accumulated amortization                                                                     (2,050,000)             (1,731,000)
                                                                                            -------------            ------------
Goodwill and other intangible assets, net                                                       2,546,000               2,865,000
Net assets from discontinued operations                                                         2,692,000               2,726,000
                                                                                            -------------            ------------
Total assets                                                                                $  20,831,000            $ 22,971,000
                                                                                            =============            ============
                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt                                                        $     423,000            $    458,000
Short-term Notes to Directors                                                                   1,500,000                       -
Accounts payable                                                                                2,328,000               2,657,000
Accrued compensation and benefits                                                               2,800,000               1,933,000
Other accrued liabilities                                                                       1,824,000               2,211,000
Deferred income taxes                                                                             113,000                 113,000
                                                                                            -------------            ------------
Total current liabilities                                                                       8,988,000               7,372,000

Long term debt, net of current maturities                                                       5,185,000               5,547,000
Deferred income taxes                                                                             539,000                 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 September 30,
  1999 and December 31, 1998                                                                       2,000                   2,000
Common Stock, $.01 par value; 30,000,000 shares authorized 22,093,000
  issued at September 30, 1999  and 21,500,000 at December 31, 1998                              221,000                 215,000
Additional paid-in capital                                                                    26,943,000              26,286,000
Subscription receivable, stockholder                                                            (620,000)                      -
Retained deficit                                                                             (22,427,000)            (18,991,000)
                                                                                            ------------            ------------
Total stockholders' equity                                                                     4,119,000               7,512,000
                                                                                            ------------            ------------
Total liabilities and stockholders' equity                                                  $ 20,831,000            $ 22,971,000
                                                                                            ============            ============
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.

                                       3

<PAGE>

                           TRANSCEND SERVICES, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                       Three Months Ended September 30,       Nine Months Ended September 30,
                                                       --------------------------------       -------------------------------
                                                            1999             1998                   1999           1998
                                                         -----------      -----------            -----------    -----------
<S>                                                      <C>              <C>                    <C>            <C>
Net revenues                                             $12,904,000      $14,030,000            $39,770,000    $39,235,000
Direct costs                                              11,539,000       11,685,000             34,970,000     32,627,000
                                                         -----------      -----------            -----------    -----------
     Gross profit                                          1,365,000        2,345,000              4,800,000      6,608,000

Marketing and sales expenses                                 593,000          585,000              1,763,000      1,566,000
General and administrative expenses                        1,418,000        1,187,000              4,678,000      3,352,000
Research and development expenses                            160,000          105,000                546,000        134,000
Amortization expenses                                         63,000           45,000                190,000        167,000
                                                         -----------      -----------            -----------    -----------
    Income (loss) from operations                           (869,000)         423,000             (2,377,000)     1,389,000
                                                         -----------      -----------            -----------    -----------

Other expense:
    Interest expense, net                                    217,000          170,000                625,000        375,000
    Other                                                          -                -                      -         60,000
                                                         -----------      -----------            -----------    -----------

Income (loss) before taxes and discontinued operations    (1,086,000)         253,000             (3,002,000)       954,000
Income taxes                                                       -                -                      -              -
                                                         -----------      -----------            -----------    -----------
Income (loss) before discontinued operations              (1,086,000)         253,000             (3,002,000)       954,000

Loss from discontinued operations                            (27,000)         (22,000)               (73,000)       (54,000)
                                                         -----------      -----------            -----------    -----------
Net income (loss)                                        $(1,113,000)     $   231,000            $(3,075,000)   $   900,000
                                                         ===========      ===========            ===========    ===========

Dividends on preferred stock                                 120,000          120,000                360,000        359,000
                                                         ===========      ===========            ===========    ===========
Net income (loss) to common stockholders                 $(1,233,000)     $   111,000            $(3,435,000)   $   541,000
                                                         ===========      ===========            ===========    ===========
Basic income (loss) per share:
    From continuing operations                           $     (0.05)     $      0.01            $     (0.15)   $      0.03
    From discontinued operations                               (0.01)           (0.00)                 (0.01)         (0.00)
                                                         ===========      ===========            ===========    ===========
Net income (loss)                                        $     (0.06)     $      0.01            $     (0.16)   $      0.03
                                                         ===========      ===========            ===========    ===========

Weighted average shares outstanding                       22,093,000       21,514,000             21,917,000     20,882,000
                                                         ===========      ===========            ===========    ===========
Diluted income (loss) per share
    From continuing operations                           $     (0.05)     $      0.01            $     (0.15)   $      0.03
    From discontinued operations                               (0.01)           (0.00)                 (0.01)         (0.00)
                                                         ===========      ===========            ===========    ===========
Net income (loss)                                        $     (0.06)     $      0.01            $     (0.16)   $      0.03
                                                         ===========      ===========            ===========    ===========

Weighted average shares outstanding                       22,093,000       21,643,000             21,917,000     20,978,000
                                                         ===========      ===========            ===========    ===========

