##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-Q
   (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    June 30, 2007.ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to    Commission file number:
  MEDQUIST INC.
 (Exact name of registrant as
    specified in its charter)
   New Jersey

22-2531298(State or other jurisdiction
    of incorporation or organization)

(I.R.S. Employer
    Identification No.)1000 BISHOPS GATE BOULEVARD
    SUITE 300
    MOUNT LAUREL, NEW JERSEY(Address of principal
    executive offices)

08054-4632(Zip Code)   (856) 206-4000
 (Registrants telephone
    number, including area code)
   þ o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ




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##### 



MEDQUIST
    INC.
  INDEX
  
   
 PagePART I.


FINANCIAL INFORMATION


1Item 1.


Financial Statements


1Item 2.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


19Item 4.


Controls and Procedures


29PART II.


OTHER INFORMATION


30Item 1.


Legal Proceedings


30Item 1A.


Risk Factors


34Item 2.


Unregistered Sales of Equity Securities and Use
    of Proceeds


34Item 3.


Defaults Upon Senior Securities


34Item 4.


Submission of Matters to a Vote of Security
    Holders


34Item 5.


Other Information


34Item 6.


Exhibits


34Certification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive Officer pursuant to Section 906Certification of Chief Financial Officer pursuant to Section 906




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION
  Item 1.
    Financial
    Statements  MedQuist
    Inc. and Subsidiaries
  Consolidated Statements of Operations
 Unaudited
 (In thousands, except per share amounts)
  Three Months Ended


Six Months EndedJune 30,


June 30,2007


2006


2007


2006Net revenues

$
88,692


$
93,359


$
177,758


$
189,373Operating costs and expenses:Cost of revenues


66,283



72,392



134,628



146,727Selling, general and administrative


17,917



11,719



32,610



26,643Research and development


2,823



3,057



6,265



6,258Depreciation


2,640



3,003



5,179



5,894Amortization of intangible assets


1,358



1,536



2,704



3,111Cost of investigation and legal proceedings, net


(6,638
)


5,336



(4,897
)


12,873Restructuring charges


125



493



381



1,705Total operating costs and expenses


84,508



97,536



176,870



203,211Operating income (loss)


4,184



(4,177
)


888



(13,838
)Equity in income of affiliated company


63



162



323



558Interest income, net


2,073



1,901



4,175



3,698Income (loss) before income taxes


6,320



(2,114
)


5,386



(9,582
)Income tax provision


434



302



1,386



1,305Net income (loss)

$
5,886


$
(2,416
)

$
4,000


$
(10,887
)Net income (loss) per share:Basic

$
0.16


$
(0.06
)

$
0.11


$
(0.29
)Diluted

$
0.16


$
(0.06
)

$
0.11


$
(0.29
)Weighted average shares outstanding:Basic


37,484



37,484



37,484



37,484Diluted


37,497



37,484



37,499



37,484    1




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
  Consolidated Balance Sheets
 Unaudited
 (In thousands)
  June 30,


December 31,2007


2006AssetsCurrent assets:Cash and cash equivalents

$
161,281


$
175,412Accounts receivable, net of allowance of $4,268 and $4,494,
    respectively


55,215



54,778Insurance receivable


11,850



707Income tax receivable


2,034



1,772Deferred income taxes


297



298Other current assets


8,160



7,645Total current assets


238,837



240,612Property and equipment, net of accumulated depreciation of
    $42,472 and $37,838, respectively


20,286



20,969Goodwill


125,305



124,826Other intangible assets, net of accumulated amortization of
    $47,052 and $44,218, respectively


43,548



45,448Deferred income taxes


2,353



2,378Other assets


7,282



6,906Total assets

$
437,611


$
441,139Liabilities and Shareholders EquityCurrent liabilities:Accounts payable

$
12,667


$
10,779Accrued expenses


20,513



28,812Accrued compensation


15,879



15,558Customer accommodation and quantification


20,513



24,777Deferred revenue


14,131



15,202Total current liabilities


83,703



95,128Deferred income tax liability


19,109



18,034Other long-term liabilities


2,282



458Commitments and contingencies (Note 11)Shareholders equity:Common stock  no par value; authorized
    60,000 shares;37,484 and 37,484 shares issued and outstanding,
    respectively


