<PAGE>

                       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 March 31, 1999 

                         Commission file number 0-19941


                                  MedQuist Inc.
             -----------------------------------------------------
             (Exact name of registrant as specified in its charter)


         New Jersey                                          22-2531298    
-------------------------------                          -------------------
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                          Identification No.)


               Five Greentree Centre, Suite 311, Marlton, NJ 08053
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)


                                 (609) 596-8877
               --------------------------------------------------
              (Registrant's telephone number, including area code)


              ----------------------------------------------------      
              (Former name, former address and former fiscal year,
                         if changed since last report.)


         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 each of the registrant's
classes of common stock, as of the latest practicable date: 35,620,460 shares of
common stock, no par value, as of May 12, 1999.












<PAGE>


                                  MedQuist Inc.

                     INDEX TO QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>


PART I.           FINANCIAL INFORMATION                                                                   PAGE NO.
-------           ---------------------                                                                   --------
<S>               <C>                                                                                     <C>
Item 1.           Consolidated Financial Statements

                  Consolidated Balance Sheets at March 31, 1999 (Unaudited) and
                  December 31, 1998                                                                           1

                  Consolidated Statements of Income for the three months ended March 31, 1999
                  and 1998 (Unaudited)                                                                        2

                  Consolidated Statements of Cash Flows for the nine months ended March 31, 1999
                  and 1998 (Unaudited)                                                                        3

                  Notes to Consolidated Financial Statements (Unaudited)                                      4


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

Item 3.           Quantitative and Qualitative Disclosure About Market Risk                                  13
           
                  Special Note Concerning Forward Looking Statements                                         14

PART II. OTHER INFORMATION
-------  -----------------

Item 1.           Legal Proceedings                                                                          15

Item 2.           Changes in Securities                                                                      15

Item 3.           Defaults upon Senior Securities                                                            15

Item 4.           Submission of Matters to a Vote of Security Holders                                        15

Item 5.           Other Information                                                                          15

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

SIGNATURE                                                                                                    16
---------
</TABLE>


<PAGE>






                         MEDQUIST INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                  March 31,           December 31,
                                                                                    1999                  1998
                                                                                 ----------           -----------
                                                                                (Unaudited)
<S>                                                                           <C>                     <C>
Assets
Current assets:
  Cash and cash equivalents                                                       $23,849              $15,936
    Accounts receivable, net of allowance  of $3,560 and $2,274                    56,718               52,477
    Prepaid expenses and other current assets                                       6,864                6,671
                                                                                 --------              -------
       Total current assets                                                        87,431               75,084

Property and equipment - net                                                       26,827               27,022

Other assets                                                                        2,611                2,989

Intangible assets - net                                                            81,465               82,216
                                                                                 --------              -------

                                                                                 $198,344             $187,311
                                                                                 ========             ========

Liabilities and Shareholders' Equity

Current liabilities:
     Current portion of long-term debt                                              $ 314              $ 2,372
     Accounts payable                                                               3,851                5,010
     Accrued expenses                                                              29,233               25,850
                                                                                 --------              -------
       Total current liabilities                                                   33,398               33,232

Long-term debt                                                                        115                  215

Other liabilities                                                                     649                  697

Deferred income taxes                                                                 871                1,981
                                                                             

Shareholders' equity:
     Common stock, no par value, 60,000 shares authorized,
         33,662 and 33,258  issued and  outstanding                                   --                   --
     Additional paid-in capital                                                   140,421              136,603
     Retained earnings                                                             22,771               14,536
     Unrealized gain on marketable security                                           585                  585
     Deferred Compensation                                                           (476)                (538)
                                                                                 --------              -------
       Total shareholders' equity                                                 163,301              151,186
                                                                                 --------              -------
                                                                                 $198,334             $187,311
                                                                                 ========             ========
</TABLE>



          See Accompanying Notes to Consolidated Financial Statements.