---------------------------------------------------------------------------------------------------------------------------
</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>
                                                                                    Nine Months Ended September 30,
                                                                                  ----------------------------------
                                                                                     1999                   1998
                                                                                  -----------            -----------
<S>                                                                               <C>                    <C>
Cash flows from operating activities:
Net Income (Loss)                                                                 $(3,435,000)           $   541,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
     Depreciation and amortization                                                  1,799,000              1,254,000
     Loss related to discontinued operations                                           73,000                 54,000
     Preferred stock dividends                                                        360,000                359,000
Changes in assets and liabilities:
     Accounts receivable, net                                                       1,011,000             (3,375,000)
     Prepaid expenses                                                                 134,000               (402,000)
     Deposits and other assets                                                        (37,000)              (286,000)
     Accounts payable                                                                (329,000)             1,839,000
     Accrued liabilities                                                              601,000                384,000
                                                                                  -----------            -----------
     Total adjustments                                                              3,612,000               (173,000)
                                                                                  -----------            -----------
Net cash provided by (used in) continuing operations                                  177,000                368,000

Net cash used in discontinued operations                                              (37,000)              (111,000)
                                                                                  -----------            -----------
Net cash provided by (used in) operating activities                                   140,000                257,000
                                                                                  -----------            -----------
Cash flows from investing activities:
     Capital expenditures                                                          (1,706,000)            (4,327,000)
     Disposal of property                                                             400,000                      -
     Cash acquired from acquisitions                                                        -                 31,000
                                                                                  -----------            -----------
Net cash used in investing activities                                              (1,306,000)            (4,296,000)
                                                                                  -----------            -----------
Cash flows from financing activities:
     Repayments under line of credit agreement                                       (145,000)               (60,000)
     Borrowings from short-term debt                                                1,500,000                      -
     Borrowings from long-term debt                                                         -                917,000
     Principle payments on long-term debt                                            (255,000)              (188,000)
     Preferred stock dividends                                                       (360,000)              (359,000)
     Net Proceeds-stock options and other issuances                                    43,000                 26,000
                                                                                  -----------            -----------
Net cash provided by (used in) financing activities                                   783,000                336,000
                                                                                  -----------            -----------

Net increase (decrease) in cash and cash equivalents                                 (383,000)            (3,703,000)
Cash and cash equivalents, at beginning of period                                     450,000              5,541,000
                                                                                  -----------            -----------
Cash and cash equivalents at end of period                                        $    67,000            $ 1,838,000
                                                                                  ===========            ===========
Supplemental cash flow information:
Cash paid for interest expense                                                    $   662,000            $   439,000

--------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

                                       5
<PAGE>

                           TRANSCEND SERVICES, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          September 30, 1999 and 1998
                                  (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 were of a normal recurring nature,
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, 1998. Footnote disclosure,
which would substantially duplicate the disclosure contained in those documents,
has been omitted.

(2) The Company has no components of comprehensive income (loss) other than net
income (loss) for the nine-month periods ended September 30, 1999 and 1998.

(3) Segment Reporting

    The Company's identifiable business segments are patient information
services, patient information software (Cascade), and case management services
(TCM). The table below sets forth the results (in thousands) of the identifiable
business segments of the Company, such results do not reflect allocations for
income taxes, interest expense, amortization expense, and corporate expense to
the business segments.

                     For Three Months Ended September 30,
<TABLE>
<CAPTION>
                                      PATIENT        PATIENT          CASE
                                    INFORMATION    INFORMATION     MANAGEMENT     SALES AND
(in thousands)                       SERVICES       SOFTWARE        SERVICES      CORPORATE     CONSOLIDATED
------------------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>             <C>            <C>           <C>
REVENUES:
1999                                 $ 12,307        $ 454           $ 143            $ 0        $ 12,904
1998                                 $ 13,362        $ 668             $ 0            $ 0        $ 14,030
------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS):
1999                                    $ 201       $ (137)          $ (45)      $ (1,132)       $ (1,113)
1998                                    $ 969        $ 241             $ 0         $ (979)          $ 231
------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION:
1999                                    $ 389         $ 25             $ 5          $ 132           $ 551
1998                                    $ 287          $ 7             $ 0          $ 155           $ 449
------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES:
1999                                    $ 527         $ 39             $ 0           $ 25           $ 591
1998                                  $ 1,815        $ 126             $ 0          $ 176         $ 2,117
</TABLE>

                                       6
<PAGE>

<TABLE>
<CAPTION>
                                   For Nine Months Ended September 30,

