##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008.
 OR
 o
    
    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:
 MEDQUIST INC.
 (Exact name of registrant as specified in its charter)
 New Jersey
    
    22-2531298(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1000 BISHOPS GATE BOULEVARD
    
    08054-4632SUITE 300
    
    (Zip Code)MOUNT LAUREL, NEW JERSEY(Address of principal executive offices)
 (856) 206-4000  (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



MEDQUIST INC.
  
 INDEX
 PagePART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATION
    
    
    28Item 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
        31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
     32Item 6. Exhibits
    
    
    32Certification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MedQuist Inc. and Subsidiaries
 Consolidated Statements of Operations
(In thousands, except per share amounts)
Unaudited
 Three months endedMarch 31,2008
    
    
    2007Net revenues
    
    $
    83,725
    
    
    $
    89,066Operating costs and expenses:Cost of revenues
    
    
    61,258
    
    
    
    68,345Selling, general and administrative
    
    
    13,095
    
    
    
    14,693Research and development
    
    
    4,119
    
    
    
    3,442Depreciation
    
    
    2,928
    
    
    
    2,539Amortization of intangible assets
    
    
    1,361
    
    
    
    1,346Cost of investigation and legal proceedings, net
    
    
    6,398
    
    
    
    1,741Restructuring charges
    
    
    
    
    
    
    256Total operating costs and expenses
    
    
    89,159
    
    
    
    92,362Operating loss
    
    
    (5,434
    )
    
    
    (3,296
    )Equity in income of affiliated company
    
    
    16
    
    
    
    260Other income
    
    
    438
    
    
    
    Interest income, net
    
    
    1,288
    
    
    
    2,102Loss before income taxes
    
    
    (3,692
    )
    
    
    (934
    )Income tax provision
    
    
    725
    
    
    
    952Net loss
    
    $
    (4,417
    )
    
    $
    (1,886
    )Net loss per share:Basic
    
    $
    (0.12
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.12
    )
    
    $
    (0.05
    )Weighted average shares outstanding:Basic
    
    
    37,544
    
    
    
    37,484Diluted
    
    
    37,544
    
    
    
    37,484
 The accompanying notes are an integral part of these consolidated financial statements.
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##### Table of Contents



MedQuist Inc. and Subsidiaries
 Consolidated Balance Sheets
(In thousands)
Unaudited
 March 31,
    
    
    December 31,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    152,711
    
    
    $
    161,582Accounts receivable, net of allowance of $4,168 and $4,359, respectively
    
    
    52,124
    
    
    
    48,725Income tax receivable
    
    
    737
    
    
    
    815Other current assets
    
    
    8,109
    
    
    
    7,920Total current assets
    
    
    213,681
    
    
    
    219,042Property and equipment, net of accumulated depreciation of $41,184 and $38,772, respectively
    
    
    20,197
    
    
    
    21,366Goodwill
    
    
    125,365
    
    
    
    125,505Other intangible assets, net of accumulated amortization of $43,234 and $45,209, respectively
    
    
    41,721
    
    
    
    42,262Deferred income taxes
    
    
    2,714
    
    
    
    2,712Other assets
    
    
    6,830
    
    
    
    6,885Total assets
    
    $
    410,508
    
    
    $
    417,772Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    10,204
    
    
    $
    12,754Accrued expenses
    
    
    18,492
    
    
    
    18,989Accrued compensation
    
    
    13,815
    
    
    
    14,826Customer accommodation and quantification
    
    
    17,596
    
    
    
    18,459Deferred income tax liability  current
    
    
    4,783
    
    
    
    4,783Deferred revenue
    
    
    17,486
    
    
    
    16,023Total current liabilities
    
    
    82,376
    
    
    
    85,834Deferred income taxes
    
    
    15,862
    
    
    
    15,151Other non-current liabilities
    
    
    2,055
    
    
    
    2,143Commitments and contingencies (Note 11)Shareholders equity:Common stock  no par value; authorized
60,000 shares;
37,544 and 37,544 shares issued and outstanding, respectively
    
    
    236,504
    
    
    
    236,412Retained earnings
    
    
    68,459
    
    
    