235,287



235,080Retained earnings


92,082



87,693Deferred compensation


332



332Accumulated other comprehensive income


4,816



4,414Total shareholders equity


332,517



327,519Total liabilities and shareholders equity

$
437,611


$
441,139    2




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
  Consolidated
    Statements of Cash Flows
 Unaudited
 (In thousands)
  Six Months Ended June 30,2007


2006Operating activities:Net income (loss)

$
4,000


$
(10,887
)Adjustments to reconcile net income (loss) to cash used in
    operating activities:Depreciation and amortization


7,883



9,005Equity in income of affiliated company


(323
)


(558
)Deferred income tax provision


974



2,601Stock option expense


207



1,152Provision for doubtful accounts


2,431



3,992Asset writeoff charges


61



322Changes in operating assets and liabilities:Accounts receivable


(4,088
)


7,048Income tax receivable


(267
)


2,098Insurance receivable


(11,143
)


Other current assets


(511
)


(27
)Other non-current assets


(52
)


1,129Accounts payable


1,613



89Accrued expenses


(8,060
)


(7,572
)Accrued compensation


297



(2,756
)Customer accommodation and quantification


(2,976
)


(15,927
)Deferred revenue


(1,210
)


(2,383
)Other non-current liabilities


1,962



(1,297
)Net cash used in operating activities

$
(9,200
)

$
(13,971
)Investing activities:Purchase of property and equipment


(4,137
)


(4,283
)Capitalized software


(824
)


(21
)Net cash used in investing activities


(4,961
)


(4,304
)Effect of exchange rate changes


32



45Net decrease in cash and cash equivalents


(14,131
)


(18,230
)Cash and cash equivalents  beginning of period


175,412



178,271Cash and cash equivalents  end of period

$
161,281


$
160,041Supplemental cash flow information:Cash paid (recovered) for income taxes

$
276


$
(3,443
)Accommodation payments paid with credits

$
1,288


$
48    3




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
  1.
    Description
    of Business    2.
    Introductory
    Note  Form 8-K Form 10-K.
       4




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
  and/or and/or and/or
      3.
    Basis of
    Presentation    Accounting for Income Taxes in
    Interim Periods
  Form 10-K
  4.
    Stock-Based
    Compensation  Share-Based
    Payment Accounting for Stock-Based Compensation
 5




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
    Six MonthsThree Months Ended June 30,


Ended June 30,2007


2006


2007


2006Selling, general and administrative

$
34


$
144


$
58


$
311Research and development


14



51



23



136Cost of revenues


76



360



126



705Total

$
124


$
555


$
207


$
1,152           Options ExercisableAverageNumber of


Intrinsic


ExerciseRange of Exercise Prices

Shares


Value


Price$2.71 - $10.00


34


$
127


$
5.39$10.01 - $20.00


123






$
15.59$20.01 - $70.00


423






$
46.59580


$
127  6




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
    WeightedWeighted


AverageShares


Average


Remaining


AggregateSubject to


Exercise


Contractual


IntrinsicOptions


Price


Life in Years


ValueOutstanding, December 31, 2006


2,150


$
31.86Forefeited


(3
)

$
17.45Canceled


(54
)

$
28.04Outstanding, June 30, 2007


2,093


$
31.98



3.6


$
127Exercisable, June 30, 2007


2,034


$
32.40



3.5


$
127Options vested and expected to vest as of June 30, 2007


2,068


$
32.15



3.5


$
127       Options Outstanding


Options ExercisableWeightedAverage


Weighted





WeightedRemaining


Average





AverageRange of

Number


Contractual Life


Exercise


Number


ExerciseExercise Prices

of Shares


(in years)


Price


of Shares


Price$2.71 - $10.00


34



2.5


$
5.39



34


$
5.39$10.01 - $20.00


537



4.3


$
16.69



478


$
16.60$20.01 - $30.00


836



3.9


$
26.72



836


$
26.72$30.01 - $40.00


192



2.5


$
32.42



192


$
32.42$40.01 - $70.00


494



2.7


$
59.15



494


$
59.152,093



3.6


$
31.98



2,034


$
32.40     Three Months Ended June 30,


Six Months Ended June 30,2007


2006


2007


2006Selling, general and administrative

$
12


$
28


$
13


$
72Research and development


6



11



6



30Total

$
18


$
39


$
19


$
102  7




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
    5.
    Other
    Comprehensive Income (Loss)    Three Months Ended June 30,