                                      PATIENT        PATIENT          CASE
                                    INFORMATION    INFORMATION     MANAGEMENT     SALES AND
(in thousands)                       SERVICES       SOFTWARE        SERVICES      CORPORATE     CONSOLIDATED
------------------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>             <C>            <C>           <C>
REVENUES:
1999                                 $ 37,414      $ 1,762           $ 594            $ 0        $ 39,770
1998                                 $ 38,137        $ 752           $ 346            $ 0        $ 39,235
------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS):
1999                                  $ 1,417         $ (6)          $ (36)      $ (4,450)       $ (3,075)
1998                                  $ 4,644        $ 216            $ 22       $ (3,982)          $ 900
------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION:
1999                                  $ 1,123         $ 45            $ 13          $ 618         $ 1,799
1998                                    $ 767          $ 7             $ 4          $ 476         $ 1,254
------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES:
1999                                  $ 1,374        $ 134             $ 0          $ 198         $ 1,706
1998                                  $ 3,796        $ 158             $ 0          $ 373         $ 4,327
</TABLE>

(4) On March 23, 1999 the Company sold 500,000 unregistered shares of Transcend
Common Stock to certain executive officers at the then current market value. In
connection with the sales, the executive officers issued promissory notes to the
Company totaling $620,000. The issuances of the promissory notes were non-cash
transactions.

(5) On August 16, 1999, the Company received bridge financing of $1,500,000
predominantly from certain Directors of the Company in exchange for unsecured
promissory notes, with interest at 10% per annum, which mature January 15, 2000.
(See "Liquidity and Capital Resources" of Item 2.)

(6) Net income (loss) per share is computed in accordance with SFAS No. 128
"Earnings per Share." Basic and diluted net loss per share are the same in the
three and nine month periods ended September 30, 1999 because the Company's
potentially dilutive securities are antidilutive in such periods. A
reconciliation of basic net income per share and diluted net income per share
for the three and nine months ended September 30, 1998 is as follows:

<TABLE>
<CAPTION>
                                                             Three Months Ended       Nine Months Ended
                                                             September 30,1998        September 30,1998
                                                             ------------------       -----------------
<S>                                                          <C>                      <C>
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS                    $   253,000              $   954,000

LOSS FROM DISCONTINUED OPERATIONS                                   (22,000)                 (54,000)
                                                                -----------              -----------

NET INCOME (LOSS)                                               $   231,000              $   900,000
                                                                ===========              ===========

DIVIDENDS ON PREFERRED STOCK                                        120,000                  359,000

NET INCOME (LOSS) TO COMMON STOCKHOLDERS                        $   111,000              $   541,000
                                                                ===========              ===========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                       21,514,000               20,882,000
                                                                ===========              ===========
BASIC INCOME (LOSS) PER SHARE:
  FROM CONTINUING OPERATIONS                                    $      0.01              $      0.03
  FROM DISCONTINUED OPERATIONS                                  $     (0.00)             $      0.00
                                                                -----------              -----------
 NET INCOME (LOSS) PER SHARE                                    $      0.01              $      0.03
                                                                ===========              ===========
WEIGHTED AVERAGE SHARES:
  BASIC                                                          21,514,000               20,882,000
  STOCK OPTIONS                                                     129,000                   96,000
                                                                -----------              -----------
 TOTAL DILUTED SHARES                                            21,643,000               20,978,000
                                                                ===========              ===========
DILUTED INCOME (LOSS) PER SHARE:
  FROM CONTINUING OPERATIONS                                    $      0.01              $      0.03
  FROM DISCONTINUED OPERATIONS                                  $     (0.00)             $      0.00
                                                                -----------              -----------
NET INCOME (LOSS)                                               $      0.01              $      0.03
                                                                ===========              ===========
</TABLE>

                                       7
<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. (the "Company"), and its wholly-owned subsidiary,
Cascade Health Information Software, Inc. ("Cascade"), provide patient
information management solutions to hospitals and other associated health care
providers. These solutions include medical records department management
("Co-Sourcing"), transcription of physicians' dictated medical notes, remote
coding ("CodeRemote") and compliance services, and state-of-the-art software for
the management of patient information. The Company's wholly-owned subsidiary,
Transcend Case Management, Inc. ("TCM"), also provides case management services
to insurance carriers, third party benefit administrators, and self-insured
employers.

   On November 10, 1999, the Company announced plans to restructure its
business, sell certain operations and focus on medical transcription and coding
services. The Company also announced a letter of intent to sell approximately
25% of its medical transcription business. (See "Liquidity and Capital
Resources" of Item 2.)

Results of Operations

   Results of operations include the consolidated results of Transcend Services,
Inc. and its subsidiaries. Consolidated results do not include Cascade prior to
its June 1, 1998 acquisition, as the amounts were immaterial.