    72,876Accumulated other comprehensive income
    
    
    5,252
    
    
    
    5,356Total shareholders equity
    
    
    310,215
    
    
    
    314,644Total liabilities and shareholders equity
    
    $
    410,508
    
    
    $
    417,772
 The accompanying notes are an integral part of these consolidated financial statements.
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MedQuist Inc. and Subsidiaries
 Consolidated Statements of Cash Flows
(In thousands)
Unaudited
 Three months endedMarch 31,2008
    
    
    2007Operating activities:Net loss
    
    $
    (4,417
    )
    
    $
    (1,886
    )Adjustments to reconcile net loss to cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    4,289
    
    
    
    3,885Equity in income of affiliated company
    
    
    (16
    )
    
    
    (260
    )Deferred income tax provision
    
    
    719
    
    
    
    710Stock option expense
    
    
    92
    
    
    
    83Provision for doubtful accounts
    
    
    263
    
    
    
    1,418Asset writeoff charges
    
    
    26
    
    
    
    51Changes in operating assets and liabilities excluding
effects of acquisitions:Accounts receivable
    
    
    (3,700
    )
    
    
    (347
    )Income tax receivable
    
    
    78
    
    
    
    (91
    )Insurance receivable
    
    
    
    
    
    
    (2,619
    )Other current assets
    
    
    (189
    )
    
    
    58Other non-current assets
    
    
    70
    
    
    
    (39
    )Accounts payable
    
    
    (2,773
    )
    
    
    805Accrued expenses
    
    
    (746
    )
    
    
    (1,337
    )Accrued compensation
    
    
    (999
    )
    
    
    409Customer accommodation and quantification
    
    
    (459
    )
    
    
    (2,046
    )Deferred revenue
    
    
    1,441
    
    
    
    (628
    )Other non-current liabilities
    
    
    (70
    )
    
    
    1,930Net cash (used in) provided by operating activities
    
    $
    (6,391
    )
    
    $
    96Investing activities:Purchase of property and equipment
    
    
    (1,837
    )
    
    
    (1,889
    )Capitalized software
    
    
    (611
    )
    
    
    (217
    )Net cash used in investing activities
    
    
    (2,448
    )
    
    
    (2,106
    )Financing activities:Net cash provided financing activities
    
    
    
    
    
    
    Effect of exchange rate changes
    
    
    (32
    )
    
    
    7Net decrease in cash and cash equivalents
    
    
    (8,871
    )
    
    
    (2,003
    )Cash and cash equivalents  beginning of period
    
    
    161,582
    
    
    
    175,412Cash and cash equivalents  end of period
    
    $
    152,711
    
    
    $
    173,409Supplemental cash flow information:Cash paid (recovered) for income taxes
    
    $
    95
    
    
    $
    93Accommodation payments paid with credits
    
    $
    404
    
    
    $
    689
 The accompanying notes are an integral part of these consolidated financial statements.
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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
 1. Description of Business
   2. Introductory Note
     3. Basis of Presentation
   6




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
 Accounting for Income Taxes in Interim Periods
  Fair Value Measurements Effective Date of FASB Statement No. 157
 The Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment of FASB Statement No. 115
    7




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
  4. Stock-Based Compensation
 Share Based Payment
   Options exercisableAverageNumber of
    
    
    Intrinsic
    
    
    ExerciseRange of Exercise Prices
    
    
    Shares
    
    
    Value
    
    
    Price$
    2.71
    
    $
    10.00
    
    
    
    31
    
    
    $
    114
    
    
    $
    5.71$
    10.01
    
    $
    20.00
    
    
    
    47
    
    
    
    
    
    
    $
    14.38$
    20.01
    
    $
    70.00
    
    
    
    76
    
    
    
    
    
    
    $
    33.28154
    
    
    $
    114
 Accounting for Stock Issued to
Employees
 8




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
  WeightedWeighted
    
    
    AverageShares
    
    
    Average
    
    
    Remaining
    
    
    AggregateSubject to
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Life in Years
    
    
    ValueOutstanding, December 31, 2007
    
    
    2,359
    
    
    $
    31.08Forefeited
    
    
    (2
    )
    