                                       1
<PAGE>



                         MEDQUIST INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                (Amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                            THREE MONTHS ENDED
                                                                                                 MARCH 31,
                                                                                        -------------------------
                                                                                        1999                 1998
                                                                                        -----                ----
<S>                                                                                  <C>                    <C>
Revenue                                                                              $75,657              $63,915
                                                                                     --------             -------

Costs and expenses:
  Cost of revenue                                                                      56,882               49,740
  Selling, general and administrative                                                   3,314                3,990
  Depreciation                                                                          2,602                2,982
  Amortization of intangible assets                                                       952                  924
                                                                                      -------             --------
      Total operating expenses                                                         63,750               57,636
                                                                                      -------             --------
Operating income                                                                       11,907                6,279
Other income (expense):
    Interest income                                                                       165                   --
    Interest expense                                                                      (81)                 (65)
                                                                                      -------             --------
    Total other income (expense)                                                           84                  (65)
                                                                                      -------             --------
Income before income taxes                                                             11,991                6,214
Income tax provision                                                                    4,934                2,210
                                                                                      -------             -------- 
Net income                                                                             $7,057              $ 4,004
                                                                                       ======              =======

Basic net income per common share                                                      $ 0.21               $ 0.12
                                                                                       ======               ======

Diluted net income per common share                                                    $ 0.20               $ 0.12
                                                                                       ======               ======
</TABLE>


          See Accompanying Notes to Consolidated Financial Statements.




                                        2
<PAGE>



                         MEDQUIST INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                                THREE MONTHS ENDED
                                                                                                      MARCH 31
                                                                                                ---------------------
                                                                                                1999             1998
                                                                                                ----             ----
<S>                                                                                            <C>               <C>
Operating activities:
     Net income                                                                               $7,057           $4,004
     Adjustments to reconcile net income to net cash  provided by operating
        activities:
     Depreciation and amortization                                                             3,554            3,906
     Changes in assets and liabilities:
     Accounts receivable, net                                                                 (3,702)             731
                                                                                                            
     Prepaid expenses and other current assets                                                  (113)             228
                                                                                                            
     Other assets                                                                                379              103
     Accounts payable                                                                         (1,159)            (556)
     Accrued payroll                                                                          (1,321)          (2,424)
     Accrued expenses                                                                          5,028            7,142
     Other liabilities                                                                           (48)            (171)
                                                                                             -------          --------
         Net cash provided by operating activities                                             9,675           12,963
                                                                                             -------          --------
Investing activities:
     Purchases of property and equipment, net                                                 (2,346)          (3,428)
     Sale of investments, net                                                                     --            1,026
     Cash acquired in business acquisition                                                       350              ---
     Acquisitions, net of cash acquired                                                           --           (2,990)
                                                                                             -------          --------
       Net cash used in investing activities                                                  (1,996)          (5,392)
                                                                                             -------          --------

Financing activities:
     Repayments of long-term debt                                                             (2,158)          (4,508)
     Proceeds from the exercise of common stock options                                        2,392              925
     Dividends to former shareholders                                                             --             (319)
                                                                                                  --            -----

       Net cash used in financing activities                                                     234           (3,902)
                                                                                             -------          --------

Net increase in cash and cash equivalents                                                      7,913            3,669

Cash and cash equivalents, beginning of period                                                15,936           14,489
                                                                                             -------          --------

Cash and cash equivalents, end of period                                                     $23,849          $18,158
                                                                                             =======          =======

Supplemental disclosure of cash flow information:
     Cash paid during period for:
       Interest                                                                               $ 73            $ 217
                                                                                              ======          =====
       Income taxes                                                                           $ 848           $ 958
                                                                                              ======          =====
</TABLE>



          See Accompanying Notes to Consolidated Financial Statements.