Six Months Ended June 30,2007


2006


2007


2006Net income (loss)

$
5,886


$
(2,416
)

$
4,000


$
(10,887
)Foreign currency translation adjustment


408



24



402



139Comprehensive income (loss)

$
6,294


$
(2,392
)

$
4,402


$
(10,748
)   6.
    Net
    Income (Loss) per Share      Three Months Ended June 30,


Six Months Ended June 30,2007


2006


2007


2006Net income (loss)

$
5,886


$
(2,416
)

$
4,000


$
(10,887
)Weighted average shares outstanding:Basic


37,484



37,484



37,484



37,484Effect of dilutive stock options


13







15



Diluted


37,497



37,484



37,499



37,484Net income (loss) per share:Basic

$
0.16


$
(0.06
)

$
0.11


$
(0.29
)Diluted

$
0.16


$
(0.06
)

$
0.11


$
(0.29
)     7.
    Customer
    Accommodation and Quantification   8




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
          and/or
    Six Months Ended


Year EndedJune 30,


December 31,2007


2006Beginning balance

$
24,777


$
46,878Customer accommodation






10,402Payments and other adjustments


(2,976
)


(31,523
)Credits


(1,288
)


(980
)Ending balance

$
20,513


$
24,777  9




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
  8.
    Cost of
    Investigation and Legal Proceedings, Net    Three Months Ended June 30,


Six Months Ended June 30,2007


2006


2007


2006Legal fees

$
4,369


$
3,819


$
8,846


$
8,225Other professional fees


843



618



1,444



2,837Nightingale & Associates, LLC (Nightingale) services






859



197



1,708Insurance claims


(11,850
)






(15,386
)


Other






40



2



103Total

$
(6,638
)

$
5,336


$
(4,897
)

$
12,873   9.
    Restructuring
    Plans    Six Months Ended June 30, 2007


Year Ended December 31, 2006Non-Cancelable











Non-CancelableTotal


Leases


Severance


Equipment


Total


Leases


Severance


EquipmentBeginning balance

$
712


$
648


$
64


$



$
2,050


$
1,693


$
357


$
Additional charge


381



210



146



25



3,442



1,653



1,447



342Usage


(783
)


(579
)


(179
)


(25
)


(4,780
)


(2,698
)


(1,740
)


(342
)Ending balance

$
310


$
279


$
31


$



$
712


$
648


$
64


$
       10.
    Income
    Taxes   10




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement 109 Accounting for Income Taxes Recognition Measurement
        11.
    Commitments
    and Contingencies  Governmental
    Investigations
       11




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
  and/or
  Shareholder
    Securities Litigation
  William
    Steiner v. MedQuist, Inc., et al. No. 1:04-cv-05487-FLW Rule 10b-5,
  Rule 10b-5
  Customer
    Litigation
  No. CV-04-7520-TJH-VBKx,
 12




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
           13




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
  Medical
    Transcriptionist Litigation
  Hoffmann
    Putative Class Action
  No. 1:04-CV-3452,
  Force
    Putative Class Action
  No. 05-cv-2608-WSD,
  Myers
    Putative Class Action
  No. 05-cv-4608
   14




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
    Shareholder
    Derivative Litigation
      Reseller
    Arbitration Demand
   15




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
      Other
    Matters
          12.
    Related
    Party Transactions      Licensing
    Agreement
     16




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
        OEM
    Supply Agreement
        Equipment
    Sales
    Insurance
    Coverage through Philips
   17




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##### Table of Contents



MedQuist
    Inc. and Subsidiaries
    Notes to Consolidated Financial Statements
    (In thousands, except per share amounts)
    Unaudited
  Purchasing
    Agreements
          Three Months Ended June 30,