Three Months Ended September 30, 1999 Compared to
Three Months Ended September 30, 1998

   Net revenues for the Company decreased from $14,030,000 for the three months
ended September 30, 1998, to $12,904,000 for the three months ended September
30, 1999, a decrease of 8 PERCENT. Patient information management services
("Services") including medical record department management, transcription, and
remote coding and compliance, accounted for 95 PERCENT of the Company's net
revenues for the three months ended September 30, 1999 and 1998. Co-Sourcing
revenues decreased 13 PERCENT year over year and represented 54 PERCENT of
Services revenues for the three months ended September 30, 1999, and 60 PERCENT
for the three months ended September 30, 1998. The decrease is primarily
attributable to three contracts that converted to transcription services only
contracts and one terminated contract. Medical transcription revenues increased
1.7 PERCENT year over year and represented 45 PERCENT of Services revenues for
the three months ended September 30, 1999, and 39 PERCENT for the same period
the prior year. The increase in transcription revenues resulted primarily from
new contracts, net of terminations. Remote Coding and compliance revenues
increased 67.1 PERCENT year over year and represented 1 PERCENT of Services
revenues in the three months ended September 30, 1999, and 1 PERCENT in 1998.
The increase in coding and compliance revenues resulted from new sales in
CodeRemote, which began operations in April 1999.

   Patient information software accounted for 4 PERCENT of revenues for the
three months ended September 30, 1999 and 5 PERCENT of revenues for the three
months ended September 30, 1998. Case management services accounted for 1
PERCENT of total revenues for the three months ended September 30, 1999.

                                       8
<PAGE>

   Gross profit decreased 41.8 PERCENT to $1,365,000 for the three months ended
September 30, 1999, from $2,345,000 for the same three months in the prior year.
Gross profit margins decreased to 10.6 PERCENT for the three months ended
September 30, 1999, from 16.7 PERCENT for the same three months in the prior
year. Services produced gross profit margins of 9 PERCENT for the three months
ended September 30, 1999, compared to 13.3 PERCENT for the three months ended
September 30, 1998. The year over year decline in gross profit margins was
attributable to start up losses in the Company's national transcription hub and
increased costs in several Co-Sourcing sites that were failing to meet their
contract performance deliverables and required additional resources. Software
gross profit margins were 60.1 PERCENT for the three months ended September 30,
1999, compared to 84.7 PERCENT for the three months ended September 30, 1998.
The year over year decline is due to a higher percentage of Cascade's total
revenue coming from software support rather than software sales. Software
support contributes lower gross profit margins. Case management gross profit
margins were -11.2 PERCENT for the three months ended September 30,1999.

   Marketing and sales expenses increased slightly to $593,000 for the three
months ended September 30, 1999, from $585,000 for the same three months in the
prior year and as a percentage of revenues was 4.6 PERCENT for the three months
ended September 30, 1999 compared to 4.2 PERCENT for the three months ended
September 30, 1998. The three months ended September 30, 1999, included write-
offs of unearned draws, higher trade show expenses, and additional personnel for
Cascade.

   General and administrative expenses of $1,418,000 for the three months ended
September 30, 1999, increased 19.5 PERCENT over the $1,187,000 expended in the
same prior year period. The increase in general and administrative expenses year
over year is attributable to additional personnel.

   Amortization expenses increased to $63,000, for the three months ended
September 30, 1999, from $45,000 for the three months ended September 30, 1998.

   Net interest expense increased to $217,000 for the three months ended
September 30, 1999, as compared to $170,000 for the three months ended September
30, 1998, primarily due to increased borrowings.

   The Company reported losses before discontinued operations of $1,086,000 for
the three months ended September 30, 1999, compared to income of $253,000 for
the same three months in 1998. The year over year decline was attributable to
start up losses in the Company's national transcription hub, several Co-Sourcing
sites that were failing to meet their contract performance deliverables and
required additional resources resulting in lower profit margins, and the ramp-up
of sales, general, and administrative expenses in Cascade.

   The loss from discontinued operations increased slightly to $27,000 for the
three months ended September 30, 1999, from $22,000 for the three months ended
September 30, 1998, representing charges for legal fees incurred in connection
with the Company's civil lawsuit against certain insurance companies in the
state of California discussed in item 1 of part II of this report.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                      Three Months Ended September 30,
-----------------------------------------------------------------------------------------------
                                                  1999       1998         Change       % Change
-----------------------------------------------------------------------------------------------
<S>                                             <C>        <C>           <C>           <C>
Net revenues                                    $12,904     $14,030       $(1,126)       (8.0%)
-----------------------------------------------------------------------------------------------
Gross profit                                      1,365       2,345          (980)      (41.8%)
-----------------------------------------------------------------------------------------------
Gross margin                                       10.6%       16.7%
-----------------------------------------------------------------------------------------------
Marketing and sales expenses                        593         585             8         1.4%
-----------------------------------------------------------------------------------------------
General and administrative expenses               1,418       1,187           231        19.5%
-----------------------------------------------------------------------------------------------
Amortization expenses                                63          45            18        40.0%
-----------------------------------------------------------------------------------------------
Research and development expenses                   160         105            55        52.4%
-----------------------------------------------------------------------------------------------
Net Income (loss)                               $(1,113)       $231       $(1,344)     (581.8%)
-----------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                           Three Months Ended September 30,
-----------------------------------------------------------------------------------------------
                                                        1999             1998            Change
-----------------------------------------------------------------------------------------------
<S>                                                    <C>               <C>             <C>
Net revenues                                           100.0%            100.0%            --
-----------------------------------------------------------------------------------------------
Direct costs                                            89.4%             83.3%           6.1%
-----------------------------------------------------------------------------------------------
Gross profit                                            10.6%             16.7%          (6.1%)
-----------------------------------------------------------------------------------------------
Marketing and sales expenses                             4.6%              4.2%           0.4%
-----------------------------------------------------------------------------------------------
General and administrative expenses                     11.0%              8.5%           2.5%
-----------------------------------------------------------------------------------------------
Amortization expenses                                    0.5%              0.3%           0.2%
-----------------------------------------------------------------------------------------------
Research and development expenses                        1.2%              0.7%           0.5%
-----------------------------------------------------------------------------------------------
Net Income  (loss)                                      (8.6%)             1.6%         (10.3%)
-----------------------------------------------------------------------------------------------
</TABLE>