                                        3
<PAGE>


                         MedQuist Inc. and Subsidiaries
                         ------------------------------
                   Notes to Consolidated Financial Statements
                   ------------------------------------------
                     Three Month Period Ended March 31, 1999
                     ---------------------------------------
          (Unaudited - dollars in thousands, except per share amounts)


Note 1.  Basis of Presentation

         The information set forth in these statements is unaudited. The
information reflects all adjustments, consisting only of normal recurring
adjustments, that, in the opinion of management, are necessary to present a fair
statement of operations of MedQuist Inc. (the "Company"), and its consolidated
subsidiaries for the periods indicated. Results of operations for the interim
periods ended March 31, 1999 are not necessarily indicative of the results of
operations for the full year. Certain information in footnote disclosures
normally included in financial statements have been condensed or omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission.

         From 1995 through March 31, 1999, MedQuist completed 19 acquisitions,
of which 13 were accounted for as purchase transactions and six were accounted
for as pooling of interests (see Note 2). The pooling of interests transactions,
all of which occurred in 1998 and 1999, include the acquisitions of Digital
Dictation, Inc. ("DDI"), Signal Transcription Network, Inc. ("Signal"),
Transcriptions Ltd. of Florida, Inc. ("TLF") and The MRC Group, Inc. ("MRC")
which were material and required restatement of the Company's financial
statements. Accordingly, the accompanying financial statements have been
restated to reflect these acquisitions accounted for under the pooling of
interests method.

         In December 1998, the Company's board of directors approved
management's restructuring plan associated with the MRC merger. Costs associated
with the plan of approximately $6,539 have been recognized in 1998 in accordance
with Emerging Issues Task Force ("EIFT") 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity," as
follows:

         Non-cancelable leases...................................       $ 3,835
         Severance...............................................         1,618
         Non-cancelable contracts and other exist costs..........         1,086
                                                                        -------
                                                                        $ 6,539
                                                                          =====

         The plan relates primarily to the closure of several redundant customer
service centers as well as certain corporate offices in order to improve
operating efficiencies. The Company expects to complete the plan in 1999. The
severance costs are attributable to 41 individuals from various levels of
operational and senior management. As of March 31, 1999, $946 of severance had
been paid and $426 of other restructuring costs had been paid. The consolidated
balance sheet at March 31, 1999 reflects $5,168 in accrued expenses related to
the 1998 restructuring charge.








                                        4
<PAGE>


         In 1997, MRC approved a separate management plan to close and/or merge
several redundant customer service centers in order to further reduce costs and
improve operating efficiencies. The plan was completed during 1998 and included
the cost of exiting certain facilities, primarily related to non-cancelable
leases, the disposition of fixed assets and employee severance costs. Costs
associated with the plan of approximately $2,075 were recognized in 1997 in
accordance with EITF 94-3. Included in this amount was approximately $705 for
the disposal of assets and approximately $800 in severance and employee contract
buy outs. The balance was primarily related to non-cancelable lease costs. The
severance costs were attributable to eight individuals from various levels of
operational and senior management. At March 31, 1999 approximately $1,057
related to MRC's restructuring charge is included in accrued expenses.

Note 2.  Acquisitions
---------------------

         During 1998, MedQuist completed one acquisition accounted for using the
purchase method and one immaterial acquisition accounted for using the
pooling-of-interest method. Pro forma information is not presented as the
acquisitions were not material to MedQuist.

         In May 1998, MedQuist completed the acquisition of Digital Dictation,
Inc. issuing 912 shares in exchange for all DDI shares. The acquisition was
accounted for using the pooling of interests method of accounting. Accordingly,
MedQuist's historical financial statements were retroactively restated to
reflect the combination with Digital Dictation, Inc.

         In August 1998, MedQuist completed the acquisition of Signal
Transcription Network, Inc., issuing 619 shares of its common stock and
approximately $1,400 in cash to a dissenting Signal stockholder in exchange for
all Signal capital stock. The acquisition was accounted for using the pooling of
interests method of accounting. Accordingly, MedQuist's historical financial
statements have been restated to reflect the combination with Signal
Transcription Network, Inc. Signal and MedQuist elected to treat their merger as
an asset purchase for income tax purposes.