    $
    17.45Canceled
    
    
    (676
    )
    
    $
    40.93Outstanding, March 31, 2008
    
    
    1,681
    
    
    $
    27.13
    
    
    
    3.8
    
    
    $
    114Exercisable, March 31, 2008
    
    
    1,481
    
    
    $
    29.29
    
    
    
    3.0
    
    
    $
    114Options vested and expected to
vest as of March 31, 2008
    
    
    1,662
    
    
    $
    27.32
    
    
    
    3.7
    
    
    $
    114
    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
    
    
    30
    
    
    
    1.5
    
    
    $
    5.71
    
    
    
    30
    
    
    $
    5.71$10.01 - $20.00
    
    
    588
    
    
    
    5.7
    
    
    $
    14.87
    
    
    
    388
    
    
    $
    16.76$20.01 - $30.00
    
    
    697
    
    
    
    3.1
    
    
    $
    26.40
    
    
    
    697
    
    
    $
    26.40$30.01 - $40.00
    
    
    126
    
    
    
    1.7
    
    
    $
    32.85
    
    
    
    126
    
    
    $
    32.85$40.01 - $70.00
    
    
    240
    
    
    
    2.0
    
    
    $
    59.03
    
    
    
    240
    
    
    $
    59.031,681
    
    
    
    3.8
    
    
    $
    27.13
    
    
    
    1,481
    
    
    $
    29.29
  9




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
 5. Other Comprehensive Loss
  Three months ended March 31,2008
    
    
    2007Net loss
    
    $
    (4,417
    )
    
    $
    (1,886
    )Foreign currency translation adjustment
    
    
    (104
    )
    
    
    (6
    )Comprehensive loss
    
    $
    (4,521
    )
    
    $
    (1,892
    )
 6. Net Loss per Share
   Three months ended March 31,2008
    
    
    2007Net loss
    
    $
    (4,417
    )
    
    $
    (1,886
    )Weighted average shares outstanding:Basic
    
    
    37,544
    
    
    
    37,484Diluted
    
    
    37,544
    
    
    
    37,484Net loss per share:Basic
    
    $
    (0.12
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.12
    )
    
    $
    (0.05
    )
  7. Customer Accommodation and Quantification
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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
      Three months ended
    
    
    Year endedMarch 31, 2008
    
    
    December 31, 2007Beginning balance
    
    $
    18,459
    
    
    $
    24,777Payments and other adjustments
    
    
    (459
    )
    
    
    (3,723
    )Credits
    
    
    (404
    )
    
    
    (2,595
    )Ending balance
    
    $
    17,596
    
    
    $
    18,459
 8. Cost of Investigation and Legal Proceedings, Net
  11




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
 Three months ended March 31,2008
    
    
    2007Legal fees
    
    $
    4,661
    
    
    $
    4,477Other professional fees
    
    
    237
    
    
    
    601Nightingale services
    
    
    
    
    
    
    197Insurance recoveries and claims
    
    
    
    
    
    
    (3,536
    )Other
    
    
    1,500
    
    
    
    2Total
    
    $
    6,398
    
    
    $
    1,741
  9. Restructuring Plans
 2007 Restructuring Plans
  Three Months Ended March 31, 2008
    
    
    Year Ended December 31, 2007Total Severance
    
    
    Total SeveranceBeginning balance
    
    $
    1,493
    
    
    $
    2,263Usage
    
    
    (1,149
    )
    
    
    (770
    )Ending balance
    
    $
    344
    
    
    $
    1,493
  2005 Restructuring Plan
  12




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
 Three Months Ended March 31, 2008
    
    
    Year Ended December 31, 2007Total Non-Cancelable
    
    
    Total Non-CancelableLeases
    
    
    LeasesBeginning balance
    
    $
    126
    
    
    $
    648Additional charge
    
    
    
    
    
    
    322Usage
    
    
    (60
    )
    
    
    (844
    )Ending balance
    
    $
    66
    
    
    $
    126
  10. Income Taxes
  Accounting for Uncertainty in Income Taxes  an interpretation
of FASB Statement 109
 11. Commitments and Contingencies
 Governmental Investigations
    13