                                       9
<PAGE>

Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998

   Net revenues for the Company increased from $39,235,000 for the nine months
ended September 30, 1998, to $39,770,000 for the nine months ended September 30,
1999, an increase of 1.4 PERCENT. Patient information management services
("Services") including medical record department management, transcription,
coding and compliance, and systems implementation, accounted for 94 PERCENT of
the Company's net revenues for the nine months ended September 30, 1999, and 97
PERCENT of net revenues for the nine months ended September 30, 1998.
Co-Sourcing revenues decreased 5.2 PERCENT year over year and represented 55
PERCENT of Services revenues for the nine months ended September 30, 1999, and
59 PERCENT for the nine months ended September 30, 1998. The reduced revenues
are a result of a reduction in the number of Co-Sourcing contracts. Medical
transcription revenues increased 7.6 PERCENT year over year and represented 44
PERCENT of Services revenues for the nine months ended September 30, 1999, and
40 PERCENT for the same period the prior year. The increase in transcription
revenues resulted primarily from new contracts, net of terminations. Remote
coding and compliance revenues increased 14.6 PERCENT year over year and
represented 1 PERCENT of Services revenues in the nine months ended September
30, 1999, and 1 PERCENT in 1998. The increase in coding and compliance revenues
resulted from new sales in CodeRemote, which began operations in April 1999.

   Patient information software accounted for 4 PERCENT of revenues for the nine
months ended September 30, 1999 and 2 PERCENT of revenues for the nine months
ended September 30, 1998 after being acquired in June 1998. Case management
services accounted for 2 PERCENT of total revenues for the nine months ended
September 30, 1999 and 1 PERCENT for the nine months ended September 30, 1998.

   Gross profit decreased 27.4 PERCENT to $4,800,000 for the nine months ended
September 30, 1999, from $6,608,000 for the same nine months in the prior year.
Gross profit margins decreased to 12.1 PERCENT for the nine months ended
September 30, 1999, from 16.8 PERCENT for the same nine months in the prior
year. Services produced margins of 9.5 PERCENT for the nine months ended
September 30, 1999, compared to 15.4 PERCENT for the nine months ended September
30, 1998. The year over year decline in gross profit margin was attributable to
start up losses in the Company's national transcription hub, unexpected
telecommunication issues that impaired transcription services performance, and
increased costs in several Co-Sourcing sites that were failing to meet their
contract performance deliverables and required additional resources. Patient
information software gross profit margins were 70.3 PERCENT for the nine months
ended September 30, 1999, compared to 83.6 PERCENT for the nine months ended
September 30, 1998. Case management gross profit margins were 1.9 PERCENT for
the nine months ended September 30,1999 and 25.4 PERCENT for the nine months
ended September 30,1998.

   Marketing and sales expenses increased 12.6 PERCENT to $1,763,000 for the
nine months ended September 30, 1999, from $1,566,000 for the same nine months
in the prior year and as a percentage of revenues was 4.4 PERCENT for the nine
months ended September 30, 1999 and 4.0 PERCENT for the nine months ended
September 30, 1998. The year over year increase in marketing and sales expenses
is the result of the acquisition of Cascade.

   General and administrative expenses of $4,678,000 for the nine months ended
September 30, 1999, increased 39.6 PERCENT over the $3,352,000 expended in the
same prior year period. The increase in general and administrative expenses year
over year is attributable to the acquisition of Cascade, an increase of
approximately $200,000 in health benefit claims reserves, and a non-recurring
adjustment of $500,000 made to the receivables reserve due to the bankruptcy
filing of a former Co-Sourcing client.

   Amortization expenses increased to $190,000, for the nine months ended
September 30, 1999, from $167,000 for the nine months ended September 30, 1998.

   Net interest expense increased to $625,000 for the nine months ended
September 30, 1999, as compared to $375,000 for the nine months ended September
30, 1998, primarily due to increased borrowings.