                                        5
<PAGE>



         In November 1998, MedQuist completed the acquisition of Transcriptions,
Ltd. of Florida issuing 800 shares of its common stock for all Transcriptions,
Ltd. of Florida capital stock. The acquisition was accounted for using the
pooling of interests method of accounting. Accordingly, MedQuist's consolidated
financial statements have been restated to reflect the combination with
Transcriptions Ltd. of Florida.

         On December 10, 1998, MedQuist completed the acquisition of The MRC
Group, Inc. Pursuant to the agreement, each share of MRC common stock and each
share of MRC preferred stock on as as-converted basis was exchanged for 0.5163
shares of MedQuist common stock. In total, MedQuist issued 8,662 shares of its
common stock to the former MRC option holders and options to purchase an
aggregate of 1,543 shares to the former MRC option holders. The MRC merger was
accounted for as a pooling of interests. Accordingly, MedQuist's consolidated
financial statements have been restated to reflect the merger with MRC.

         During the three months ended March 31, 1999, MedQuist completed one
immaterial acquisition accounted for using the pooling of interest method. Pro
Forma information is not presented as the acquisition is not material.

         On April 12, 1999 MedQuist signed a definitive agreement to purchase
the assets of the medical transcription unit of Lanier Professional Services,
Inc. For the Fiscal year end June 30, 1998, the medical transcription unit of
Lanier Professional Services, Inc. had revenues of approximately $25 million.
MedQuist expects to complete the acquisition in the second quarter of 1999.

Note 3.  Net Income Per Common Share
         ---------------------------

         Basic net income per share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding for the period.
Diluted net income per share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding for the period,
adjusted for the dilutive effective of common stock equivalents, which consist
of stock options, using the treasury stock method.

         The table below sets forth the reconciliation of the numerators and
denominators of the basic and diluted net income per share computations:
<TABLE>
<CAPTION>
                                                            Three Months Ended March 31,                                          
                                 ---------------------------------------------------------------------------------
                                                  1999                                       1998                           
                                 -------------------------------------      --------------------------------------
                                   Net                       Per Share       Net                        Per Share
                                 Income          Shares       Amount        Income           Shares      Amount
                                 -------         ------      ----------     ------           ------     ---------
<S>                              <C>             <C>        <C>             <C>               <C>       <C>
Basic                            $7,057          33,507        $0.21        $4,004           32,518       $0.12

Effect of dilutive
  Securities                         --           1,853        (0.01)           --            1,674         --      
                                 ------          ------        ------       ------           -------      ------


Diluted                          $7,057          35,360        $ 0.20       $4,004           34,192        $0.12
                                 ======          ------        ======       ======           ------        =====
</TABLE>








                                        6
<PAGE>




Note 4.  New Accounting Pronouncement
-------------------------------------

         In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information." This
statement establishes additional standards for segment reporting in the
financial statements and is effective for fiscal years beginning after December
15, 1997. As the Company operates in one reportable segment, SFAS No. 131 had no
effect on the Company's financial statements.

Note 5.  Shareholders' Equity
-----------------------------

         On June 15, 1998, the Company effected a two for one stock split for
all shares of common stock. All share and per share amounts have been restated
for the stock split.

         On April 29, 1999, the Securities and Exchange Commission declared
effective a registration statement relating to the sale of 4,493 shares of
MedQuist common stock at a price of $33.625 per share. Of the 4,493 shares
offered, 800 were sold by MedQuist and 3,693 were sold by existing shareholders.
The net proceeds of the 800 shares issued by MedQuist will be used for working
capital and general corporate purposes, including acquisitions.

         On May 12, 1999, the underwriters exercised the overallotment option
for the purchase of 505 shares of MedQuist's common stock at the offering price
of $33.625 per share. The net proceeds of the overallotment exercise will be
used for working capital and general corporate purposes, including acquisitions.






