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
   Customer Litigation
   Medical Transcriptionist Litigation
 Hoffmann Putative Class Action
  Force Putative Class Action
  14




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
  Myers Putative Class Action
     15




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
 Shareholder Litigation
 Costa Brava Partnership III, L.P. Shareholder Litigation
    Kahn Putative Class Action
  Reseller Arbitration Demand
  16




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
  Anthurium Patent Litigation
  Other Matters
    12. Related Party Transactions
   Licensing Agreement
  17




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
    OEM Supply Agreement
    Equipment Sales
  Insurance Coverage through Philips
  Purchasing Agreements
  18




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
     Three months ended March 31,2008
    
    
    2007PSRS licensing
    
    $
    805
    
    
    $
    514OEM agreement
    
    
    875
    
    
    
    166Dictation equipment
    
    
    301
    
    
    
    171Insurance
    
    
    167
    
    
    
    721Other
    
    
    (39
    )
    
    
    Total
    
    $
    2,109
    
    
    $
    1,572
   13. Investment in A-Life Medical, Inc. (A-Life)
   19




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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except for per share amounts)
Unaudited
  20




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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, 2007 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 transcriptionists (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, including our evaluation of whether
a sale of MedQuist is in the best interest of MedQuist and our shareholders;
    
    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.
    21




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Executive Overview
       
    
    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 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; and
    
    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.
   
    
    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;
 22




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
    
    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
   Basis of Presentation
 Sources of Revenues
  23




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Cost of Revenues
  Selling, General and Administrative (SG&A)
  Research and Development (R&D)
  Depreciation and amortization
  Cost of investigation and legal proceedings, net
  Consolidated Results of Operations
  24




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Comparison of Three Months Ended March 31, 2008 and 2007
 Three months ended March 31,2008
    
    
    2007% of Net
    
    
    
    
    
    
    % of Net($ in thousands)
    
    Amount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    $ Change
    
    
    % ChangeNet revenues
    
    $
    83,725
    
    
    
    100.0
    %
    
    $
    89,066
    
    
    
    100.0
    %
    
    $
    (5,341
    )
    
    
    (6.0
    %)Operating costs and expenses:Cost of revenues
    
    
    61,258
    
    
    
    73.2
    %
    
    
    68,345
    
    
    
    76.7
    %
    
    
    (7,087
    )
    
    
    (10.4
    %)Selling, general and administrative
    
    
    13,095
    
    
    
    15.6
    %
    
    
    14,693
    
    
    
    16.5
    %
    
    
    (1,598
    )
    
    
    (10.9
    %)Research and development
    
    
    4,119
    
    
    
    4.9
    %
    
    
    3,442
    
    
    
    3.9
    %
    
    
    677
    
    
    
    19.7
    %Depreciation
    
    
    2,928
    
    
    
    3.5
    %
    
    
    2,539
    
    
    
    2.9
    %
    
    
    389
    
    
    
    15.3
    %Amortization of intangible assets
    
    
    1,361
    
    
    
    1.6
    %
    
    
    1,346
    
    
    
    1.5
    %
    
    
    15
    
    
    
    1.1
    %Cost of investigation and legal proceedings, net
    
    
    6,398
    
    
    
    7.6
    %
    
    
    1,741
    
    
    
    2.0
    %
    
    
    4,657
    
    
    
    267.5
    %Restructuring charges
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    0.3
    %
    
    
    (256
    )
    
    
    (100.0
    %)Total operating costs and expenses
    
    
    89,159
    
    
    
    106.5
    %
    
    
    92,362
    
    
    
    103.7
    %
    
    
    (3,203
    )
    
    
    (3.5
    %)Operating loss
    
    
    (5,434
    )
    
    
    (6.5
    %)
    
    
    (3,296
    )
    
    
    (3.7
    %)
    
    
    (2,138
    )
    
    
    64.9
    %Equity in income of affiliated company
    
    
    16
    
    
    
    0.0
    %
    
    
    260
    
    
    
    0.3
    %
    
    
    (244
    )
    
    
    (93.8
    %)Other income
    
    
    438
    
    
    