   The Company reported losses before discontinued operations of $3,002,000 for
the nine months ended September 30, 1999, compared to income of $954,000 for the
same nine months in 1998. The year over year decline was attributable to start
up losses in the Company's national transcription hub, unexpected
telecommunication issues that impaired transcription services performance, and
increased costs in several Co-Sourcing sites that were failing to meet their
contract performance deliverables and required additional resources. In
addition, there were non-recurring charges of $750,000, including $500,000 in
accounts receivable reserves due to the recent bankruptcy filing of a former
client, $200,000 in health benefit claims reserves, and $50,000 in exit costs
related to the termination of a Co-Sourcing contract.

                                       10
<PAGE>

   The loss from discontinued operations increased to $73,000 for the nine
months ended September 30, 1999, from $54,000 for the nine months ended
September 30, 1998, representing charges for legal fees incurred in connection
with the Company's civil lawsuit against certain insurance companies in the
state of California discussed in item 1 of part II of this report.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                      Nine Months Ended September 30,
-----------------------------------------------------------------------------------------------
                                                  1999       1998        Change       % Change
-----------------------------------------------------------------------------------------------
<S>                                             <C>        <C>           <C>          <C>
Net revenues                                    $39,770    $39,235           $535         1.4%
-----------------------------------------------------------------------------------------------
Gross profit                                      4,800      6,608         (1,808)      (27.4%)
-----------------------------------------------------------------------------------------------
Gross margin                                       12.1%      16.8%
-----------------------------------------------------------------------------------------------
Marketing and sales expenses                      1,763      1,566            197        12.6%
-----------------------------------------------------------------------------------------------
General and administrative expenses               4,678      3,352          1,326        39.6%
-----------------------------------------------------------------------------------------------
Amortization expenses                               190        167             23        13.8%
-----------------------------------------------------------------------------------------------
Research and development expenses                   546        134            412       307.5%
-----------------------------------------------------------------------------------------------
Net Income (loss)                               $(3,075)      $900        $(3,975)     (441.7%)
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                        Nine Months Ended September 30,
-----------------------------------------------------------------------------------------------
                                                        1999              1998          Change
-----------------------------------------------------------------------------------------------
<S>                                                    <C>               <C>            <C>
Net revenues                                           100.0%            100.0%            --
-----------------------------------------------------------------------------------------------
Direct costs                                            87.9%             83.2%           4.7%
-----------------------------------------------------------------------------------------------
Gross profit                                            12.1%             16.8%          (4.7%)
-----------------------------------------------------------------------------------------------
Marketing and sales expenses                             4.4%              4.0%           0.4%
-----------------------------------------------------------------------------------------------
General and administrative expenses                     11.8%              8.5%           3.3%
-----------------------------------------------------------------------------------------------
Amortization expenses                                    0.5%              0.4%           0.1%
-----------------------------------------------------------------------------------------------
Research and development expenses                        1.4%              0.3%           1.1%
-----------------------------------------------------------------------------------------------
Net Income (loss)                                       (7.7%)             2.3%         (10.0%)
-----------------------------------------------------------------------------------------------
</TABLE>
Liquidity and Capital Resources

    The Company's cash flows from continuing operations provided cash of
$177,000 for the nine months ended September 30, 1999. Discontinued
operations used cash of $37,000 for the nine months ended September 30,
1999. The Company's net working capital was ($920,000) during the nine
months ended September 30, 1999 compared to $2,224,000 at December 31, 1998.

   The Company's cash flows from investing activities used cash of $1,306,000
for the nine months ended September 30, 1999 for capital expenditures, primarily
for electronic patient record systems in connection with new contracts, digital
dictation equipment and continued investment in software development of the
Company's national transcription platform.

   Cash flows from financing activities provided $783,000 for the nine months
ended September 30, 1999, primarily from the $1,500,000 in short-term notes to
Directors. The Company also used $255,000 for principal payments on long-term
debt associated with prior acquisitions and $240,000 to pay preferred stock
dividends. The Company is one quarter in arrears on preferred stock dividends.

   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
working capital facility has been used to pay off the previous credit
relationship with Silicon Valley Bank in full. These Coast facilities do not
contain any financial covenants but contain restrictions from paying dividends
and entering into financing arrangements without consent. Coast has consented to
the payment of dividends related to the preferred stock and the master lease
agreement and equipment loan facility discussed below.

   Funding limits under the agreement are determined by a funding formula. Under
the original terms of the agreement, the funding formula is based on 1.5 times
monthly contractual contract management revenues, plus 80 PERCENT of all medical
transcription receivables under 90 days (aging) under the working capital
facility and up to $300,000 on new capital expenditures under the capital
expenditure facility.
                                       11
<PAGE>

   On August 8, 1997, the Company agreed to amend its credit facility with
Coast. Under the terms of the amendment, the term of the agreement was extended
to May 31, 2000, and the funding formula modified to provide additional
liquidity to the Company by providing funding of 1.5 times average monthly
receipts under long term transcription contracts. The amendment also provides
for an increase in the funding formula from 1.5 times to 2.0 times monthly
contract revenues if the Company's tangible net worth exceeds $5.0 MILLION for
five consecutive business days.