                                        7
<PAGE>



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

General
-------

         We are the leading national provider of medical transcription services,
a key component in the provision of healthcare services. Our fees are based
primarily on contracted rates with our customers. We recognize revenue when we
render services and deliver reports to our customers. Cost of revenue consists
of all direct costs associated with providing transcription related services,
including payroll, telecommunications, repairs and maintenance, rent and other
direct costs. Most of our cost of revenue is variable. Selling, general and
administrative expenses include costs associated with our senior executive
management, marketing, accounting, legal and other administrative functions.
Selling, general and administrative expenses are mostly fixed, but include
certain variable components.

Results of Operations
---------------------

The following table sets forth for the periods indicated, certain financial data
in the Company's Unaudited Consolidated Statements of Operations as a percentage
of net revenue:

                                                     Three Months Ended
                                                           March 31,       
                                                     ------------------
                                                     1999          1998
                                                     ----          ----
Revenue                                             100.0%        100.0%
Costs and expenses:
  Cost of revenue...........................         75.2          77.8
  Selling, general and administrative.......          4.4           6.2
  Depreciation..............................          3.4           4.7
  Amortization of intangible assets.........          1.3           1.5
                                                     ----           ---
 Operating income...........................         15.7           9.8
Other income (expense)......................          0.1          (0.1)
                                                      ---         -----
Income before income taxes..................         15.8           9.7
Income tax provision........................          6.5           3.5
                                                      ---           ---
Net income .................................          9.3%          6.2%
                                                      ===           ===



Revenue. Revenue increased 18.4% from $63.9 million for the three months ended
March 31, 1998 to $75.7 million for the comparable 1999 period. The $11.8
million increase reflected approximately $11.4 million of additional revenues
generated from new and existing clients, and $400,000 of revenues from 1998
acquisitions accounted for a purchase transactions.

Cost of Revenue. Cost of revenue increased 14.5% from $49.7 million for the
three months ended March 31, 1998 to $56.9 million for the comparable 1999
period and was directly related to the increase in revenue. As a percentage of
revenues, cost of revenues decreased from 77.8% in the 









                                        8
<PAGE>


first quarter of 1998 to 75.2% for the comparable 1999 period. The percentage
decrease in cost of revenues primarily resulted from cost reductions associated
from eliminating excess operational administrative support areas of MedQuist and
MRC, and the consolidation of duplicative facilities.

Selling, General and Administrative. Selling, general and administrative
expenses decreased 17.5% from $4.0 million for the three months ended March 31,
1998 to $3.3 million for the comparable 1999 period. As a percentage of
revenues, selling, general and administrative expenses decreased from 6.2% in
the first quarter of 1998 to 3.4% for the comparable 1999 period. The decrease
was due primarily to administrative staff reductions made in association with
the merger with MRC, and our ability to spread the fixed portion of our overhead
over a larger revenue base.

Depreciation. Depreciation expense decreased 12.7% from $3.0 million for the
three months ended March 31, 1998 to $2.6 million for the comparable 1999
period. As a percentage of revenues, depreciation decreased from 4.7% in the
first quarter of 1998 to 3.7% for the comparable period in 1999. The decrease
resulted from certain capital assets becoming fully depreciated late in 1998.

Amortization. Amortization of intangible assets was $924,000 for the three
months ended March 31, 1998 as compared to $952,000 for the comparable 1999
period. The increase is attributable to the amortization of intangible assets
associated with the Company's acquisitions which were accounted for using the
purchase method in 1998.

Interest. We had interest expense of $65,000 for the three months ended March
31, 1998 and interest income of $84,000 for the comparable 1999 period.

Restructuring Charges. In December 1998, our board of directors approved a
restructuring plan associated with the MRC acquisition. In connection with the
plan, we recorded a $6.5 million charge, of which $3.8 million related to
non-cancelable lease obligations on duplicate facilities, $1.6 million related
to employee severance and $1.1 million related to contract cancellations and
other exist costs. We expect to complete the restructuring in 1999. As of March
31, 1999, $946,000 of the employee severance and $426,000 in other restructuring
costs had been paid. At March 31, 1999, $5.2 million was included in accrued
expenses related to the restructuring.