    0.5
    %
    
    
    
    
    
    
    
    
    
    
    438
    
    
    
    n.a.Interest income, net
    
    
    1,288
    
    
    
    1.5
    %
    
    
    2,102
    
    
    
    2.4
    %
    
    
    (814
    )
    
    
    (38.7
    %)Loss before income taxes
    
    
    (3,692
    )
    
    
    (4.4
    %)
    
    
    (934
    )
    
    
    (1.0
    %)
    
    
    (2,758
    )
    
    
    295.3
    %Income tax provision
    
    
    725
    
    
    
    0.9
    %
    
    
    952
    
    
    
    1.1
    %
    
    
    (227
    )
    
    
    (23.8
    %)Net loss
    
    $
    (4,417
    )
    
    
    (5.3
    %)
    
    $
    (1,886
    )
    
    
    (2.1
    %)
    
    $
    (2,531
    )
    
    
    134.2
    %
 Net revenues
  
    
    reduced service revenues of $3.4 million resulting primarily from lower medical
transcription volume. We believe the reduction in volume was the result primarily of
customer losses to other outsourced medical transcription providers in the latter part of
2007; and
    
    reduced revenues from our technology products of $2.0 million due primarily to longer
revenue recognition periods resulting from our contractual agreements.
  Cost of revenues
  
    
    reduced medical transcription payroll costs of $2.6 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;
    
    reduced technology product costs of $0.7 million related directly to the reduction in
our technology product revenues; and
 25




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##### Table of Contents




    
    reduced other costs of $3.8 million resulting from headcount reductions taken to better
align our overhead costs with our lower revenues levels.
  Selling, general and administrative
  Research & development
 tm
 Depreciation
  Cost of investigation and legal proceedings, net
  Restructuring charges
  Interest income, net
  26




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##### Table of Contents



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
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  27




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Governmental Investigations
     Customer Litigation
   Medical Transcriptionist Litigation
 Hoffmann Putative Class Action
  28




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##### Table of Contents



Force Putative Class Action
  Myers Putative Class Action
     29




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##### Table of Contents



Shareholder Litigation
 Costa Brava Partnership III, L.P. Shareholder Litigation
    Kahn Putative Class Action
  Reseller Arbitration Demand
  30




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##### Table of Contents



Anthurium Patent Litigation
  Other Matters
    
 Item 1A. Risk Factors
  
 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
  31




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##### Table of Contents



Item 5. Other Information
  
 Item 6. Exhibits
 Exhibits
 No.
    
    Description10.1 (1)*
    
    Indemnification Agreement, dated as of February 21, 2008 between MedQuist Inc. and Warren E. Pinckert, II10.2 (2)
    
    Settlement Term Sheet dated March 10, 2008 by and among (i) MedQuist Inc. and (ii) Partners Healthcare
System, Northbay Healthcare Group, Hospital Corporation of America, St. Lukes Regional Medical Center,
Palisades Medical Center, Mt. Sinai Medical Center, Ascension Health Ministry, Bayonne Medical Center,
Bon Secours Health System, Inc., South Broward Memorial Hospital District and University of Colorado,
and all related or associated facilities10.3 (2)
    
    Amendment to the Governance Agreement by and between MedQuist Inc. and Koninklijke Philips Electronics
N.V. dated March 12, 200810.4 (3)*
    
    Letter Agreement by and between MedQuist Inc. and Nightingale & Associates, LLC dated March 14, 200831.1
    
    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
 
 (1)
    
    Incorporated by reference to our Current Report on Form 8-K filed on February 22, 2008(2)
    
    Incorporated by reference to our Current Report on Form 8-K filed on March 14, 2008(3)
    
    Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31,
2007 filed on March 17, 2008*
    
    Management contract or compensatory plan or arrangement. 32




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##### Table of Contents



SIGNATURES
  MEDQUIST INC./s/  Howard S. HoffmannHoward S. HoffmannPresident and Chief Executive Officer

(Principal Executive Officer)  /s/  Kathleen E. DonovanKathleen E. DonovanSenior Vice President and Chief Financial

Officer (Principal Financial Officer)  33




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##### 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
 34