Six Months Ended June 30,2007


2006


2007


2006PSRS licensing

$
588


$
614


$
1,102


$
1,125PSRS consulting














3OEM agreement


135



232



301



545Dictation equipment


150



285



321



530Insurance


840



223



1,561



446PENAC


40



10



40



20Other














42Total

$
1,753


$
1,364


$
3,325


$
2,711      18




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    
    each of the factors discussed in this Item 1A, Risk Factors
    in our Annual Report on
    Form 10-K
    for the year ended December 31, 2006 as well as risks
    discussed elsewhere in this report;
    each of the matters discussed in Part II, Item 1,
    Legal Proceedings;
    difficulties relating to our significant management turnover;
    our ability to recruit and retain qualified medical MTs and
    other employees;
    the impact of our new services and products on the demand for
    our existing services and products;
    our current dependence on medical transcription for
    substantially all of our business;
    our ability to expand our customer base;
    changes in law, including, without limitation, the impact Health
    Insurance Portability and Accountability Act of 1996 (HIPAA)
    will have on our business;
    infringement on the proprietary rights of others;
    our ability to diversify into other businesses;
    the results of our review of strategic alternatives;
    our ability to effectively integrate newly-acquired operations;
    competitive pricing pressures in the medical transcription
    industry and our response to those pressures; and
    general conditions in the economy and capital markets.  Form 10-K
    Form 10-K
 19




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##### Table of Contents



Executive
    Overview
        tm
    Form 10-K
      
    A shortage of qualified domestic MTs has increased the demand
    for outsourced medical transcription services by
    U.S.-based
    healthcare providers. This demand for qualified MTs, as well as
    budgetary pressures experienced by healthcare providers, has
    also caused many more
    U.S.-based
    healthcare providers to evaluate and consider the use of
    offshore medical transcription labor.
    Several low cost providers have emerged and aggressively moved
    into our market offering medical transcription services
    (performed both domestically and offshore) at prices
    significantly below our 20




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##### Table of Contents



traditional price point. While we believe the market for
    outsourced medical transcription continues to expand, the
    growing acceptance by customers of the use of offshore labor has
    further increased the competitive environment in the medical
    transcription industry.  
    There have been technological advances by us and our competitors
    which have reduced the length of time required to transcribe
    medical reports, in turn reducing the overall cost of medical
    transcription services.
    Other companies in the healthcare IT space have developed
    alternative solutions for the creation of electronic clinical
    documentation that, if successfully implemented, will reduce the
    overall demand for medical transcription services.      
    reduction in overhead and other administrative costs;
    improvement in the quality and speed of delivery of transcribed
    medical reports;
    access to leading technologies, such as speech recognition
    technology, without any development and investment risk;
    expertise in implementing and managing a medical transcription
    system tailored to the providers specific requirements;
    access to skilled MTs; and
    support for compliance with governmental and industry mandated
    privacy and security requirements and electronic health record
    initiatives.      
    revenues;
    operating income;
    net income per share;
    net cash provided by operating activities; and
    days sales outstanding.    Critical
    Accounting Policies, Judgments and Estimates
   21




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##### Table of Contents



Form 10-K Form 10-K
  Basis
    of Presentation
  Sources
    of Revenues
    Cost of
    Revenues
    Selling,
    General and Administrative (SG&A)
    Research
    and Development (R&D)
    Depreciation
    and amortization
    Cost of
    investigation and legal proceedings, net
   22




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##### Table of Contents



Consolidated
    Results of Operations
    Comparison
    of Three Months Ended June 30, 2007 and 2006
  Three Months Ended June 30,2007


2006% of Net





% of NetAmount


Revenues


Amount


Revenues


$ Change


% Change($ in thousands)Net revenues

$
88,692



100.0
%

$
93,359



100.0
%

$
(4,667
)


(5.0
)%Operating costs and expenses:Cost of revenues


66,283



74.7
%


72,392



77.5
%


(6,109
)


(8.4
)%Selling, general and administrative


17,917



20.2
%


11,719



12.6
%


6,198



52.9
%Research and development


2,823



3.2
%


3,057



3.3
%


(234
)


(7.7
)%Depreciation


2,640



3.0
%


3,003



3.2
%


(363
)


(12.1
)%Amortization of intangible assets


1,358



1.5
%


1,536



1.6
%


(178
)


(11.6
)%Cost of investigation and legal proceedings, net


(6,638
)


(7.5
)%


5,336



5.7
%


(11,974
)


(224.4
)%Restructuring charges


125



0.1
%


493



0.5
%


(368
)