In 1997, MRC incurred a restructuring charge of $2.1 million related to the
closure and consolidation of less profitable or redundant client service centers
and other non-recurring acquisition and integration costs incurred in connection
with MRC's acquisition of Medical Records Corp. As of March 31, 1999, $1.1
million related to closed facility leases remained in accrued expenses.

Liquidity and Capital Resources
-------------------------------

         At March 31, 1999, we had working capital of $54.0 million, including
$23.8 million of cash and cash equivalents, and no outstanding bank debt. During
the three months ended March 31, 1999, our operating activities provided cash of
$9.7 million and during the three months ended March 31, 1998 our operating
activities provided cash of $13.0 million. The decrease is primarily due to
increased accounts receivable and less of an increase in accrued expenses,
partially offset by increased net income in 1999.




                                        9
<PAGE>




         During the three months ended March 31, 1999, we used cash for
investing activities of $2.0 million, consisting primarily of $2.3 million of
capital expenditures, partially offset by $350,000 in cash acquired in an
acquisition. During the three months ended March 31, 1998, we used cash for
investing activities of $5.4 million, consisting primarily of $3.4 million of
capital expenditures, $3.0 million for the acquisition of three transcription
businesses accounted for under the purchase method partially offset by $1.0
million in cash received from sales of short-term investments.

         During the three months ended March 31, 1999, cash provided by
financing activities was $234,000 consisting primarily of $2.1 million of debt
repayments, offset by $2.4 million in proceeds from the issuance of common
stock, including option and warrant exercises and sales in connection with
employee benefit plans. During the three months ended March 31, 1998, cash used
in financing activities was $3.9 million, consisting primarily of $4.5 million
of debt repayments, and $319,000 of shareholder distributions to former
stockholders of acquired S-corporations, offset by $925,000 in proceeds from the
issuance of common stock, including option and warrant exercises and sales in
connection with employee benefit plans.

         On April 29, 1999, the Securities and Exchange Commission declared
effective a registration statement relating to the sale of 4.5 million shares of
MedQuist common stock at a price of $33.625 per share. Of the 4.5 million shares
offered, 800,000 were sold by MedQuist and 3.7 million were sold by existing
shareholders. The net proceeds of the 800,000 shares issued by MedQuist will be
used for working capital and general corporate purposes, including acquisitions.

         On May 12, 1999, the underwriters exercised the overallotment option
for the purchase of 505,000 shares of MedQuist common stock at the offering
price of $33.625 per share. The net proceeds of the overallotment exercise will
be used for working capital and general corporate purposes, including
acquisitions.

         We have a borrowing facility with Chase Manhattan Bank. The Chase
facility provides for a $10.0 million senior unsecured revolving credit facility
expiring April 23, 2000. The Chase facility bears interest at resetting rates
selected by the Company from various alternatives. The interest rate
alternatives are either (1) the greater of (a) prime rate, (b) the federal funds
rate plus 0.5%, and (c) the bank's certificate of deposit rate plus 1%, or (2)
LIBOR plus 0.75%. The Chase facility also allows us to finance up to 100% of any
acquisitions of companies that are in the business of providing
transcriptions-related services. The financing of these acquisitions may be
carved out of the Chase facility and amortized over five-year periods (20
consecutive quarters). Each acquisition term loan that is created would
permanently reduce the remaining Chase facility commitment by a like amount.

         We can use the Chase facility for working capital and general corporate
purposes. If any amounts under the Chase facility are repaid, other than
acquisition term loans, we may reborrow such amounts. The Chase facility
includes financial and other covenants applicable to us, including limitations
on capital expenditures and dividends. As of March 31, 1999, we had no
outstanding borrowings under the Chase facility.









                                       10
<PAGE>




         We believe that cash flow generated from operations and borrowing
capacity under the Chase facility will be sufficient to meet out current working
capital and capital expenditure requirements.