   In February 1999, the Company again amended its working capital credit
facility agreement with Coast to increase the facility to $10 MILLION and extend
the maturity date to May 31, 2001.

   These facilities are priced at prime plus 2.25 PERCENT declining to prime
plus 1.75 PERCENT 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, cash
flows, 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. As of September 30, 1999, the
capacity of the credit line based on the funding formula was $5,596,000 with
$535,000 unused. There has been a reduction in borrowing capacity due to
contract terminations.

   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 2 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. There were no borrowings outstanding under this master lease
agreement at September 30, 1999.

   On April 13, 1998, the Company signed a $10 MILLION equipment loan facility
with DVI Financial Services, Inc. This facility provides additional financing
for electronic patient record systems and transcription systems required for new
contracts. The facility calls for monthly payments which amortize the cost of
the equipment over the life of the customer contract, not to exceed 60 months,
at interest rates fixed at the time over the loan advance based on then current
treasury bill rates. The total borrowings outstanding at September 30, 1999,
were $487,000.

   In August 1999, certain directors and accredited investors of the Company
loaned an aggregate of $1.5 million to the Company for the purpose of interim
financing. The unsecured promissory notes mature January 15, 2000 and bear
interest at the rate of 10% per annum. On November 10, 1999, the Company
executed an agreement with these directors and investors providing that at the
option of the Company, the promissory notes may be converted at any time prior
to the maturity date of January 15, 2000 to a new class of redeemable
convertible preferred stock. The preferred stock, if issued, will not pay any
dividends, but will be redeemable by the Company at face value plus a redemption
premium and will have voting rights with the common stockholders equal to the
number of shares of common stock into which the preferred stock may be converted
from time to time. The preferred stock, if issued, will be convertible to common
stock at a price equal to the greater of (i) the average closing bid price for
the five trading days preceding the date of issuance of preferred stock or (ii)
the closing bid price on the day preceding the issuance of the preferred stock.

   On October 29, 1999, the Company secured a loan of $600,000 from Bank of
America to provide capital for continuing operations. The loan bears an interest
rate of prime minus .5%, matures on April 30, 2000, and is guaranteed by certain
Directors who received no compensation for their guarantee.

   On November 10, 1999, the Company executed a letter of intent for the sale of
certain medical records management contracts of the Company to a qualified buyer
("Buyer"). In consideration of the proposed sale, the Company will receive an
initial price of $675,000 in cash to the Company, which approximates 50% of the
current annualized revenues for the contracts. In addition, the Company will
receive an amount equal to 50% of the revenues generated under the contracts
during the period from November 1, 1999 to October 31, 2001, less the initial
payment price of $675,000 (the "Earn Out"). The initial payment to the Company
for the Earn Out will occur on December 31, 2001 for revenues actually collected
as of that date and additional payments will be made for revenues collected
thereafter at the end of each month in which the revenues are collected. In no
event shall the Earn Out exceed an additional $675,000 over the initial sale
price. The Company will be required to enter into a five-year non-competition
and non-solicitation agreement with Buyer respecting the contracts sold.

   Also on November 10, 1999, the Company executed a letter of intent with Buyer
for the sale of the assets of its transcription operations located in Salt Lake
City, Pittsburgh and Boston ("Target Offices"). The purchase price of the assets
will be an amount equal to 5.5 times EBITDA (earnings before interest, taxes,
depreciation and amortization) applicable to the Target Offices. The purchase
price is expected to range between $6.5 million and $7.0 million. A cash payment
equal to 95% of the purchase price will be payable at closing with 5% of the
purchase price to be held in escrow. Buyer will place $750,000 in escrow as
earnest money pending the execution of a definitive agreement for the purchase
and sale of the assets. As a condition to the transaction, the Company will be
required to execute a three-year non-competition and non-solicitation agreement
with Buyer generally restricting it from competing with Buyer in the territories
covered by the Target Offices.
                                       12
<PAGE>

   The agreements in principle are subject to the negotiation and execution of
definitive agreements. Buyer will not assume any liabilities in connection with
the above-referenced proposed purchases other than certain specific operating
liabilities and liabilities arising after closing. The Company expects to
proceed promptly to the negotiation and execution of definitive agreements, but
in any event prior to December 31, 1999.

   The Company believes that upon the completion of the financing activities
discussed above combined with cash flows from operations there will be adequate
cash resources to finance continuing operations, make capital investments in the
normal and ordinary course of its business, fund the expenses of its civil
litigation action against certain insurance carriers, fund the remainder of its
year 2000 related capital investments, and substantially reduce its outstanding
debt.

Year 2000 Compliance

   The Company has performed an assessment of the year 2000 readiness of its
operations and its corporate financial systems and is nearing the completion of
its implementation plan to become year 2000 compliant.