(74.6
)%Total operating costs and expenses


84,508



95.3
%


97,536



104.5
%


(13,028
)


(13.4
)%Operating income (loss)


4,184



4.7
%


(4,177
)


(4.5
)%


8,361



(200.2
)%Equity in income of affiliated company


63



0.1
%


162



0.2
%


(99
)


(61.1
)%Interest income, net


2,073



2.3
%


1,901



2.0
%


172



9.0
%Income (loss)before income taxes


6,320



7.1
%


(2,114
)


(2.3
)%


8,434



(399.0
)%Income tax provision


434



0.5
%


302



0.3
%


132



43.7
%Net income (loss)

$
5,886



6.6
%

$
(2,416
)


(2.6
)%

$
8,302



(343.6
)%   Net
    revenues
     23




---



##### Table of Contents



Cost
    of revenues
    
    reduced medical transcription payroll costs of $2.7 million
    related directly to the decrease in our service revenues as well
    as our increased use of speech recognition technology, which
    reduces the payroll costs associated with the production of
    revenues;
    decreased telecommunications costs of $1.1 million
    associated with both the decrease in our service revenues and
    the transition of customers from our non-DEP medical
    transcription platforms, which required MTs to access dictation
    using traditional phone lines, to our DEP, which allows MTs to
    access dictation through the internet;
    reduced other costs of $2.5 million resulting from
    headcount and facility reductions associated with our 2005
    restructuring plan based on a centralized national service
    delivery model to streamline our organizational and operational
    structure to better service our customers (2005 Restructuring
    Plan); offset by
    an increased in technology product costs of $0.2 million
    related directly to the increase in product revenues for Ovation
    and SpeechQ.    Selling,
    general and administrative
    Research
    and development
    Depreciation
    Amortization
   24




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##### Table of Contents



Cost
    of investigation and legal proceedings, net
    Restructuring
    charges
    Interest
    income, net
    Income
    tax provision
   25




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##### Table of Contents



Comparison
    of Six Months Ended June 30, 2007 and 2006
  Six Months Ended June 30,2007


2006% of Net





% of NetAmount


Revenues


Amount


Revenues


$ Change


% Change($ in thousands)Net revenues

$
177,758



100.0
%

$
189,373



100.0
%

$
(11,615
)


(6.1
)%Operating costs and expenses:Cost of revenues


134,628



75.7
%


146,727



77.5
%


(12,099
)


(8.2
)%Selling, general and administrative


32,610



18.3
%


26,643



14.1
%


5,967



22.4
%Research and development


6,265



3.5
%


6,258



3.3
%


7



0.1
%Depreciation


5,179



2.9
%


5,894



3.1
%


(715
)


(12.1
)%Amortization of intangible assets


2,704



1.5
%


3,111



1.6
%


(407
)


(13.1
)%Cost of investigation and legal proceedings, net


(4,897
)


(2.8
)%


12,873



6.8
%


(17,770
)


(138.0
)%Restructuring charges


381



0.2
%


1,705



0.9
%


(1,324
)


(77.7
)%Total operating costs and expenses


176,870



99.5
%


203,211



107.3
%


(26,341
)


(13.0
)%Operating income (loss)


888



0.5
%


(13,838
)


(7.3
)%


14,726



(106.4
)%Equity in income of affiliated company


323



0.2
%


558



0.3
%


(235
)


(42.1
)%Interest income, net


4,175



2.3
%


3,698



2.0
%


477



12.9
%Income (loss)before income taxes


5,386



3.0
%


(9,582
)


(5.1
)%


14,968



(156.2
)%Income tax provision


1,386



0.8
%


1,305



0.7
%


81



6.2
%Net income (loss)

$
4,000



2.3
%

$
(10,887
)


(5.7
)%

$
14,887



(136.7
)%   Net
    revenues
    Cost
    of revenues
    
    reduced medical transcription payroll costs of $3.8 million
    related directly to the decrease in our service revenues as well
    as our increased use of speech recognition technology, which
    reduces the payroll costs associated with the production of
    revenues;
    decreased telecommunications costs of $2.8 million
    associated with both the decrease in our service revenues and
    the transition of customers from our non-DEP medical
    transcription platforms, which required MTs to access dictation
    using traditional phone lines, to our DEP, which allows MTs to
    access dictation through the internet; 26