Year 2000 Compliance
--------------------

         We are aware of the issues associated with the programming code in
existing computer systems as 2000 approaches. The Year 2000 problem is pervasive
and complex as virtually every computer operation will be affected in some way
by the rollover of the two digit year value to 00. The issue is whether computer
systems will recognize date sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail. We rely on our systems in operating and
monitoring all aspects of our business. We also rely on the external systems of
our customers, suppliers, telecommunication carriers, utilities and other
organizations with which we do business.

         We have approached the Year 2000 problem in the following manner:

         o Assessing, correcting and testing our internal systems;

         o Obtaining assurance or information on the state of Year 2000
           readiness of our material clients and suppliers; and

         o Developing contingency plans, when practical, to address expected
           Year 2000 failures.

         A discussion of each of these areas follows.

Internal Systems. In 1998, we conducted an assessment of our internal systems.
This assessment covered embedded computer chips, computer software, computer
hardware, telephones, communications equipment, facsimile equipment, scanners,
copiers and voice recording systems which we own and were able to identify as
critical to our ability to provide services to our clients. The assessment
identified a variety of software and hardware issues that we needed to address
to be prepared for 2000. Some of these issues include the need to:

         o upgrade or modify the BIOS (programs which allow personal computers
           to run) on some of our PCs (or replace the PC);
         o modify some of our server operating systems;
         o reset the dates or modify some of our voice capture systems;
         o modify the date fields of some of our interfaces;
         o upgrade the version level of the transcription software of some of
           our users and clients;
         o accelerate the conversion of some clients from outdated software
           applications to compliant software applications; and
         o upgrade some of the financial systems.

         June 30, 1999 is our internal target for rectifying Year 2000 issues
for all mission critical applications. From July 1 to December 31, 1999, we plan
to retest critical systems and evaluate non-critical applications for potential
Year 2000 compliance issues.









                                       11
<PAGE>



Clients and Suppliers. We also have exposure to Year 2000 problems that may be
experienced by others. These risks include the inability to exchange electronic
data and the risk of disruptions and failures of persons with whom we do
business or on whom we or our clients rely. Our business interacts with or
depends on the systems of clients, suppliers, telecommunication carriers,
utilities, vendors, financial institutions and others. If we are not able to
exchange information electronically with our clients and transcriptionists our
business may be materially impacted. For example, our business relies heavily on
telephone services. If phone service is lost, we will be unable to provide
services until phone service is restored or contingency plans can be put in
place.

         If our clients, suppliers, vendors and financial institutions are not
Year 2000 compliant, there may be a material disruption to their businesses.
These disruptions could negatively impact us in many ways, including:

         o a client may be unable to pay us;
         o a financial institution may be unable to process checks drawn on our
           bank accounts, accept deposits or process wire transfers;
         o vendor deliveries of computer equipment and other supplies may be
           delayed or cease;
         o voice and data connections we use to share information may be
           interrupted; and
         o brokers who make a market in our stock may not be able to trade our
           stock.

         This list is not comprehensive. Other interruptions to our normal
business activities may occur, the nature and extent of which we cannot foresee.
In an effort to minimize the exposure to such third party Year 2000 problems, we
have initiated a process of obtaining written assurances from these third
parties that they will be Year 2000 compliant. Based on the response we receive
from the third parties, we are identifying the associated risks to our business
and making necessary changes.

Contingency Plans. We are developing Year 2000 contingency plans where
practical. These plans address alternatives to electronic processing of medical
information, payroll, vendor payments, cash receipts from clients and
communicating without e-mail. These plans include identifying alternative
sources of goods and services and performing certain tasks manually. For
example, these contingency plans include requiring physicians to dictate into
hand held devices, delivering tapes from these devices to transcriptionists and
printing paper copies of reports to be delivered to clients.