   In 1998, the Company launched its national transcription platform, which is
year 2000 compliant. The Company has installed the national transcription
platform in substantially all of the Company's new contracts and is implementing
its plan to convert its existing operations that are not already year 2000
compliant. The Company has invested approximately $700,000 in year 2000
compliant dictation and transcription systems to date. The Company expects
additional investments of up to $200,000 for the remainder of 1999 and to have
its systems year 2000 compliant before December 31, 1999.

   The Company's Co-Sourcing operations and software systems are dependent upon
the hospital's systems. The Company has completed accumulating inquiries to its
existing Co-Sourcing customers to determine their readiness and their plans to
become year 2000 compliant. Based on the inquiries the Company believes the
majority of is existing Co-Sourcing customers to be year 2000 compliant. For
those customers where issues were identified, actions are being taken to make
these customers year 2000 compliant. The Company expects to complete this
process by December 15, 1999. The majority of the Company's Co-Sourcing
contracts require that the hospital provide certain services, including access
to electronic information, in order for Transcend to provide the services that
the Company is contractually obligated to supply. If such services are not
provided by the hospital, the Company has the contractual ability to receive
reimbursement from the hospital for any additional expenses incurred due to the
inability of the hospital to provide a functional software system.

   Cascade's new software product is year 2000 compliant. The software for
existing customers has been modified to be year 2000 compliant. Cascade has
upgraded or converted all of its customers to be year 2000 compliant as of
October 31, 1999. The cost to be incurred for the upgrades is immaterial.

   The Company has upgraded its corporate financial systems and believes them to
be year 2000 compliant.

   The Company is in the process of refining its contingency plans and expects
to have alternative solutions available to "work around" year 2000 systems
issues, if needed.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has no material exposure to market risk from derivatives or other
financial instruments.

                                       13
<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 moneys 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. The costs associated with the conduct of the Lawsuit cannot be
ascertained with certainty but are expected to be substantial.

   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. On June 25, 1998, the
California Court of Appeals affirmed the Superior Court of the State of
California's decision dismissing the case.

   Transcend then filed a Petition for Review with the California Supreme Court
in July 1998. On September 25, 1998, the Supreme Court of the State of
California agreed to review the decision of the California Court of Appeals.
There can be no assurance that the Supreme Court of the State of California will
overturn the decision of the California Court of Appeals.

   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 not overturned by the California Supreme 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.
The Company believes it has adequate defenses to the cross complaints.

   For the nine months ended September 30, 1999, the Company expensed
approximately $73,000 of legal expenses connected with the lawsuit. Under the
original agreement with the Company's counsel of 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.

                                       14
<PAGE>

   On June 18, 1999, Paul and Linda Greiner (the "Greiners") filed a demand for
Arbitration with the American Arbitration Association, seeking unspecified
amounts of compensatory damages, punitive damages, interest, arbitration costs,
and attorney's fees, based on unspecified theories of fraud, fraudulent
inducement to contract, and breach of contract. The demand alleges that the
Company misrepresented reasons for delays in completing a registration statement
filed with the Securities and Exchange Commission on Form S-3 on May 31, 1996,
resulting in the Greiners inability to quickly sell the unregistered shares
obtained when they sold their business to the Company on June 19, 1996.

   The Company believes it has meritorious defenses to these claims. However,
there can be no assurance that the Company will be successful defending these
claims.


Item 5. Other Information.

   As stated in the Company's 1999 Proxy Statement, proposals by stockholders
intended to be presented at the 2000 Transcend annual meeting (to be held in the
Spring of 2000) must be forwarded in writing and received at the principal
executive office of Transcend no later than December 11, 1999 directed to the
attention of the Secretary, for consideration for inclusion in the Transcend's
proxy statement for the annual meeting of stockholders to be held in 2000. Any
such proposals must comply in all respects with the rules and regulations of the
Securities and Exchange Commission.

   In connection with the Company's Annual Meeting of Shareholders to be held in
2000, if the Company does not receive notice of a matter or proposal to be
considered by February 24, 2000, then the persons appointed by the Board of
Directors to act as the proxies for such Annual Meeting (named in the form of
proxy) will be allowed to use their discretionary voting authority with respect
to any such matter or proposal at the Annual Meeting, if such matter or proposal
is properly raised at the Annual Meeting and put to a vote.

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

   The following exhibits are filed herewith:

              27          Financial Data Schedule 1999  (for SEC use only)

        Reports on Form 8-K: There were no filings on Form 8-K during
        -------------------
        the quarter ended September 30, 1999.

                                       15
<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.


November 11, 1999                      By: /s/ Larry G. Gerdes
                                           -------------------------------------
                                       Larry G. Gerdes,
                                       President and Chief Executive Officer
                                       (Principal Executive Officer)


November 11, 1999                      By: /s/ Doug Shamon
                                           -------------------------------------
                                       Doug Shamon
                                       Executive Vice President,
                                       Chief Financial Officer
                                       (Principal Financial and
                                       Accounting Officer)

                                       16