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##### Table of Contents




    reduced technology product costs of $0.3 million; and
    reduced other costs of $5.2 million resulting from
    headcount and facility reductions associated with the 2005
    Restructuring Plan.    Selling,
    general and administrative
    Depreciation
    Amortization
    Cost
    of investigation and legal proceedings, net
    Restructuring
    charges
   27




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##### Table of Contents



Interest
    income, net
    Income
    tax provision
    Liquidity
    and Capital Resources
      
    the SEC, DOJ and DOL investigations and proceedings; and
    the defense and resolution of the civil litigation matters.  Off-Balance
    Sheet Arrangements
   28




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##### Table of Contents



Contractual
    Obligations
    Payments Due By December 31,Total


2007


2008


2009


2010


2011


ThereafterOperating Lease Obligations

$
5,764


$
1,203


$
1,561


$
1,327


$
1,000


$
477


$
196Purchase
    Obligations(1)


26,341



5,677



5,640



5,640



5,640



3,744



Severance and Other Guaranteed Payment
    Obligations(2)


2,630



897



1,733















Total Contractual Obligations

$
34,735


$
7,777


$
8,934


$
6,967


$
6,640


$
4,221


$
196   (1)
    Purchase obligations are for
    telecommunication contracts ($23,484), a licensing payment
    ($1,100), a development fee of ($780) and other recurring
    purchase obligations ($977).(2)
    Severance and Other Guaranteed
    Payment Obligations consist of severance payments to our former
    President and our former Chief Operating Officer ($1,392);
    retention bonus agreements ($785) and bonus agreement payments
    due to Nightingale ($453). Both the retention and Nightingale
    bonus agreements were entered into during the third quarter of
    2007 but prior the filing of this report.  Item 4.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(e) Form 10-K Form 10-K
  Changes
    in Internal Control Over Financial Reporting
     29




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##### Table of Contents



PART II.
    OTHER INFORMATION
  Item 1.
    Legal
    Proceedings  Governmental
    Investigations
        and/or
  Shareholder
    Securities Litigation
  William
    Steiner v. MedQuist, Inc., et al. No. 1:04-cv-05487-FLW Rule 10b-5,
  Rule 10b-5
 30




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##### Table of Contents



Customer
    Litigation
  No. CV-04-7520-TJH-VBKx,
         31




---



##### Table of Contents



Medical
    Transcriptionist Litigation
  Hoffmann
    Putative Class Action
  No. 1:04-CV-3452,
  Force
    Putative Class Action
  No. 05-cv-2608-WSD,
  Myers
    Putative Class Action
  No. 05-cv-4608
   32




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##### Table of Contents



Shareholder
    Derivative Litigation
      Reseller
    Arbitration Demand
   33




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##### Table of Contents



Item 1A.
    Risk
    Factors  Form 10-K
  If the electronic health records (EHR) companies produce
    solutions acceptable to large hospital systems for the creation
    of electronic clinical documentation that are not based on the
    conversion of voice to text, the overall demand for medical
    transcription services could be reduced.
    Form 10-K Form 10-K and/or
  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds    Item 3.
    Defaults
    Upon Senior Securities    Item 4.
    Submission
    of Matters to a Vote of Security Holders    Item 5.
    Other
    Information    Item 6.
    Exhibits  Exhibits
  No.

Description31
.1

Certification of Chief Executive Officer required by Rule
    13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
    1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 200231
.2

Certification of Chief Financial Officer required by Rule
    13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
    1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 200232
.1

Certification of Chief Executive Officer pursuant to
    18 U.S.C. 1350, as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 200232
.2

Certification of Chief Financial Officer pursuant to
    18 U.S.C. 1350, as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002  34




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##### Table of Contents



SIGNATURES
    MEDQUIST INC.
  
        
  
    35




---



##### Table of Contents



Exhibit Index
  No.

Description31
.1

Certification of Chief Executive Officer required by Rule
    13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
    1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 200231
.2

Certification of Chief Financial Officer required by Rule
    13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
    1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 200232
.1

Certification of Chief Executive Officer pursuant to
    18 U.S.C. 1350, as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 200232
.2

Certification of Chief Financial Officer pursuant to
    18 U.S.C. 1350, as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002  36