         In some situations, however, it is impractical to have an effective
contingency plan. For example, a failure of our primary banking institution may
interrupt our cash receipts and our ability to pay our employees and vendors in
a timely manner. Our contingency plan may call for paying employees in cash, but
may not be practical due to the amount of cash involved, the number of locations
and the number of individuals to be paid. The number of Year 2000 failures we
suffer may exceed our ability to address them all at one time. In addition,
significant Year 2000 failures by third parties, including clients, may
jeopardize our financial strength. In severe circumstances, our ability to
continue as a going concern may be threatened or we may fail. We believe,
however,







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<PAGE>


that we are taking reasonable and prudent steps to address the Year 2000 problem
based on information currently available to us. We will continue to monitor this
issue and plan to modify our approach if we believe the circumstances warrant 
such a change.

         Based on the information available to date, we expect to incur
approximately $200,000 in expense to correct operational problems such as BIOS
fixes. We also believe we will incur approximately $1.2 million to replace and
upgrade voice capture systems, which will be capitalized and depreciated over
their estimated useful lives of five years.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

         We generally do not use derivative financial instruments in our
investment portfolio. We make investments in instruments that meet credit
quality standards, as specified in our investment policy guidelines; the policy
also limits the amount of credit exposure to any one issue, and type of
instrument. We do not expect any material loss with respect to our investment
portfolio.

         The following table provides information about our investment portfolio
at March 31, 1999. For investment securities, the table presents principal
amounts and related weighted average interest rates (dollars in thousands).

Cash and cash equivalents                   $23,849
  Average interest rate                         4.0%
Warrant investment                         $    900
  Average interest rate                        ---
Total portfolio                             $24,749
  Weighted average interest rate                3.8%

The majority of our debt obligations were repaid in February 1998. Remaining
obligations consist primarily of relatively insignificant capital lease
obligations that mature through 2002.







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<PAGE>





Special Note Concerning Forward Looking Statements
--------------------------------------------------

         Some of the information in this Form 10-Q contains forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act. These statements include forward-looking
language such as "will likely result," "may," "are expected to," "is
anticipated," "estimated," "projected," "intends to," or other similar words.
Our actual results are likely to differ, and could differ materially, from the
results expressed in, or implied by, these forward-looking statements. There are
many factors that could cause these forward-looking statements to be incorrect,
including but not limited to the following risks: risks associated with (1) our
ability to recruit and retain qualified transcriptionists; (2) acquisitions; (3)
dependence on our senior management team; (4) the impact of new services or
products on the demand for our services; (5) our dependence on a single line of
business; (6) our ability to expand our customer base; (7) our ability to
maintain our current growth rate in revenue and earnings; (8) the volatility of
our stock price; (9) our ability to compete with others; (10) changes in law
infringement on the proprietary rights of others; (12) our failure to comply
with confidentiality requirements; (13) our customers' and suppliers' failure to
be Year 2000 compliant; and (14) our various anti-takeover protections. When
considering these forward-looking statements, you should keep in mind these risk
factors and other cautionary statements in this prospectus, and should recognize
that those forward-looking statements speak only as of the date made. MedQuist
does not undertake any obligation to update any forward-looking statement
included in this Form 10-Q.



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<PAGE>


                           Part II - Other Information
                           ---------------------------


Item 1. - Legal Proceedings                                     - Not Applicable

Item 2. - Changes in Securities and Use of Proceeds             - Not Applicable

Item 3. - Default upon Senior Securities                        - Not Applicable

Item 4. - Submission of Matters to a Vote of Security Holders   - Not Applicable

Item 5. - Other Information                                      -Not Applicable

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

          Exhibits:

             Financial Data Schedule                                        27.0

             Reports on Form 8-K were filed on the following dates
             during the quarter for which this report is filed:


          File Date         Item Reported
          ---------         -------------

          March 25, 1999    Filing of registration statement on Form S-3

          March 1, 1999     Filing of supplemental consolidated financial
                            statements relating to acquisition of The MRC Group,
                            Inc. and Transcriptions, Ltd. of Florida, Inc.






                                       15
<PAGE>

                                    SIGNATURE

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, thereunto duly authorized.


                                                    MedQuist Inc.
                                                    Registrant

Date: May 13, 1999
                                                    By:  /s/ John R. Emery     
                                                         -----------------------
                                                         John R. Emery
                                                         Chief Financial Officer


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